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Nexus Winter 2002

  1. 1. nexus The magazine of the Warwick Business School Alumni Association Winter 2002 a THE DYNAMICS OF CHANGE MERGERS AND ACQUISITIONS NEWEST MEMBER OF THE CLUB: CHINA EUROCREEP OR EUROMARCH? E R R SEA 5 S TA RC H R AN u G KIN
  2. 2. WBSINTHENEWS WBS competes globally Ford collaboration with the best with University HE LATEST FT rankings of Executive MBAs, published in October, THE FINANCIAL TIMES, 7th November, T placed WBS’s Executive MBA 14th globally (Cranfield was 33rd, and the Sunday Times, 4th November, Ashridge 43rd and Henley 48th). reported that Ford’s Premier Automotive The rankings of leading Doctoral programmes placed WBS’s PhD Group had announced a deal with the programme second in the world to Wharton and top in Europe. University of Warwick to create The prestigious FT ratings placed the Warwick MBA 40th in the collaboration on training, research and world, with only a handful of other European schools ahead of us (Cranfield was development, and supply chain. 41st) and our post-experience management training 4th. Most of WBS’s Specialist “We have ambitious plans,“ said Dr Master’s programmes are acknowledged as being pre-eminent in their respective Wolfgang Reitzle, President of the fields. WBS was the first UK school to gain acceptance by all of the key eminent Premier Automotive group, “the bodies internationally. University of Warwick is one of the The latest Virgin guide describes the school’s UG programmes as ‘must apply to’, country’s finest centres of excellence and and The Times Good University Guide rated them narrowly second to UMIST’s. Our new as such we look forward to sharing undergrads have arrived with the highest A-Level points of anywhere in the UK: innovative technology and building on they’re the best! the achievements of both parties.” g The message is clear: the reputation of WBS is to be envied. As many of the same employers seek undergrads, MBAs and those with Specialist Master’s degrees, there is little doubt that our student body benefits Recession and from the School’s successful ratings in so many spheres of management education. We hope such sentiments encourage you to speak ‘the message is clear: unemployment highly of your former business school. WBS is heading in the right direction! g the reputation of WBS PROFESSOR ANDREW OSWALD, Lyndon Simkin Economics Department, was interviewed Academic Director MBA by Full-time Study is to be envied’ for the Financial Times on 8 November about the threat of recession and the level of unemployment. He noted that the events of September 11th had made future events less predictable. g MBA applauded by Brazilian press A POSITIVE REVIEW of the MBA, Swissair grounded interviewing two WBS Alumni appeared on October 24th in Valor Economico, a newspaper equivalent to the Financial Times RAM VENUPRASAD, (MBA 1999) PhD student in e-business, had an article published in Brazil. Two alumni were in the Birmingham Post on 12th October on Swissair’s problems. Ram suggested that interviewed for the article, which Swissair got it wrong by sticking with an outmoded business model, diversifying into particularly noted WBS’s airline related businesses and too many hubs. This led to “abnormally” high International MBA refresher, operating costs. To cover these costs Swissair was forced to distress sell its assets such which commences January 21, as the Swissotel chain. Ram wrote that Swissair should have concentrated on B-Nets 2002. The article came out at the (business networks). He explained that true economic value, measured by sustained beginning of the British Council profits, is the arbiter of business success. g Exhibition. g 2
  3. 3. Nexus | Winter 2002 ALUMNINEWS Val Gooding presents to diary dates Women’s Alumnae Group HE WBS WOMEN’S Fancy an MBA part-time? T Group met on 4th Open Day September at the 13 February (and again 13 April) Industrial Society in Warwick Business School London to hear a University of Warwick terrific presentation from Val Gooding, CEO of BUPA, Women’s Group Seminar: on being a non-executive director. Leadership Val, a Warwick graduate herself, 19 February addressed forty WBS Alumnae and The Home Office, London staff. Val (French, 1971) talked Mrs Lesley James about what to look for in a Vice President of the Institute of Appreciative members of the audience. directorship, what is expected from Personnel and Development a non-executive director and how to break into your first directorship. “It was an excellent evening,” commented Iona Thomson (MBA 2000) who attended the Accountability Programme event. She continued, “Val Gooding was a forthright and practical speaker. As I had sat on an SME 13 to 17 March AIM listed Board, I have always been interested in the role of the Non-Executive Director.” Warwick Business School Val gave practical advice - suggesting 5 key things: Educate yourself, have a specialist skill e.g. University of Warwick Finance, Stocks & Shares, Marketing, M&A, or IT, consider smaller subsidiary boards of PLC’s, Adrian Henriques Public Sector Boards or SME’s, pick your company wisely - you will have a minimum 3 year Dr Malcolm Macintosh commitment, plus at least another 3 years and choose a sector you are interested in where you can make a difference, respect and like the CEO and be sure the company is financially robust. “It was a practical, informative, and interesting presentation, from a woman for whom one felt Global Business Forum instant admiration and respect,” concluded Iona. 16 May The event was sponsored by the Industrial Society. g London Summer Ball 12 July The Belfry Having a ball! WBS is a star - official Warwickshire WGA Events It was announced on 14 Law Event December that Warwick 29 January Business School was awarded London the top five star rating, one of only 3 business schools to receive such an award, in the Media Networking Event UK Research Assessment 7 March Exercise (RAE). London "The RAE is a measure of the excellence of our research and is Reunions the best measure of the quality 1971: 13 April of a higher education 1976: 18 May establishment. This five star 1966: 15 June rating is the highest possible award and all Warwick Business School alumni can be Details sure that it will enhance the W value of their MBA," said E NEARLY TWO HUNDRED MBA Alumni celebrated their Professor Howard Thomas, T (024) 7652 4396 graduation with staff at the Summer Ball held in July 2001. Dean of Warwick Business School. Summer Ball 2002 will be held on July 12th, at The Belfry, venue for the Ryder Cup, so mark your diary now. g 3
