The R-Word and the Future of the Economy

This is a guest post by Sean D. Jasso, PhD, practitioner faculty of economics.

The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.

~ Peter F. Drucker

The big question on the minds of most people is: What is the future of the economy?

The answer is not always found in the news—today’s journalism is often polarized, biased, or not focused on reporting the story, but rather on enhancing a perspective of the story for the benefit of a targeted audience. For example, for several months economists, journalists, and politicians alike have hesitated on how to characterize the state of the economy.

These so-called experts are afraid of saying the r-word, most often associated with recession, or, correctly defined, a contracting economy. Any astute observer can see that the economy is contracting in certain industries while also growing in many others. This ebb and flow is nothing new and since World War …

Why Did Subprime Loans Become Such a Big Deal?

This is a guest post by Abraham Park, PhD, practitioner faculty of finance.

Intelligent people, including my wife, have been asking me questions about the subprime mortgage crisis. The point that seems to stump them is why a relatively small percentage of subprime mortgage defaults has led to a spiraling national credit crisis, how it happened, and where do we go from here. They were good questions, and if you are wondering the same thing, read on…

So what’s the deal with the subprime mortgage meltdown?

Well, imagine that the markets involved are analogous to a house with three stories. Each of the floors represent an industry related to the housing market and each of the upper stories are dependent on the one right below it.

The first floor represents the primary mortgage market (homeowners and their banks or mortgage lenders)

The second level represents the …

California Greening: Boom or Bust?

Owen P. Hall, Jr., PE, PhD, is Editor-in-Chief of the Graziadio Business Report and a professor of decision and information systems at the Graziadio School of Business and Management.

The ongoing dust-up about global warming has brought front and center a number of new opportunities and threats to California’s currently fragile economy. Whether man-made global warming is real or not, the debate is having a growing impact on business. California’s influence, as is the case with many issues, is at the forefront. The Golden State’s Greenhouse Gas (GHG) initiative is receiving worldwide attention. One goal of this initiative is to cut industrial CO2 emissions by 25 percent by 2020.[1]

As a follow-up to the GHG initiative, the state of California sued six major automobile manufacturers for contributing to the global warming crisis by specifically failing to cut car and truck exhaust emissions.[2] Not resting on its laurels, the state followed up with a lawsuit against the U.S. Environmental Protection Agency for failing to act on California’s new limits on greenhouse …

New issue of GBR launched this week!!!

The latest issue of the Graziadio Business Report is now online at
http://gbr.pepperdine.edu.

(Click on the links below to access individual articles)

High CEO Pay Could Draw Renewed Attention in Election Year

Whether justified or not, the corporate world is offering a likely target for criticism: very large pay packages for chief executive officers and other top executives.

By Larry Bumgardner, JD

High pay for good performance at successful companies draws some scrutiny. But especially infuriating to average-paid workers and investors, not to mention politicians, are huge severance packages paid to CEOs who have been forced out for poor performance.

Commercial Banking and Treasury Management in Mexico

How significant changes in the Mexican financial sector are impacting U.S.-Mexico business transactions.

By Dubos J. Masson, PhD, CTP, Cert ICM

Mexico is a key trading partner with the United States and …

How to Protect Your Business From Customers

This is a guest post by Tim Berry, GBR Editorial Review Board member and President of Palo Alto Software

What? You say, reading my title here. Why would I want to? Here’s a question I received in the www.bplans.com Ask the Experts forum today:
My business sells window coverings and recently got taken by a client who decided to forgo paying for the balance due for product that was installed in his home. We often deal in large-value custom orders and need to protect ourselves in the future. What kind of agreement or contract can we use, and were can we find an example of something that will hold up in court? Should we use a lien agreement?
Ok wait. Let’s talk about this. Have you considered the impact on your business of asking all your customers to sign something like that? You’re selling window coverings. You have competition.

You just reminded me of my post last month The Heat, the Kitchen, and Credit Cards. I was mad at a customer who stole from us, and customer service for the credit card helped me out.

The active point in that was about the heat and the kitchen. You’re in business. You’re dealing with customers.

You have to decide whether the occasional bad apple is worth baking all of the apples as they come in.

Here’s a good exercise:

Businesses Pay for Lack of Customer Service

Nancy Dodd, MPW, MFA, is editor of the Graziadio Business Report and an adjunct professor of screenwriting.

