Category: Emerging Research
Ren’s “How to Compete in China’s E-Commerce Market” Appears in Sloan Management Review, Fall 2012
In the most recent edition of Sloan Management Review (SMR), Xin Wang and Z. Justin Ren explore the world’s largest e-commerce market—and the failure of America’s most successful companies to crack it successfully.
Ren is an associate professor of operations and technology management and Dean’s Research Fellow at Boston University School of Management, as well as a research affiliate at MIT Sloan School of Management. Wang is an assistant professor of marketing at Brandeis University International Business School.
On the history of corporations reproducing their domestic successes abroad, Ren comments, “Big e-commerce companies often focus on scalability upon entering foreign countries and tend to undervalue or neglect local specifics that often clash with their business models at home. It is a fine balance they have to strike.”
Ren and Wang address this challenge in their SMR article “How to Compete in China’s E-Commerce Market.” “With more than half a billion Internet users,” the authors write, “China boasts the greatest number of Internet users in the world. Its online shopping market hit 766.6 billion yuan in 2011,” while by 2012, its e-commerce market is expected to be worth 2 trillion yuan, the approximate equivalent today of $320 billion.
“Big e-commerce companies often focus on scalability upon entering foreign countries and tend to undervalue or neglect local specifics that often clash with their business models at home. It is a fine balance they have to strike.” – Z. Justin Ren
So why, they ask, have companies such as Yahoo!, Groupon, and eBay failed to create the same successes in China as they have at home, or in other international markets? “After years of effort and millions of dollars spent, armed with the most sophisticated technology and premium brand names,” the authors write, “these Internet giants have all failed to claim a leadership role in China’s e-commerce.”
Wang and Ren address this market mystery by combining industry analysis, case studies, and insight from leaders in China’s e-commerce industry, with an examination of high-profile entry players in the Chinese e-commerce arena. “We identified four key ways,” they write, “in which U.S. e-commerce companies proverbially hit the Great Wall when they tried to enter the Chinese market.”
These fatal blunders include:
- a failure to modify the business model for Chinese customers,
- insistence on a standard global technology platform,
- a habit of overlooking the competition, and
- an inability to address challenges from Chinese authorities.
Tapping lessons from their research, the authors then offer practical advice to counter these errors and build success in the Chinese e-commerce market.
Banner image courtesy of flickr user DavidDennisPhotos.com.
INFORMS Podcast Series Features Chris Dellarocas on Double Marginalization in Performance-Based Advertising
“The Science of Better” Spotlights Dellarocas’s Management Science Article
In his June 2012 Management Science article “Double Marginalization in Performance-based Advertising: Implications and Solutions,” Chrysanthos Dellarocas explores an unexpected consequence of online pay-per-action systems (PPAs), such as the pay-per-click model—research that was recently highlighted by the Institute for Operations Research and Management Science (INFORMS) podcast series “The Science of Better.”
Dellarocas is Professor (effective September 2012) and Chair of Information Systems at Boston University School of Management. He is also a widely-cited expert in online reputation, social media, and information economics.
Although the pay-per-click model and other PPA systems in online markets were intended to reduce advertising costs and boost efficiency, Dellarocas reports in his Management Science paper that they “tempt firms to increase the prices of their goods so they generate fewer clicks/sales but make more profit per click and, most importantly, pay fewer commissions to pay-per-click publishers, such as Google.” Such behavior reduces consumer surplus. It can also “reduce publisher revenues relative to pay-per-exposure methods,” creating what the author calls “a form of double marginalization.”
“It’s possible to calculate a system that induces sellers to maintain product price at the levels that would maximize the profits if they bought advertising the traditional way. Ultimately this is to the benefit of the advertisers as well.”
In the podcast posted by INFORMS spotlighting this research, Dellarocas discusses his findings, explaining the phenomenon of double marginalization and offering solutions to improve pricing equilibrium and consumer surplus, as well as to improve publishers’ expected profits in PPA systems.
