Wednesday, August 20, 2008

Immigration: Enforcement or Politics?

Immigration: Enforcement or Politics?


Jazmin Zavala, an office cleaner in King of Prussia, Pa., a Philadelphia suburb, expected a regular shift when she reported to work July 31. But her day turned to worry when her employer, ABM Industries (ABM), called a mandatory employee meeting at 4:30 p.m., the time workers usually collect their checks.

Zavala, 22, says that when she and 50 other workers arrived at the meeting, an immigration official dressed in plainclothes said into a megaphone, "You belong to ICE (U.S. Immigration and Customs Enforcement)." Several officers then checked each worker's identification, releasing those with proof of U.S. citizenship and searching those remaining. Men were handcuffed and escorted into a police truck, while women, including Zavala, were arrested and fitted with ankle bracelets. "It was horrible," Zavala said through a translator. "As they were searching me all I could think about is my [4-month-old] baby. I don't understand because we are not criminals, only workers."

"Culture of Compliance"

Zavala, who entered the U.S. illegally in 2001 from Mexico City, is now waiting for a letter from the agency about her fate. She lives with her mother and two young children in Norristown, Pa.

ABM spokesman Tony Mitchell declined to discuss the particulars of the event, but says the San Francisco-based company complied with ICE in the enforcement action. ICE spokesman Brandon Alvarez-Montgomery confirmed that agents questioned each individual about his or her immigration status and that those determined to be illegally present in the U.S. and working illegally were arrested, following normal procedures.

The raid at ABM is one of the most recent in a series of stepped-up enforcement actions in recent months by ICE, a branch of the Homeland Security Dept. While workplace raids were rare just a few years ago, ICE has posted record enforcement action in the last 12 months; in fiscal year 2007, it made 863 criminal arrests and 4,077 administrative arrests. That's up more than 800% since 2002, when there were just 25 criminal arrests and 485 administrative arrests.

The agency's aim, says ICE Assistant Secretary Julie Myers, is to show employers and workers that until new immigration laws come into effect, the agency will steadfastly enforce existing law. "Our goal is to create a culture of compliance," says Myers. "The IRS doesn't audit every tax return in the country, but the threat of an IRS audit is enough to compel most people to do the right thing."

Policy Shift

But critics say ICE's actions are more about politics than law enforcement. Following Congress' failure to pass comprehensive immigration reform in June 2007, the Bush Administration has turned to the Homeland Security Dept. to show it's serious about enforcing current laws. President Bush strongly supported the Comprehensive Immigration Reform Act of 2007—written by a bipartisan group of U.S. senators and the White House—which called for a legalization program for undocumented immigrants with an eventual path to citizenship. A fierce public debate ensued, as did a rift in the Republican Party, with the majority of the party's conservative base opposed to the bill because of its legalization provisions. Senator John McCain (R-Ariz.), the presumptive Republican Presidential nominee and a co-sponsor of the 2007 bill, now uses tougher rhetoric on the campaign trail, saying law enforcement and border control are top priorities.

Appearing tough could help Republicans win votes in November, but immigrant and worker advocate groups consider ICE's tactics harsh and inhumane. Following a May 12 raid of the Agriprocessors meatpacking plant in Postville, Iowa—the largest-ever workplace raid, with 389 worker arrests—the House Judiciary Committee heard testimony July 24 about the lack of adequate access to legal counsel for the workers arrested in that and other actions. Representative Luis Gutierrez (D-Ill.) called on President Bush to place a moratorium on ICE raids, comparing the agency to the "Gestapo."

"Something really shifted in the Bush Administration once it realized comprehensive immigration reform was not going to pass on its watch," says Peter Markowitz, professor of law at the Benjamin Cardozo School of Law at Yeshiva University in New York. "When they saw the public policy battle was lost, they moved instead to public relations. The strategy now is to shore up the Republican base by demonstrating a big, flashy show of force." Markowitz says he thinks the strategy, which he dubs "tokenism," will backfire, as the GOP risks becoming associated with an "unforgiving and unreasonable approach to immigration."

Special Attention to Certain Industries

But ICE administrators say their efforts are by nature more symbolic than comprehensive. Myers says a variety of factors points the agency to a particular workplace, from information given by informants and undercover agents, to tips gathered on hotlines and calls from employers who feel competitors have an unfair advantage with undocumented workers. Some industries that get special attention include critical infrastructure, service and hospitality, meat processing, and construction. "We go where the evidence takes us," Myers says.

She declined to say what information led ICE to ABM, but ABM spokesman Mitchell says the company cooperated with the agency. "Our policy is full compliance with the law," he says. "When ICE informed us that some of our employees had gone outside the law by providing false documentation, we cooperated with them on the enforcement action."



