lunes, 29 de julio de 2013

Bloomberg BusinessWeek: Pequeños Negocios esta semana

Global Economics
Tina Stratigaki, jobless since January, spends two hours a day looking for work. She’s had nine interviews but no offers. “I sit with my computer, searching, searching, searching”

Tina Stratigaki, jobless since January, spends two hours a day looking for work. She’s had nine interviews but no offers. “I sit with my computer, searching, searching, searching”

Features

Greece's Unemployed Young: A Great Depression Steals the Nation's Future


Outside an unmarked green metal door in the hallway of a suburban Athens high school, Tina Stratigaki waits for a job interview. It’s a Tuesday in mid-July. Stratigaki, 29, applied for the job as a social worker weeks ago and had taken an hour-long test the Friday before. Based on the list of applicants posted on the wall outside the exam, she estimates there were some 2,000 candidates for 21 open positions. This is the last interview she’s likely to get before Greece shuts down for the summer holidays. Her unemployment benefits—about €360 ($475) a month from her previous job working with disadvantaged women and children—have just run out. “I’m a little bit stressed,” she says.
 
Jobs of any kind are scarce in today’s Greece. Nearly six years of deep recession have swept away a quarter of the country’s gross domestic product, the kind of devastation usually seen only in times of war. In a country of 11 million people, the economy lost more than a million jobs as businesses shut their doors or shed staff. Unemployment has reached 27 percent—higher than the U.S. jobless rate during the Great Depression—and is expected to rise to 28 percent next year. Among the young, the figure is twice as high. Meanwhile, cuts to Greece’s bloated public sector are dumping ever more people onto the job market. In July, 25,000 public workers, including teachers, janitors, ministry employees, and municipal police, found out they would face large-scale reshuffling and possible dismissal. An additional 15,000 public workers are slated to lose their jobs by the end of 2014.

Greece’s jobs crisis is a window into a wider emergency that threatens the future of Europe. Across the continent, a prolonged slump has disproportionately affected the young, with nearly one in four under the age of 25 out of work, according to the European Commission. (In the U.S., youth unemployment is 16.2 percent.) That understates the severity of the situation in Italy and Portugal, where youth unemployment rates have soared above 35 percent; Spain’s is 53.2 percent, the second-highest after Greece, at 55.3 percent. European Union leaders have announced an initiative aimed at guaranteeing that all young people receive a job, apprenticeship, or more education within four months of joining the ranks of the unemployed. Governments have pledged €8 billion over two years to combat unemployment in Europe’s worst-hit countries, and the European Investment Bank is offering €18 billion in loans to encourage hiring by small and midsize businesses.
 
STORY: Greeks Were Wrong: Things Could Get Even Worse
Such pledges of help come too late for Greeks like Stratigaki, who are already spending what should be the most productive years of their lives poring over notice boards and alternating long periods of unemployment with all-too-brief periods of work. Absent a rapid and dramatic economic turnaround, an entire generation in Southern Europe faces years, possibly decades, of dependency and disillusionment—with consequences that can’t be measured in economic terms alone. “Our generation has depression,” says Stratigaki. “We are at the best age. We have the power to do everything. And we can’t do anything.”
 
Personal happiness can often be measured in the difference between what was expected and what reality delivers. Stratigaki and her peers came of age as Greece seemed set to cement its place in the ranks of the world’s richest countries. The 2004 Summer Olympics were presented to the country and to the world as a coming out party for a nation that had long been seen as one of Western Europe’s stragglers. It didn’t last. The global financial crisis revealed deep corruption in the Greek economy and an unwillingness on the part of its fellow European states to continue to prop it up. Greece quickly turned from success story to pariah. Just when Greeks of Stratigaki’s cohort were looking to launch careers and start families, the floor fell away.
Patsa makes ends meet working for her ­sister’s startup and with help from her father
Photograph by Finn Taylor

Patsa makes ends meet working for her ­sister’s startup and with help from her father
 
In Athens the crisis isn’t conspicuous. Family networks have kept the majority of the afflicted from landing on the streets. Empty storefronts are common, but so are cafes doing a brisk—if reduced—trade. Time has yet to work its fingers into the cracks and weaknesses of the city’s infrastructure. That said, it’s unusual to walk more than a few blocks in central Athens without encountering a knot of riot police, lounging on a street corner with their plastic shields and body armor. During the week of Stratigaki’s job interview, the trash collectors were on strike, leaving garbage piled around the bins. The local police, facing possible job cuts, were demonstrating, crisscrossing the city center in convoys of cars and motorcycles, sirens blaring.
 
