In The Headlines
Companies Prepare for the Opening of Iran
The third-largest economy in the Middle East has a young, educated populace ready to spend. But U.S. businesses will face big hurdles in the country—if they can get there at all. The nuclear deal that the U.S. and Europe signed with Iran on July 14 could slowly phase out many economic sanctions, finally allowing Western companies to sell their wares in the country and unleashing one of the world’s largest untapped markets for Western business.
Iran’s $406 billion economy offers immense opportunity. It is home to 78 million people, many of whom are young, educated, and well-traveled, with money to spend. Already some believe there are 6.5 million iPhones in circulation, even though Apple is barred from selling products directly in Iran.
In many industries, embargoes have contributed to what amounts to 36 years of pent-up demand. Iran’s national airline has planes that are on average 23 years old, and officials say they plan to spend $20 billion on 400 new aircraft over the next decade—good news for Boeing, which already provides parts and maintenance under a special permit. There are few major international hotel chains or car dealerships in Iran, which has hospitality executives and automakers salivating. And Iranian officials say they intend to invest billions in upgrading creaky oil and gas facilities. Iran says it needs $230 billion worth of upgrades to its energy facilities, which could be good news for companies such as Schlumberger and Halliburton.
“There is not a single week when we don’t host at least one or two foreign delegations,” says Ramin Rabii, who hankered for a McDonald’s store as a teenager and is now CEO of Tehran investment firm Turquoise Partners. “They all say they want to be the first in Iran,” he says. That seems unlikely for most U.S. companies. The new deal still faces a bumpy path to approval in Washington D.C., and even if it is approved, sanctions related to human rights abuses—rather than nuclear weapons—will remain in place. The big change will be Treasury allowances for foreign subsidiaries of U.S.-owned companies, as well as products related to aviation, food, and medicine.
European competitors, by contrast, look set to sign major deals quickly. Mercedes-Benz, Peugeot, and Renault have announced plans this summer to start selling to Iran’s huge auto market, with which they already have deep ties (Iran was Peugeot’s biggest market outside France until 2011). And French hotel chain Accor is set to open a hotel later this year.
Once U.S. businesses arrive they will still face major challenges. Global risk consultant Verisk Maplecroft warned clients of Iran’s “cumbersome and bloated bureaucracy as well as high levels of political interference.” It also cautions that conflict could flare between Iran’s increasingly wired, savvy youth and the powerful clerics who run the country. Yet for all that, in late July McDonald’s posted a notice seeking franchise partners for Iran, looking for those with “high integrity,” experience, and a record of success.
There will, however, be some losers following the lifting of trade sanctions against Iran. For example, Chinese manufacturers. China-Iran trade was $44 billion in 2014, but Chinese companies could soon be sharing their captive market with Western competitors. Iran aims to double its oil exports, which could drive down global prices and hit Russia particularly hard in its key markets of Asia and Europe. And pistachio growers in California have benefited from sanctions, but Iranian farmers are preparing for a big return to the market.
Citations
1. http://for.tn/1NGIz0W – Fortune
2. http://nyti.ms/1JKkzoA – NY Times
China Invades Hollywood
Alibaba’s Jack Ma, China’s second-richest person, made headlines last year when he visited Hollywood looking for deals. One result of the trip surfaced this summer in the form of the Paramount Pictures hit Mission: Impossible—Rogue Nation. Alibaba Pictures Group invested in the feature, which has generated $479 million in global box office, and got the rights to sell merchandise and tickets to its 367 million customers in China when the film opens there.
The deal with Viacom’s Paramount is one of more than a half-dozen in the past year between U.S. studios and Chinese companies that are quickly putting down roots in Hollywood. Alibaba, Dalian Wanda Group, Huayi Brothers Media, and others want to funnel films through their media outlets at home, as well as deepen their understanding of the lucrative business. “China is trying to learn why Hollywood is so successful,” says Stanley Rosen, a University of Southern California political science professor who studies the relationship between the mainland and the U.S. film industry. China, he says, wants to master the business “from the bottom up.” Hollywood is happy to help. It needs the cash plus access to theaters in China, where the government limits the number of imported movies and controls how they are released. Such connections are crucial since China, projected to overtake the U.S. in box-office receipts by 2020, accounted for most of the growth in global movie ticket sales last year.
