New Violence Underscores India's Troubled Labor-Management Relationships

As India Knowledge@Wharton reported in a July article, titled Labor Pains: Is Industrial Unrest Growing or Slowing?, the emerging economy's economic slowdown and outdated labor laws have led to disturbing incidents of violence against managers by workers. According to a report in today's Wall Street Journal, the problem continues -- and raises concerns that "a wall of industrial unrest" threatens the pace of India's economic growth.

One of the incidents cited by the India Knowledge@Wharton article was the September 2008 murder of Lalit Kishore Chaudhary, CEO of Graziano Transmissioni India, the Indian unit of an Italian auto component maker. He was clubbed to death by a group of 200 factory workers when he approached them to discuss issues that triggered a protest they had staged at the factory gates. A year later, at another maker of auto components, Pricol Ltd., workers burst into the office of Roy George, the company's 46-year-old human-resources boss. Citing witness reports, The Journal says workers who were angry over a wage freeze used iron rods to beat the manager to death. Police arrested 50 union members in connection with his death, their lawyer told the newspaper, but no charges have been filed.

The Journal says "the unrest serves as a reminder that India has far to go before it stands alongside the world's other economic powerhouses. With its widening middle class and growing base of rural consumers, India has averaged more than 8% growth for the last half-decade. It is seen as a country that can help lead a global economic recovery."

Stimulus Lending Fuels a Real Estate Bubble in China

The volume of lending by China's banks appears to be pumping up a real estate bubble that could have global repercussions. Time magazine reports buyers waiting on line to snap up new condos in Shanghai and Wuhan. According to the Financial Times, government figures show that "prices in 70 big and medium-sized Chinese cities rose 3.9% in October from a year earlier, accelerating from September’s 2.8%," and that "price rises in top-tier markets such as Beijing and Shanghai have been much faster."

Experts, including Wharton management professor Marshall W. Meyer, whose research focuses on Chinese business practices, say the price surge is a result of a bank lending spree under the government-led stimulus program in addition to policies such as tax breaks and smaller down-payment requirements. Does this sound familiar?

Just as the U.S. real estate bubble had global implications, so could China's, according to Meyer. "Real estate is as liquid as stocks are in China, and [the Chinese] have never experienced a downturn in real estate prices." That puts lots of pressure on the government to step in. Earlier this week, according to the FT, Fan Gang, a member of the central bank's monetary policy committee, said that real estate prices pose a growing risk of asset price bubbles. Says Meyer: "My concern is that any government intervention, even if it is measured and gradual, "will signal to the rest of the world that Chinese growth will not pull us out of the recession."

FCC Scrutinizes Barriers to Broadband Access in the U.S.

The Federal Communications Commission (FCC) today reached a milestone in a process to devise a National Broadband Plan that may include the controversial goal of significantly expanding access to high-speed Internet and other telecommunications services. Advocates of the goal say it will provide a long-lasting stimulus to the economy and improve health care for many Americans. But the price tag is high -- $20 billion to $350 billion, according to Commission estimates -- and no one is volunteering to pay.

The goal could also require telecommunications companies such as AT&T, Comcast and Verizon to open up their infrastructure to competitors, which would theoretically foster competition and lower prices for consumers.

An FCC taskforce working on the plan -- the final version is due on February 17 -- reported today on the barriers to the goal, including the fact that the Federal Universal Service Fund, to which most Americans contribute through fees associated with phone service, does not support broadband development. Instead, it supports efforts to ensure that almost all Americans can have access to affordable basic phone service.

Wharton legal studies and business ethics professor Kevin Werbach, who has advised the FCC on other issues, says the laws underpinning the Universal Service fund "are out of date and not sustainable" given the rapid changes in communications technology. But he also notes that there remains much debate over whether to expand the fund to include support of wider deployment of broadband. "Most [industrialized] countries have funds to support broadband, and they also have greater access" than Americans, he says.

The Wall Street Journal reports today that the plan may call for higher consumer fees to beef up the Universal Service Fund, but Werbach says the process is far from complete.

