Author: FLY: Malaysia

Introduction

“Technology advancement has led to various uncertainties, but there is one thing which we can be certain of, which is the ever-increasing amount of data available on the web.”

While raw data itself might prove difficult to provide significant interpretations, data are usually sorted into meaningful statistics before publication. Statements like “9 out of 10 doctors recommend this product” and “Germany experienced 5% GDP growth in 2020 Q3” are statistical summaries. Industries like insurance and quality assurance are essentially built from statistical analysis. With how commonly statistics are used in our daily lives, unethical people can easily manipulate statistics due to a lack of emphasis on critically analyzing data.

Who’s lying?

Businesses want sales, and the media want views, governments want to support, while we as the public want whichever is the best for us. Note the conflict of interest between these parties and the public. Parties like these can easily falsify statistics, indirectly manipulating the public to behave in their favour. Sometimes the publishers themselves fall for confirmation bias, citing only data that supports their own argument or agenda. There are indeed many studies with opposing conclusions. Still, one should almost always lean towards the majority unless there exists an inherent flaw within underlying research methodologies, something which anti-vaccine and flat earth believers failed to do so.

Common techniques of statistical misuse

1. Leading questions

Let’s look at the following survey to obtain the public’s view on the U.S. military intervention.

• Do you support the U.S. Military providing foreign aid to nations in need?
• What do you think of the U.S. Military wasting taxes on aggressive intervention?

When these statements are contrasted against each other, we can see that the previous statement is more likely to gain support due to words like aid and in need, whereas the latter will achieve the opposite effect due to words like wasting and aggressive. Words that evoke emotions should be avoided in order to obtain an unbiased view, such as:

• What is your view on the U.S. military intervention? If so, please provide a reason.”

These are known as suggestive/leading questions. It subtly influences the person answering with an implied answer. As a matter of fact, these questions have such a profound impact on the outcome on legal court cases where such questions are generally not allowed in Malaysia as stated under section 141 of the Evidence Act 1950.

2. Sample Quality

To understand what a sample is, we look at another relevant term, population. Say you want to find out the percentage of people that wear spectacles in Malaysia. To obtain an accurate depiction, one can conduct a survey on all Malaysians, which is not feasible in terms of time and cost. So, a realistic approach would be sending out say, 200 surveys to random Malaysians with your acquaintances’ help. In this example, the population would be all Malaysians, in contrast, the 200 participants are the sample, which is merely a subset of the population. It is also important to note that the sample should be somewhat representative of the population. For example, it is rather unlikely to generalize the average height of all elementary students in a nation by only taking samples from one particular school. Perhaps obtaining data from 10 schools from each state would prove to be appropriate, which brings us to the next issue of how many samples is considered sufficient?

One of the most important rules in statistics is the law of large numbers. The law of large numbers simply states the results approach the expected value as the number of trials or samples increases. Simply put, if you flip a coin five times and obtain four heads, one might conclude that the probability of obtaining heads is 80%. While repeating the trials for a sufficient amount, we can conclude that the probability of obtaining heads and tails is 50%. The Law of large numbers explains why investment returns are consistent over longer time frames as well as why insurance and casino related businesses are guaranteed a profit in the long run. Unfortunately, there is no strict cutoff in determining the ideal sample size. Generally, researchers tend to estimate the appropriate sample size by selecting the research setting’s confidence interval and variance.

More than often, a biased sample can heavily skew the conclusions. Back in the older ages, telephone surveys were a popular methodology to access public opinion. However, the sample is already biased in terms of income and age, where the majority of telephone owners belong in higher income groups, and are generally older. Other forms of biased sampling comes in the form of voluntary response bias, where the samples tend to be self-selected. A good example is a public opinion on controversial opinions, where individuals with strong opinions tend to get overrepresented since only this group would be bothered to participate in similar surveys/questionnaires.

Relatable examples of inadequate sampling are the formation of stereotypes, where conclusions are made regarding a category of people typically devised from a small sample. From a Malaysian perspective, things like the certain Chinese being stingy and the Malays being lazy are commonly heard, while it is rather unlikely that these views hold for the majority. These views are likely formed under an extremity bias. The Chinese that are neither overly stingy nor extravagant are less likely to turn into discussion topics because exaggerations make for an interesting conversation, hence not turning into stereotypes. Considering the fact where most people communicate with people who have similar demographics and similar acquaintances, it is even likely that these stereotypes are over-represented due to double counting, where one outlier is simply being reused as a topic.

3. Visualization

Data can be visualized in diagrams and graphs, allowing viewers to get a better overview while also leaving room for falsification.

Diagram 1: Gun deaths in Florida as of 2014 (Source: Reuters)

If any graphs deserve a spotlight for being misleading, it would be the graph above by the Florida Department of Law Enforcement. Clearly, an inverted y-axis and area “above” the curve only indicate that the original graph was inverted upside down. 

