Europe →
- 06 Dec 2011
- Op-Ed
Greater Fiscal Integration Best Solution for Euro Crisis
Ministers and central bankers are working to solve the debt crisis that threatens the European integration project. Is there hope? There is reason to be optimistic, according to Harvard Business School's Dante Roscini, a former investment banker. Open for comment; 0 Comments.
- 07 Nov 2011
- Research & Ideas
The Forgotten Book that Helped Shape the Modern Economy
A British merchant's long-forgotten work, An Essay on the State of England, could lead to a rethinking of how modern economies developed in Europe and America, and add historical perspective on the proper relationship between government and business. An interview with business historian Sophus A. Reinert. Open for comment; 0 Comments.
- 18 Oct 2011
- Working Paper Summaries
Historical Trajectories and Corporate Competences in Wind Energy
Analyzing developments in the wind turbine business over more than a century, Geoffrey Jones and Loubna Bouamane argue that public policy has been a key variable in the spread of wind energy since the 1980s, but that public policy was more of a problem than a facilitator in the earlier history of the industry. Geography has mattered to some extent, also: Both in the United States and Denmark, the existence of rural areas not supplied by electricity provided the initial stimulus to entrepreneurs and innovators. Building firm-level capabilities has been essential in an industry which has been both technically difficult and vulnerable to policy shifts. Key concepts include: Firms from Denmark have been unusually prominent throughout the history of the wind energy business. The basis of the competitive Danish industry was laid without support or even encouragement from its government. US-based firms have also been regularly found among the leading wind energy companies. But their relative importance varied considerably over time, has rarely reflected the overall importance of the U.S. market, and has involved a changing cast of actual firms. German and Spanish, and more recently Indian and Chinese firms, have emerged to become amongst the largest turbine manufacturers in the industry. The most striking change over the last decade has been in the competitive landscape. Engineering powerhouses, such as GE and Siemens, and wholly or partly state-owned Chinese firms with low-cost bases, are now prominent actors in this industry. Closed for comment; 0 Comments.
- 16 Aug 2011
- Working Paper Summaries
Managing Political Risk in Global Business: Beiersdorf 1914-1990
After the outbreak of World War 1, management of political risk became a central concern for firms, especially those operating internationally. These risks were on many levels, from expropriation to exchange controls and other economic policies. German firms, which had flourished during the second industrial revolution of the late nineteenth century, and enthusiastically expanded internationally, found themselves especially exposed to such risks. Focusing on one such firm, Beiersdorf, a German-based pharmaceutical and skin care company (and, during the Nazi years, a so-called Jewish business), the authors examine corporate strategies of political risk management during the twentieth century, especially the volatile years of Nazi Germany. The history of Beiersdorf highlights areas of managerial discretion. Faced by the worst of all worlds, the firm survived and was able, albeit at great cost, to rebuild its business. Key concepts include: The historical case of the German multinational Beiersdorf, the maker of the global skin care brand Nivea, is used to explore the growth of host and home country political risk in the twentieth century. The firm had its international factories and trademarks expropriated during World War 1, and again after World War 2, and as a Jewish firm faced great difficulties in its home economy during the Nazi era 1933-1945. Beiersdorf pursued several management strategies in response to growing risk. In Nazi Germany, it removed its Jewish management, and partly adapted its marketing message to the regime's ideology. It survived. Internationally, after World War 1 the firm developed an elaborate organizational structure designed to avoid future expropriations. It transferred international businesses to trusted associates. This had short-term success, but in the longer term it did not prevent the loss of factories and the Nivea trademark. After World War 2 Beiersdorf needed to spend decades rebuilding the fragmented Nivea brand. It only recovered ownership of the brand in the United States and Great Britain in 1973 and 1992, respectively. Closed for comment; 0 Comments.
- 19 Jul 2011
- Research & Ideas
Rupert Murdoch and the Seeds of Moral Hazard
Harvard Business School faculty Michel Anteby, Rosabeth Moss Kanter, and Robert Steven Kaplan explore the moral, ethical, and leadership issues behind Rupert Murdoch's News of the World fiasco. Open for comment; 0 Comments.
