“I was told when I graduated that I had to come back and take a few classes,” Warren Buffett, MS ’51, deadpanned as he took the stage with Bill Gates on Thursday as part of a community forum at Columbia Business School. More than 700 students from the Business School were in attendance at the event, which was filmed for global broadcast by CNBC.

A major theme of the 90-minute Q&A session was optimism about U.S. economic prosperity in the long-term, with a nod to future energy issues. That theme underscored Buffett’s comments about Berkshire Hathaway’s recent acquisition of Burlington Northern Santa Fe for $34 billion last week.

“The railroads are tied to the future prosperity of this country. You can’t move a railroad to China or India or anywhere else,” he said. “As the country grows, the transport of goods will grow — [people] will be moving more and more goods back and forth to each other. And you have the most environmentally friendly and the most efficient way of doing that on the railroads.”

The theme returned later in Gates’ discussion about areas he sees with the most growth potential in the United States. He said those include information technology, energy and medicine. Gates discussed the growing field of alternative energy as a driver for a long-term economic development.

“Solar-thermal, solar-electric, nuclear [energy] is going to go through some of the revival and see if it can solve some of its cost challenges. As a country, we want to make sure all of those get lots of R&D and regulatory enablement because one of them is going to give us much cheaper power,” he said. “We don’t have quite as much R&D going into those things as I’d like to see. We have quite a bit, but I think the government policies could drive for more.” He added that he foresees an energy revolution and the United States is expected to lead the way.

Buffett also discussed his value-investing strategy, saying that it had not changed in light of the financial crisis and the fundamentals were the same. “We like companies with a durable, competitive advantage,” he said. On the economy, both Buffett and Gates lauded the actions of the government and the Federal Reserve.

Both men offered advice and inspiration to students. (Marry the right person, said Buffett. Act on your self-confidence, Gates added). Buffett signaled his optimism for future MBA graduates of Columbia Business School, making a promising offer to those in the audience.

“I would pay a $100,000 dollars for 10 percent of the future earnings of any of you,” Buffett said. “If that’s true, you’re a million-dollar asset right now.”

CNBC will broadcast “Warren Buffett and Bill Gates: Keeping America Great” moderated by Becky Quick on November 12 at 9 p.m. and 12 a.m. ET . Join the conversation with other students on Facebook and on Twitter.

Photo credit: Eileen Baroso

They are two icons of American business — Warren Buffett, MS ’51, and Bill Gates. On November 12, Columbia Business School students will have the opportunity to connect with them in person. They will appear together in a special hour-long community forum at Columbia Business School, which will be filmed by CNBC for global broadcast. During the event, Buffett and Gates will field questions from students about the economy, the future of capitalism and corporate social responsibility.

It is the first time Buffett and Gates, who met each other in 1991, have appeared together at Columbia University. The last student forum they participated in was in 2005 at the University of Nebraska at Lincoln. Of the many bonds in their friendship, philanthropy and a shared philosophy of giving back to society is one of the strongest. In 2006, their relationship made the history books when Buffett announced that he would give the bulk of his estimated $40 billion fortune to the Bill & Melinda Gates Foundation.

Gates and Buffett’s latest ventures have been in recent headlines. Last week, Berkshire Hathaway announced a $26 billion deal for the railway company, Burlington Northern Santa Fe. Earlier in this year, Berkshire invested in BYD, a Chinese electric car company.

In a speech in October, Gates called for a new green revolution in agriculture and announced a $120 million package of agriculture-related grants to nine institutions around the world. Taking a page from Berkshire’s playbook, Gates wrote the foundation’s first annual letter this year and said the foundation will give away $3.8 billion in 2009.

CNBC will broadcast “Warren Buffett and Bill Gates: Keeping America Great” moderated by CNBC’s Becky Quick on November 12 at 9 p.m. and 12 a.m. ET . Join the conversation with other students on Facebook and on Twitter.

Photo courtesy of Columbia Business School

	Students at the University of Dar Es Salaam listen to a lecture.

At last night’s Community Forum, Dean Glenn Hubbard, professors Bill Duggan and Gita Johar, and Eric Tienou ’03 of Burkina Faso discussed economic development in Africa. Hubbard and Duggan’s recently published book The Aid Trap (see blog post) advocates for aid investment directly into the small business sector rather than charitable aid through NGOs. Hubbard, who also spoke last week at the “Peace Through Reconstruction” conference, has said that a Marshall Plan-like program is not only a moral and economic imperative, but also good foreign policy for the United States. (Watch a video of his presentation.)

One example of how the development of the small business sector is taking place is emerging through the School’s partnership with the University of Dar Es Salaam (UDBS) in Tanzania, Africa. The partnership is made possible through Goldman Sachs’ 10,000 Women program.

Several faculty members, including Murray Low, Eric Abrahamson and Gita Johar, spent last summer working in Tanzania to teach students and UDBS faculty members. The goal of their work was twofold: to prepare local students to earn a cobranded advanced certificate in entrepreneurship and business management, and to facilitate UDBS faculty members in learning interactive case method teaching. The School is also helping to establish a PhD program at the African university.

“The group of students was incredibly diverse,” Johar said about her experience teaching. “We had chicken farmers and dried fruit distributors to engineers, consultants and a range of microfinance entrepreneurs.” This summer completed the first of a five-year teaching exchange.

While many of the challenges for small business owners in Tanzania are familiar — management, staff turnover and competition — the biggest challenge, said Johar, is access to capital. “Friends and family are the bank,” she says, noting that bank loans are virtually nonexistent. Nonetheless, students were very enthusiastic about the material.

“We were thrilled,” she says. “They were very hungry to learn and apply the teaching to their ventures.”

Russian gangsters, $230 million in allegedly stolen funds, a hedge fund investor and YouTube. The makings for a thriller are now a case study at business school. Professor Ray Fisman, director of the Social Enterprise Program, is teaching a case about Bill Browder’s tangle with the Russian government. Browder, the CEO/founder of Hermitage Capital, has accused the Russian government of organized corruption that took $230 million in a scam. The firm has approximately $3.5 billion invested in the country, making it one of largest foreign investors in the country. Countering his claims, the Russian Interior Ministry is seeking his arrest for illegally evading taxes. The story took turn on October 9 when Browder posted a documentary-style video on YouTube in English and in Russian to publicize his case. (Browder spoke at Columbia Business School in October 2006.)

In a recent commentary in Forbes.com, Fisman, writing with Eric Werker from Harvard Business School, wonders if this latest development in the story represents the “epigraph to a new chapter of capital flight from Russia.” However, underscoring the story about Browder’s standoff with the Russian government are larger questions about governance, economic development and foreign investment. Fisman writes:

Economic development requires investment. For their part, investors typically explore the upside and downside of any given opportunity: What is the likelihood that we will strike oil? At what price will we be able sell our product? What are the wages and taxes we will need to pay? Understanding the costs and risks, they then decide to invest if the profits are high enough.

Many of the risks come not from uncertainty over resource availability or technologies, but whether the “rules of the game” will be changed after the investment is made. That is, will an investment partner try to rewrite the contract to get a bigger piece of the pie? Or will a sovereign state--like Venezuela or Russia--try to up its share through higher taxes or even outright expropriation? If investors don’t trust the legal system to enforce the rules, the potential downside makes investment a whole lot riskier. So economists emphasize the role of contract enforcement and predictable government policies to foster investment and growth.

Photo credit: Josef F. Stuefer

Is it time for a new approach to solving world poverty? That question is at the heart of a new book, The Aid Trap, by Dean Glenn Hubbard and William Duggan, a senior business lecturer at Columbia Business School. In it, they argue that direct loans to businesses similar to the Marshall Plan is a more effective way to help sub-Saharan Africa pull out of poverty, rather than direct aid from charities and NGOs.

Hubbard and Duggan argue the current economic aid system — where non-governmental organizations run development projects — isn’t working effectively and there needs to be a “reorientation” of aid directly into the business sector. In many poor countries local business sectors are suppressed, they say, and that leaves economic development to either NGO-type entities or large multinationals. Their answer is to open up the middle of the economy for local business in order to have long-term sustainable growth.

“The question is mid-sized businesses. If you look at growth in the U.S. over the past two centuries or the industrial revolution in Western Europe, it was centered on growth of mid-sized enterprises,” Dean Hubbard said in a recent video interview at Forbes.com. “Mid-sized businesses need a very different credit structure than either microfinance or large multinationals, and that is missing in much of sub-Saharan Africa. A business focus on aid could get that going.”

Read more about The Aid Trap and in a Q&A with Dean Glenn Hubbard.

“How do we make decisions under uncertainty?” Professor Wei Jiang posed the question to an audience of students last week during orientation. The question not only referred to the lecture’s topic — the financial crisis — but was offered as a framing device for students as they begin core classes in the MBA program this week.

“This will be the most important skill you can develop,” she said.

A new orientation module focused on the financial crisis was created this year to give new students an overview of the causes and issues of the crisis and provide key questions that connect it with upcoming courses in the core. In her lecture, Jiang considered different aspects of the crisis including international policy, behavioral bias, compensation structure, government regulation and risk models.

The module is part of a larger initiative by the School to use the financial crisis as a vehicle to foster integrative thinking in business training. Another element of that initiative is the creation of a new cross-discipline class, which will launch in Spring 2010, on the future of financial services. During the past summer term, former chief legal officer of Lehman Brothers, Thomas Russo, taught a half-term course looking at the crisis.

“Look ahead as well as look around you,” Jiang told students at the end of her lecture. “Think in terms of tradeoffs and equilibrium.”

Photo courtesy of Columbia Business School

Public outcry has a mixed history of leading to changes in foreign labor practices. For example, in the 90s anti-sweatshop activism led to some successful reforms in labor policy. Today the issue appears less visible. New research from a visiting scholar at the Bernstein Center for Ethics & Leadership examines how organizations respond to societal pressures for changes in their corporate social responsibility policies.

Noshua Watson, visiting Bernstein from INSEAD, studied the case of MAS, a Sri Lankan apparel manufacturer that supplies to companies like Victoria’s Secret, as part of her PhD dissertation. Professor Bruce Kogut advised her work. One of the questions she looked at was whether it is better to meet external demands and conform to industry norms for CSR, or for an organization to differentiate itself.

MAS is typical of many manufacturers in developing countries, where the low cost for implementing modern production methods and an available low-skilled labor pool are appealing. In 2003, the company created — and then heavily promoted — a robust CSR program called Go Beyond for the education and empowerment of its predominantly female workforce. The program has been a social and financial success and it has contributed to the company’s doubling of its revenue from $500 million to $1 billion between 2005 and 2008 by supporting strategic partnerships and bringing in customer donations, Watson found.

Watson concluded that the CSR program at MAS illustrates that there is a difference between “substantive compliance with human rights standards and superficial conformity with industry peers in the way the standards are implemented.” In other words, MAS outperformed the industry standard for CSR and in doing so, was able to leverage that success into growth.

However, Watson says it is not without risk to deviate from industry norms and that companies with a thicker financial buffer are better positioned to innovate new ways of implementing CSR.

“Companies that consistently go beyond industry standards and thrive tend to begin with additional resources that allow them to experiment with their CSR policy,” said Watson. “They also perceive that there will be gains from that experimentation even though simply conforming to industry standards would allow them to satisfy critics.”

Photo credit: hexodus

Even as Spain’s savings banks struggle to survive in the fallout of the banking crisis, one bank, Caja Navarra is pioneering a new way with what it calls civic banking. Their goal is to provide a new level of transparency and agency for customers by engaging them in a dialogue about where their money should be placed.

Caja Navarra is one of 46 regional savings banks in Spain called cajas. The operations are owned by local interests and governments, and the cajas comprise almost half of the country’s banking system. Unique to these regional unlisted mutuals is that they give a hefty piece of their profits to local causes. One criticism of the caja system is that the banks “have become a financial tool of whichever party governs the region.” However, Casa Navarra is doing something new: the bank donates 30 percent of its profits to a social cause that its customers decide upon — and there is transparency about exactly how much the bank’s profits are.

In the latest issue of the Chazen Web Journal, Nicholas Doimi de Frankopan ’09 sat down for a video interview with Enrique Goni, the CEO of Caja Navarra. (view the complete interview). Goni said that he doesn’t think that civic banking is a niche trend, but rather represents the future of banking.

“I am convinced that civic banking and our way to understand it is the pioneer,” Goni says. “I am personally convinced that banking activity has to change radically and if banks are not civic-minded in the future, they will not [exist].”

Earlier this year, as Spain’s commercial banks, such as Santander, went relatively unscathed by the banking crisis, cajas took a hit — Caja de Ahorros Castilla-La Mancha received a €9 billion bailout at the end of March — and they have been far more affected by delinquency and high-risk loans. That has placed renewed debate over the future of Spain’s savings bank system.

Photo credit: failurez

Read the previous post

What is the key to case studies at business school?

“Always know someone who has read the case,” said Professor Todd Jick, bringing a light-hearted touch to a serious subject: learning in the MBA classroom.

Last week, international students arrived on campus. With more than 40 countries represented, the School designed an orientation to help them navigate the intricacies of American (and New York City) culture, including a lecture on learning.

Professor Jick discussed cold calls — the legendary practice of being called on at random — and speaking in class.

We offer you a few dos and don’ts from his presentation:

	What is your best tip for succeeding in the classroom? Please leave a comment.

Do

Add something you know about or share your unique knowledge, such as how it works in your country or experience.

Prepare special analysis (number crunch, Google some background information) and be prepared to share.

Volunteer to add more information to the debate and take a position.

Don’t

Sit in the back of the classroom and try to hide.

Make one big comment and then withdraw for the rest of the term.

Over-prepare a comment and then say it even if the conversation has moved on.

Wait until the end of the term to start speaking and participating.

Participating in class discussion is an essential part of the MBA experience, Jick said, but he also pointed to skills acquired in addition to the case material. The practice of cold calls helps students learn to think on their feet, speak in public, deal with pressure and assemble ideas under the spotlight.

“It’s not the end of the world when you don’t have the answer and you’re cold called,” said Jick, smiling. “But it is the second time.”

Photo courtesy of Columbia Business School

Read the previous post

	Hiking along the Great Wall of China was a cultural highlight of the East Asia tour.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

During the month of July, approximately 30 incoming Columbia students traveled through East Asia with the goals to experience life in East Asian countries by immersing ourselves in the different cultures and to learn about local economies and how business is conducted in the area. The month-long journey included visits to six countries, nine cities and 12 companies.

East Asia is rich in history and we were able to see it firsthand with a guided tour through the National Palace Museum in Taipei, a hike to the Great Wall in Beijing and a visit to the demilitarized zone in South Korea. The area is also rich in culture, customs and cuisine and we were fortunate enough to learn about them through the eyes of fellow admitted students living in these cities, who acted as our student ambassadors. We will all walk away with fond memories of Jessica Lam ’11 and her parents showing us how to eat local Chinese cuisine in Hong Kong, Kevin Coll ’11 teaching us how to pray to Buddhist deities in the Longshan Temple in Taipei and Jessie Yang ’11 and Janie Kim ’11 demonstrating the proper way to hold chop sticks in Seoul.

One thing that amazed us was the constant juxtaposition of historic relics from the different East Asian dynasties and Buddhist temples with Western-style restaurants, retail stores and corporations. We took many pictures of traditional Chinese temples and markets where the background contained record-setting Shanghai skyscrapers that were home to some of the largest U.S. and European financial institutions in the world.

As Columbia students, we were granted an insider’s view to several of these financial institutions and other companies with significant presence in Asia, including the Hong Kong Trade Commission in Hong Kong, Bertlesmann Media and Goldman Sachs in Beijing, SK Telecom in South Korea and Toyota in Osaka.

The most interesting company visits occurred in China where we learned about the challenges of doing business in a heavily regulated environment. First, we heard from representatives from the Hong Kong Trade Commission who are of the opinion that the People’s Republic of China will shift to a more capitalist, less-regulated society in preparation for Hong Kong’s economic and political integration with the mainland in approximately 40 years.

	The students visited Goldman Sachs in Beijing.

We also heard from an investment banker at Goldman Sachs in Beijing who was not as optimistic about the deregulation, given the recent rejection of Coca Cola’s proposed $2.4 billion acquisition of Huiyuan Juice Group by the China Ministry of Commerce. However, she remained hopeful that M&A regulation would decrease and both international and domestic M&A would increase as the Chinese government and Chinese businesses recognize the importance of M&A to the growth and success of the Chinese economy.

Last, we heard from an equity research analyst at Goldman Sachs who felt that China’s recent announcement, which stated that the government will allow domestic companies to make foreign investments using the renminbi, China’s local currency, is a step in the right direction for deregulation and a more free trade economy.

All the company visits left us intrigued and spurred many debates, especially about where the different East Asian economies are heading and how these nations’ political and economic decisions will affect the U.S. and the rest of the world.

This World Tour experience proved to be a success with all of us for gaining more knowledge of East Asian culture, increasing our interest in East Asian economics and politics and building life long friendships with our fellow classmates.

Photos courtesy of Maria Testani ’11

Read the prior Tour Report blog post from Iran.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

Last week the World Tour visited Iran in order to witness, first hand, a country that has been at the center of controversy over the last 50 years. Just two weeks after the election that sparked riots around the nation (and 18 months after President Mahmoud Ahmadinejad visited Columbia University), we embarked on an adventure would change our lives forever.

When we told our friends and co-workers that we were going to Iran, almost everyone was worried that we would end up dead or locked in prison. When I asked what we had to be afraid of the common response elicited images of anti-American terrorists, shooting guns and taking hostages. However, what we found instead was a progressive culture with a long-standing history of peace and tolerance, and a young generation that simply disagrees with their current regime.

The reality is that Iranians are some of the most friendly people I have encountered anywhere in the world. One of our future classmates, Ali Reza Sadeghian ’11, is joining us directly from Tehran and offered to be our host for a week. We visited Tehran, Isfahan, Yazd and Shiraz and were consistently asked by Iranian students to deliver a message to our friends back home: 1) Don’t believe everything you see on television, 2) Don’t judge all Iranians based on the political rhetoric of our leaders, and 3) “There is nothing to fear here in Iran, you are always welcome to visit.”

The political landscape is yet to be determined, but with a young population of 70 million people, Iran will begin to play an even larger role in global economics.

Photo courtesy of John Shoaf ’10

This post is part of a series following the “CBS World Tour” organized by Shoaf and incoming MBA students.

This week marks the beginning of the second annual CBS World Tour where nearly 150 admitted students from the class of 2011 will be meeting up in 40 countries around the world. Along their journey, students will be adventuring through jungles, hiking volcanoes, and visiting with senior executives and officials who can share a unique perspective of their countries and industries. Alumni chapters around the world are hosting informal gatherings and helping to arrange company visits. Most impressively, the tour is being organized by admitted students (who haven’t even begun the program yet). In each of the 40 locations on the itinerary, a local admit is hosting a group of five to 20 students in their home countries.

Initially, the World Tour was designed exclusively for admitted students, but this year we extended the invitation to the graduating class of 2009 as a way to build a bridge between incoming and outgoing students. The idea is to foster relationship between the newest alumni and the new students that will be courting each other during on campus recruiting this fall. (Read blog posts from last year’s tour.)

The itinerary is broken into six four-week itineraries and includes a number of exciting locations such as Galapagos, Iran and Cambodia. The most popular trips this year (based on demand) seem to be Eastern Europe, South America and China.

Over the next 10 weeks, the 2011 Travel Team Captains will be posting blogs to share some of their experiences and lessons learned from the road. Stay tuned and visit the World Tour’s web site to learn more about the tour. For questions, please contact jshoaf10 *at* gsb.columbia.edu.

Alumni Clubs from across the globe will host events on or around Thursday, June 11, 2009 to recognize and celebrate Columbia Business School’s global alumni network during the third annual Worldwide Alumni Club Event. Click here to learn more about the events.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

Shortly after we began our journey on the World Tour, our South African host took us on a road trip close to the southern most tip of the African continent. The breathtaking setting of the Cape of Good Hope seemed an appropriate point to stop and reflect on the vast inequalities we had witnessed over the first few days of the tour. From the hope and despair of Johannesburg’s Soweto township to the luxury villas and trendy bars of Cape Town’s Clifton Beach, South Africa seemed to represent the full range of potential and challenges that coexist in Africa.

The following travel-filled days — by plane, bus and car ride — were full of discussions about global social welfare and the role of business in achieving it. There was plenty of personal experience to draw on — we have students from Greece, Germany, Egypt and the U.S in our group. Jon Kornik ’11 is working on renewable energy in Africa and Sekher Suryanarayanan ’11 is wrapping up a project aimed at bringing solar-powered lights to Tanzania and beyond. Another group member was reading Jeffrey Sachs’ The End of Poverty, which was an apt book to be passed around the bus on our journey to Kenya. The country is a relative economic success story for Africa, but it is also home to perhaps the world’s biggest slum in Kibera. On the same bus journey, a heated discussion broke out about a Bruce Greenwald lecture attended by Georgios Dimopoulos ’11 and Sekher, who came away with almost completely opposing opinions. We concluded that one of the things we were most looking forward to over the next two years was plenty more intelligent and passionate disagreements!

Traveling in Africa, which is in many ways the world’s final socio-economic frontier, reconfirmed to me that the roles of business and commerce are, in fact, humanity’s true universal languages (step aside pretenders art, music and even love!). Entrepreneurship may take less formal roles but human ingenuity is on offer everywhere you look (street hawkers, foreign exchange touts, Masai tour guides and souvenir sellers) often in spite of, or in outright defiance of, local governments and local laws. I was often reminded of Dean Glenn Hubbard’s “business is social development” phrase.

The following days included a brief stopover in a surprisingly hip Nairobi and a visit with Babafemi Agboola ’11 to the Badagry slave museum a few hours outside of Lagos, Nigeria. A few days later (and just after President Obama’s visit) I found myself retracing the president’s steps alongside Alexander Gordon ’11 and Takayuki Matsunaga ’11 in Cairo, Egypt.

Now, from the historical Middle East to the future Middle East, we’re on to Dubai and Abu Dhabi next and have company visits planned with Google, GE and Mubadala amongst others. The historic events unfolding in Iran mean that portion of the trip will need to be postponed to next year’s World Tour. There’s a sense of uncertainty and wonder about how these economic times will pan out amongst the incoming Class of 2011 but it is more than offset by an infectious mix of ambition and optimism.

Photo credit: Shehab Hamad

Above: Class of 2011 Columbia Business School students visit local business offices in Singapore.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

Our intention, as part of the World Tour, was to adopt a total-immersion approach, which would not only provide us a closer look at the countries’ economies by meeting the local executives, but also introduce us to the local culture and cuisine. Our first stop was Singapore, where we landed on June 7. To help us “immerse” in this country’s culture and introduce us to the city, we connected with a local business school admit, Xin Yu '11, who was a very helpful resource. After uniting with a few more local admits we thus began our Singapore odyssey.

In between visiting local attractions, we had the opportunity to meet with key executives from Credit Suisse, Standard Chartered and Thomson Reuters to learn about their operations in Singapore and other Southeast Asian countries. My most memorable experience was our interaction with former Iraq Bureau Chief from Thomson Reuters. His experience convinced me how safe our working and living environment is compared to a war journalist, who face such tremendous difficulties in getting a real story and earning a livelihood. After our three-day stay in Singapore was over I concluded that it is the most Westernized country in Asia. Indeed, Singapore is now an economic powerhouse precisely because its political, legal and social institutions have been shaped in ways to ensure its assimilation into a global economic system that emanates from the West.

On June 10, we arrived in Malaysia. The drive from the airport revealed to us the country’s strong Middle Eastern and South Indian influences in the region. The architecture of the buildings, a trip to the Batu caves and the local cuisine further confirmed my belief. The highlights of our visit were to the Petronas Towers, which symbolize the strength and grace of the Malaysian economy in the center of Kuala Lumpur, and to Putrajaya, the seat of the federal government. I have never seen such an amazing organization of a government’s office in any other place.

Fresh from our Malaysian quest, we touched down in Bangkok on June 13. Our city ambassador Preaw Achiraya Chalermsuk ’11 did a fantastic job in preparing our itinerary, and our stay in Bangkok encompassed everything that one could ask for. We saw breathtaking natural and cultural sites in and around the city and we ate at exquisite restaurants where we relished the authentic hot-and-spicy Thai food. We also experienced the world-renowned Thai hospitality extended to us by the local Columbia Business School alumni during our company visit to SCG Chemicals. One could easily feel the warmth of the people as one toured around and I would definitely like to visit here again.

