Showing posts with label industry. Show all posts
Showing posts with label industry. Show all posts

Friday, March 1, 2013

Robust Biopharmaceutical Pipeline Offers New Hope for Patients

Robust Biopharmaceutical Pipeline Offers New Hope for Patients
innovation.org 
January 31, 2013 
http://www.innovation.org/index.cfm/NewsCenter/Newsletters?NID=209

According to a new report by the Analysis Group, the biopharmaceutical pipeline is innovative and robust, with a high proportion of potential first-in-class medicines and therapies targeting diseases with limited treatment options. The report, “Innovation in the Biopharmaceutical Pipeline: A Multidimensional View,” uses several different measures to look at innovation in the pipeline.

The report reveals that more than 5,000 new medicines are in the pipeline globally. Of these medicines in various phases of clinical development, 70 percent are potential first-in-class medicines, which means that they have a different mechanism of action than any other existing medicine. Subsequent medicines in a class offer different profiles and benefits for patients but first-in-class medicines also provide exciting new approaches to treating disease for patients. Potential first-in-class medicines make up as much as 80% of the pipeline for disease areas such as cancer and neurology.

Many of the new medicines in the pipeline are also for diseases for which no new therapies have been approved in the last decade and significant treatment gaps exist.  For example, there are 158 potential medicines for ovarian cancer, 19 for sickle cell disease 61 for amyotrophic lateral sclerosis, and 41 for small cell lung cancer.

The authors also found that personalized medicines account for an increasing proportion of the pipeline, and the number of potential new medicines for rare diseases designated by the FDA each year averaged 140 per year in the last 10 years compared to 64 in the previous decade.

The record 39 new drugs approved by the FDA in 2012 – a 16 year high – and the robust pipeline of drugs in development reflect the continuing commitment of the biomedical research community, including industry, academia, government researchers, patient groups, and others to develop novel treatments that will advance our understanding of disease and improve patient outcomes.

New medicines have brought tremendous value to the U.S. health care system and the economy more broadly. But more progress is needed to address the most costly and challenging diseases facing patients in America and across the globe. As our population ages, the need will only grow. Researchers are working to deliver on the promise of unprecedented scientific advances. 

Saturday, December 22, 2012

Novel Drug Approvals Strong in 2012

Novel Drug Approvals Strong in 2012
Dec 21, 2012
http://www.innovation.org/index.cfm/NewsCenter/Newsletters?NID=208

Over the past year, biopharmaceutical researchers' work has continued to yield innovative treatments to improve the lives of patients. In fiscal year (FY) 2012 (October 1, 2011 – September 30, 2012), the U.S. Food and Drug Administration (FDA) approved 35 new medicines, keeping pace with the previous fiscal year’s approvals and representing one of the highest levels of FDA approvals in recent years.[i] For the calendar year FDA is on track to approve more new medicines than any year since 2004.[ii]

A recent report from the FDA highlights the groundbreaking medicines to treat diseases ranging from the very common to the most rare. Some are the first treatment option available for a condition, others improve care for treatable diseases.

Notable approvals in FY 2012 include:
  • A breakthrough personalized medicine for a rare form of cystic fibrosis;
  • The first approved human cord blood product;
  • A total of ten drugs to treat cancer, including the first treatments for advanced basal cell carcinoma and myelofibrosis and a targeted therapy for HER2-positive metastatic breast cancer;
  • Nine treatments for rare diseases; and
  • Important new therapies for HIV, macular degeneration, and meningitis.
The number of new drugs approved this year reflects the continuing commitment of the biomedical research community – from biopharmaceutical companies to academia to government researchers to patient groups – to advance basic science and translate that knowledge into novel treatments that will advance our understanding of disease and improve patient outcomes.

Building on these noteworthy approvals, we look to the new year where continued innovation is needed to leverage our growing understanding of the underpinnings of human disease and to harness the power of scientific research tools to discover and develop new medicines.

To learn more about the more than 3,200 new medicines in development visit http://www.innovation.org/index.cfm/FutureOfInnovation/NewMedicinesinDevelopment.

Monday, December 17, 2012

Optimal Oil Production and the World Supply of Oil

Optimal Oil Production and the World Supply of Oil. By Nikolay Aleksandrov, Raphael Espinoza, and Lajos Gyurko
IMF Working Paper No. 12/294
Dec 2012
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40169.0

Summary: We study the optimal oil extraction strategy and the value of an oil field using a multiple real option approach. The numerical method is flexible enough to solve a model with several state variables, to discuss the effect of risk aversion, and to take into account uncertainty in the size of reserves. Optimal extraction in the baseline model is found to be volatile. If the oil producer is risk averse, production is more stable, but spare capacity is much higher than what is typically observed. We show that decisions are very sensitive to expectations on the equilibrium oil price using a mean reverting model of the oil price where the equilibrium price is also a random variable. Oil production was cut during the 2008–2009 crisis, and we find that the cut in production was larger for OPEC, for countries facing a lower discount rate, as predicted by the model, and for countries whose governments’ finances are less dependent on oil revenues. However, the net present value of a country’s oil reserves would be increased significantly (by 100 percent, in the most extreme case) if production was cut completely when prices fall below the country's threshold price. If several producers were to adopt such strategies, world oil prices would be higher but more stable.

Excerpts:

In this paper we investigate the optimal oil extraction strategy of a small oil producer facing uncertain oil prices. We use a multiple real option approach. Extracting a barrel of oil is similar to exercising a call option, i.e. oil production can be modeled as the right to produce a barrel of oil with the payoff of the strategy depending on uncertain oil prices. Production is optimal if the payoff of extracting oil exceeds the value of leaving oil under the ground for later extraction (the continuation value). For an oil producer, the optimal extraction path corresponds to the optimal strategy of an investor holding a multiple real option with finite number of exercises (finite reserves of oil). At any single point in time, the oil producer is also limited in the number of options he can exercise, because of capacity constraints.

Our first contribution is to present the solution to the stochastic optimization problem as an exercise rule for a multiple real option and to solve the problem numerically using the Monte Carlo methods developed by Longstaff and Schwartz (2001), Rogers (2002), and extended by Aleksandrov and Hambly (2010), Bender (2011), and Gyurko, Hambly and Witte (2011). The Monte Carlo regression method is flexible and it remains accurate even for high-dimensionality problems, i.e. when there are several state variables, for instance when the oil price process is driven by two state variables, when extraction costs are stochastic, or when the size of reserves is a random variable.

We solve the real option problem for a small producer (with reserves of 12 billion barels) and for a large producer (with reserves of 100 bilion barrels) and compute the threshold below which it is optimal to defer production. In our baseline model, we find that the small producer should only produce when prices are high (higher than US$73 per barrel at 2000 constant prices), whereas for the large producer, full production is optimal as soon as prices exceed US$39. Optimal production is found to be volatile given the stochastic process of oil prices. As a result, we show that the net present value of oil reserves would be substantially higher if countries were willing to vary production when oil prices change. This result has important implications for oil production policy and for the design of macroeconomic policies that depend on inter-temporal and inter-generational equity considerations. It also implies that the world supply curve would be very elastic to prices if all countries were optimizing production as in the baseline model—and as a result, prices would tend to be higher but much less volatile.

We investigate why observed production is not as volatile as what is predicted by the baseline calibration of the model. One possible explanation is that producers are risk averse. Under this assumption, production is accelerated and is more stable, but a risk averse producer should also maintain large spare capacity, a result at odds with the evidence that oil producers almost always produce at full capacity. A second potential explanation is that producers are uncertain about the actual size of their oil reserves. Using panel data on recoverable reserves, we show however that, historically, this uncertainty has been diminishing with time and therefore this explanation is incomplete, since even mature oil exporters maintain low spare capacity. A third explanation may be that the oil price process, and in particular the equilibrium oil price, is unknown to the decision makers. Indeed, the optimal reaction to an increase in oil prices depends on whether the price increase is perceived to be temporary or to reflect a permanent shift in prices. If shocks are known to be primarily temporary, production should increase in the face of oil price increases. But if shocks are thought to be accompanied by movements in the equilibrium price, the continuation value jumps at the same time as the immediate payoff from extracting oil. In that case an increase in price may not result in an increase in production. Faced with uncertain views on the optimal strategy, the safe decision might well be to remain prudent with changes in production.

In practice, world oil production is partially cut in the face of negative demand shocks. The last section of the paper investigates whether the reduction in oil production during the 2008–2009 crisis can be explained by the determinants predicted by the model. We find that the cut in production was larger for OPEC, for countries facing a lower discount rate, as predicted by the model, and for countries with government finances less dependent on oil revenues.