“One idea is a system of penalties and rewards on top of standard pay-per-clicks,” Dellarocas suggests. “If you buy an ad but nobody clicks on it—because, for example, your price is too high—then the next time you buy an ad from the same place, your cost-per-click would be just a little higher.”
Comparing this model to that of auto insurance premiums, Dellarocas explains, “The objective is to discourage sellers from increasing the prices of their products so they can receive fewer clicks (and, therefore, pay the publishers fewer times) but make more profits when they do.”
This works, Dellarocas argues, because, as he shows in his Management Science paper, “It’s possible to calculate a system that induces sellers to maintain product price at the level that would maximize the profits if they bought advertising the traditional way. Ultimately this is to the benefit of the advertisers as well.”
Listen to the full podcast at the INFORMS site The Science of Better.
SMG’s Kabrina Chang studies what is and isn’t legal in hiring
By Rich Barlow via BU Today
Some of her School of Management students told Kabrina Chang of being asked during a job interview to log on to their Facebook page, their prospective employers hoping to mine useful information in deciding whether to hire them. “I was horrified,” says Chang, a lawyer and assistant professor of business and employment law.
No one knows for sure how many companies do this, and Maryland is the only state that’s banned it, says Chang (CAS’92). Meanwhile, firms like Social Intelligence and Reppify compile reports about, or simple scores of, job seekers, based on the applicants’ information on social networks like Facebook and activities at online sites like Craigslist and eBay, she says, for sale to corporate clients. It’s similar to credit-reporting agencies providing financial background on applicants.
Chang thinks that gathering online information, within reasonable limits, is fine; after all, an employer who hires someone who’s littered the internet with pictures of himself posing with firearms could be liable if the new employee then goes on a rampage. And she cites one study in which 18 percent of responding employers said they’ve hired people with impressive online profiles. But, she argues, the companies that asked her students for their Facebook pages on the spot crossed what should be a legal line. Chang, who has done previous research on social media, presented a paper on the topic at SMG’s second annual faculty research day recently and discussed it with BU Today.
Click here to see Professor Chang’s Q&A.
Forthcoming in the Journal of Consumer Psychology
New research by Remi Trudel, Boston University School of Management Assistant Professor of Marketing, explores the quest to assert self-control in consumers and dieters, and the role information such as nutritional data can play in amplifying self-regulation.
An article based on this research, “Self-Regulatory Strength Amplification through Selective Information Processing,” co-authored by Trudel and Kyle B. Murray of the University of Alberta School of Business, is forthcoming in the Journal of Consumer Psychology.
The paper’s findings have important implications not just for the study of consumerism but also for the growing global concern over rising obesity and the ongoing Congressional debate around the availability of nutritional information.
“The findings have important implications not just for the study of consumerism but also for the growing global concern over rising obesity and the ongoing Congressional debate around the availability of nutritional information.”
Trudel and Murray’s work rests on prior research demonstrating that the strength people require to control their behavior is a limited resource, depleted with use. According to these theories, each act of self-control leaves the individual with less strength to regulate his or her behavior in the future. Simply stated, self-control is exhausting, and exerting self-control in an initial situation makes you weaker and less able to exert self-control when the next situation comes along.
In this research, however, Trudel and Murray demonstrate that although the depletion of self-control strength is common, it is not inevitable. In four experiments, the authors show that under certain conditions, consumers can amplify their strength and, as a result, increase their ability to control their behavior. Looking specifically at the context of eating behavior, Trudel and Murray find that when dieters have access to nutritional information, they are able to increase their self-regulatory strength, perform better on a subsequent physical and cognitive tasks, and control their consumption of a desirable food (such as chocolate). However, in situations where nutritional information is not available, the self-regulatory strength of dieters is more depleted than that of non-dieters and, as a result, they are less able to control their eating behavior.
Hsu Dissertation Honored by Marketing Science Institute
Product recalls: companies hate them; customers get annoyed by them. But how companies handle them makes all the difference in the world.
