Almost always this hype is driven by the company in question duchessing a few key “opinion leaders” in the tech, social media or other circles. These folk start writing up this product and, if they are lucky, the stories get picked up by the broader media and the product becomes “hot.”

The aim is to find the greater fools, for the investors and founders of these business they want to cash out by selling the operation to a bigger entity.

When you read the hype about the latest user generated, online sharing social media service that’s growing at a remarkable rate be aware you’re actually seeing a pitch to a big company being framed along the lines that “you can’t afford to miss out.”

By all means sign up to the service to have a look but don’t buy the hype and remember you’re not the customer – the gullible big business manager looking for the next big thing is.

Image courtesy of Blary54 through sxh.hu

For all his legitimate concerns about Woolworth’s growth model, Dick Smith is wrong about the sale of the stores. It’s almost essential for Australian consumers and business that the chain is sold to a foreign retailer.

When Dick sold his business to Woolworths in the early 1980s it was the beginning of a long consolidation process across Australian industry that now sees most business sectors dominated by duopolies or – at best – three or four incumbents.

In retail, the Coles and Woolworths duopoly dominates groceries, liquor and petrol. The power of these companies was illustrated yesterday with Coles’ announcement of price cuts to various greengrocery lines.

Having a new player enter the market is always an improvement; in neighbourhoods where foreign retailers like Costco and Aldi operate or where a keen, smaller operator decides to compete with the big boys the response is always better prices and service.

More importantly bringing in overseas owners will bring in fresh thinking and new ideas. New blood in the retail sector may even stem the brain drain where many young, innovative future business leaders are forced overseas because of the limited opportunities in the incumbent duopolies.

Where Dick is right is that the electronics retail business is dying as fat profits in the sector are a distant memory in what is now a tight margin, fast moving consumer goods industry. To make things worse, consumer electronics aren’t even fast moving in the post GFC economy.

Adding to the retailer’s pain the collapse in margins has happened at the same time commercial rents have risen dramatically with Sydney now being cited alongside Hong Kong, London and New York as the world’s costliest shopping strips.

While suburban shopping centres don’t have the same rents as the Pitt or Bourke Street Malls, they still have risen dramatically in the last decade, catching all retailers in a vice between rising costs and falling margins.

In order to maintain profits, training and staff development have been slashed. Once up a time, a customer would go to a Dick Smith or Harvey Norman store to get informed advice on the best gadget, those days are also long gone as poorly trained staff fight to sell the products with the best commissions.

Owners of the stores have made it harder to recruit and train motivated staff when employer consider hospitality and retail jobs to be temporary, low esteem positions with few prospects.

This deskilling isn’t just an issue for the retail industry – it’s something we’ve seen across the Australian economy in the last thirty years. As training and skills development has been seen as an unnecessary business cost.

Tourism Australia chairman Geoff Dixon’s recent comments about the Australian tourist industry having to accept being a high cost destination is a symptom of this disconnect. The local tourism industry has no chance of moving up the value chain when there is no service culture among staff and no long term management vision to develop one.

It would be unfair to just pick on any one individual or business for these problems. We have a structural problem in the Australian economy that’s fuelled by entrenched beliefs and habits of a stagnant senior managerial class.

We desperately need new people and ideas in Australian management to shake up the staid duopolies and oligopolies we’ve allowed to develop in the last three decades, that’s why Dick Smith is wrong to say a foreign owner for the electronics chain he founded would be bad for the country.

Image courtesy of Icelandit on SXC.hu

Woolworths’ announcement earlier this week they are exiting the Dick Smith Electronics business ends an interesting study in how a business can evolve as their industry changes.

In the thirty years since Dick Smith sold a stake in his business to Woolworths – a few years later they bought out the rest of Dick’s equity – the electronics retail business has changed immensely.

At the beginning of the 1980s, the CB radio boom that had fuelled the growth of stores like Dick Smith Electronics was coming to an end, as was the hobbyist industry which supplied those building their own computers and other electronic devices.

In the US, the hobbyist industry included people like Paul Allen and Bill Gates – who founded Microsoft – along with Steve Wozniak and Steve Jobs, the founders of Apple Computers. Both of these companies had a lot to do with the growth of the DSE business later.

While those two industries were fading at the time Woolies bought the chain, the availability of consumer electronics was taking off as Video Cassette Recorders, car hi-fi and, later, CD players started entering the market.

At the time these were high margin items so the transition from a hobbyist store to consumer electronics chain was a lucrative move for Woolworths – something helped by Dick Smith’s penchant for publicity even though he was no longer with the store.

Eventually the steam ran out of the early wave of consumer electronics but in the mid 1990s the PC revolution took off which allowed Dick Smith Electronics to diversify again.

As personal computers were taking off, so too did the next wave of consumer technology, particularly in mobile phones, games and big screen TVs which initially had big, fat margins.

Over time, these margins began to fade as prices dropped but for Woolworths this wasn’t a problem as the beginning of the 2000s saw an explosion of easy consumer credit, allowing stores to move more products to willing consumers.