Saturday, December 8, 2012

Unmitigated disasters? New evidence on the macroeconomic cost of natural catastrophes

Unmitigated disasters? New evidence on the macroeconomic cost of natural catastrophes. By Goetz von Peter, Sebastian von Dahlen and Sweta C Saxena
BIS Working Papers No 394
December 2012
http://www.bis.org/publ/work394.htm
 
Abstract: This paper presents a large panel study on the macroeconomic consequences of natural catastrophes and analyzes the extent to which risk transfer to insurance markets facilitates economic recovery. Our main results are that major natural catastrophes have large and signi cant negative e ects on economic activity, both on impact and over the longer run. However, it is mainly the uninsured losses that drive the subsequent macroeconomic cost, whereas sufficiently insured events are inconsequential in terms of foregone output. This result helps to disentangle conicting ndings in the literature, and puts the focus on risk transfer mechanisms to help mitigate the macroeconomic costs of natural catastrophes.

JEL classification: G22, O11, O44, Q54.

Keywords: Natural catastrophes, disasters, economic growth, insurance, risk transfer, reinsurance, recovery, development

Excerpts:

By using a novel and unique dataset, this paper measures the dynamic response of growth to major natural catastrophes, and examines the extent to which risk transfer to insurance markets facilitates economic recovery for a large cross-section of countries. With this aim, the paper makes three contributions to the literature. First, our analysis has a broader scope than other studies.  We construct a large panel with 8,252 country-year observations, covering 203 countries and jurisdictions between 1960 and 2011, matched with 2476 major natural catastrophes of four different physical types. Importantly, we make use of the most detailed statistics available on total and insured losses, obtained from industry sources. These unique data are better suited for the analysis than the public CRED database used in the existing literature.1 On the methodological side, we estimate the full time profile of economic growth in response to natural disasters in a dynamic specification. This allows us to present a more complete picture of growth dynamics than studies that focus on a particular time segment only.

Third, and most importantly, this is the first paper to make the link between natural catastrophes and economic growth conditional on risk transfer. This nuances the transmission channels, thereby helping to resolve the conflicting findings on catastrophe-related growth e ects in the literature.  In particular, we show that the uninsured part of disaster-related losses drives the subsequent macroeconomic cost in terms of foregone output. In focusing on economic activity, we recognize that disasters invariably diminish the wellbeing of affected populations even if growth rebounds.2 That said, there is little evidence that countries rebound from natural catastrophes when uninsured.  We nd that a typical (median) catastrophe causes a drop in growth of 0.6-1.0% on impact and results in a cumulative output loss of two to three times this magnitude, with higher estimates for larger (mean) catastrophes. Well insured catastrophes, by contrast, can be inconsequential or positive for growth over the medium term as insurance payouts help fund reconstruction efforts.

These fidings suggest that risk transfer to insurance markets has a macroeconomic value. This value may be particularly high for smaller nations that lack the capacity to (re)insure themselves against major natural disasters. The analysis thus contributes to the policy debate on different forms of post-disaster spending, as well as the balance between prevention ex ante and compensation ex post. Our finding that catastrophes have permanent output effects is also relevant for a growing literature that explains asset pricing puzzles through rare disasters. The extent to which risk transfer mitigates the macroeconomic cost of disasters is pertinent to the literature on finance and growth, which focuses on banks and stock markets but not on insurance. Considering the macroeconomic value of risk transfer could also enrich the macroprudential approach to the regulation and supervision of insurance companies.

Tuesday, October 30, 2012

U2's Bono realizes the importance of capitalism

Notable & Quotable: U2 frontman and anti-poverty activist Bono realizes the importance of capitalism
The Wall Street Journal, October 30, 2012, on page A23
http://online.wsj.com/article/SB10001424052970203922804578080453358300198.html

Staff writer Parmy Olson writing at forbes.com, Oct. 22

Bono has learned much about music over more than three decades with U2. But alongside that has been a lifelong lesson in campaigning—the activist for poverty reduction in Africa spoke frankly on Friday about how his views about philanthropy had now stretched to include an appreciation for capitalism.

The Irish singer and co-founder of ONE, a campaigning group that fights poverty and disease in Africa, said it had been "a humbling thing for me" to realize the importance of capitalism and entrepreneurialism in philanthropy, particularly as someone who "got into this as a righteous anger activist with all the cliches."

"Job creators and innovators are just the key, and aid is just a bridge," he told an audience of 200 leading technology entrepreneurs and investors at the F.ounders tech conference in Dublin. "We see it as startup money, investment in new countries. A humbling thing was to learn the role of commerce."

Wednesday, October 24, 2012

Everybody involved was, one, interested, two, dedicated, and, three, fascinated by the job they were doing

Notable & Quotable.
The Wall Street Journal, August 27, 2012, on page A15
http://online.wsj.com/article/SB10000872396390444506004577613080016153006.html

Astronaut Neil Armstrong, who died on Saturday at age 82, speaking about the 1969 Apollo 11 mission to the moon, from NASA'S Johnson Space Center Oral History Project:

I was certainly aware that this was a culmination of the work of 300,000 or 400,000 people over a decade and that the nation's hopes and outward appearance largely rested on how the results came out. With those pressures, it seemed the most important thing to do was focus on our job as best we were able to and try to allow nothing to distract us from doing the very best job we could. . . .

Each of the components of our hardware were designed to certain reliability specifications, and far the majority, to my recollection, had a reliability requirement of 0.99996, which means that you have four failures in 100,000 operations. I've been told that if every component met its reliability specifications precisely, that a typical Apollo flight would have about [1,000] separate identifiable failures.

In fact, we had more like 150 failures per flight, [substantially] better than statistical methods would tell you that you might have. I can only attribute that to the fact that every guy in the project, every guy at the bench building something, every assembler, every inspector, every guy that's setting up the tests, cranking the torque wrench, and so on, is saying, man or woman, "If anything goes wrong here, it's not going to be my fault, because my part is going to be better than I have to make it." And when you have hundreds of thousands of people all doing their job a little better than they have to, you get an improvement in performance. And that's the only reason we could have pulled this whole thing off. . . .

When I was working here at the Johnson Space Center, then the Manned Spacecraft Center, you could stand across the street and you could not tell when quitting time was, because people didn't leave at quitting time in those days. People just worked, and they worked until whatever their job was done, and if they had to be there until five o'clock or seven o'clock or nine-thirty or whatever it was, they were just there. They did it, and then they went home. So four o'clock or four-thirty, whenever the bell rings, you didn't see anybody leaving. Everybody was still working.

The way that happens and the way that made it different from other sectors of the government to which some people are sometimes properly critical is that this was a project in which everybody involved was, one, interested, two, dedicated, and, three, fascinated by the job they were doing. And whenever you have those ingredients, whether it be government or private industry or a retail store, you're going to win.

Wednesday, September 19, 2012

New Report Aims to Improve the Science Behind Regulatory Decision-Making

New Report Aims to Improve the Science Behind Regulatory Decision-Making


http://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/New-Report-Aims-to-Improve-the-Science-Behind-Regulatory-Decision-Making.html

WASHINGTON, D.C. (September 18, 2012) – Scientists and policy experts from industry, government, and nonprofit sectors reached consensus on ways to improve the rigor and transparency of regulatory decision-making in a report being released today. The Research Integrity Roundtable, a cross-sector working group convened and facilitated by The Keystone Center, an independent public policy organization, is releasing the new report to improve the scientific analysis and independent expert reviews which underpin many important regulatory decisions. The report, Model Practices and Procedures for Improving the Use of Science in Regulatory Decision-Making, builds on the work of the Bipartisan Policy Center (BPC) in its 2009 report Science for Policy Project: Improving the Use of Science in Regulatory Policy.

"Americans need to have confidence in a U.S. regulatory system that encourages rational, science-based decision-making," said Mike Walls, Vice President of Regulatory and Technical Affairs for the American Chemistry Council (ACC), one of the sponsors of the Keystone Roundtable. "For this report, a broad spectrum of stakeholders came together to identify and help resolve some of the more troubling inconsistencies and roadblocks at the intersection of science and regulatory policy."

Controversies surrounding a regulatory decision often arise over the composition and transparency of scientific advisory panels and the scientific analysis used to support such decisions. The Roundtable's report is the product of 18 months of deliberations among experts from advocacy groups, professional associations and industry, as well as liaisons from several key Federal agencies. The report centers on two main public policy challenges that lead to controversy in the regulatory process: appointments of scientific experts, and the conduct of systematic scientific reviews.

The Roundtable's recommendations aim to improve the selection process for scientists on federal advisory panels and the scientific analysis used to draw conclusions that inform policy. The report seeks to maximize transparency and objectivity at every step in the regulatory decision-making process by informing the formation of scientific advisory committees and use of systematic reviews. The Roundtable's report offers specific recommendations for improving expert panel selection by better addressing potential conflicts of interest and bias. In addition, the report recommends ways to improve systematic reviews of scientific studies by outlining a step-by-step process, and by calling for clearer criteria to determine the relevance and credibility of studies.