Photo courtesy of Kuber Sharma ’11

Above: Class of 2011 Columbia Business School students with Fernando Cardoso and Bill Clinton in Sao Paulo, Brazil.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

We started out in Sao Paulo, Brazil to begin the first leg of the World Tour on June 1. Little did we realize our first day would end with bang — Bill Clinton, who was in town to speak at the Ethanol Summit, appeared at the restaurant where we were dining. After some negotiation with the secret service, we managed to steal him and former Brazilian president Fernando Cardoso for some handshakes and pictures. Sao Paulo was an incredible first stop, given the fantastic food, music, diversity, and inviting culture. A fellow 2011 Columbia Business School classmate and Paulista even guided us to his favorite samba locale.

Next, after a few days on the beaches of Rio de Janeiro, we took our time crossing the Brazil-Argentina border at Iguazu Falls. We spent one week in Buenos Aires, splurging on great steak and Malbec wine.

Santiago was our next destination. This Chilean city awed us upon arrival with its beautiful backdrop of the snow-covered Andes. Local Columbia Business School alumni took us out for a fantastic dinner and through them we were able to meet the chairman of Banco de Chile, the largest national bank of the country, and a Department of Commerce representative at the U.S. Embassy.

We’re now in La Paz, Bolivia and already the city has been an eye-opener, both in terms of both the breathtaking landscape and the abundance of poverty. We’re headed to Peru next for the final stop of our journey.

Photo courtesy of Genisha Saverimuthu ’11

From left to right: Executive education account manager Alan Chen, Columbia Business School Professor Ray Horton, University of Massachusetts professor Brian Lickel, Professor Eric Abrahamson and Professor Daniel Ames. They recently returned from teaching a one-week program for nonprofit leaders in Riyadh, Saudi Arabia. Horton, the faculty director of Social Enterprise Programs in Executive Education, shared his thoughts about the experience.

Let me say up front that the assignment with the King Khalid Foundation was one of the most interesting and rewarding experiences I’ve had as a professor. It was also one of the most challenging.

A little background for our assignment: There’s a strong tradition in the world of Islam for giving, which Saudi Arabians certainly live up to. Yet nonprofit organizations have not played a very important role in the country historically because many of the wealthy simply hand out money directly to those in need or to charities that distribute the funds without maximizing the impact of each riyal. However, a growing number of Saudi leaders now recognize that “street-level philanthropy” of this kind tends to sustain poverty rather than reduce it. One of them is Princess Banderi AR Al Faisal, the director general of the King Khalid Foundation.

A growing movement for development
Princess Banderi is leading a movement among Saudi foundations to channel more charitable giving to nonprofit organizations whose programs are designed to address the poverty issue through human development rather than handouts. The success of that strategy depends on the ability of nonprofit leaders to manage their organizations effectively. In recognition of this, the Princess and her colleagues designated management training for leaders of the nascent nonprofit movement as one of the Foundation’s key initiatives.

To this end the Foundation decided it would sponsor the first-ever Executive Education program for nonprofit leaders in Saudi Arabia. With the help and coordination of Dr. Natasha Matic, a strategic consultant to the Foundation, the Columbia Business School program was selected to bring that management training to Riyadh.

It wasn’t an easy program to develop or deliver. We academics can say all we want about the “fundamentals” of nonprofit management, but many fundamentals in the U.S. are not the same fundamentals in Saudi Arabia. We spent a great deal of development time in the months leading up to the program working on our presentations until they received Dr. Matic’s stamp of approval. We thought we were well prepared when we arrived in Riyadh, but we still had some lessons to learn ourselves.

Teaching past cultural differences
I could go on for a long time about the cultural differences that become readily apparent when New Yorkers arrive in Riyadh, but the most obvious difference, on the street and in the classroom, is the relationship between men and women.

I think all of the participants were a little discombobulated at first to discover that the training would be provided in one room rather than two, and that women out-numbered men two-to-one. It took a day for everybody to start feeling comfortable, including us, but by day two things were starting to go smoothly. By day three, the men and women were engaged in lively debate with each other over the strategy projects Eric Abrahamson had designed for them; by day four, Daniel Ames had women and men choosing to negotiate with each other rather than with a member of the same sex. And by day five, I had everyone in the room laughing at me after I illustrated the importance of not wasting scarce resources in reference to some nonprofit leaders in New York City who use chauffeured cars rather than subways to get around — forgetting for the moment that there is no public transportation in Riyadh and, to make matters worse, that Saudi women are not allowed to drive cars. So much for cultural sensitivity.

While it was interesting to see the male-female dynamic change in the course of the week, what impressed me most was the passion these people brought to their professional lives, women and men alike. Many of them run nonprofits with small or non-existent staffs, small or non-existent budgets, and small or non-existent boards, conditions of nonprofit life that would seem to be discouraging. But when you hear them talk about the importance of their missions and the scale of the problems they’re fighting you begin to understand how motivated they are to make their world a better place.

In the end, I know the participants were grateful to the King Khalid Foundation and to us for the learning experience they received. I’m grateful to have had the experience too.

Photo courtesy of Alan Chen

It is no secret that the mobile phone industry is thriving in emerging markets, and that this growth has helped make cell phones the fastest spreading technology in human history. Less known, but equally as important, is that this growth has extended well beyond the ability to make phone calls. Today mobile operators in Africa, Asia and Latin America also offer their customers the ability to send cash to relatives, pay bills, and even check whether a taxi is legal or illegal, all via their cell phone. Many of these services have even begun transforming entire societies — in Kenya alone a mobile phone-based cash transfer service called M-Pesa has over six million customers.

However, despite these innovations, we believe mobile-phone based services remain limited relative to their potential in emerging markets because they rely on a fairly basic form of technology: SMS text messaging. These messages are limited to 160 text characters and due to their simplicity are simply not designed to deliver the advanced services we are accustomed to in more developed markets.

For us, these facts beg the question: when will mobile services in emerging markets evolve beyond text message technology? Relatedly, when will consumers in emerging markets embrace the enhanced functionality that comes with purchasing a more advanced handset? We believe that time is now, at least for certain customer groups. So-called “smartphones” — phones such as the Blackberry, iPhone and G1 that have the ability to download new software applications — have already transformed the way consumers in developed markets use and access data (iPhone customers alone have downloaded more than one billion applications). And certainly smartphones, which are in effect mini-computers, have even greater potential in emerging markets where relatively few computers exist. There is little doubt that smartphones will soon be more widespread in emerging markets yet a central question remains: who will build applications for these underserved customers?

Enter Frogtek, a for-profit social venture that began as an idea in the classroom at Columbia Business School and will soon begin formal operations in Colombia. Frogtek is premised in part on the theory that smartphones can solve several major problems endemic to emerging markets that text-messaging based technology solutions cannot. Of course, we recognize that getting customers to use smartphones in emerging markets today comes with a unique set of challenges. Perhaps most prominently, smartphones are still fairly expensive. Moreover, most software applications for smartphones were developed with a rich consumer in mind. These challenges are not insignificant.

For these reasons, Frogtek today is focused on what we believe can be a vanguard customer group in emerging markets, one that already has access to capital and a demonstrated need for simple and customized technology solutions: micro-retailers. The need we’re addressing is that most of these “mom-and-pop” shops do not keep sales records, which can result in inefficient business operations and even bankruptcy. Hence, our first product is an accounting and inventory management tool that allows a shopkeeper to use a smartphone as a point-of-sale device; the camera even doubles as a bar code reader. The phone generates basic reports about sales, inventory and profitability, and information is also uploaded to Frogtek servers wirelessly for secure storage and further analysis.

At this stage we have completed a prototype and will be working with SABMiller and a prominent Colombian NGO this summer to test our product with 50 shopkeepers. By the end of the summer we plan to have a complete version that we can distribute more widely in Colombia and eventually Latin America.

Accounting solutions are only the first step for Frogtek. If we are successful this summer and shopkeepers become comfortable using smartphones, we believe it will be relatively easy to develop and introduce additional products via smartphones such as micro-insurance and branchless banking. Time will tell whether our idea is premature but there is little doubt that smartphones are coming soon to an emerging market near you.

David Del Ser '08 is a 2009 Echoing Green Fellow. He is also the 2008 winner of the Nathan Gantcher Award in Social Enterprise at Columbia Business School.

Images courtesy of Frogtek

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On Sunday, May 17, 2009, Matt Berry ’10 and I landed at the Mbarara airstrip in southern Uganda (see map) to begin our weeklong due diligence of Ruhiira Millennium Savings and Credit Co-Operative (RMSACCO), a tiny savings and loan cooperative to which Microlumbia is considering making a $10,000 loan.

RMSACCO is in the village of Ruhiira, roughly one hour on pot-holed roads from our home base in Mbarara. The entire region is covered by banana plantations, the favored crop which takes up over 60% of the arable land. The SACCO has 864 members, all with savings deposits. There is a minimum requirement to join, helping to inculcate a culture of saving in the village. The organization’s loan portfolio totals roughly $35,000, constraining its capacity to disburse loans. It works closely with the Millennium Villages Project (MVP), a multi-country, multi-sector economic development project led by Jeffrey Sachs, Director of the Earth Institute at Columbia University. Ruhiira is in the MVP’s Uganda project zone, and RMSACCO benefits from the increased economic activity related to the MVP’s initiatives. However, RMSACCO is not officially part of the MVP and has members outside of the project zone.

During our week with the SACCO, we became intimately familiar with its processes for appraising loans, recording transactions, and recovering bad debts. We conducted extensive interviews with the three employees — Cleophus, the manager; Jude, the loan officer; and Agatha, the cashier. We were greatly impressed with the SACCO’s knowledge of local economics and its abilities to track every transaction on paper. They have a computer, but no electricity; they hope the MVP will provide them with solar power soon. Without a computer, it is difficult for the SACCO to organize its data so that it can analyze its portfolio quality or devise a strategy built on key value drivers.

One of our key takeaways from the week is how compelling the local economics are. For example, a small investment in time and money can enable a banana farmer to increase his yields five-fold. In order to do that, though, he not only needs the money to invest in some basic modern tools and inputs — roughly $1,000 investment per acre, but most families own only a fraction of an acre — but also enough to live on so he can get by without selling bananas for the year the field is under rehabilitation. However, whereas most plantations currently earn roughly $375 per acre per year, a rehabilitated field earns roughly $1,850 per acre per year. Without institutions like RMSACCO, such investments are simply not possible.

We will present our findings later this year on RMSACCO’s social impact, operations, and likely ability to repay our loan to the Microlumbia Investment Committee. If the loan is approved, we will likely expand the relationship by asking the SACCO to work with Microlumbia’s consulting arm to implement some improved accounting procedures and to drive the loan portfolio in a more strategic direction. I am confident this would be an educational experience for the students and bear some operational benefit for the SACCO.

Photos courtesy of Pangea Advisors

In mid-May the European Commission fined Intel $1.45 billion as part of an anti-trust lawsuit, ruling that the microchip company had skewed the competition — namely with rival Advanced Micro Devices (AMD) — by offering rebates to computer manufacturers in exchange for exclusive distribution contracts.

Supporters of the Commission’s decision hope that the ruling will make the microchip market more competitive — and thus more innovative. However, research from Professor Brett Gordon and Ronald Goettler from the University of Chicago based on data collected from the two chipmakers suggests that in the case of Intel, less competition, not more, would lead to more innovation.

In their research, which was recently featured in Ideas at Work, Gordon and Goettler found that the company would have innovated more quickly if it had not been in competition with AMD. How might this be possible?

First, as the world’s only microprocessor developer, Intel would have pricing power in the market, allowing it to charge more for its products. The increased profit margin would allow Intel to invest more money in research and development, which would result in a higher rate of innovation.

Second, as the sole microprocessor developer, Intel could potentially put itself out of business if it didn’t innovate often enough. If, for example, Intel sold a microprocessor today, it is unlikely the same customer would purchase another microprocessor unless the new processor was more technologically advanced. This provides another incentive for Intel to innovate rapidly.

Read the complete article about this research in Ideas at Work.

Photo credit: Uwe Hermann

Their imprisonment is nearly unprecedented in the purview of corporate accounting scandals. Hence, some view it as unfair that they must await trial in prison. However, their imprisonment must be seen as part of a system of action that is seeking to preserve investor confidence and limit the collateral damage of Satyam’s ruin. It also underscores the importance of accountability by independent auditors. The auditors were responsible for pro-active audit work which they, by their own admission, did not conduct. Indeed, the defense of, “No concerns were ever brought to us by anyone…,” which the Satyam Auditors gave in the Times article, rings a bit hollow for me.

In 2007, the audit committee of Satyam, and ultimately the shareholders, paid the auditors $873.9 thousand in audit fees and $1.802 million in total fees including fees for tax and other non-audit services. In 2008, they paid $1.172 million in audit fees and $1.918 in total fees. These fees are paid for the auditor to “audit” actively, not passively. Auditors typically do not wait for concerns to be brought. They investigate independently and to a set of professional standards, and so the imprisoned auditors’ claim of innocence by inaction is implausible given the makeup of the assets on Satyam’s balance sheet. Consider the assets reported on Satyam’s 20-F filed on March 31, 2008:

	As of March 2008	As of March 2007
Cash and cash equivalents	290.5	152.2
Investments in bank deposits	826.7	--
Accounts receivable, net allowance for doubtful debts	508.4	364.2
Unbilled revenue	81.5	38.6
Deferred income tax assets	23.7	17.1
Prepaid expenses and other receivables	131.7	37.1
Total current assets	1,862.5	609.2
Investments in bank deposits	--	767.6
Investments in associated companies	4.7	4.6
Premises and equipment, net	236.6	163.1
Goodwill, net	80.0	32.7
Intangible assets, net	15.6	7.4
Other assets	43.9	39.5
Total assets	2,243.3	1,624.1

Two numbers are important. First, cash (and cash equivalents) and second, investment in bank deposits (short term in 2008, and long term in 2007). These accounts are approximately 52% of the balance sheet in 2007, and approximately 49% of the balance sheet in 2008.

Roughly half of Satyam’s balance sheet was either cash (which is typically held by its bank) or a bank deposit (similar to a certificate of deposit that any of us may hold at our local bank). Given the large holding of these assets I find it hard to believe that the auditor could be paid in the ballpark of one million dollars in audit fees and then not proactively investigate the details of half of the balance sheet. It’s also hard to believe that they did not look at these accounts given how easy cash and bank deposits are to audit.

Typically one audits cash and deposits by contacting the bank to get a statement with the company’s account balance and then compares the statement to the balance sheet. If the two amounts match then the auditor offers an opinion that account has been stated accurately, confirming that the company indeed has the money it claims to have on its balance sheet.

Satyam’s auditors claim that they relied on bank statement documents provided by the company, which ultimately turned out to be false statements. This is not a typical practice among auditors in India who instead independently ask the bank to provide statements directly. It is further shocking that Satyam’s auditors did not pursue independent verification given the unusually large holdings of cash and deposits on the balance sheet.

The auditors also argued that there were many bank accounts and that made independent verification more difficult. But the number of accounts should have been a tip-off. If you are company like Walmart, with stores covering many locations that do a lot of daily cash business, you need to be banking with many banks and accounts so that each store can get cash to the bank quickly.

In contrast, at a professional business service firm like Satyam, clients pay by check or electronically, and payments are processed in a centralized system and so there is less need for numerous bank accounts. A seasoned accountant with 31 years of experience (which Satyam auditor Mr. S. Gopalakrishnan had) would know this, and should have raised a red flag. They should have taken more initiative.

An audit is part of what an accounting firm calls an “assurance” service, and it is hard to provide assurance if auditors don’t occasionally challenge company management and seek independent verification.

Photo credit: nav in atl

The lowest rungs of the microfinance ladder are occupied by the poorest of borrowers in the world’s underdeveloped economies — and in many places the great majority of borrowers are women.

There is some difference of opinion on the benefit of this gender bias. One view holds that when men see women successfully turn microloans into income that supports the household (such as spending on education and health), men find their position as primary breadwinner threatened. Consequently, men frequently reduce their contribution to the household because they believe the size of the loans women wield is larger than it in fact is, and more friction ensues. The thinking here is that opening up borrowing opportunities to men would counteract these negative outcomes.

Other observers point to evidence that lending to women is more likely to result in better health and education levels for the household overall than lending to men, as men tend to spend surplus disproportionately on alcohol, tobacco and gambling at the expense of supporting the household. Proponents say that the gender bias produces an empowerment effect: not only is lending to women more likely to result in better health and education levels for the household, but it can be a transformative experience for other members of the household to see a women leading the household, managing a loan, working and bringing home money. There is still little empirical evidence about the consequences of the gender bias or what happens when efforts are made to counteract the bias by extending loans to men.

My colleagues Beatriz Armendariz of Harvard and University College London and Nigel Roome of the Free University of Brussels and Tilberg University have done some excellent preliminary work in Mexico investigating the bias question. Anecdotal evidence suggests that female borrowers do find it more difficult to manage their relationships with their male counterparts over tensions about money and power in the household. One proposed remedy is to involve men in borrowing groups (most microlending depends on a group dynamic to succeed and many groups are open only to women) to foster a sense of participation in lending and some parity in the household. In Mexico, when men were brought into the borrowing group, loan officers reported more investment overall, higher repayment rates, more sharing of both business and household chores and management, and decreases in household tensions.

Studies by others found that, in Africa, the empowerment factor is inconsistent and largely dependent on differences in regions and households; research in Bangladesh suggests that women borrowers frequently cede control to their husbands when choosing how to invest.

This evidence is noteworthy, but I caution against embracing this approach too soon. Until we know more about which practices produce the best outcomes and how they vary by geography and culture, we should view gender bias as a good thing that we should work to keep intact.

My own view is that it is preferable to forgo a certain parity in order that the next generation sees women as the primary breadwinners in households, even if that might extract a psychological cost on the household in the form of marital tensions. Because women are discriminated against in so many cultures it is a transformative experience to grow up with a female head of household. That alone argues for allowing the bias to persist.

Professor Suresh Sundaresan is the editor of Microfinance: Emerging Trends and Challenges. You can read more in a Q&A with Professor Sundaresan in this month’s issue of Ideas at Work.

Photo credit: McKay Savage

	Brad Doppelt ’10, Brandt Blimkie ’10 and Darren Bounds ’10 proudly bearing their “partner” passes while waiting for the doors to open at the annual meeting.

I could have sworn I was at a rock show, not an annual meeting. Yet there I stood outside the Qwest Center in Omaha, Nebraska at 6 a.m. on a Saturday morning alongside 35,000 other excited fans waiting for the doors to open for the 2009 Berkshire Hathaway Annual Meeting.

The annual meeting’s “cowboy” theme this year couldn’t have been more appropriate. Our tickets branded us as “partners,” not shareholders. And when the doors finally opened, I found myself caught in a stampede for the best seats in the stadium. Never in my life did I anticipate that I’d be competing in an early morning foot race against agile seniors at 7 a.m. for a chance to listen to a pair of octogenarians speak for six hours.

Fortunately, I was traveling with another student who had attended before, and he was able to guide us through the crowd into seats ten rows off stage left, giving us a perfect sight-line for the Oracle. It was 7:15 a.m.

Opening Night

The night before, we attended a shareholders’ reception at Borsheim’s, one of North America’s largest jewelers, which Berkshire purchased in 1989. The store overflowed with partners proudly bearing their shareholder passes around their necks. At the reception, I met a family represented by three generations. The grandmother’s father had been approached by Warren Buffett in the 1950s to contribute $10,000 to his original partnership but he declined the offer. Another family had a similar story. Her father had also been approached by Buffett, but had told the young Oracle to come back when he was driving a nicer car than his own. The irony is that Buffet is probably still driving a worse car than the grandfather (Buffett drove a Lincoln Town Car until 2001, when he replaced it with a Cadillac DTS). I wondered how many others had similar stories. A simple lack of trust had cost these families literally millions of dollars.

After we left Borsheim’s, we ventured over to the local Dairy Queen (also owned by Berkshire). It was hosting a book-signing with authors who had written books on Warren Buffett, while a BBC film crew was there filming a documentary. After indulging my childhood sweet tooth with my favorite DQ Blizzard, I sat down and spoke with Bill Child about his book, How to Build a Business Warren Buffett Would Buy. Child, who inherited the company RC Willey from his father-in-law, built the operation into Utah’s largest furniture store. In 1995, he sold the company to Berkshire for $175 million after being introduced to Buffett by the owners of the Nebraska Furniture Mart (which, as you might guess, is also owned by Berkshire).

I asked Child how Buffett had assessed his company. He told me that Buffett had asked him why he was selling the company and what he intended to do after the sale, and then instructed him to send over three years of financial reports along with a brief history of the company. Within three days, Child had received an offer. It was significantly lower than the $200 million he had been offered by investment bankers and other furniture retailers, but Bill decided to accept the lower offer from Buffett. I was amazed that it took Buffett only three days to feel comfortable purchasing this company and to trust his investment with Bill Child. It takes me three days just to read an annual report!

“Disneyland for Investors”

Waking up on Saturday morning, even at 5 a.m., was remarkably easy. I jumped out of bed like a kid on Christmas morning. We arrived outside the Qwest Center an hour later and, after claiming our seats, decided to go explore the exhibition hall. Two friends stayed behind to guard our prized spots.

	Darren Bounds ’10 and the author pose with the Fruit of the Loom bunch.

The hall was filled with booths from Berkshire-owned companies, including Borsheim’s, Fruit of the Loom, Dairy Queen, NetJets, Justin Boots, See’s Candy and more. We had our pictures taken with the Fruit of the Loom “fruit” and the Dairy Queen mascot. Add in a Wall Street-themed roller coaster to parody the ups and downs of “Mr. Market” and the annual meeting would have resembled a Disneyland for investors, or maybe a Star Trek convention. But instead of speaking in Klingon, people used words like “margin of safety,” “intrinsic value” and “moats.”

“Those Dilly Bars look good,” said Warren Buffett, as he walked through the crowd. “I should get one.”

As we wandered the hall, I noticed a press circle moving toward us. Before I knew it, Warren Buffett was walking directly toward me. In fact, I was in his way. I came face-to-face with my idol and froze completely, like a deer in headlights. Would security jump on me if I said hello and reached out to shake his hand? I decided to smile and politely step aside. “Those Dilly Bars look good,” he said pointing to a member of the crowd as he walked by. “I should get one.”

We returned to our seats, eager to finally hear him speak. The morning began with a one-hour video montage of commercials for the companies Berkshire owns and a few short satiric skits. In one clip, Buffett pretends to be Tiger Woods’s caddy. In another, he sells a mattress called the Nervous Nellie to a customer in the Nebraska Furniture Mart. The mattress had a compartment to store money, Berkshire shares and old magazines.

The rest of the meeting followed a question and answer format. Questions alternated between those from audience members and those submitted in advance by journalists from Fortune, CNBC and the New York Times. The questions covered a range of topics, including the improvement of financial literacy, Berkshire’s exposure to derivatives, Buffett’s view on the government bailout, the threat of inflation and Berkshire’s investment in Chinese battery maker BYD. The entire time Buffett and his partner, Charlie Munger, drank Cherry Coke, ate See’s fudge and looked happier than two kids in a sandbox. The Q&A period broke for a half-hour lunch and then resumed.

Tough questions for Berkshire

	Kiewit Plaza is home to the world headquarters for Berkshire Hathaway.

The most intriguing questions were the ones that Buffett didn’t really answer. Who was in line to replace him as CEO and head investor? There were three candidates for CEO and four for CIO, he said, but he didn’t give any names. Why does he hold Wells Fargo stock? If he could only invest in one company, he replied, it would be Wells Fargo, but he never said why. How does he evaluate and incentivize managers? That was a great question. “We don’t want relationships that are based on contracts,” he responded.

Charlie Munger added, “Our model is a seamless web of trust that’s deserved on both sides. That’s what we’re aiming for. The Hollywood model where everyone has a contract and no trust is deserved on either side is not what we want at all.” Buffett cited Peter Kiewit’s contracts (Kiewit founded Omaha’s largest construction company) as an example, without specifying what those contracts entailed.