Liwu Hsu (PhD’12), who will defend his dissertation this spring, won a prestigious honorable mention in the 2011 Alden G. Clayton Doctoral Dissertation Proposal Competition for his dissertation “Can Online Chatter Kill a Giant? Insights into the Role of Brand Equity and Social Media during a Product Recall Crisis.”
According to his doctoral advisor, Professor Shuba Srinivasan, “From 80 submitted papers, 168 marketing scholars selected one winner and four honorable mentions. It’s a great honor for Liwu and the department.” The annual award is given by the Marketing Science Institute. Hsu will begin as an assistant professor at the University of Alabama at Huntsville College of Business Administration in Fall 2012.
In his study, Hsu looks at how social media can help or hurt a company’s shareholder value in a product recall crisis situation and provides insight into the potential moderators of brand equity. This study builds on brand research previously published by Professor Susan Fournier, one of his doctoral committee members.
In the event of a product recall, when a company denies a problem or even hesitates to acknowledge a rumor of recall, social media gives consumers the power to tarnish a company’s reputation, increasing investors’ concern about future company cash flows. Investors fear the initial costs of product recall and replacement, potential lawsuits, and potential new regulations, and stock value and reputation can take a big hit (even if it’s temporary).
A big brand company can’t readily hide its faults and provide an insurance-like protection of shareholder value. Company denials get countered by user stories and blogs spread the word. That in turn generates more criticism, and generates more ill will. “Negative buzz spreads quickly via social media,” says Hsu, “and worse still, social media enables and encourages consumers to be more critical of companies and their brands. Moreover, it is increasingly difficult for a company to bury or hide from its mistakes on the web.”
Hsu recommends that in a PR crisis, the CEO should respond proactively. Immediate solutions include creating a post, perhaps a video, to air out the problem, and the company’s solution, immediately. “Share information efficiently, completely, and directly with consumers,” he says. In recent years, Hsu explains, marketing dollars have increasingly shifted from traditional communication vehicles towards the Web 2.0 platform. Companies are learning that it is important to be continually communicating online, keeping the channels open for when the need arises.
Recent business scandals demonstrate that it’s better to acknowledge a negative event quickly, admit fault, and then move on. The Internet assures that bad secrets never stay hidden for long.
“Structural Knowledge” Forthcoming in Strategic Management Journal
A new article by the School of Management’s Samina Karim, Assistant Professor of Strategy and Innovation, and co-author Charles Williams (Bocconi University, Milan), studies executives as vehicles for organizational change, particularly in organizations experiencing acquisitions or restructuring. The paper, “Structural Knowledge: How Executive Experience with Structural Composition Affects Intrafirm Mobility and Unit Reconfiguration,” is forthcoming in Strategic Management Journal (June 2012). It explores how executives’ knowledge, gleaned from their experience with different types of business units (e.g. internally developed, acquired, or recombined), affects both their mobility within the firm and the subsequent structural change of units to which they move.
The authors argue that “structural knowledge” (defined as knowledge of the tasks and challenges within units of different “structural composition”) is significantly associated with executives’ horizontal, intrafirm mobility, and thus an important knowledge form, although one that has been little studied to date. Among their findings are the following:
- Executives from internally developed units may ultimately move to any unit, either via a recombined unit that is a combination of acquisitions or one that is a combination of internal developments.
- The same is not true of executives starting with acquisition experience. Their path is more likely to lead them to acquisitions that are combined together and then perhaps to cases where acquisitions are combined with internally developed units.
- Executives who experience the fewest transitions to units of different structural composition are those who start at units that are combinations of acquisitions and internal development. They are most likely reassigned to similar units.
Applying these findings to executives’ personal career strategies, Karim and Williams advise:
Executives should be conscious of the structural composition of units with which they are gaining experience. Our findings show that it is difficult for executives with experience in one type of unit to necessarily make the transition to another type of unit. If the executive wants to specialize in one form of structural composition, the two that predominantly serve similar units are executives from internally developed units (may be reassigned to other internally developed units) and those from units combining acquisitions and internal units. The latter can be limiting in that it is unlikely for this position to be reassigned to other types of units; it may be enabling for those executives who are integration specialists and can apply their specialization in this context
Executives should try to gain experience at internally developed units, as they seem to be where initiators of change reside within the firm with regards to participating in recombinative opportunities. These executives also exhibit the greatest degree of mobility to, ultimately, units of various structural compositions.