"Conflicted experts and poor scientific assessments threaten the scientific integrity of agency decision making as well as the public's faith in agencies to protect their health and safety," said Francesca Grifo, Senior Scientist and Science Policy Fellow for the Union of Concerned Scientists. "Given the abundance of inflamed partisan dialogue around regulatory issues, it was refreshing to be a part of a rational and respectful roundtable. If adopted by agencies, the changes recommended in the report have the potential to reduce the ability of narrow interests to weaken regulations' power to protect the public good."

The Keystone Center and members of the Research Integrity Roundtable welcome additional conversations and dialogue on the matters explored in and recommendations presented in this report.

For more information, access the Roundtable's website at: www.Keystone.org/researchintegrity.

Thursday, September 13, 2012

The Rough Road to Progress Against Alzheimer's Disease

The Rough Road to Progress Against Alzheimer's Disease
 PhRMA
Sep 13, 2012
http://www.innovation.org/index.cfm/NewsCenter/Newsletters?NID=205


Two high-profile Alzheimer’s drug development failures were announced in recent weeks shining a spotlight on the challenges and frustrations inherent in Alzheimer’s research. Alzheimer’s disease is among the most devastating and costly illnesses we face and the need for new treatments will only become more acute as our population ages.

Understanding a disease and developing medicines to treat it is always a herculean task but Alzheimer’s brings particular challenges and long odds. A new report from the Pharmaceutical Research and Manufacturers of America (PhRMA), "Researching Alzheimer’s Medicines: Setbacks and Stepping Stones", examines the complexities of researching and treating Alzheimer’s and drug development success rates in recent years.

Since 1998, there have been 101 unsuccessful attempts to develop drugs to treat Alzheimer’s—or as some call them “failures,” according to the new analysis. In that time three new medicines have been approved to treat the symptoms of Alzheimer’s disease; however, for every research project that succeeded, 34 failed to yield a new medicine.

These “failures” may appear to be dead ends – a waste of time and resources – but to researchers they are both an inevitable and necessary part of making progress. These setbacks often contribute to eventual success by helping guide and redirect research on potential new drugs. In fact, the recent unsuccessful trials have provided a wealth of new information which researchers are now sifting through to inform their ongoing research.

Alzheimer’s disease is the sixth leading cause of death in the United States today, with 5.4 million people currently affected.[i]  By 2050, the number of Americans with the disease is projected to reach 13.5 million at a cost of over $1.1 trillion unless new treatments to prevent, arrest or cure the disease are found.[ii]  According to the Alzheimer’s Association a new medicine that delays the onset of the disease could change that trajectory and save $447 billion a year by 2050.

According to another new report, researchers are currently working on nearly 100 medicines in development for Alzheimer’s and other dementias. Although research is not a straight, predictable path, with continued dedication, we will make a difference for every person at risk of suffering from this terrible, debilitating disease.



[i]Alzheimer's Association, “Factsheet,” (March 2012), http://www.alz.org/documents_custom/2012_facts_figures_fact_sheet.pdf 
[ii]Alzheimer's Association, 2012 Alzheimer's Disease Facts and Figures, Alzheimer's and Dementia, Volume 8, Issue 2

Wednesday, September 12, 2012

China's Solyndra Economy. By Patrick Chovanec

China's Solyndra Economy. By Patrick Chovanec
Government subsidies to green energy and high-speed rail have led to mounting losses and costly bailouts. This is not a road the U.S. should travel.WSJ, September 11, 2012, 7:21 p.m. ET
http://online.wsj.com/article/SB10000872396390443686004577634220147568022.html

On Aug. 3, the owner of Chengxing Solar Company leapt from the sixth floor of his office building in Jinhua, China. Li Fei killed himself after his company was unable to repay a $3 million bank loan it had guaranteed for another Chinese solar company that defaulted. One local financial newspaper called Li's suicide "a sign of the imminent collapse facing the Chinese photovoltaic industry" due to overcapacity and mounting debts.

President Barack Obama has held up China's investments in green energy and high-speed rail as examples of the kind of state-led industrial policy that America should be emulating. The real lesson is precisely the opposite. State subsidies have spawned dozens of Chinese Solyndras that are now on the verge of collapse.

Unveiled in 2010, Beijing's 12th Five-Year Plan identified solar and wind power and electric automobiles as "strategic emerging industries" that would receive substantial state support. Investors piled into the favored sectors, confident the government's backing would guarantee success. Barely two years later, all three industries are in dire straits.

This summer, the NYSE-listed LDK Solar, the world's second largest polysilicon solar wafer producer, defaulted on $95 billion owed to over 20 suppliers. The company lost $589 million in the fourth quarter of 2011 and another $185 million in the first quarter of 2012, and has shed nearly 10,000 jobs. The government in LDK's home province of Jiangxi scrambled to pledge $315 million in public bailout funds, terrified that any further defaults could pull down hundreds of local companies.

Chinese solar companies blame many of their woes on the antidumping tariffs recently imposed by the U.S. and Europe. The real problem, however, is rampant overinvestment driven largely by subsidies. Since 2010, the price of polysilicon wafers used to make solar cells has dropped 73%, according to Maxim Group, while the price of solar cells has fallen 68% and the price of solar modules 57%. At these prices, even low-cost Chinese producers are finding it impossible to break even.

Wind power is seeing similar overcapacity. China's top wind turbine manufacturers, Goldwind and Sinovel, saw their earnings plummet by 83% and 96% respectively in the first half of 2012, year-on-year. Domestic wind farm operators Huaneng and Datang saw profits plunge 63% and 76%, respectively, due to low capacity utilization. China's national electricity regulator, SERC, reported that 53% of the wind power generated in Inner Mongolia province in the first half of this year was wasted. One analyst told China Securities Journal that "40-50% of wind power projects are left idle," with many not even connected to the grid.

A few years ago, Shenzhen-based BYD (short for "Build Your Dreams") was a media darling that brought in Warren Buffett as an investor. It was going to make China the dominant player in electric automobiles. Despite gorging on green energy subsidies, BYD sold barely 8,000 hybrids and 400 fully electric cars last year, while hemorrhaging cash on an ill-fated solar venture. Company profits for the first half of 2012 plunged 94% year-on-year.

China's high-speed rail ambitions put the Ministry of Railways so deeply in debt that by the end of last year it was forced to halt all construction and ask Beijing for a $126 billion bailout. Central authorities agreed to give it $31.5 billion to pay its state-owned suppliers and avoid an outright default, and had to issue a blanket guarantee on its bonds to help it raise more. While a handful of high-traffic lines, such as the Shanghai-Beijing route, have some prospect of breaking even, Prof. Zhao Jian of Beijing Jiaotong University compared the rest of the network to "a 160-story luxury hotel where only 11 stories are used and the occupancy rate of those floors is below 50%."

China's Railway Ministry racked up $1.4 billion in losses for the first six months of this year, and an internal audit has uncovered dangerous defects due to lax construction on 12 new lines, which will have to be repaired at the cost of billions more. Minister Liu Zhijun, the architect of China's high-speed rail system, was fired in February 2011 and will soon be prosecuted on corruption charges that reportedly include embezzling some $120 million. One of his lieutenants, the deputy chief engineer, is alleged to have funneled $2.8 billion into an offshore bank account.

Many in Washington have developed a serious case of China-envy, seeing it as an exemplar of how to run an economy. In fact, Beijing's mandarins are no better at picking winners, and just as prone to blow money on boondoggles, as their Beltway counterparts.

In his State of the Union address earlier this year, President Obama declared, "I will not cede the wind or solar or battery industry to China . . . because we refuse to make the same commitment here." Given what's really happening in China, he may want to think again.

Mr. Chovanec is an associate professor of practice at Tsinghua University's School of Economics and Management in Beijing, China.

Wednesday, September 5, 2012

Our Future World: Global megatrends that will change the way we live

Our Future World: Global megatrends that will change the way we live (2012 update)
Sep 5, 2012
http://www.csiro.au/resources/Our-Future-World?goback=.gde_128402_member_159431416

The six interrelated megatrends identified in the report are:
  1. More from less. The earth has limited supplies of natural mineral, energy, water and food resources essential for human survival and maintaining lifestyles.
  2. Going, going ... gone? Many of the world's natural habitats, plant species and animal species are in decline or at risk of extinction.
  3. The silk highway. Coming decades will see the world economy shift from west to east and north to south.
  4. Forever young. The ageing population is an asset. Australia and many other countries that make up the Organisation for Economic Cooperation and Development (OECD) have an ageing population.
  5. Virtually here. This megatrend explores what might happen in a world of increased connectivity where individuals, communities, governments and businesses are immersed into the virtual world to a much greater extent than ever before.
  6. Great expectations. This is a consumer, societal, demographic and cultural megatrend.It explores the rising demand demand for experiences over products and the rising importance of social relationships.