By 2 p.m. we were all getting fidgety. I didn’t want to miss a word, but my legs were beginning to cramp. I had to get up and walk around. I couldn’t believe these two men could sit there for so long in such comfort with no break. At 3:30 p.m. the Q&A period ended and the formal annual meeting began, whereupon the board of directors were reelected by majority vote.

During the meeting, a shareholder put forth a motion requesting Berkshire to produce a sustainability report. This was my first exposure to the criticisms levied against one of Berkshire’s subsidiaries. According to the shareholder’s representative, there were allegations of labor violations at a Russell Athletics factory in Honduras. These allegations have caused several Ivy League schools, including Columbia University, to discontinue their use of Russell Athletics. The representative then passed the microphone to a worker from the factory in Honduras. She spoke for ten minutes in Spanish about the cramped workspace, long hours with few breaks and anti-union activity. Following her testimony, Buffett asked the CEO of Russell Athletics to respond. The CEO outlined the actions they had taken to improve conditions, and how a non-partisan labor rights group had been invited to monitor and evaluate the conditions. The motion was put to a vote and defeated.

Graham and Doddsville

After the meeting concluded, we walked over to a Columbia Business School reception hosted by the Heilbrunn Center for Graham & Dodd Investing. Professor Bruce Greenwald, Tom Russo of Gardner Russo Gardner, and Adam Weiss of Scout Capital shared their thoughts on the meeting and the enduring relevance of Benjamin Graham and David Dodd’s seminal 1934 text, Security Analysis.

To illustrate this point, Weiss cited passages warning of the dangers presented by over-levered institutions. Russo explained how his best investments had come from companies that had grown in value and benefited not only when the market recognized their intrinsic value but also when the company grew and its multiple increased. Professor Greenwald shared his perspective on the questions that Buffett opted not to answer completely. Why was Wells Fargo different from most other banks? Because it focused on local economies of scale, Greenwald said. Unlike other banks, Wells Fargo had concentrated its growth in the west (similar to See’s Candy) rather than spread itself across the country like other banks. What made Buffett’s contracts unique? They incentivized managers to not only pursue growth but to achieve profitability.

Following the reception, we made our last stop of the day. We drove to Berkshire’s legendary Nebraska Furniture Mart for a western BBQ cookout. I was expecting a large warehouse like Costco and was shocked when we arrived. At 77 acres, the Mart was not only larger than eight Costco warehouses laid side-by-side, it probably had its own zip code. Talk about local economies of scale!

A View on Trust

	Blimkie, standing outside Buffett’s house in Omaha, says the lack of a fancy security gate is one way Buffett demonstrates his trust.

On the way to the airport the next day, we drove by Buffett’s house and Kiewit Plaza, Berkshire’s headquarters. They are only a ten-minute drive apart, and you can easily picture Buffett skipping into work. Buffett owns a gorgeous brown house with a barn-style roof. It certainly was not the palace you would expect one of the world’s richest men to own. But what surprised me the most was the lack of a visible security presence. No fence. No moat. Just trust. I realized that if there was one underlying theme to the weekend, it was the value of trust.

After all, how valuable is a partner if you can’t trust him? Unlike some of the family members I met, Buffett’s original partners trusted him with their hard-earned money. Buffett, in turn, has held that level of trust in the managers of every company he has ever owned. He trusted Russell Athletic’s management to make the right decisions in Honduras. He trusted Bill Child to continue to run RC Willey exactly the same way after he bought the company. He trusted all of his managers and that partnership manifested itself as stable, predictable cash flows.

But trust is not something that appears explicitly in a P/E ratio or a discount rate. It’s not something you can model in an excel spreadsheet. And it’s certainly not something that can be quantified in a contract. This presents amateur investors like me with a challenge. If trust is so important, how do we decide whom to trust — and how to value it? I suppose that is the art of investing. After all, Benjamin Graham did not title his second book The “Value” Investor, but The Intelligent Investor. Those who recognize the additional margin of safety that trust bestows would be intelligent to follow Buffett’s lead. Trust is certainly a concept that holds enduring relevance, as Buffett’s 35,000 adoring “partners” can attest.

Brandt Blimkie ’10 is the incoming co-president of the Investment Management Club.

Photos courtesy of Brandt Blimkie ’10.

This past Monday, President Obama announced a series of proposed changes to the tax code. The changes include a reform of a long-standing tax deferral for multinational companies on revenue drawn from their foreign operations, a permanent extension of an R&D tax credit and a curb on offshore tax havens.

Professor Andrew Schmidt says the Obama administration hopes that the overall effect of the proposed corporate tax code changes results in a shift of more investments to the United States by effectively minimizing the incentive for foreign growth and improving resources for R&D in the U.S.

“The idea is that eliminating the tax deferral will drive up [companies with foreign operations’] tax rates and potentially curb the incentives to invest overseas. The result could be reduced investment in foreign operations as firms may have less cash to expand plants or factories,” says Schmidt.  “The revenue raised by eliminating the tax deferral would then be used to permanently extend the R&D tax credit, which would encourage firms to make some of these investments in the U.S. instead.”

He adds, “The R&D credit was a temporary provision and was re-upped every few years when it was about to expire. By making it permanent, firms can rely on that subsidy and not wonder if it will expire. This will be a big deal to certain industries, like Big Pharma, which has heavy R&D.”

On the issue of curbing tax offshore tax shelters — a political hot potato — Schmidt says that one effect would be a reduction in the tax gap, which according to the most recent figures from the IRS (fiscal year 2001) is between $312 and $353 billion.

Listen to an interview with Professor Schmidt on WNYC.

Photo credit: kalavinka

In developing countries, it makes up 41% of gross national income, 30% of the GDP, accounts for 70% of employment and in many countries is growing faster than the overall economy. This thriving area of growth is also known as the informal sector.

For those who haven’t spent much time in a developing country, you may be wondering this means exactly. The businesses that make up this sector are not gangster-run outfits operating in clandestine markets. Instead, they are unofficial businesses that operate openly. They are “tolerated” by local governments, which cannot or will not make the benefits of formality accessible to local business owners. The vast majority of people operating in this sector are simply trying to scratch out a living — and are sometimes thriving — by buying or selling goods.

However, the invisibility of these businesses, as well as their transactions with consumers, leaves the door open for opportunistic behaviors. Both my personal experience and the limited data I’ve been able to find lead me to think this is a much bigger barrier to business growth than is commonly understood.

I spent two years living and working in Kenya with informal businesses and small-holder farmers who operate as informal entrepreneurs selling produce. Time and again I heard stories of business deals gone wrong — of a middleman who bought produce on credit only to disappear without a trace and carry away hundreds of dollars worth of goods without paying for it. While the vast majority of businesses are honest dealers, and most transactions are smoothly conducted, it only takes a few such incidences to discourage otherwise worthwhile business investments. Would providing businesses with a virtual community to allow them to tap into their social networks to gain trust and credibility unleash an explosion of economic growth at the base of the pyramid?

My business partner Felix Macharia ’09 and I have set out to try this concept in Kenya, a country we both know well. Our business, Dango, seeks to create a referential mobile phone-based business directory and social messaging platform for the Kenyan marketplace. The system will work entirely on the simplest and most widely available ICT form available: text messaging. Imagine each of those thousands of informal businesses listed in a business directory accessible to anyone with a mobile phone? What if they were also linked to their regular customers, and through them, thousands of potential new customers? What if they could use their good reputation to find new customers and make bigger and better business deals? Dango will provide them a way to list their businesses, link with customers and reach out to new customers using their existing social networks. Non-business owners may use Dango as a social network and share news and information with groups of friends or formal groups like churches and student groups, and finding trusted businesses through the social networks inherent in these groups. If a Dango member searches for a car seller in a particular area, for example, he will be able to find one who is known to him through a friend or colleague.

Currently, Felix and I are conducting concept tests in Kenya and developing a prototype of the system. We will be in Nairobi this summer piloting the system with some select church and business groups. To get to this point, we’ve leveraged CBS’s resources tremendously.

Through the Entrepreneurial Greenhouse Program, CBS’s intensive incubator program for aspiring second-year entrepreneurs, we’ve gained exposure to entrepreneurs and investors and have been pushed to hone our business plan and pitches. Through the International Development Club’s Pangea Advisors, I was able to meet with leaders of top Kenyan businesses and social enterprises while conducting a field study of Kenyan businesses for Nancy Barry’s Enterprise Solutions to Poverty, a new organization that works with large companies and social enterprises in the developing world to create inclusive business models.

As a student in Professor Gita Johar’s “Global Marketing Consulting for Social Enterprise” class this semester, I led a team on a consulting project for Yasmina McCarty’s EMBA ’08 GreenMango, a fully localized online service marketplace that provides an easy way to find local small businesses for Indian professionals. The experience I’ve gained in working with GreenMango has provided me with an entirely new lens through which to see my own venture. Last but not least, the leadership experience I’ve gained as co-president of the International Development Club has given me confidence that I can lead a team in executing my vision to make Dango a reality. When I reflect on how I’ve been able to bring all of these experiences together in such a short two years, I am in awe of how much I’ve been able to accomplish.

As I prepare to walk out the doors of Uris Hall for the last time (as a student, at least!) I’m grateful for incredible opportunity I’ve had to bring my dreams closer to reality.

Photo credit: Ken Banks, kiwanja.net

How much is your virtual yuan worth?

Green Panda Games is hoping quite a bit. The gaming company, a new venture by Megan Bordi ’09 and business partner Nate Altschul, recently won the Eugene Lang Entrepreneurship Center’s annual A. Lorne Weil Outrageous Business Plan Competition. (check out their winning elevator pitch)

Green Panda is a free-to-play virtual world and educational online game for Chinese kids and tweens. The company’s goal is to create an alternative product to the popular but violent role-playing games and culture that has become prevalent in China.

One of the key elements of the platform — and Green Panda’s primary revenue stream — is the use of microtransactions, a model that has been very profitable in the Chinese gaming market. That format both localizes the platform and provides an educational component with virtual allowances and bank accounts.

“If the kids are buying things, the parents ultimately pay so we recognize that we need to target both groups,” says Bordi, who is a participant in the Entrepreneurial Greenhouse Program Master Class.

However, Green Panda is careful to learn the lessons of other American Internet companies, such as Google, that have gone into the Chinese market.

“We are focused on developing the product from a Chinese perspective and we have a Chinese development team,” Bordi says. “We’re not adapting an American product.”

Altschul adds, “We’ve done a lot of research and work with gaming experts to understand what parents, educators and kids want.”

With the product in private beta testing now, Bordi and Altschul plan to launch the game platform later this year.

Watch video for Green Panda’s winning elevator pitch (opens Flash player).

Maurice Lam ’78 is not alone when he says that the future of Africa lies in private sector business. Dean Glenn Hubbard and Professor William Duggan’s upcoming book The Aid Trap (Columbia University Press), due to be published later this year, explores the topic.

However, Lam’s position as chairman of the Board of Investment for Mauritius offers a unique case-study perspective on how this future can be realized. After a series of reforms in 2006 to modernize industries and boost investments, the Indian Ocean island country increased its economic growth from 2.3 percent to more than 5 percent.

The first step, Lam told Public Offering in a recent interview, is to simplify the way business is done.

“Make it easy to do business in Africa by simplifying the rules and regulations,” Lam says. “We are doing this in Mauritius, and we have moved up in rankings on the World Bank’s Doing Business survey from 32 to 24. As a result, we have seen more locals investing in the private sector and more investors from overseas.”

Lam, who has also advised Uganda on investment opportunities, argues that African nations allow the opportunity for corruption by creating too many hurdles for success through complicated permit and fee systems.

“You leave yourself open to corruption opportunities when you have administration procedures where there is discretionary power,” he says. “So you must remove them.”

Lam, who was born in Mauritius, now resides in Singapore, where he runs a strategy-consulting firm for family-run businesses. He says a key to success in the private sector in Africa is political will.

“Political leadership has to be willing and particularly the finance ministers,” he says. “These countries lack revenue so you have to convince the finance ministers that the big picture will make more money for the government.”

Another key is business-sector support, in which Columbia Business School has been playing a vital role. In addition to Hubbard and Duggan’s book, students have been engaged in numerous entrepreneurial projects in Africa, including last year’s Master Class (see blog). The School is also working with universities in Kenya and Tanzania to develop better business-education methods.

Photo credit: Lionoche

This is part of a series of posts from the International Development Club.

On a recent Friday morning, we made our way with 25 fellow MBA students to the United Nations World Headquarters for a special visit. We all had one question on our minds: how does one actually get a job at the UN?

We learned that while it’s a difficult place to get one’s foot in the door, networking, perseverance and a willingness to live in relatively less-desirable locations can help you find a job with the prestigious organization.

After a lunch in the Delegates Dining Room, we met with Brett House, from the Office of the UN Deputy Secretary-General. He demystified the organizational structure and gave our group some insight as to where the skills of an MBA might be most valuable. He pointed to the International Finance Corporation (IFC), International Monetary Fund (IMF-Capital Markets), World Bank, Multilateral Investment Guarantee Agency (MIGA), Food and Agriculture Organization of the UN (FAO), United Nations Capital Development Fund (UNCDF) and United Nations Development Program (UNDP) as organizations within the UN that hire MBAs.

Next we met with representatives from the human resources department. They gave us an understanding of the hiring process (long and complicated) and its Galaxy Web site (jobs.un.org). Perseverance, it seems, is critical when applying for these jobs — as is recognizomg that resumés are not just going into a black box.

The human resource representatives stressed the importance of meeting all (or almost all) of the minimum requirements, particularly in regard to work experience. The typical applicants for positions requiring “minimum five years experience” have seven or eight years of experience. Furthermore, they said approximately 300 people apply to each position — with 5,000 applying for 200 internship positions — so make sure the CV you submit is your best effort!

The day’s highlight was a panel featuring four speakers from various organizations within the UN. Lucas Black ’00 SIPA, who works in the MDG Carbon Facility, opened the panel and discussed his work trading carbon credits and supporting emission reduction projects with significant benefits to the Millennium Development Goals.

Dr. Manuel Escudero, from United Nations Global Compact, spoke about his experience and how much one has to believe in the mission of the organization to succeed. He noted that smarts and hard work are great, but that it is the ability to deliver results and creativity that separates the best employees from the mediocre ones at the UN.

Elizabeth Leff ’99 SIPA, who works in Human Resources (Planning), discussed her transition from consulting to development work in Thailand to finding a job at the UN. She stressed that it is critical to have experience in a developing country under one’s belt.

Matthew Hochbrueckner ’06, who works at the Office for the Coordination of Humanitarian Affairs (OCHA) underscored that point, saying that he would not have gotten the job at the UN had he not taken the time to work in Eastern Europe and the Balkans after business school.

The bottom line for MBAs who want to work at the UN?

1. Manage your expectations. It is very difficult to get a job and the recruitment process is very long and extremely competitive.
2. Leverage any contacts inside the organization and try to obtain a short-term contract. This way you can get your foot in the door and have the opportunity to demonstrate your value to the organization. Once you prove you are “UN material,” it will be easier to find other UN jobs and ask for a position in a country in which you are interested.
3. Take big risks. Apply for positions in danger zones like Sudan, Iraq or Afghanistan, for which there is a very short supply of candidates. A couple of years stationed in one of these countries could lead to a lifelong career at the UN.

Photo credit: Ashitaka San

The role of India’s central bank has been a mitigating factor for how the country has fared during the financial market meltdown, Professor Joseph Stiglitz told the audience at last week’s South Asian Business Association (SABA) conference, “India: Rising to the Challenge.”

In his afternoon keynote address, Stiglitz also refuted the theory of “decoupling” that suggested the economic crisis would not spread from the most developed economies to other parts of the world.

“The world has become so integrated that to have a downturn of the largest economy in the world, and one of this magnitude, has to have global repercussions,” he said.

However, Stiglitz pointed to the Indian central bank’s policies as lessening the financial blow to the country of more than 1 billion people.

“India was one of the countries that resisted the wholesale deregulation movement that the United States had been exporting,” Stiglitz said. “They did it against political pressure … and now I think the financial markets are thankful that they did resist those pressures. The result is that India’s financial markets are in better shape than they would have been if they had engaged in the kind of wholesale deregulation that the United States engaged in.”

While Stiglitz still expects India’s growth to be between 5.5 and 6 percent, he believes the country will feel a contraction in the amount of capital investments from developed countries and possibly from remittances, as well.

However, the news for India remains mostly positive.

“The two largest developing countries, India and China, are the least dark spots in this gloomy economic picture,” Stiglitz said. “The prospects for India are that it will continue to grow — strongly by historical standards — but that growth will be much slower than it was before the crisis, and much slower than many people would have hoped.”

Photo credit: Roy Sinai

On April 3, the Columbia Business School Energy Club in conjunction with the SIPA Energy Association held the 2009 Energy Symposium, “Imagining Tomorrow: Meeting Energy Demands in a Carbon-Constrained World.”

Dr. Ivan Marten, a senior partner and managing director at the Boston Consulting Group, gave the morning’s keynote address and asked three questions that directed the conversation throughout the day:

1. Are there enough resources to sustain current growth rates?
2. Do we have access to and security of these supplies?
3. What role can alternative energy and carbon sequestration play in the future global energy market?

The answers, Marten said, all depend on the price of oil. Currently, large international oil companies (IOCs) are still making significant capital expenditures in exploration and production, Marten said. However, national oil companies (NOCs) that dominate world reserves, are now short on income and are generally reducing investments in exploration and production.

According to Marten, this investment imbalance will lead to an imbalance in future supplies and thus result in a shift of power between IOCs and NOCs.

Marten also noted the reduction in investment extended to renewable forms of energy despite the current political commitment to sustainability. Although this commitment in the West will likely drive up production of renewable energy sources, Marten argued the overall impact on global emissions would be counterbalanced by the growing energy production and associated emissions from countries like China.

Other panels during the day-long symposium focused on the impact of a future carbon regulatory structure on the current energy market.

Speaking as part of the panel, “Coal: Then and Now,” Courtney Lowrance, vice president for Environmental and Social Risk Management at Citi Markets and Banking, said a major shift occurred in coal investment starting in 2006 when coal companies began facing problems with public perception and investment.

However, the panel’s consensus was that coal, despite the current concern over its emissions, is essential to meeting energy demands and will be included in the U.S.’s future energy portfolio. The panelists emphasized that in the future, the coal market will incorporate new technologies like carbon capture and sequestration (CCS) and integrated gasification plants with carbon capture (IGCC plants).

Joseph Strakey, chief technology officer of the National Energy and Technology Lab, and Klaus Lackner, a chaired professor of the Earth and Environmental Engineering Department at Columbia University, agreed that reducing coal-based emissions is possible with these technologies.

To provide evidence that CCS could be incorporated and its current price-for-capture could be reduced, Strakey pointed to the changes in the coal market during the 1970s that resulted from regulations on sulfur emissions.

Lackner stressed that the most difficult obstacle facing carbon sequestration is the regulatory issues associated with controlling an amount of carbon dioxide “roughly the size of Lake Michigan.”

Brian Ward, managing director and chief risk officer of GE Energy Financial Services, stressed the need for the energy industry to be involved in developing the new regulatory framework for carbon emissions in his afternoon keynote address.

Photo credit: nelgallan

Only days before the Indian Premier League is set to begin its month-long second season in South Africa, a different sort of cricket tournament concluded at Columbia Business School. Last night, Cluster C's Team 11 nabbed the winning spot in Case Competition 2009.

Sponsored by the Dean’s Office, the Chazen Institute, the Samberg Institute and Columbia Case Works, the event was Columbia Business School’s first ever case competition. The winning team was awarded a check for $2,400.

This term’s case, The Launch of the Indian Premier League, followed Lalit Modi as he endeavored to build a domestic cricket league in India. The league plays a new form of the game that lasts about three hours and which is more compatible with television. The league’s eight teams are based in Indian cities in a model similar to American professional sport leagues.

“Almost no one gave the new cricket league a chance when it was first conceived,” says case author Professor Rajeev Kohli about how he became interested in the story. “But not only was it successful, it became a phenomenon around the world. The case centers around why that is so.”

Kohli says there are three keys to IPL’s success:

1. The players: “There was great clarity in Modi’s mind that the first issue was the players. He created the right incentives for them so [joining the IPL] would be financially lucrative for every top player in the world.”
2. Securing broadcast rates: “The payment structure was based on a long-term (10 year) contracts with clauses for ratings. The broadcasters had the right incentives to take risks and to make the product right for a prime-time audience in a country where most households have a single televisions set.”
3. Glitter factor: “Once the [Bollywood] stars showed interest, the league became a very glamorous mix of cinema and sport. Suddenly all the industrialists said, ‘We want in, too.’”

“By providing the right incentives, structuring the broadcast rates and bringing in glamour, and attracting women and children into the audience, Modi was able to create demand,” explains Kohli.

How will this season’s South Africa location affect the league’s success? The IPL had to move the 2009 tournament out of India due to ongoing security concerns surrounding national elections.

“It is a disappointment, but in balance it is the best thing that could be done at this time and keeps the players safe,” says Kohli. “My hunch is that they won’t be much affected because it is a media event, and South Africa also has many cricket fans.”

Photo credit: SJ Jagadeesh

The fate of General Motors could mean tricky political business for Toyota, says Professor Hugh Patrick, faculty director of the Center on Japanese Economy and Business. Patrick is moderating a panel event tonight about the two automakers.

“The downsizing of GM opens economic opportunities for Toyota in the U.S. market, but it may also create serious political risks for Toyota’s market share, now a little under 20%, goes to 25% or 30%,” Patrick says. “Job creation is a major political as well as economic issue in the U.S., and there almost certainly will be various pressures on Toyota to assemble more vehicles in the U.S. and to purchase more parts and components in the U.S. — and to import fewer from Japan.”

William Holstein, author of Why GM Matters: Inside the Race to Transform an American Icon and panelist at tonight’s CJEB event, says the government’s recent actions have ignored the progress the company has made, such as absorbing lean manufacturing lessons from Toyota through the companies’ joint venture, NUMMI.

“Rick Wagoner was leading an ambitious restructuring plan at GM and there was very real chance that he was going to be successful in doing this by 2010,” Holstein says. “The Obama administration completely ignored the very substantial progress Wagoner had made with changing the cost structures of the company, changing its manufacturing process, revitalizing its car design and investing in the future of the lithium-ion battery.” (See Holstein’s related op-ed in the New York Times.)

As the government reportedly considers a Good GM/Bad GM plan, could Toyota itself be a contender to purchase a piece of the auto manufacturer?

“My guess is that Toyota will not be interested in purchasing GM or any significant part of it,” says Patrick. “Toyota’s cars already compete very well with GM’s in the U.S. market, and there might well be considerable political exposure for Toyota emanating from such purchases.”

The Center on Japanese Economy and Business presents “Two Behemoths in a Troubled Industry: Toyota and GM” tonight from 6:00 to 7:30 p.m.

Photo credit: Ahren D.

This post is part of a special series celebrating the School’s Alumni Forever Week (March 30 through April 2).

Profile
Karen Kalina ’94
Director, Strategy and Portfolio Analysis, Siemens Real Estate

Tell us about your career path since getting your MBA.
Before Columbia Business School, I worked at the United Nations. I worked on various budgets, and that inspired me to go to business school. I knew there was some method I needed to find out. I also speak five languages, including Czech and German, so my dream was always to get over to Eastern Europe. After I graduated, I worked at State Street Bank and Trust in the global custody division and later their credit and risk management group, focusing on Europe and Eastern Europe. After leaving State Street, I moved to Prague to work in financial services with KPMG Consulting on bank privatizations and then to Credit Suisse Financial Services in mergers and acquisitions in Weisbaden, Germany. After the Internet bubble popped, I had been in Europe for six years and I made a decision to come back to the U.S. I looked for jobs through the School’s job BANC network. Through a fellow alum I found a position with Siemens.

What has the transition from financial services to corporate business been like?
I am now celebrating five years at Siemens. In financial services I was a three-year person, so that tells you something! You can shift internally in corporate business and it is more flexible than financial services, which calls for a very defined set of skills. Working in finance as a woman with two kids, I had to make trade-offs. I am believer of staying in the work force as a working mother, but I knew being in mergers and acquisitions, where I was on the road all the time, would be too much. When I missed my second child’s first steps, that was an eye opener.