More from Knowledge@Wharton:

New Rules for a New Age: Creating an 'Economic Stimulus Agency' out of the FCC

'Christmas' or 'Holiday'? Wharton Expert Says Pluralistic Route Is Best

It happens every year. One or more religious groups calls for a boycott against retailers that use the term "holiday" instead of "Christmas" in their advertising during -- well, that season at the end of the year when many faiths have special days and retailers sell more goods than they do at any other time of year. For 2009, the target is Gap, the San Francisco-based retailer that also owns the Old Navy and Banana Republic clothing chains. The American Family Association of Tupelo, Miss., is urging its followers to boycott those stores because "Gap has refused to use the word Christmas in its television commercials, newspaper ads and in-store promotions, despite tens of thousands of consumer requests to recognize Christmas and in spite of repeated requests from AFA to do the same." 

But retailers should not lose sleep over how to label their marketing at this critical time of year, says Wharton marketing professor Stephen J. Hoch, who also directs the school's Jay H. Baker Retailing Initiative. "The U.S. is a pluralistic country with many religions, almost all of which have religious events that occur sometime during December," says Hoch. "The generic term "holiday" clearly is the most inclusive term, even though Christmas is a fairly generic descriptor. Legitimizing a fringe group makes no sense, since as a society we already have been there and done that... . There are plenty of ways for individuals to celebrate their own holiday without imposing their beliefs on others through parochial complaints." Besides, he adds,"most mass retailers want to appeal to everyone."

By the way, as advertising columnist Dan Neil points out in today's Los Angeles Times, Gap does refer to Christmas in much of its advertising this season. "Surf on over to YouTube and watch Gap’s latest 30-second spot, titled “Go Ho Ho,” he suggests. "The spot -- which is in heavy rotation on network and cable TV -- features a group of insanely athletic dancers leaping and twirling and stomp-cheering around a white log-cabin set. They chant, 'Go Christmas, go Hanukkah, go Kwanzaa, go solstice... Do whatever you wannukkah and to all a cheery night.'"

A Comprehensive Study Finds No Savings from Electronic Medical Records Efforts

In June, Wharton health care management professor Mark V. Pauly told Knowledge@Wharton that "no one has done the careful research to indicate that if one health care system has information technology and the other doesn't, then the care is different. There are no controlled trials." All that technology is no panacea, he warned, suggesting that adoption of the technology to support the sharing of medical records could actually raise costs because of culture clashes, training, the implementation of the systems and the labor required to maintain the new infrastructure. "The best-case scenario is that information technology will improve quality but not lower costs," Pauly said. "The worst case is that there's no difference at all."

Today, a study of 3,000 hospitals at various stages in the adoption of computerized health records will be presented in Boston. Its conclusion? Pauly's worst-case scenario. "The way electronic medical records are used now has not yet had a real impact on the quality or cost of health care," the study's lead researcher, Ashish K. Jha, of the Harvard School of Public Health, told The New York Times.

The Obama administration has pointed to the widespread adoption of electronic medical records as a source of health care costs savings. It has proposed incentives for the "meaningful use" of "certified" records, but has not yet specified the standards, The Times reports.

Though Pauly was not surprised by the study's findings, he and others think it is possible that once the systems are in place and health care providers are trained to use them effectively, there could be some cost savings. But his new best-case scenario is many years down the road, he suggests. "The best you can say is, hang on, maybe we'll get there."

More from Knowledge@Wharton:

Lean Health Care: Lower Costs, Better Outcomes

Another Hurdle to Health Care Reform: Too Few General Practice Doctors

One Way to Lower Health Costs: Pay People to Be Healthy

Information Technology: Not a Cure for the High Cost of Health Care

A Car Company's Infamous Bureaucracy Is Being Dismantled by New Leadership

When General Motors said last month that it would discontinue its formerly innovative Saturn line, many a finger was pointed at the company's moribund bureaucracy. "Saturn fell prey to the culture of GM.... It was buried in GM's old culture of inertia," Wharton management professor Lawrence G. Hrebiniak told Knowledge@Wharton in an interview for the recent article, "Saturn: A Wealth of Lessons from Failure."