Tuesday, August 28, 2012

Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis. By Roxana Mihet

Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis. By Roxana Mihet
IMF Working Paper No. 12/210
Aug 2012
http://www.imfbookstore.org/ProdDetails.asp?ID=WPIEA2012210

Summary: This paper investigates the effects of national culture on firm risk-taking, using a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries. Risk-taking is found to be higher for domestic firms in countries with low uncertainty aversion, low tolerance for hierarchical relationships, and high individualism. Domestic firms in such countries tend to take substantially more risk in industries which are more informationally opaque (e.g. finance, mining, IT). Risk-taking by foreign firms is best explained by the cultural norms of their country of origin. These cultural norms do not proxy for legal constraints, insurance safety nets, or economic development.

http://www.imf.org/external/pubs/cat/longres.aspx?sk=26204.0

Excerpts:

Introduction

Understanding whether national culture affects a society‟s likelihood to generate risk-seeking firms is important for effective policy-making and for improving corporate governance. It can enrich discussions on government policies that encourage entrepreneurship and innovation. A grasp of the impact of cultural influences on corporate risk-taking would allow policy-makers to better customize their policies for firms with different risk appetites, thus promoting more competitive business environments. Understanding the impact of culture on corporate risk-taking decisions is also important to the internal conduct of multinational firms. Internal decisions in multinational firms, such as the decision to pursue a risky R&D project, require well-orchestrated responses from executives with diverse cultural backgrounds. Even in firms with standardized operating procedures, the interpretation of various financial decisions can vary among executives from different societies as a result of their cultural differences (Tse et al. 1988). Accounting for the impact of cultural influences on decision-making allows the firms themselves to accommodate and adapt to such differences, hence diminishing “noisy” interactions among executives and errors in decision-making.

This study employs four dimensions of national culture identified by Hofstede (2001) and an international sample of 50,000 firms spread across 400 industries in 51 countries to analyze the effects of cultural differences on corporate risk-taking. More specifically, it tries to identify the channels through which cultural values can influence corporate risk-taking. Culture can affect the institutional and economic development at the macro level, the industrial diversification and industry concentration at the market structure level, as well as the corporate and individual decision-making at the micro level, all of which may in turn influence firm risk-taking decisions.

Previous literature has shown that national culture does in fact predict cross-country differences in the degree of institutional and economic development. Culture has been linked with creditor rights and investor protection (Stulz and Williamson 2003), with judicial efficiency (Radenbaugh et al. 2006), with corporate governance (Doidge et al. 2007), with bankruptcy protection and insolvency management (Beraho and Elisu 2010) and with overall levels of transparency and corruption (Husted 1999). Research has further established that national culture has an impact on the composition and leadership structure of boards of directors (Li and Harrison 2008) and also on individual decision-making at the micro level (Hilary and Hui 2009; Halek and Eisenhauer 2001; and Graham et al. 2009). On the other hand, attitudes towards risk are likely to be indirectly affected by culture through many of the factors listed above, as well as directly by national cultural norms, which may encourage or deter risk-taking.

This paper is not the first to study the impact of cultural values on corporate risk-taking. The extant literature has briefly studied the relation between culture and risk-taking, but has mostly focused on firms in the banking and the financial sectors (Houston et al. 2010; Kanagaretnam et al. 2011; Lehnert et al. 2011; Li and Zahra 2012). For example, Kanagaretnam et al. (2011) show that aggressive risk-taking activities by banks are more likely in societies with low uncertainty avoidance and high individualism. They show that cultural differences between societies have a profound influence on the level of bank risk-taking, and the ability to explain bank financial troubles during the recent financial crisis. On the other hand, Griffin et al. (2012) show that uncertainty avoidance is negatively and individualism is positively associated with firm-level riskiness in the non-financial sector (in the manufacturing sector).

This paper innovated in at least four ways. First, this paper takes a more holistic approach to the study of cultural influences on corporate risk-taking by studying not only the banking and the financial sectors, but all industries in a market economy. We take this approach in order to capture cross-industrial differences in risk-taking. The influence of cultural factors, such as national uncertainty aversion, may be of greater importance for firms in more informationally opaque industries such as information technologies, financial services, oil extraction, and chemicals, where information uncertainty is higher relative to manufacturing and industrial firms, because of the greater complexity of operations and the difficulty of assessing and managing risk. Thus, we test whether corporate risk-taking in informationally more opaque industries is more sensitive to a country‟s national cultural norms. Second, we differentiate between the direct and indirect effects of national culture on firm risk-taking. We specifically test whether cultural norms remain important in determining corporate risk-taking behaviors even after taking into account their impact on the institutional, economic and industrial environments. Third, unlike previous research which has used standard ordinary least squares analyses, we model both the direct and indirect effects of culture on risk-taking by employing a hierarchical linear mixed model. The hierarchical linear mixed model allows testing multi-level theories, simultaneously modeling variables at the firm, industry and country level without having to recourse to data aggregation or disaggregation as previous cultural economics studies have had to do. Fourth, by using a hierarchical linear model in explaining firm-level risk-taking, we can model not only the firm, industry and country-level influences on risk-taking, but also their cross-level interactions.

This paper finds that:
 Culture impacts corporate risk-taking directly and not merely though indirect channels such as the legal and regulatory frameworks.
 Corporate risk-taking is higher in societies with low uncertainty avoidance, low tolerance for hierarchical relationships and in societies which value individualism over collectivism, with these effects even more accentuated in societies with better formal institutions.
 Additionally, firms in countries ranking high in uncertainty-aversion and low in individualism take significantly less risk in industrial sectors which are more informationally opaque (e.g. finance, IT, oil refinery and mining), compared to firms in countries lower in uncertainty-aversion and higher in individualism.
 Risk-taking by foreign firms is best explained by the cultural norms of their country of origin.
 These cultural dimensions are not proxying for legal constraints, economic development, bankruptcy costs, insurance safety nets, or many other factors.

The results of this study inform both theory and policy in several ways. First, these findings strengthen the argument that the same institutional rules can produce different economic outcomes in culturally-different societies. Second, they imply that policy-makers should take into account cross-cultural values and norms when drafting policies that promote competitive business environments. Third, they enrich governmental discussions on policies that address risk-taking in informationally opaque sectors.


Literature review

Several research studies in the financial, accounting, and management literatures have explored the importance of cultural values in decision-making. These studies find that culture can explain the institutional, legal and economic environments of a country at the macro level which can influence corporate risk-taking decisions, and offer evidence of the impact of culture on financial decision-making by individuals at the micro level beyond traditional economic arguments.

At the micro level, culture has (unsurprisingly) been shown to affect individual risk-taking behaviors. Breuer et al. (2011) find that individualism is linked to overconfidence and overoptimism and has a significantly positive effect on individual financial risk-taking and the decision to own stocks. Tse et al. (1988) show that home culture has predictable, significant effects on the decision-making of executives. Two decades later, Graham et al. (2010), using survey data in the U.S., also show that CEOs are not immune to the effects of culture. They find that CEOs‟ decision-making is strongly influenced by cultural values such as uncertainty-aversion.

At the macro level, cultural heritage has been linked to corporate governance, investor protection, creditor rights, bankruptcy protection, judicial efficiency, accounting transparency, and corruption. Doidge et al. (2007) find that cross-cultural differences explain much more of the variance in corporate governance than observable firm characteristics. Hope (2003a) shows evidence that both legal origin and culture (as proxied by Hofstede‟s cultural dimensions) are important in explaining firms‟ disclosure practices and investor protection. In fact, he finds that although legal origin is a key determinant of disclosure levels, its importance decreases with the richness of a firm‟s information environment, while culture still remains a significant determinant. Licht et al. (2005) find that social norms of governance correlate strongly and systematically with high individualism and low power distance. Stulz et al. (2003) find that cultural heritage, proxied by religion and language, predicts the cross-sectional variation in creditor rights better than a country‟s trade openness, economic development, legal origin, or language. Other studies find that culture predicts judicial efficiency and the transparency of accounting systems. Radenbaugh et al. (2006) find that countries in the Anglo cluster have an accounting system which is more transparent and less conservative than either the Germanic or the Latin accounting systems. Beraho et al. (2010) show that cross-cultural variables have a direct influence on the propensity to file for bankruptcy and on insolvency laws. Lastly, both Getz and Volkema (2001) and Robertson and Watson (2004) link cultural differences to corruption levels.

