Business Strategy in Emerging Markets - Harvard University

Harvard University Department of Economics Economics 970 (Spring 2007) Business Strategy in Emerging Markets TTh 6:30-8:00 Location: Robinson 208 Merlina Manocaran mmanocaran@hbs.edu 617 784 6416 COURSE DESCRIPTION “It is the last and a very big frontier. Brazil is done. China is done. This is the last Shangri-La of retail.” Sunil Mittal, chairman of Bharti Enterprises, announcing his firm’s joint venture with Wal-mart for the latter to enter the Indian market; Nov 2006 In recent years, emerging markets (EM), a term used broadly to cover developing countries with rapid growth, has received increasing attention in academic and corporate circles. This course aims to understand the operations of firms (both foreign and domestic) in these markets. In particular, we will first analyze why EM pose a different set of challenges than the environment in developed markets, which has received greater academic and practitioner attention in the past. With this sensitivity, we will then examine the strategies adopted by firms in response to EM institutions, and the success (or potential success) of those strategies. While this course will overlap with the macroeconomic concepts (foreign direct investment, international trade) covered in certain other undergraduate classes, this course aims to examine specifically the firm-level strategies undertaken, i.e. at a more micro level of analysis. Students interested in careers in firms that are located in or that deal with EM, or those who want to learn more about how public policy and institutions affect businesses in EM will benefit most from this course. While no prior international experience is necessary, a healthy appreciation for differences between countries and regions will help! METHODOLOGY AND COURSE MATERIALS The materials used in the course will be a combination of academic (economics-based) papers and popular press articles (mostly from The Economist). The academic material will cover the main empirical studies in this field, and will allow students to understand how large-sample data can be used to test hypotheses in a rigorous manner. The magazine articles are aimed at providing a real-world context for the topics covered in the academic work. In addition, a few HBS cases will be used to allow for more in-depth analysis of actual firmlevel decisions. There is no required textbook for this course. All the academic materials and articles are available online via HOLLIS. I will discuss access to HBS cases in class. This course has a quantitative level of 2. There will be no complicated theoretical models to analyze, but students are expected to be familiar with basic empirical analysis. It is Ec 970 Syllabus: Business Strategy in Emerging Markets Page 1 of 7 suggested that students read either the text of Guide to Econometrics or Chapters 1-5 of Introduction to Econometrics. Students should also note that the Undergraduate Economics Office now employs a “Stata Help TF” who holds training sessions and office hours. This will be particularly useful for the empirical exercise and term paper. Guide to Econometrics, 5th ed. (2004). Author: Peter Kennedy (Blackwell Publishers) Introduction to Econometrics, 2nd ed. (2006). Authors: James H. Stock and Mark W. Watson (Addison-Wesley) GRADING AND COURSE REQUIREMENTS The grading scheme for this course is as follows: Class participation 20% Response papers 20% Empirical exercise 30% Term paper 30% Class participation It is expected that students will come to class having read all the materials assigned for the day. Class participation is crucial to having a stimulating discussion, especially in a class of this size, and I will expect students to be prepared to discuss the assigned readings, to ask questions and to respond to comments made by others. Please note that I will be grading class participation based on the quality (and not quantity) of comments. Response papers There will be 5 response papers due, spread over the semester. Each response paper should discuss an assigned academic paper (and not the press articles or HBS cases). However, please do not write more than one response paper for any given day (even when more than one academic paper is assigned). You are free to choose the academic papers for which to write the response papers, with this qualifier: three papers will be due before spring break (26 March – 2 April), and two papers will be due after. Each response paper should be approximately 2 pages in length (typed, double-spaced) and should cover the following points: - a summary of the research question(s) and findings in the paper - the level of analysis, research design, data and methods - the paper’s strengths and limitations - the contribution it makes to the field and any links to previous papers we have discussed - at least one interesting and researchable question derived from the paper Ec 970 Syllabus: Business Strategy in Emerging Markets Page 2 of 7 Empirical