By Gregory Voss and Kimberly Houser
What the Cambridge Analytica debacle and the resulting U.S. Senate hearing revealed in no uncertain terms is that the U.S. does not have adequate data privacy laws. Despite the grandstanding by Senators, they demonstrated a lack of understanding of not only the workings of the data economy, but also of the laws of their own country.
When the EU General Data Protection Regulation (GDPR) became applicable on May 25, 2018, the disparity between the laws in the U.S and those in the EU became very apparent. In our working paper, GDPR: The End of Google and Facebook or a New Paradigm in Data Privacy?, slated for the fall edition of the Richmond Journal of Law and Technology, we explore these differences in terms of ideology, enforcement actions, and the laws themselves.
The American tech business model is to provide services free of charge in exchange for a user’s personal data. This comports with the data protection law in the U.S., which is sector specific, meaning only certain types of data, such as medical and financial data, are protected but only to the extent provided in the applicable statute. There is no omnibus U.S. federal data privacy law relating to the private sector. While the Federal Trade Commission (FTC) is the de facto privacy authority in the U.S., its history of enforcement actions against U.S. tech companies is quite limited. Historically, it has only been when a company provides a privacy policy and then fails to comply with it that the FTC has taken action against it under Art. 5 of the FTC Act regarding ‘deceptive and unfair practices’.
The European model of data privacy is based on a human rights foundation, with both privacy and data protection being fundamental. Under the predecessor to the GDPR (the 1995 Directive), numerous actions were brought against U.S. technology companies for violations of EU member state laws. Despite this long history of successful enforcement actions, these U.S. tech companies have not significantly changed their business model with respect to data obtained from the EU due to the low maximum fines under the member states’ laws (eg, a €150,000 fine in France for a company valued at €500 billion).
The American ideology behind data privacy is the balancing of an entity’s ability to monetize data that it collects (thus encouraging innovation) with a user’s expectation of privacy (with those expectations apparently being quite low in the U.S.). In the EU, the focus is on protecting a users’ privacy. A great example of this dichotomy is the Google Spain case. A Spanish citizen sought to have certain information removed from a Google search as permitted under EU law. Google objected to this in court. On the one hand was freedom of speech (paramount in the U.S.) and the public right to know asserted by Google, and on the other, the European’s right to privacy and to be forgotten argued by the European plaintiff. The European Court of Justice ruled that the balancing of interests tipped in favor of privacy for the Spaniard.
As we explain in our paper, U.S. federal laws are sector-specific with the primary areas being covered in the Health Insurance Portability and Accountability Act (health care information), the Gramm-Leach-Bliley Act (financial information) the Fair Credit Reporting Act (credit information) and the Children’s Online Privacy Protection Act (children’s information). In addition, states have also enacted varying data security laws aimed at requiring data breach notifications.
The European approach, on the other hand, has always been more overarching. The 1995 Directive, for example, required each EU member state to adopt comprehensive privacy protection laws meeting the objectives of the Directive. While the adoption of a directive allowed flexibility in each member state’s creation of its own privacy laws, in 2012, the European Commission determined that the law needed to be updated. The GDPR was enacted to: provide harmonization of the member states’ laws, incorporate advances in technology, eliminate administrative filing burdens for companies, and, as we posit in our paper, level the playing field for technology companies using the personal data of those located in Europe.
Because U.S. companies have been able to monetize their data with very few restrictions or consequences, they were able to become behemoths in the tech field with an 80% market share for Facebook and 90% market share for Google. The rules, however, have now been updated with respect to EU data. The GDPR requires, among other things, verifiable consent prior to using a user’s data and consent for each secondary use. There is no corresponding requirement in the U.S.; companies operating under U.S. law primarily rely on an opt out mechanism and are not required to disclose secondary uses of your data. The GDPR also provides a right to be forgotten, a right to data portability, the ability to opt out of automated machine decisions (profiling), and requires a lawful basis for processing data. None of these rights are afforded to U.S. citizens under U.S. federal law.