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  • Will a BAA Breakup Fix London's Airports?

    Will a BAA Breakup Fix London's Airports?


    Ed. Note: This is an updated version of a story originally published Aug. 19.

    You might think these would be happy days for BAA—formerly the British Airports Authority—the private operator of seven major airports in Britain, including London's Heathrow and Gatwick. The embarrassing snafus that soured the opening (BusinessWeek.com, 3/27/08) of the gleaming Terminal 5 at Heathrow are getting worked out, and on Aug. 18, BAA completed a huge $25 billion debt restructuring that should ease concerns over its financial situation.

    But there's no time for celebration. As soon as Aug. 20, Britain's Competition Commission is expected to announce the results of a 16-month investigation into BAA that could call for the operator to be broken up. To encourage competition, BAA may be forced to divest as many as three of its airports, including either or both of London's Stansted and Gatwick, as well as perhaps Glasgow or Edinburgh in Scotland. Some analysts believe that the sale of Gatwick alone could fetch as much as $6 billion. Update: The commission moved as expected on Aug. 20, ordering the sale of two London airports and either Glasgow or Edinburgh.

    Although the benefit to airlines and consumers wouldn't be felt immediately, many believe nevertheless that busting up BAA's airport monopoly is the best way to lower costs and improve service. "Separating the ownership of Gatwick and Heathrow makes a great deal of sense," says Howard Wheeldon, a senior strategist at brokerage BGC Partners (BGCP) in London. "It will put pressure on Heathrow's owner, BAA, to get its act together."

    Ferrovial Forced to Unload Assets

    It wasn't supposed to work out this way for Grupo Ferrovial (FER.F), the Spanish construction and infrastructure giant that bought BAA two years ago for $19 billion (BusinessWeek.com, 6/27/06). But almost from the beginning, BAA has turned out to be an albatross. Earlier this year, Ferrovial conceded it might have to unload assets to pay for the acquisition (BusinessWeek.com, 2/27/08).

    Less than a month later, BAA won the right to sharply raise landing fees at Heathrow and Gatwick to pay for overdue improvements. The move set off howls of protest from airlines and passengers (BusinessWeek.com, 3/11/08). Yet higher charges alone weren't enough to make the numbers add up. Hence the big refinancing, which should permit BAA to pay down debt and improve its airports. The funds will be used to "deliver our ambitious investment program to expand airport capacity, build new facilities, and provide a better service to passengers and airlines," Chief Executive Colin Matthews said in an Aug. 18 statement.

    It may be too little, too late. Airlines complain loudly that the landing fees at BAA's London airports, which already top $25 per passenger, are excessive. In a written submission to the Competition Commission during its BAA investigation, American Airlines (AMR) claimed that "BAA's mismanagement of London's airports" has cost it millions of dollars in "higher landing fees, reduced operational performance, and lost revenue as passengers choose to connect through other European hubs."



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  • China Olympic Hero Liu Xiang Quits Games

    China Olympic Hero Liu Xiang Quits Games


    It was meant to be the crowning event of the Summer Olympics in Beijing. The Bird's Nest Stadium erupted in wild cheering when hometown hurdler Liu Xiang stepped onto the field. But the jubilation gave way to shock, disbelief, and heartbreak when, after an initial false start caused by another runner, Liu walked away from the field, unable to compete because of an injured Achilles tendon.

    No other Chinese athlete felt more pressure coming into the games than Liu. Since winning the 110 hurdles in Athens in 2004, Liu become an overnight hero to Chinese fans and a darling of marketers, including Nike (NKE), Coca-Cola (KO), Visa (V), and McDonald's (MCD), not to mention more than a dozen Chinese brands (BusinessWeek.com, 8/8/07) ranging from tobacco company Baisha to Spring of Sudi, a real estate company. Last year, Liu's tie-ins with corporate sponsors, which also included General Motors (GM), earned him an estimated $15 million, placing him second in earnings only to Houston Rockets center Yao Ming among Chinese sports stars.

    Now, as Chinese fans cope with their collective despair over Liu's tragic withdrawal from the Games, his sponsors (BusinessWeek.com, 7/31/08) are doing their best to put on a brave face. "We are still proud and honored to have him as a brand ambassador," says Keith Kaerhoeg, group communications director of Coca-Cola Pacific. "We will certainly continue our engagement with Liu Xiang and wish him a full and early recovery." Coke began working with Liu in 2003 before his Olympic win.

    Will Sponsors Stand By Him?