What has been your experience as a woman in finance?
I’ve always thought that being a woman in finance was fantastic. There are less of us so we tend to stand out more. I think that was an advantage because you automatically got more visibility; I stood out because I wasn’t wearing a necktie. Once you’re in, how do you handle it? There are not a lot of people to meet in the bathroom. You find other women in external organizations and keep in touch with them.

Looking back at your Columbia Business School experience, what was your aha! moment?
I was having tough time with Introduction to Finance, but I also didn’t have trouble visiting my professors’ office hours. The obvious one was in Bruce Greenwald’s class. I went to his office hours and he looked me in the eye and he said, “Not only can you do this, you can be great at it!” That was a turning point for me. His confidence that, yeah, I could do it, really empowered me, as did the knowledge that he and many others would support me. I knew at that moment that this was really possible if wanted to do it. Up until then, I would have done marketing or international business. Finance changed my life. The other person who was an “aha!” is Laura Resnikoff. I took Turnaround Management with Laura when she was still a new professor. That class was very small; it took place over the summer and I was the only female student. She’s an amazing teacher and a tough cookie. She really challenged us and especially challenged me. But again, she gave me a real “You can do it” impression. Her class taught me that I liked not only finance but also the whole business and strategy. Every job I’ve had since State Street has contained strategy elements, and Laura’s course opened my eyes to that possibility.

What advice do you have for MBA or prospective MBA students?
Let go of incredibly high expectations. When I graduated in 1994 it wasn’t that great of a job market. If you don’t start at most spectacular place on planet, you’re still going to be okay. I never thought of working at a major corporation, but each one has a finance group and excellent training programs. It is also important to pursue the things you are inherently interested in. Look inside yourself for career advice, because that is important, wherever it might lead you. In finance, people can get trapped into a certain narrow way of thinking. The world is a lot bigger than New York City.

New debate over protectionism has emerged in the past week about a clause in the stimulus bill that stipulates that firms building public works must “buy American.” The language has now been softened to comply more consistently with U.S. trade obligations. The irony in the situation is that proponents of the bill, such as many U.S. steel companies, don’t want to be forced to buy their own inputs from only U.S. companies. They know this could raise their cost substantially and that American consumers and firms may not want to pay for that. However, even with new qualifiers, there is still potential for the clause to endanger global recovery in several ways.

1. It violates international trade obligations
This is a violation of the United States’ international treaty obligations as both a member of the World Trade Organization and as a member of bilateral/regional trade agreements such as NAFTA. A fundamental principle of the WTO obligations is “national treatment,” meaning that foreign- and domestic-made products receive the same treatment. When all countries participate, consumers and firms enjoy the benefit of lowest possible costs. This is the principle that the United States — a long-time champion of taking down trade barriers — has been pushing for the last six decades. The United States often accuses other countries, such as China, for not living up to their WTO obligations and for having protectionist policies. But the “buy American” clause does exactly what U.S. has asked other countries not to do.

2. As others may follow suit, this could be self-defeating
Other countries may feel justified to enact their own protectionist measures, following the U.S. example. As a result, American firms such as GE and Caterpillar will be able to sell fewer American-made products in other markets, and that will cost the U.S. more jobs than the stimulus package can save.

3. It opens the door for WTO cases against the U.S.
Not only could the clause itself could be the basis for a WTO case against the United States, it may also lead other countries to challenge the financial sector bailout package that the Obama administration is still designing and expanding. Why? At the moment, no country has challenged the United States for its bailout packages, such as TARP, which are separate from the stimulus package and designed to help its troubled financial institutions. However, other countries might argue that these bailout packages effectively offer government subsidies to the cost of capital for U.S. manufacturing firms, giving U.S. exporting firms an unfair advantage in the world market. This is the sort of thing — launching a WTO case — that the U.S. trade representative often threatens to China, charging that Beijing’s majority state-owned banks are subsidizing the cost of capital for its exporting firms.

The European Union and Japan may not launch such a WTO case as they are also buying non-performing bank assets at an above-the-market price. Others may be willing to give the United States some breathing room to sort out the financial mess. But there are some major trading partners who do not have the same kind of banking-sector problems, such as China, India and Brazil, and their inhibition to launch a case against the United States may be removed if they see that Washington is making some protectionist maneuvers.

4. It undermines broad foreign policy objectives in the long term
The United States prides itself as a nation of principles; it is also looked up to for its ideals as least as much as for its military supremacy (or so we would like to think). This clause will undermine the six decades of U.S. leadership in the global economy, especially in the area of multilateral trade liberalization. If the clause becomes law, it will encourage a cynical perception by other countries that there is a gap between the Americans’ lofty words and selfish deeds. This cynicism could spill over to non-economic spheres, undermining U.S. foreign policy objectives more broadly.

Photo credit: Vards Uzvards

Shanta Devarajan started as a mathematician and ended up in banking somewhat unexpectedly. Today, he heads up the World Bank operations in Africa. In our recent interview at Columbia Business School, he discussed his practical and pragmatic approach to solving some of Africa’s most profound problems. His thoughts were both refreshing and reassuring.

Devarajan believes that the World Bank has an important role to play in disseminating knowledge and best practices for the provision of capital for infrastructure and human capital-based projects. The present economic crisis, he said, can show how the World Bank’s development agency can be beneficial in helping responsible countries in the region. He also stressed that the recent past has shown that there is no single solution to poverty; rather, different aspects of society need to be encouraged. These aspects include macro-economic stability, priming the private sector to be an engine of growth and a sober, responsible government.

For the complete interview, please visit the Chazen Web Journal.

What would you do if a client gave you a very expensive gold watch? The question was just one of many discussed at an ethics panel and debate that took place last week at Columbia Business School. Organized by the Student Leadership and Ethics Board, working with the Sanford C. Bernstein Center for Leadership and Ethics, an international panel of students discussed their perspectives and experiences confronting ethical dilemmas or corruption.

“Most of the time the ethical dilemmas are not created at the junior levels, but we are most often responsible for their execution,” said student board member Vicente Brocchetto ’10. “The way we handle these situations can make all the difference.”

Several key points/questions were raised:

• Knowledge of local customs and how respect is conveyed in different cultures is important. In one example, the matter of taking shoes and hats off when dealing with a local chief was key to winning a negotiation.
• At what level of materiality does corruption matter? There was an interesting debate about what a manager can overlook, and what a manager cannot, particularly in areas of the world where poverty is prevalent.
• How the use of the English language for business establishes formality and implicitly suggests that business is operating under a different set of standards.
• Leverage what you do have, rather than trying to meet or beat local corruption. In an example case of an international firm that confronted bid rigging by regional groups, the firm’s solution was to capitalize and leverage proprietary products available through its global network, rather than engage with local competition.
• How does perspective change for foreign national managers after training/managing in the United States? How do managers handle different standards for business in the U.S. versus abroad?
• Prof. David Beim, who moderated the panel, said, “Talk about [differences]. People are reluctant to talk about it because it is personal and can appear embarrassing. When you do talk, you find more options and that there’s more nuance than you might have imagined.”
• Don’t be afraid to turn down business. “Any quality firm turns down more business than it accepts,” said Prof. Beim.

Photo credit: Public Offering/Catherine New

The massive accounting scandal involving Satyam, one of India’s largest outsourcing companies, seriously hurts investor confidence, not only in India but worldwide, says Professor Sudhakar V. Balachandran.

“They should have been under good accounting scrutiny, and so this is shaking confidence,” Balachandran said in a phone interview Thursday morning. “There will be spillover effects, people will think twice about investing in Indian tech companies, investing in India and, following that, investing in the market. It’s the old story of a few lemons corrupting the entire market.  If you can’t tell the good from the bad, it just becomes too risky to invest. Eventually that poses risk to the entire economic system.”

In an op-ed published on Forbes.com on January 8, Balachandran says that the three mechanisms to prevent fraud — corporate governance, audits and legal consequences — are not doing enough.

The company’s good social standing added another layer of complexity. “[Satyam] was well run and well governed.  They also did a lot of charitable work in rural development in India, so they appeared to be taking social responsibility seriously. They did a couple little things with their accounting early and then it snowballed,” said Balachandran. “These may not have been evilly intentioned guys; they had a history of doing good.”

Especially worrisome to Balachrandan is the failure of the requirements for auditing control systems.

“Satyam has an ADR [American Depository Receipt] and they are listed on the NYSE, so they have to follow American rules similar to those of American publicly traded companies. That includes having audited financial statements, using US GAAP, having signatures from the CEO and CFO stating that their accounting is sound as required by Sarbanes-Oxley Section 302, and so on. With all this, the company reported a lot of cash — a little more than $1 billion — that wasn’t there,” he said.

“Section 404 of Sarbanes-Oxley has very strict and very costly rules on what should be audited in the firm’s internal control systems. Auditors certify the controls so we can believe that the company is not recording fictitious transactions, so that when they say they have made a sale, we can believe they actually made a sale. In addition, auditing standards in India are not trivial and definitely require the auditing of cash. The fact that they didn’t catch the missing cash [at Satyam] raises a lot of questions.”

Prof. Balachandran acknowledges Columbia Business School professors Ray Fisman, Bruce Kogut, Partha Mohanram and Amir Ziv for their contributions in the analysis of the Satyam situation.

The application of business research provides a critical link between theory and practice. As Dean Glenn Hubbard recently told faculty members at Columbia Business School, over the coming year the world’s financial turmoil will present an opportunity for research and innovation. He challenged the faculty members to frame their research in these terms:

1. How can we address problems and opportunities posed by globalization?

2. How can we design the most efficient provision of financial services (in matching savers and borrowers, and providing risk-sharing, liquidity, and information services)?

3. How should we conceptualize strategy and high-level business decision-making?

What areas of research would you like to see developed this year? How will you frame your organization’s thinking and goals in 2009?

We would love to hear your thoughts. Please leave your comments.

Globalization is:

A) The future; it is an irresistible and growing part of economic reality.

B) The dominant force shaping the world’s economies.

C) The fate of the world’s workers and businesses, who must adapt or suffer the consequences.

D) The irrational fear that someone in China will steal your job.

If you picked D, congratulations. You’re ready for the central teachings of Professor Bruce C. Greenwald and Judd Kahn’s new book, glob•ali•za’•tion (n): The Irrational Fear That Someone in China Will Take Your Job (Wiley, 2008).

The slender volume sets out to redefine the term which has become a household catchphrase. The authors make the argument that many of the fundamental assumptions about globalization (see answers A, B and C) are “either highly questionable or largely false.” Instead they argue that globalization is not a new trend, that crucial local forces such as improvements in productivity and changes in demand are ignored, and that hard data has been selectively used or underused in favor of anecdotal evidence.

As the book’s title suggests, the authors argue that job security or the lack thereof, is one of the bigger misconceptions in the commonly held idea of globalization. They write:

Do you agree with the authors’ opinions on globalization? Disagree? Please leave your comments.

Where there is change, there is opportunity. This idea was at the heart of a recent presentation to students and faculty at Columbia Business School by Michihisa Shinagawa, president and CEO of Sumitomo Corporation of America. He spoke as part of the Center on Japanese Economy and Business’s ongoing Zandankai Series. The corporation is one of Japan’s largest trading companies.

Currently, there are three structural shifts that are transforming the Americas, which could provide opportunities for Sumitomo, said Mr. Shinagawa.

Firstly, there is a need to use natural resources more efficiently, such as by developing fuel-efficient transportation and energy-efficient buildings, and to develop alternative energy sources.

Secondly, the United States is becoming more of a consumer nation. Despite the current downturn, as income levels of immigrants rise and the region grows, the U.S. consumer market is expected to create greater business opportunities.

Lastly, Canada and Central and South America will continue to grow in importance as producer regions and supply sources, given that labor costs in China and freight charges will increase.

To take advantage of these structural changes, Sumitomo is developing strategic goals.

“The first strategy is to achieve ‘critical mass’ in markets,” Mr. Shinagawa said. “As commodity prices fluctuate and consumers become more cost-conscious, many industries, such as mineral resources, steel and aerospace, are up against stiff competition. As a result, companies are merging to become giant global players.”

He also discussed how the company would make the most of these current economic cycles.

“We try to anticipate economic cycles and recognize shifts in growth areas,” he said, citing Sumitomo’s real estate portfolio as an example.

“Until 2004, our U.S. office building portfolio had only one property, which was in New York,” he said. “Then we began recycling our assets and realized a large profit. We re-invested that profit, and today our portfolio is much more diversified and valuable.”

The final piece of Sumitomo’s strategy is an ongoing effort to be a ‘lean and mean’ organization by monitoring inventory levels, recycling investment assets and enhancing their human resources.

Photo credit: Michael Pereckas

Prof. Amar Bhidé’s compelling thesis from his new book The Venturesome Economy, was recently featured in the New York Times and The Economist.

At the heart of his argument is the idea that technological innovation is important for economic development. As important, though, if not more so, is the ability to apply that innovation creatively.

“The largest benefits,” Prof. Bhidé says, “will accrue to those economies that are most capable of taking advantage of these [technological] advances.”

His argument comes at a particularly critical point for American business, which faces ever-increasing technological competition from China and India and the potential for new government policy on research from the incoming Obama administration.

Prof. Bhidé argues that “midlevel innovation” is of greater competitive value than high-level research to companies.

“It is breadth of knowledge,” says Prof. Bhidé, “that underpins this ability to take advantage of innovation.”

His theory bodes well for MBA students, whose breadth of general management knowledge will be of increasing value in the corporate business world.

“The MBA education,” he says, “teaches you to think broadly and quickly about a variety of things.”

Nearly 500 alumni and guests gathered in Hong Kong for the Pan-Asian Reunion on October 24-25. “The atmosphere was very warm and friendly,” said Woo Taik Kim ’72, president of the South Korea Alumni Club and a panel sponsor, who attended the weekend event. Faculty panels on topics ranging from healthcare to private equity were held in addition to the reunion dinner. The faculty and panelists received substantial coverage in the local news. A few highlights of the event:

Global Economy

Speaking at a press conference, Dean Glenn Hubbard said that the candidate who wins next week’s presidential election must be prepared to immediately begin work with Treasury Secretary Henry Paulson and not wait for the start of term in January 2009. He also discussed how the strength or weakness of a recession in the U.S. would affect China. From China Daily, on October 22:

Prof. Shang-Jin Wei, who moderated the panel “Asia: From a Major Investment Destination to a Rising Source of Capital,” also offered his view on the on the financial crisis. In an interview with 21st Century Business Herald on October 25, he discussed the safety of the U.S. dollar and said:

Private Equity

The “Private Equity and the Capital Markets” panel on October 24 with Paul Calello ’87, Russell L. Carson ’67 and Henry R. Kravis ’69, and moderated by Prof. Bruce Greenwald was very well attended. Prof. Greenwald discussed his thoughts on private equity before the conference with Asian Venture Capital Journal:

Tokyo’s Lesson

Heizo Takenaka, Japan’s former economy minister, was part of the “Asian Financial Centers: Activities and Aspirations” panel moderated by Prof. Hugh Patrick on October 25. He spoke with the Financial Times afterward and discussed lessons learned from Japanese crisis (watch video). He said:

We must admit that we knew very little about Grameen Shakti when we filled in the application for the International Development Club project at the beginning of the summer of 2008. The information package outlined a rural energy company related to the Grameen Bank, the Bangladeshi microfinance organization created by 2006 Peace Nobel Prize winner Muhammad Yunus. However, the intersection of microfinance and rural energy piqued our interest.

On the one hand, energy needs in developing countries’ rural areas are overwhelming: more than two billion people do not have access to modern forms of energy like electricity or oil while a third of the energy consumed in these countries comes from burning wood, crop residues and animal dung (PDF). On the other hand, microfinance, pioneered by Professor Yunus in the 1970s and probably the most successful business innovation to serve low-income consumers, has opened new possibilities to fight poverty beyond traditional government programs and international aid.

How can innovations in microfinance be applied to rural energy?

Yunus and Dipal Barua, one of his students when he started Grameen Bank, founded Grameen Shakti (the name literally translates to “Rural Energy”) in the mid-1990s with the mission of empowering rural people by giving them access to green energy and income. Grameen Shakti’s clients purchase green energy equipment such as solar panels with an in-house microloan that they can pay back over three years. After that, they own a source of electricity that usually lasts up to 20 years. In addition to solar energy, Grameen Shakti provides energy products like Improved Cooking Stoves and Biogas Plants.

The organization also makes smart use of available technology; for example, Barua receives daily text messages with solar panel sales per office. And they are a truly grassroots organization: all employees are Bangladeshis and most of the funding comes from their own operations.

Like the bank, Grameen Shakti achieved almost immediate success and has grown very quickly. Barua now heads the organization, which employs more than 2,000 people and has offices all over rural Bangladesh. It has installed close to 200,000 solar panels in households across the country and plans to reach one million in the next three years.

During the three months we worked in New York and the two weeks we spent in Dhaka, we helped them refine a plan to train young women to install and repair the solar home systems. We had the opportunity to see first hand how poor rural women provided with appropriate training and tools are able to earn a living by producing and repairing electronic accessories for the solar panels.

Nilufa, pictured at the top of this post, left a profound impact on us: she is 21 years old and has one son. Abandoned by her husband, she is now supporting her son and her family by producing at home hundreds of electronic accessories every month.

We returned to New York with the feeling that we had learned much more from them than they had learned from us and convinced that local social businesses have a great potential to change the lives of the poor.

Dateline: London

I think to really understand the ramifications of what happened, you just had to be there. At London’s Heathrow Airport that is.

On Thursday March 27, I took British Airways’ (BA) day flight from JFK to Heathrow. On Saturday I was due to talk about customer value to a group of high-level strategic account directors at a global software company. I planned to tell them that success in value delivery would guarantee customer satisfaction and enable them to retain and grow their customers, increase profits, and lead to greater shareholder value. I relaxed in my Club World backward-facing seat and concentrated on the task ahead.

On Thursday evening I landed at Terminal 4; little did I know what was unfolding at Terminal 5.

Terminal 5 was BA’s long-planned new $8.6 billion state-of-the-art facility at Heathrow. CEO Willie Walsh was on hand at 4 a.m. when the first flight arrived early from Hong Kong.

After that, everything went downhill. In a word, BA’s baggage-handling operation failed. Apparently, the system had functioned well in a 2,000-passenger test, but could not handle the 40,000 who that day crowded into the terminal.

By the following mid-week, BA had cancelled over 300 flights, 40,000 pieces of baggage had been separated from their owners (many sent overland to Italy for resorting), and thousands of passengers did not reach their destinations. To make matters worse, Britain’s aviation regulator reacted swiftly to stranded passengers’ complaints that BA failed to provide hotel rooms, in possible breach of European Union requirements.

In a stroke of genius, the Terminal 5 debacle occurred just three days before an open-skies agreement between the U.S. and Britain came into force. In addition to increased competition from European airlines flying from the U.S. to continental destinations, BA would now have new U.S.-based competitors at Heathrow. Continental, Delta and Northwest Airlines each offered flights on day one. Some analysts’ estimates of BA’s losses from canceled flights, additional costs, and reduced future bookings approached $100 million; Goldman Sachs downgraded BA shares to sell.

So what lessons can we learn from BA’s experience?

First, service businesses are tough to manage. Operations occur with the customer in close proximity and problems are quickly highly visible — very different from a factory making products.

Second, sophisticated systems are great when they work, but when they fail, disaster is close behind.

Third, when you put in sophisticated systems, test, test and then test again; it may take time and it may cost money, but consider the alternative!

Fourth, customer satisfaction depends on the difference between expectations and performance. BA had so hyped its new terminal that any failure hurt even more.

As for me, when I arrived back at terminal 4 on Saturday afternoon, British Airways could not get me on their JFK flight. The agent sent me to Virgin Atlantic where I gratefully accepted one of the few remaining Premium Economy seats to Newark. The counter clerk cheerfully phoned New York so I could change my car service pick up and I headed for the gate. As I was boarding, the gate clerk told me there was a change — an upgrade to Upper Class. Thank you Sir Richard!

Footnote: The following Wednesday, British supermodel Naomi Campbell was reportedly taken off a Los Angeles-bound BA flight and arrested. Apparently Campbell became agitated when told one of her two bags had been misplaced.

You can find Noel Capon’s new marketing planning workbook, The Virgin Marketer, and his textbook, Managing Marketing in the 21st Century, at www.mm21c.com.

Prof. Bernd Schmitt moderated the panel “How to Build an Asian Brand into a Global Brand” at the Pan-Asian Reunion in Hong Kong on Oct. 24. The panel included Yuzaburo Mogi ’61, Chairman and CEO, Kikkoman Corporation; Dong Bin Shin ’81, Executive Vice Chairman, Lotte Group; and Daniel Mingdong Wu ’96, CFO, Focus Media.

Public Offering: What differentiates a global brand from a local one?

SCHMITT: A global brand is planned and marketed on a global scale. A global brand is also available in all key markets around the world. Moreover, there is a high level of consistency to a global brand. The product will be largely the same (except for minor local variations), the visual identity (logo, signage and name) will be identical and communications will be designed for a global market. The classic global brands — which mostly come from the U.S., like Coca Cola, McDonald’s or Starbucks — exemplify such global branding. Local brands, in contrast, are only known in certain markets. They may have close connections to consumers in those markets but frequently they are seen as being of lower quality and not as contemporary as global brands.

PO: What is the best way a brand can build from local to global?

S: Professional management and a clear vision are needed. Brand builders must have a global vision and global aspirations for the brand and then set up the right organizational structures for managing a global brand. In addition, the company must understand consumer preferences. People in different markets differ in values, attitudes and behaviors. For understanding consumers in different markets, consumer research is key. Commissioning a global segmentation study is a good starting point.

PO: What is an example of an Asian brand that has transformed successfully into a global one?

S: One of the participants in my panel at Columbia Business School’s Pan-Asian Reunion in Hong Kong, Mr. Mogi, has such a brand: Kikkoman. Originally, Kikkoman was a local Japanese brand. Now, the brand stands for soy sauce worldwide. When you produce a soy sauce, it helps, of course, to be from Asia. A Western soy sauce brand would not have the same credibility.

PO: What are some other successful Asian brands?

S: There are numerous other Japanese brands in consumer electronics and in the car business, for example, and other businesses. In cosmetics, beauty and fashion, the global consumer knows Shiseido, or Issey Miyake and Yohji Yamamoto. In Korea, there is Samsung, which, by the way, has outperformed Sony in brand value according to the latest brand valuation studies. Then, there is Singapore Airlines, one of the greatest airlines in the world. So, by now, there is no shortage of Asian brands that are known globally — and more will be coming soon.

PO: Which brands should we look out for in the future?

S: Mr. Shin, the executive vice chairman of Lotte, another executive on my panel in Hong Kong, is currently building Lotte, which recently entered China and Russia, into a global brand. I also expect more global brands coming out of China soon, and not just brands like Lenovo that that were bought but brands that were home-grown, so to speak. In China, executives from established companies, entrepreneurs and the government are all strongly focused on building global brands.

Photo credit: Peyri Leigh

Nothing gets past a Manhattan doorman. Not even 25 CEOs from Korea, collectively representing one-fifth of the nation’s GDP. As part of their weeklong visit to Columbia Business School, the group visited the famously white-glove Metropolitan Club for an event hosted by GC Andersen. The establishment has but one rule: everyone must wear a tie. Unfortunately, no one in the group was wearing one.

However, the tie-less executives cheerfully divvied up the backroom emergency stash — paisley and all — and proceeded to the special event in high spirits. The moment, noted faculty director of the Korea CEO program Prof. Cliff Schorer, exemplified the warmth and flexibility that they displayed during their stay.

In mid-September, two groups of high-level executives from China and Korea completed Executive Education courses in general management, conducted site visits and networked with US executives and each other. Asia’s growing role in international finance has brought an increasing number of executives to American universities to learn how to sustain and scale their own economic growth, and how the US economy impacts their own. Columbia Business School has partnered with the Cheung Kong Graduate School of Business and Global Education Network to offer different types of programs for those executives.

For both groups of CEOs, the coursework — which bridged practice and theory — had historical implications as their final week of classes, held in New York City, coincided with one of the most tumultuous weeks in Wall Street history.