Furthermore, recent research has also linked cultural variables to economic and market development, although the evidence is mixed. Guiso et al. (2006) find that national culture impacts economic outcomes, by influencing national savings rates and income redistributions. Kwok and Tadesse (2006) find that culture explains cross-country variations in financial systems, with higher uncertainty-avoidance countries dominated by bank-based financial systems, rather than by stock-markets. Kirca et al. (2009) show that national culture impacts the implementation of market-oriented practices (i.e., generation, dissemination, and utilization of market intelligence) and the internalization of market-oriented values and norms (i.e., innovativeness, flexibility, openness of internal communication, speed, quality emphasis, competence emphasis, inter-functional cooperation, and responsibility). Lee and Peterson (2000) show that only countries with specific cultural tendencies (i.e., countries which emphasize individualism) tend to engender a strong entrepreneurial orientation, hence experiencing more entrepreneurship and global competitiveness. On the other hand, Pryor (2005) argues that cultural variables do not seem related to the level of economic development and are not useful in understanding economic growth or differences in levels of economic performance across countries. Additionally, Herger et al. (2008) also argue that cultural beliefs do not seem to support or impede financial development. This mixed evidence points to the idea that national culture might only indirectly influence economic and market development through its effects on the legal and institutional contexts.

The institutional and economic environments have been shown to affect corporate risk-taking decisions. There is a small strand of literature which has explored corporate risk-taking around the world which reflects countries‟ institutional and economic environments. For example, Laeven and Levine (2009) show that risk-taking by banks varies positively with the comparative power of shareholders within each bank. Moreover, they show that the relations between bank risk-taking and capital regulation, deposit insurance mechanisms, and bank activities restrictiveness, depend critically on the bank‟s ownership structure. Claessens et al. (2000) show that corporations in common law countries and market-based financial systems have less risky financing patterns, and that the stronger protection of equity and creditor rights is also associated with less financial risk. Overall, while the literature is relatively small, national culture has been indirectly linked with corporate risk-taking decisions in formal studies, although most of them only analyze the banking sector.

Culture has also been directly linked with corporate risk-taking, although again, most studies have focused on either the financial or the manufacturing sectors separately. Kanagaretnam et al. (2011) show that banks in high uncertainty avoidance societies tend to take less risk, whereas banks in high individualism societies take more risk. However, they do not control for institutional variables such as corporate governance, bankruptcy protection, judicial efficiency, transparency, and corruption, which have shown to be affected by national cultural norms and which could at their turn affect corporate risk-taking. Griffin et al. (2012) study the impact of culture on firms in the manufacturing sector in the period 1997-2006. To the best of our knowledge, they are the only ones who use a hierarchical linear mixed model to analyze the impact of culture on corporate risk-taking. They show that individualism has positive and significant direct effects, while uncertainty avoidance has negative and significant direct effects on corporate risk-taking.

This paper contributes to the literature on the impact of culture on firm risk-taking in several ways. While previous studies have studied either the direct or the indirect effects of culture on risk-taking, this paper tries to reconcile the two strands of literature and assess them simultaneously by using a hierarchical linear mixed model. This allow to test whether cultural norms remain important in determining corporate risk-taking behaviors even after taking into account their impact on the institutional, economic and industrial environments. Moreover, this paper extends the analyses of Griffin et al. (2012) and Kanagaretnam et al. (2011) to capture cross-industrial differences in risk-taking. Given the importance to national and global economies of the highly leveraged sector of finance, or the highly innovative sector of IT, or the highly risky commodity industries1, and given that firms in these industries are markedly different from manufacturing firms and have been more adversely affected by the recent global economic crisis, it is very important to understand the role of culture on cross-industrial variation in corporate risk-taking.

Tuesday, June 26, 2012

Rising Tensions Over China's Monopoly on Rare Earths?

Rising Tensions Over China's Monopoly on Rare Earths?, by June Nakano
East-West Center Asia Pacific Bulletin, no. 163
Washington, DC, May 2, 2012
http://www.eastwestcenter.org/publications/rising-tensions-over-china%E2%80%99s-monopoly-rare-earths

Jane Nakano, Fellow with the Energy and National Security Program at the Center for Strategic and International Studies, explains that "the current rare earth contention should serve as a reminder of the fundamental importance of supply diversification, and the enduring value that research and development plays in meeting many of the energy and resource related challenges society faces today."

Excerpts:

The recent Chinese industry consolidation may not be a welcome development as it will most likely increase the price of many rare earth materials. However, it is probably too short-sighted to view this move as a simple measure to side-step international complaints about China’s restrictive export policies on rare earth materials. In reality, the consolidation likely has multiple objectives, such as to demonstrate to the Chinese public an effort to both curb pollution and eradicate illegal mining, to ensure an adequate level of supply to domestic consumers, and to encourage higher value exports—if the consolidation leads to an in-flow of foreign rare earth processors to China. It would be neither easy nor particularly meaningful to determine which factor is most dominant.

Friday, May 4, 2012

Women, Welch Clash at Forum - "Great women get upset about getting into the victim's unit"

Women, Welch Clash at Forum. By John Bussey
Wall Street Journal, May 4, 2012, page B1
http://online.wsj.com/article/SB10001424052702303877604577382321364803912.html

Is Jack Welch a timeless seer or an out-of-touch warhorse?

The former Master and Commander of General Electric still writes widely on business strategy. He's also influential on the speaking circuit.

On Wednesday, Mr. Welch and his wife and writing partner, Suzy Welch, told a gathering of women executives from a range of industries that, in matters of career track, it is results and performance that chart the way. Programs promoting diversity, mentorships and affinity groups may or may not be good, but they are not how women get ahead. "Over deliver," Mr. Welch advised. "Performance is it!"

Angry murmurs ran through the crowd. The speakers asked: Were there any questions?

"We're regaining our consciousness," one woman executive shot back.

Mr. Welch had walked into a spinning turbine fan blade.

"Of course women need to perform to advance," Alison Quirk, an executive vice president at the investment firm State Street Corp., said later. "But we can all do more to help people understand their unconscious biases."

"He showed no recognition that the culture shapes the performance metrics, and the culture is that of white men," another executive said.

Academy Award winning actor Geena Davis talks about the perception of women as seen in the media and about what has and has not changed in the past sixty years.

Dee Dee Myers, a former White House press secretary who is now with Glover Park Group, a communications firm, added: "While he seemed to acknowledge the value of a diverse workforce, he didn't seem to think it was necessary to develop strategies for getting there—and especially for taking a cold, hard look at some of the subtle barriers to women's advancement that still exist. If objective performance measures were enough, more than a handful of Fortune 500 senior executives would already be women. "

"This meritocracy fiction may be the single biggest obstacle to women's advancement," added Lisa Levey, a consultant who heard Mr. Welch speak.

Mr. Welch has sparked controversy in the past with his view of the workplace. In 2009, he told a group of human-resources managers: "There's no such thing as work-life balance." Instead, "there are work-life choices, and you make them, and they have consequences." Step out of the arena to raise kids, and don't be surprised if the promotion passes you by.

Of the Fortune 500 companies, only 3% have a female CEO today. Female board membership is similarly spare. A survey of 60 major companies by McKinsey shows women occupying 53% of entry-level positions, 40% of manager positions, and only 19% of C-suite jobs.

The reasons for this are complex and aren't always about child rearing. A separate McKinsey survey showed that among women who have already reached the status of successful executive, 59% don't aspire to one of the top jobs. The majority of these women have already had children.

"Their work ethic—these people are doing it all," said Dominic Barton of McKinsey. "They say, 'I'm the person turning off the lights'" at the end of the day.

Instead, Mr. Barton said, it's "the soft stuff, the culture" that's shaping their career decisions.

The group of women executives who wrestled with Mr. Welch were at a conference on Women in the Economy held by The Wall Street Journal this week. Among other things, they tackled the culture questions—devising strategies to get more high-performing women to the top, keep women on track during childbearing years, address bias, and make the goals of diversity motivating to employees. They also discussed the sexual harassment some women still experience in the workplace. (A report on the group's findings will be published in the Journal Monday.)

The realm of the "soft stuff" may not be Mr. Welch's favored zone. During his remarks, he referred to human resources as "the H.R. teams that are out there, most of them for birthdays and picnics." He mentioned a women's forum inside GE that he says attracted 500 participants. "The best of the women would come to me and say, 'I don't want to be in a special group. I'm not in the victim's unit. I'm a star. I want to be compared with the best of your best.'"

And then he addressed the audience: "Stop lying about it. It's true. Great women get upset about getting into the victim's unit."

Individual mentoring programs, meanwhile, are "one of the worst ideas that ever came along," he said. "You should see everyone as a mentor."