  4. 4. EDITOR’SVIEW W HAT A SURPRISE! You were probably not expecting Nexus until March but we have moved the mailing forward to try to ensure that you receive roughly quarterly mailings from the University of Warwick. We are continually working to improve the service you receive and would welcome your Emily Fay, Editor feedback. Over the next six months you can look forward to a variety of events designed to update and refresh you academically. We are also hoping to offer all of you, especially those living far away, a reading list and hot topics leaflets on specific issues. Do try to attend the Summer Ball in July. Helping Vice Chancellor’s to organise this event are MBA view ‘We are trying to students who will graduate on 12th July and they are all eager to see many returning Alumni invigorate the joining them to celebrate their achievement. You can book a table for you and your friends. “I AM IMPRESSED with the quality of the staff - the teaching and research,” said Vice Chancellor David VandeLinde when he visited the Business School in early September, soon after Want to know more about alumni network’ taking up his new post at the University of Warwick. what is going on? Why not “I think the School’s greatest strength,” he went on, “is in subscribe to the WBS E- being part of a top university. This allows the researchers in the Newsletter? We will send you updates every month. Business School to draw on the expertise of other University We are trying to invigorate the Alumni Network researchers. Students benefit from being able to take courses in and assist you in meeting each other. Your part in this other top departments and from the strong University is to mention WBS whenever the opportunity presents infrastructure.” itself and to let us know if you run across fellow David feels that the most important thing is to build the Alumni who do not receive Nexus. g School’s reputation, within the reputation of the University, in particular overseas. Best wishes. He concluded, the University and the Business School need Emily Fay to develop their external funding sources in order to be able to Editor compete internationally, and Alumni support is integral to this. g IN OCTOBER WARWICK Business School launched a Fund for Academic Excellence specifically to build the School’s reputation and success by attracting and retaining top academic staff, offering scholarships, and supporting research. Other business schools currently hold an advantage over WBS, for example last year INSEAD raised in excess of a million euros in gifts from Alumni. However, with the launch of this fund we will move back towards a level playing field. In just three months nearly £6,000 has been pledged to the WBS Fund by nine generous Alumni. All WBS Alumni will be given an opportunity to Vice-Chancellor David VandeLinde talks with Sally Dibb, MSM, and participate over the coming years. g Phil Stern, MSM. in this issue Dynamics of Change 6 Eurocreep or euromarch? 8 The Italian job 10 Hot Off the Press 11 China Focus 12 Cultural differences in cross-border mergers and acquisitions 16 Alumni Careers 17 Alumni Response 18 4
  5. 5. Nexus | Winter 2002 Globalisation Harnessing the - problem or market for the good of society opportunity? H M OWARD THOMAS, DEAN of WBS, joined Anita ICHAEL KING (MBA 2001) was runner-up in the Roddick OBE, founder of the Body Shop, Sandra Ashridge 2001 MBA essay competition. His essay on MacLeod, Chief Executive of Echo Research, and Mark sustainability caught the judge’s eye. “The decision Goyder, Director of the Centre for Tomorrow’s between your essay and the eventual winner was an Company, in a debate on Globalisation held during the extremely difficult one,” Adam Faruk, Ashridge Centre CBI conference in Birmingham on 5th November. The for Business and Society, wrote to Michael. The Journal debate was opened by Professor David VandeLinde, Vice of Corporate Citizenship published a longer version of the essay Chancellor, and was chaired by James Harding, Media Editor of earlier this year. Michael summarises his essay as follows: the Financial Times. Arguably, market-based liberal democracy has become the The debate started with a question from the Bishop of dominant model of political and economic organisation Aston, who asked how the panel felt the events of September around the world. The role of business in society is changing 11th had changed the question of globalisation. From this significantly. beginning, debate ranged over a series of issues from how the Some see large multi-national enterprises as more powerful media had affected business to the ethics of British military than governments and accountable to no-one. Others argue uniforms being purchased from factories overseas. that accountability is there, through the processes of Comments and questions came from the floor, which competition and free choice - ‘no-one forces you to buy a Big included delegates from the CBI conference, WBS students, Mac’. The vigour Alumni, staff and invited guests. Participants shared their of the debate ˇ personal experiences as business people or policy-makers spans the anti- ‘The role of business working on the front line of globalisation. After the debate, globalisation speakers and attendees mingled at the bar and discussed the protests against issues informally. g the WTO as well as against specific companies. For me this in society is changing debate comes significantly’ down to, how do you harness the fantastic motivational powers of the market and the corporate actors therein to the good of society? Some would argue that business can, and should, only concern itself with profits - all other goals are secondary and some are more secondary than others! Others argue that profits are an output measure based upon wider goals - for example, Johnson & Johnson has delivered excellent financial returns for investors and it exists “to alleviate pain” according to Collins & Poras. My article attempts to analyse the question, can you take on wider goals or are you disadvantaged? I use “sustainability” as an example of wider goals, as this states that company performance should be considered across a triple bottom line of social, environmental and economic factors. I take an investor’s perspective and seek to find if organisations appear to be From left: Sandra MacLeod, Anita Roddick, Howard Thomas and James disadvantaged if they are ‘more sustainable’ relative to their Harding at the Warwick Debate. peers. This study finds that they are not disadvantaged. g 5
  6. 6. NEXUSVIEW Keith Bedell-Pearce (MSc, Industrial and Business Studies, 1970) Executive Director Prudential plc The dynamics of change in the global economy O VER THE ENTIRE span of history, people have probably thought at any point of time they were going through a period of unprecedented change, even when, as in the Dark Ages, things in fact were pretty static. At the risk of appearing to engage in special pleading, where we now stand in the first years of the third millennium does appear to be a major inflection point in the global economy and by extension in the social and cultural environment of the developed world. Even before the events of 11 September, I was arguing strongly that there were four drivers for change which taken individually would have a significant effect, but whose confluence would change the shape and nature of our world. Then in the space of a few hours, transmitted to a stunned world in real time, the attacks on the World Trade Centre and the Pentagon added a fifth driver for change – a fundamental shift in the world geo-political map. The four original drivers for change were demographics, ‘In 1952 the Queen sent out globalisation, the network economy, and fundamental behavioural shifts. In most developed countries, the number of people at or 255 telegrams to people above retirement age will continue to grow over the next 40 years. With many of the world’s major economies funding retirement provision on a pay as you go basis (the UK is a fortunate exception), this means that a diminishing number of reaching their hundredth those working will have to support a growing number of those who are not. The sums just do not add up. Something will have to give birthday. Now more than 6000 and the most likely impact will be the progressive migration from the pay as you go arrangements to what is known as ‘funded’ schemes. These are where people build-up a pot of assets in their working lifetime and then convert this pot into congratulatory telegrams are an income stream from retirement through to death. The catch is that during the transition period, one or two working generations have to pay twice. They have to pay once sent out each year’ for the existing group of retired people and again to build up their own retirement fund. 6