    Still, you can bet Coke is praying Liu will be back in competition soon. Coke's partnership with Liu Xiang has been one of China's most successful Olympic-related campaigns. According to data collected in May by market research firm Nielsen, 62% of those asked were able to recall a Coke ad in which he was featured. Despite his injury, he is still scheduled to make an appearance at Coke's pavilion on the Olympic green later this week.

    How many of those lucrative sponsorship deals will continue after the Olympics is over remains to be seen. Hurdlers are among the most injury-prone athletes, and Liu had been plagued by difficulties since May. His teary-eyed coach, Feng Shuyong, told a press conference where Liu was not in attendance that "if his injury weren't so serious, he would never have quit," according to the official Chinese news agency Xinhua. That statement does not augur well at all for Liu's future in competition. He will be 30 for the next Olympics.

    Of course, sponsoring individuals is always more chancy than backing entire teams or events. "From a marketing perspective, association with athletes carries special risks, from notoriety to injury," says Seth Grossman, communication planning director at Aegis Group subsidiary Carat China in Shanghai. "The future for Liu Xiang and those brands is anybody's guess, but this isn't the time where major brand decisions are made."

    Not All Sponsorships in One Basket

    PC maker Lenovo says it's impossible to speculate on how Liu will reckon in its marketing plans going forward. As company spokesman Bob Page in Beijing points out, Liu Xiang was one of 15 athletes working with Lenovo; others include U.S. women's beach volleyball duo Kerri Walsh and Misty May-Treanor, and Australian women's swimming 50-meter freestyle world record-holder Libby Trickett. So while Liu's withdrawal from the games comes as a disappointment, the company didn't have everything riding on him alone. "These things happen," says Page, "Some athletes do extremely well and some don't, that's part of competing in the Olympic Games."

    With Liu out of the competition, Cuban sensation Dayron Robles looks like a shoo-in for the 110 men's hurdles gold medal. If that's the case, you can be sure corporate sponsors will be beating down his door to sign deals.



  • What Will the Olympics Do for China?
  • The iPhone Kill-Switch Kerfuffle

    The iPhone Kill-Switch Kerfuffle


    And you thought Google's (GOOG) got the goods on you. Sure, the Web search leader keeps tabs on the searches that emanate from your PC. But consider the data dossier that could be drawn up on users of Apple's (AAPL) iPhone. Subscribers use the music-playing mobile phone not just for storing music, photos, and contact lists, but also for e-mail, Web surfing, and software downloads from Apple's iTunes.

    Concern over how Apple and software developers that work with it might use some of that intel surfaced in recent days with reports that the company built in a "kill switch" that lets it disable applications it considers malicious, even after they've been downloaded onto a subscriber's phone. "The idea that Apple can choose what functionality my applications should have frightens me," Jon Zdziarski, who discovered the existence of the kill switch, recently wrote on his blog. "How about legislation that requires a mandatory kill switch be integrated into every human being, so that the police can kill an individual without even needing to dispatch an officer to a scene?"

    But for all the unease over the kill switch, concerns over how Apple may use iPhone subscriber data may be misplaced, industry experts say. Apple isn't alone in monitoring the applications used on its phones. Carriers keep close tabs on what's being downloaded onto users' handsets. Mobile software retailer Handango regularly removes offending games and utility applications from its site if they appear to infringe on another company's copyright. "We have to do this all the time," says Handango CEO Bill Stone.

    Overriding Privacy Laws?

    Companies across the industry already collect oodles of user data. Handango, for instance, knows which phone model its customers use and which applications they buy, so it can recommend additional products. Microsoft (MSFT) and Nokia (NOK) gather information on people who sign up for their newsletters and mobile online communities. Windows Mobile devices come with an application that lets users volunteer to participate in market research. Phones of people who opt in send the Redmond (Wash.) giant information on how and when they are used. Microsoft uses the data to regulate the wireless bandwidth usage of phones.

    Members of the Windows Mobile Total Access community provide Microsoft with name, location, phone purchase date, e-mail address, and job information. And both Nokia and Microsoft have their own "kill switch" tools—though they're more limited in scope than Apple's.

    But as a rule, companies that collect user data comply with stringent privacy laws, and can typically view only aggregate user data. Apple didn't respond to multiple requests for comment but says in a disclaimer on its Web site: "We collect information regarding customer activities" through sites, including iTunes. "This helps us to determine how best to provide useful information to customers and to understand which parts of our websites, products, and Internet services are of most interest to them."