The diagram above demonstrates the difference when manipulating the axes. From the heights of the bar charts on the left, one might be quick to assume that group B is significantly higher than the other 2 groups when there is only a minor difference between the groups as portrayed on the right. While visual misdirections are relatively easy to spot, this is not precisely true, thanks to the auditory distractions and information bombarding, which are fairly prevalent when accessing information online.

4. Comparison and Context

In the light of recent events, people have been frantically comparing the Coronavirus with other diseases of different infection rate, mortality rate, etc. Most of their efforts are in vain without considering factors like testing frequency, demographics, population, etc. As an example, China has revised their reporting standards on Coronavirus more than once, as demonstrated here and here, yet we still see sensationalized headlines revolving around the number of daily Coronavirus cases. On the other hand, from a financial standpoint, investors would analyze prospective investments via metrics like valuation and profitability. Strong believers of value investing emphasize a low PE ratio and PEG ratio more than anything else. It is crucial to note that businesses across different industries have different profit margins and valuation metrics. Comparing the current values to historical data might make more sense assuming no changes in business model and economic trends.

5. Correlation doesn’t imply causation

“When A increases, B decreases.” A familiar statement to justify all sorts of cause and effect relationships. Unfortunately, just because two variables are correlated doesn’t mean there exist a cause and effect relationship. Generally, researchers would compare their findings in the form of experimental groups against control groups to confirm any underlying causation.

Ruling parties and politicians like to point to outperformance in stock markets as a form of superior administration, although market performance is affected by variables that are usually beyond the control of any affiliation – e.g., Obama’s election date being extremely close to the start of S&P500’s decade of the bull run. 

There are also scenarios whereby two variables are caused by a common factor, e.g., the inverse relationship between imports vs suicide rates. Do imports have a direct effect on suicide rates or vice versa? Perhaps. But a more likely explanation is economic performance. Higher imports and lower suicide rates tend to happen in tandem when the economy is good, making sense which people buying more imported goods and are less likely to experience financial difficulties during a strong economy. 

Confusion between the cause and effect is also misleading, e.g., The more firemen that are deployed to rescue a fire, the more damage is done. However, the inverse is in fact true. Critical fire conditions prompt higher deployment of firefighters. The damage being done is caused by the critical point of fire regardless of the number of firemen sent.

Conclusion

Over time, it has been increasing in difficulty to control our information consumption due to the boom of data, which has opened up room for manipulation. Certain things lie beyond our control as others are being incentivized to lie to achieve ulterior motives. While ethical development is not instantaneous, general awareness and maintaining scepticism towards the aforementioned techniques can be nurtured over time. I hope to see an increase in initiatives to increase statistical awareness conducted by the government and NGOs via education. In the end, it is up to the general public to up their game in their statistical savviness to detect trickery.

Researcher: Cheong Jian Yan

Reviewer: Millen Lau

Editor: Arivaasaran Arjunan

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Introduction

Chinese New Year (CNY), also known as the Spring Festival of Lunar New Year in the Chinese calendar is widely celebrated in many Asian countries such as China, Malaysia, Taiwan etc. Part of this festival’s culture consists of spending on food and beverages, new clothes, decorations and others to prepare for the festive holiday! However, due to the outbreak of COVID-19, many businesses in countries such as Malaysia are forced to stop operating weeks before CNY due to COVID-19 lockdown restrictions. This has caused a fall in sales for firms and stores. Since the start of the pandemic last year, not only businesses are struggling from several unforeseen circumstances, but the arrival of CNY also brings significant impact to businesses that have close partnerships with manufacturing companies. Therefore, it is not surprising that many of them are facing financial difficulties this CNY. To curb the situation well, entrepreneurs are suggested to firstly understand clearly the challenges faced in this situation, then apply effective solutions to solve the problems faced.

Impacts on businesses during CNY under the pandemic 

Manufacturing disruptions and shipments delay

CNY can significantly impact  firms and logistic companies if they are unaware of the consequences of the festival towards the supply chain. Though most Chinese manufacturers will shut down for at least 2 weeks in light of the CNY celebrations, many workers will travel back to their hometowns to reunite with their families as most of them are migrant labourers. Due to the COVID-19 outbreak, some of them will even choose to leave the workplace early as the duration of self-isolation is taken into account so that they have enough time to spend with their loved ones. Also, in some scenarios, workers might not be available even after the holidays. Hence, other staff have to cover up their shifts due to the lack of manpower which will incur overtime costs. Without any better options, employers are prompted to hire new employees which causes a delay in producing goods that were being ordered before the holidays as new workers need more training time in order to manufacture quality products. As a matter of fact, believe it or not, a lot of employers somehow do not have an accurate answer on the number of their workers coming back to work from the holidays, which affects the company’s time and efficiency to get back on track. This causes tons of logistic service providers to cancel their shipping due to the current issues from the manufacturers which leads to the delay of shipment and problems fulfilling orders.

Offline retailers faced loss in shoppers but growth occurs for online retailers

Back in January 2020, due to the outbreak of Covid-19, lockdown restrictions were implemented by the China government on commercial streets that are usually crowded. Supermarkets, shopping centres, restaurants and stores are forced to stop operating which caused a big drop for the total retail sales compared with the previous years.