STORY: Migrants Stay Busy as Unemployed Greeks Spurn Menial Jobs
 
Faris is a Bloomberg Businessweek contributor
 
 
For complete story:
http://www.businessweek.com/articles/2013-07-25/greeces-unemployed-young-a-great-depression-steals-the-nations-future

viernes, 26 de julio de 2013

This Week's Top Story, from Bloomberg BusinessWeek


Why Tech Guys Think They Can Sell Health Insurance

Policy

Why Tech Guys Think They Can Sell Health Insurance

 
When New York State announced the participants in its Obamacare exchange last week, there was an unfamiliar company on the list: Oscar Health Insurance. Started by tech venture capitalist Josh Kushner, and backed with $40 million from Silicon Valley investors such as Vinod Khosla and Peter Thiel, the company is seeking to solve a challenge few tech entrepreneurs have tackled: health insurance.

The pessimist’s take on state-sponsored insurance exchanges created by the Affordable Care Act goes something like this: Beginning in October, health insurers won’t be able to deny coverage to Americans with preexisting conditions; to offset the cost of carrying the sick and aged, insurers will need to convince young, healthy people to buy insurance. The Affordable Care Act takes a stick-and-carrot approach to getting Americans into the system, but neither premium subsidies nor tax penalties may be enough to convince healthy people to buy insurance. Rates rise for everyone.

Of course, there’s a rosier view of the individual mandate: Some 32 million (PDF) Americans are expected to join the health-care system in coming years, and many of them will buy health insurance on exchanges. Insurers competing for new customers, meanwhile, will have incentive to do a better job serving individuals. Is it possible to create an insurance plan with greater consumer appeal?

“We understand technology, data, and design,” says Kushner, who has invested in Instagram (FB), MakerBot, and Warby Parker, during an interview at Oscar’s New York City offices. For medical expertise, the company recruited Charlie Baker, former chief executive officer of Harvard Pilgrim Health Care, which sold individual plans on the Massachusetts exchange, as an investor and board member. The company also hired senior medical executives from EmblemHealth, which claims the mantle of the largest insurer in New York State.

Kushner says the initial inspiration for Oscar wasn’t health reform, but his experience of opening his insurance bill and realizing he couldn’t make any sense of it. He shared the idea with Mario Schlosser—previously at hedge fund Bridgewater Associates—and Kevin Nazemi, a former Microsoft (MSFT) exec, and the trio set to work building a health-care company they would want to use. That was 18 months ago. The New York-based company has since hired health-care executives, built a network of doctors, and won approval to operate as an insurer from New York State.

Starting from scratch has some advantages, Nazemi says, as does building an insurance company expressly for the individual market. “If you’re doing group plans, 99 percent of your focus is on the needs of human resources and brokers,” he says, because that’s how you sell the plans.

Oscar, he says, is aimed at improving the policyholder’s user experience. To make the company’s website pleasant to use, Oscar hired Tumblr’s (YHOO) former chief technology officer, Fredrik Nylander, and designed the site to make access to information quick and easy. To help answer medical questions, the company has doctors on call to chat online or over the telephone with customers. Oscar also lets customers check prices for procedures ahead of time and offers three free in-person doctor visits and free generic drugs. Industry incumbents have tried to include some of these options on their websites, Nazemi says, but the result usually “feels like you’re using an old, clunky ATM.”