  7. 7. Nexus | Winter 2002 This by itself will have profound economic consequences, There are many in business, I suspect, who breathed a sigh but just to add to the dynamic, not only will there be more old of relief when the dot com bubble burst. But the reality is that people but they will also live longer. In 1952, the year of her those who intend surviving the next 10 years have redoubled accession, the Queen sent out 255 telegrams to people reaching their efforts to harness the power of the Network Economy. their hundredth birthday. The Buckingham Palace telegram bill The changes are nothing short of being the third industrial has grown somewhat since then - now more than 6000 revolution, the only difference being that the impact of the congratulatory telegrams are sent out each year. first two took decades to take effect whereas with the Network “Globalisation is no more,” wrote Martin Wolf in the Economy revolution, the timespan will be measured in just a Financial Times of 3 October, “than an (admittedly ugly) name few years, if not months. for the process of integration across frontiers of liberalising Behavioural shifts are often only observed after the event. market economies at a time of rapidly falling costs of transport In 1999, however, the UK Government published a report, and communications.” The reason why globalisation is such a Britain towards 2010: the changing business environment. Within powerful driver of change is that it accelerates the process of this report Bob Worcester (of MORI) suggested that the next commoditisation which itself changes the shape of the decade would see a rise in conflict between poor and rich, industrial and commercial landscape. globalised against globalisers. One of the most significant precursors to the Since the publication of that report, we have had 11 commoditisation process is that of “unbundling” whereby September and all that has already followed from it. As terrible hitherto vertically integrated supply arrangements are broken as these events were, it does not necessarily follow that the down into separate links of a value longer-term outcomes will be bad. In chain, where a variety of players are fact, there is a strong historical free to compete for a slice of the action within each link. The most powerful competitive ‘The downward curve into precedent for saying that the resilience and adaptability of mankind coupled with an ability to response to commoditisation is learn from mistakes has meant that innovation, a lesson well understood in the IT industry. But even with the recession will steepen but both man made and natural catastrophes have been the drivers of protection of intellectual property change for the better. rights, the advantages of innovation are becoming increasingly short lived. the duration will be short Whilst it is impossible to predict what the longer term outcomes of 11 September might be, in the short In the future, innovation will and medium term, I would place have to apply with equal force to business models as well as to the and the recovery rapid’ bets on the following: The forces driving globalisation underlying products and services. will be strengthened leading to its There has probably been more acceleration. focus on the third driver for change, the network economy, The downward curve into recession will steepen but the than any of the others. Most of the commentary, however, duration will be short and the recovery rapid. There is strong misses the point, particularly with references to the “New evidence that the current period of discontinuity is Economy.” There is no New Economy. Indeed, the irony is encouraging tough measures to be taken sooner and more that, probably for the first time in economic history since vigorously that might otherwise have been the case. Adam Smith published The Wealth of Nations in 1776, there is a As the synchronised industrial recessions within the possibility that the economic theory you find in the first few developed nations are not being matched to the same degree chapters of a basic textbook on economics could actually (and in some cases, not at all) with equivalent consumer become reality. recessions, the threat of short term inflation has increased. A good deal of business activity is designed to distort the New business methodologies will rapidly emerge: there is basic dynamics of supply and demand by creating imperfect already a recognition that travelling half way round the world markets. Branding is an example of this. or across a continent for a two hour meeting may not be the For the first time, through the Web, there is ubiquitous (at best way. least in developed countries) access to copious amounts of There will be a redefinition of the role of the USA on the information (often too copious) coupled with interactive world stage. More importantly, the inward focus of a major communication either at a business-to-consumer or business- part of the population of the USA may start to turn outwards. to-business level. The result is that the economics of business The cultural, political, economic, and social changes arising interaction and therefore communication have been turned on from 11 September will be profound. Whilst not wanting to their head. take a materialistic view at this stage, the high degree of In business communications, until very recently, there had Western solidarity in the aftermath may translate into been a linear trade off between content and reach and increased and more effective commercial activity between the communication cost and reach. A TV ad could be broadcast to developed economies. millions but could only deliver a broad message. For Gazing into a crystal ball is a dangerous occupation at the personalised messages, you needed one to one contact, which best of times but even more so now. But being right is not was very costly per message. The Web now enables almost what this activity is about. That would be an added bonus. universal reach and content that can be personalised within a What is important is to recognise the forces for change and couple of mouse clicks. In an unbundled world, cost of contact decide on individual business strategies which accommodate and communication is no longer the insuperable hurdle in the drivers of change even though their final results may as yet competing. be unpredictable. g 7
  8. 8. Eurocreep or euromarch? IKE IT OR not, the euro is finally here. Most of the effect of loss of control of monetary policy, in particular L Europe’s 290 million people woke up on the means of setting of interest rates. Coupled with the high January 1st to see their national currency labour immobility of workers in Europe, this could pose replaced by the euro. For the UK, which is questions about the sustainability of the euro. Quintessentially, outside this momentous change, the question for those against the euro, the issue is more of the heart rather is what impact will it have on business? than the head: no monetary union has ever proved successful Francis Greene of the WBS SME Centre has researched and without political union,” he concludes. co-authored a series of government case studies on the Such debates do not help UK businesses that have been subject and also published a paper. faced with the need to make some adaptation to the euro. “Until January of this year, we had what I would describe as Francis Greene has co-authored eighteen case studies of how a phoney situation across the European Union,” suggests businesses are preparing for the euro - in business sectors Francis Greene. “Until then, people in business had only been ranging from vegetable oil importers, transport, medical