Now, however, GM is said to be dismantling and streamlining its bureaucracy and the culture it spawned. An article in today's New York Times describes the effort, noting that after GM's 2008 collapse and subsequent government rescue, "its century-old way of conducting business was laid bare, with all its flaws in plain sight."

More from Knowledge@Wharton:

Can 'Cash for Clunkers' Help Jump-start the Auto Industry?

Biggest by Default: Toyota May Be Number One, But It Still Faces Challenges

On the Skids: Are U.S. Automakers Running Out of Time -- and Options?

Fox Pulls the Plug on Joss Whedon's 'Dollhouse,' but Viral Marketing Teases Fans

Chalk up another short-lived series on the Fox Network for envelope-pushing producer and writer Joss Whedon, whose ideas for monetizing Internet programming were featured in a Knowledge@Wharton interview in February.

Fox announced yesterday that it would cancel Whedon's series, "Dollhouse," a science fiction thriller, because of falling viewership. His previous Fox series, "Firefly," also science fiction, was dropped after 11 episodes in 2002. But "Firefly" got a second life as a feature film, "Serenity," in 2005.

Now, Whedon's cult-like followers are spotting what appears to be a viral marketing campaign for something new from the mind of Whedon, perhaps an online game (known as an ‘alternate reality game’ or ARG) based on the series. The campaign was first reported on Tuesday, a day before the cancellation announcement, by two web sites: io9, which is widely read by science fiction fans and ARGNet, which caters to the interests of ARG players. Web sites for a fictional corporation that plays a central role in the "Dollhouse" series are part of the campaign.

Whedon is no stranger to cross-media production. Dark Horse Comics will publish a comic book based on Whedon's online musical comedy series, "Dr. Horrible's Sing-Along Blog." As Whedon said in the Knowledge@Wharton interview: “I'm not terribly interested in repurposing things I've already done. Obviously, I made a TV show out of one of my movies and a movie out of one of my TV shows, so it sounds like a crazy thing to say -- except that I didn't tell the same story in either of them. I just took the story I had further.”

More from Knowledge@Wharton:

Joss Whedon's Plan to Monetize Internet Content (Watch Out, Hollywood)

The Movies Meet Web 2.0: Lance Weiler on the New Economic Model for Independent Cinema

Motorola Is Said to be Considering an Exit from the Quickly Evolving Set-top Box Business

At a time when set-top boxes are reaching beyond their traditional role as the final gatekeeper for premium channels on cable-television systems, Motorola is reported by The Wall Street Journal to be looking for an exit from the business. According to The Journal's report, the sale would not be about problems in the set-top box business, which is profitable despite a 25% decline in sales to cable, satellite and other video delivery services. Rather, it would use the proceeds of the sale -- about $4.5 billion, according to the newspaper -- to support turnaround efforts in its mobile phone and enterprise mobility businesses. The latter sells bar-code scanners, two-way radios and other products to business and government customers.

All three businesses are in the midst of rapid technological change, but the set-top box may be at a true crossroads. It could be an integral part of efforts to seamlesslyconnect television to the Internet, or it could be bypassed altogether. Already there are dozens of products that will move video from the Internet to television sets. But the set-top boxes' advantage has been that only they can deliver the hundreds of channels provided by cable, fiber-optic and satellite systems such as those owned by Comcast, Verizon and Dish Network.

This past summer, however, Comcast and Time Warner announced a new initiative that would let their subscribers access most of their channels  via the Internet. That "TV Everywhere" concept was touted as a way for cable customers to access their programs via their laptops. But it also demonstrates that a great variety of programming can be delivered by the 'Net -- with or without a set-top box.

Wharton marketing professor Eric T. Bradlow notes that all of the functions of a set-top box can be handled by a personal computer. "Will set-top boxes be needed? Will cable television be the main way in which media is consumed?" A big part of the equation, he adds, is not just the delivery of programs, but the ability to measure who is watching what, which is of tremendous value to advertisers and marketers who want to reach targeted audiences. Both technologies can deleiver that data.

More from Knowledge@Wharton

Will Technology Firms Bridge the Chasm Between Computer and TV?