Oscar, which has 28 employees, plans to expand staff when it starts selling insurance to residents of New York City, Long Island, and Westchester when the state’s exchange opens on Oct 1. There are about 1.2 million potential customers in the company’s initial coverage area, says Nazemi, and Oscar has set aside $26 million of its funding for reserves against losses. That’s enough to cover between 50,000 and 100,000 customers, he says.
Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

jueves, 18 de julio de 2013

De Bloomberg BusinessWeek: Esta Semana en los Pequeños Negocios


A New Way for Musicians to Make Money on YouTube
Music

A New Way for Musicians to Make Money on YouTube

(updated with royalty rates)
 
In 2001, composer Scott Schreer wrote a roughly two-minute saxophone-heavy acid jazz instrumental called Love Doctor, and the song lives in an online catalogue of music that he licenses to film and TV producers. It also exists in some 1,500 YouTube (GOOG) videos that used the song without paying for the rights. Hunting those stray recordings and trying to collect licensing fees has never been worth most musicians’ trouble. In May, however, Schreer started getting paid by the former freeloaders.
 
Love Doctor and Schreer’s library of about 1,700 other tunes now bring his company about $30,000 per month from their use in YouTube videos. He’s the test case for a New York startup called Audiam that says it can help artists profit when others use their music. Jeff Price, Audiam’s founder and a friend of Schreer’s, pitches musicians like this: “Let’s go find you money that already exists.”
 
Big record companies and music publishers already have deals with YouTube to collect money when their songs show up in videos. Small artists and composers don’t. Price wants Audiam to be the middleman for them. When YouTube ads appear on videos while their music is playing, Audiam will claim a share of the revenue and send it along to the artist—minus a 25 percent cut. “It’s magic money,” Price says. “It’s buried treasure.”
 
Price has helped indie artists profit before. In 2006 he co-founded TuneCore, which lets musicians distribute their songs to iTunes and other online markets. He was ousted by the board last year in a nasty public feud, and he launched Audiam as his next act.
 
He picked a giant target in YouTube. The Google video-sharing website streams 6 billion hours of video each month. By one estimate, YouTube contributes 10 percent of Google’s revenue, which topped $50 billion last year. That would put YouTube’s revenue at about half of what’s spent on billboard advertising in the U.S.
 
Audiam was launched abroad in mid-June and will be ready to work with other artists in the U.S. by late July. Musicians can sign up for free and send the company their songs, granting Audiam the right to license them on YouTube. Audiam scans the gargantuan library of YouTube videos to find where those songs appear. The company does this with YouTube’s ContentID system and a separate piece of “audio fingerprinting” software called TuneSat developed by Schreer (he has a partnership with Price). Then Audiam authorizes YouTube to put advertising on those videos.
 
When Price and Schreer plugged Love Doctor into the system, it found 1,500 videos that had been played more than 100,000 times over 11 days in May—good for $120 in licensing fees, according to Schreer.
 
Few artists will see the kind of cash that Schreer now gets from Love Doctor and the rest of his catalogue. Schreer owns Freeplay Music, a library of hundreds of songs meant to be background music for videos. For a garage band with a couple of albums, any YouTube revenue will be “a little extra gravy,” says Aram Sinnreich, a media professor at Rutgers University and author of the forthcoming book, The Piracy Crusade. And Sinnreich says Audiam’s 25 percent cut is steep: Organizations such as Ascap and BMI that represent performers and songwriters typically take around 10 percent. (Price maintains that performing rights organizations collect more than that on YouTube; Ascap and BMI did not immediately respond to queries.)
 
Still, Sinnreich says, Audiam is poised to benefit from music consumers’ shifting habits. “The writing is essentially on the wall for the download model,” he says, as fans switch from buying music on iTunes to streaming songs on such sites as Spotify, Pandora, and YouTube. That’s proving to be a lousy way for even successful artists to earn money. Plenty of striving musicians would welcome revenue from YouTube clicks. “There are tens of thousands, maybe hundreds of thousands of independent composers and performers whose work does appear on sites like YouTube,” Sinnreich says.
 
And if a song like Love Doctor happens to show up on a video that achieves “Gangnam Style” reach, Audiam can make sure the musicians get their due. Says Schreer: “If someone takes the music you wrote as a garage guy in Minneapolis and puts it into a cat video that goes viral, you’re doing pretty well.”
Tozzi is a reporter for Bloomberg Businessweek in New York

lunes, 15 de julio de 2013

From Boomberg Business Week: Hedge Funds Are for Suckers !!!