Chart 1: Comparison chart of total retail sales of goods during golden week of Chinese New Year over past years and forecast for 2020

However, Hema (a new retail store of Alibaba) has been busy processing orders online. A report released by Hema states that the supermarket had stocked 500,000 packaged vegetables and 80 tonnes of bulk vegetables both online and offline in Shanghai on the 28th of January, which tripled the supply of online vegetables in Beijing. A huge quantity of vegetables were also sold online in Guiyang. Besides, another new retail store, MissFresh, reported a year on year increase of 321% in the transaction of volume nationally for the first 4 days of CNY. Evidently, the impact of the coronavirus pandemic affects different businesses differently.

Decline in FMCG (fast-moving consumer goods)

Based on a report back in 2020 about the pre-CNY sales in China, though the sales are stronger during this period throughout the whole year, it is observed that there is a decrease compared to the previous years due to the pandemic. In 2019, there is a rise of 15% in FMCG sales 2 weeks before CNY compared to other times of the year. However, in 2020, the impact of the country’s lockdown had caused a decline of 24% on CNY week and 41% on the following week. According to prediction, a drop of 12% on the total sales of FMCG is shown for the 4-week period compared to 2019.

Chart 2: The Negative Impact to Total FMCG Market Following COVID-19 Outbreak

A decrease of consumers by 2% and the decline of 10% on spend per trip by individuals caused a downfall in the FMCG market. To overcome circumstances under this pandemic during CNY, several strategies are used to adapt to the current situation.

Strategies on surviving the pandemic during Lunar New Year

Effective Planning, A Great Start

To ensure businesses are not being highly affected by the festive period, early planning for the upcoming CNY will help businesses to reduce significant supply chain issues. For example, if the partnering factories or suppliers are based in China, strong communication and relationship between both parties are encouraged to be fostered as early as possible. It will be quite difficult to establish and earn trust from Chinese manufacturers months before CNY. As high demands on orders are received from various companies globally, new businesses will usually be the last priority for the factories to complete their orders, which will lead to a delay in fulfilling orders. So, firms are suggested to do some research on manufacturers that are capable of handling the CNY demand. Also, communicating well with them on details such as their exact closing dates and expected backlog after the celebrations in advance will give us a better understanding of our capabilities and operations during the busy period.

Learn to Forecast and Be Prepared

Upon having a clear plan, it will be even better if firms are able to predict the quantity of products needed for the months before, during and after CNY so they have enough inventory to go through the whole CNY period. A simple graph to understand the CNY order pattern is shown below:

Chart 3: The result of March orders being brought forward

As observed, this example on CNY orders shows that the orders received in March are being carried forward to both January and February by 50% respectively due to the fact that factories in China usually start to operate around March which is after a month of CNY. Having a forecast also helps suppliers to have a clear vision on the demand of their buyers, which prompted them to have an effective management in the factories like recruiting and training new workers earlier as some of the former employees will choose to leave. The benefit of forecasting can help to prepare the number of inventories beforehand as last-minute orders are difficult for manufacturers to complete during this period. Riccardo Benussi, Head of European Business Development at Dezan Shira & Associates commented that consumers will usually purchase gifts and New Year necessities like food and drinks at the very last minute, so it is best to stock up early on the products as demand will spike up during CNY. Both forecasting and preparing more inventories can be concluded by using a strategic business model, Vendor Managed Inventory (VMI).  It is a great way for both vendor and buyer to agree on a fixed level of inventories. Usually, the vendor will request the buyer to provide their sales history and inventories on hand to predict their demand and construct a list of order schedules. This helps to minimise the firm’s spending by maintaining a higher efficiency of orders based on the level of inventories and also by regulating  the demand shift in the market. Thus, this makes VMI the ideal model for businesses that find difficulties in long lead time during CNY or any other holidays.

 Avoid unnecessary issues

It is highly recommended to book shipments with steamship lines sooner for CNY if firms are responsible for the arrangement of logistics from Chinese suppliers. Plenty of shipments are always waiting to leave the ports before everything shuts down due to CNY being operated by the infamous steamship line that will take advantage of this busy season by imposing a high freight rate due to the high demand of stocks boarding a cargo ship. As such, only those who are willing and capable of affording such high costs will be able to have their orders to leave port on time. On the other hand, it is not surprising to hear that some shipments will be postponed up to after CNY. This again shows us the importance of having strong relationships with logistic partners so they will prioritize our needs above other companies during the peak period of CNY. Also, due to the long breaks of factories, try to avoid late orders as mentioned previously due to the fact that many of them will not be interested in accepting new orders because they need to speed up completing their current tasks before the break. Even if they accept late orders, the quality of the products might not meet the required standard due to the limited production time. Therefore, being alert and early are great prevention measures for issues like these. 