Very quickly, the consumer electronics industry became more like the low margin, high volume FMCG – Fast Moving Consumer Goods – sector that is Woolworths’ core business.

The global financial crisis heralded the end of the credit boom and now cautious, credit shy householders meant consumer electronics were no longer fast moving.

Dick Smith Electronics aren’t the only chain affected by this, Harvey Norman are suffering the same way and in the United States Best Buy and Radio Shack are in desperate straits for the same reasons.

Making things tougher for Australian retailers are store rents that are among the highest in the world. Woolworths’ decision to shut down a third of the Dick Smith outlets is a wise move as many of those stores probably have lease renewals pending.

Woolworths has done well from Dick Smith Electronics over a quarter century as the consumer electronics industry has evolved. Their story is a great example of how a business can adapt in a changing sector.

Hopefully Woolies will find a motivated buyer – one hopes not one of the clueless private equity asset strippers that have destroyed so many other retail icons in recent years.

Perhaps we’ll see a buyer who can steer the business well into the phase of consumer electronics retailing with some innovative and fresh thinking that the Australian retail sector needs right now.

Sports broadcasting rights were invented.

In the 1970s, sports administrators resisted live TV coverage of games because it would affect their revenue.

Sports broadcasting rights became lucrative.

In the 1980s, sports administrators claimed TV viewers using video recorders would affect their revenue.

Sports broadcasting rights became more lucrative.

In the 1990s, sports administrators worried cable and satellite TV would affect their revenue.

Sports broadcasting rights soared.

In the 2000s, sports administrators warned the Internet would affect their revenue.

Sports broadcasting rights soared further.

In 2012, sports administrators shout that cloud computing services will affect their revenue…….

Photo courtesy of mzacha on SXC.hu

Having dwelt on this for a while, I went to write something about how this company had blown wonderful opportunities competing against a stodgy incumbent which had been given the opportunity to re-invent itself partly because of a new generation of smart, dynamic managers.

Then a little voice said “no, they’ll never invite you back; the mark of epically incompetent management is holding permanent grudges for pointing out their failures.”

So I didn’t write it.

In one way it doesn’t matter; much of what ails the Western world’s business communities is how a culture of managerial incompetence has been allowed to develop.

Almost everyone knows individuals who waddle from corporate disaster to debacle yet, despite causing the destruction of great slabs of shareholder value, move onto to higher positions and better paid jobs.

Some even get invited back to companies they’ve previously trashed.

We know who those people are; boards and big shareholders know who they are, yet they’ll still get hired.

Which is why its best not to upset them too much. For the moment, history is on their side.

Many of the people contributing for free have given up their day jobs to do so. If you asked them why, I’m sure many would say they were sick of restrictive rules, anal retentive bosses and generally feeling suffocated by a big organisation.

Yet now they are subject to a bunch of rules arbitrarily enforced by anonymous and unaccountable bureaucrats running social media or cloud computing services.

So why on Earth are you doing the same thing for free? At least when you’re in a cubicle you’re getting paid for dealing with idiots.

The offer was Jeff, who is a builder, would donate his company’s work to a television home improvement show and in return Jeff’s business would get a mention in the credits as well as some coverage in the program.

Jeff agreed, had new t-shirts for his labourers printed and they did three days work helping celebrity gardeners refurbish a backyard.

The guys had a ball, the labourers chatted up the presenter and the pretty production assistants and for a day or so Jeff felt like he was in Hollywood.

A few weeks later the show went to air – there were a couple of glimpses of Jeff’s guys doing stuff and if you were quick with the freeze button you could pick out part of Jeff’s business name and phone number.

When the show finished, Jeff’s business appeared for a split second which was difficult to read if you were lightning fast with the remote control. Not a great return for several thousand dollars of labour and materials.

That was an expensive lesson for Jeff.

Recently I heard of a business that was asked to contribute some of products to a newspaper – they wanted an ongoing commitment that would cost the business quite a bit of money.

For the newspaper this is a great deal – they tie in a promotion for their readers that costs them nothing. The business is left out of pocket with little upside except for some “exposure” of dubious value.

We see this repeated every day by dozens of businesses being seduced into offering fat discounts for group buying sites. The salesman’s spiel is that a prominent offer will get exposure on their email that goes out to thousands of people.

Most of these promises are nonsense; giving away your time or work for free is the most expensive thing a business can do and if it’s going to work it has to be part of a strategic plan.

It’s been said all publicity is good publicity, but that’s not really true if there’s no return on a substantial effort.

Blindly giving things away in the hope of getting some free publicity isn’t a good business practice and those who urge you to do so aren’t acting your best interests as Jeff learned.

The response was usually along the lines of there are a billion Chinese and if only one percent can afford these products then that’s a huge market.

Over the years since we’ve seen consumer brands pour into China only to find the markets for Western style consumer goods aren’t what they expected. Many have left with their tails between their legs.