Economic Insights

Prof. Wei Jiang, responding to the week's news, gave a presentation to the Chinese CEOs and discussed the impact of the current financial crisis on Asian markets. She placed the crisis in a historical long-cycle context and offered insight on what is new to this crisis. Using the example of Morgan Stanley’s reported real estate offering in Shanghai in early September, Prof. Jiang considered how the current financial crisis is different than the crisis in 2001.

“Now they are looking at their balance sheet, and suddenly those assets they hold in China become their most sellable assets,” said Prof. Jiang. “Because the foreign investment in China are real [estate] assets and are a relatively new phenomena, China doesn’t have any experience with the contagions of financial crisis through the asset sales channel.”

Understanding the economic implications of the trade imbalance was also of interest to the group and part of the group discussion, she said.

“The real reason for a trade imbalance is a fundamental imbalance in savings behavior. In the end, a country that consumes more than it produces will import from a country that produces more than it consumes,” she said. “In the US, they worry that people don’t save. In China, they have the opposite headache, and people don’t spend.”

Management Style

Another area that was covered as part of the Chinese CEOs’ course work was cross-cultural differences in management style. Prof. Joel Brockner, faculty director of the China CEO program said differences in management style were less important than how they are managed and discussed. For example, the issue of “power distance” differs between American and Chinese management styles.

“You read a lot about employee involvement and how you need to involve them in decision making. That’s a Western principle,” said Prof. Brockner. “In China there is not the same feeling. People at the bottom aren’t expecting or wanting to be involved in decision-making. We are preaching involvement as our management style and we assume low-deference to authority. But in China there’s more high deference.”

“Asian businessmen tend to be more introspective,” said Prof. Schorer. “They absorb, consider and ponder versus shooting from the hip.”

Global Vision

On the morning of Sept. 29, the Korean executives had an unexpected surprise: a site visit to the New York Stock Exchange with NYSE president Gerald Putnam became front-row seats to the biggest single-day drop in Dow Jones history.

The timing of the visit, coming at the height of chaos in the financial markets, generated much stimulating discussion according to Prof. Schorer. The US market collapse in 1987 (25% drop in one day) and the subsequent Asian financial crisis were both really confined to an identifiable geographic region. It was an eye-opener to see how immediately this crisis spread, and how the domino effect, caused by the subprime debacle, spread fear and reaction around the world so quickly, Prof. Schorer said.

Wall Street’s role as the center of global finance was also the focus of discussion in a special class session with Prof. Ray Horton, who gave a presentation to both groups of CEOs on the changing distribution of global power.

He asked the groups to consider what the world’s distribution of power will look like in 20 years and whether the world would have one, two or more poles of control. Breakout groups debated and then assigned probabilities to all the type of international power structures. Both the Chinese CEOs and the Korean CEOs were split between a unipolar world, with either the US or China leading (usually the US), or a bipolar world, with both China and the US, said Prof. Horton.

Their conclusions mirrored the overall tenor to the visit.

“The Korean CEOs had a global vision and a heightened recognition that we’re seeing how integrated we’ve become,” said Prof. Schorer. “We’re all now related in this web of commerce and investment.”

Photo credit:Courtesy of Executive Education

How does the financial crisis affect business in China?

There are two ways: through the trading route and through the asset route. If the US economy goes into a recession and reduces demand from abroad, China will have to cut its exports, causing it to be affected as well.

I think that effect will be estimate-able because we have had, as recently as 9/11 when the stock market and NASDAQ dropped by more than 50% and the overall market dropped by a third, a real recession. China’s growth rate had a very limited drop from 2000 to 2001 because its components are income-driven and driven by internal demand. Thus, when the US economy took a huge hit, China wasn’t greatly impacted. Their domestic growth is increasing faster than the overall economy and that is increasingly more important as a growth-driver.

Secondly, the types of commodities and products that China exports to the U.S. is not super-sensitive to the economic downturn. For example, Wal-Mart accounts for 12% of total imports from China — if Wal-Mart was a country it would be China’s eighth largest trading partner — to just give you a sense of what these exports are. They are not super-sensitive to economic downturns.

What is new this time is the asset market. In the center of Shanghai there is a block of very expensive real estate. Morgan Stanley invested early on and made a handsome profit on paper. But only recently have they decided to sell. So you can tell it’s part of the deleveraging process where they are selling assets in order to raise cash to reduce the debt burden on their balance sheet. They have to sell in overseas markets because they couldn’t sell their subprime assets after market liquidity completely dried up.

Now they are looking at their balance sheet, and suddenly those assets they hold in China become their most sellable assets. Because foreign investments in China are real [estate] assets and are relatively new phenomena, China doesn’t have any experience with the contagions of financial crisis through the asset sales channel. That is what is new and we will have to see what effect that will have.

Photo credit: Aapo Haapanen

The Treasury announced a plan this week to recapitalize banks with $250 billion. Responding in the Wall Street Journal (“A Thumbs Up From the Ivory Tower” on Oct. 13) Prof. Charles Calomiris said:

Prof. Frank Lichtenberg spoke with the Financial Post about the thawing of the credit markets:

Dean Glenn Hubbard, writing with Princeton’s Alan S. Blinder, addressed the Treasury’s plan to broaden of deposit insurance coverage in the Wall Street Journal (“Blanket Deposit Insurance Is A Bad Idea” on Oct. 15). They wrote:

Speaking on National Public Radio’s On Point program on Oct. 14, Prof. Frederic Mishkin discussed the global perspective and the cost in reputation to the U.S. economic model. He said:

Photo credit: Phil Dokas

This is the first in a series of blog posts from the International Development Club.

Much of the political discussion surrounding the $700 billion bailout passed by Congress last Friday has revolved around how the plan will affect ordinary “Main Street” Americans. Yet the financial crisis has had an impact world wide. Will the economic “base of the pyramid” — the three to four billion people in the developing world who earn under $3,000 per year — feel the pain?

It is estimated that large portions of many developing countries’ GDPs are held in the informal sector. In Nigeria, for example, it is estimated that two-thirds of the country’s economic output takes place outside of any economic and legal regulation. Unfortunately, this means that many people developing countries (90% in Nigeria, for example) have the dubious “advantage” of being unbanked. They draw income, pay expenses, and hold savings in cash and rarely engage with the formal capital markets in any direct way. While they may not be adversely affected by the financial crisis, people in developing countries are affected by other issues, such as the increase in food prices. That cost was up 40% in 2007 alone according to the UN Food and Agricultural Organization and it has effectively lowered the income of millions of people already living without a financial cushion.

The fact remains that an enormous swath of the world’s population has never had access to the wealth-generating power of capital markets that we, until recently, have taken for granted. This should prompt us to consider how we can best help the world’s poor access the wealth-magnifying capacity of well regulated formal financial markets without exposing them to the type of reckless behavior demonstrated by of some of the major American financial institutions in recent years.

Our upcoming Social Enterprise Conference will feature practitioners who have some interesting thoughts to contribute on this topic, especially in the areas of private equity and microfinance. What are your thoughts on how financial institutions can move into emerging markets safely? Please leave your comments.

The International Development Club is involved with projects as diverse as SME (Small and Medium Enterprise) development initiatives in emerging markets, the ongoing evolution of microcredit, and base-of-pyramid inclusive business strategies employed by multinationals. Last year the IDC spun off Microlumbia, the first student-run microfinance fund of its type. The IDC also offers consulting opportunities with enterprises throughout the developing world, a speaker series and an annual Washington DC careers trip.

Photo credit: Shubert Ciencia

Prior to the recent financial crisis, the biggest economic story of 2008 had arguably been the rising cost of oil. After hitting a low of $50.48 a barrel in January 2007, oil prices have spent much of 2008 above $120. When the price of oil reached a historic high of $147.27 on July 11, Goldman Sachs’ prediction that oil would soon rise to $200 a barrel seemed well on its way to coming to fruition.

However, since the peak in mid-July, prices have fallen sharply, reaching $96.36 on Sept. 29. What caused this decline? Will it continue, or will oil prices quickly rebound?

Contrary to what we commonly hear from business commentators, speculators have little impact on the oil market, and storms, like Hurricanes Gustav and Ike, only cause a blip in the data. The fluctuations caused by the current financial crisis are also blips, short-run effects; however, if the crisis causes or reinforces a recession, its impact on oil prices will be more durable.

There are two main causes of the recent drop in oil prices: the global economic slowdown and the rise in value of the U.S. dollar. While the idea of a U.S. recession is something we’re all familiar with, Europe, too, has been dragged down by the recent credit crises, and even China has seen a slowdown in growth. Together, these slowdowns have caused global demand for oil to fall, resulting in lower prices.

Oil’s connection to the dollar stems from the fact that while oil is priced in dollars, most oil-producing countries — Saudi Arabia, Russia, etc. — don’t want dollars but rather other currencies. As the dollar fluctuates, these countries mark the price of oil up or down to preserve the value of their exports in the currencies that matter to them. If the current crisis leads to a drop in the international value of the dollar — which it will do if it leads to less use of the dollar as a reserve currency — we can expect some subsequent increase in the dollar price of oil.

Over the next six to 12 months, I expect the price of oil to fall further than it has. Aside from another war in the Middle East or the Caucasus — both of which are possible — I don’t see any forces on the horizon that will be strong enough to counteract slumping global demand and cause prices to increase. While OPEC will undoubtedly try to stabilize or raise prices by keeping a lid on supply, they are often not very effective in doing so. Only once have they clearly managed to raise the price of oil and hold it there for a while, and that was back in the 1970s in the context of an Arab-Israeli war.

In the long term, however, global demand will rebound, causing oil prices to rise again and eventually surpass their July 2008 highs. The growth of the economies of developing countries will play an important role in this, as early stages of growth are particularly energy-intensive.

Supply, on the other hand, is not likely to increase much. Quite simply, we are not finding much oil. For example, the Tupi field off the coast of Brazil, which was hailed as a giant find when it was discovered, has about 10–20 billion barrels of oil in it. That may sound like a lot, but when you consider that the world consumes about 31 billion barrels every year, it only adds up to six to nine months of global consumption. That certainly doesn’t represent a fundamental increase in supply. Neither would more drilling in the U.S., which would generate finds that are peanuts relative to global or even U.S. demand (which represents one quarter of global demand).

While lower oil prices may seem like a silver lining of the world’s current economic turmoil, we must realize that when we recover, the laws of supply and demand will once again force us to confront the issue of rising oil costs.

All eyes are on emerging markets in Africa. Growth is booming, particularly in Nigeria, where the market cap of the stock exchange has grown an astounding 962 percent since 2003. Starcomms, a Nigerian mobile telecom operator, is part of this growth trend; last summer, we became the first publicly traded telecom company in Nigeria, listing at $750 million.

However, growth comes with inevitable challenges, particularly in the dimension of capital markets and governance. In this capacity, Columbia Business School is playing a strong leadership role. Professors Enrique Arzac and Partha Mohanram recently joined the board of Starcomms and have brought their knowledge and expertise to this African growth story.

In 2001, less than one percent of Nigerians had a phone line — fixed or mobile. Today, about 30 percent of the population has a mobile phone, and that number has the potential to grow to 65 or 70 percent. The emergence of a strong and competitive telecom industry has had a dramatic effect on everyone in this country of 154 million. From the cattle driver who can now call in to hear prices in different markets before deciding where to move his herd to the businessman who can now access the Internet from the field, mobile telecom is quickly transforming the way business operates in Africa.

Starcomms is Nigeria’s market leader in CDMA service and its fourth overall telecom provider. We have grown from 2,000 subscribers in 2002 to nearly two million today. As the industry itself moves to a newer, more internationally competitive phase, our advantage is our human capital, which has only grown stronger with our newly expanded board. Professors Arzac and Mohanram bring us critical and unique expertise in managing a publicly listed organization and ensuring that international best practices are brought to Nigeria. Prof. Arzac brings the experienced eye of a global financier, while Prof. Mohanram brings acute accounting knowledge to bear. The complexity of being the first listed telecom and the associated governance issues make their insight crucial. Their experience with the telecom industry in countries like Argentina and India allow them to help us blend the ideal with the practical.

In the big picture, telecom is a macroeconomic driver; it’s a multiplier and, along with the financial industry, it is helping the Nigerian economy diversify and move away from traditional dependence on oil and gas. Telecom operators have invested billions over the last six years and are reaping rewards throughout the system.

The industry’s development mirrors the wider African surge. As a continent, sub-Saharan Africa is growing at around nine percent according to the International Monetary Fund. The traditional, western view of African business was only that of the “microfinance” paradigm. However, western businesses have finally come to realize that Africa has many well-run, sophisticated small to mid-cap businesses (by U.S. standards) that need direction in the crucial area of governance, over and above their need for structured capital.

By 2010, the Nigerian government expects the country to rank among the top 20 industrialized economies and double its GDP to $300 billion. With increased human capital and continued growth of telecom companies such as Starcomms, business in Nigeria will continue to transform both the country and the continent.

The U.S. government, faced with the country’s worst financial crisis since the 1930s, has announced a $700 billion plan to purchase bad mortgage assets from banks. Is this a good bailout or a bad one? The difference is important, because history shows us that bad bailouts can actually make financial crises worse.

The Japanese government’s handling of its massive bank crisis in the 1990s is an example of bad bailout policy. At first, the Japanese government ignored the problem it was facing, then it decided not to enforce its own rules requiring sufficient bank capital (“forbearance”), then it began investing government funds into insolvent banks through preferred stock and subordinated debt. This caused the crisis to only grow larger, which contributed greatly to Japan’s poor economic performance during the 1990s and for several years thereafter.

A good bailout focuses on liquidity. The government acts appropriately when it helps institutions with liquidity at a time of crisis by lending against collateral or by purchasing bank assets at fair market prices. A bad bailout is one that tries to help with solvency. The government acts badly when it invests money directly into failing banks without closing them. If a bank — even if there is more than one — is actually insolvent (i.e. its liabilities exceed the value of their assets), then best practice dictates that it should be closed.

Closing a bank is less draconian than it sounds. A closed bank is not simply blown up or thrown away; on the contrary, every effort is made to preserve the bank’s franchise value and maintain continuity with customers and employees. Normally, the government cleanses the bank of its bad assets after closure and transfers the cleaned-up business to new owners as rapidly as possible.

Good bailouts wipe out the shareholders of insolvent banks and dismiss their senior management. Why? Because these are the people who created the problem, and they must be seen to pay a high price. Remember that most banks are conservative, well-run and solvent; only a minority get over-extended.

The problem with the Japanese banks in the 1990s was not just the bubble economy of the 1980s but a continuing unwillingness by banks and the government to acknowledge bad lending practices and change them. A few banks were eventually closed; however, one of these names, Long-Term Credit Bank, eventually became Japan’s greatest banking success after it was closed and sold to an American buyout fund, which resurrected it under the name Shinsei Bank.

From 1986-1992, the FDIC closed over 2,300 banks and thrifts. The Resolution Trust Corporation (RTC) was established to move the bad real estate assets back into the economy as promptly as possible. The RTC, much admired for its speed and efficiency, did not try to buoy up failing banks; it handled their assets after the failing banks were closed.

So is the current administration plan a good bailout or a bad one? At this point the proposal is written in a very general way, and the devil is always in the details. The test will be whether the government plans to buy assets at something resembling their fair market value.

Suppose a bank has made a $10 million loan that is actually worth about $6 million. If the government buys the loan at $6 million, then it is providing liquidity assistance, which is fine. But if the government buys the bad loan for $10 million, it is in essence giving the bank a $4 million gift. Handing out gifts to misbehaving banks is characteristic of a very expensive, bad bailout.

Secretary Paulson has spoken of buying the bad assets at a deep discount, but this is not written into his proposal. It should be a requirement. That would minimize the ultimate cost to the U.S. taxpayers and increase the chances that this bailout is a good one.

Paraguay is at a turning point. Our new president, Fernando Lugo, was elected into office last spring, and his government’s economic plan and social approach are aimed at promoting development and reducing poverty. We have gross inequality in this country and more than 25 percent of our population lives in extreme poverty.

Last month, Columbia’s Professor Joseph Stiglitz was invited to advise the new government on how to reach these social and development goals. He recommended that Paraguay increase its revenues on all fronts. In particular, he suggested the country increase its revenues from the two bi-national hydroelectric dams, Yacyretá, shared with Argentina, and Itaipu, shared with Brazil. His speech received a standing ovation.

As the chief financial officer for Yacyretá Paraguay, I am in charge of negotiating the payments we receive from Argentina. We have approximately 1,400 full time employees and 600 others on a contract basis, and our current budget is about $100 million in operating expenses and $1.2 billion in investments to finish the dam in 2009.

We must increase our revenue from both Itaipu and Yacyretá to revert the years of unfair payments for the energy Paraguay has produced. For example, we are selling our energy to Brazil at the same price as a cup of coffee in Uris Deli ($2.67 for each megawatt hour sold to Electrobrás). However, the average price of energy in Brazil is $90 per megawatt hour in the wholesale market and $154.12 in retail. Clearly, we need to renegotiate a fair price.

I recently visited Panama, a country similar to Paraguay in many respects. On a trip to the Panama Canal, I was surprised by the huge economic growth of the country, which recovered its main revenue resource fully in 2000. The Canal contributes $1.5 billion annually to their economy. In the case of Paraguay, a newly negotiated solution for these dams can bring in much-needed revenue for our country; we can use that money to finance investments in education, healthcare, land reform and create more jobs.

We expect resistance from different sectors, especially those that will be affected by tax increases and land reform. But as a country with one of the largest inequalities in the world, Paraguay’s support of a well-reputed expert in the field like Prof. Stiglitz facilitates implementation of these measures. Our hope is that it will bring us to a solution before we have a crisis, and help us make an important change for the country.

This the final stop on the “Pre-MBA World Tour,” organized by John Shoaf '10 and members of the class of 2010.

At 5:30 a.m., we arrived on the market floor in time for the opening bell, which, to be precise, is an old-fashioned hand bell, rung by an auctioneer standing on a small stool.

We were at Tokyo’s famous Tsukiji Fish Market, perhaps one of the few places in a developed country where business is transacted quickly and efficiently without the aid of technology.

Every day before dawn, frozen tuna of all sizes arrive at the market and are spread across the floor of a warehouse. Buyers called “middlemen,” who wear special numbered hats, inspect each fish and take notes on quality, internally calculating value.

The auction commences as the auctioneer calls out the number painted in red ink on each fish and announces the opening bid. The middlemen use a gesture called “Teyari” to inform the auctioneer of their respective bids. The final price of each fish takes merely seconds to determine.

After each lot of fish is auctioned, assistants arrive with hand-pulled wooden carts. The fish are loaded onto the carts and moved to a nearby stall in the market for processing. The fish are then cut, packed and shipped to retail establishments around Japan.

Japan’s Central Wholesale Market Law of 1923 laid the groundwork for the country’s wholesale market system. Unique in the world, the law requires that prices be fixed on the basis of an auction regardless of the quantity of goods involved in the transaction. The law restricts transactions in the markets in order to maintain impartiality. According to the Tokyo Metropolitan Government, the role of the Central Warehouse Market is to stand between producers and consumers, promote the smooth distribution of perishables and contribute to a stabilized diet through fair and speedy transactions between wholesalers and jobbers in clean and functional facilities.

It was refreshing to see that there still exists a public market built solely on human-to-human interaction. While technology has certainly changed business for the better, we on the Pre-MBA World Tour were reminded that business is fundamentally about people and, very often, speed to market. When participants in a transaction meet face-to-face, a personal bond forms and a sense of trust emerges. People, unlike machines, can exhibit raw emotion, feelings and perspectives, allowing us to adapt to our surroundings and strategically intuit things that machines are incapable of comprehending.

All this begs the question, what might technology-reliant markets learn from the human-to-human model? Some insight can be gleaned from specialist-style auction markets, such as the floor of the New York Stock Exchange. These markets allow for the personal interaction and expert judgment that is often cited by proponents as helping to maintain orderly markets, especially under extraordinary conditions. Most importantly, technology-reliant markets should learn that technology exists in order to aid people, not the other way around.

As we increasingly rely on technology to put business practices into effect, how can we retain the best elements of human-based systems in order to sustain optimal efficiency? In our zeal for acquiring newer and faster technologies, are we also losing something?

Some large American companies may begin using international accounting standards, perhaps as soon as next year. The move comes after the Securities and Exchange Commission voted last week to propose a “road map” for the conversion to international accounting rules. The decision could require all American companies to be on board by 2016.

The SEC’s vote pushes the global business community toward a single set of standards, which could make it easier for investors to compare international companies and make it easier for firms to raise capital.

“Chairman Cox and the commissioners should be congratulated on this bold but appropriate move,” said Professor Trevor Harris, whose research focuses on U.S. and international accounting practices. “The move will be beneficial for investors and corporations as the IFRS are sufficient and of a high quality and we will be more aligned with the rest of the world.”

However, there are concerns about how easily American companies can learn the new rules and the how uniformly the rules will be applied.

“While there are some who will try to denigrate the move, research I did in the mid-1990s indicated for practical purposes the IAS was good enough even then,” said Harris. “This move was in many ways overdue.”

Professor Frank Edwards is the faculty chairman of the Corporate Governance Committee and created the new corporate governance module that is part of the revised CBS core curriculum.

There is no more basic question in corporate governance than “who gets to decide.” We are moving away from a world where shareholders are small, passive investors to a world where investors hold sizeable positions in companies and want to be heard on vital corporate decisions.

There is a growing movement to give shareholders — especially institutional investors and substantial block-holders such as private equity firms — a larger role in corporate governance. In recent years, we have seen large individual activist shareholders, such as Carl Icahn and Warren Buffett, influence companies’ policies and strategies; activist hedge funds, private equity funds and union and public pension funds have successfully persuaded or forced changes upon recalcitrant managers.

But moving away from the traditional director-primary model raises the fundamental issue of what powers should shareholders have. Will more shareholder involvement disrupt the very mechanism that makes the public corporation practical, which is the centralizing power in the board of directors?

One controversial area is the adoption of majority voting standards. In the United States, the traditional way of electing directors has been by plurality voting in which directors typically are elected if they receive one or more shareholder votes in favor. Shareholders are now demanding that the plurality system be replaced by a majority vote rule, a system used in many other countries, including the United Kingdom. Some American firms have already voluntarily instituted some form of majority voting, while many others are resisting this change.

Another area of controversy is whether or not advisory or even binding shareholder “say-on-pay” resolutions should be permitted. The law in the U.S. specifies that even shareholder resolutions receiving a majority vote are nonbinding on the board. In the past, even shareholder advisory votes on executive compensation plans have not been permitted under SEC regulations. This has changed and evolved into a new, more profound issue: should a wider range of shareholder resolutions be permitted and should those receiving a majority vote be binding on the board?

Lastly, some shareholders want the right to propose resolutions pertaining to corporate social-issue policies. Resolutions on the emission of greenhouse gases, effects of climate change on less developed countries, research on renewable energy sources and national healthcare programs have all been proposed by shareholders.

In the future, managers will have to balance shareholder involvement with the practical considerations of running a company efficiently. Understanding what good corporate governance practices are and how these can contribute to the success of a company will help mangers find the optimal balance between these competing considerations. The goal of introducing corporate governance into the CBS core is to lay a strong foundation to help future MBA managers decide these issues and to manage successfully.

Photo credit: Daniel Martini

As part of an ongoing series, the Wall Street Journal asked top political and business leaders how they would spend $10 billion to create solutions for some of the world’s problems. Sidney Taurel ’71, chairman of Eli Lilly & Co., expressed his wish list in an op-ed in Monday’s paper.

“I would invest half of the $10 billion in comprehensive treatment programs that could be sustained by the countries with high incidence of [malaria, tuberculosis and HIV/AIDS], and which have leaders committed to long-term solutions,” Taurel writes. “I would use the remaining half of the $10 billion to foster investment in research, and I’d leverage it as I would the treatment programs — by working to make it sustainable.”

What problem would you tackle — and how much would you spend — to make significant progress solving a global crisis? Please add your comments.

Yesterday I suited up in my shalwar kameez and GreenMango uniform and joined my team for their daily fieldwork. As we made our way through the slow moving Hyderabad traffic, someone started a discussion on marriage. And then one of my female staff members, who often goes to temple, said, “Actually, madam, we are also praying for you that you will have a marriage!” We all had a good laugh.