Markets & Finance
July 11, 2013
 
They were brought to Washington to stand up for their industry and their paychecks, and to address the question of whether their business should be more tightly regulated. They all refused to apologize for their success. They appeared untouchable.
 
What’s happened since then is instructive. Soros, considered by some to be one of the greatest investors in history, announced in 2011 that he was returning most of his investors’ money and converting his fund into a family office. Simons, a former mathematician and code cracker for the National Security Agency, retired from managing his funds in 2010. After several spectacular years, Paulson saw performance at his largest funds plummet, while Falcone reached a tentative settlement in May with the U.S. Securities and Exchange Commission over claims that he’d borrowed money from his fund to pay his taxes, barring him from the industry for two years. Griffin recently scaled back his ambition of turning his firm into the next Goldman Sachs (GS) after his funds struggled to recover from huge losses in 2008.
 
As a symbol of the state of the hedge fund industry, the humbling of these financial gods couldn’t be more apt. Hedge funds may have gotten too big for their yachts, for their market, and for their own possibilities for success. After a decade as rock stars, hedge fund managers seem to be fading just as quickly as musicians do. Each day brings disappointing headlines about the returns generated by formerly highflying funds, from Paulson, whose Advantage Plus fund is up 3.4 percent this year, after losing 19 percent in 2012 and 51 percent in 2011, to Bridgewater Associates, the largest in the world.
 
This reversal of fortunes comes at a time when one of the most successful traders of his time, Steven Cohen, founder of the $15 billion hedge fund firm SAC Capital Advisors, is at the center of a government investigation into insider trading. Two SAC portfolio managers, one current and one former, face criminal trials in November, and further charges from the Department of Justice and the SEC could come at any moment. The Federal Bureau of Investigation continues to probe the company, and the government is weighing criminal and civil actions against SAC and Cohen. Cohen has not been charged and denies any wrongdoing, but the industry is on high alert for the possible downfall of one of its towering figures.
 
Despite all the speculation and the loss of billions in investor capital, Cohen’s flagship hedge fund managed to be the most profitable in the world in 2012, making $789.5 million in the first 10 months of the year, according to Bloomberg Markets. His competitors haven’t fared as well. One thing hedge funds are supposed to do—generate “alpha,” a macho term for risk-adjusted returns that surpass the overall market because of the skill of the investor—is slipping further out of reach.


According to a report by Goldman Sachs released in May, hedge fund performance lagged the Standard & Poor’s 500-stock index by approximately 10 percentage points this year, although most fund managers still charged enormous fees in exchange for access to their brilliance. As of the end of June, hedge funds had gained just 1.4 percent for 2013 and have fallen behind the MSCI All Country World Index for five of the past seven years, according to data compiled by Bloomberg. This comes as the SEC passed a rule that will allow hedge funds to advertise to the public for the first time in 80 years, prompting a flurry of joke marketing slogans to appear on Twitter, such as “Creating alpha since, well, mostly never” (Barry Ritholtz) and “Leave The Frontrunning To Us!” (@IvanTheK).
 
Hedge funds are built on the idea that a smarter guy (and they are almost all guys; only 16.8 percent of managers are women) with a better computer can make miracles possible by uncovering inefficiencies in the market or predicting the future. In pure dollar terms, there are more resources, advanced degrees, and computing firepower devoted to chasing this elusive goal than almost any other endeavor, and that may include fighting wars. Yet traders face the immutable fact that every second, each megabyte of information, blog post, one-line rumor, revenue estimate, or new product order from China has already been taken into account by the efficient market and reflected in a security’s price. This means that trying to gain what traders call an “edge,” at least legitimately, is almost impossible. As the financial incentives on Wall Street have become enormous, so have the competition and pressure to gain an advantage at any cost.
 
Few people will shed tears for an industry that has produced more than its fair share of billionaires—some of whom, like Cohen, are notorious for their displays of wealth. Nevertheless, the decline of hedge funds has implications beyond Wall Street. The financial kingpins who profited most from hedge funds’ golden age gained the ability to make influential political donations and to bend big banks to their will. In the U.S., hedge funds manage a significant portion of pension funds and university endowments. For investors who chased the colossal returns once promised, the downturn may well bring painful losses. But it could also be the beginning of a virtuous cycle. If it’s going to survive, the industry may need to get smaller and a lot more modest.
 