Cable TV Follows Its Subscribers to the Internet

Comcast and NBC Universal: The Rise of a Content King?

As Commercial Real Estate Woes Mount, More Alarms Sound

The head of the Federal Reserve Bank of Atlanta raised cautionary flags about the moribund commercial real estate market (CRE). In an address before the Urban Land Institute in Atlanta today, Dennis P. Lockhart, whose comments were highlighted in the Calculated Risk blog, expressed concern "about the potential impact of CRE on the broader economy. Unlike residential real estate, there is not the same direct linkage from CRE to household wealth -- and therefore consumption -- caused by erosion of home equity. However, there could be an impact resulting from small banks' impaired ability to support the small business sector -- a sector I expect will be critically important to job creation."

He added that "about 40% of the CRE debt is held on commercial bank balance sheets in the form of whole loans. A lot of the CRE exposure is concentrated at smaller institutions (banks with total assets under $10 billion). These smaller banks account for only 20% of total commercial banking assets in the United States but carry almost half of total CRE loans (based on Bank Call Report data)."

Still, Lockhart said he did not expect the growing CRE crisis to have the same broad impact as the one triggered by subprime real estate loans in 2008. "While the CRE problem is very worrisome for parts of the banking industry, I don't see it posing a broad risk to the financial system. Nonetheless, CRE could be a factor that suppresses the pace of recovery. As the recovery develops, the CRE problem will be a headwind, but not a show stopper, in my view."

In a special report report on the CRE situation in its region, The Philadelphia Inquirer notes an effort to reverse the trend of converting old industrial buildings to chic offices, restaurants or apartments. Their plan: Fill the old industrial buildings with new industries, especially those developing so-called green technologies.

More from Knowledge@Wharton:

On Shaky Ground: Commercial Real Estate Faces Financial Tremors

Collateralized Damage: Commercial Mortgage Securities Are at a Standstill

Peter Linneman on Real Estate: The Storm Is Over, the Wreckage Remains

Education Elevating the Status of Women in India's Family Businesses

In India, women have always been powerful forces in politics. Indira Gandhi was probably the most dominating prime minister the country has ever had. Today, her daughter-in-law, Congress Party President Sonia Gandhi, is the most powerful person in New Delhi. But When it comes to business, women have had little opportunity -- expected to move from the parental hearth to the husband's home, rather than play any role in the company.

Now, however, globalization, liberalization, the decay of the institution of marriage and a growing emphasis on education have helped to raise the status of women, at least in family businesses, according to a new article in India Knowledge@Wharton. Of those driving factors, education may be the most important, the article reports. Says Pradeep Mukerjee, founder-director of Confluence Coaching & Consulting, "Education and exposure [to other cultures] have led to greater societal acceptance of women participating in various walks of life, including business."

More from Knowledge@Wharton and India Knowledge@Wharton:

Lending to Women Makes Good Business Sense -- and Lifts Up Whole Communities

What Is the Role of Women in Indian Politics? Growing Stronger...

The 'Underprivileged Majority': Merging Policy with Practice to Help India's Poor

 

In a Discouraging Unemployment Report, a Rise in Temporary Positions

The U.S. unemployment rate surged to 10.2% in October, according to the Labor Department. Another interesting data point in today's report: "Temporary help services added 44,000 jobs since July, including 34,000 in October. From January 2008 through July 2009, temporary help services had lost an average of 44,000 jobs per month."

Are employers using temporary workers as a hedge against taking on permanent employees in this early stage of a recovery? Perhaps, says Wharton management professor Matthew Bidwell. He notes that temporary employment "tends to be rather cyclical. These people are often the first to be laid off in a downturn, but they can also be the first to be hired as the economy recovers."

According Bidwell, not all temporary employees are included in the Labor Department's monthly unemployment reports, which count workers specifically employed by temporary help agencies. In addition, there are contractual workers, such as consultants and freelancers, who take on short-term assignments for companies. They are counted in the bi-annual population survey conducted by the Census Department. Employers will often "try to game the system" by treating such workers as permanent employees in all but name so that they don't have to provide them with health benefits or deal with payroll taxes.