When I decided to move to Hyderabad, India, I knew I would not exactly be the norm. I would be a single, Caucasian woman running an internet business for low-income clients. If anything, I figured I would stand out because I wasn’t Indian or because I wasn’t from Hyderabad.

In fact, it’s being a female entrepreneur that makes me an anomaly. Some 95 percent of the meetings I have in a given week are with businessmen, nearly all of our company investors are businessmen and my most trusted advisers are businessmen.

When my business partner (another woman) and I went for our legal incorporation in Hyderabad, our lawyers kept asking for our fathers’ and husbands’ signatures. This would not be possible, we explained. This started a long line of questioning and a lot of laughter as to why a single woman would start a business. One of my most memorable experiences in this regard came when I tried to get a wifi internet card from Tata Indicom. As I was applying, the staff kept asking me funny questions about my living situation, for example: Did I stay with someone?, Where did my family stay?, etc.

When they finally learned that I lived alone and did not have a husband, they triumphantly proclaimed, “Ma’am, you will need to fill special application. This is the spinster application!”

Of course, the irony of all of this is that women in India and Indian women around the world are incredibly accomplished. At the highest levels, you see amazing women as leaders in business, politics, law, medicine, science and academia. So, I wonder why do I not encounter these women more often? Are there too few of them? Are they only at the huge corporations, but not in the small and medium businesses that I interact with? Are they not in my sector? Are they not in my city?

Perhaps after a few more years here, I’ll understand. But at the end of the day, I’m not too bothered and recognize that all I have to do is accept the reality and move forward. Sometimes standing out disadvantages you. Sometimes it helps. At this point, my primary focus is making my business a success, regardless of the roadblocks or how I am perceived.

I devote much more energy to thinking about how to build a company that creates opportunities for my clients (both male and female business owners) to succeed. It is a task that is easier said than done, especially given the divisional realities I’ve observed: Having spent less time in the public sphere, women tend to have less local knowledge, such as where to go for certain goods, who to contact for certain services. Women and men come into GreenMango with very different salary histories, which seems only partially due to their work experience levels. As we build up our team, there are certain positions where I know a man would be more traditionally suitable. And I also know that the way I handle hiring decisions is what impacts whether or not women like me will continue to be anomalies in Hyderabad.

Adapted from remarks delivered at the Kikkoman conference, “The Economics of Green: Finding a Balance between Economic Growth and the Environment,” hosted in honor of the 35th anniversary of Kikkoman’s opening of its plant in Walworth, Wisc. — the first manufacturing plant of a Japanese company in the United States.

The challenges of climate change have inspired myriad debates about how best to arrive at an appropriate solution. Within these debates, many wonder: Who is ideally suited to spearhead the charge?

We’ve already seen that, despite public policy foot-dragging, the business community has played a very constructive role in working to solve the problems caused by global climate change. And I believe that in the future, it should be business leaders who shape the proposals currently debated in the political process.

The demands of globalization have long motivated the business community to develop creative solutions to multifaceted problems.

In 1972, Yuzaburo Mogi ’61, chairman and CEO of Kikkoman Corporation, made Kikkoman the first Japanese company to open a manufacturing plant in the United States, an accomplishment that has proven its worth by withstanding the test of time.

Kikkoman has maintained positive relationships with the surrounding community in Wisconsin, and paved the way for other foreign transplants.

Today, the company is a model of corporate citizenship at every level — from the local to the global.

Mogi recently announced that Kikkoman will sponsor an Environmental Studies Scholarship in cooperation with the University of Wisconsin-Madison, and this fall will open a research and development laboratory in Madison’s University Research Park.

This is the kind of active partnering and collaboration that will be the key to delivering workable and sustainable answers to the potentially crippling environmental challenges we face.

As we move forward, the United States should lead and take action early in the mission of environmental stewardship, while encouraging and regularly reviewing the actions of other key nations. The work of the global community needs to be coordinated to address the seriousness of the problem — and it is possible to do this while protecting U.S. economic interests.

A new report from the Urban Land Institute puts the world’s aging population as the most dramatic demographic trend. By 2030, one-eighth of the world’s population will be over 65 years old.

In the United States, the aging of baby boomers and the “coming of age” of echo boomers will lead to a dramatic increase in single-person households, driving demand for more multifamily housing in both retirement and workforce categories.

“Working with demographics, rather than against them, reduces development risk and is likely to enhance returns,” said M. Leanne Lachman, co-author of the report and executive in residence for the Milstein Center for Real Estate. “Therefore, the report’s emphasis on real estate demand has broad applicability for both investors and developers.”

Lachman, who is president of Lachman Associates, LLC, co-authored the report “Global Demographics 2008: Shaping Real Estate’s Future” with Deborah L. Brett.

The report also points out that by 2015, seven of the world’s ten largest urban agglomerations will be on the Asian continent and will be home to more than 15 million people each: Tokyo, Mumbai, Delhi, Shanghai, Kolkata, Dhaka and Jakarta. By 2030, Indonesia’s urbanization will approach that of Japan.

The report also notes that Europe’s share of the world’s population will drop from 11 percent to 8 percent by 2030, as the population shrinks by 40 million. One of a few exceptions is the United Kingdom, which will see an increase in population of nine percent, due to immigration. Low fertility rates throughout the continent will add to labor shortages and by 2030, if trends continue, Europe will have 59 dependents for every 41 working-age residents, the report notes.

In contrast, Africa and the Middle East currently have more than 17 percent of the world’s population, but this will expand to 22 percent by 2030.

Photo Credit: Holland Partners

Yasmina McCarty ’08, a graduate of the EMBA-Global program, was a recipient of the Cartier Women’s Initiative Award last year in recognition of GreenMango, a company she developed with business partner Nandini Pandhi.

On May 31st, my business partner Nandini and I got the call we had been waiting for all month. It was from Echoing Green, an organization that provides seed funding and support to social entrepreneurs with “bold ideas for social change.” This year the fellowship had been ridiculously competitive, with nearly 1,500 organizations applying for just 20 available spots. When we learned we were one of the lucky 20, irrepressible smiles rose to our faces and we danced for joy around the apartment. It was an honor to be included with such an inspirational group of individuals.

But what exactly is a social enterprise? And how are we delivering on our bold idea for social change?

Last Saturday, I had my weekly conference call with a top strategy consulting firm that generously donates their time to support GreenMango. While we were talking about GreenMango’s revenue model and customer segmentation, our consultant realized exactly how “bottom of the pyramid” GreenMango is.

“Yasmina,” he said, “why on earth are you focusing on these businesses making a few dollars a day? Have you come here to run a business or do some charitable work? Creating a viable business with this customer segment is damn difficult. Damn difficult. And I’m really not sure you can pull it off.”

Indeed, building a social enterprise is one of the toughest things I have embarked on yet. And of course, it’s not just me who finds this challenging. McKinsey’s recent global survey of 4,000 executives in 116 countries found that 84 percent embrace the idea that a corporation has some social role in addition to its responsibilities to its shareholders. Just three percent of these executives think they are doing a good job delivering this social aspect.

Our vision is to build an organization that delivers financial returns to its investors, provides a positive workplace for its employees and increases the income of millions of low-income entrepreneurs. The customer element is a challenge but to me, tenable; it’s the core of our business. There are millions of informal entrepreneurs in developing countries — carpenters, tailors, electricians, plumbers, mechanics, embroiderers — who struggle to grow their businesses because they are invisible. GreenMango is an affordable marketing platform for them to promote their business and find new customers locally.

Now add in the benefits for our employees. We are operating in India, where staff turnover last year was 40 percent (i.e., nearly half of the country changed jobs). To counter that, we have built a dynamic environment: we spend for staff development and training and have clear career paths. We invest into our employees not only because it’s good for them, but also because it’s good for us. Year to date, we have had zero percent attrition.

Finally, we come to the third tenant of our vision: Delivering an excellent ROI for our investors. Our model is generating revenues but in order to succeed, we must deliver a high level of profits quarter after quarter.

Only time will tell if we can pull off all three elements of our plan.

In the end, of course, there is no clear definition of a social enterprise. And the longer I work at building GreenMango, the more I believe it is just the sum of the many small decisions I take every day. To what lengths will I go to ensure our employees are taken care of? How far will I challenge our team to find ways to serve the poor and semiliterate? How far will we push ourselves to find a revenue model that works at the bottom of the pyramid but delivers topline profits to our investors?

At our EMBA Global graduation, we were challenged and inspired with this quotation from George Bernard Shaw: “The reasonable man adapts to the world. The unreasonable man adapts the world to himself. Therefore progress rests upon the unreasonable man.”

This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010 with professional, cultural and social objectives. Over the course of nine weeks, the Tour will be visiting 24 major cities throughout Europe, the Middle East, Asia and South America, meeting with prominent alumni and business leaders.

Traveling through Thailand, Malaysia and Singapore this week, we had the opportunity to visit with the senior-most executives of several different types of institutions and discuss the challenges of competing in a global industry — and within the emerging markets.

After meeting with the executives of some major financial institutions, we started to reflect on the contrasting strategies of regional and global entities. For example, how must the perspectives differ between OCBC (a regional bank in Singapore) and Citi (the ubiquitous giant in global banking)?

Any successful organization requires growth in order to stay competitive, but how does a comparatively small company like OCBC continue to grow if it has a limited domestic market? The obvious answer seems to be that it must look outside its own country and consider entering new markets, and particularly emerging markets.

It may sound simple, but the problem is that entering a new market can require the company to stomach years of losses and investment — anywhere from 3 to 15 years.

This means that only companies able to subsidize these unprofitable years will be able to sustain themselves. These are typically either large companies with large domestic markets (such as Citi) or companies backed by another large institution (such as a sovereign wealth fund). A firm with a small domestic market of, say, four million people is not able to sustain such losses, and the investment may not provide value to shareholders in the short run.

But the real problem is this: if the target market is not large enough to give ample returns on this investment (in countries such as Vietnam or Cambodia, for example), there may not be sufficient returns in the long run, either. The payback period is simply too long.

So how can a regional player compete in a globalizing industry? Perhaps the best way is to specialize, catering to the local market and focusing on profitability and efficiency rather than top-line growth. This would make the company an attractive acquisition target for a global player with a larger domestic market (such as Citi) that can grow through acquisitions, rather than organic growth. This in effect shortens the learning curve and increases the company’s ROI.

This leaves two questions: First, does it make sense for a regional bank apply a similar strategy to compete in emerging markets? And second, with local expertise, can a regional bank be more effective in servicing its customers than a global bank?

The challenges of global expansion are complex and the appropriate solution will differ with each unique institution. Our trip to Singapore gave us a valuable lesson, pushing us to consider the variations in strategy among firms with different sets of resources and at times, different goals.

Asia especially has exploded with economic growth and opportunity in recent years, in turn creating a great need for leadership skills in business.

In light of this and the ever-growing importance of Asia in the world economy, I am pleased to announce the launch of EMBA-Global Asia, a new addition to Columbia Business School and London Business School’s highly successful, top-ranked EMBA-Global program.

CBS and LBS are extending our fruitful partnership to include the University of Hong Kong’s Business School in order to create the first and only program to offer business education and networking opportunities in the world’s three leading financial centers: New York, London and Hong Kong, as well as in the hub of China’s most dynamic city, Shanghai. The first EMBA-Global Asia class will matriculate in May 2009. Students who complete the 20 months of intensive work will receive a joint MBA degree awarded by the University of Hong Kong, Columbia University and London Business School.

The greatest companies in the world became more productive by having managers and entrepreneurs who knew how to integrate groundbreaking ideas with sound business principles and the best available technology. With this program, Columbia Business School will continue its long tradition of teaching these ideas to the world’s future business leaders.

I cover 22 countries, and of course, every market has some differences. For me, the most important thing about working internationally is to be flexible: Respect the people and the differences between countries and cultures, and adapt to each country’s way of doing business, rather than expecting the country to adapt to you. Spend time understanding the local market and getting to know the people, and then you can become effective.

A common mistake some people make is thinking that because they know the language they can do business in that country. Language, although relevant, is not the critical ingredient. Many other things are even more critical, such as understanding the legal system, the key players and what moves the country or its people.

I think it’s important to keep learning. I was only at CBS for two years but the experience gave me a new perspective on international business. Since then, I’ve benefited from interacting with people from various industries and backgrounds, and the people I’ve met through CBS’s Alumni Club of Mexico have played a big part in expanding my world.

I’ve always thought that what happens at universities is important and that business education should not be confined to the two years you pursue your MBA. In business, it’s easy to get so focused on what’s going on around you that it’s easy to lose track of other things. That’s why it’s refreshing to hear about other methods and practices, including ideas from the world of academia, and then to try to apply some of those ideas to my work.

Jose Maria Uriquiza Gonzalez is the club leader of the Alumni Club of Mexico.

The first bit of advice is to really try to understand the Chinese culture and how the Chinese people think. It’s easy for Americans to be very optimistic and wanting to share their success, methodology and ideology, because they have had 200 years of amazing success and prosperity.

China, on the other hand, has been a disaster for the last 200 years. So the Chinese people tend to be very concerned about things — even paranoid. They might be concerned about foreigners, who haven’t generally done good things to China over the past 200 years, or worried over the increased connectivity of the world. They want to build stability and sustain it.

The Chinese people have a strong sense of their culture and country, and they do spend time learning different ways of thinking. It’s an amazing, enriching experience for someone to learn to see things from different perspectives.

The second bit of advice is this: Don’t change too rapidly. In any career change, it’s sort of like rock climbing: You have four limbs, but you never move two limbs out in the air; you always keep three limbs attached to the rock and just move the fourth one so you don’t fall.

So as you think about a career change, don’t think about the dramatic jump. If you were previously in an American media company, don’t jump directly into a small Internet start-up in China, where the employees don’t speak English. Instead, think about going to a multinational American company that is trying to set up shop in the media, then move into a multinational Internet company, then move into a Chinese company and take a few years to get accustomed. I think that would be much better for your career than to take a quantum leap.

The third thing to keep in mind is that China is an amazing, fast-paced place; make sure you are ready for that. Everything is moving at a thousand miles an hour. There are good things about decisiveness, about deals being made very quickly, about people’s desire for success, but there are also challenges: people or companies trying to cut corners, things being done in very strange and potentially questionable ways, people eager for success who make decisions that are maybe good for the short term but bad for the long term.

But regardless of the good and bad, it’s incredibly fast-paced. If you feel you’re ready to work really hard and get accustomed to such an environment, then China is the place for you.

Image credit: Steve Webel

This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010.

When most people think about the growing economy in India, their first thought probably relates to BPO (business process outsourcing). The BPO phenomenon in India was due to, among other things, a combination of low wages, a highly skilled labor force and the economic-liberalization policy of 1991. This scenario created a large flow of foreign direct investment into India’s IT and communications infrastructure during the tech boom of the late 1990s.

Although BPO has been a driver of India’s recent economic development (by putting India on the radar of investors around the world), the future of India’s emerging economy will likely be elsewhere. If you’re looking for the next wave of growth and opportunity in India, consider the new rising middle class of nearly 300 million people.

Because of the prevalent family-business model in India, much of this middle-market growth will likely come from privately held enterprises (rather than public companies) — so if you’re simply pumping cash into an ETF, you might just end up in a few, highly speculative investments. The best way to really capitalize on this opportunity will be to actively participate in the emerging economic system. Of course, this is always easier said than done.

So how do you become a competitive player in a new market with a total population of 1.2 billion people? The first step is to realize that India is an extremely diverse country with hundreds of languages, religions and ethnicities. Each of the 28 states (and seven union territories) in India has its own unique culture (and subcultures) that must be considered when developing marketing and distribution strategies.

It will be critical to understand not only the Indian psyche but also what physical and political constraints exist to get your products to market.

For example, in certain regions the postal system is not effective, because many residences don’t have accurate mailing addresses. So to reach their customers, many companies deliver mail, advertisements and warranty information through SMS text messaging. Even in Mumbai, I had a rickshaw driver explain how he checks his Facebook account and asks for driving directions through his mobile phone.

The other important consideration is learning how to deal with the political bureaucracy. Last week our tour stopped in Dubai, where it typically takes about six months to get a project through the planning stage. In Mumbai, a certain infamous flyover project has been in the planning phase for more than five years.

Stay tuned for our second blog post from India, as we plan to learn more about economic development and how to facilitate ethical business practices in a market where political corruption is an everyday fact of life.

Next stop: New Delhi

After the deregulation of the Reagan and Thatcher eras, corporations did not become ethically focused overnight. So how can we account for this?

What I’ve found is that there’s been a shift in corporations’s mindset about the relation between high ethical standards and the bottom line, which might best be understood as “enlightened self-interest.”

Corporations now see that a narrow understanding of self-interest is going to hurt them in the long run. Thanks to globalization, corporations have had to make significant ethical decisions. For example, when expanding into regions of the world where there is little corporate governance legislation (or where it’s not implemented), U.S. corporations face the question: “Should we operate according to U.S. standards, or should we take advantage of the fact that this country’s standards are lower than ours?”

Corporations have learned that operating according to the bare-minimum ethical standard does not serve them well in terms of both public image and bottom line. Quite a few corporations had to contend with consumer backlash, boycotts and significant declines in sales thanks to NGOs who called attention to subpar practices relating to labor and the environment.

The capital markets have also provided incentives for corporations to behave responsibly. Roughly 10 percent of all professionally managed funds are explicitly designated as socially responsible investment funds with prominent environmental, social or ethical components — and this does not include the many other funds, such as University endowments, that also take these aspects seriously. It is therefore reasonable to say that approximately 25 percent of all professionally managed money has some socially responsible component attached to it.

The bottom line is that companies have learned that abiding by a narrow understanding of self-interest is going to hurt them in the long run. And we’ve seen evidence of how ethical behavior is good for the health of organizations of all sizes, across all industries — particularly those that sell directly to consumers. Risk reduction, lower employee turnover, cost savings, increased profits and stability in the stock market are just some of the benefits companies have experienced by taking CSR seriously.

It’s becoming clear to both corporations and their consumers that we all affect one another, and in some ways, we all depend on one another.

When I enrolled at CBS, just across town from where I’d been living and working for the past four years, I had no idea that I’d have such a global experience right in my own backyard — or how that would help me see how important an international perspective is to succeeding in business.

I think it first hit me during orientation, when I met my learning team. A learning team is an assigned group of four classmates — mine consisted of people from Taiwan, Mexico, Thailand and the United States (though my fellow American had spent most of his life in England).

Not only did we work hard together, we also got to know one another as friends. We planned bimonthly dinners at restaurants that represented our respective cultures. We had meals at Thai and Mexican restaurants, savored homecooked Taiwanese food and Southern fried chicken, and (my contribution) had brunch — the quintessential Manhattan meal.

The globalness of my class manifested itself everywhere. My 66-person cluster alone represented 20 countries, and I’d daily hear classmates speaking to each other in Chinese, Spanish or German.

On a few occasions, heated debates arose, and I’d hear firsthand about economics in Argentina or trade policies in China and Taiwan or organizational leadership in African oil fields — all from classmates who’d been there. In some ways, it felt like we were living and studying within a mini-UN, able to challenge each other, debate issues and discuss topics within a multicultural context.

It was at these moments that I realized the importance of going beyond my familiar environment. I’ve learned that in tackling business issues, you have to be able to incorporate ideas and opinions that are beyond your own established beliefs about how things should be done in order to avoid stagnation.

I’ve been able to experience this concept on a personal level as well. Just as it’s easy to fall into established modes of doing business within an organization, it’s easy to fall into a blinding routine where you live. Having classmates so eager to explore the city has catalyzed my interest in immersing myself in the city’s offerings and I feel like I’m now experiencing my home environment with new eyes.

Observing my friends’ experiences of international discovery this past year has also made me eager to experience the same for myself — so I have decided to spend the fall semester at London Business School. I’m excited to have the chance to study business and management within a foreign setting and to expose myself to the methodologies, structures and worldviews of another global financial capital.

I’ll be back to blog from London this fall.

This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010.

Dubai is clearly one of the fastest-growing cities in the world. Just compare a satellite image of five years ago with that of today. What was once a small desert city along the gulf coast is quickly becoming a large metropolis with miles of skyline and hundreds of man-made islands emerging from the Arabian Gulf.

What is most fascinating about this rapid growth is that it’s not based on slow economic progression. It’s based on the decision of a single ruler who has realized that the emirate’s oil reserves may be gone someday and he needs to diversify the framework of his economy . . . and quickly.

To understand what is happening in Dubai, simply take a blank sheet of paper and use your imagination to design a brand-new city that would rival any of the world’s largest — including New York, Los Angeles or London. And then, find a way to build it within 10 years.

In Sheikh Mohammed bin Rashid Al Maktoum’s design, he subdivided the city into several economic free zones intended to be the world’s hub for nearly every major industry. Some of these zones are designed for the services sector (e.g., Media City, Internet City, International Financial Center, etc.), while others are designed for education and liberal arts (Knowledge City, etc.).

Another important component of Sheikh Mohammed’s plan was to establish Dubai as the most visited tourist destination in the world. In order to attract tourists, he commissioned several iconic attractions (such as the World, the Palm Islands and the Burj Dubai) that would give tourism magnets such as the pyramids or the Eiffel Tower a run for their money.

Right now the population in Dubai is nearly 1.5 million (and it’s estimated that only 15 percent are actually Emirati citizens), and there are hotels and housing developments being built with an expectation for more rapid growth.

The obvious question is: If you build it, will they come?

Fortunately, much of this investment seems to be trickling down into every level of the emerging market economy, and everyone in the system seems to be making a lot of money. This new land of opportunity is creating such a huge demand for jobs and materials that it’s attracting top talent and capital investment from all around the world.

The other important component of this economic plan is that the large sovereign wealth funds and government agencies have two bottom lines: profit and GDP growth. From what we can tell from visiting with several of these organizations, Dubai is probably experiencing a real estate bubble, but it is still on a fast track to becoming one of the most fascinating and diverse cities in the world.

Next Stop: Mumbai

Photo Credit: .EVO.

• Drastic cuts of the discount rate;
• dramatic reductions of the target Fed funds rate;
• setting up special liquidity facilities, which allow banks to tap into the Fed’s balance sheet to acquire term funding; and
• opening up the discount window to investment banks and dealers.

While these actions have helped to calm the markets, two structural problems remain: excess housing stock and banks’ uncertainty about the subprime exposures of other banks. These problems have contributed to elevated levels of LIBOR.

How will turmoil in global money markets affect the world economy? And what can central banks do to prevent a future credit crunch?

These questions were the focus of a research conference held May 29-30 at the Federal Reserve Bank of New York and cosponsored by CBS.

The conference was attended by more than 100 participants from academia, central banks, hedge funds, investment banks, rating agencies and regulators. Opening remarks were delivered by Timothy Geithner, president of the Federal Reserve Bank of New York. Dean Glenn Hubbard and Donald Kohn, vice chairman of the Board of Governors of the Federal Reserve System, delivered keynote speeches and offered policy perspectives for the road ahead.

Hubbard noted how the evolving credit crunch has placed the relationship between capital and liquidity into sharp relief. After reviewing the actions taken by the Fed, Hubbard noted that moral hazard is a risk of prompt central bank action in providing extraordinary liquidity support, especially in the present U.S. context. He also noted that the time for economy and accumulation of capital and liquidity is during “good states” before the crisis arrives. Finally, he added that the regulatory policymakers should carefully think through the links between capital and liquidity.

Many participants in the conference noted that the actions of the Fed might induce moral hazard and encourage risk-taking behavior in the future. The opening of the Fed’s discount window to investment banks came under considerable debate, given the excessive leverage and risk-taking behavior of the investment banks.

The Fed-assisted takeover of Bear Stearns by JPMorgan was also the subject of considerable discussion. The consensus was that the actions of the Fed saved deadweight costs associated with the potential bankruptcy of Bear Stearns but might have encouraged risk taking in the future.

The conference ended with a panel discussion of the credit crunch. One consensus was that securitization will now focus on core constituencies with standardized collateral, and highly customized securitized products will not find risk capital in the near future. Participants noted that the elevated levels of LIBOR indicate that the crisis is not over yet.

The gap between rich and poor has widened in America over the past few decades. And we’re getting increasingly better evidence that technology is one of the main culprits.