Hedge funds began as a small, almost sideline, service. They were the alternative investments for the wealthy, intended to perform differently than the overall market. “Any idiot can make a big return by taking a big risk. You just buy the S&P, you lever up—there’s nothing clever about that,” says Sebastian Mallaby, the author of More Money Than God: Hedge Funds and the Making of a New Elite. “What’s clever is to have a return that’s risk-adjusted.”
 
This is what Alfred Winslow Jones, an Australian-born onetime financial journalist, had in mind in 1949 when he created a private investment partnership that was designed to be “hedged” against gyrations in the market. Jones borrowed shares, sold them short, and hoped to earn an offsetting profit on them if the market dropped and his long positions lost value.
 
It didn’t come without risks: Shorting exposes an investor to potentially limitless losses if a stock keeps rising, so regulators decided that only the most sophisticated investors should be doing it. Hedge funds would be allowed to try to make money almost any way they wanted, and charge whatever fees they liked, as long as they limited their investors to rich people who, in theory, could afford to lose whatever money they put in. It was a side bet.
 
For a while, the funds were expected to produce steady, modest returns, in contrast to the wider swings of the market. In a 2011 paper that he updated this year, Roger Ibbotson, a finance professor at the Yale School of Management who runs a hedge fund called Zebra Capital Management, analyzed the performance of 8,400 hedge funds from 1995 to 2012; he concluded that on average they generated 2.5 percent of precious alpha. “They have done a good job, historically,” Ibbotson says. “Now, I think it’s overcapacity. I doubt that the alphas are completely gone, but alphas are going to be harder to get in the future than they have been in the past.”
 
With each millionaire-minting stock market boom, the number of hedge funds has increased as the rich scour the market for new ways to get even richer. It’s no coincidence that the first decade of the 21st century, when the wealthiest 0.1 percent became exponentially wealthier, marked the high-water mark for hedge funds. Now there are about 10,000 hedge funds managing $2.3 trillion. The pioneers, such as Cohen and Paulson, had learned that working at investment banks with their brutal hours and byzantine corporate cultures—not to mention the fighting over bonuses every January—was for suckers. Hedge funds offered would-be financial hotshots a faster and more glamorous path to obscene wealth.
 
One of the most alluring aspects of the business vs. other sectors of Wall Street is what people in the tech world call “scalability.” Hedge fund managers could easily expand their annual bonuses from millions a year to tens of millions or more just by bringing in more investor money and making the fund larger, often with little extra work. Most hedge funds charge a management fee of 2 percent of assets, which is intended to cover expenses and salaries, as well as 20 percent of the profit generated by the fund at the end of the year. A fund managing $300 million would take $6 million in fees, plus its 20 percent cut; if the fund grew to $3 billion in assets, the management fee would jump to $60 million. If a fund of that size returned only 6 percent that year, it would generate $180 million in profit, $36 million of which the managers could keep. It quickly starts to look like a smart use of a Harvard degree.
 
Yet this once hugely lucrative model has proven unsustainable. One chief investment officer at a $5 billion institution breaks down the typical hedge fund life cycle into four evolutionary stages. During the early period, when a fund is starting out, its managers are hungry, motivated, and often humble enough to know what they don’t know. This tends to be the best time to put money in, but also the hardest, as the funds tend to be very small. Stage two occurs once the fund has achieved some success, when those making the decisions have gained some confidence but they aren’t yet so well-known that the fund is too big or impossible to get into.
 
Then comes stage three—the sort of plateau before the fall—when the fund gets “hot” and suddenly has to beat back investors, who tend to be drawn to flashy success stories like lightning bugs to an electric fence. Stage four occurs when the fund manager’s name is spotted as a bidder for baseball teams or buyer of zillion-dollar Hamptons mansions. Most funds stop generating the returns they once did by this stage, as the manager becomes overconfident in his abilities and the fund too large to make anything that could be described as a nimble investing move. “The bigger a fund gets, the more difficult it gets to maintain strong performance,” says Jim Kyung-Soo Liew, assistant professor in finance at the Johns Hopkins Carey Business School. “That’s just because the number of opportunities is limited in terms of putting that much money to work.”
 