Quality control

As stated above, the quality of products might be affected due to the pressure on suppliers and lack of duration to produce it. It  is advised again for buyers to know their suppliers well, ie. whether or not they have a quality plan of minimizing the potential lapses.  The purpose of a quality plan is not only to meet the industry standard of consumers on products but also to verify the standards and procedures of the product’s quality. Based on the definition of American Society for Quality (ASQ), a quality plan is defined as “A document or set of documents that describe the standards, quality practices, resources and processes pertinent to a specific product, service or project.”  A manufacturer is said to have a good quality plan with the conditions of knowing their objectives like the function, cycle time, materials used and cost of the product itself. Besides that, the procedure and task distribution among the workers of the production and testing process are taken into account as well. Furthermore, if any attention needs to be made, notifications will be given to track the process. Thus, a factory that has a good quality plan will help to reduce the risk of having defective stocks, enriching partnerships between firms.

Settle payments-in advance

If you are a foreign business having relations with companies in China, Hong Kong or any other countries that celebrate CNY, bear in mind that it will be hard to settle any payments during the holiday period as little to no transactions can be processed due to the fact that most businesses and banks are closed. As such, it is suggested that all debts are better to be paid before the Lunar New Year as this is not only to avoid conflicts between companies but it is also a good omen in the Chinese culture to settle all debts before the New Year.

Strategic Campaigning with Understanding

Based on the research report by Criteo, shoppers usually start to shop 2-3 weeks before CNY in countries like Singapore, Taiwan and Korea with a sharp rise of sales 2 weeks before the holiday. To engage with current consumers and bring in new customers, marketing experts should be smart enough to start their marketing campaigns and set CNY marketing goals clearly to increase sales. Due to the COVID-19 spread, lockdown measures in some countries such as  Malaysia has prompted households to do their CNY shopping online, which increases sales for online stores. As a matter of fact, ramping up digital strategy by advertising products through social media and creating apps for the store will definitely boost up the business during this difficult festive period. Ecommerce giants such as Alibaba, JD.com and more have illustrated the benefit of applying effective strategies in terms of home delivery and logistics as part of their supply chain. A great example of digital shopping is demonstrated by a new retailer, Hema that has been mentioned earlier in this article. A strong growth in the business during the Lunar New Year is observed due to the fact that many consumers choose to use delivery services for their daily meals. With store expansions of this speed, Hema has almost doubled their sales compared to CNY 2019 and also became the first retailer to hire unemployed workers from the F&B industry to manage and deliver deliveries, making this a win-win situation for both parties during these tough times. 

Chart 4: COVID-19 Outbreak Brought Negative Impact to Offline Traffic but Positive Growth Opportunities to Small Formats and Digital Commerce

Furthermore, ‘contactless delivery’ has been introduced to avoid physical contact between consumers and delivery workers.

Conclusion

It is expected that firms and businesses who are partners with Chinese companies or factories will undoubtedly be affected during the CNY period especially under the COVID-19 pandemic.  With proper planning and execution, there will always be a solution to the obstacles faced by businesses, no matter how challenging they are, as every cloud has a silver lining.

Researcher: Yeoh Yi Ying (Janice)

Reviewer: Millen Lau

Editor: Hui Zhen Tay

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Christmas, an annual festival where people celebrate the birth of Jesus Christ and the joys of a family reunion. To commemorate this special occasion, tons of money will be spent for gift shopping, food, travel expenses and much more by individuals and households. Firms and businesses will increase their investment in Christmas marketing to gain a large amount of profit from this festive season, anticipating the economy to go well. However, does Christmas shopping boost the economy as well as we expect?

The Deadweight loss of gift-giving

According to Joel Waldfogel, a professor at Yale University back in 1993, he disagreed that Christmas is efficient for the economy due to the deadweight loss from the gift-giving practice. He quoted that, “between a tenth and a third of the value of holiday gifts are destroyed by gift-giving” and predicted that in 1992, (Waldfogel, 1993) the deadweight loss of holiday gift-giving was $4 billion to $13 billion. Due to Christmas, many people spend a huge amount of money and time brainstorming on buying gifts for their friends and family. However, buyers tend to assume the perfect gift through their perspective instead of putting themselves into the shoes of the recipient. As the person receives the gift that he or she does not prefer that much, they will value the gift less compared to the purchasing price of it. A survey was done by Mr. Waldfogel back in 1993. Family and friends had paid an amount of $438 on the recipients’ total gifts. However, the 86 recipients that were involved in this survey stated that they were willing to pay only $313 on average for the same gifts which shows an inefficient gift-giving .For example, parents purchase kids with socks to keep them warm during the winter holiday but the kids rather receive toys as presents. This will generate more quantity of socks produced compared to what the society actually wants.

Thus, this caused a deadweight loss to the economy.

Chart 1: The graph of Deadweight Loss of Christmas

(Source: Google Image)

Deadweight loss is defined as a cost to society created by market inefficiency and it can be applied to any deficiency caused by an inefficient allocation of resources. In this scenario, a present worth $40 will be efficient if it is similar to what the receiver would want for a present that he or she is willing to pay that price in cash. The difference between the worth and satisfaction between the cash and gift will only cause a deadweight loss if the gift is inefficient.  