exercise The empirical exercise is meant to allow students to apply the methods they have learnt (both in this course and in other classes) to an EM dataset that I will provide (a week before the due date). It is expected that students will use either Excel or a statistical program (e.g. Stata) to carry out the analysis. An accompanying write-up (6 pages, typed, double-spaced) should discuss the limitations of the data (if any), methods used and findings- I will furnish further guidelines to this write-up when I hand out the data. The empirical exercise is due on 19 April 2007 (Thursday). Term Paper Students are required to write a term paper on any topic related to firm-strategy in EM. There are 2 options for this paper: 1) an empirical paper (covering many firms) using a dataset of the student’s choice; or 2) an analysis of a firm operating in an EM, in particular, its strategies relative to local institutions, and its current and future performance There are 2 assignments related to this term paper: a) a short essay describing your term paper (no data analysis required, but a description of the data and its sources is expected). This essay is due 5th April 2007 (Thursday) and should be about 6 pages (typed, double-spaced). I will provide comments on your essay before the final paper is due; and b) a final term paper with complete data analysis. This paper is due 10th May 2007 (Thursday, one week after the last class) and should be about 15 pages (typed, double-spaced) Please be familiar with the handbook “Writing Economics: A Guide for Harvard’s Sophomore Economics Concentrators” (especially p.27 which discusses how to cite other work to avoid plagiarism). I will, of course, be available to discuss any issues that you may have with your assignments (e.g. expected level of discussion, possible data sources, interesting topics for your paper, etc.). COURSE POLICIES a) Attendance is compulsory for each session; please let me know in advance if you cannot attend class b) Extensions to deadlines will be entertained on a case-by-case basis. c) I will not hold formal office hours each week, but I am happy to set up time to talk about the class. Ec 970 Syllabus: Business Strategy in Emerging Markets Page 3 of 7 READING LIST Class 1: Thu, 8th Feb 2007- Why do firms go abroad? 1) Hymer, Stephen (1976): The International Operations of National Firms: A Study of Direct Investment, Cambridge, Mass.: MIT Press [Chapter 4] 2) Kogut, Bruce and Udo Zander. “Knowledge of the Firm and the Evolutionary Theory of the MNC.” Journal of International Business Studies 24 (1993): 625-645 Class 2: Tue, 13th Feb 2007- Firms in emerging markets 1) Schneider, Ben Ross. “Why is Mexican business so organized?” Latin American Research Review 37 (2002): 77-118. 2) “Monopoly money,” The Economist, 16 November 2006 Class 3: Thu, 15th Feb 2007- Firms in emerging markets 1) Khanna, Tarun, and Jan Rivkin. “Estimating the Performance Effects of Business Groups in Emerging Markets.” Strategic Management Journal 22 (2001): 45-74 2) Chang, Sea-Jin. “Business Groups in East Asia: Post-crisis Restructuring and New Growth.” Asia Pacific Journal of Management 23 (2006): 407-417 3) “The wages of atonement,” The Economist, 20 April 2006 Class 4: Tue, 20th Feb 2007- Firms in emerging markets 1) Bertrand, Marianne, Paras Mehta and Sendhil Mullainathan. “Ferreting Out Tunneling: An Application to Indian Business Groups.” Quarterly Journal of Economics 117 (2000): 121-148 2) Douma, Sytse, Rejie george and Rezaul Kabir. “Foreign and Domestic Ownership, business groups and firm performance: evidence from a large emerging market.” Strategic Management Journal 27 (2006): 637-657 Class 5: Thu, 22th Feb 2007- How much do institutions matter? 1) Henisz, Witold J. “The Institutional Environment for Multinational Investment.” Journal of Law, Economics and Organization 16 (2000): 334-364 2) Henisz, Witold J. and Bennet A. Zelner. “The Institutional Environment for Telecommunications Investment.” Journal of Economics & Management Strategy 10(2001): 123-147 3) “A hard bargain,” The Economist, 2 November 2006 Ec 970 Syllabus: Business Strategy in Emerging Markets Page 4 of 7 Class 6: Tue, 27th Feb 2007- Intellectual property and MNCs 1) Branstetter, Lee G., Raymond Fisman, and C. Fritz Foley. “Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U.S. Firm-Level Panel Data.” Quarterly Journal of Economics 121, no. 1 (February 2006): 321-349 2) Zhao, Minyuan. “Conducting R&D in Countries with Weak Intellectual Property Rights Protection.” Management Science (forthcoming) 3) “The boot is on the other foot.” The Economist, 30 March 2006 Class 7: Thu, 1 Mar 2007- More IP issues 1) Kennedy, Robert. “The Pharmaceutical Industry and the AIDS Crisis in Developing Countries.” Harvard Business School Case 9-702-010 2) “Drugs and intellectual property,” The Economist, 21 July 2005 Class 8: Tue, 6th Mar 2007- Firm strategies around weak institutions (this class will be video-taped) 1) Banerjee, Abhijit