"It is very hard to legally define who is a contractor and who is a regular employee," says Bidwell. "There is some suspicion that those problems might affect the census figures, so it is possible [the census] might undercount contractors. I have heard that argument used to explain why those numbers are stable while temporary employment has grown."

MySpace's Fall from Favor Threatens Deal with Google

In 2006, which is ancient history in the online social network world, Wharton marketing professor David Bell told Knowledge@Wharton that "there is a fad or a fashion component to all these networks. Some will come and go." At the time, MySpace had risen to the dominant position in what was then a new sector, luring users from early-riser Friendster by offering a better array of tools for sharing photos and music.

Now MySpace is the network that's losing traffic, and that threatens to diminish the value of a $900 million search agreement it has with Google by about $100 million, according to an article in the Financial Times. Knowledge@Wharton also noted MySpace's loss of traffic in a recent article, "Early Tremors: Is It Time for Another Social Network Shakeout?"

“On many dimensions -- building traffic, brand-building, etc. -- MySpace has been an unmitigated success," says Wharton marketing professor Eric Bradlow, who co-directs the Wharton Interactive Media Initiative. "However, the question remains: What is the viable business model for a social networking web site? [MySpace] started with ... advertising [charging fees based on the number of times the ads were viewed], has been moving towards widgets, and may move towards targeted ads based on the network data.  However, as with any start-up, what business you end up in is not always the business you start in.  I think the same will be true for My Space.” Widgets are tools that attract MySpace visitors to third-party services, generating revenue for MySpace.

Others have noted the differences in social media environments as a factor driving people to or from any particular site. A recent CNN report noted a study by market research firm Nielsen Claritas which found that people in more affluent demographics are 25% more likely to use Facebook, while the less affluent are 37% more likely to be on MySpace. 

Railroads May Rebound, but They Still Face Fundamental Challenges

Announcing his deal to buy the 77% of the Burlington Northern Santa Fe railroad that his company does not already own, Berkshire Hathaway chairman Warren Buffett described it as "a huge bet and one that I'm very happy to make, but it's not a bet on next month or next year. We're going to own it forever."

But forever is how long he may have to wait if he's betting that Burlington Northern and other freight rail companies will take significant market share from the trucking industry, according to W. Bruce Allen, a Wharton professor of business and public policy and director of the Wharton Transportation Program. Railroads have inherent benefits over trucks in such areas as fuel efficiency and manpower requirements, he notes, adding that those advantages are not likely to diminish in the foreseeable future. But, he adds, "people have been saying for 50 years" that those advantages should help railroads take market share from the trucking industry. As measured by the value of goods shipped, trucks carry about 80% of the freight shipped in the United States. Railroads carry less than 10%. The rest is handled by boats, barges and pipelines.

One reason railroads have not cut into the trucks' market share is reliability, according to Allen. "In his just-in-time world, companies can't tolerate delays, and railroads are far less reliable than trucks."

One new advantage may come from a demographic shift. "The good old boys who drive the trucks are reaching an age where they would rather be driving Winnebagos," notes Allen. But as the older drivers retire, trucking companies have been having a hard time finding replacements who are willing to tolerate the demands of long-haul trucking, including more rigorous drug testing than is required for other lines of work. Railroads face the same problems, but they require much less manpower than trucks. A 100-car freight train -- on which each car can carry more than any truck -- requires a crew of just two people, Allen explains. "You would need more than 100 truck drivers to move the same amount of freight."

How Luck and Savvy Helped Ford Improve Products and Profit

Ford was the only American automaker that did not get a boost from U.S. taxpayers as the economy was still looking for the bottom earlier this year. Now, Ford looks like a world beater. Today, it posted a surprising $1 billion profit for the third quarter. While the company does not expect a full year of profitability until 2011, Ford today raised its projection for that year to "solidly profitable" from "break-even or better." The good news on profits follows good news on products. On October 27, Consumer Reports said that "Ford has secured its position as the only Detroit automaker with world-class reliability" after the influential magazine gave 90% of Ford's North American models a reliability rating of average or better. "Ford’s sustained production of vehicles that are as dependable -- or better than -- some of the industry’s best dispels the notion that only Japanese manufacturers make reliable cars," the usually praise-averse magazine declared in its Cars blog. "Other than the Toyota Prius, the reliability of the four-cylinder Fusion and Milan ranks higher than that of any other family sedan. Both of those Ford... products continue to beat the Honda Accord and Toyota Camry, while the upscale Lincoln MKZ tops its rivals, the Acura TL and Lexus ES."