    Apple's "Holy Grail"

    Though Apple is hardly alone in gathering user data, it has the potential to collect more data than rivals. According to a survey of 460 iPhone users by market researcher Rubicon Consulting, 40% of the device's owners plan to download additional software. That means a huge percentage of iPhone users are now making purchases through the iTunes App Store. Thanks to iTunes, Apple already knows their tastes in music. Now it also knows which games they like to play, and which productivity applications they like to use.

    Other handset makers rely more on piecemeal data shared by carrier partners or collected from small focus groups. The extra information could help Apple more quickly develop features and software its users want.

    Apple can also track the quality of wireless networks its devices use by noting how fast downloads occur. "No one's been able to do that before," says Richard Doherty, director of consulting firm Envisioneering Group. "That's the holy grail. By continually monitoring how consumers are using the phone, they are able to be super-responsive to glitches." Apple can also push software updates onto phones. Users of some other mobile devices have to seek out software updates themselves.

    Don't be surprised if those other manufacturers start following suit.



  • A Stroll Through the iPhone App Store
  • Starbucks: Big Investors' Divorce Grounds

    Starbucks: Big Investors' Divorce Grounds


    The past few weeks have been a real grind for investors in Starbucks (SBUX). First came the news in July that the coffee behemoth was closing more than 600 U.S. stores. Then the company posted a $6.7 million loss in the third quarter. And now, there's news that another big shareholder has liquidated its position in the company. On Aug. 14, the hedge fund Maverick Capital reported in an SEC filing that it had dumped 12.5 million Starbucks shares sometime before June 30.

    Other major investors that unloaded their shares were Nelson Peltz's Trian Partners, which sold more than 800,000 shares, and Fidelity Management & Research, which shed 5.5 million. In the past year, Starbucks' stock price has slipped more than 15%.

    It begs the question: Why are some bigger investors cashing out, and do they see new trouble brewing for Starbucks? (Both Maverick Capital and Trian Partners declined to comment for this story, and Starbucks did not respond to an e-mail request for comment.)

    In a third-quarter conference call, Starbucks Chief Executive Howard Schultz emphasized the company was "transforming the business for long-term, profitable growth" as the seemingly ubiquitous brand scales back its growth and tries to revitalize its image as a cozy, upscale coffeehouse on every corner. (Schultz's transformation may still be a ways off: On July 29, Starbucks said it was slashing 1,000 support positions worldwide, and closing 61 of its 84 stores in Australia.)

    To be sure, some investors still think highly of the coffee king, and are banking on the company's cost-cutting to reignite depressed share prices. Between Mar. 31 and June 30, Lateef Management Associates purchased more than 14.5 million Starbucks shares, and D.E. Shaw increased its position by more than 5.8 million shares over the same period. Plus, many restaurant companies would still kill for Starbucks' 26.5 price-earnings ratio, which dwarfs the industry average of 19.1, according to Standard & Poor's.

    Restoring Luster

    But Schultz faces a tough battle in bringing back the company's traditionally prolific growth. As recently as 2004, Starbucks' stock traded at an eye-catching 68 times earnings for the trailing 12 months, according to S&P research. "The big problem is they've been at the demands of Wall Street for so long to continually increase sales and increase the rate quarter-over-quarter," says Andrew Hetzel, a coffee industry consultant. "But you can only do that for so long."

    Since reclaiming the CEO spot in January after an eight-year hiatus, Schultz has launched several initiatives to restore the luster to the Starbucks brand amid increased competition from Dunkin' Donuts and McDonald's (MCD) and a steady slide in the company's stock price. In April, the company tweaked its logo and introduced a less-potent coffee blend called Pike Place Roast—named after the Seattle market in which Starbucks was first offered—to stress the company's roots while catering to more mainstream coffee drinkers. In June, Starbucks began offering customers free Wi-Fi access in stores as part of a customer loyalty program. And in July, Schultz began offering fruit smoothies to spur afternoon sales. While costs have increased, some of the efforts may have helped: Third-quarter revenues increased 9% to $2.57 billion.



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  • Test Drive: Lexus IS-F

    Test Drive: Lexus IS-F


    The Lexus IS-F is a significant new design for one core reason: it introduces a performance sub-brand parallel to that of the M-cars from BMW, AMG from Mercedes-Benz, and the S and RS sub-brands from Audi. This then is Lexus making a logical next step to further encroach on the established German premium brands.

    BMW originated the premium brands' performance sub-brand with the 'M for Motorsport' M3 of 1986 (the M1 supercar of 1978 preceded that, but was a singular model, not a performance derivative). Now they are on their fourth generation M3 and M5. Though the 'M for Motorsport' moniker is now perhaps more 'M for marketing', M-cars still have a focus on lightweight track-orientated performance.