Normally, unwanted gifts will always end up returned, sold, or re-gifted. The dissatisfaction of consumers on the gift will cause an oversupply in the market and ends up having a deadweight loss.  In a 2016 European online survey, 15% of people were unsatisfied about their gifts and 10% of them had forgotten what they had received.  A 25% of them re-gifted their presents to someone else, 14% sold it, 10% returned the gifts to the store and 5% returned it to the giver. Usually, seniors send their unwanted presents to charity, while youngsters just simply get rid of them.

Based on Joel Waldfogel’s theory, gift-giving does not really help out much to the economy despite the spirit of gift-giving during this holiday season. Instead of gifts, cash and gift cards are a better substitute for it. Though it might not be the best gift, it does increase the value and utility of the person having the gift he or she truly enjoys, leading to a decline of deadweight loss in the economy. 

The difference between Christmas and other times of the year economically

Christmas Creep

The term Christmas Creep was originally from the mid-1980s and it started to get more concern in the year 2008 after the recession in America. It is a merchandising phenomenon where retailers are desperate to advertise their Christmas related products or sales by having early Christmas shopping seasons such as having Black Friday sales to take advantage of Christmas related shopping. This term was not used in  the United Kingdom and Ireland, but instead it was known as the “golden quarter” as in the last 3 months of the year, the retail industry was booming and businesses were making  significant profit. Not only does the “holiday creep” expand the selling interval for retailers to maximise their profit, but it also gives consumers a fresh start for the holidays.

United States of America (USA): Black Friday

In recent years, Black Friday, the Friday after Thanksgiving which is also known as  the start of the Christmas shopping season, is being implemented early by many retailers to boost up their sales like giving promotional deals. Despite Black Friday not being a holiday, it is considered “The Day After Thanksgiving” in California and some other states in the United States, making it an official day off for state government servants, non-retail workers and school. Therefore, it increases the number of  potential shoppers for early Christmas shopping.

Chart 2: Sales between Black Friday and Christmas 

(Source : BRC- KPMG Retail Sales Monitor)

The Christmas Market

Christmas Market usually starts a month before Christmas. It is said to date back to the late Middle ages in some parts of Germany, France and Switzerland between late 1290s and early 1300s. In recent years, the Christmas Market is quite popular in many European countries. However for this year, the cancellation of the Christmas market in some places due to the lockdown in light of the new variant of the Covid-19 virus had impacted many of the local or small-sized businesses which are struggling to stay afloat and are forced to shut down due to this pandemic.

Despite having pre-Christmas shopping holidays like Black Friday, at least 40% of consumers still choose to shop right before Christmas specifically from the 21st of December to the 24Th of December, according to the report of NRF’s Annual December Holiday Consumer Survey. This could be due to consumer behavior — the simple fact that people are quite laid back and tend to end up buying gifts in the very last minute. 

The Retails Sector

As mentioned previously, gift-giving is still a Christmas activity that people still love doing despite the economic deadweight loss. Based on the growth of retail sales in the US during Christmas from the year 2000 to 2020, there is a rise of retail sales during Christmas after the recession in 2008. Since then, there has been fluctuation among the later years and there is a slight decrease in 2020 due to the covid-19 pandemic. 

Chart 3: Year-over-year growth of Christmas holiday retail sales in the United States from 2000 to 2020

(Source: National Retail Federation ; US Census Bureau)

Retailers’ Christmas Survey 2020: Australia

Due to the Covid-19 pandemic, the Australian government has implemented lockdown rules since July for the second wave. As a result, Australia is one of the countries that has the lowest cases of the virus. This has prompted the nation to step out of their bubble and shop for the holiday season. Based on the survey, 39% of retailers expect a 5% boost during the Christmas sales while 24% of them state that there will be a decline of more than 5% in revenue as consumers are choosing to shop online. 

Chart 4: Survey on the changes of revenue by retailers

(Source: Deloitte Retailers’ Christmas Survey 2020)

The polarization of the market occurred as many travel agents had shut down due to the pandemic and that caused an inconvenience in the trade between local retailers and consumers that spend most of their time in the outskirts. According to the data, it will be a challenge for retailers to figure out new tactics and ways to serve the customers such as the usage of QR codes and pick up stations to comply with the social distancing measures  during this period to gain some revenue from existing customers.   As a matter of fact, sales of houseware, electronics and hardware did increase as consumers spent their money mostly on their homes, in their homes. Throughout the whole year, Australian retailers heavily relied on shoppers coming out of their homes to shop in store.

Besides, E-commerce such as Amazon, Argos, Shopify etc. have been really useful over the years. 50% of the retailers are quite confident with their delivery capabilities and many of them are ploughing money into technologies that are able to track and trace, perform dynamic routing and carry out automated deliveries. This investment provides an effortless experience to consumers and 32% of them stated that these digital processes have helped them boost their sales as their delivery capabilities are the essence of E-commerce during Christmas and any other time of the year.