able to transact electronically in euros. That is not the same as software, audio equipment and many others. having the notes and coins in your hand. Now, not only do Commissioned by HM Treasury and co-sponsored by euros exist, people in Barclays Bank and Sage, each case study provides an in-depth ‘Joining the euro is an Europe know that their example of the preparation work carried out by the SMEs. national currency will They include a summary of best practice prior to euro no longer exist in a few introduction and the real live issues faced by business months. That’s as much managers as they address the issues in their euro-sensitive irrevocable decision’ a psychological as a physical change,” he business. These case studies are freely available from the government’s euro website. says. Reflecting on this practical research, Francis believes that “For the UK - along with the other two ‘outs’, Sweden and businesses that are well managed will continue to remain Denmark - it is hard to see how much of an impact the competitive in the European market place. Over time, however, introduction of euro notes and coins will have,” he continues. he believes that UK businesses - in particular, the smaller sized “As consumers, it is likely that the first time we will notice any ones - will be at a disadvantage. This is because they are likely change is when we go on holiday to Europe. The single to have higher transaction costs and, of course, they will currency across the EU may encourage us to travel more freely continue to face exchange rate risk. UK businesses -already across national borders. For the first time, we won’t have the unable to compete on a level playing field - will find the cost or the hassle of changing French francs into Spanish differences exacerbated by the euro. pesetas. We may also notice that prices are becoming more Based upon his academic research, Francis believes that transparent - particularly if we use the internet to order goods there are already signs that a phenomenon known as ‘euro from mainland Europe.” creep’ is occurring. He has found evidence that certain types of What about business? “The introduction of euro notes and traders - inter-regional ones in particular - are beginning to see coins brings with it many challenges. The UK currently imports the network advantages of using the euro as a substitute half of its trade in goods from the EU and exports three-fifths currency for sterling. Although the new currency is designed as of its goods to the EU. Those businesses with trading links with an institutional solution, such traders are using it as a market the EU - whether they like the new currency or not - have to solution. make some form of adaptation to the euro,” he says. The unanswered Francis Greene suggests, though, “that it is fair to say that question, however, is Further reference: the political uncertainty about any UK adoption of the euro how far this surrogate Preparations for the euro by UK makes it difficult for UK businesses to plan effectively. Joining adoption of the euro SMEs with trading links with the the euro is an irrevocable decision - it is hard to see a situation cascades through British euro currency area. whereby the UK would join it and then subsequently try to business. Dr. Francis Greene, SME Centre, reverse it. People who are both for the euro and against it have With an economy as Warwick Business School. good grounds for holding their respective opinions.” open as that of the UK, Euro information case studies He continues, “For those who support it, the euro in the longer term it Published by HM Treasury represents an opportunity for the further liberalisation of the may be that the euro w EU single market by removing exchange rate risk and transac- marches into British life e tion costs in the euro currency area. For those who are opposed almost independently of to the euro, concerns remain about the effect of loss of control any conscious political of monetary policy, in particular the means of setting of decision about entry interest rates. transaction costs in the euro currency area. For into the euro currency area. Does this mean that ‘eurocreep’ those who are opposed to the euro, concerns remain about will become ‘euromarch’? g 8
  9. 9. Flags waving outside the European Parliament Building. Photo courtesy of the Messenger Group of Newspapers (Newsquest). 9
  10. 10. Passion, colour, and class are values that WBS graduate, Juan Diaz Ruiz, will use to boost the brand in his new role as Sales and Marketing Director for the Fiat Group. The I N JULY 2001, Fiat Auto announced a management reorganisation as part of their globalisation strategy, taking advantage of their new alliance with General Motors. Following his move to Fiat in September 2000 from Toyota Europe where he was an Executive Vice President, Juan Diaz Italian Ruiz would now report directly to the CEO, Roberto Testore. “Fiat Auto comprises three brands,” explains Juan from his new base in Turin, “Fiat, Alfa Romeo and Lancia. We have defined clear brand experiences we want our customers to enjoy.” Job These are based on brand values and are: Fiat - ‘life in primary colours’, Alfa Romeo - ‘passion’ or ‘cuore sportivo’, Lancia - ‘a touch of Italian class’. “To develop these brands we have created a brand management structure for each brand,” says Juan. The brand managers are each responsible for a Brand Virtual Business Unit (BVBU). “Each BVBU is, in turn, responsible for establishing the Brand’s product strategy, marketing plan, network, after sales, and distribution strategy,” states Juan. Fiat has just launched the first of 19 new models - the Stilo. “We intend to use each of the new models to demonstrate the values of the brands,” Juan declares. “With the Stilo, we aim to change the centre of gravity of the Fiat brand from being associated mainly with small cars, to one that offers a highly sophisticated medium sized vehicle.” In February, the 156 GTA will go on the market to show off Alfa Romeo’s ‘cuore sportivo’, to be followed by the new Lancia Thesis which shows ‘the art of Italian living’. 10
  11. 11. HOTOFFTHEPRESS According to Juan, cutting edge brand marketing must Value-based Marketing, by Professor Peter Doyle, was ranked develop an integrated marketing strategy with product, number one in the 2001 best seller marketing list. The communication, service and distribution following a results were in the December issue of the magazine consistently clear brand profile. Marketing Business published by the Chartered Institute of Juan has the background to succeed; he graduated from Marketing. WBS in 1974 with an MSc in Management and Business Marketing: Concepts and Strategies, by Sally Dibb and Lyndon Studies. “It was the early stages of systems engineering applied Simkin, from the Marketing & Strategic Management to management,” he explains, which helped him to structure Group, now in its 4th edition (Houghton Mifflin), has his work and systemise his approach to problem solving. cemented its position as the best selling marketing text in “My memories of Warwick Business School are very warm the UK, with significant sales also in Benelux, Scandinavia, indeed. It was the early stage of the Faculty and we constituted Portugal, Australasia and the Middle East. a group of very close fellow students.” After leaving Warwick Juan worked for Ford UK and Ford Global IT Outsourcing: In Search of Business Advantage by Spain. In 1986 he was working for Seat in Spain, his native Professor Leslie Willcocks was published by Wiley in country, when VW bought the company. He was put in charge January 2001. Leslie Willcocks, of the Audi brand for five years, during which time