He had this advice for women who want to get ahead: Grab tough assignments to prove yourself, get line experience, and embrace serious performance reviews and the coaching inherent in them.

"Without a rigorous appraisal system, without you knowing where you stand...and how you can improve, none of these 'help' programs that were up there are going to be worth much to you," he said. Mr. Welch said later that the appraisal "is the best way to attack bias" because the facts go into the document, which both parties have to sign.

Mr. Welch championed the business philosophy of "Six Sigma" at GE, a strategy that seeks to expunge defects from production through constant review and improvement. It appears to work with machines and business processes.

But applying that clinical procedure to the human character, as Mr. Welch seems to want to do, is a stickier proposition.

"His advice was not tailored to how women can attain parity in today's male-dominated workplace," said one female board member of a Fortune 500 company. Indeed, a couple of women walked out in frustration during his presentation.

Tuesday, May 1, 2012

Pharma: New Tufts Report Shows Academic-Industry Partnerships Are Mutually Beneficial


New Tufts Report Shows Academic-Industry Partnerships Are Mutually Beneficial 
http://www.innovation.org/index.cfm/NewsCenter/Newsletters?NID=200
April 30, 2012 -

According to a new study by the Tufts Center for the Study of Drug Development, collaboration among organizations is becoming increasingly important to advancing basic research and developing new medicines. This study specifically explores the breadth and nature of partnerships between biopharmaceutical companies and academic medical centers (AMCs)
[1] which are likely to play an increasingly important role in making progress in treating unmet medical needs. 
In the study, researchers examine a subset of public-private partnerships, including more than 3,000 grants to AMCs from approximately 450 biopharmaceutical company sponsors that were provided through 22 medical schools. Findings show that while it is generally accepted that these partnerships have become an increasingly common approach both to promote public health objectives and to produce healthcare innovations, it is anticipated that their nature will continue to evolve over time and their full potential is yet to be realized.

Tufts researchers also found that the nature of these relationships is varied, ever-changing, and expanding. They often involve company and AMC scientists and other researchers working side-by-side on cutting-edge science, applying advanced tools and resources. This type of innovative research has enabled the United States to advance biomedical research in a number of areas, such as the development of personalized medicines and the understanding of rare diseases.

The report outlines the 12 primary models of academic-industry collaborations and highlights other emerging models, which reflect a shift in the nature of academic-industry relationships toward more risk- and resource-sharing partnerships. While unrestricted research support has generally represented the most common form of academic-industry collaboration, Tufts research found that this model is becoming less frequently used. A range of innovative partnership models are emerging, from corporate venture capital funds to pre-competitive research centers to increasingly used academic drug discovery centers.

These collaborations occur across all aspects of drug discovery and the partnerships benefit both industry and academia since they provide the opportunity for the leading biomedical researchers in both sectors to work together to explore new technologies and scientific discoveries. Such innovation in both the science and technology has the potential to treat the most challenging diseases and conditions facing patients today.

According to Tufts, “[t]he industry is funding and working collaboratively with the academic component of the public sector on basic research that contributes broadly across the entire spectrum of biomedical R&D, not just for products in its portfolio.” In conclusion, the report notes that in the face of an increasingly challenging R&D environment and overall global competition, we are likely to witness the continued proliferation of AMC-industry partnerships.



[1] C.P. Milne, et al., “Academic-Industry Partnerships for Biopharmaceutical Research & Development: Advancing Medical Science in the U.S.,” Tufts Center for the Study of Drug Development, April 2012.

Saturday, April 14, 2012

America's Voluntary Standards System--A "Best Practice" Model for Innovation Policy?

America's Voluntary Standards System--A "Best Practice" Model for Innovation Policy? By Dieter Ernst
East-West Center, Apr 2012
http://www.eastwestcenter.org/publications/americas-voluntary-standards-system-best-practice-model-innovation-policy

For its proponents, America's voluntary standards system is a "best practice" model for innovation policy. Foreign observers however are concerned about possible drawbacks of a standards system that is largely driven by the private sector. There are doubts, especially in Europe and China, whether the American system can balance public and private interests in times of extraordinary national and global challenges to innovation. To assess the merits of these conflicting perceptions, the paper reviews the historical roots of the American voluntary standards system, examines its current defining characteristics, and highlights its strengths and weaknesses. On the positive side, a tradition of decentralized local self-government, has given voice to diverse stakeholders in innovation, avoiding the pitfalls of top-down government-centered standards systems. However, a lack of effective coordination of multiple stakeholder strategies tends to constrain effective and open standardization processes, especially in the management of essential patents and in the timely provision of interoperability standards. To correct these drawbacks of the American standards system, the government has an important role to play as an enabler, coordinator, and, if necessary, an enforcer of the rules of the game in order to prevent abuse of market power by companies with large accumulated patent portfolios. The paper documents the ups and downs of the Federal Government’s role in standardization, and examines current efforts to establish robust public-private standards development partnerships, focusing on the Smart Grid Interoperability project coordinated by the National Institute of Standards and Technology (NIST). In short, countries that seek to improve their standards systems should study the strengths and weaknesses of the American system. However, persistent differences in economic institutions, levels of development and growth models are bound to limit convergence to a US-Style market-led voluntary standards system.

Thursday, November 17, 2011

How Coca-Cola Manages 90 Emerging Markets

How Coca-Cola Manages 90 Emerging Markets, by William J. Holstein
The world’s largest beverage company has delegated major decision making to individual markets, but it maintains its global brand strategy through collaborative practices.
November 7, 2011
http://www.strategy-business.com/article/00093?pg=all

Ahmet C. Bozer, president of the Coca-Cola Company’s Eurasia and Africa Group, has spent his career demonstrating how a large international company can build a strategy and structure itself to compete in emerging markets. Coca-Cola is one of the most globally active international companies, deriving 80 percent of its sales from outside the U.S., and it is therefore one of the most experienced in tackling emerging markets, including Egypt and Pakistan, where political tension renders the business environment uncertain and Coca-Cola’s strategy has proven resilient.

Bozer, who was born and raised in Turkey, has worked for Coca-Cola since 1990 in various capacities, including operations and finance, as well as leading the Coca-Cola bottling company in Turkey. He is currently based in Istanbul, where he oversees 90 markets, ranging geographically from India and South Asia through the Middle East and all of Africa, across Turkey and the Caucasus into the countries of the former Soviet Union. This territory accounted for 16 percent of Coke’s sales last year, for a retail value of US$10 billion, and Bozer expects that number to grow rapidly during the next decade. Like four other regional presidents, Bozer reports directly to Coca-Cola Chairman and CEO Muhtar Kent in Atlanta, Ga. Bozer sat down with us at the Coca-Cola offices in New York.

S+B: Your late CEO Roberto Goizueta charged the company to “think global, act local” in its strategy. How do you accomplish this?

BOZER: I wish it was as easy as repeating the slogan. The key for international companies is finding the right mix of global and local in their operations. The Coca-Cola brand is global, but it must be locally relevant. We may be giving the same happiness message, the same brand architecture may be communicated, but it has to be done differently in each country.

S+B: Your structure has strong regional managers such as yourself, but headquarters in Atlanta maintains global responsibility for sales, finance, and marketing — and for specific product lines like water or juices. How do you manage this?

BOZER: We are a franchise system. Our bottlers are primarily local. In Turkey, for example, we have a Turkish bottler. So the effectiveness of our company depends on the effectiveness of our relationships with the bottlers and our brands. To manage franchise relationships, you have to have a geographic orientation. Therefore our organization is primarily geographic. Globally, we have five operating groups: North America, Latin America, Europe, Eurasia and Africa, and Pacific.

At the same time, the juice business requires a different organizational structure than the sparkling beverages business. The raw material costs are high and fluctuate a lot, and there are opportunities to innovate more quickly; we may introduce four or five new variants of a juice in a given year. Thus, there is a matrix. A functional group in Atlanta is in charge of juices worldwide, but they work through the geographic organizations.

We are still evolving in finding the best local and global combination that works for us. When it comes to franchise relations with the bottlers, that is local. We have to make decisions in the local context with the right speed. Quality standards are both local (we adhere to all local government safety regulations) and global (we have our own global, rigorous, quality control standards). But we take advantage of our global properties and collaborate as a global team, bringing the best resources to bear on a specific issue.

S+B: How do you manage disagreements between the field and headquarters?
 
BOZER: We have been working on it for many years. We all understand that nothing is as black-and-white as we’d like. Let’s say I’m hiring a function leader. I am the ultimate decision maker, but I know that any function leader must operate as part of the global team. He or she must be able to collaborate globally, and the global organization has to be comfortable with that candidate. This is where maturity is important. We emphasize a collaborative process because it makes the decision better. But our culture is purely focused on making the right choice, rather than defining my turf versus your turf. That allows us to make these decisions quickly.