Customer service has been on my mind lately, or I should say a lack thereof. Business executives budget fortunes to figure out how to attract customers while the customers they lose out the front door go unnoticed. It seems that one of the best budget expenditures a company could make would be to train their employees on how to treat customers.

For example, I moved to a new neighborhood and on the way home was fortuitously placed a grocery store from a large chain that I thought would be ideal for me to stop at to buy a few groceries. Now even though this wasn’t a prime area, it was on a busy street and it is a major grocery chain. I made my way through the panhandlers and into the store, did my shopping and went to the checkout stand. The lady in front of me was buying a fifth of some sort of liquor that she thought was on sale. The lady and the cashier got into an argument over the price of the bottle—I distracted myself with magazines on the newsstand. The lady moved on—I didn’t notice whether she left with or without her purchase—and my transaction began. Another employee, who I took to be a supervisor, walked up to the cashier and told her, “That lady called you a ‘b—-’” [I didn't hear the word clearly]. The cashier was incensed. The supervisor nodded, sighed as though her job was such a burden, and said, “Go ahead.” The cashier left in the middle of my transaction and went after the lady to do who knows what, leaving me standing there with my mouth open, while the supervisor took over the transaction. It just seemed wrong on so many levels. No, I didn’t continue to shop there. I drive way out of my way to another store from another chain. Granted this is an extreme case of bad customer service.

Dream to Nightmare: Who Should Pay for the Housing Disaster?

This is a guest post by Peggy Crawford, PhD, Professor of Finance, and Terry Young, PhD, Professor of Economics

The housing saga continues. The hope of “owning a piece of the American dream” is becoming a nightmare for some home buyers. While optimists argue that the “worst” is over as they cling to any sign of positive news, such as the slight upturn in sales of existing homes in February, others call for the government to come to our rescue and save homeowners by declaring a moratorium on foreclosures or “encouraging” financial institutions to renegotiate loan terms. Meanwhile, the Federal Reserve continues to cut interest rates (sometimes dramatically) hoping to ease the pain for some as interest rates reset on their mortgages and to spur activity in the sagging economy.

Have housing prices stopped plummeting? The experts disagree, but Business Week states that home prices could decline by another 25 percent over the next 2 or 3 years, returning the values to their 2000 levels in inflation-adjusted terms.

What can we expect? Like any market, the housing market is based on economic fundamentals of demand and supply. In general, housing prices are inversely related to interest rates. Now, both interest rates and housing prices are falling at the same time.

So, why aren’t sales increasing? Things have changed.

First, lenders are scrutinizing borrowers more carefully. No/low down payments are disappearing and no documented income is a thing of the past—at least for the time being. And second, potential buyers hear the news and are waiting for prices to fall further. On the other hand, some potential sellers are still in denial that the value of their property is decreasing not increasing.

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Ideas vs. Opportunities

This is a guest post by Tim Berry, GBR Editorial Review Board member and President of Palo Alto Software

Ideas are a dime a dozen. Opportunities are much more important. An opportunity is an idea that’s passed the test of planning. It has potential. You can implement it. An opportunity has some of the following elements:

Industry and market potential: look at market structure, industry structure, growth rate, margins, costs, etc.
Economics: capital requirements, fixed costs, cash flow, return on investment, risk.
Competitive advantage: degree of control, barriers to entry, availability of sufficient resources.
Management team: people who know the industry, the market, the operations, the logistics, the road to market.

The business planning process is about filtering the opportunities—a precious few, requiring focus, and planning—from the ideas.

What Price Neurotic Managers?

This is a guest post by Kurt Motamedi, PhD, Professor of Strategy and Leadership

Managers are critical resources for national and global economic and social prosperity. They play a significant role in setting direction, executing strategies, and creating success. Their styles, along with their other competencies, impact the productivity and well-being of their employees, peers, superiors, and consequently firms.

Our observations lead us to categorize four managerial styles at work:

Type I: Champion, produces great business success and aspires and maintains high levels of morale and well-being.
Type II: Driver, produces business success, but inflict human costs and lower well-being.
Type III: Lenient, produces questionable results with high, but short-lived morale.
Type IV: Negligent, neither provides great business results nor satisfied employees