- 15 Jul 2011
- Working Paper Summaries
Poultry in Motion: A Study of International Trade Finance Practices
When engaging in international trade, exporters must decide which financing terms to use in their transactions. Should they ask the importers to pay for goods before they are loaded for shipment, ask them to pay after the goods have arrived at their destination, or should they use some form of bank intermediation like a letter of credit? In this paper, Pol Antràs and C. Fritz Foley investigate this question by analyzing detailed data on the activities of a single US-based firm that exports frozen and refrigerated food products, primarily poultry. The data cover roughly $7 billion in sales to more than 140 countries over the 1996-2009 period and contain comprehensive information on the financing terms used in each transaction. Key concepts include: Firms that are likely to have the highest costs of obtaining external capital tend to be the ones that need it most. Importers are more likely to transact on cash in advance terms when they are based in countries with weak institutions, and external capital also tends to be particularly expensive in these countries. Firms in weak institutional environments are able to overcome the constraints of such environments if they can establish a relationship with their trading partners. As a relationship develops between trading partners, concerns about weak institutions seem to subside, and transactions are more likely to occur on terms that allow payment after goods have arrived. The manner in which trade is financed shapes the impact of macroeconomic and financial crises such as the recent one. For instance, the data show that importers who were transacting on cash in advance terms before the recent crisis reduced their purchases the most. Closed for comment; 0 Comments.
- 27 May 2011
- Working Paper Summaries
An Empirical Decomposition of Risk and Liquidity in Nominal and Inflation-Indexed Government Bonds
The yields on US Treasury Inflation Protected Securities (TIPS) have declined dramatically since they were first issued in 1997. This paper asks to what extent the returns on nominal and inflation-indexed bonds in both the US and the UK can be attributed to differential liquidity and market segmentation or to real interest rate risk and inflation risk. Key concepts include: Over the 10 year period starting in 1999 the average annualized excess log return on 10 year TIPS equaled a substantial 4.16 percent, almost a full percentage point higher than that on comparable nominal US government bonds. These differential returns are notable, because both nominal and inflation-indexed bonds are fully backed by the US government. Moreover, the real cash flows on nominal bonds are exposed to surprise inflation while TIPS couponsand principal are inflation-indexed. The authors find strong empirical evidence for two different potential sources of excess return predictability in inflation-indexed bonds: real interest rate risk and liquidity risk. Empirical evidence is also provided showing that nominal bond return predictability is related not only to time variation in the real interest rate risk premium, but also to time variation in the inflation risk premium. Closed for comment; 0 Comments.
- 19 May 2011
- Working Paper Summaries
Mandatory IFRS Adoption and Financial Statement Comparability
In the past decade, many countries have adopted International Financial Reporting Standards (IFRS) developed by the International Accounting Standards Board, which has impelled economists to examine the benefits of the standards. This paper discusses how IFRS adoption affects financial reporting comparability—that is, the properties of financial statements that allow users to identify similarities or differences between the economics of different reporting entities over any given period of time. Research was conducted by Francois Brochet and Edward J. Riedl of Harvard Business School, and Alan Jagolinzer of the University of Colorado at Boulder. Key concepts include: Mandatory IFRS adoption results in a reduction of abnormal returns to insider purchases. IFRS adoption also results in a reduction of abnormal returns to analyst recommendation upgrades. These improvements can also accrue in settings in which information quality is already high, and incumbent domestic standards are already similar to IFRS. All results are consistent with IFRS adoption improving financial statement comparability. Closed for comment; 0 Comments.
- 09 May 2011
- Research & Ideas
Moving From Bean Counter to Game Changer
New research by HBS professor Anette Mikes and colleagues looks into how accountants, finance professionals, internal auditors, and risk managers gain influence in their organizations to become strategic decision makers. Key concepts include: Many organizations have functional experts who have deep knowledge but lack influence. They can influence high-level strategic thinking in their organizations by going through a process that transforms them from "box-checkers" to "frame-makers." Frame-makers understand how important it is to attach the tools they create to C-level business goals, such as linking them to the quarterly business review. Frame-makers stay relevant by becoming personally involved in the analysis and interpretation of the tools they create. Open for comment; 0 Comments.
- 03 May 2011
- Working Paper Summaries
How Do Risk Managers Become Influential? A Field Study of Toolmaking and Expertise in Two Financial Institutions
Most organizations have technical experts on staff—accountants, finance professionals, internal auditors, risk managers-but not all experts are listened to at higher levels. To understand how expert influence on strategic thinking can be increased, Matthew Hall, Anette Mikes, and Yuval Millo followed the organizational transformation of risk experts in two large UK banks. One transformation was successful, the other not. Are your experts merely "box-tickers," or are they influential "frame-makers"? Key concepts include: In the first bank, the transformation of the role of experts was a movement from tacit knowledge, communicable person-to-person, to tools-mediated, highly communicable knowledge that was evident from a variety of organizational documents, practices, and technologies, and embedded in the organization's decision-making processes. These transformed experts, called frame-makers, avoided detaching themselves completely from the resulting knowledge and maintained a high degree of personal involvement in producing analysis and interpretation while participating in executive decision-making. While toolmakers may be successful in becoming frame-makers they might also fall into one of three less influential roles: box-ticker, disconnected technician, or ad hoc advisor. The second bank saw a struggle between conflicting risk management worldviews, which ultimately divided the risk function, and prevented the risk managers from reaching the influential role of frame-makers. Closed for comment; 0 Comments.