S+B: How do you manage the dramatic variations in cultures and politics among your 90 markets?
 
BOZER: It’s not as difficult as it might seem. I have six business units, based in South Africa, Kenya, Turkey, Russia, India, and Dubai. And I have a functional team in Istanbul with finance, marketing, and strategy capabilities. The functional team works as part of the global team to come up with strategic plans for each market. We share those with the business units, and we expect them to enrich [the plans] and add value to them by adapting them to their own needs.
Russia might say, “Well, iced tea is a big category here, so here’s how we are going to compete [with that product].” There is a clear thread of consistency among all the regions; we stay connected to the global team in Atlanta through the finance and marketing communities.

S+B: What do you see as the greatest opportunity in your 90 markets?
 
BOZER: If you project the demographics of today into 2020, you will find that about half of the favorable changes will be located in Eurasia and Africa: new entrants into the middle class, an increase in the number of teenagers, urbanization. A few of these countries have very high per capita consumption of our beverages. South Africa is about 250 drinks per year per person, which is above the global average. Turkey is higher than 150. But when you take those relatively well-developed markets out and look at India, Pakistan, sub-Saharan Africa, Russia, and central Asia, those markets have very low per capita consumption — for the whole industry. In India, just 4 or 5 percent of the beverages consumed are packaged. People drink tap water, tea, and dairy; vendors squeeze juice on the street. When people start having a bit more money and a middle class emerges, demand for packaged beverages will increase.
In that context, our strategy is not very complicated. We know how to grow “Brand Coke.” It’s about locally relevant brand building with consumers — the right pricing and packaging, with small packs, large packs, or take-home packs. We place new coolers in the market and invest in people, putting “feet on the street,” and activate outlets one by one. At the same time, there is a flourishing juice business and a flourishing water business, and in some of our markets, teas and energy drinks are developing.

S+B: How do you make yourself “locally relevant?”
 
BOZER: We have very strong consumer marketing teams. We invest a lot in understanding the psyche of the local consumer. In Egypt, during the Arab Spring [uprisings], our marketing people were able to tap into the psyche of the public — especially the teenagers. We understood that despite the uncertainty they were going through, they wanted to create a bright future. Our brand promise is happiness and optimism. Our team quickly put together some excellent consumer communication with the message that if everybody came together, the Egyptian people could build a better future. That message was delivered in a wonderful ad in which the skies over Tahrir Square in Cairo are quite overcast and dark, but people get together and throw ropes to the clouds and start pulling the ropes. The clouds open up and the sun appears. That type of communication resonated extremely well. We tapped into the feelings and emotions that were most relevant to the Egyptian people.
We try to do this kind of thing everywhere. We have good marketers in each country who have access into consumer insight data, and who work with very good agencies, while at the same time working with robust global processes.

S+B: Doesn’t political and social upheaval create a problem for you?
 
BOZER: Not really. I was in Pakistan recently. When you read the papers and watch television, you hear about terrorism, earthquakes, floods, and sectarian violence. It’s all negative. But we’ve been there for more than 50 years and we have not experienced any problems in running our business. In fact, our business is thriving there. Over the past four years, we have been growing extremely well. The same holds true for the Arab Spring countries.
In our external environment, we may have many headwinds, but we sell simple moments of pleasure that get consumed a million times a day, and that business continues to be vibrant. It’s a very simple product. Yes, growth slows when you go through major political changes, but things settle down and life goes back to normal. Then you start building from there.

S+B: You have a tremendous variation in the type and sophistication of bottlers you work with, ranging from a giant like SABMiller in South Africa to mom-and-pop-type bottlers in other markets. How do you adapt to their different styles and capabilities?
 
BOZER: This is the bread and butter of our business: being effective with our partnerships. Our partners may be multi-country bottlers, or they may operate within a single country. They may be public or private. In some countries we work with multiple bottlers. We have all kinds of relationships.

With each one, we first establish a shared vision. We have a one-page road map that portrays a very clear destination for 2020, a clear framework about our strategic pillars and metrics. That road map is actually prepared with our bottlers. It guides all our business planning.
Then it comes to capability. Does the bottler have the capability to execute these plans with us?

At the end of the day, we’re trying to create value for the overall system of the Coca-Cola Company and its bottlers, not just ourselves. Otherwise, the system won’t be sustainable in terms of our results.

One of the best examples is our bottler in Turkey, which I used to run. The bottler was built by the Coca-Cola Company and sold to a local shareholder who now owns a majority. It’s a public company with a market value of more than €2.5 billion (US$3.5 billion). It has great alignment with the Coca-Cola Company. It is now 10 times the size of when it started in 1994. This model really works.

S+B: How do you support your partners? Do you train them or lend them money?
 
BOZER: It depends on the needs of the bottler. The bottlers that operate in multiple countries tend not to need our help. But there might be some emerging area of knowledge — for example, about how to do better category management, in which case we have centers of excellence that the bottlers can access. We have websites where they can download best practices or get our help in building their capabilities. We sometimes support bottlers financially as well, if we are aligned on a fairly aggressive growth plan and want to invest in marketing to build the brands with more intensity. And let’s not forget, we own about 30 percent of our bottlers around the world.

S+B: How do you allow a local bottler and local business unit to differentiate the mix of products they offer?
 
BOZER: We don’t work in a way whereby every time a business unit wants to launch a product, they have to get my approval. Instead, we share the strategic framework. We have strategy discussions and business plan discussions, and we have other guidelines and rules.
For example, it is understood within the group that I want to know your top three priorities. If you want to launch a new product, but you need to take away [resources] from one of those core priorities to launch that product, then you shouldn’t do it. And if your bottler doesn’t have the capabilities to handle that product, you shouldn’t launch it. But if you can figure out how to do all of that in a way that still funds your core, if you have followed the right process, and if you are in the right marketplace with the right capabilities on the marketing side, then by all means go ahead.

We have Maaza juice in India, for example. The local team wanted to launch a Maaza milkshake, which is a wonderful mango dairy product. Dairy is a very relevant category in India, and Maaza milkshakes were received extremely well by consumers. My group function heads and the global function heads contributed to this by supporting the local team. This is not a bureaucratic approval–based system. Of course, there are approvals, but once the strategy and business plan are approved, local teams can execute.

S+B: Have you had much reverse innovation, in which a local group comes up with an idea that you take to other markets?
 
BOZER: Yes. One innovation that came out of India is the solar-powered coolers. We’re looking to expand that to other markets. There’s great engineering talent in India. Another product that shows promise is Minute Maid’s Pulpy, an orange juice with pulp that did extremely well in China. We expanded it into many countries. We have also taken communications elsewhere. Turkey, for example, had a very successful Ramadan communication to celebrate the holy month in Muslim countries. We took that to other Muslim countries in our group.

S+B: How do you recruit the talent you need?
 
BOZER: We look for critical experiences and functional competencies. And we ask about candidates: Do they represent the values of the company? We’re about optimism. A pessimistic person wouldn’t work out.
The nationality and gender don’t really matter. On my group leadership team of 18 people, I have 12 nationalities represented, including individuals from Zimbabwe, Scotland, the United States, Turkey, South Africa, India, Croatia, and elsewhere.
The most important competency is leadership. It takes very strong leadership to be able to explain the environment, establish a vision, and rally the troops. Command and control, in most cases, does not work. If you try to control everything, the system won’t work.

Sunday, March 20, 2011

Leadership substitutes and personality impact on time and quality in some projects

Leadership substitutes and personality impact on time and quality in virtual new product development projects / Kenneth David Strang

Article first published online: Sep 29, 2010 - DOI: 10.1002/pmj.20208



Keywords:

  • virtual product development;
  • transformational transactional leadership;
  • leadership substitutes;
  • personality;
  • competencies;
  • time performance;
  • scope quality

Abstract

Leadership, personality, and organizational factors were analyzed to measure their combined effect on virtual-based product development time and scope-quality performance. Over 1,000 team members were surveyed. MANCOVA was used to test if leadership, personality project, and/or organizational factors impacted performance. All realistic factors were included to detect leadership substitutes moderation, mediation, and prediction. Bias was reduced by not surveying leaders, by using reverse item coding, and by checking social desirability. Experimental control and common method variance were managed by including multilevel and multisource data. Performance was objectively computed from organizational data. The findings were that transactional leadership (not transformational) and some personality attri-butes (leader substitutes) were significant factors, increasing project scope quality and time performance. This article was published online on September 29, 2010. An error was subsequently identified. This notice is included in the online and print versions to indicate that both have been corrected. See the correction noted on the seventh page of the print version of the article.

