First Look

July 7, 2010

If more like-minded firms congregate in one place—think Silicon Valley—then they should all benefit from proximity in terms of sharing access to labor, transportation, and expertise, right? The idea of a healthy ecosystem is more complicated than that, according to HBS professor William R. Kerr and researchers. "From Russia with Love: The Impact of Relocated Firms on Incumbent Survival," a new working paper available for download [PDF], describes how and why relocating the machine tool industry in western Germany after World War II meant that, for incumbent firms, new competition outweighed potential benefits. One problem: when jobs moved, labor did not or could not necessarily follow. "These location choices [of firms] were made with little regard to existing business conditions across regions in western Germany. […] Moreover, many migrations were made under extreme duress," note Kerr and coauthors. Cases this week highlight global business. There's a look at Colombia's challenges and opportunities for economic development ("Colombia: Strong Fundamentals, Global Risk"); broadly replicating an approach to alleviating poverty ("Manchester Bidwell Corporation: The Replication Question"); and cross-cultural project management between Sydney and Beijing ("Arup: Building the Water Cube").
— Martha Lagace


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Working Papers

From Russia with Love: The Impact of Relocated Firms on Incumbent Survival


We identify the impact of local firm concentration on incumbent performance with a quasi natural experiment. When Germany was divided after World War II, many firms in the machine tool industry fled the Soviet occupied zone to prevent expropriation. We show that the regional location decisions of these firms upon moving to western Germany were driven by non-economic factors and heuristics rather than existing industrial conditions. Relocating firms increased the likelihood of incumbent failure in destination regions, a pattern that differs sharply from new entrants. We further provide evidence that these effects are due to increased competition for local resources.

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Disagreement about the Team's Status Hierarchy: An Insidious Obstacle to Coordination and Performance


Hierarchies are pervasive in groups, generally providing clear guidelines for the dominance and deference behaviors that members are expected to show based on their relative ranks. But what happens when team members disagree about where each member ranks on the status hierarchy? Although some research has examined overt status rivalries, typically focusing on battles for the top positions, our study contributes novel findings on the effects of disagreement amongst all members' perceptions of their team's status hierarchy. This paper develops and tests a theory to explain how even small differences in members' status perceptions—differences that may not be apparent to the members themselves—can diminish coordination, generate task conflict, and weaken performance. Survey data from a longitudinal field study of 89 consulting and audit teams from a Big Four accounting firm allow us to examine how teams experience status disagreement over time, and client ratings demonstrate how coordination and conflict ultimately affect team performance with clients.

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Cases & Course Materials

Baltic Beverages Holding: Competing in a Globalizing World (A)

Juan Alcácer, Rasmus Molander, and Rakeen Mabud
Harvard Business School Case 710-430

The Finnish brewer Hartwall and the Swedish brewer Pripps had to decide how to react to the rapidly changing European political, economic, and business environment in 1989-1990.

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Baltic Beverages Holding: Competing in a Globalizing World (B)

Juan Alcácer, Rasmus Molander, and Rakeen Mabud
Harvard Business School Supplement 710-471

In 1991, Hartwall and Pripps made the decision to found Baltic Beverages Holding (BBH) and invest in the former USSR by buying Estonia's biggest brewery, Saku.

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Central Europe after the Crash: Between Europe and the Euro

Diego Comin, Dante Roscini, and Elisa Farri
Harvard Business School Note 710-047

This note briefly reviews the financial crisis in central Europe in late 2008 and summarizes how four central European countries—Poland, the Czech Republic, Hungary, and Slovakia—have coped with the economic downturn.

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Arup: Building the Water Cube

Robert Eccles, Amy C. Edmondson, and Dilyana Karadzhova
Harvard Business School Case 410-054

Arup, an engineering firm, collaborated with PTW Architects and China Construction Design Institute to develop a design for the 2008 Beijing Summer Olympics Aquatics Center design competition. Their winning concept for the Water Cube combined elements of Chinese culture with innovative materials and sustainability requirements. The multidisciplinary and cross-company team, based in Sydney, Australia with counterparts in Beijing, faced project management challenges and cultural differences. The Water Cube became an iconic image during the Olympics, and managers at Arup now wonder how to leverage the impact within the company.

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Goldman Sachs: A Bank for All Seasons (A)

Lena G. Goldberg and Tiffany Obenchain
Harvard Business School Case 310-055

Facing the worldwide financial crisis, Goldman Sachs CEO Lloyd Blankfein considered his options including whether his company could avoid a forced marriage and what steps Goldman Sachs should take to try to restore confidence in financial services companies.

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Goldman Sachs: A Bank for All Seasons (B)

Lena G. Goldberg and Tiffany Obenchain
Harvard Business School Supplement 310-056

Having taken steps to shore up investor confidence, during the turbulent fourth quarter of 2008, Goldman Sachs confronts the challenge of whether its business model will continue to be viable under radically altered market conditions and a new regulatory regime.

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Goldman Sachs: A Bank for All Seasons (C)

Lena G. Goldberg and Tiffany Obenchain
Harvard Business School Supplement 310-057

After posting its first-ever quarterly loss in 2008, Goldman Sachs surpassed market expectations for the first quarter of 2009 but came under intensive fire for, among other things, announcing its intention to repay TARP thereby avoiding its compensation limitations.

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Southwest Airlines: In a Different World

James L. Heskett and W. Earl Sasser, Jr.
Harvard Business School Case 910-419

This is the fourth in a 35-year series of HBS cases on an organization that has changed the rules of the game globally for an entire industry by offering both differentiated and low-price service. The focus of the case is on whether Southwest Airlines should buy gates and slots to initiate service to New York's LaGuardia airport, which does not fit the airline's profile for cost, ease of service, and other factors. The bigger issue is how the organization should deal with competition that has successfully emulated more and more of what it does in an operating environment that has changed significantly. Hence the subtitle, which was suggested by Herb Kelleher, Southwest's Chairman and CEO, Emeritus.

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Colombia: Strong Fundamentals, Global Risk

Aldo Musacchio, Richard H. K. Vietor, Jonathan Schlefer, and Carolina Camacho
Harvard Business School Case 710-012

By mid-2009 Colombian President Alvaro Uribe had ended decades of virtual civil war and strengthened the business climate, but he faced tough economic challenges. Though he had instituted prominent market reforms and brought inflation down sharply, Colombia seemed stuck in a middle ground, industrially behind Brazil or Chile but ahead of poorer Latin American countries. Traditional exports—coal, coffee, oil—still comprised more than half the total, while manufactured exports comprised only a fifth. Public investment in transport and other infrastructure—a perpetual obstacle to growth in mountainous Colombia—remained too low. A major ambition of Uribe or his possible like-minded successor was to secure U.S. Congressional approval of a free trade agreement signed in 2006. But would it really help Colombia diversify its economy? Colombia already had access to the U.S. market but still had a relatively closed economy compared with neighbors such as Mexico or Chile.

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Manchester Bidwell Corporation: the Replication Question

Toby, G. Stuart, Felda Hardymon, James L. Heskett, and Ann Leamon
Harvard Business School Case 810-097

Bill Strickland, CEO of Manchester Bidwell Corporation, must decide the best way to replicate his innovative, award-winning approach to curing poverty. Manchester Bidwell's approach, which provides both adult job training tuned to fill the needs of local industries and after-school art instruction for at-risk youth, has proven highly effective over the 40 years Strickland has operated it. He wants to replicate this strategy across 100 or 200 cities, but progress has been slow. Is the current intensive approach correct, or should he change it? What would be at risk? How can he best provide his "cure for poverty" to the greatest number of communities?

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