The Margin expectation is a little different from the sales polarization. The majority of retailers expect a margin drop of more than 2% in 2020, but it remained almost the same as the previous year. Though stock availability was highlighted as an issue, the margin may still remain even if sales are not going well.

Chart 5: Survey on Margin expectations by retailers

(Source: Deloitte Retailers’ Christmas Survey 2020) 

In conclusion, this survey has presented the impact of the pandemic on Australian retailers. Retailers have been receiving mixed economic signals over the past few months from rising unemployment rates, consumer behavior and other factors. However, they are still hoping that the holiday season will bring some improvement to the economy and with the right strategies, there will hopefully be a positive start for 2021 for retailers in Australia. 

Impact of BREXIT on Christmas 

The term BREXIT has been a hot topic over the past couple of years as the nation of the United Kingdom is concerned as to what kind of changes will be implemented from its occurrence. The effect of BREXIT has impacted any different aspects, especially the Economy in the UK. Christmas is no exception,  as there will be some changes that come along with it.

Christmas Market

As stated earlier, the Christmas market is one of the main events before the festive holiday. The stallholders are usually from the EU and many of them have to stay during this period in the UK. The arrival of BREXIT has caused many difficulties to them such as the two-year exit negotiations, paperwork and costs. Also, due to the previous 31 October BREXIT deadline, a lot of traders had brought in their products earlier into the UK and were compelled to pay an expensive storage fee as reported by BBC News on the 29th of October 2020. With such hassle, it has caused many European sellers to quit trading in the UK. However, this will help to create more job opportunities for British businesses and hence decrease the unemployment rate  in the UK.

No-deal BREXIT leads to 0.2% of drop in Christmas Spending

According to recent research, there will be a 0.8% rise this year in Christmas spending due to the uncertainty of BREXIT. However, a no-deal BREXIT will cause a 0.2% drop in it. Based on the research of Voucher Codes and the Centre of Retail Research (CRR), Christmas spending was predicted to increase from 79.72 billion GBP in 2018 to 80.27 billion GBP in 2019. However, the increase of 0.8% is against the spike of 1.2% from last Christmas which economists believe was due to the impact from BREXIT which caused lower consumer confidence. This can be explained by the fear of the economic impact caused by BREXIT instead of sudden changes in price or shortages in supply. BREXIT has made an effect of muting the excitement of shoppers to shop for Christmas which is supposed to be a busy shopping period. Despite even the no-deal BREXIT scenario, retailers do still hope for a mild increase in sales but not for businesses as they might have to expect a delay if they are to cash in on this festive period as much as they can.

Conclusion

This article has touched on a few topics about the economy during Christmas from the three main agents: individuals and households (efficiency of gift-giving), firms (retail sector) and the government (impact of BREXIT). Each of these show a different perspective of the economics of Christmas and provide some economic insights to consumers and traders in coping with the economic inefficiency in the market. This year, the pandemic has caused many businesses to go bankrupt and consumption on non-essential goods to decline, causing an economic downturn globally. Hopefully with the right strategies and economic knowledge, the Christmas season will be able to bring a more positive impact to the economic world.

Researcher: Yeoh Yi Ying (Janice) 

Reviewer: Millen Lau 

Editors: Hui Zhen Tay, Stella Teoh

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Introduction 

Games have always coexisted with humanity. They make an integral part of various cultures, facilitating social interaction, entertainment, and competition. With the arrival of accelerated technological growth, avenues of gaming have evolved tremendously, where games that are able to be played electronically on devices are loosely coined as video games. The video game industry is relatively new compared to sub-sectors within the entertainment industry. More so, when one mentions the entertainment industry, people would generally think of films and music due to the glitz and glamour, but the truth remains where the video games industry has long surpassed both the film and music industry combined in terms of revenue as early in 2016, with no signs of slowing down. The article aims to provide an overview on the intricacies revolving the booming video game industry.

Below is a non-exhaustive product classification of video games, which will be mentioned in later sections.

Supply chain overview

Typically, the video game industry major players consist of hardware developers, game developers and game producers. Hardware developers are companies that focus on creating hardware/platforms for games to be played on. These hardware are said to set an industrial standard for video games as in-game performance optimization must be in sync with the platform itself. Some hardware like Sony’s Playstation requires game developers to pay a development fee in order to develop games on their platforms. Next, game developers focus on creating and designing the video game itself. This encompasses a wide range of highly technical tasks such as plot writing, level building, graphic design, audio composing, debugging, and etc. Lastly, game producers deal with the business side of things, overseeing the overall development of the video game before the product reaches the end market. Their responsibilities include budgeting, marketing, licensing, making timely deliveries, or in other words, optimizing the quality assurance process. 

Monetization models

Monetization refers to the process in which the product generates revenue. Over the years, video games’ monetization has evolved dramatically despite having a common goal of maximizing returns. A clear distinction in terms of monetization is the price of the game itself, whether it is B2P (Buy to play) or F2P (Free to play). B2P is likely to be the oldest monetization approach. Back in the days where physical distribution was relatively common, players would have to pay for video games that come in cassettes, cartridges, or discs. B2P also comes in several forms, with some requiring a one-off payment and some operating on a subscription model requiring continuously monthly payments. These subscription models work best with online games which requires direct connection to access video game assets. F2P simply refers to games that are freely available to all players. Despite most B2P games that come with a refundable policy, F2P games shine in terms of their low cost of entry, allowing players to get a feel of the game before committing to it. So how do F2P games even make a profit? 