The New York Times looked at this in their weekend story “Come On China, Buy our Stuff.”

What many misunderstand is that while there are some millions of well heeled Chinese who can afford a Rolex, the vast majority simply cannot afford a Western style consumer lifestyle.

The average Chinese income in 2010 was $4,270 per person according to the World Bank. For the United States, average income was over ten times China’s at $47,000. The average across the Europe Union is just over $32,000. India’s was only $1,330.

So any business selling into the PRC expecting to find a consumer society like those of Northern Europe, Japan, the United States or Australia’s is in for a disappointing experience. Chinese households have neither the income or access to the credit lines that drove the Western consumerist societies over the last thirty years.

For economists hoping that Chinese and Indian workers can pick up the world economy’s slack by becoming consumers on a level similar to European and US workers, they are deluded; this is at least a generation away.

According to the Nation Master web site, the US had a similar average income to what China’s current levels in 1900. While there are clearly some differences in measures, we can say today’s Chinese workers are – in wealth terms – around a century behind their US colleagues.

It may take a century for Chinese workers to catch up with Europe and North America, but it won’t happen as quickly as businesses and economists hope.

Those hoping China will take up the slack left from the excesses of the 20th Century credit boom are going to have to look for a plan B. It may be up to the rest of us to find what’s going to drive the world economy for the next twenty years.

That one business owner is making a choice that software developers, newpaper chains, school text book publishers and many other fields are going to have to make in the next year – which camp are they going to join in the Internet’s cold war.

As the web matures, we’re seeing four big empires develop – Google, Apple, Facebook and Amazon which are going to demand organisations and consumers make a choice on who they will align with.

That decision is going to be painful for a lot of business; each empire is going to take a cut in one way or another with Apple’s iStore charges being the most obvious.

For those who choose to go the non-aligned path – develop in HTML5 and other open web standards things will be rocky and sometimes tough. At least those on the open net won’t have to contend with a “business partner” whose objectives may often be different to their own.

Over time, we’ll see the winners and losers but for the moment businesses, particularly big corporations and publishers should have no doubt that the choices they make today on things as seemingly trivial things like reader comments may have serious ramifications in a few years time.

Consumers aren’t immune from this either; those purchases through iTunes, Amazon or Google are often locked to that service for a reason.

Probably the development that we should watch closest right now is Apple’s push into education publishing; those governments, universities and schools that lock into the iPad platform are making a commitment on behalf of tax payers, faculty and students that will affect all of them for many years.

For many, it might be worthwhile hedging the bets and sticking to open standards. A decision to join one or two of the big Internet empires is something that shouldn’t be made lightly.

While much of the commentary on the article has – correctly – focused on how US manufacturing move to China is destroying the economic bases of the American working and middle classes, there’s also another serious consequence of the story; the destruction of the US supply chain.

The story itself emphasised this;

In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

While wage costs are important, far more critical are the surrounding supply chains. Without those, even if you want to manufacture in the US or anywhere else you’ll struggle to find suppliers and skilled labour.

The amazing thing with the United States is the world’s most powerful economy has managed to dismantle most of their supply chains that took a century to develop inside twenty years whil China has built up most of theirs since they joined the World Trade Organisation in 2001.

For the United States economy, the effects are more subtle and dramatic than they first appear. The accompanying video to their story illustrates how the multiplier effect, the number of jobs created in the wider economy for each industry worker is as much 4.7 for a manufacturing job, while a service sector worker is less than 1.

That means less employment and less wealth.

For the US, and most the Western world, we were able to avoid the effects of becoming less wealthy over the last decade by spending big on credit cards. Homes that would have been out of reach to the average American – or Australian, Brit or Irishman – were kept accessible by easy, cheap credit.

As that credit dries up with the end of the Twentieth Century debt supercycle, the economic basis of this model is eroding.

For most of us in the Western, developed world it means we are going to become poorer. Chinese and Indian workers might catch up with our living standards, but that standard will be at a lower level that we anticipated a decade or two ago.

The most interesting consequence of the New York Times’ story is what happens to the managerial classes?

Right now they appear to be riding high as their companies’ profits increase and they award themselves trips to the Paris Ritz and receive 50 million dollar payouts when caught cheating on their expenses.

Over time though this cannot continue as the senior managers themselves have become major cost centres which will eventually have to be reduced.

Indeed Apple, the leader in the outsourcing trend, is unique among US companies in that it had a driven, visionary leader and doesn’t have a bloated, self indulgent cohort of bureaucrats managing the business.

With every stage of the deskilling of America and the offshoring of supply chains, there’s been the belief that “it could happen to me” to various groups of workers – we’re now seeing the same process happen in white collar professions like the law are subcontracted to Indian and Philipino service providers.

Senior managers should have no illusions the same will happen to them as the search for cost savings runs out of targets in the rest of organisations.

The biggest problem though is that loss of supply chains and industry knowledge. The question is, can you rebuild that capacity in decade in the way China did?

Supply company image courtesy of Stock Xchange and Andy McMillan.