First Look

August 22, 2006

Cartels justifiably have a bad reputation, yet how would big business have developed without them? Jeffrey Fear, a business historian, writes in a new working paper that cartels varied greatly between the late nineteenth century and early 1980s, leaving a mark on big business in essential areas like technological development, corporate strategy, and organizational change. Also released this week: papers in Spanish on rural credit in Argentina, a chapter on bond markets in Brazil and how that country's legal tradition affected later institutional and financial development, and a case on how New Balance Athletic Shoe responded to a competitive hurdle.
— Martha Lagace

Working Papers

Cartels and Competition: Neither Markets nor Hierarchies


This article provides an overview on the rise and fall of cartels since the late 19th century when the modern cartel movement properly arrived with the rise of big business based on scale and scope. The general narrative about cartels may not be a story of rise and fall, but rise, boom, collapse, revitalization, gradual decline, and then criminalization. Yet, until the 1980s, the global story of big business must be told in conjunction with cartels rather than without them. They affected technological development, corporate strategy, and organizational change. Viewing cartels only as a "conspiracy against the public" short-circuits many important questions and obscures the great variations in objectives, type, and services provided by cartels.

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Cases & Course Materials

Cutlass Capital, L.P.

Harvard Business School Case 805-075

David Hetz and Jon Osgood are forming a new venture capital fund in 2001 to invest in health care start-ups. Describes their fundraising activities at a time when venture capital investing has reached an all-time high. Although their background skills and experiences fall outside venture capital, they have identified a large investor and a number of smaller investors to back their small fund. They believe their fund's strategy uniquely addresses the strategic needs of large, corporate acquirers. At the same time, their approach addresses venture capital's reliance on public markets for liquidity events—which all but evaporated with the dot-com collapse of March 2000. Hetz and Osgood face challenging negotiations to close the fund. Raises the question of whether there is a need for a fund like this at the time of the case. Supports discussion of specialized versus generalized venture capital funds.

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John Moran and the Orthopedics Industry

Harvard Business School Case 805-026

Reviews John Moran's 25-year career in the orthopedic industry and his current decision whether to start a hand and foot surgery company.

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Molecular Insight Pharmaceuticals, Inc.

Harvard Business School Case 805-067

Molecular Insight has developed a novel biopharmaceutical to detect heart attacks. The company's unique approach to intellectual property protection uses the Hatch Waxman Act and the Orphan Drug Act. The company is struggling to raise $7 million in Series B financing. Should it continue its current strategy or change its approach? Includes color exhibits.

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New Balance Athletic Shoe, Inc.

Harvard Business School Case 606-094

Considers whether New Balance, one of the world's five largest manufacturers of athletic footwear, should respond to Adidas' planned acquisition of Reebok—a transaction that would join the second- and third-largest companies in the industry. Highlights the unique aspects of New Balance's strategy—focusing on fit and performance by offering long-lived shoes in a wide variety of widths and eschewing celebrity endorsement of its products—and discusses New Balance's operations decisions to support that strategy. These include significant use of domestic manufacturing at a time when nearly all other competitors sourced finished shoes from Asian suppliers and an emphasis on improving inventory management for its network of small and large retailers. Set just after the announcement of the Adidas-Reebok transaction in 2005, with New Balance having recently initiated a companywide effort to improve operational performance through the application of concepts from lean manufacturing and the Toyota Production System. Asks students to consider whether New Balance should change aspects of its operations strategy in light of the consolidation among its competitors or whether the Adidas-Reebok transaction represents an opportunity for New Balance to emphasize the importance of moving forward with its current approach.

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Public Law: The Rules of the Game

Harvard Business School Case 806-172

Outlines the four primary public policy objectives underlying the U.S. laws regulating business in the early 21st century: to promote economic growth; to protect workers; to promote consumer welfare, and to promote public welfare. Other major economic powers tend to have laws that promote these same objectives, albeit with varying degrees of emphasis on the different objectives and varying ways of promoting them. A rewritten version of an earlier note.

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The STAR Schools Initiative at the San Francisco Unified School District

Public Education Leadership Project at Harvard University, 2006

In this case, SFUSD Chief Academic Officer Christine Hiroshima contemplates her team's understanding of the strengths and weaknesses of the district's efforts to address underperforming schools, called the "Students and Teachers Achieving Results," or STAR initiative. The case opens with a description of the district's strategy from 2000-2006, called Excellence for All, which focused on academic achievement for all students, the equitable allocation of district resources, and accountability for results. The case then details the origins of and rationale behind the STAR initiative and its fit with the overall district strategy. The case emphasizes the details of implementation and documents the challenges and achievements of the program over four years. The key issue in the case is achieving high performance in all schools, not just some schools, by managing differences across sites while aiming for consistency and managing complexity. The case concludes with a description of new challenges as the district faces political unrest, shrinking enrollments, and decreased funding. Hiroshima and her team wrestle with questions about the future of the STAR initiative.