Leveraging Executives’ Mobility To Create Firm Value
In exploring how executive mobility can impact organizational transformation, the authors discover that when comparing units receiving simply more transferred executives, executives with recombination experience, and executives from core internal units, the units with greater influx of the latter are those with a greater likelihood of being recombined, “while units receiving executives from previously acquired units will tend to remain unchanged.”
Ultimately, Karim and Williams show how executives serve as “containers of knowledge and know-how,” and how mobility catalyzes both knowledge transfer and creation of new knowledge within the executive through his or her new experience. The study, they write, also “reveals how firms may be leveraging executives’ expertise with structural composition across business units within the firm to create further value.”
Read more about the study “Structural Knowledge: How Executive Experience with Structural Composition Affects Intrafirm Mobility and Unit Reconfiguration” as well as related research in the working papers “Executive Links and Strategic Change: Is Unit Spanning by Executives Associated with Market Entry and Exit?” and “Acquirers’ Goals’ Influence on Acquirer-Target Bilateral Interactions.”
From the January-February 2012 Edition of Harvard Business Review
In a new Harvard Business Review article “A New Approach to Funding Social Enterprise,” Nalin Kulatilaka along with co-authors Antony Bugg-Levine and Bruce Kogut propose increasing investment by unbundling social benefits and financial returns.
Kulatilaka is the Wing Tat Lee Family Professor in Management at Boston University.
The article explores how financial engineering can allow social enterprises to draw investment from the financial markets, rather than from resource-strapped charities, where they have traditionally sought the majority of their support.
Since investors have different appetites for social and financial benefits, the authors argue, social enterprises can use financial engineering to offer different risks and returns to different kinds of investors.
Explains Kulatilaka, “Charities forego private returns for social benefits, while some investors will not sacrifice any below-market financial returns for the sake of social returns. But most investors lie in the broad spectrum in between these two extremes. Our idea is that financial engineering can tailor different mixes of financial and social returns and associated risks to suit investor preferences.”
Financial engineering can tailor different mixes of financial and social returns and associated risks to suit investor preferences.
In an interview about how his recent Harvard Business Review article ties into his ongoing research on the energy and environment sector, Professor Kulatilaka points out that consumers also have different preferences for social versus private benefits arising from the goods and services they purchase: some will pay a premium to buy fair trade goods or “green electricity,” while others are driven purely by low cost. “Recognizing this spectrum of consumer preference could induce more environmentally friendly behavior by firms,” Kulatilaka says.
This, in turn, leads to different challenges that draw on marketing, strategy, and other management disciplines: “It is very difficult to signal the social value of a good to consumers, and it is very hard for consumers to recognize ‘greenwashing’ from the ‘truly green.’ And since consumers cannot actually quantify the social value of a product or service, they frequently can’t decide how much of a premium to pay,” Kulatilaka explains.
See more about “A New Approach to Funding Social Enterprise,” by Antony Bugg-Levine, Bruce Kogut, and Nalin Kulatilaka, at Harvard Business Review.
Weil Is Prominent Scholar on Transparency & Governmental Disclosure
The United States Government’s National Research Council, a part of the National Academy of Sciences, recently appointed Boston University School of Management’s David Weil, Everett W. Lord Distinguished Faculty Scholar and a professor in the Markets, Public Policy and Law Department, to the Committee on a Study of Food Safety and Other Consequences of Publishing Establishment-Specific Data. Along with fellow committee-members, Professor Weil was tasked with exploring the benefits of releasing, through the Internet, US Department of Agriculture and Food Safety and Inspection Service (FSIS) data about meat processing facilities in the United States.
“Information technology, social networking, and growing skepticism about both private and public institutions means that expectations for transparency are growing.”