    Mercedes-Benz, and to a lesser extent Audi, differ with their performance sub-brands in that they place emphasis on power and usability with automatic gearboxes and non-switchable ESPs. It is this direction that Lexus are also taking with their 'F'.

    A naturally aspirated 5.0-liter 417bhp V8, which powers the rear wheels through an eight (!) speed automatic, makes the IS-F a close competitor for the M3 sedan and C63. But the way the design differs to the IS250/350 it is based on is different to how BMW, Mercedes-Benz and Audi differentiate M, AMG and S/RS cars from their base model brethren.

    The most significant difference is the longer, taller re-profiled hood that looks as though its iron fist of an engine has pushed up into the hood surface—it has a subdued, but clearly portentous, design identity. The second most notable and unique difference is the fake side air outlet vent in the subtly flared front wings—a tall slim aperture than runs rearwards and down into the extended rocker, which in turn leads into the flared rear wheelarches. There are also twin stacked exhaust pipes at both sides, distinctive smoked alloy wheel designs and new chunkier bumpers.

    The interior differs with a silver weave carbon fiber look trim appliqué on doors and center console in place of the molten chocolate wood-look trim that blights other IS interiors. It has separate rear seats with a very low quality plastic tray dividing them—and blue stitching on black leather combined with subtle blue relief to the leather perforations, which is most effective. There are also solid aluminum gear shift paddles, an 'F' on the steering wheel and seat squab sides and bespoke analogue instrumentation that, though handsome, sadly eschews the distinctive chronograph design of the original IS.

    Overall, outside and in, the IS wears its 'F' clothes very well. The differences from the base IS are seamlessly integrated, harmonious and distinct when compared to other premium brands' performance sub-brand cues, and they create a uniquely subtle but noticeable image.

    The IS-F may not be a radical departure from what we might have expected given Lexus' penchant to chase after the more well established German makes, but it does innovate and mark out a distinctive territory for Lexus relative to the C63 and M3 sedan. It may lack the ultimate handling of the M3 or the punch of the C63, but the differences are slight enough to be overlooked by the significant minority who desire an alternative to those cars. It will also undeniably appeal to those who want a design that has a unique iron fist quality in a velvet glove look.



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  • Monday, August 18, 2008

    Advertisers Are Winning Olympic Gold

    Advertisers Are Winning Olympic Gold


    The 2008 Olympic Games in Bejing are a tour de force for marketers. Some of the TV coverage is at odd hours in the U.S., but the narratives such as Michael Phelps' quest for gold-medal immortality, or the U.S. NBA players trying to avoid another international humiliation, resonate for many viewers.

    By any measure, NBC's Olympics coverage (BusinessWeek.com, 8/7/08) has been a success. Through five days, NBC Universal says it has attracted 168 million total viewers for the Olympics, nearly 15 million more than for the first five days of the Summer Games in Athens four years ago. The average prime-time Olympic viewing audience has been 31.3 million viewers through Tuesday, Aug. 12, according to Nielsen Media Research. That's the best since the 1992 Barcelona Games.

    The top price paid for a 30-second spot, during the swimming competition, is $750,000. Viewership and interest has been a bit better than marketers anticipated, enabling NBC to sell an additional $10 million in ads since the start of the Games. NBC had secured more than $1 billion in ad revenues before the Games began.

    There has been a mix of more than 100 new and old advertisers, with Adidas (ADSG), Nike (NKE), and Visa (V) among the heavy hitters. The overall list also includes both Presidential candidates, who together spent more than $10 million on Olympic ads.

    Winning Young Men

    More 18-to-34-year-old men are watching, which is a coup for NBC, since they are tough to attract to prime-time TV. Ratings among that group are up 28% compared with Athens. Among men aged 18 to 49, ratings are up 22%.

    Four years ago, the theme that surrounded the Olympics was whether Athens should have hosted the games at all given how pressed the city seemed to be to finish stadiums and arenas. This year, there has been a narrative around whether China, with a much criticized human rights record (BusinessWeek.com, 2/20/08) and air quality problems, should have won the privilege of the Games.

    But there is mystique around China. It is an emerging world power that is on track to pass the U.S. as the world's biggest economic engine. With so many story lines, and the Olympics conjuring an abundance of national pride (BusinessWeek.com, 5/28/08), advertisers are hard-pressed to come up with messages that can rival the events themselves for consumer attention.

    We've been watching the ads and in the accompanying slide show we rate them, just as we did the ads for the Super Bowl. Some of them were found worthy of a gold medal; others, we felt, should never have left the starting blocks.



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