How did all that happen? Perhaps it was the same way that Ford managed to get by without loans from Uncle Sam -- a bit of luck and a bit of savvy. In an August Knowledge@Wharton podcast, Wharton management professor John Paul MacDuffie said Ford was able to pass on the government's help because "the CEO [Alan R. Mulally] -- who came from another industry [Boeing, in 2006], with some new perspectives -- managed to fashion a strategy that certainly was partly lucky, but also partly savvy in terms of getting a hold of some credit for Ford" before the financial crisis. That was "borrowed money they could pour into new products well before the crisis hit." He noted also that Ford would be able to "capitalize on being the one company that didn't take government aid" at a time when the so-called bailouts were "largely very unpopular with the public."

On the other hand, Ford's success may be hurting its continuing effort to reduce labor costs. A new labor contract modeled on one approved by members of the United Auto Workers at GM and Chrysler was rejected by workers at Ford's U.S. auto plants, The Wall Street Journal reported this morning. "The sad truth, at least in part, is that the UAW workers are punishing Ford for positive earnings," said Wharton management professor Lawrence G. Hrebiniak. Had Ford forcast a loss for the quarter, "the workers probably would have bowed to the company’s concessions more readily." Hrebiniak worries that the vote may be an example of labor not seeing a bigger picture or longer time horizon. "Are memories so short that people can’t remember what the incessant demands on big steel in the U.S. did to the industry, right up to its collapse?"

The Journal reported that the automaker will continue talks with the union to find ways to cut costs, and may look at moving some production to lower-cost locations if it can't remain competitive in the U.S.

Mutual Funds, Fiduciary Duty and Fairness

A case filed five years ago by three shareholders in the Oakmark Funds, run by Chicago-based Harris Associates, will get its day in court Monday when the U.S. Supreme Court hears arguments from the shareholders that the fees charged by the fund managers are too high and violate fidicuary duty – i.e., they are not set in the best interests of shareholders, as mandated by Congress almost four decades ago.

By some estimates, money-management fees in the mutual fund industry reached close to $100 billion last year in a $10 trillion industry, according to an article in The Wall Street Journal, which notes that “typically, the investment-advisory committee that manages a mutual fund takes a percentage of the assets.... That fee is negotiated with the mutual-fund board, which is set up to represent investors.”

The shareholders claim that Harris charged Oakmark “an effective rate of 0.88% on $6.3 billion in assets, nearly twice the 0.45% rate for an unrelated institutional client like a pension fund,” states The Journal. In addition, the shareholders cite “conflicting business and personal relationships among the trustees and Harris personnel,” including the fact that Oakmark’s board chairman, classified as an “independent director,” was a former Harris partner who continued to earn money from the firm, according to the article.

The Supreme Court’s case on mutual fund fees “is interesting for several reasons,” says Wharton legal studies and business ethics professor Richard Shell. “First, it shows that the problem of how business people set their own compensation in large firms extends to the mutual fund industry and predates the economic crisis. It turns out that mutual fund managers, like executives at big banks, have what some think is a pretty cozy relationship with the board members who set executive pay – and it may come as no surprise that those pay decisions are not always what an average shareholder would approve.”

Second, he notes, “it is further evidence that courts may be increasingly skeptical of the model that says, ‘Markets always get things right.’ Two Chicago-School, economics-minded judges – Frank Easterbrook and Richard Posner – sharply disagreed with one another in the lower court opinion in this case. Easterbrook said, ‘Trust the market and leave the pay issue alone.’ Posner said, ‘We can’t trust the market when there are conflicts of interest.’ Easterbrook got more votes than Posner in the court of appeals, but my guess is that Posner will win the day in the Supreme Court.”

A ruling is expected in June.