Video games tend to come with additional forms of monetization, especially for F2P games. Unlike price-based monetization, these additional forms of monetization are known as microtransactions. They are optional from the players’ perspective, but it usually enhances the gameplay experience. Firstly, we have battle passes, which on purchase, unlocks additional in game features or even accelerating progression of the player. Battle passes tend to be temporary in nature, e.g.: such as Dota 2 which releases battle passes on an annual basis which lasts approximately up to 6 months, granting additional in game features and a chance to unlock limited edition cosmetics. On expiry, these features will not return until the release of the next battle pass. Secondly, we have downloadable content (DLC). Unlike battle passes which are temporary, downloadable content are usually permanent purchases that unlock extra maps, stories, and new game modes. Thirdly, certain games have “premium currency”, which allows players to purchase in-game resources that are difficult to be obtained or even unattainable without spending cash. Lastly, perhaps the most notorious form of microtransaction: Loot boxes. Loot boxes, or occasionally known as gacha, originated from gacha-pons, are capsulated toy vending machines which are incredibly popular in Japan. Like these vending machines, loot boxes grant players a predetermined probability to obtain a random virtual item. While loot boxes can be extremely profitable as it comes in exorbitant prices, it is widely criticized for being predatory due to the resemblance with gambling, where in extreme cases, players end up spending large amounts to fuel their addiction.

There exists several out-of-game monetization methods as well. While only applicable for video games with a fairly huge fanbase, video games can reap a portion from merchandise sales, such as apparel, figurines, and etc. Video games like Castlevania and Pokemon had their own tv-series and movies to complement the growth of the franchise till today despite their initial game releases during the 20th century. Lastly, games can also turn to advertisements to generate revenue. This form of monetization has single handedly supported the growth of F2P mobile games, where the most common types of advertisements are in the form of rewarded videos, where in-game rewards are granted after the players watch a short video advertisement. This also allows the developer to further monetize their products by releasing an ad-free version of the game to players.

Opportunities and catalyst

Streaming

Unless you have been living under a rock, surely you have heard of the term “streaming”. In the context of video games, it refers to the process where “streamers” broadcast their gaming live on video platforms, usually on Twitch, where viewers have the option to make “donations” to the streamers. There are several reasons why streaming has and will continue to act as a growth factor for video games. Video content has always been the most preferred form of content, as it accounts for up to 80% of internet traffic in 2019. Furthermore, video game streaming has extremely low barriers of entry. All it requires is a basic video recording software, a microphone and a webcam. Recently, Alexandria Ocasio-Cortez, an American congresswoman even had a live stream playing the video game, Among Us to promote the importance of voting in elections. While achieving significant viewership from streams might seem daunting for the average streamer, advantages of low barriers of entry is that it would eventually attract lasting talents. While there exists demo versions of games which allows players to check out a game, the downloading process still takes time whereas one can simply head to watch video game streams, with some streamers even having the opportunity to access unreleased content, as a form of indirect advertising by video game producers. Like any form of skillset, players stand a chance to discover obscure techniques and improve their own gameplay by watching streams. Furthermore, gaming can be a rather exhausting process depending on the game where watching streams are viewed as engaging with video games but are relatively undemanding. Streaming platforms also act as a community for like-minded players to discuss the game. While not interested in the game itself, some viewers stay for the personality of their favourite streamer, or simply to support them. In short, video games are likely to remain relevant as streaming continues to spur demand for immersive entertainment.

Esports

Electronic sports, or simply esports, refers to competitive video gaming. Esports can be traced back to South Korea as early as 1998, which coincided with the release of Starcraft. Today, Esports have come a long way before gaining mainstream traction as it was not regarded as an actual sport due to the lack of physical exertion despite similarities where both require teamwork, communication, practice, and physical coordination. Regardless of one’s stance on whether Esports should be viewed as a type of sports, the trend revolving esports did speak for itself, achieving a consistent double-digit annual revenue growth. It was not long before traditional sports channels like ESPN began airing esports as traditional sports viewership heads toward a decline. In 2019, Netflix even addressed that Fortnite is likely to pose a bigger competition compared to HBO. Plus, a large prize pool in Esports also highlights the underlying opportunities for both commercial licensing and sponsorship advertising. Back in 2011, Dota 2’s very first major competition known as The International had a prize pool of 1.6 million dollars. In 2019, it had managed to generate up to 34 million dollars. To put in context, the 2019 Wimbledon’s Open prize pool for both men and women totaled up to 49 million dollars. While nowhere close to major sports prize pools, esports prize pools are expected to outperform in terms of growth. Gone were the days where video games were treated as a hobby, today, gaming has evolved into a potential career for highly skilled players. Johan Sundstein, currently the captain of OG (Dota 2) has reaped a total winnings of 7 million dollars which does not include his salary as of October 2020. Complementary to that, we are seeing an emergence of educational institutions offering esports scholarship to students who can compete in esports professionally, providing opportunities to those wanting to compete in a professional scene. 

