First Look

May 20, 2014

Big Box Prohibitions Don't Protect Indy Shops

An increasing number of countries try to protect small businesses by adopting restrictions on "big box" or otherwise large retailers. Do these laws work? Maybe not, and might even backfire, suggests recent research by Raffaella Sadun. The entry barriers, she writes, create incentives for the big retailers "to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline." The paper, ''Does Planning Regulation Protect Independent Retailers?'' is scheduled for publication by the Review of Economics and Statistics.

Internet Age Disperses Innovation

In the working paper Information Technology and the Distribution of Inventive Activity, researchers Chris Forman, Avi Goldfarb, and Shane Greenstein look for patterns linking Internet adoption and geographic concentration of patents. They find evidence that the patent growth rate was faster in counties that were leaders in Internet adoption. One reason: The long-distance creative collaboration made possible by digital communication.

Making Youtube A Good Home For Brands

A new case by Thales S. Teixeira and Leora Kornfeld examines decisions made by YouTube to make the popular video site more brand-friendly. The "YouTube for Brands" case asks whether major brands should now feel comfortable shifting a larger percentage of their TV advertising spend to online ads on YouTube.

— Sean Silverthorne


  • August 2013
  • Journal of the European Economic Association

Sovereigns, Upstream Capital Flows and Global Imbalances

By: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych

Abstract—We construct measures of net private and public capital flows for a large cross-section of developing countries considering both creditor and debtor side of the international debt transactions. Using these measures, we demonstrate that sovereign-to-sovereign transactions account for upstream capital flows and global imbalances. Specifically, we find (1) international net private capital flows (inflows minus outflows of private capital) are positively correlated with countries' productivity growth; (2) net sovereign debt flows (government borrowing minus reserves) are negatively correlated with growth only if net public debt is financed by another sovereign; (3) net public debt financed by private creditors is positively correlated with growth; and (4) public savings are strongly positively correlated with growth, whereas the correlation between private savings and growth is flat and statistically insignificant. These empirical facts contradict the conventional wisdom and constitute a challenge for the existing theories on upstream capital flows and global imbalances.

  • August 2013
  • Journal of the European Economic Association

The New Empirical Economics of Management

By: Bloom, Nicholas, Renata Lemos, Raffaella Sadun, Daniela Scur, and John Van Reenen

Abstract—Over the last decade the World Management Survey (WMS) has collected firm-level management practices data across multiple sectors and countries. We developed the survey to try to explain the large and persistent TFP differences across firms and countries. This review paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively. Competition, governance, human capital, and informational frictions help account for the variation in management.

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  • August 2013
  • Review of Economics and Statistics

Does Planning Regulation Protect Independent Retailers?

By: Sadun, Raffaella

Abstract—Regulations aimed at curbing the entry of large retail stores have been introduced in many countries to protect independent retailers. Analyzing a planning reform launched in the United Kingdom in the 1990s, I show that independent retailers were actually harmed by the creation of entry barriers against large stores. Instead of simply reducing the number of new large stores entering a market, the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline. Overall, these findings suggest that restricting the entry of large stores does not necessarily lead to a world with fewer stores, but one with different stores, with uncertain competitive effects on independent retailers.

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Working Papers

Corporate and Integrated Reporting: A Functional Perspective

By: Eccles, Robert G., and George Serafeim

Abstract—In this paper, we present the two primary functions of corporate reporting (information and transformation) and why currently isolated financial and sustainability reporting are not likely to perform effectively those functions. We describe the concept of integrated reporting and why integrated reporting could be a superior mechanism to perform these functions. Moreover, we discuss, through a series of case studies, what constitutes an effective integrated report (Coca-Cola Hellenic Bottling Company) and the role of regulation in integrated reporting (Anglo-American).

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Information Technology and the Distribution of Inventive Activity

By: Forman, Chris, Avi Goldfarb, and Shane Greenstein

Abstract—We examine the relationship between the diffusion of advanced internet technology and the geographic concentration of invention, as measured by patents. First, we show that patenting became more concentrated from the early 1990s to the early 2000s and, similarly, that counties that were leaders in patenting in the early 1990s produced relatively more patents by the early 2000s. Second, we compare the extent of invention in counties that were leaders in Internet adoption to those that were not. We see little difference in the growth rate of patenting between leaders and laggards in Internet adoption, on average. However, we find that the rate of patent growth was faster among counties that were not leaders in patenting in the early 1990s but were leaders in Internet adoption by 2000, suggesting that the Internet helped stem the trend towards more geographic concentration. We show that these results are largely driven by patents filed by distant collaborators rather than non-collaborative patents or patents by non-distant collaborators, suggesting low cost long-distance digital communication as a potential mechanism.