Hedge funds have also been hurt by their success. Most of the advantages their investors once had—from better information to far fewer people trying to do what they do—have evaporated. In the easy, early days, there was less than $500 billion parked in a couple thousand private investment pools chasing the same inefficiencies in the market. That’s when equities were traded in fractions rather than decimals and before the SEC adopted Regulation FD, which in 2000 tightened the spigot of information flowing between company executives and hungry traders.
 
After 2000, the supposed “smart” money began paying expert network consultants—company insiders who work as part-time advisers to Wall Street investors—to give them the information they craved. The government has since cracked down on that practice, which in some cases led to illegal insider trading. The rise of supercharged computer trading means speed is one of the few ways left to gain an advantage.


As their returns have fallen, the biggest hedge funds have started to seem more like glorified mutual funds for the wealthy, and those rich folks might start to take a harder look at whether they’re getting their money’s worth. This could be an encouraging development for the world economy, considering that hedge funds provided huge demand for the toxic mortgage derivatives that helped lead to the financial collapse of 2008. At the same time, the tens of billions that pension funds have plowed into funds such as Bridgewater’s All Weather Fund—down 8 percent for the year as of late June, according to Reuters, compared with a 10.3 percent rise in the S&P 500—mean that the financial security of untold numbers of retirees could be threatened by a full-scale hedge fund meltdown.
 
For the moment, that possibility seems remote. The age of the multibillionaire celebrity hedge fund manager may be drawing to a close, but the funds themselves can still serve a useful purpose for prudent investors looking to manage risk. Let the industry’s recent underperformance serve as a reality check: No matter how many $100 million Picasso paintings they purchase, hedge fund moguls are not magicians. The sooner investors realize that, the better off they will be.
 
Kolhatkar is a features editor and national correspondent at Bloomberg Businessweek. Follow her on Twitter @Sheelahk.
 
Business Exchange: What your peers are reading.

(enter your email)
(enter up to 5 email addresses, separated by commas)
Max 250 characters

Feed Rss-symbol Most Popular

viernes, 12 de julio de 2013

From Bloomberg BusinessWeek: Small Business This Week

The Federal Government Misses Its Small Business Contracting Target ... Again

Policy

The Federal Government Misses Its Small Business Contracting Target ... Again


In what’s become a rite of summer, the Small Business Administration reported today that the federal government missed its goal for small business contracting for at least the seventh straight year.

Federal law dictates that the U.S. government try to award 23 percent of federal contracts to small businesses. (Of course, that’s a target, not a mandatory requirement.) According to a scorecard published by the SBA, federal agencies awarded $89.9 billion in contracts to small businesses in fiscal year 2012, or 22.25 percent of total contracts. For fiscal year 2011, the government awarded $91.5 billion in contracts to small businesses, or 21.65 percent of the total spend.

Data available on the SBA’s website show that the government has missed small business contracting targets every year since at least 2006; last year, Danielle Ivory of Bloomberg News reported that the U.S. had missed the 23 percent goal for at least 11 straight years.

The White House should make meeting contracting goals “a priority because it is efficient governance, and not just a law that makes small businesses feel good,” said Representative Sam Graves, the Missouri Republican who chairs the House Small Business Committee, in an e-mailed statement. “Improving small business opportunities through federal contracts creates jobs and saves taxpayer money because small businesses bring competition, innovation and lower prices.”

In addition to the 23 percent target, agencies are supposed to award 5 percent of contracts to women-owned business and 3 percent to businesses located in poor neighborhoods, but fell short of both goals. The government did meet contracting targets for small disadvantaged businesses and businesses owned by service-disabled veterans. All of that is good enough for the government to earn a B grade on the SBA scorecard—the same grade the government has earned every year since 2009.
Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.
 

martes, 9 de julio de 2013

This Week in Small Business (From Bloomberg BusinessWeek) Fireworks....