- 25 Apr 2011
- Research & Ideas
What CEOs Do, and How They Can Do it Better
A CEO's schedule is especially important to a firm's financial success, which raises a few questions: What do they do all day? Can they be more efficient time managers? HBS professor Raffaella Sadun and colleagues set out to find some answers. Closed for comment; 0 Comments.
- 31 Mar 2011
- Working Paper Summaries
What Do CEOs Do?
If time is money, as the old adage goes, then a CEO's schedule is especially important to a firm's financial success. This raises a fair question: What do CEOs do all day? To that end, researchers followed the activities of 94 CEOs in Italy over the course of a pre-specified week, enlisting the CEOs' personal assistants to track their bosses' activities with time-use diaries. Research was conducted by Raffaella Sadun of Harvard Business School, Luigi Guiso of the European University Institute, and Oriana Bandiera and Andrea Prat of the London School of Economics. Key concepts include: Compared with CEOs who work shorter hours overall, CEOs with longer workdays tend to devote more time meeting with other employees within the company and less time meeting with outsiders. The better the firm's governance structure, the more likely it is that a CEO will spend more time meeting with insiders than outsiders. The findings show a strong correlation between hours worked and productivity—a 2.14 percentage point increase in productivity for every one percentage point increase in hours worked. That positive correlation is driven entirely by the time a CEO spends with company insiders. Time spent with insiders is correlated with profits; time spent with outsiders is not. A possible interpretation is that spending time with outsiders might be more beneficial to the CEO than to the firm. Closed for comment; 0 Comments.
- 23 Mar 2011
- Working Paper Summaries
Do US Market Interactions Affect CEO Pay? Evidence from UK Companies
CEOs of UK firms receive higher total compensation if their companies have interactions with US product, capital, and labor markets. Moreover, the compensation package is often adopted from American-style arrangements, such as the use of incentive-based pay. Researchers Joseph J. Gerakos (University of Chicago), Joseph D. Piotroski (Stanford), and Suraj Srinivasan (Harvard Business School) analyzed data on the compensation practices of 416 publicly traded UK firms over the period 2002 to 2007. Key concepts include: The reason to compare similarity with the level and style of US pay is because CEOs of US companies typically are among the highest paid in the world. The UK firms' interactions with US markets were measured on four variables: the relative importance of US sales to the firm, the level of prior US acquisition activity, the presence of a US exchange listing, and the US board experience of the firm's directors. All four US market interaction variables correlated with greater pay, but only US operational activities (sales and acquisitions) were associated with pay similar to US-style contracts. The increased compensation alleviates internal and external pay disparities arising from the presence of US operations and businesses, and compensates CEOs for bearing the additional risk and responsibility associated with exposure to foreign securities laws and legal environments. Closed for comment; 0 Comments.
- 14 Dec 2010
- Working Paper Summaries
Regulating for Legitimacy: Consumer Credit Access in France and America
Why have American households consistently borrowed so heavily? And why have their counterparts in France borrowed so little? This comparative historical analysis by HBS professor Gunnar Trumbull traces the roots of these different attitudes. In the United States, early welfare reformers embraced credit "on a business-like basis" as an alternative to expansive welfare states of the sort that were emerging in Europe. In France, early social planners saw consumer credit as a drain on savings that threatened to crowd out industrial investment. Regulatory regimes that emerged in the postwar period in the two countries reflected these different interpretations of the economic and social role of credit in society. Key concepts include: Market regulation has conventionally been justified in terms either of the public interest in correcting market failures or of the social welfare interest in restricting market functions. The case of consumer credit suggests that the historical context in which markets have been constructed as legitimate affects the way in which they are regulated. Americans have supported a liberal regulation of credit because they have been taught that access to credit promotes welfare. The French regulate credit tightly because they have come to see credit as both economically risky and a source of reduced purchasing power. These cases suggest that national differences in regulation may trace to historically contingent conditions under which markets are constructed as legitimate. Closed for comment; 0 Comments.