Audi’s sales Arthur Andersen Chair of overtook BMW’s for the first time. Toyota wooed him away to e-business, is co-author of 19 oversee their European expansion and he was able to raise sales books. Leslie has also published by 50% in two years. He speaks a over 130 papers in journals such as number of languages and has worked extensively in five countries. ‘A global market Harvard Business Review, MIT Sloan Management and MIS Quarterly. His recent advisory work “A global market needs includes several major Australian global managers,” emphasises Juan, “capable of applying global needs global corporations as well as advising US and UK government committees. strategies in a local The all-new 2nd edition of The environment. My experience of working in many countries, living in their cultures and managers’ Marketing Casebook appeared earlier this year (Thomson Learning), now containing 25 ‘real’ cases and 17 theory overviews to provide an all-inclusive learning their languages has helped me perform effectively in self-learning resource. It is written by Sally Dibb and all my assignments.” Lyndon Simkin. The Fiat Group is at a turning point with tremendous investment in marketing and new models. This happens just as The Politics of Regulations, Privatised Utilities in Britain, by they have formed an alliance with General Motors, providing Alison Young, then a Research Fellow in CMUR, was them with the opportunity to reduce costs through two Power published in March. Train and Purchasing joint ventures, while remaining Marketing Briefs: a Revision and Study Guide, endorsed by the competitors in the market place. Chartered Institute of Marketing (CIM), again by Sally Dibb “We expect that the emerging markets will contribute 80% and Lyndon Simkin, has just been published. It is targeted of the growth in vehicle sales worldwide before 2010,” claims at any business school and CIM students taking marketing Juan, “Therefore our global strategy is to establish a strong examinations (Butterworth-Heinemann) and contains 50 foothold in China, India, South America, and Central Europe.” theory notes that address everything from value-based Juan is undaunted by the prospect of facing tough marketing, CRM to one-to-one marketing in a manner competition in Europe, while trying to change the culture of designed to remove the fear from examinations. This text the company. If his past is a guide to his future, Fiat’s success is also aims to provide executives with topical, punchy assured. g overviews of the leading concepts. The reading list is available Reading List through the Alumni website. if In response to you need a reading list on a Alumni requests, we specific topic made up for are going to produce yourself or your company, at a reading lists on bespoke price, contact the specific topics Alumni Office bi-annually. The first w of these is on e Entrepreneurship. 11
  12. 12. CHINAFOCUS China~ A MILESTONE WAS REACHED in November, with China’s effective entry into the World Trade Organisation (WTO). What will be the effect of the commercial liberalisation of such a vast potential market of 1.2 billion people? Dr. Simon Collinson newest takes a snapshot overview, supported by an ‘on the ground’ report by Darren Morgan, who has just completed the Warwick MBA while based in Hong Kong. member of Flows of foreign direct investment (FDI) between countries around the world are an indicator of regional attractiveness. Multinational corporations have always extended their activities across national borders to gain access to growing markets, scarce physical resources, cheap and/or more capable the global labour or new technologies. Countries are normally keen to attract FDI from multinationals because it brings capital, employment and often technology and training, to improve indigenous capabilities. economic In some cases, though, countries have refused to allow overseas investors inside their borders. This was certainly true of China. What has pulled this vast country firmly into the world economic system is liberalisation and deregulation - the club dismantling of barriers to global trade. The implications for us all are significant. Milestone China’s entry into the WTO on November 10th is a culmination of the ‘open door’ policy that began in 1980 and prompted increased flows of FDI, making China consistently the leading recipient of FDI in the developing world. In 2000, $41 billion of ‘Nearly 400 of the investment flowed into China and, in the first ten months of 2001, FDI inflows were up by almost twenty percent Fortune 500 firms compared with the previous year. In this time, China’s GDP growth rate has slipped have invested’ only slightly, from eight to seven percent. A further $64 billion flowed into Hong Kong (China) in 2000, making it the largest recipient in Asia. This is due both to increased outflows from Chinese firms through Hong Kong and the growing number of firms ‘parking’ investment funds in Hong Kong ready to invest in mainland China. Investment patterns The growing volume of investment in China is one important indicator. Another is the kind of investments being made. In the last five years, there has been a significant shift towards the capital-intensive and high-technology sectors. Nearly four hundred of the Fortune 500 firms have invested in over two thousand projects and, significantly, these have become increasingly higher in the value-chain, confirming the move away from cheap-labour operations. Over one hundred R&D centres have been established by firms like Microsoft, GM, GE, Nortel, IBM, DuPont, Nokia, Mitsubishi and Siemens. Motorola has invested $200 million and employs 650 research personnel in China. 12
  13. 13. Nexus | Winter 2002 The effects of this shift are reflected in the export pattern - Special difficulties in China: from which the growing dependence of China on g Despite new legislation being introduced as central-planning multinational investment is also evident. However, the flows of gives way to a market economy, a huge amount of ambiguity technology, training and management capabilities into China exists in terms of interpreting and enforcing the evolving via investment and joint ventures is helping to move the regulations, rules and governance structures. This means overall economy into higher value-added sectors, to compete greater uncertainty and red tape and a commensurate need to more directly with Western economies. spend more time interacting with officialdom. g Business disputes are hard to settle by legal means because of the difficulty in enforcement of judgement within the Chinese Export trend of high technology products from China, by production ownership legal system. g Guanxi - networking or connections - is the way that Year Total ($m) State-owned Foreign business is done in China. Personal networks are normally enterprises % affiliates % maintained through exchanges of favours. A critical problem 1996 7,681 39 59 for foreign executives is not whether to participate, but how to 1997 16,310 - - participate skilfully and effectively in the ‘art’ of guanxi. 