What You Know Depends on Where You Go:
Developing an International Perspective in HBS Research
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| HBS associate professor Robert Kennedy and
LARC executive director Gustavo Herrero
interview customers of BancoSol at a market in La
Paz. The bank specializes in microloans and has
the second-largest number of customers of any
bank in Bolivia. Photo by Felipe Monteiro |
If you're teaching mathematics, two plus two equals four anywhere in the world, though the words used for the numbers differ. If you're a chemistry instructor, whether in Beijing, Beirut, or the Bay Area, you can be confident that water is made up of hydrogen and oxygen. In business, however, things can be a bit more complicated.
“My belief is that there are some business principles that are true around the world, but some things that are more context- dependent,” says HBS senior associate dean and director of Research Krishna G. Palepu. “We need to figure out which points are valid worldwide and which should really be qualified by environment.” Palepu's insights were largely gained in the trenches of a multiyear research project with Professor Tarun Khanna that explores the implications of conglomerate business structures in emerging markets. In the late 1980s and early 1990s, research showed that diversified U.S. and European firms were perpetuating inefficiencies, as units within them typically performed below stand-alone peers. Divesting assets to focus on core competencies became the accepted wisdom. Applying this logic, multi-industry conglomerates in other nations, such as the chaebol of Korea, were presumed incubators of inefficiency. Khanna and Palepu's research, however, showed that conglomerate-owned firms in these markets often outperformed comparable stand-alones.
“These business groups appear to Wall Street as anachronisms, but in the context in which they operate, they have an efficiency-enhancing role,” notes Khanna. An emerging market often lacks one or more core infrastructure elements, such as a supply of trained business professionals, liquid stock exchanges, predictable contract enforcement, or quality service providers for auxiliary needs like printing and advertising. In such environments, the benefits of sharing resources and risk within a parent company generally outweigh the possible inefficiencies created through administrative overhead or being sheltered from competition.
Among the many other HBS faculty conducting international research, two are challenging the perception of emerging markets with respect to marketing. Senior Lecturer David J. Arnold and Professor John Quelch have studied these beliefs in developing cases for the elective course International Marketing Management. “In the past, a Western-based company often assumed the emerging market was just a ‘baby version' of theirs, and it would grow up just like ‘ours.' This approach has led to many failures,” says Arnold. Indeed, research by Arnold and Quelch has found that emerging markets tend to develop and grow quite differently, sometimes with a tighter product life cycle, sometimes much slower, depending on the structural conditions of the market, such as the availability of distribution. Being a first-mover can be even more critical in such markets, they say, less for brand identity than to grasp potentially scarce distribution resources. While exploring emerging market contexts, Arnold has also noted the strengths of existing emerging market firms like Jollibee, a Filipino fast-food chain that has entered the United States successfully in California. “This is the point of international trade and globalization — that it isn't just a one-way street,” Arnold observes. This two-way exchange of ideas is also evident to HBS associate professor Walter Kuemmerle, who developed the elective course International Entrepreneurial Finance by writing cases that involve about twenty different countries.
“The largest group to take the course are actually American students — some don't intend to operate abroad, but they think there are business models they can learn from,” remarks Kuemmerle. As an example, he points to a case involving a Pakistani air-freight company, written in response to post-9/11 student feedback requesting more representation of business in Islamic countries. “Apart from examining Pakistan-specific contextual issues, it's actually a case about how leasing assets enables faster growth, which is an insight that applies worldwide,” he comments. Professor Lynn S. Paine, whose global research helped develop another elective, Managing Across Cultures, built cases discussing indigenous companies in various cultural traditions and the challenges faced when a company from another tradition enters the market. The complexities of such research start with language, she notes, recalling a visit to a Chinese company when even her two translators disagreed about how to phrase a comment accurately. Understanding differences takes more than the right words, however.
“The cultural issues come into play in the case writing itself — the idea that you as a company might find it useful to describe your problems in a case is quite foreign to some executives,” says Paine, whose course addresses the interpersonal challenges of cross-cultural interaction and the management and organizational implications for companies operating in differing cultural contexts.
Given the diverse areas of exploration among these and other HBS faculty, it's perhaps not surprising that Palepu and Khanna organized a conference held at HBS November 22 and 23 on the topic, “Do Business Schools Generate Globally Relevant Knowledge?” Assembling a panel of experts in various disciplines, faculty members discussed whether the answers to key questions in their fields are contextspecific or true anywhere in the world. Khanna and Palepu's own research has made them acutely aware of how critical a worldwide perspective can be. “It's a lot more work to build globally robust ideas,” Palepu remarks, “but by encouraging our faculty to do this, we can develop more valuable knowledge.”