In the computerized workplace of the 21st century, skills and education are becoming ever more valuable, and those that don’t keep up with this technological revolution are left on the wrong side of the so-called digital divide. That’s the rationale behind government subsidies for computers and all sorts of corporate-giving programs focused on computer education. But anyone who has witnessed the gaming power of the modern PC is surely aware that these machines won’t necessarily be used for educational purposes if placed in the hands of an easily distracted teenager.

This is the topic of this month’s Slate column, where I report on the results of a study by Cristian Pop-Eleches, my colleague in Columbia’s economics department. Pop-Eleches and his coauthor, Ofer Malamud, find that distraction won out over more studious pursuits when unchaperoned kids were given subsidized computers by the Romanian government.

Obviously, this hadn’t been the government’s intention in designing the program (nor is this the intent of the host of other efforts that similarly focus on providing poor kids with computer access). The Romanian experience with computer subsidies also serves as an object lesson on the importance of having mechanisms in place for evaluating the impact of social programs, whether they originate in government or through corporate philanthropy.

I’m hoping that companies whose philanthropic activities focus on computer education will pay attention to Pop-Eleches’s study in designing their programs, and more broadly, I hope that companies become as serious about measuring the impact of their philanthropic pursuits as they are about tracking profits and losses.

This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010.

This week the Pre-MBA World Tour traveled to Istanbul in order to better understand the current business environment in Turkey and to see what types of opportunities might be available to CBS students and alumni during the next decade.

Before arriving, we knew that (as the song goes) Istanbul was once Constantinople. But we didn’t know that Turkey is currently undergoing a significant social, economical and political transition. And somewhere in these winds of change lie several interesting opportunities.

For nearly 25 years, Turkey has been attempting to transfer its state-owned businesses to the private sector. Following a financial crisis in 1994, and another in 2001, the country’s financial system has finally shaken off hyperinflation and has begun to privatize many sectors of its economy.

Furthermore, since 2005 Turkey has been in negotiations to join the European Union. Many of the requirements to join the EU have provided an incentive for Turkish policymakers to change the way business is done.

Among these changes has been a significant movement toward privatization, and this movement (along with a new currency to curb inflation) has made foreign investors more confident. Private equity has begun to flow into the economic system, and GDP has been growing at nearly 8 percent per annum.

Although many people believe that Turkey won’t be admitted into the EU for another five to seven years, the changes that have been made to prepare for this transition have positively impacted the economy.

Whether Turkey should join the EU remains a controversial issue, yet there are clear benefits. One is that Turkey has a young and dynamic population that can contribute immensely to the workforce in Europe (where the average age of the population is increasing every year) and thus can play a role in increasing Europe’s competitiveness with such countries as China and India.

In addition, an interesting political shift has arisen relating to the election of the conservative AK Party. The AKP won the election in August 2008 for the second time, which led to the stabilization of the Turkish economy and an increase in foreign direct investment. The AKP has very strong connections with the United States and has a vision of using aggressive economic growth vision to gain admission into the EU, yet ongoing judicial debates and the party’s nonsecular policies have created uncertainty about its sustainability.

While these controversial topics remain to be tackled on an international level, Turkey is experiencing GDP growth, a stronger currency (fluctuating between 1.18 and 1.39 USD/TRY) and a lower inflation rate, leading to increased urbanization and development at the intersection of Europe and Asia.

The natural beauty and historical richness in this melting pot have increasingly attracted tourism in the past 10 years, and Istanbul remains the center of Turkish history, culture and business. We have found Istanbul to be a wonderful city full of diversity and opportunity.

Next stop: Dubai

When I was an undergraduate, I volunteered in a Bosnian refugee camp in the former Yugoslavia. It was there that I first heard about modern-day slavery.

After I graduated, I became an investment banker and got my MBA. But I remained haunted by those stories.

I knew that very little was being done to stop the industry of human trafficking and exploitation and that its size and scope were only increasing with time. So I made a radical decision.

I thought: There are a lot of MBAs in the world, but there don’t appear to be many applying their business backgrounds to solve the problem of modern-day slavery.

So, in the summer of 2000, I decided to set aside my corporate aspirations and embarked on a series of research trips. For the past eight years, it’s been my mission to decipher how best to attack the economic forces that perpetuate human exploitation, specifically, sex slavery.

To my surprise, there was almost no hard data and no cogent analysis of how the sex-slave industry worked globally. I realized that someone with a business background needed to analyze how the industry works from an economic perspective, because that’s the best way to ascertain how to eradicate it.

The essential economic formula of slavery is to minimize the cost of labor so as to maximize profits (the cost of labor represents 60 to 75 percent of the cost structure of most legitimate businesses). Sex slavery takes this equation and puts it on steroids, because the operating costs are paltry compared to the massive revenues generated by millions of consumers purchasing sex from slaves every day.

In the unit economics of a sex-slave operation, there tend to be modest up-front fixed costs (mostly slave acquisition), minimal operating costs and almost no cost of risk (the penalties for being convicted of running a slave operation). Entrenched socioeconomic factors, such as global poverty and bias against gender and ethnicity, create an enormous supply of potential slaves — putting the up-front cost of slave labor at historic lows. In the United States before the Civil War, slaves were purchased for about $40,000 to $50,000 and might generate a return of about 5 to 10 percent per year. Today, sex slaves can be bought for as little as $200 throughout Asia to up to $10,000 in parts of Western Europe and the United States but can generate annual profits of greater than 1,000 percent.

The supply side of the global slave industry could take generations to ameliorate, therefore short-term abolitionist tactics should focus on the market force of demand. To materially disrupt demand, we have to create an upward shock in the cost structure of operating a slave business, and the most vulnerable component of this is the real cost of risk — which is now basically zero around the world.

The most poignant aspect of my research in the midst of all this economic analysis has been the humbling, inspiring courage of the victims. Some of these slaves recounted their experiences for the first time to me and a translator, believing their stories might make a difference. I hope these stories will motivate people not only to be outraged but also to be part of the targeted steps that are required to abolish slavery once and for all.

Based on his eight years of international research, Siddharth Kara’s book Sex Trafficking: Inside the Business of Modern Slavery will be published in January 2009 by Columbia University Press.]]> Tue, 3 Jun 2008 13:16:07 EDT ]]> Business Economics and Public Policy Social Enterprise World Business

Even as U.S. consumers are trimming spending, Coach chairman and CEO Lew Frankfort ’69 is going on the offensive, according to an interview in the WSJ. Frankfort has opened nearly 30 stores in China and has plans for 50 more. He is also broadening Coach’s consumer base by introducing more high- and low-end styles.

Will this dilute the brand? Here’s what Professor Bernd Schmitt told Public Offering:

Judging Coach’s approach by the traditional standards of “Perhaps we are decreasing the overall image and prestige of the brand by making it too widely available” is not necessarily the right way of looking at it.

The concept of luxury has been changing over the years. The old “elitist” concept of luxury, which is high-priced, hand-crafted goods manufactured in Europe, is not the only concept anymore. Luxury nowadays is much more associated with lifestyle, with doing innovative things, doing something special for the consumer. And “special” can mean various things — it can mean using high-end materials or using low- and high-end materials together or bringing the brand close to where the consumer lives.

Coach’s approach makes a lot of sense to me. What Coach is saying is that while you of course need a presence in all the major cities where luxury products are bought — the world cities for example, including New York and Hong Kong and Tokyo and certain European cities — you also need to bring the luxury product to other cities where consumers live and shop, so as not to make the consumer come to you.

There has been a lot of emotionally charged rhetoric surrounding sovereign wealth funds, especially with politicians and the media magnifying the “straw man” of suspicious foreign motives to conjure up advantages and ratings.

I just don’t buy it. Calls from politicians and the media for sovereign wealth fund regulation miss the larger point. Singling out sovereign wealth funds as bad guys suggests that they have the potential to be more hazardous to U.S. interests than other funds — and allows the rest of the investment field to roam freely, going largely unchallenged.

We should ask whether a fund’s national origin even matters. After all, hedge funds have an enormously extended reach and diverse investor bases. What if 49 percent of a hedge fund’s investors were U.S. endowments and 51 percent were foreign entities? And what if that calculus was opaque because the capital was disbursed through an offshore fund of funds? Variables such as these can make determining who wins and who loses far from clear-cut.

In the final analysis, it isn’t just what type of company, how big of a stake or what debt or equity instrument is owned that underlies plausible U.S. vulnerability — it is whether we have a strong political alliance in place, and the extent to which our dependence can be used against the U.S. in a negotiation for trade, security, intellectual property or what have you.

For the global economic environment to survive, we must cooperate with each other. The U.S. has a spiraling current account deficit that some argue resembles precrisis Argentina: the dollar has slid precipitously, oil prices have risen.

That we haven’t had a severe avalanche of dollar selling seems to be due to political good will with foreign central banks and the moral persuasion of the Treasury and the Federal Reserve. None of our trailing data are owed to the alpha-decision making of supposedly sovereign-neutral portfolio managers.

Given all this, pointing a finger exclusively at relatively mundane entities, such as Singapore’s GIC, seems like a diversionary tactic to distract the public from much larger, more complex issues.

This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010.

To better understand the business environment in Italy, we attended a private equity conference, where we had the opportunity to meet with the U. S. ambassador to Italy.

After a successful career at his private equity firm, Freeman Spogli, Ambassador Ronald Spogli entered the U.S. State Department, where he came to believe it was in the best interest of the United States to help modernize the stagnant Italian economy. The embassy recently established an initiative called the Partnership for Growth, which is designed to help foster the entrepreneurial mindset in Italy through four main objectives: (1) stimulate the venture capital industry and promote Italian entrepreneurial role models, (2) modernize the country’s capital markets, (3) spur innovation by protecting intellectual property rights and (4) send Italian students to U.S. schools to learn the American way of doing business.

In fact, the Italian venture capital industry is really quite nascent. A major constraint is that the entrepreneurial mindset — which is quite common to most people here in the U.S. — is foreign to most Italians. One of the reasons for this lack of entrepreneurial drive is the fear of bankruptcy. In the U.S., most new businesses fail . . . and it’s okay to fail and try again. But in Italy, if a new business fails, it’s not just the business that fails, the entrepreneur’s personal life might be ruined as well (e.g., the person would no longer able to vote or get another loan, would experience social failure, etc.).

Italian investors are also not typically comfortable with stomaching the risk required for PE/VC investments; they prefer to invest in more traditional asset classes, such as public equities and bonds. As evidence, consider this statistic: in the U.S., pension funds typically supply nearly 60 percent of the total capital invested in new private equity funds. In Italy, pension funds supply only 1 percent of such capital.

The embassy is already seeing some good results. Last year, it sent several Italian investors to Silicon Valley to learn the American approach to venture capital. Within three months of their return to Italy, these investors have already established a formal angel network and reviewed nearly 200 new business plans! As you can imagine, there was a great amount of energy in the air at the conference.

We’re looking forward to the many opportunities to learn entrepreneurial skills at CBS — which hopefully can inspire a similar energy among our class, and perhaps serve as catalysts for change in the renovation of the Italian economy.

Photo Credit: Diliff

This post is part of a series following the “Pre-MBA World Tour” organized by Shoaf and members of the class of 2010.

Paris
While in Paris, we met with a few CBS alumni, including the president of the Alumni Club of France. We had many intriguing discussions, though one particular theme that arose — responsibility — left us with a new perspective on our careers. As CBS students we are now part of a larger community that has the ability (and inherent responsibility) to make a positive difference in the world.

During this trip I’ve been reading Making Globalization Work by Professor Joseph Stiglitz and am realizing that perhaps “another world IS possible.” Globalization is happening whether we like it or not, and the question now is: how should it happen? As leaders of our generation, it will be up to us to solve these challenges.

Frankfurt
Frankfurt is much different than I had anticipated. I expected it to be a traditional German town, but it’s actually a very modern city and reminds me (surprisingly) of Charlotte, North Carolina. Although it’s a much smaller city than London or Paris, Frankfurt has the tallest buildings in Europe, and because it sits directly on the Main River (pronounced Mine), it’s often referred to as “the other Mainhattan.” It also has a disproportionate number of investment bankers, giving rise to its other nickname: “Bankfurt.”

There seem to be many advantages to working in Frankfurt. Because most of the companies based here operate in several foreign countries, most business is conducted in English. So if you don’t speak German, you can still get by. That said, you still might be better off working for a U.S.-based firm, rather than one of the three large Frankfurt-based banks (Deutsche Bank, Commerzbank and Dresdner).

Another advantage is that the city is very affordable to live in. Euros go much further than they do in any other major financial city center. Public transportation is excellent (you don’t even need to swipe your card to use the subway, tram or bus), but since Frankfurt is a small, clean, pedestrian-friendly city, you can pretty much walk anywhere.

Clearly, one of the downsides to living in any small city is the dearth of nightclubs, restaurants and cultural centers. And though Frankfurt has many of these things, one thing it does seem to lack is diversity.

This post is part of a series following the “Pre-MBA World Tour” organized by Shoaf and members of the class of 2010.

In London, we visited with a banker at Blackstone who works in the corporate restructuring group. Following are a few highlights from our conversation:

Restructuring is a recent concept in the EU; not many banks or corporations are familiar with the practice, so it’s a fairly nascent market. The UK has much stricter bankruptcy laws, which means that the concept of restructuring is a bit trickier to deal with.

Blackstone is one of the few firms advising on restructuring deals in the EU; Houlihan Lokey and Lazard are among their main competitors.

At most firms, restructuring generally falls under the “advisory” business, but it is very different from M&A or capital markets. While M&A transactions typically involve a fairly straightforward auction process (build a book, build a list, call the list), restructuring deals are much more complex and unique — they involve several more parties per transaction and are often less predictable. Most companies undergoing restructuring transactions are overleveraged and have serious operational issues in addition to problems with their capital structure (e.g., a liquidity crisis).

Also, there is much more tension and drama involved in a restructuring because there is generally a losing party involved. So unlike an M&A deal where each party is excited about newfound synergies, restructuring generally involves a bit of pain for the equity holders during the deleveraging process. Another difference is that with restructuring, banks are typically brought in and retained (hired) by the creditors, rather than the corporation or the equity holders as is the case with M&As.

As many know, restructuring is a counter-cyclical business, which means that when the market is hot, the restructuring guys get to play golf on the weekdays, but when the market crashes (and all the other bankers get laid off), these guys roll up their sleeves and get to work.

At the first CBS open house, a few of us were talking about going into restructuring in order to capitalize on the anticipated recession.

However, according to my new friend at Blackstone, restructuring isn’t something you get into for the short run; it’s a very specialized practice that takes a few market cycles to really understand the business and get to know the players. It also has a short window of opportunity because, unlike the weather here in London, there are typically more sunny days than rainy days in any given market cycle.

That said, Blackstone hasn’t seen any significant increase in restructuring deals . . . yet. It seems that most of the deleveraging has been taking place in the capital markets and hasn’t yet hit the corporations, which seem to still have a lot of cash on their balance sheets. A few bad quarters and this could change very quickly.

Okay, there’s my report from London. I’ll end with saying that I don’t have a restructuring background, and most of this information was derived from one conversation, so I’d love to hear anyone else’s thoughts about the matter. Is now the right time to get into restructuring?

Next stops: Paris and Frankfurt.

During spring break we traveled to Ghana with the mission of developing a marketing strategy that would increase tourism and investment in Kumasi, Ghana’s second largest city. Our goal was to collect information and make the necessary contacts to help us implement our recommendations.

Kumasi, as part of Columbia’s Millennium Cities Initiative (MCI) is working on a number of projects in infrastructure, health and education that will hopefully bring the city closer to the Millennium Development Goals (MDGs). Our project is a key component of that effort due to the obvious benefits that the increased economic activity can bring to the city.

The first lesson we learned might seem obvious, but is very important: You can’t market a product you don’t know. The many hours we spent reading reports on Kumasi and browsing what was available online didn’t give us much of an idea of what we discovered in the end.

What we discovered was a city with a rich history as the capital of the Ashanti Kingdom and the home of many local crafts such as Kente cloths and Adinkra prints. We also learned about areas with untapped tourism potential such as Lake Bosomtwe and the Bomfobiri Wildlife Sanctuary. On the business side, despite all the challenges, we found a local administration working to improve the infrastructure and we discovered some intrinsic advantages of Kumasi over other cities in Ghana.

Even though it is the second largest city in Ghana and has more than a million inhabitants, Kumasi has serious infrastructure challenges surrounding its road network, electricity, water and Internet (getting our emails in Kumasi took a painfully long time). Many businesses complain that the centralization of government services in the capital, Accra, is a heavy burden to their productivity.

The team has been working hard on the project and we are in the process of developing an actionable set of recommendations for the city that we think can make a difference. The rest of the team — Kenny Hsu, Dario Cacciatore and Andre Le — will travel to Kumasi again in May to formally present our proposal and to start working with the project stakeholders to help Kumasi achieve the MDGs.

This consulting project was supported by the Social Enterprise Program’s International Development Consulting Project Fund, for the Earth Institute at Columbia University.

The day after completing my application to CBS, I purchased a world map and a box of thumbtacks and began charting my trip: a 15-week journey to some major cities around the world. I was hoping for the adventure of a lifetime.

At the MBA open house in late February I decided to recruit a few of my future classmates, and the idea of a pre-MBA trip caught on like wildfire. By the following day, a group of admitted students had gathered together to discuss how we could all coordinate our summer travel plans. That’s when we realized we had stumbled onto something big!

Within one week, a leadership team had emerged with each person leading a two-week section of the trip. By the end of the second week, most alumni chapters had volunteered to host a group of students in their cities.

The snowball kept getting bigger and pretty soon several organizations at CBS (including many student clubs, the Alumni Association and the Chazen Institute) joined our cause by providing networking opportunities and advice on how to make the most of our excursions abroad.

Today, nearly 1 out of 10 admitted students plan to participate and almost half of them have a significant leadership role. It’s evolved into a fast-paced and dynamic organization that exemplifies the modern way of doing business on a global scale.

So until August 7, a lot of us pre-MBAs will be on the road, traveling to the following cities: London, Paris, Frankfurt, Zurich, Milan, Rome, Istanbul, Dubai, Mumbai, Delhi Bangkok, Phuket, Kuala Lumpur, Singapore, Manila, Hong Kong, Shanghai, Seoul and Tokyo.

Our hope is that the trip will bring together students and alumni to share cultural and professional experiences, and that our visits with companies and organizations will provide us with a truly global perspective. We also hope to have a great time before school starts in the fall.

You can see the full itinerary and track the progress of our journey at our Web site www.cbsworldtour.com. You can also email me (jshoaf10@gsb.columbia.edu) if you would like to discuss anything in more detail.

And stay tuned for more Public Offering posts from us on the road.

Yasmina McCarty ’08, a graduate of the EMBA-Global program, won the 2007 Cartier Women’s Initiative Award in recognition of GreenMango, a company she developed with business partner Nandini Narula.

On February 1st I moved to Hyderabad, India to officially start GreenMango’s operations. That first day, a lot went wrong.

After a 29-hour journey, I arrived at the Hyderabad airport with my entire life in suitcases and the driver wasn’t there to meet me. Apparently there was a little mix up on the whole a.m./p.m. thing.

When he did finally arrive, he informed me that the guest house my business partner Nandini Narula and I had booked for the month (and secured with a deposit) was no longer available. I found another guesthouse to stay in for the night, and finally had a chance to rest, until someone else walked into my room — they had double booked the place.

I had a very low moment where I thought: “Oh my god, what have I just done?” Two weeks prior I had graduated with my MBA (as part of the EMBA-Global program) and watched my classmates take phenomenal jobs in the world’s business capitals as prestigious bankers, consultants, etc. And here I was moving to a new country, to a city I didn’t know and trying to start a company — what was I thinking?!

As my jetlag faded, my excitement about GreenMango returned, and since then our experience has been absolutely amazing. In our first week here we found a place to stay, set up the office, brought our first staff on board and signed up our first nine customers — it was exhilarating. All the months of planning and preparation were over and we were on our way!

I now stay in a lovely flat, where the rich sounds of life in India waft into my window every morning. We have a small but growing team, who are invaluable with their hard work and belief in GreenMango. And best of all, the customers are excited and signing up for our product.

Every day greets me with an unending list of problems waiting to be solved (e.g., how to get work done when the cricket match is on) and opportunities waiting to be grabbed (e.g., how to structure partnerships with Goliath when you are David).

But I couldn’t be happier and am truly enjoying every minute of this adventure.

One of the more remote places to do business is Tajikistan, a mountainous republic in Central Asia. Recent events aren’t helping: an energy crisis appears to have set in motion a food shortage, and the IMF claims that the National Bank of Tajikistan misrepresented its creditworthiness to secure loans.

Still, the economy is growing, and we were excited to see it firsthand over spring break. All semester we had been working with a local bank, the First MicroFinanceBank of Tajikistan (FMFB), on assessing the viability of providing commercial loans to small and medium enterprises (SMEs). In mid-March Lukas Bauer ’09 and I traveled there to gather research that could help us identify the factors that would determine whether or not that could work.

After arriving in Dushanbe, the capital, we went first to the bazaar to meet with small-business owners. We found retailing practices that would usually cause great concern: bags of cash were transported hundreds of miles to pay suppliers; there was no maintenance of current accounts or accounting books; and monthly sales tracking (or any, for that matter) was conspicuously absent.

In the framework of commercial finance, these business practices would preclude an assessment of the chance of default, a necessary element to judging the risk that the bank would incur by providing a loan. However, the framework of microfinance allows lenders to protect portfolios through diversification: while a default of the size of most commercial loans could cripple the financier, the combination of multiple borrowers and the small size of individual loans protects the bank’s lending portfolio from collapse.

The next day we boarded a plane for Khorog, the capital of the Gorno-Badakhshan Autonomous Region (GBAO), the remote mountainous province that comprises nearly half of the country’s territory. In ninety breathtaking minutes we flew over the 20,000-plus foot Pamir range, observing the isolated villages and seasonally passable unpaved roads below (we would spend nineteen hours driving back). We were beginning to understand the complexity of the challenges faced by GBAO businesses.

Over the next three days we visited clients in the rural districts of Roshtkala and Rushan, discussing the finer points of locally significant activities such as Pamiri residential construction and chicken incubation. They pointed to real challenges facing their business, ranging from changing consumer preferences to across-the-board inflation on basic commodities.

We were awed by the lengths to which owners went to start their businesses. One dentist brought fragile equipment over steep mountain passes from China. Other aspiring industrialists drew deeply on capital loans to create outbound supply chains.

By the week’s end, we had a real sense of the needs of the customers. They called for more credit, lower interest rates, less up-front paperwork and most vociferously, longer loan durations. From the bank’s perspective, however, these requests had to be balanced with risk level, transparency and the costs such changes would pose.

Our challenge now is to resolve this disjunction. Over the next month, our team — Ossama Soliman ’08, Gervasio Guareschi ’09 and Michael Hsueh ’09, along with Lukas and myself — will be researching microfinance institutions around the world that make loans in similarly inhospitable terrain.

After final exams, part of our team will travel to Dushanbe to present our recommendations and plan the next steps with the bank.

Microfinance will not be a panacea for Tajikistan; even if the FMFB succeeds in meeting its clients’ financial needs, deeply rooted economic and political problems will still limit business opportunities.

Nevertheless, the bank has already demonstrated that the provision of finance markedly improves the odds that entrepreneurial endeavors will blossom into productive and profitable enterprises. We aim to convey the insight from more mature organizations that will enable the bank to both succeed commercially and make as broad a social impact as possible.

This consulting project was organized by the International Development Club and sponsored by the Social Enterprise Program.]]> Tue, 29 Apr 2008 15:22:00 EDT ]]> Business Economics and Public Policy Corporate Finance Social Enterprise World Business

Excerpts from a talk given at CBS’s 2008 India Business Conference on April 19.

Indian growth is going to depend overwhelmingly on what happens locally in India. The reason India and China went from being peripheral players in the world market in 1980 to the powerful forces they are today didn’t have to do with changes in the global market. It had to do with local changes in India and China. In places where these changes haven’t taken place — in Russia for example — you see their participation in the global economy is what it always has been: just as a supplier of raw materials.

The reason so many Chinese goods now sell around the world is not because the demand for those goods has suddenly materialized, but because productivity growth in China — and it’s the same in India — enabled it to provide goods and compete successfully in global markets.