Covid-19

While covid-19 is viewed as an unfavourable factor for most economic sectors, it is undeniably a pleasant surprise to a certain extent for the video game industry. On preliminary judgements, covid-19 has caused delays to console releases like Xbox Series X and the PlayStation 5 and anticipated game titles like Halo: Infinite and Cyberpunk 2077. While physical events like esports competitions and game conventions are affected as well, these events can be held virtually to offset the loss of sales, unlike traditional sports which are held off since it would pose huge infection threats to the players. However, covid-19 has helped solidify video game’s positional lead within the entertainment industry as consumers seek for alternative forms of entertainment during lockdowns. Games like Animal Crossing and Fall Guys which had their release dates coinciding with the impose of lockdown saw huge success in terms of initial debut. Even older titles like Among Us and Plague Inc experienced major resurgence due to separate reasons, one for its relevance to the pandemic and another as spillover effects from popular streamers. With the end of pandemic being nowhere in sight, the hike of video game sales will possibly translate into a permanent effect for the industry as gaming gets adopted as mainstream entertainment.

Threats and pitfalls

Piracy

Considering video games are a form of media entertainment, it is a victim of piracy. While not extremely common, some video games are regionally locked, where players of excluded regions have no legal means of obtaining said game due to censorship or licensing issues. Furthermore, the shift of physical distribution to electronic distribution has made pirated copies readily available. Back then, physical purchases would require a one-off usage CD key before getting installed. While a study done by the European Commission that claims that piracy actually boost game sales indirectly, arguing that those who pirate games tend to have a high unwillingness to pay, hence the loss of sales tend to be overestimated. From an economical point of view, consumers can obtain virtually similar goods and services at a lower price with minimal consequences. Hence, several actions can be taken by developers and producers to disincentivize digital piracy. Between F2P games and B2P games, F2P games possess a huge advantage over B2P games in which players have no incentive to pirate these games. The developers can simply focus on enhancing microtransactions to encourage players to spend without concerns of piracy. In other words, consumers want their games worth each and every ounce of penny they are paying, which is why developers and producers should just focus on optimizing game development and production. On the other side of things, legal and enforcement bodies can also reduce piracy by tightening regulation such as the Digital Millennium Copyright Act (DMCA).

Cheating

Similar to physical sports, video games have to deal with cheating as well. While cheating can enhance the gameplay experience for single player games, it severely ruins the enjoyment of multiplayer games, which tend to be a prominent target of cheating due to psychological factors. Most cheating software relies on manipulation of stored values and forging network packets. To avoid this, game developers are tasked to develop anti cheating software that is built-in to the game. Tools like statistical analysis can help detect anomalies on player performance to justify a sudden improvement in skill level. Of course, the player base itself plays a crucial role in reporting suspected cheaters for further inspection. While several professional esports players or teams have been caught red-handed such as match-fixing by Arrow Gaming of Dota 2, most cases have been treated seriously, usually imposed with a permanent ban from the professional esports scene to further discourage similar behaviour.

Privacy and security risks

Let us take a moment to be honest to ourselves: Most of us do not read the exact details even after agreeing to any form of terms and conditions. Ironically, this has caused severe backlash such as boycotting and forced re-releases when a game poses underlying privacy and security risks. With regards to personal information, most data are relatively secured and well encrypted, thanks to the General Data Protection Regulation (GDPR). Some concerns exist for the usage of alternative data such as personality, preferences, in-game decision making, text mining although most of these are collected for targeted ads. For the case of security issues, gamers are easily targeted by cybercrimes. Games are often used as a gateway to gain access to financial information, not to mention the plethora of phishing-based attacks which opens up via in-game purchases. Regarding the aforementioned anti-cheating software, unfortunately, these software often have kernel access to a person’s device. Without getting overly technical, kernel access simply means that the software is able to obtain direct access to raw data stored in one’s device. These security failures are often undetected initially, however once discovered, the public opinion towards the game can deteriorate rapidly, causing significant negative changes in both review scores and player count, which could be seen for Genshin Impact during the initial release whereby it was reported that its kernel anti-cheating software would continue to run even after the game was closed. Fortunately, the developers swiftly addressed the issue by modifying the software to run only when the game was running.

Conclusion 

To sum it up, the video game industry has grown exponentially in the recent years to spearhead the entertainment industry. Over time, developers and producers should adopt ever-changing monetization models to adapt to an increasing genre of video games. Besides, the growth of the video game industry is justified and expected to persist due to the existence of the current catalysts. As with any industry, there are always factors which threaten the industrial robustness, which can be nullified through holistic policies, both from the supply side and external parties.

Researcher: Cheong Jian Yan

Reviewer: Millen Lau

Editor: Hui Zhen Tay

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