China’s would-be moguls hope to use stronger Hollywood ties as a way to make even more money off entertainment. When Mission: Impossible opens there, Alibaba will sell tickets online through its Taobao Movie unit, one of the country’s major ticketing platforms, which offers advance seat selection. People can pay using Alipay, Alibaba’s version of PayPal. The company also is planning to build China’s answer to Netflix and HBO, via a new service called Tmall Box Office. Alibaba acquired a company called ChinaVision Media Group in 2014 to help it enter the business and renamed it Alibaba Pictures. The company sold $1.6 billion in stock in June. Alibaba Pictures shouldered an undisclosed portion of the $150 million cost of making Mission: Impossible and said it is looking for more ways to invest in Hollywood. State-backed China Movie Channel also invested in the spy picture, saying it would promote the film and sell tickets online. In a first for U.S. audiences, the names of both Chinese companies were displayed in the opening credits of the movie, following the century-old practice of studios like Paramount.
People close to Alibaba say Ma’s strategy is to invest in specific films, rather than in studios. But real estate mogul Wang Jianlin, China’s richest man, is making bigger bets on infrastructure. Wang’s Dalian Wanda Group operates the world’s largest chain of movie theaters and is building the planet’s biggest studio theme park, Qingdao Oriental Movie Metropolis, on the coast of Shandong province. Wanda controls the No. 2 U.S. theater chain, AMC Entertainment Holdings, and last year bought land in Beverly Hills, where it plans to erect a $1.2 billion complex it calls its “first important step into Hollywood.” Wanda, which footed the entire production cost of Southpaw, the summer release from Weinstein Co., also donated $20 million to a museum being built in Los Angeles by the motion picture academy that awards the Oscars; its film history gallery will be named after Wanda. Wang, who’s talked of buying stakes in studios Lionsgate and Metro-Goldwyn-Mayer, wants to control 20 percent of the global film market by 2020.
Over the past year, U.S. studios “are going to these big companies with single pictures and saying, ‘Would you like to invest?’ ” says Robert Cain, a partner at Pacific Bridge Pictures, a film producer and consultant. “They’re investing because the opportunity is now being presented, and that’s only a recent phenomenon.” Huayi Brothers Media, a Beijing-based moviemaker and distributor, raised about $560 million in August from investors including Ma’s venture capital outfit and Tencent Holdings, as well as Shanghai-based Fosun International, which has put $200 million into the Studio 8 production company on Sony’s Hollywood lot. Chinese private equity firm Hony Capital is among the backers of STX Entertainment, run by Robert Simonds, producer of films such as The Pink Panther and The Wedding Singer.
Even the Chinese government is getting in on the action. Besides Mission: Impossible, state-run China Movie Channel, the country’s No. 3 TV network, invested in Paramount’s Terminator: Genisys. China Film Group, the government-run distributor of all foreign movies, took about a 10 percent stake in Universal Pictures’ car-heist thriller Furious 7, which cost $190 million to make and grossed $1.5 billion globally—a quarter of that within China. There are risks, of course. China Film also invested in Sony’s Adam Sandler box office disappointment Pixels.
Cain says China’s government is able to use its control over its lucrative home market to influence U.S. studios and exert soft power—the kind of cultural influence that’s made Hollywood a global ambassador for America. China Film invested in The Great Wall, a thriller starring Matt Damon and Willem Dafoe about an elite force making a last stand for humanity on China’s snaking barrier. It’s targeted for a November 2016 release by Universal. Says Cain: “On a broad scale, China is steadily gaining more and more influence in Hollywood, and you won’t see a Chinese villain probably ever again in a Hollywood movie.”
Citations
1. http://bloom.bg/1i69Yh7 – Bloomberg
2. http://on.wsj.com/1JpIw89 – Wall Street Journal
The Good News Is . . .
• The U.S. economy added 173,000 jobs in August and the unemployment rate fell to 5.1%, according to the Bureau of Labor Statistics. The report gave fuel to both sides of the Federal Reserve rate-hike debate. The largest job gains occurred in health care, social assistance and financial activities. Employment in professional and business services, and also food services continued to trend up in August.