and Esther Duflo. “Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry.” Quarterly Journal of Economics 115 (2000): 989-1018 2) “Watch out, India,” The Economist, 4 May 2006 Class 9: Thu, 8th Mar 2007- Firm strategies around weak institutions 1) McMillan, John and Christopher Woodruff. “Dispute Prevention without Courts in Vietnam.” Journal of Law, Economics and Organization 15 (1999): 637-658 2) Johnson, Simon and John McMillan. “Courts and Relational Contracts.” Journal of Law, Economics and Organization 18 (2002): 221-277 3) “Winning is only half the battle,” The Economist, 23 May 2005 Class 10: Tue, 13th Mar 2007- Firm strategies around weak institutions 1) Siegel, Jordan. “Can foreign firms bond themselves effectively by renting U.S. securities laws?” Journal of Financial Economics 75 (2005): 319-359 2) “Going South,” The Economist, 2 June 2005 Class 11: Thu, 15th Mar 2007- Firm strategies around weak institutions 1) Desai, Mihir A., C. Fritz Foley, and Kristin Forbes. “Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations.” Review of Financial Studies (forthcoming) 2) Desai, Mihir A., C. Fritz Foley, and James Hines Jr. “The Costs of Shared Ownership: Evidence from International Joint Ventures.” Journal of Financial Economics 73 (2004) 323-374 Ec 970 Syllabus: Business Strategy in Emerging Markets Page 5 of 7 Class 12: Tue, 20th Mar 2007- Corporate Governance in Emerging Markets 1) Johnson, Simon, Peter Boone, Alasdair Breach and Eric Friedman. “Corporate governance in the Asian financial crisis.” Journal of Financial Economics 58 (2000): 141186 2) “Corporate governance in Brazil,” The Economist, 24 August 2006 Class 13: Thu, 22nd Mar 2007- Corporate Governance in Emerging Markets 1) Khanna, Tarun, and Krishna Palepu. “Globalization and Convergence in Corporate Governance: Evidence from Infosys and the Indian Software Industry.” Journal of International Business Studies 35, no. 6 (November 2004): 484-507 2) “Today India, tomorrow the world,” The Economist, 31 March 2005 No class on Tue 27th Mar and Thu 29th Mar (spring break) Class 14: Tue, 3rd Apr 2007- Corruption 1) Kennedy, Robert and Rafael Di Tella. “Corruption in International Business (A).” Harvard Business School Case 9-701-128 2) Kennedy, Robert and Rafael Di Tella. “Corruption in International Business (B).” Harvard Business School Case 9-701-129 Class 15: Thu, 5th Apr 2007- The value of political connections 1) Fisman, Raymond. “Estimating the Value of Political Connections.” American Economic Review 91 (2001): 1095-1102 2) “Cowing the private sector,” The Economist, 1 September 2005 Class 16: Tue, 10th Apr 2007- The value of political connections 1) Leuz, Christian, and Felix Oberholzer-Gee. “Political Relationships, Global Financing and Corporate Transparency: Evidence from Indonesia.” Journal of Financial Economics 81, no. 3 (September 2006): 411-439 2) “Grip of the dead hand,” The Economist, 14 September 2006 Class 17: Thu, 12th Apr 2007- The value of political connections 1) Y. Wiwattanakantang, R. Kali and C. Charumlind. “Connected lending: Thailand before the financial crisis.” Journal of Business 79 (2006): 181-217 2) Faccio, Mara. “Politically Connected Firms.” American Economic Review 96 (2006): 369386 3) “Consolidate, or else,” The Economist, 9 June 2005 Ec 970 Syllabus: Business Strategy in Emerging Markets Page 6 of 7 Class 18: Tue, 17th Apr 2007- Changing Institutions 1) Khanna, Tarun, and Palepu, Krishna. “The Future of Business Groups in Emerging Markets: Long-Run Evidence from Chile.” Academy of Management Journal 43 (2000): 268-285 2) “Good Things Come in Midsize Packages,” BusinessWeek, November 19, 2006 Class 19: Thu, 19th Apr 2007- Changing Institutions 1) Park, Seung Ho, Shaomin Li and David K Tse. “Market liberalization and firm performance during China's economic transition.” Journal of International Business Studies 37 (2006): 127 2) “Profits and prophecies,” The Economist, 19 October 2006 Class 20: Tue, 24th Apr 2007- How much does experience help? 1) Perkins, Susan. “Does Prior Experience Really Pay?: Foreign Direct Investment, Institutional Environments and Firm Performance.” (2005) Working Paper 2) TBA Class 21: Thu, 26th Apr 2007- How much does experience help? 1) Del Sol, Patricio and Joseph Kogan. “Regional Competitive Advantage Based on Pioneering Economic Reforms: The Case of Chilean FDI.” (2004) Working Paper 2) “The flicker of a brighter future,” The Economist, 7 September 2006 Class 22: Tue, 1 May 2007- MNCs and local firms 1) Aitken, Brian J., and Ann E. Harrison. “Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela” American Economic Review 89 (1999): 605-618 2) “Setting up shop in India,” The Economist, Nov 2nd 2006 Class 23: Thu, 3 May 2007- Local firms and development 1) Khanna, Tarun and Raymond Fisman. “Facilitating Development: The Role of Business Groups.” World Development 32, no. 4 (April 2004): 609-628 2) TBA *************** Ec 970 Syllabus: Business Strategy in Emerging Markets Page 7 of 7