- 25 Oct 2010
- HBS Case
Tesco’s Stumble into the US Market
UK retailer Tesco was very successful penetrating foreign markets—until it set its sights on the United States. Its series of mistakes and some bad luck are captured in a new case by Harvard Business School marketing professor John A. Quelch. Key concepts include: Entering the US, Tesco deserves credit for creating a neighborhood market approach—emphasizing fresh produce and meats, and good quality but value-priced prepared meals. By not partnering or hiring local executives, Tesco missed the opportunity to learn more about the habits and needs of target customers. Tesco rightly aimed to scale the concept as soon as possible so that fixed overhead investments in its own distribution centers could be spread across a larger number of stores. Perhaps Tesco's original rollout plan was too ambitious, with executives assuming that the company would get everything right on the first try. Tesco has listened to its customers, learned from its mistakes, and made appropriate midcourse corrections. Closed for comment; 0 Comments.
- 19 Oct 2010
- Working Paper Summaries
The Impact of Supply Learning on Customer Demand: Model and Estimation Methodology
"Supply learning" is the process by which customers predict a company's ability to fulfill product orders in the future using information about how well the company fulfilled orders in the past. A new paper investigates how and whether a customer's assumptions about future supplier performance will affect the likelihood that the customer will order from that supplier in the future. Research, based on data from apparel manufacturer Hugo Boss, was conducted by Nathan Craig and Ananth Raman of Harvard Business School, and Nicole DeHoratius of the University of Portland. Key concepts include: Two key measures of supplier performance include "consistency", which is the likelihood that a company will continue to keep items in stock and meet demand, and "recovery", which is the likelihood that a company will deliver on time in spite of past stock-outs. Improvements in consistency and recovery are associated with increases in orders from retail customers. Increasing the level of service may lead to an increase in orders, even when the service level is already nearly perfect. Closed for comment; 0 Comments.
- 08 Oct 2010
- What Do You Think?
Will Transparency in CEO Compensation Have Unintended Consequences?
Summing Up: The Dodd-Frank legislation requiring companies to compare CEO compensation with rank-and-file pay will have little or no impact on executive compensation levels, say Jim Heskett's readers. (Online forum has closed; next forum opens November 4.) Closed for comment; 0 Comments.
- 19 Jul 2010
- Research & Ideas
How Mercadona Fixes Retail’s ’Last 10 Yards’ Problem
Spanish supermarket chain Mercadona offers aggressive pricing, yet high-touch customer service and above-average employee wages. What's its secret? The operations between loading dock and the customer's hands, says HBS professor Zeynep Ton. Key concepts include: The last 10 yards of the supply chain lies between the store's loading dock and the customer's hands. Poor operational decisions create unnecessary complications that lead to quality problems and lower labor productivity and, in general, make life hard for retail employees. Adopting Mercadona's approach requires a long-term view and a leader with a strong backbone. Closed for comment; 0 Comments.
- 14 Jul 2010
- Working Paper Summaries
From Russia with Love: The Impact of Relocated Firms on Incumbent Survival
The relocation of the machine tool industry from the Soviet-occupied zone of postwar Germany to western regions is a unique laboratory for studying the impact of industrial structures on incumbent survival. Typically, geographic agglomerations of similar firms offer benefits to each member firm by reducing the transportation costs for material goods, specialized workers, and industry knowledge among the firms. Of course, tight geographic concentration comes with countervailing costs as firms compete for local inputs. In this paper, HBS professor William R. Kerr and coauthors study the impact of increased local concentration on incumbent firms by considering postwar Germany, when the fear of expropriation (or worse) in the wake of World War II prompted many machine tool firm owners to flee to western Germany, where they reestablished their firms. Key concepts include: Relocations significantly increased the likelihood of incumbent failure, which suggests that the costs of increased competition for local inputs dominated the potential benefits from agglomeration economies. By contrast, during the same postwar period, new start-up entrants—whose location choices were more opportunistic—were not associated with increased incumbent failure rates. The increased failure rates of incumbents in western Germany due to relocating firms was concentrated in regions where labor forces were constrained due to low inflows of expellees from eastern Germany. In regions with a significant inflow of expellees and favorable input conditions, there was no effect of relocations on incumbent firms' risk of failure. The relocation of the machine tool industry from eastern to western Germany was substantial. In total, a fifth of the industry present in eastern Germany migrated during a narrow window of 1949-1956, representing an 8 percent increase in total industry size for the receiving zones. These location choices were made under extreme duress, with little regard to existing business conditions across regions in western Germany. Upon arrival, the relocating firms substantially impacted local industrial conditions as they quickly regained much of their former production capacity. Closed for comment; 0 Comments.
Is Support for Small Business Misplaced?
Summing Up Is small business overhyped as a panacea for our economic troubles? Jim Heskett's readers don't think so. Closed for comment; 0 Comments.