The committee’s findings and suggestions have now been published in a report titled “The Potential Consequences of Public Release of Food Safety and Inspection Service Establishment-Specific Data.” The report’s recommendations are based on deliberations over six months. The committee sought lessons from academic studies, including past research by Professor Weil (and colleagues Archon Fung and Mary Graham) while also examining the experience of other government agencies in forming their conclusions, such as the Environmental Protection Agency’s publication of Toxics Release Inventory data, the disclosure of detailed enforcement data by the Mine Safety and Health Administration, and the public release of data on restaurant hygiene. All of these are systems that Professor Weil has researched and written about in past work.
The challenge of effectively and usefully releasing FSIS data is made clear in the report. “Members expressed different views about the implications of releasing inspection and enforcement data, and the potential adverse consequences of releasing this type of establishment-specific data,” the report explains. Members analyzed concerns ranging from inspector variability to confidentiality issues to the potential for misinterpretation of the data. On the basis of their review, Weil and his co-authors write, “the majority…believed strongly that public access to this type of data could help to identify variability in inspector performance and enforcement outcomes and ultimately facilitate more uniform inspection,” as well as lead, most importantly, to increased transparency and better public health.
The report also notes additional potential advantages arising from greater disclosure. Publishing information about facility-specific findings could yield insights and other benefits that go beyond the regulatory uses for which the data were originally collected, including:
- Incentives to protect brand reputations, enhance customer bases, and boost earnings on the part of food companies due to consumer-fueled economic pressure to improve food safety.
- Better insights into the strengths and weaknesses of both different processing and inspection practices, leading to improvements in food safety methods across the industry, increased consistency of inspector performance, and identification of effective practices in regulated facilities that could then be more broadly adopted.
- Improved public understanding of the efforts made by FSIS and the industry to ensure food safety.
In addition, the publication of facility-specific findings would likely give rise to “a network of third-party analysts who, because of their familiarity with the data and their structure,” the committee writes, “could help FSIS to mine its own data and help individual companies or industry sectors to use the data to improve their practices.”
“The report lays out the issues that need to be carefully weighed in releasing detailed information about what government inspectors find at meat processing facilities.”
Weil and his co-authors also caution, however, that to maximize effectiveness and minimize adverse unintended consequences such as public confusion over the meaning of the information or the context in which it was gathered, any disclosure of data should rely on a well defined strategy—a topic about which Professor Weil has written extensively with Fung and Graham, particularly in their 2007 book Full Disclosure: The Perils and Promise of Transparency. This strategy should include identifying potential users and the differences among them, such as their varying abilities to understand the data in its raw form and the different ways the data might impact their decisions. The wide variation in user abilities to use data underlies the report’s argument that the FSIS should pursue the “broadest possible data release at the most disaggregated level,” since “users can always aggregate data for their analytic needs.”
Any strategy for the public release of data should also include a carefully timed, and well-explained rollout of data, allowing the public, as well as academics, members of scientific societies, and independent auditing agencies, to know what to expect and to provide time for these various users background to allow them to interpret the data accurately.
Best Paper Prize for “High Risk Employment: The Management Headache from Medical Marijuana”
New work by Kabrina Krebel Chang, an assistant professor in Boston University School of Management’s Markets, Public Policy & Law Department, has been honored with a Best Paper prize from the South East Regional American Business Law Society Conference, which took place in November 2011 in Atlanta, Georgia.
Chang’s research areas encompass employment law and employer liability, including the ethical, legal, and managerial implications of lifestyle discrimination. Her winning paper is titled “High Risk Employment: The Management Headache from Medical Marijuana.” The article explores an emerging ethical and legal workplace quandary that stems from contradictory positions on employee protection and the use of medical marijuana between some state and Federal courts.
If it is legal in my state, medical marijuana must be treated like any other prescription drug, right? Wrong.