1998 20,251 25 74 g Differences in 1999 2000 24,704 37,040 23 18 76 81 language and culture amongst mainland ‘Trade with the rest of Source: UNCTAD, World Investment Report 2001, United Nations, Chinese, as well as the world will increase’ Geneva ( differences compared to Westerners, including incentive China does present special difficulties for foreign investors - and reward expectations, workplace behaviour, values and despite the obvious attractions of a relatively cheap labour beliefs and broader organisational practices, create force, a huge market and highly-developed scientific and complications for management in China. technological capabilities. The following case study, prepared g Where there is a poor fit strategically and/or organisationally by Warwick MBA, Darren Morgan, while based in Hong Kong, between JV partners - as in any market - problems occur. Some gives an excellent local insight into the views of local firms found it difficult to judge this potential fit before multinationals on the likely changes resulting from China’s committing to the partnership. entry into the WTO. g Other commonly-noted problems: these include the depreciation of fixed assets, defaulting customers, the Local knowledge escalating costs of doing business and violations of intellectual The case study focuses on eight multinationals in different property rights. industry sectors, based in Hong Kong, which are either attempting to enter the Chinese market or are looking to The Impact of WTO-entry expand existing mainland activities. Interviews with senior There was no complete consensus among interviewees managers reveal their views regarding market-entry strategies, regarding the impact of WTO entry, but most respondents were the key difficulties of growing businesses in China, how firms confident it would benefit their business. Key predictions should adapt products or services, strategy and organisation for include: China and the future threats and opportunities stemming from g Trade and exchange with the rest of the World and FDI in the liberalisation process. Its main findings are: both directions will increase. g Successful entrants are those that have clearly identifiable g The regulatory environment will improve. capabilities or assets (financial muscle, technologies, brands) g The renewed threat from new foreign entrants is likely to which they can leverage in the China market. lead to a shake-out of weaker domestic Chinese competitors. g Entry into China tends to occur via the key cities of Beijing, g Distribution channels Shanghai and Guangzhou, followed by inland expansion via are likely to improve the ‘second tier’ cities. and restrictions on Dr Simon Collinson is Senior g Equity joint ventures are the most common entry vehicle. advertising are likely to Lecturer in International Business Although there was a preference for wholly-owned subsidiaries, be lifted. and Associate Dean, MBAs. these were not allowed in China in most key sectors. g International industry e g The case study firms, although representing a small sample, standards will be Darren Morgan were amongst the first in their respective sectors to access introduced and e mainland markets and appear to have gained significant first- gradually enforced. mover advantages. Remaining fears are g Overall, the firms were generally optimistic about the future that the importance of for China within the WTO. There was some scepticism guanxi will remain unchanged, although for businesses already regarding the timescale for implementing the changes required some way along the learning curve, this may be advantageous. for full accession and most felt it would be a long-term Corporate options for market-entry and foreign equity holdings challenge to get local authorities to comply and for domestic may not change in the short or medium-term, countering industry protection to be removed. other liberalisation pressures. g 13
  14. 14. CHINAFOCUS T HE ACCESSION OF China to the WTO in November this year marks the coming of a new era for foreign private equity investors. China promises to lift or moderate a number of restrictions limiting foreigners from investing in industries like retailing, distribution, insurance, and banking. These industries are getting more significant as this populous economy, with the determination of its government to modernise the nation, is expanding at the quickest pace in the world. Nevertheless, China has proven to be a difficult place for investors. One of the reasons is the ‘China Inc’ mentality on the part of the Chinese government. The lack of transparency in the administrative structures makes business life less predictable. Also, the defective legal system is unable to serve as an effective means to settle business disputes. Although the Chinese government has promised to be more transparent, bureaucracy is unlikely to go away in the short run because the government will do everything to ensure an orderly transformation of the economy under the WTO by administrative measures. Jack Ng (right) on a golf course in Guangdong, China, with a Chinese In the new era, China will be undergoing a deep structural business partner. Golf courses are becoming increasingly important reform in many facets of its economy. In particular, the venues for business discussions in China. existing labour intensive mode of farming will not stand the impact of foreign products. Dramatic consolidation in the A new era sector will drive many farmers, who make up the majority of the population, to factories in the cities and promote urbanisation in the country. Protected industries like banking, insurance, petrochemicals and telecommunication are currently dominated by the state owned enterprises. Although competition has been introduced in these markets, it is still mainly among the less efficient SOEs. Foreign rivals will accelerate the consolidation and privatisation process. Equity investors, under the existing rules before the WTO of investing in China agreement becomes effective, can only invest in most manufacturing or production types of business. Investors have to go through a risky type of trust arrangement to invest in restricted sectors. In the new era, on the other hand, foreign capital can participate freely in the retail sector within three Jack Ng (MBA 1992), Assistant Director years and will not be subject to any form of geographical, First Eastern Investment Group quantitative or ownership restriction. China also promises to Vice President of China Canton Management (HK) Ltd. open up its asset management business allowing foreign capital to own up to 49% of equity in a portfolio management company. The big retailers, insurance companies and banks in the developed world will likely set up their own branches in China with their own corporate strategies and marketing objectives in mind. However, private equity investors may bet on the ‘In the new era, China will be emerging private entrepreneurs in China who, for various reasons, will eventually make up the major part of the economy. Since the capital market in China is still immature, undergoing a deep structural reform in venture capital is a major source of funding for private business, and investment through private equity is the logical choice. To summarise, private equity investors in general welcome many facets of its economy’ China’s accession to the WTO as more investment opportunities will arise, particularly in the private services sector. g 14