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Abstract—A long-standing ideology in business education has been that a corporation is run for the sole interest of its shareholders. I present an alternative view where increasing concentration of economic activity and power in the world's largest corporations, the Global 1000, has opened the way for managers to consider the interests of a broader set of stakeholders rather than only shareholders. Having documented that this alternative view better fits actual corporate conduct, I discuss opportunities for future research. Specifically, I call for research on the materiality of environmental and social issues for the future financial performance of corporations, the design of incentive and control systems to guide strategy execution, corporate reporting, and the role of investors in this new paradigm.

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Cases & Course Materials

  • Harvard Business School Case 314-114

The Park Hotels: Revitalizing an Iconic Indian Brand

Priya Paul, chairperson of The Park Hotels, an award-winning portfolio of thirteen boutique hotels scattered across India, was in the midst of a brand revitalization program. Landor Associates, a leading brand consultancy, had identified three areas of concern: the shrinking differentiation opportunity provided by the boutique hotel positioning, consumers' negative perceptions of The Park's properties, and a lack of consistency across the hotel properties in the brand portfolio. Competition was heating up, and Paul had a goal to expand her hotel portfolio to twenty properties in the next ten years. Paul knew that she had to make some major changes to her brand, including changing her positioning, choosing a new logo, and selecting the right products and services that enhanced her revitalized brand. And, she had to decide where to site the new hotel properties to best compete against global behemoths, Starwood, Marriott, Hyatt, and Intercontinental. How could she best revitalize her brand to stand out in a crowded marketplace, while preserving its rich heritage? Which changes would best propel The Park Hotels into the future?

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  • Harvard Business School Case 814-020

Open English

Open English, a Miami-based startup offering online English language learning services, had more than 30,000 active students across Latin America in 2012. The company had just closed a $43 million financing round in order to rapidly scale its service to the next level. Nicolette Moreno, co-founder and vice president of product development, felt that a substantial portion of the new funding was needed to rework Open English's platform to enable the additional growth. She was concerned that the company's learning platform (LP)-the core set of software systems used to deliver online lessons-was beginning to show its age. Although one path would be to shore up the LP's capacity incrementally to allow the company to sustain its momentum with minimal disruption, Nicolette felt it was just a matter of time before they had to tackle a complete rewrite of the platform. Although daunting to undertake, a rewrite would allow the company to grow beyond the current LP's capabilities and position them for future success. Nicolette needed to give the board a full sense of what she saw-was now really the right time for a complete rewrite of the LP? What were the risks? And how should she approach the effort?

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  • Harvard Business School Case 314-087

Jurlique: Globalizing Beauty from Nature and Science

Considers the marketing and strategic challenges faced by natural beauty brands using the case of Australian-based Jurlique, which was acquired by Pola of Japan in 2011. The case opens two years later in July 2013 when Sam McKay, the chief executive officer, on a visit to Pola's head office in Tokyo, heard news of critical comments about the company and animal testing in a Facebook post from a group in South Australia where the brand had been founded as a small biodynamic farm in 1985. The discussion of Jurlique's involvement with animal testing was a sensitive issue as it contradicted the brand's strong environmentally friendly and ethical positioning. The matter had already arisen during the Pola acquisition as Pola, like all Japanese cosmetics companies, traditionally tested products on animals. The animal testing issue is put in context by a discussion of how during Jurlique's growth as a successful premium brand there had been substantial changes in market position, in part associated with shifts of ownership. At times the brand had been focused on core green consumers, but McKay had sought to broaden the consumer base by repositioning it as making "the most effective products as natural as possible." The company lost few existing customers and found that Jurlique's image was an asset in attracting Chinese consumers who liked the story of the Australian farm that produced most ingredients. However, Chinese regulations refusing to allow the firm's stores to use recycled wood, and mandating of animal testing, were challenging to the brand's global natural brand position. The case can be taught both in marketing classes concerned with green business and in strategy classes exploring the challenges faced by global brands.

