Human Capital Matters

As anyone with studies in Economics know, there are 3 factors of
production: Capital, Land and Labour, in more recent versions of such concepts
the word “human capital” is included considering an upgrading labour skill able
to produce a much higher productivity, in short is a way to resume any
productive enterprise.

The concepts above returned to my mind as i talked about business with a
fashion designer, while complaining the lack of help/subsidies by the
government and how poor is the quality of the local fabrics as more designers
were betting about how advances in technology allowed creating “smart
collections”.

The flow of the conversation made me think how really is needed for any
kind of entrepreneurial project a manager or a corporate economist, as i found
lack of substance about his complains, I spent the next hour crafting several
possibilities from prices ranges for raw materials to Points Of Sales (POS).

Several successful companies appeared in the traditional clothing
sector, incredibly Inditex is one of them a company born in a country with
stiff labour laws, hungry for imports and high wages, the same could be said
about H&M or Uniqlo which boast more or less the same business model, but
also more local firms could be set as an standard.

Monster and NaCo turned in to household names when their products became
ubiquitous amongst lower and middle class in Mexico, using plain cheap bulk low
grade shirts to print original messages/graphics, this allowed the companies to
develop product rather fast with prices so low that even teens could afford a
new shirt every week, eventually this firms were able to reinvest their profits
in to building a bigger range of products.

Ironically these efforts were led by graphic designers using bulk plain
shirts as templates, as I told to my friend, unfortunately fashion designers
dream in art, a wearable art with fat price sticks, not in to developing volume
street wear with innovative twists, with a moderate prices that could be able
to sustain volumes large enough to build a profitable brand.

On that tone, Asos a British online retailer and listed on the FTSE-100
hides a very interesting business model, I could say it’s a bit like a fashion
supermarket, offers lot of well known brands both local and European such as
the Danish firm Humor, but also part of their offering comes from their own
brand delivering a good balance in quality, style and price, sometimes notably
inspired on garments several times the price, or on the styling from British
stars, Asos build a very successful business along this lines, while their own
brand supports sales volume and web traffic at the same time, distributing
brands such Alexander McQueen, Ben Sherman and Humor allows the company to
boost profitability and keep cachet.

At the end of the conversation my friend turned more upbeat about the
possibilities laying around and how is needed to balance a lot of factors
before build a clothing brand, understanding after all that not everything can
be high end and command high prices, if fashion is to be change, is the street
wear the place were more chances do exist to build a profitable business.

At the end again all comes how you mix the production factors and which
human capital mix is better to craft a viable business, in this case fashion
designing meeting financial and corporate know-how.

The Corporate Rider and Beyond

Between the Great Depression and the late 1950´s the stock market became a bit of a “no go zone” deemed to insecure and volatile, yet after the post-war bonanza and much prosperity investors began to seek higher returns in the stock market.

This is the setting of “The Mayfair Set” a British documentary in 4 parts covering from the rise of the first corporate riders in Britain back in the 1960’s, until de 80’s wall street junk bond market and 90’s British shifting politics, this series may seem to show how this events seem to be linked, but there is also a bigger
picture.

The documentary help me to expand my view over the 80’s boom, by  linking seemingly unrelated events, for example the drop on risk aversion to investment at the stock market, and how this was used to restructure full industries, as we know specialization was unheard among companies in the post war period (like
Japanese companies this days) as most of the large companies were vast industrial empires spread along several numerous industries employing large number of people mainly in manufacturing, this holdings were controlled by powerful people who allowed to direct the economy along cozy links with the government, this allowed to follow national development plans with the private sector this was true in a number of developed countries and several developing ones as the concentration of industries were much higher.

These industrial behemoths were able to reap a large amount of incomes right from the multiple products they offered and their distribution channels but were poorly managed and not quite efficient, by the late 70’s after the oil embargo this figures in the economic model began to suffer a lot this lack of efficiency
despite counting with a very successful business, the lagging ones became a drag to the financial results and restraining quality improvements, in the western world the rise of the Japanese companies didn´t helped too.

The paper of the corporate riders at their time was to inject new strength in to the industries by disposing the unprofitable areas of the companies; this allowed me to understand the real reasons of something I learned at my school classes when the companies became focused in few products or services, in this sense
the corporate rider allowed the companies to become more focused on a narrower set of good where their results and profits were better.

In the bigger picture these leaner, meaner companies boosted results, profits thus lifting price shares making attractive to invest on shares, deregulation played it´s part to make more attractive the selloff of  unprofitable assets further acquired from other firms seeking value from distressed assets, this kind of
transactions changed the industrial landscape, but also explain why the tight knit  stock ownership between companies actually protecting the firms from takeovers, this business model is more or less the rule across Asia, this kind of structure have been more suited to the economic “dirigisme” followed in Asia and being kept to sustain a domestic led industrialization.

At the end this documentary allowed me to link the dots and understand more broadly from the industrial-financial sense, and how the actual globalization phenomenon began to develop, also draws clearer path of where it´s going.