Legalization of medical marijuana is a growing trend in the U.S.: 16 states and DC have medical marijuana laws, 13 states have decriminalized possession of small amounts, and 80% of Americans support allowance of medical marijuana to treat pain, Chang notes. Based on this trend, it seems employees using marijuana with a valid prescription would have protection. If it is legal in my state, medical marijuana must be treated like any other prescription drug, right?
Wrong, Chang shows. Courts have made it clear that, so far, there is no protection for employees who fail their company’s drug test because they tested positive for their medically legal marijuana use. By looking at various cases on both the state and Federal level, Chang outlines this tension and the ensuing confusion it causes both employees and employers.
The courts may have given management a blueprint for an effective policy.
She also points towards likely future trends in court decisions and illuminates two seminal, dissenting Federal arguments that might provide useful guidelines for managers. “Some employers want to accommodate marijuana and create workplace policies that reflect a new view of off-duty use of medical marijuana,” Chang writes. “The courts may have given management a blueprint for…an effective workplace drug policy that allowed for some medical marijuana use.”
But whether these guidelines can “adequately and appropriately address the very real concerns for employers about drug use” in the workplace today, Chang concludes, “remains a decision managers are making on a piecemeal basis.”
Patricia Cortés’ New Research Appears in the American Economic Journal
Much controversy about immigration in the U.S. stems from the fear that incoming foreigners deprive natives’ access to jobs. But a recent study by Boston University School of Management’s Patricia Cortés and co-author José Tessada suggests a different, long-ignored result of immigration: that the arrival of low-skilled laborers in this country provides the conditions for high-skilled women to succeed in their careers.
Cortés, an assistant professor in the Markets, Public Policy & Law Department, and Tessada, faculty member at Escuela de Administración (Business School), Pontificia Universidad Católica de Chile, reveal their findings in their paper “Low-Skilled Immigration and the Labor Supply of Highly Skilled Women,” appearing in the July 2011 American Economic Journal: Applied Economics.
Using census data and tracking the immigration wave of the 1980s and 1990s, the authors find a striking correspondence between the availability of low-cost, flexible housekeeping and child care services provided by newcomers, and an increase in the number of hours worked by women in high-salary jobs, particularly those traditionally dominated by men. However, though the availability of support for home-related responsibilities correlates to an increase in labor hours for highly educated women in the top income bracket, it has no impact on the likelihood of these women gaining employment to begin with, suggesting that low-skilled immigration might increase job success for high-skilled women who already have careers but doesn’t necessarily compel them into the workplace.
“Low-skilled immigration into the U.S. can generate effects on the labor supply that go beyond the standard analysis of the impact immigrants have on natives of similar skill.”
Explain Cortés & Tessada, “We find a large positive and statistically significant effect of low-skilled immigration on the hours worked per week of working women at the top quartile of the female wage distribution. Much smaller, but still statistically significant, effects are found for women above the median, and no effects are found for women with wages below the median….Focusing on women working in occupations where men have long hours of work, we find large positive and statistically significant effects of low-skilled immigration in the probability that women also work long hours.”
Among their specific findings are data suggesting that the low-skilled immigration wave of the period 1980–2000:
- Reduced by close to seven minutes a week the average time women at the top of the wage distribution spent on household chores;
- Increased by 20 minutes a week the average time women at the top of the wage distribution devoted to market work; and
- Increased the probability that women employed in occupations demanding long hours would work more than 50 to 60 hours a week.
This last result is especially important, since many women in this group ― lawyers, physicians, and women with PhDs ― work in fields where success depends upon working long hours.
“By lowering the prices of services that are close substitutes of home production, low-skilled immigrants might increase the labor supply of highly skilled native women.”
“Low-skilled immigration into the United States can generate effects on the labor supply of natives that go beyond the standard analysis of the impact immigrants have on natives of similar skill,” argue Cortés & Tessada. “By lowering the prices of services that are close substitutes of home production,” they conclude, “low-skilled immigrants might increase the labor supply of highly skilled native women.”
Read more about “Low-Skilled Immigration and the Labor Supply of Highly Skilled Women.” American Economic Journal: Applied Economics. 3 (July 2011): 88–123.