Comparison Of The RE/MAX Business Model With SEZs Of China

China, as you may be aware, is the world’s factory. Most of the products used by the people in the world are Chinese. Be it electronics, toys, clothes, accessories, appliances, furniture or such other articles, one is sure to find a ‘Made in China’ tag attached.

What is the success mantra of China?

The major contributor to China’s growth is the formation of 4 SEZs (Special Economic Zone) in 1979. These SEZ are focused on providing comprehensive services needed by industries so that the cost of production remains most economical. For example if there is a textile SEZ, it would have the following:

1. Dyes and Chemical plant which can supply to all plants

2. Affluent management

3. Captive power plant

4. Raw Textile manufacturers

5. Processing house

6. Manpower training

7. Stitching factory

8. Export quality check

9. Legal and compliance consultants

10. Banks and health care facilities

In this way the group of industries work in a collaborative way to make the cheapest products, in the quickest time and on a large scale. The products are so competitive that most of the countries in the world have stopped their manufacturing units altogether and removed import duties for products from China.

Lessons for a normal broker from China’s success story

A broker’s business needs a lot of common services. Let us scrutinise each service separately.

a. Office space. Now if 50 brokers in a city individually have 200 sq feet office, they would occupy about 10,000 sq feet in total. Then to look better than each other, successful brokers will start looking for bigger offices so net effect would be about a 1,00,000 sq feet of office space. The cost of real estate increases when the customer doesn’t get any value for dealing with a broker who has a bigger office space. So the RE/MAX Business model is all about sharing office space. So if 5 big offices have 10 brokers each sharing desk space, the total office space occupied will be around 5,000 sq feet and the overall cost of running the entire office will be drastically low. The overheads like electricity, administration and other common services reduce which saves a broker a lot of money each month.

b. Technology. It is a lateral need of any broker. The cost pattern of technology is such that it has a high fixed cost and very nominal variable costs. So if brokers share the same technology platform it is cheaper. Right now most of the brokers use portals. The portals charge per listing per month for each individual broker ID. Therefore if a broker has 10 employees, each need a separate ID and they cannot have the benefit of bulk pricing. RE/MAX technology has fixed monthly charges. A broker gets to upload unlimited properties for an unlimited period on to the RE/MAX portal. Also each broker gets an ID and hence there is no need of ID per office.

c. Branding. Then there is a need to have a brand image and each individual broker has to build one. If a small broker starts his business today and tries to build brand image by giving small display advertisements then the first person to earn out of it would be the media house. It takes years to build a recognisable brand and also a lot of investment. RE/MAX on the other hand offers a common brand and when any of the broker advertises, it slowly and steadily builds the brand and all brokers gain from it.

d. Training. It is an important need for brokers as in today’s economy, a well-trained person always earns more than an untrained one. Brokers individually do not know where to get trained from as there are no formal training programs for real estate brokers. However, RE/MAX has the most comprehensive training program in the real estate broking industry. The training programs solely focus on increasing the real estate business and its measure of success is growth of agent productivity.

e. Networking. The last need of a broker which is addressed by cooperation is establishment of a network. As brokers deal with unique properties, to find a matching buyer or seller would require to get connected with a lot of buyers and sellers. A network of brokers helps in accessing a lot of buyer seller requirements. RE/MAX is one such network. Due to its model of large broker offices with a lot of agents in one office there is a lot of networking amongst agents.

SEZ has changed the way manufacturing is done across the world and the RE/MAX franchise model is about to change how real estate broking is done worldwide. Just a matter of time when brokers realise that the benefit of joining hands has more advantages and creates a win-win situation for all.

Education Suffers When GDP Grows

What is wrong with the picture?

Profession	Avg yearly income
Management trainee	$35,811
Teaching	$29,733
Consulting	$49,781
Sales	$37,130
Accounting public	$41,039
Financial Analysis	$45,596
Software design	$53,729
Registered nurse	$38,775
Accounting	$44,564

Source: National Association of Colleges and Employers (US)

Teacher’s income paints a dismal picture

Imagine after years of grueling studies and facing bitter competition, one makes it to his or her dream career ‘teaching’. The happy bubble bursts when one realises that he or she is being paid a lot less than the friends who took up other professions. And that’s when a teacher starts having second thoughts and others around learn from her mistakes early in life and pursue other careers.

Unless a person has taken up teaching as a career because of fewer working hours, secure work environment, or the paid holidays or other reasons apart from the joy of teaching, he or she will soon be rethinking this particular career choice.

So what happens when a talented person with degrees is paid less? Of course he or she makes one of the two obvious choices-a. resorts to other means of income b. opts for a career change.

The story is same everywhere

The disparity in teacher’s income is true for almost all nations, whether a developed one like US or a growing one like India. Even in US the top college grads do not opt for teaching as their desired work area as there are other well-paying jobs and even people who take up teaching supplement it with other part time jobs to subsist.

 In India a teacher’s income is not enough to run the house and one often comes across teachers with dual jobs or with an extra income source like private tuition, which is actually an illegal income making source.

Higher GDP means more job opportunities

GDP is on the rise and most countries are economically booming. But what we don’t realise is that with a booming economy and better salaries, teaching as a career does not appeal to most.