Tuesday, December 14, 2010

Avoiding Technology Surprise for Tomorrow's Warfighter

Avoiding Technology Surprise for Tomorrow's Warfighter, by Admiral James R. Hogg
In: Avoiding Technology Surprise for Tomorrow's Warfighter--Symposium 2010. Committee for the Symposium on Avoiding Technology Surprise for Tomorrow's Warfighter--2010; Division on Engineering and Physical Sciences; National Research Council
December 10, 2010
http://www.nap.edu/catalog.php?record_id=12919


I think we can agree that [avoiding technology surprise] is a terrific objective and an enormous challenge, both in importance and complexity. Especially so, given that we know little about avoiding Technology Surprise today, no matter how hard we try, let alone tomorrow. Yet, more so than others, this group is composed in a way that gives it a chance. We have here today Warfighters, Technologists, and Intelligence experts, joined together.

Among you, we need linguists. Linguists who understand the cultures of the ethnic groups whose languages they translate. So, a show of hands, please. How many of you are culturallyaware linguists in the Muslim or Asian languages and dialects? Numbers are small. That's no surprise! And that explains a fundamental weakness in our Western approach to problem solving.

I say that because we will only be able to avoid Technology Surprise by thinking differently than what I will call the "Western norm." We will only do it by thinking the way a Muslim or an Asian thinks, not the way we in the West "think they think.”

If we can't figure out how to get inside, way inside, their cultural mind-sets, then for sure, we will not recognize Technology Surprise until it is too late. For example, how many of us in this room ever thought a large commercial passenger jet aircraft could generate Technology Surprise? Probably none of us. Let's just say few, if any. Why? Simply because Technology Surprise is generated by two things: disruptive technology and disruptive thinking or, even more challenging, a combination of the two!

I am going to focus now on disruptive thinking, because nations or radical groups that are incapable of developing disruptive technology will continue to "take us to the edge" through disruptive thinking. It goes like this: We in the West, in the main, tend to solve problems in a deductive manner, with precision, definition, and rule sets. This is prevalent among engineers, for example, who are taught to "bound" problems in order to define and then more easily solve them. That makes sense.

Muslims and Asians, on the other hand, tend to approach problems in an inductive manner.  With logic, based on ethnic and cultural beliefs, and without rule sets as we understand them. No rules. Anything goes! This inductive approach is amenable to continuous exploration. It is not bound by anything—in any way, in any dimension.

A rationale conclusion is that a combination of the two is the best approach. To think inductively at first for exploration and discovery; then, to think deductively in order to come up with practical solutions. This sets up a balance between the open space that spawns creative thinking, and the defined space that enables construction of solutions.

So, with all this in mind, and returning to the challenge of avoiding Technology Surprise, there is no immediate solution, but there is a way ahead. Every significant military command needs an "innovation cell" dedicated full-time to an inductive-deductive thinking process that is focused like a laser on Technology Surprise. By that, I mean Technology Surprise that might be generated by either disruptive technology or disruptive thinking. The composition of these innovation cells must be diverse in every possible way, including language and cultural skills. In addition, they must be netted, each a node in a DoD-wide web, ensuring seamless information flow and collaboration.

Over time, similar webs should be established in the Departments of State and Homeland Security, and across all agencies in the National Intelligence Directorate [Office of the Director of National Intelligence]. Let's call this approach "Deep Red" for now. It’s a new way to organize, to think, to analyze, and to collaborate in order to anticipate and counter Technology Surprise during its developing stage and, absolutely, before its deployment.

Thursday, December 2, 2010

Ping Pong Robot Learns by Doing

Ping Pong Robot Learns by Doing

http://spectrum.ieee.org/automaton/robotics/artificial-intelligence/ping-pong-robot-learns-by-doing

Friday, October 22, 2010

High costs of making batteries stall affordability of electric cars

High costs of making batteries stall affordability of electric cars. By Mike Ramsey
The Wall Street Journal Europe, page 22, Oct 19, 2010
http://online.wsj.com/article/SB40001424052748703735804575536242934528502.html

The push to get electric cars on the road is backed by governments and auto makers around the world, but they face a hurdle that may be tough to overcome: the stubbornly high cost of the giant battery packs that power the vehicles.

Both the industry and government are betting that a quick takeoff in electric-car sales will drive down the price of the battery packs, which can account for more than half the cost of an electric vehicle.

But a number of scientists and automotive engineers believe cost reductions will be hard to come by. Unlike with tires or toasters, battery packs aren't likely to enjoy traditional economies of scale as their makers ramp up production.

Some experts say that increased production of batteries means the price of the key metals used in their manufacture will remain steady—or maybe even rise—at least in the short term.

These experts also say the price of the electronic parts used in battery packs as well as the enclosures that house the batteries aren't likely to decline appreciably.

The U.S. Department of Energy has set a goal of bringing down car-battery costs by 70% from last year's price, which it estimated at $1,000 per kilowatt hour of battery capacity, by 2014.

Jay Whitacre, a battery researcher and technology policy analyst at Carnegie Mellon University, is skeptical. The government's goals "are aggressive and worth striving for, but they are not attainable in the next three to five years," he said in an interview. "It will be a decade at least" before that price reduction is reached.

The high cost of batteries is evident in the prices set for early electric cars. Nissan Motor Co.'s Leaf, due in the U.S. in December, is priced at $33,000. Current industry estimates say its battery pack alone costs Nissan about $15,600.

That cost will make it difficult for the Leaf to turn a profit. And it also may make the Leaf a tough sell, since even with government tax breaks the car will cost more than twice the $13,520 starting price of the similar-size Nissan Versa hatchback.

Nissan won't comment on the price of the battery packs, other than to say that the first versions of the Leaf won't make money. Only later, when the company begins mass-producing the battery units in 2013, will the car be profitable, according to Nissan.

The Japanese company believes it can cut battery costs through manufacturing scale. It is building a plant in Smyrna, Tenn., that will have the capacity to assemble up to 200,000 packs a year.

Other proponents of electric vehicles agree that battery costs will fall as production ramps up. "They will come down by a factor of two, if not more, in the next five years," said David Vieau, chief executive officer of A123 Systems, a start-up that recently opened a battery plant in Plymouth, Mich.

Alex Molinaroli, president of Johnson Controls Inc.'s battery division, is confident it can reduce the cost of making batteries by 50% in the next five years, though the company won't say what today's cost is. The cost reduction by one of the world's biggest car-battery makers will mostly come from efficient factory management, cutting waste and other management-related costs, not from fundamental improvement of battery technology, he said.

But researchers such as Mr. Whitacre, the National Academies of Science and even some car makers aren't convinced, mainly because more than 30% of the cost of the batteries comes from metals such as nickel, manganese and cobalt. (Lithium makes up only a small portion of the metals in the batteries.)

Prices for these metals, which are set on commodities markets, aren't expected to fall with increasing battery production—and may even rise as demand grows, according to a study by the Academies of Science released earlier this year and engineers familiar with battery production.

Lithium-ion battery cells already are mass produced for computers and cellphones and the costs of the batteries fell 35% from 2000 through 2008—but they haven't gone down much more in recent years, according to the Academies of Science study.

The Academies and Toyota Motor Corp. have publicly said they don't think the Department of Energy goals are achievable and that cost reductions are likely to be far lower. It likely will be 20 years before costs fall by 50%—not the three or so years the DOE projects—according to an Academy council studying battery costs. The council was made up of nearly a dozen researchers in the battery field.

"Economies of scale are often cited as a factor that can drive down costs, but hundreds of millions to billions of ... [battery] cells already are being produced in optimized factories. Building more factories is unlikely to have a great impact on costs," the Academies report said.

The report added that the cost of the battery-pack enclosure that holds the cells is a major portion of the total battery-pack cost, and isn't likely to come down much. In addition, battery packs include electronic sensors and controls that regulate the voltage moving through and the heat being generated by the cells. Since those electronics already are mass-produced commodities, their prices may not fall much with higher production, the study said.

Lastly, the labor involved in assembling battery packs is expensive because employees need to be more highly trained than traditional factory staff because they work in a high-voltage environment. That means labor costs are unlikely to drop, said a senior executive at one battery manufacturer.

When car makers began using nickel-metal hydride batteries, an older technology, in their early hybrid vehicles, the cost of the packs fell only 11% from 2000 to 2006 and has seen little change since, according to the Academies study.

Toyota executives, including Takeshi Uchiyamada, global chief of engineering, say their experience with nickel-metal hydride batteries makes them skeptical that the prices of lithium ion battery pack prices will fall substantially.

"The cost reductions aren't attainable even in the next 10 years," said Menahem Anderman, principal of Total Battery Consulting Inc., a California-based battery research firm. "We still don't know how much it will cost to make sure the batteries meet reliability, safety and durability standards. And now we are trying to reduce costs, which automatically affect those first three things."