El mundo del fiado. Crédito, comerciantes y productores rurales. 1897-1930


Los mecanismos de financiamiento fueron uno de los cuellos de botella a los que se enfrentó la producción agropecuaria argentina en su etapa de mayor expansión pues, desde la perspectiva institucional, el país no logró superar las instancias deliberativas y declamativas alrededor de la organización del crédito rural. En la financiación de este proceso, por tanto, se estructuró un denso entramado donde otros sectores con excedentes—bancos, firmas exportadoras, mayoristas e industriales-canalizaron recursos por distintas vías para contribuir a atender la demanda de capital. Un agente clave en la redistribución del crédito, a nivel local, fue el sector de los comerciantes rurales. El propósito de este artículo es avanzar en el estudio de las prácticas y la discusión sobre el rol de los comerciantes como intermediarios financieros y, en última instancia, sobre las características y el funcionamiento del mercado de crédito en la región. El artículo recorta su atención dentro del "mundo del fiado", utilizándose dicha expresión para englobar los distintos mecanismos crediticios y los diferentes destinos para los cuales era utilizada la financiación del comerciante local. Nos detendremos en los montos y características del fiado, sus usos y las diferentes instancias de cancelación de las deudas y las entregas de cereal. Los resultados expuestos buscarán trazar algunos de los ejes principales por los cuales transitaban las relaciones entre comerciantes y productores rurales, en función del perfil productivo de los clientes. Para avanzar en la resolución de estos problemas se ha optado por el estudio concreto de empresas comerciales que operaron en el entonces Territorio Nacional de La Pampa a principios del siglo XX.

Rural Credit: Historical Discussions and Legislation in Argentina (El crédito rural: proyectos legislativos y discusiones contemporáneas (1899-1933)


Numerosos informes técnicos, debates parlamentarios e investigaciones se ocuparon de analizar la naturaleza y la organización del crédito rural en la Argentina a inicios del siglo XX. Este artículo se propone brindar una síntesis de las principales propuestas y discusiones públicas sobre el tema. La vía de acceso elegida para reconstruir este derrotero fue la de condensar, en un rápido repaso, la veintena de proyectos de leyes sobre crédito agrario en la Argentina de principios del siglo XX. En paralelo, se reseñan los puntos de conflicto y de consenso entre algunas de las diferentes voces participantes en un debate prolongado durante varias décadas, focalizando, por ejemplo, en las diferencias asignadas al cooperativismo en la organización del crédito agrario en el rol de los empresarios y en las causas de su dilatada irresolución.

Legal Origin vs. the Politics of Creditor Rights: Bond Markets in Brazil, 1850-2002


This paper explores the question: Do institutions persist over time and determine current economic outcomes? Specifically, does the adoption or inheritance of a legal tradition in the past determine the subsequent course of institutional and financial development? This paper attempts to answer this question by examining the history of bond markets and creditor rights in Brazil as well as evidence of creditor rights protections in a cross-section of common and civil law countries. The tested hypotheses are from the law and finance literature, which argues that legal origin determines both the extent of investor protections and level of financial market development (La Porta, Lopez de Silanes, Shleifer and Vishny, 1997, 1998, 2000). I test three hypotheses. First, I test whether the idea that legal origin exerts a persistent effect on financial market size can be defended. The significant variation I find in bond market size and creditor protections over 150 years does not support the notion of persistent effects of legal origin. Second, I test whether a path-dependent effect of legal origin can explain the level of creditor protections in Brazil. Finding, following the methodology of La Porta et al. (1998), that creditor rights vary too much over time to be determined by legal origin. I propose that the time-variance of investor protections is better explained by the existence of a political economy channel. Finally, I test whether the relationship posited by the law and finance literature between legal origin and creditor rights holds for a (small) cross-section of countries in the past. I present evidence that in 1910 legal origin did not explain the differences we observe across countries today. In fact, for the few countries I study, French civil law countries had, on average, stronger creditor rights that common law countries.

Managing Functional Biases in Organizational Forecasts


The authors describe how organizational biases arise from the different incentives, agendas, and blind spots of the various functional areas of a business, and how they compromise forecast accuracy and disrupt the supply chain process. They present a case study—the Leitax corporation—of how one organization successfully used consensus forecasting to manage against functional blind spots and incentive misalignments.