  15. 15. Nexus | Winter 2002 An invitation to join Warwick Business School Alumni in Hong Kong I FT CHOSE TO STUDY at Warwick because of its scenic & modern campus, and also because Warwick Business School enjoys a high reputation. Although I graduated over 10 years ago, I still feel very connected to the University through my involvement in the Warwick Graduate Association in Hong Kong. WGA (Hong Kong) currently has about 250 members, Expat including graduates from as early as the 1970s. I have been WBS ALUMNI LIVING overseas will receive three free issues serving as Membership Administrator since the establishment of the Financial Times’s publication, FT Expat, this Spring. of the Association in 1994. The driving force is the elected The magazine will be sent out free of charge. If Alumni executive committee, which itself is a good illustration of the decide they like the magazine, they will have the diversity of our members’ backgrounds, with graduates from opportunity to order a subscription at a preferential rate. If faculties including Economics, Computer Science, anyone prefers not to receive the free issues, please contact Mathematics, Education, Law, Engineering, and last but not the Alumni Office g least, WBS of course! Besides me, WBS graduates in the executive committee include Anna Cheung (Accy/Fin), and 5 MBA graduates: Johnny Li, Clarence Chung, Becky Mak, John Ng and Catherine Fung. Johnny is also the WGA International International MBA Representative for China (Hong Kong). Please e-mail us at Alternatively, exchange come to our monthly happy hour gathering held on the first Thursday of each month 6:30pm - 8:00pm at Madison’s Bar & N Restaurant, Pacific Place. See you there! g EARLY ONE THIRD of students taking the MBA course full-time at Warwick Business School now do Yvonne Leung a portion of their study at an overseas university. “I (BSc in Management Sciences, 1987) wanted the experience of an American Business Associate Director, Towry Law (Asia) Hong Kong Limited School,” explains Phil White who completed his (Wholly owned by the AMP Group listed in Australia) MBA at WBS in September 2001. He chose Duke University for his period of overseas study, which can range from six weeks to three months. “I chose Duke because it had a great reputation and rankings,” says Phil, “and it offered an opportunity to see more technology based courses. I could also take advantage of its connections with the Research Triangle in North Carolina, a leading IT/telecommunications research cluster in the US.” Employers say they look for MBA students not only for their creativity and ability to instigate change, but for their specialist knowledge and contacts. A study experience overseas can enhance the range of contacts and detailed information gained on an MBA. “The weekend forum speaker series was the most valuable for me,” Phil decides, because of the unique access to specialist knowledge. “It was a great opportunity to learn where the internet and telecoms are going.” He continues, “it also showed me the high calibre of MBA students that WBS enjoys and made me appreciate my return to WBS during the final term.” Phil is now an Associate at PRTM, a specialised management consultancy focused on technology based Yvonne (front: 1st from right), Johnny (front: 1st from left), Clarence (back: middle) and other executive committee members met Professor companies. PRTM saw the value of such an exchange VandeLinde for dinner during the Vice-Chancellor’s visit to Hong Kong in within the WBS MBA experience, and the contacts Phil November. would make. g 15
  16. 16. Cultural differences in cross-border mergers and acquisitions T HE NUMBER OF European cross-border mergers and “We may now appear to trade in the international language acquisitions (M&As) is growing rapidly. Fragmented of business - English - but we can mean different things by it,” evidence exists that national cultural differences may suggests Duncan. “People still bring their own ‘takes’ to it. affect their post-deal management. But, do these Some say this is bad, but is individualism necessarily wrong? national characteristics also affect pre-deal issues? Few would question that total harmonisation can dampen Duncan Angwin, WBS Lecturer in Strategic creativity - or that individual culture can add value. So Management, has published an diversity can be good - but there is a need exploratory study on the subject - the for balance.” conclusion of which suggests that culture In his report, Duncan suggests that there variance does play a greater role than is is considerable empirical evidence to suggest generally accepted. that top management decisions are affected In 2000, the global value of all M&As was by national culture. Strategic decisions and a staggering $3.5 trillion. Of this, a rising actions, for example, may be influenced by proportion (33%) were cross-border deals, of differences of opportunism and trust in which the vast bulk (76%) was by Western other societies. European organisations. There are, of course, significant This increase, coupled with the growing differences within national boundaries and popularity of value-based bidding, has sent across industries, but it is amongst Europe’s due diligence fees soaring. Due diligence rich tapestry of diverse national cultures plays a critical role in M&A and is assumed that we can also find discernible differences to be an objective and independent in management styles. Duncan points to the examination of the target company. In cross- largest study of its kind - spanning 66 border deals, this assumption may not countries and 88,000 subjects (Hofstede and always be well founded. Different national Trompenaars) - which empirically tested cultures may give rise to variations in the these national differences. The study found expectations that acquirers and merger partners have of the that they are explained by five independent dimensions - value and role of due diligence. Power Distance, Individualism, Masculinity, Uncertainty Due diligence is largely an examination of any factors that Avoidance and Long Termism. could potentially derail negotiations or even lead to the early Duncan’s report defines these characteristics in detail and failure of the acquisition process itself. But it is also important then goes on to relate them by ‘scoring’ the five dimensions to for the post-acquisition stage to the national business cultures of six European countries - ‘The global value be a unified process - unfettered Germany, France, Holland, Sweden, Switzerland and the United by cultural differences. Kingdom. But how do you quantify The report goes on to relate each of these national cultural differences? “Invariably, characteristics to specific aspects of M&A due diligence. These of all M&As was top management will deny any differences because culture is hard to define and even harder and other findings suggest that cultural differences do play an important role in affecting acquirers’ perceptions of target companies and that this may have important consequences for a staggering to measure,” says Duncan. “In the negotiation of deals and the subsequent management of M&A deals, management the post-acquisition phase. g largely uses codified statistical information. By the denial of $3.5 trillion’ the existence of cultural effects, a perceived intangible risk is Further references: removed.” Article, Mergers and Acquisitions across European Borders: Cross-border deals in Europe add a new layer of complexity National Perspectives on Pre-acquisition Perspectives, Due - that of national identity. Homogenisation of laws and Diligence and the use of Professional Advisers, Duncan Angwin - currency there may be, but, as a diverse group of 260 million Journal of World Business, Spring, 2001. people, are we really moving towards harmonisation? Is pan- Book, Implementing Successful Post-acquisition Management, Duncan Angwin - published by Financial Times/Prentice Hall, Europeanism real? 2000. At the very top, the European Commission has tried and WBS Hot Topics briefing, The Acquisition Challenge, January failed to establish a standard on mergers and acquisitions. The 1997. resistance surely came, in part, because business is still viewed e in very different ways in different countries - union or no union. 16