Take a look at the GDP growth of US, a developed country, and India, a growing nation. You will find that the trend of growth in India follows on the lines of US in recent years.

So if in US college grads are not taking up a career in education, the same fate can be expected in India too as the GDP is growing and there are other well paying career avenues.

Teaching is a recession-proof career and it was only during the recent economic depression that one found a surge in people opting for school jobs as ‘safe jobs’. Speaks volumes, doesn’t it?

News excerpt during recession:

Government jobs are probably the best places to find real security. That includes people who work in public schools. Recently, even former Wall Streeters accustomed to megabonuses and fast routes up the corporate ladder have been turning to teaching opportunities in the New York City public school system, where pay is much lower but security is much greater. While private-sector employees are generally vulnerable to the whims of their employer thanks to at-will employment contracts, tenure laws in most states protect teachers. Tenure generally comes after a few years of teaching, and employers must then provide just cause and due process in a firing.

Why should we be bothered?

Since education is the background of any country and makes more difference to a nation’s progress than we can imagine, what can be said for any nation where teaching is not the number one priority even for teachers? Not only that even those who made the mistake of pursuing their dream career as a teacher leave for greener pastures when they find that their hours of toil are not getting them anywhere or stay on because of the secure job environment.

Why don’t schools pay more?

The popular opinion of people who are not so wise about these things is ‘why doesn’t the school pay more in terms of salaries?’ or ‘why don’t schools collect more fees so that they can pay their teachers well?’ This is rendered impossible because of the government’s directive according to which a school cannot escalate the fees as and when they want.

The government norm is that a school can make a hike of only a certain percentage on the total fees. If it is a new school with a high fee structure then the cap will not affect the teacher’s salary. However most new schools then go empty and a few also close down. If it is a 20 years plus school then it will have an existing fee structure which even hiked by a percentage every year will not be able to do justice to the pay educators get. This is basically the reason why new schools have better teachers and old schools end up with “Talent Exodus”!

Conclusion: Better GDP leads to poor quality of education

Indian surveys indicate that the top students would like to take up teaching provided the pay is raised substantially. The question is whether this can be done. If we are looking at the ‘future’ then this should definitely be done.

Finally we come to our topic- how does the improvement in GDP reduce the quality of education? By now you must have guessed what I am getting to. Yes, if the economy is doing well, well-paying jobs will be more in number and we can expect most top grads to take these up. So, what about the educator jobs then which try as much as we can cannot compare with the pay doled out by other professions?

We are back to where we began. Less pay, incompetent employees and the education system takes a major hit. And who suffers the loss if education quality is dismal?- of course the country!

Gold VsReal Estate: Investment Competitors

 Is Gold losing its lustre?

On Monday, the day of Akshaya Tritiya to be precise, one is sure to find crowds clamouring to buy a piece of the yellow metal that indisputably has been in vogue for 5000 years. But fans of gold have diminished and are now looking at other investments (except on days when they buy the yellow metal to appease their superstitions).

It is true that even a few decades back people used to buy gold, especially during economically uncertain times. But then there was no other choice in terms of investment. In recent years Real Estate investments is giving gold a run for its money, literally!

The biggest common factor because of which they are comparable to each other is the investment of black money. There are very few options available in the market for keeping black money safe, and earning a return on such investment.

Gold advocates proclaim that the metal is immune to inflation, economic or political crises. And Realtors argue that investing in property is secure. They consider gold or any other metal to be money and are vulnerable like other currencies. They can be considered a part of savings but not as an investment as such.

In the Gold Vs Real Estate scenario, real estate definitely has the upper edge as a potential of yielding higher returns consistently. A few reasons are-

• Gold can be confiscated easily
• Gold liquidity doesn't work in terms of profitability as one needs to consider handling expenses, deductions for ‘melting’ and other expenditures
• Lack of liquidity of Real Estate makes it less volatile and this is beneficial
• Rise in Gold value coincides with paper currency devaluation and hence the appreciation of gold is actually nominal and not an increase in the buying power as we often think
• Gold like other precious metals, is prone to manipulation by those who wish suppress its value to boost paper currency in a bid to benefit
• Real estate has further income potential in terms of rent/lease which gold doesn't have

Ever since there was recession of 2008, Real Estate prices went south and Gold prices went north. Looking at the disparity the layman started investing more in Gold which further jacked up the prices. In fact most of the investment done in Gold is because of the reason of lack of avenues of investing. One major thing which Real Estate provides and gold doesn't is "yield". Gold is the single biggest non yielding investment in the global economy. This makes gold the most speculated investment: as there is no discounted cash flow!

Also if the capital appreciation is not present then the investors have no interest in investing in Gold. In the chart below you can see that gold has crashed for 5 years in 1963. And hence a crash was evident and which is exactly what we are experiencing now.

So how to use this information to convince investors to invest in Real Estate?

*         Investors have to be explained that Gold is a speculative asset which cannot be consumed. Real Estate on the other hand is consumed and there is a demand of real estate due to demographics.

*         Gold is a movable asset which can be stolen

*         Non yielding asset, so no rent you can earn on this.

*         Can’t be used for own jewellery beyond a point.

The main argument for buying gold as an investment was the capital price but now even that is as uncertain as real estate escalations.

So go out and sell more real estate!