China Makes America’s Fireworks by Hand. This Inventor Has a Faster Way

Manufacturing

China Makes America’s Fireworks by Hand. This Inventor Has a Faster Way

By

The U.S. spent close to $1 billion on fireworks in 2012, according to the American Pyrotechnics Association. The trade group’s executive director, Julie Heckman, expects sales to climb “a little bit” in 2013, continuing the market’s steady upward trajectory. Unsurprisingly, the bulk of what explodes in America’s skies and crackles in backyards is imported from China, though a few display companies that put on shows do make a bit of their own stuff.
 
Less well known: Most fireworks are still made by hand to avoid accidental explosions in factories. “The materials are friction-sensitive,” Heckman explains. “Until I did my first trip to China about 20 years ago, I would’ve never really appreciated ‘made by hand.’ The number of man hours [for] 20 minutes of enjoyment is just astronomical.”
 
Fireworks veteran Jim Widmann of Sandy Hook, Conn., wants to speed up the manufacturing process. After learning the trade from fabled display giant Fireworks by Grucci and running his own outfit, he invented a machine that automates the most laborious step of making an aerial shell. It pastes the paper that contains the gunpowder “about eight or 10 times faster” than it would take by hand, says Widmann, 55. He notes none of the roughly 450 machines he’s sold through Connecticut Pyrotechnic Manufacturing, his six-year-old business, have caused accidents. And they’re “pretty intuitive” to use, he says. “I’ve sold plenty of machines to people I haven’t been able to speak one word with, using video, pictures, and the manual.”
 
Here, his daughter Sarah demonstrates how the machine works:
 
 
Widmann’s timing is good, says Phil Grucci, president and chief executive officer of his family’s storied “multimillion-dollar” fireworks business, which dates back to 1850. Grucci says in China “the labor that was available to manufacture fireworks is migrating to manufacture” more lucrative products, such as electronics and pharmaceuticals. Widmann’s “technology and that technique for pasting a shell is now widely revolutionizing the labor reduction in some of the manufacturers in Asia,” he says. It’s “given China the ability to maintain their productivity.”
 
The labor shortage “has left a lot of people asking, what’s the future of fireworks manufacturing in China going to be? Part of the solution to that is increased automation,” says Jesse Veverka, who just returned to the U.S. after shooting in Asia for Passfire, his forthcoming documentary about fireworks culture.
 
Widmann doesn’t expect to earn much from China. Even though Chinese factories are using his technology, few are buying his machines, which cost about $2,500. After traveling in China’s fireworks district multiple times and getting a Chinese patent, Widmann says, “it finally occurred to me that the Chinese are not going to buy my product.” When they “decide to use something like this, they just knock it off, one way or another.” Grucci, who bought Widmann’s machines for his family’s 165-employee manufacturing plant in Radford, Va., says he’s seen “facsimiles of his equipment around many of the factories around China,” as has Veverka.
 
Widmann, who has sold his machines in 30 countries, says a lot of business comes from hobbyists in the U.S., which Veverka estimates “on the order of 50,000 people.” They build their own for backyard fun in states with permissive fireworks laws. “I can pretty confidently say that every remaining [display fireworks] manufacturer” in the U.S. uses the machine, says Widmann.
 
He’s hopeful about reshoring. “I’m a big proponent of American fireworks manufacturing, for obvious reasons: I sell a machine that does it,” Widmann says. “But there are reasons to think it might come back,” he says, noting cargo ships don’t “give a damn about the fireworks market” because it’s a miniscule fraction of their business and they aren’t eager to jeopardize the rest of their cargo with an explosion. “An industry that’s predicated on importing in such a tenuous situation is vulnerable.”
 
He adds that he’s been talking with the owners of one of the big display companies in the U.S. about its investment in domestic facilities to bring back some manufacturing, even if just for specialty items or to safeguard against shippers ending the transporting of fireworks. “We’re not dead yet,” Widmann says. “There’s a chance there might be a resurrection.”
Leiber is Small Business editor for Businessweek.com, Entrepreneurs editor for Bloomberg.com, and covers small business for Bloomberg BusinessWeek