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  • Harvard Business School Case 714-040

Japan: Betting on Inflation?

The case focuses on the challenges still confronting Prime Minister Shinzo Abe at the end of 2013, a year after he has been in office. It also gives an overview of Japan's earlier economic performance, focusing primarily on the period after it suffered a stock market and real estate crash in 1989-1992. During his first year in office, Abe introduced three sets of policies designed both to reverse the deflation that had plagued Japan since around 2000 and to increase the Japanese growth rate. The first of this three-pronged approach consisted of appointing a central bank governor who committed himself to raising the inflation rate and who vastly expanded the Bank of Japan's balance sheet in an effort to accomplish this. The second involved a fiscal policy plan whose initial thrust was expansionary, but which also sought to reduce future budget deficits. The last one involved a series of microeconomic reforms aimed at expanding GDP and labor productivity. These included initiatives aimed at increasing female labor force participation to compensate for Japan's aging population, reforms of the electric power sector directed at reducing electricity costs, and efforts designed to promote the "health and longevity sector." The case ends by discussing Abe's foreign policy challenges, including Korea's and China's reactions to visits by Japanese officials to the Yasukuni shrine.

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  • Harvard Business School Case 314-065

Maricopa, Inc.: Finding the Right Treatment for Growth

The founders of Maricopa, Inc., a startup that sold proprietary hair-care products directly to salons, were preparing a board presentation to address the young company's inability to meet financial projections. While the products had caught on with customers, the financial shortcomings raised some questions about the company's business plan. The company had gone through much of its cash and needed additional funding to continue operating. At the same time, two VC investors were deciding how to proceed with their investments in Maricopa. The larger VC firm questioned Maricopa's management's decisions and was hesitant to further fund the company. However, the Maricopa investment was much more important to the smaller VC firm, and its representative on Maricopa's board worked hard to convince her counterpart from the larger firm that while the firm had struggled, it was a young startup with strong potential. Without the larger firm investing again in Maricopa, the business was at risk of going under.

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  • Harvard Business School Case 114-034

Go Mobile: Aligning District Managers and Store Teams

This case study explores organizational design and incentive choices related to building a middle management layer as a company scales up its operations. Go Mobile, an Indian mobile phone retailer, uses high-powered incentives to encourage an entrepreneurial spirit among store employees. The company is faced with the challenge of motivating its district managers to support the highly incentivized store teams. On one hand, the district managers are expected to drive a profitable expansion, supporting complex day-to-day operations at the stores. On the other hand, they are expected to instill a culture of exceptional service and integrity among Go Mobile's employees. The case presents different systems that the company could use to motivate the district managers to fulfill these, sometimes conflicting, roles.

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  • Harvard Business School Case 214-076

Leader Bank, N.A.

No abstract available.

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  • Harvard Business School Case 614-048

Rational Choice and Managerial Decision Making

This note discusses Herbert Simon's notion of bounded rationality: how managers may sometimes make suboptimal choices because of their limited ability to access or process information.

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  • Harvard Business School Case 514-048

YouTube for Brands

This case examines the changes employed by YouTube to make the massively popular site more attractive to brands. Building from its base of amateur, user-generated content, YouTube had turned to experimenting with professionally made content and organizing its videos into channels. But it still struggled when it came to capturing advertising dollars to its online video platform. The social video website wants to be a "brand-safe" platform that major marketers use to advertise their video ads. Should major brands switch a significant portion of their TV advertising budget to online ads on YouTube?

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  • Harvard Business School Case 713-453

J Sainsbury Plc, Road to Recovery

In 2012, J Sainsbury Plc (Sainsbury's), the number three supermarket chain in the UK with £22.3 billion in sales, appeared to have put the troubles of the past behind it. For over 70 years, Sainsbury's had been the UK's largest grocer, but Tesco had overtaken it in 1995, and then Asda knocked it into third position in 2003. When Justin King took over as CEO in 2004, UK sales were flat and UK profits languished at 40% below their 1999 levels. He cut prices and restored sales growth, and from 2007 onwards, Sainsbury's had outperformed Tesco on same-store sales growth. What did King need to do to sustain Sainsbury's revival?

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