This trend is going to get more — not less — important in the future. If there is one enormous antiglobalization trend, it is that local services — education, medical care, housing — are becoming much more important for consumption and therefore economic activity than manufacturing or other kinds of services. There is a limited demand for manufacturers — there are only so many suits of clothes you can own, in the same way there is only so much food you can eat, notwithstanding the rising weights of Americans. Manufacturing, in terms of its importance in employment and economic activity, is going to go the way of agriculture in the 20th century.

This applies also to outsourceable services. Remember, for services to be outsourceable, you have to be able to routinize them. If you can routinize them, you can automate them. If you can automate them, those jobs are ultimately going away. So local services are going become much more important in India and all over the world.

Think locally not globally. Big global markets are extremely competitive. Chinese manufacturers do not make significant profits because they are competing with other Chinese manufacturers. In fact, if you look at the top 25 Chinese companies other than the natural resource companies — this is in terms of profitability and market capitalization — they are all local service companies: power companies, mobile companies, banks and insurance companies. If you can dominate local markets, especially where those local markets are growing, that’s where you’re going to do much better.

This applies to finance too. It is a perpetual surprise to me that overseas investors repeatedly get sucked into the kinds of difficulties that the U.S. has gotten itself in trouble with — mortgages, and before that in many other areas.

Also: when it comes to business profitability, it’s important to think not globally, which is what the propaganda is about, but locally, so that you can take advantage of growth and the benefits of growth are not competed away.

The world is not flat. There are very important differences across economies. If you spend time in India versus China, it’s immediately striking how different those two countries are. If you think about problems in those countries, they are very country-specific. I think when you arrive in India, you see the most important thing that is going to affect growth and the quality of life is actually land-use planning, and there are obviously other economies in which that is not so important.

The most striking thing I learned on my recent trip to India is this: when you sit down with Indian business people, they are superb marketers and business strategists. You talk to them about what they have to do to succeed in different marketplaces, and they are just extraordinarily well trained in talking about that. But if you go to the manufacturing plants, and if you compare these to plants all over the world, they are not particularly strikingly efficient — nothing like Japanese plants, where nobody is basically there and yet they produce enormous output. And you talk to them about that and they say, “Oh well, yes, we’re not very good at manufacturing because Indian workers are creative and not obedient as opposed to Chinese and Japanese workers.”

So if you’re going to think about growth in India and the interactions between India and the world, you have to have an appreciation for the cultural realities, and not only of India but of the different regions in India.

India is not destroying U.S. jobs. It has always been the case that productivity growth has caused the loss of many, many more jobs than the overseas movement of jobs. And nobody — not even the people currently running for president — have suggested that we do away with productivity growth. And I think you ought to keep the same thing in mind when you think about loss of jobs to India.

India is experiencing really the miracle of modern life. It used to be that only a very small stratum of the human race had what we think of as modern standards of living — eating a variety of foods, having the freedom to travel and real entertainment. That is happening in India now, and the most important question to keep in mind at this conference is how to persistently generate the local conditions that will allow that to continue.

Photo Credit: Jasvipul]]> Wed, 23 Apr 2008 12:03:57 EDT ]]> Capital Markets and Investments World Business Before leaving for Seoul, I had breakfast in Tokyo with Dong Bin Shin ’81, executive vice chairman of the Lotte Group, and a true expert on pan-Asian business — the Lotte Group is the fifth-largest conglomerate in Korea with major operations across Asia.

Seoul was a wonderful opportunity to enrich connections with alumni there. I found them pleased with the pro-business agenda of newly elected President Myung-bak Lee, and with the prospect of his planned visit to New York and Washington in mid April, which will include a meeting with President Bush.

Later I held two interviews that included queries on CBS’s MBA program, which is very well regarded in Korea. The School’s Social Enterprise activities were of particular interest to the journalists.

I rounded out a very busy day with a wonderful dinner hosted by Chull-Young Lee ’73, chairman and CEO of Ark Investments Advisors, Inc. Conversation revolved around the School as well as national and international current events: U.S. economy and credit crisis; implications for Korea and other Asian economies; and the U.S. presidential campaign.

I also shared with the group an update on the Social Enterprise Program at Columbia, and the planned replication of such a program at Korean business schools. Right now, through a grant from Chull-Young Lee, Woo Taik Kim ’72 and Soo-Kil Oh ’72, CBS is hosting Visiting Professor Hun Jun Park, a management professor from Yonsei University in Seoul as part of this initiative, which will also include a social enterprise conference in Korea next year.

Later I attended a dinner hosted by Kunho Cho ’78, vice chairman of Lehman Brothers International, that included a small group of alumni. We had a frank insiders’ discussion on the current state of the world’s financial markets. We also talked about private equity strategy in Japan. One camp shared the typical American viewpoint, which is that firms must change board membership to add value to the company. Others thought a different strategy would be appropriate in Japan, given the culture and market realities, and proposed that PE firms should keep the senior leadership to help turn the company around. There is no doubt however that entrepreneurialism in Japan has become more prevalent as a byproduct of deflation as companies have had to innovate.

On Thursday, I spoke at the Tokyo American Center, where I presented an overview of the current economic outlook in the U.S. and Japan, forecasting a slight increase in GDP for both countries in 2009. I noted several issues revolving around political uncertainty: for the U.S., protectionism and tax policy, and for Japan, the political wrangling over Bank of Japan leadership.

Though there are challenges for the global economy, I do remain optimistic about prospects for long-term growth in the U.S. economy (productivity is the key) and also about Japan’s ongoing productivity growth prospects, with needed emphasis on structural reform.

One MBA student joked, “All we need are the Oompa Loompas.” And the way we had to dress inside the factory, there was no question that WE were the Oompa Loompas.

Lotte Confectionary is just one division under the Lotte Group, which also owns the largest department store in Korea, one of the most luxurious hotels and the world’s largest indoor amusement park (we went there, too).

After a sweaty, fun day, we rushed back to the hotel to put on our best suits. It was off to Seoul City Hall to meet the mayor.

On Tuesday our whirlwind tour of the city that calls itself “The Soul of Asia” took us to Seoul National University, which is considered the premiere university in the country. We visited students in SNU’s new MBA program.

And even though we’re officially on spring break, we went back to school for a while. Former CBS professor Jaeyoung Song gave us a Samsung history lesson. It was a nice lead-in to our visit of Samsung Semiconductor, where we were brought on a short tour of its showroom (but no mention of the company’s current woes).

We wrapped up the day with CBS alumni, who treated us to a wonderful dinner at The Westin Chosun.

You’ll have to find out about all the partying and Korean karaoke when we get back!

We’ve adapted to our 14-hour time difference quite well — and the 14-hour flight to Seoul. We had to adapt — our week is jam-packed with business and cultural adventure. And everybody knows who we are because there’s a big Columbia Business School banner on the side of the tour bus we’re riding in around town!

Hours after arriving in Seoul, we spent a beautiful pre-spring afternoon at Changdeokgung Palace. It was rebuilt in the early 1600s after being destroyed during the Japanese invasion.

From there, it was off for a gourmet lunch and to see the live martial arts comedy Jump. One of our fellow CBS students was even pulled on stage to perform a little!

Monday morning, we started the day off with yoga. The instructor at Dahn Yoga kicked my butt (and a few others). If you want proof, we're already in the news.

Top executives at LG were welcoming and accessible (their showroom of new gadgets and widescreens is SWEET), and so were the execs at Mirae Asset — the top asset management company in Korea.

I know this seems like a lot for our first 24 hours, but we did it. Next, we take on Samsung!

Photo credit: photocapy

Blankfein insisted that this is not pure philanthropy, but that it is in Goldman’s business interest. Shareholders should like it.

Here’s his argument: Educating women — especially in business — promotes growth. If developing economies grow faster, that’s good for Goldman’s business. The firm manages IPOs from the newly formed companies, gets to finance them, merge them, invest in them through private equity deals, etc. So promoting global growth is good for Goldman, and promoting women’s education is a cost-effective way of promoting global economic growth.

Mark Tercek, a senior executive at Goldman, spoke to my class last week about Goldman’s environmental policies, which are equally spectacular. The firm gave away a huge parcel of land in Patagonia to the Wildlife Conservation Society; built some of the greenest buildings in the United States; acquired a fleet of hybrid limos; forced TXU to drop plans for eight new coal-fired power station in the recent buyout of TXU by Goldman, KKR and TPG; invested heavily and early in renewable power; and has persistently and forcefully promoted green behavior by its clients. Tercek gave similar arguments for why they do this: it’s good for Goldman. Why?

We need a healthy environment to survive and prosper, and only if we survive and prosper will Goldman do likewise. There were some other arguments too, in both cases, the most interesting being about motivating the firm’s employees and making them proud to work for Goldman.

Bottom line? What’s good for the world is good for Goldman. Remember the old saying — attributed to “Engine Charlie” Wilson, the then CEO of GM — “What“s good for General Motors is good for America”? There’s been an interesting order reversal here. And we’ve gone global too.

It’s a striking claim: by giving money away, we make ourselves better off — not just psychologically or ethically, but financially too. For every $1 we give away, more than $1 comes back.

Can this be true, or is someone deluding him- or herself here?

I have to plead the economist’s occupational disease — skepticism. But there is a possibility of validity.

Analytically, the issue is whether someone gains from providing a public good at his or her own expense. Global growth is a public good, as is a better environment. Generally the answer is no, it doesn’t pay any individual to provide a public good. But if the provider is also a major consumer of the public good, it could be the case.

So the issue is whether Goldman is dominant enough in its field to be sure that the lion’s share of the new banking business generated by growth anywhere in the world comes to it. Maybe that’s the case; certainly that’s what they are banking on.

So during winter break, I was one of 30 CBS students who traveled to Africa to write case studies about successful entrepreneurial businesses on the continent. (See previous posts here and here.)

Our goal was to develop a world-class business school case study about Computer Warehouse Group (CWG). This project presented the opportunity to dispel the myth that there are no sophisticated businesses on the African continent — or worse, that businesses there can only get ahead through corruption.

We knew only that the firm had experienced explosive growth over the past few years, achieving some $100 million in revenues in 2007. We knew the firm was an early reseller for Dell, and that it was an important partner for a variety of blue chip Silicon Valley firms, including Cisco, Sun Microsystems and Oracle. We understood CWG’s strategy to position the firm as a strategic partner capable of delivering turn-key IT solutions for big companies, and we knew that a well-known global private equity fund had made an offer to purchase a minority stake in the company.

And until we got to Lagos, we didn’t have any sense of this company’s culture. Was it a one-man show, heavily dependent on its charismatic founder, Austin Okere? Or did it have people and processes in place to ensure continued growth into the future? Did employees at the bottom live the values expressed by those at the top? Or was it more of a show to impress customers, potential investors or other stakeholders?

To answer these questions about the company’s culture, we interviewed dozens of employees, from the most senior management to the most junior customer service and sales teams.

As it turned out, we couldn’t have picked a better company to lay these stereotypes to rest. The company has thrived in difficult circumstances because of an entrepreneurial culture that embodies the work ethic, personal responsibility and integrity of its founder. The firm has distinguished itself from the competition by consistently delivering on promises to customers and is one of Nigeria’s 50 fastest growing companies.

A rep from Cisco told us that the firm is “probably the most entrepreneurial company in Nigeria, certainly in the most entrepreneurial in IT sector.” The founder of the competing firm, who has since sold his business to a larger international player, expressed similar respect for his former rivals.

Because the case study requires a valuation of the company, we also spent a good deal of time learning about the country’s capital markets in general and the private equity group’s offer in particular. We interviewed senior leaders at several private equity firms, the founder of a local investment bank and high-ranking officials from Citigroup. The information we gained from these meetings was invaluable for understanding the similarities and differences between Nigerian capital markets and those of more developed economies.

We concluded our trip with a visit to the Lagos Business School, a member of the Association of African Business Schools and a huge supporter of our project. The folks there not only linked us up with Computer Warehouse Group at the outset but also booked our hotels and even provided our team with a driver during our stay. The school’s ultramodern facilities and helpful administrators were very impressive. We are excited that our work will help contribute to the world-class institution they are building in the heart of Africa.

But my nervous tension is dwarfed by the excitement that only a once-in-a-lifetime opportunity can create. Columbia’s new Entrepreneurship in Africa Master Class has me traveling to Nigeria to write a case study on Computer Warehouse Group, West Africa's leading IT systems integrator.

I’ll be working alongside three close friends from Columbia’s class of 2008, Jindrich Zitek of the Czech Republic and two Lagos natives, Gbolade Arinoso and Lara Junaid. We'll interview many of Nigeria’s leading banks, private equity groups, IT firms, oil companies and telecommunications providers to flesh out the company’s story.

Ultimately it’s the chance to tell this story that generates the most excitement for our team. Computer Warehouse Group started in 1992 as a tiny Dell reseller committed to empowering its employees to provide superior customer service to business clients. Over the past 15 years, these principles, combined with the entrepreneurial spirit of its founders, have allowed the company to grow into a $100 million IT powerhouse providing comprehensive hardware, software and networking solutions for corporations throughout West Africa.

Over the next week, our team intends to write a case study about Computer Warehouse Group's phenomenal rise. We hope it will provide locally relevant teaching material for Africa’s leading business schools.

More next week . . .

Two weeks ago, I blogged about the mounting combination of anxiety and excitement leading up to my trip to Nigeria. Outside of the exceptional opportunities for investors in the country’s capital markets — which did little to soothe my fears as a traveler — I’d heard few reassuring stories about Lagos. Meanwhile, my imagination went to work on the news reports, rumors and exaggerated tourist tales I had heard, conjuring up images of an urban center descended into anarchy.

I should have known better!

Jindra Zitek ’08 and I arrived at the Lagos airport expecting to be harassed by an unruly mob of aggressive taxi drivers, con artists or worse. We found instead only a few families waiting for their loved ones. The first person to approach us was our smiling classmate, Gbolade Arinoso ’08, wearing his finest traditional Nigerian clothes. From the moment we exited the airport, we knew we’d have to throw all preconceived notions about Lagos out the window.

In fact, throughout our week in the city, we were struck by how poorly we’d misimagined the place. At no point did we feel threatened in any way. Rather, we were welcomed warmly by everyone we met, from security guards and restaurant workers to private equity investors and government officials.

In the end, it was this inviting stance toward foreigners that made our project such a success. Our goal was to write a world-class business school case study about Computer Warehouse Group, West Africa’s leading IT systems integrator. As soon as we explained our project, we found that the local business community was quick to rally around us. Even normally secretive private equity firms were willing to openly discuss their valuations of the company!

Ironically, it was the very hospitality that made our trip so exhausting: the 9–5 work days were simply too short to speak with all the people who so generously offered their time. We frequently found ourselves meeting deep into the evenings, exploring the intricacies of valuing the IT services company in the Nigerian context. We learned more than we ever imagined — about the firm, the country and, most of all, about the tricks our imagination can play on us when we operate on incomplete information!

Photo credit: The New Black Magazine]]> Wed, 12 Mar 2008 15:56:17 EDT ]]> Business Economics and Public Policy Organizations Social Enterprise World Business My road trip through Hong Kong, Singapore, and Manila is revealing continued opportunities for Columbia Business School in Asia. And interest in the School’s inaugural Pan-Asian Reunion, to be held October 24-26 in Hong Kong, is very high. Columbia Business School's network in Asia offers unmatched access in finance, media, real estate, consulting, and manufacturing.

Whenever I travel for the School, I meet with business leaders — alums and nonalums — to ask about current and trend opportunities and challenges in their businesses. Last night, Chris Cheng ’79, chairman of Wing Tai Corporation Ltd., hosted a dinner for me in Hong Kong with government officials and banking leaders.

After a particularly nasty day in the Asian financial markets, we had a lively dinner discussion about whether Asian economies have decoupled from the U.S. economy (I argued they have not), subprime-related credit losses (all agreed there are more to come), and whether the U.S. would suffer a recession this year (my Hong Kong friends are more pessimistic in that regard than I am).

Particularly interesting to me was the observation that today’s MBAs may be the smartest ever, but the key to success in the region — as elsewhere — lies in thinking like an entrepreneur and developing the qualities of a leader.

Many topics, and the 13-course meal permitted a wide-ranging conversation!

To give you an example of what I mean, that first year I found myself guiding the late Yasser Arafat to the men’s room and having a tête-à-tête with Oprah Winfrey.

Nine months later, as the Forum was gearing up for Davos 2002, September 11 changed the world. Soon thereafter, Klaus Schwab took the unprecedented and risky decision to bring the forum’s annual meeting down from the Swiss Alps to the heart of Manhattan as an expression of solidarity with the people of New York City and the United States. Not only was the entire atmosphere of the event changed, it was also the first time social entrepreneurs were included in the forum’s annual meeting.

Since then, social entrepreneurs have become a growing fixture at Davos, and business and government representatives welcome them happily and warmly. One of the most important approaches we have used is to give them speaking roles on key panels and in workshops where their issues are being discussed by other experts.

This year, we organized a session entitled “Innovations in Leadership” to explore new models of leadership that are urgently needed in an increasingly interdependent world. We heard from living legends like Muhammad Yunus, Jimmy Wales and Nicholas Negroponte. The session brought leaders in business, media and technology innovation together with social entrepreneurs to discuss the benefits and challenges of operating through networked and open systems. Such approaches eschew traditional “command and control” models in favor of a more “viral model” — emphasizing that the minds of many are far more powerful than those of a few.

So, while the mainstream media reporting from Davos has focused on the U.S. and global economies and their woes — serious issues indeed — there is an untold story. A band of Davos attendees, including some 45 social entrepreneurs, have been seizing the opportunity brought about by present chaos to advance new business models that ultimately promise to combine markets and meaning.

“We’re overwhelmed by the professors and alumni who have helped Microlumbia. It’s a fantastic thing to do at Columbia and a great example of what you can do only at business school.”

A fantastic evening in Manila last night: a small group of Columbia Business School pillars of the Philippine business community and friends gathered with me at the Tower Club to join in singing popular standards with the very talented University of the Philippines Concert Chorus. We stayed for a dinner, hosted by Board of Overseers members Wash SyCip ’43 and Al Yuchengco ’50. Conversation centered on the School, what the current students are like, and the fun CBS students had on their recent trip to the Philippines. We also debated Asian “decoupling” from the U.S. economic situation and banking opportunities to the Asia-Pacific region. This morning I joined a dozen alumni for a breakfast at the Peninsula Hotel, hosted by Nori Gonzalez Poblador IV ’96. After a vigorous economic discussion, we talked about the upcoming Pan-Asian Reunion and the CBS Ambassador interviewing program.

I was struck by the warm feelings of the Philippine friends for Columbia Business School and Columbia University. The embraces and remembrances were fond and familiar. I was also keenly aware—as I am in so many conversations around the world—of the many connections our alumni have to each other and to the business leaders generally.

Home via Hong Kong coming up—but a great trip to Asia!

See the big picture.
Even if you haven’t been specifically trained to do so, it’s important to hone your macroeconomic skills. “Most businesses are very micro-oriented,” Zurlo said. “But it is crucial to have a solid grasp of trade theory and an understanding of loose currencies.”

In addition, Bryan said, teach yourself about politics. You don’t have to do this within a formal academic setting, but it’s important to learn the general history of the countries you’re visiting and how borders have changed.

Go with the flow.
Different time schedules and unpredictable work arrangements automatically force you to relinquish a degree of control, making the overseas work experience more stressful than usual. “The people I’ve seen who are the most successful are those who keep learning and who are flexible enough to use a different management style based on the situation,” Chota said.

Don’t lose touch with the domestic office.
“ Before going abroad, prepare for your return home, because things change significantly over time,” Bryan said. She emphasized the importance of keeping abreast of corporate developments so that reintegration can be seamless, especially if your job isn’t the same as when you left. Because jobs and company goals often change, you need to find out what new skills are required and adapt accordingly.

Don’t be afraid to act like an American.
If you are in a senior management position, you shouldn’t hide your American assertiveness. Many international businesses expect — and often even rely on — this to get the job done.

Looking to be sent abroad? Volunteering first may help.
With international work experience becoming increasingly instrumental in career advancement, it is also becoming harder to secure. Pursuing volunteer opportunities outside your job scope can demonstrate your enthusiasm and aptitude for an overseas assignment.

“Find ways to participate even while you’re here [in New York],” Zurlo said. “A lot of [international work] is self-initiated. You have to prove that you want it.”]]> Wed, 12 Mar 2008 12:57:29 EDT ]]> World Business For two weeks in January, incoming MBA students (nicknamed J-termers) participated in an overwhelmingly robust orientation that included introductions to many faculty members and administrators as well as back-to-back seminars on topics such as social intelligence, business writing, ethics and statistics. These campus events were followed by nightly social outings in the city for dinner, theater and ice skating.

As with all new-student orientations, it’s hard to pick the best moment. But an indisputable highlight was the presentation “The International Student Experience” given by peer advisor Dan Fishel ’08.

In it, Dan discussed the many challenges that international students face, including what to expect in an American learning environment.

Dan also discussed what to expect from an American student — including this primer on how to shake hands with one.

A higher rez version of the video is available here (Real Media plug-in required).

Thanks to Dan Fishel and Alex Smith for the video.

In particular, Singapore’s fund bought a 9.4% stake in Merrill Lynch for $4.4 billion; China’s fund bought $5.6 billion of securities convertible into 9.9% of Morgan Stanley; Abu Dhabi’s fund put $7.5 billion into a 4.9% stake in Citigroup; and another Chinese fund invested $1 billion in Bear Stearns.

The worried commentators point out that government funds are inescapably political, not just passive investors but surely seeking to extend their influence over world events. America must certainly be at risk, they say — what will these investors do, what do they want and will they ever go away? Financial institutions provoke special anxiety because of their central role in the economy.

I find it hard to share these anxieties. To me they are just another aspect of globalization. Our largest financial institutions are no longer exclusively “ours” but have become part of the global economy. The opening of borders to flows of goods, services and investment capital brought many benefits and has internationalized most large business organizations. They have learned how to balance needs and challenges from all sides. America has long extended its investment capital into other countries, and we need to get used to other countries doing the same.

What are the sovereign wealth funds and how did they get so large so quickly? The answer is not difficult to see: America has been importing dramatically more than it has been exporting in recent years. Since governments run the foreign exchange markets in countries such as China, Abu Dhabi and Singapore, governments tend to collect the dollars that Americans pay for the excess imports. As our trade deficits have continued unabated, the sovereign funds have rapidly grown. In the past these dollars were put into passive investments such as government bonds and bank deposits. But the managers of the funds are diversifying, and in particular seeking returns higher than those available on bonds and deposits. Equity investments are as attractive to them as they are to us.

The recent transactions were a benefit to both sides. The financial institutions got large capital infusions which were badly needed after the recent wave of credit losses left them somewhat depleted. If they had sold stock to U.S. investors in public offerings, the stock prices would have been brutalized. Similarly, the sovereign funds had a golden opportunity to acquire some major blocks of stock in leading institutions without disturbing the public market.

The funds are acting carefully, limiting their future actions. The transactions involve stand-still agreements which limit the funds’ ability to expand their positions in these companies. To be sure, large shareholders can exert some influence over management, but their voice will be only one among many. Modern companies have learned how to handle their many stakeholders.

I do have some concerns, but mine are more at the macro-economic level. I see little to fear in the recent transactions taken on their own, but the broader pattern of trading assets for goods is unsustainable in the long run. We have a finite number of investment assets to sell, but an apparently infinite appetite for cheap foreign goods. America used to be a fountain of capital to the rest of the world. Now it has become the world’s largest debtor.

I believe we need to moderate our appetites. If we do not, the foreign exchange markets are likely to drive the dollar ever lower, making our imports ever more expensive until balance is restored in that way. Our huge deficits are enriching the developing world with an efficiency that foreign aid could never have accomplished, and punishing our currency.

There is much we can do to mitigate the global financial imbalance. We can start with oil. If we could double the efficiency of our automobiles, the effect on oil imports would be dramatic. We also need to rein in our foreign military adventures. Apart from their negative impact on America’s reputation in the world, they are terribly expensive. In fact, if the U.S. government could get its fiscal budget under control, that too would make some contribution to correcting the external imbalance — not one-for-one, but measurable.

So I suggest we get over our fears of sovereign wealth funds and concentrate our minds on issues that truly will make a difference to America’s future.