• Dollar Tree, Inc., North America’s leading operator of discount variety stores, reported earnings of $0.67 per share, an increase of 9.8% over year earlier earnings of $0.61 per share. The firm’s earnings topped the consensus estimate of analysts by $0.05. The company reported revenues of $3.0 billion, a 48.3% increase. Management attributed the company’s results to the successful integration of Family Dollar Stores which it recently acquired.
• Bohai Leasing of China plans to buy the Irish aircraft leasing firm Avolon in a deal with worth $7.6 billion. Under the terms of the deal, Bohai will pay Avolon $31 per share in cash. The acquisition should enhance Avolon’s profile, positioning and relationships in the Chinese aviation market—a market which offers compelling growth opportunities in global aviation over the next two decades.
Citations
1. http://1.usa.gov/IOsIPK – Bureau of Labor Statistics
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1g40P6G – Dollar Tree, Inc.
4. http://nyti.ms/1LdArQz – NY Time Dealbook
Planning Tips
Tips for Avoiding Home Repair Scams
If you have ever hired a contractor for a home improvement project, then you know how confusing it can be. Project estimates can vary significantly, and each of the contractors seem so sincere when they tell you that their price and service is the best. While most are honest, good-intentioned businesspeople, you do need to be wary of home improvement scams. Scams have always existed, but they’re becoming more commonplace. Below are some of the most common home repair scams you are likely to encounter and will want to avoid.
Bait and switch – This is perhaps the most common scam out there, and it is wildly successful because it appeals to the human desire to get a great deal. The scam usually starts with a newspaper ad or a mailer that advertises a service at a ridiculously low price, such as an air duct cleaning for $49.99. The consumer gets it and believes that they have a chance to get a service that they need for a low price, so they call the company. That is where the switch comes in. Once the technician arrives, he proceeds to explain to the homeowner that his air ducts, or carpets, or roof, or whatever the case may be, are in much worse condition than the average. He then quotes them a different price, one that is hundreds or sometimes thousands of dollars over the advertised price. The bottom line? If a price seems too good to be true, it probably is.
Left-over product – Some dishonest contractors knock on unsuspecting homeowners doors and make them an offer they cannot refuse. They explain to them that they have recently finished another job and have some left-over material, and if they do not use it, they will just have to throw it away. Driveway sealers use this scam a lot, and explain that the sealant cannot be stored once it is mixed. They tell the homeowner that since they already have the materials, they will offer them a low price if they agree to have the work done. But what the homeowners do not know is that the contractor did not just come from another job, and the “materials” that he is using are generally substandard, and in some cases could even cause damage to the property. For example, a contractor who promises a bargain driveway sealant may just be using black paint or an array of other materials that will simply wash off in the next rain. An honest contractor will never knock on your door and offer to sell you unused materials at a discounted rate.
Gypsy contractors – There are bands of contractors who travel city to city offering their services by knocking on doors and telling the homeowners that they are doing a lot of jobs in their neighborhood and asking if they want to hire them as well. But what they do not mention is that they don’t have the proper licenses, training, or experience to get the job done. In addition, these contractors will be unable to get the required permits, so if anything goes wrong with the work, you, and not the contractor, will be held responsible. At the very least, you are likely to end up with shoddy or even unfinished work.
Up-front payment – Another scam to be on the lookout for is the contractor who asks you for a large up-front payment, or in some cases, the total payment, before the work even begins. Most of these scam artists will simply take the money and run, leaving the homeowner with empty pockets and a job that is never even started. A reputable contractor may ask for a small deposit, but most payments will be paid at the completion of the job, or for very large projects, in stages as the work is completed.
Low price, bad service – There is a type of contractor who consistently runs advertising that promotes low-ball prices for services. Some carpet cleaning companies are known for this. And while they do indeed come and clean carpets for an unbelievably low price, in the end, the homeowner received nothing more than what could have done with their vacuum and a little hot water. It is important to remember that when you are paying a low price for a service, you are likely getting only the basics, and most of the time, that amounts to a little bit of nothing.
Citations
1. http://bit.ly/1iqfpY3 – National Consumers Leauge
2. http://bit.ly/1gQVtfK – AARP
3. http://bit.ly/1iqfpHm – MoneyCrashers.com
4. http://bit.ly/1JKlt4u – Wikihow
5. http://bit.ly/1Kz2Fe8 – LenPenzo.com