  17. 17. Nexus | Winter 2002 ALUMNICAREERS Find your perfect mentor WBS MBA Alumni outearn competitors At whatever stage of your career you may find yourself, a bit of In a recent survey, the average salary of WBS MBA Alumni was advice or the sharing of expertise can always help. Sixty higher than the average of the salaries of the combined Alumni Alumni have already volunteered as mentors. To access a of other leading European business schools. The survey was mentor or to volunteer yourself simply follow links from the compiled from the CV’s WBS Alumni submitted when signing Alumni website to Mentors. up with MBA Direct, a recruitment agency. Vacancies The other leading schools include: LBS, INSEAD, Cranfield, Companies and recruitment consultants contact the Alumni Manchester, Rotterdam, SDA Bocconi, IESE, ESADE, IMD, City, Office regularly with vacancies. These are circulated to Alumni Imperial, Ashridge, Bradford, Edinburgh, EM Lyon, ENPC, monthly in the e-newsletter and displayed in summary on the ESCP-EAP, HEC, Henley, IEP, Instituto de Empresa, Judge, website. The jobs range from graduate trainee positions to Lancaster, LSE, Nijenrode, NIMBAS, Said and Strathclyde. employers seeking a PhD qualification and ten years expertise. Almost every graduate who registered with MBA Direct had If your company is seeking an employee do let us know. over 15 years experience and an MBA. The average salary was Executive Coaching just under ¤ 100k p/a in the UK, rising to ¤ 160k in North America. The average salary increase from taking an MBA at Increasingly individuals are becoming more responsible for WBS was ¤ 30k. their career progression and development needs. While good education and training are clearly important, they may not be Career Management Workshops sufficient for people “I have to say I did get a lot of useful tips and advice on ‘Companies contact WBS to maximise their Monday,” wrote a recent attendee of a WBS Alumni workshop potential. The aim of on career management. He went on to explain, “not just from executive coaching the workshop leader but also from the other attendees.” is to facilitate an with vacancies’ individual in becoming more “This was certainly one of the most useful events I have attended. For me, it’s always great to return to Warwick and I found it especially interesting on this occasion seeing all the effective in their role. Coaching is a tool for releasing potential, improving students during term performance, enhancing staff relationships, clarifying work/life time,” he continued, “I balance and as it supports new thinking, enabling a continuous will have to start For more information on Career change process. It does this by introducing processes to clarify making immediate use Management Workshops of what I have learnt!” contact the Alumni office or visit the client’s understanding of the issues facing her/him and our website developing a framework to improve behavioural flexibility and The Alumni Office w enhance interpersonal effectiveness. arranges career e The coaching style is non-directive, involving questioning, management workshops listening and clarifying. WBS is considering offering this service twice annually for if there is sufficient demand. Please do let the Alumni Office Alumni - these are for those who want to change jobs mid- know if you are interested. career or who find themselves forced to change jobs. g 17
  18. 18. ALUMNIRESPONSE Debunking the myth of the headhunter S A HEADHUNTER of twelve year’s standing, A Sean Quinn (MBA 93/94) read last month’s article “Don’t lose your head to the hunters” with interest. As an industry insider he agreed with much of the advice given but found the mythical view of headhunters somewhat outdated. Many old school headhunters love to perpetuate the myth. Teams not leaders - lessons However, in simple MBA speak executive recruitment is the provision of an intangible service where few patents exist on from General Motors process, where barriers to entry are low, and where the only competitive advantage is the experience, professionalism and HE QUESTION ON leadership and performance T expertise of the individual consultants working in each discussed by Andrew Pettigrew is, as he correctly recruitment organisation. points out, a complex one. While one can agree In that context it is true that, until the early 1990’s, the with the general conclusions such as ‘people tend market was largely polarised between the ‘mythical to look at single leaders’, there are some headhunters’ and ‘mere’ agencies. However these players’ additional aspects that I found in my study of supernormal profits combined with increasing dissatisfaction teams at General Motors in Germany (Opel) and England resulted in a number of new entrants. (Vauxhall).1 Today’s recruitment market can be characterised by three On the question of leadership 2, I would like to point out overlapping types of organisation, rather than the two three issues: Teams are better than leaders. In other words, a caricatured in last issue’s article. The bigger and more strong management team enables firms to manage not only professional headhunters continue to thrive and remain the leadership changes but also provides the necessary flexibility to primary means of recruiting the most senior ‘captains of enhance a firm’s competitive advantage far beyond the industry’. singularity of a leader. They are increasingly competing with a ‘new generation’ of Secondly, teams with a Search and Selection consultancies, including my own, which seek to provide a more flexible and customer orientated service, strong leader did less well than teams with a leader who ‘teams are better utilising traditional headhunting, advertised selection, and coordinated and facilitated. than leaders’ even database services. The pure agency end of the market also Lastly, teams with persists and competent individuals do exist. The advice in last teamleaders did less well than issue’s article on the perils of poor approaches, and the teams with democratic suggestion to get written documentation before committing to structures where a teachspeaker speaks on behalf of the team an interview was particularly useful. but does not lead. Having said all the above, I share the disappointment in the Consequently, top management needs a strong article at the standards that persist within the recruitment management team, not a leader, to allow what David Barry and industry. I still come across too many senior candidates who Michael Elmes have termed a polyphonic discourse 3. Only are grateful for the most basic courtesy and complain at the when their idea of many voices in a domination free aloofness of some ‘traditional head hunters’. environment 4 comes into play, will firms be able to master the I also remain disappointed at the poor quality and untargeted complexity of the post-Fordist business world. approaches that pass for headhunting in parts of the 1 Murakami, T. 1996. Teamwork & the Structure of Representation at Vauxhall & Opel, Warwick: Warwick Business School, PhD-Thesis. Search and Selection Contact: 2 Murakami, T. 1997. The Autonomy of Teams in the Car Industry: A industry as well as the low e Cross National Comparison, Work, Employment & Society, vol. 11, no. 4, 1997, standards that exist in much w p. 749-758. of the database end of the 3 David Barry & Michael Elmes (1997). Toward a narrative view of market. strategic discourse, Academy of Management Review, Vol. 22, No. 2, For candidates or headhunt targets the advice has to be to P. 429-452. judge each approach individually and to put some of the 4 Habermas, J. 1997. The Theory of Communicative Action: Reason and the Rationalisation of Society, Oxford: Polity Press. quality checks mentioned above in place. g Thomas Klikauer Sean Quinn (PhD, Industrial and Business Studies, 1996) (MBA, 1994) College of Law and Business Managing Consultant, Prism University of Western Sydney, Australia 18