Because the GDPR is extraterritorial in scope, the law will apply regardless of where a company is located if it collects or processes the personal data of those located in Europe, where processing relates to the offering of goods or services (either for pay or “free”) to such “data subjects,” or to the monitoring of their behaviour, to the extent such behaviour takes place in the EU. This leaves us with the question: will the GDPR be the end of Google and Facebook or present a new paradigm in privacy protection? This remains to be seen. However, given that fines may now be assessed in the billion-euro range under the GDPR rather than the thousand-euro range of the past, it does seem likely that the U.S. business model (data for service) will need to adapt, at least with respect to data from the EU.
This article originally appeared on the Oxford Business Law Blog.
By Camilla BARBAROSSA
In recent years, international environmental policy debates have increasingly identified household consumption in industrial countries as one of the main causes of environmental problems. In most countries, household consumption over the lifecycle of products accounts for more than 60% of all environmental impacts of consumption.
In this context, the role of purchasing eco-friendly products to reduce consumers’ environmental footprint has recently been addressed, especially for products that are purchased on a regular basis, such as eco-friendly tissue paper products, biodegradable detergents, and substitutes of over-packaged and plastic products.
Policy makers and non-governmental organizations have developed policies (e.g., EU’s Action Plan) and pro-environmental behavior campaigns (e.g., WWF’s ‘Don’t Flush Tiger Forests’) to promote the purchasing of eco-friendly alternatives in the market. However, the current market shares of eco-friendly products are still fairly low.
To enhance the effectiveness of policies and social marketing campaigns and to stimulate the diffusion of eco-friendly products in the market, the achievement of two specific goals is needed: first, to better understand the factors that stimulate and prevent consumers from purchasing eco-friendly goods; and, second, to assess whether these factors may vary across different consumer segments. This knowledge is essential to develop more effective policies and marketing strategies tailored for different population segments that vary according to specific characteristics (e.g., environmental commitment).
The studyA recent research that I have conducted with Patrick De Pelsmacker from University of Antwerp addresses these issues. First, we developed a model that determines what stimulates and prevents consumers from purchasing eco-friendly products while grocery shopping. Second, we compared this model between two different consumer segments: ‘green’ consumers (that is, consumers who already engage in pro-environmental behaviors – such as recycling, reducing household waste – for environmental reasons) versus ‘non-green’ consumers (that is, consumers who are honestly unengaged in pro-environmental behaviors).
The study involved 926 adult respondents responsible for grocery shopping in the household. Specifically, the sample was composed of 453 ‘green’ consumers and 473 ‘non-green’ consumers. All the respondents answered a questionnaire including a series of questions assessing the extent to which a number of factors may positively or negatively influence their decision of purchasing eco-friendly goods while grocery shopping. The respondents also answered questions about their intentions to buy eco-friendly products and their eco-friendly products actual purchase behavior.
Results and implicationsThe results of our survey revealed remarkable differences in the willingness to buy eco-friendly products between ‘green’ and ‘non-green’ consumers. As expected, ‘green’ consumers are more willing to purchase eco-friendly products than ‘non-green’ consumers. Additionally, our results indicated that the two consumer groups are influenced by different factors in purchasing eco-friendly alternatives. For example, ‘green’ consumers may be willing to purchase eco-friendly products because they want to project a desired, favorable impression of themselves on relevant others. This is not the case for ‘non-green’ consumers.‘Green’ consumers seem to be concerned about the impact of their consumption choices on the natural environment. This environmental concern drives them to opt for eco-friendly alternatives. Conversely, ‘non-green’ consumer are less prone to take the footprint of their individual actions into account when grocery shopping.
Both ‘green’ and ‘non-green’ consumers think that consuming responsibly is still a time-consuming, economically disadvantageous and stressful activity. However, the negative perception of any personal inconvenience related with purchasing eco-friendly products plays a different role between the two consumer groups. On the one hand, it contributes to reinforce ‘non-green’ consumers’ unwillingness to try eco-friendly alternatives. On the other hand, it mainly occurs for ‘green’ consumers inside the point of sale (e.g., eco-friendly products are not always available or they come in a narrow range), thus explaining why these consumers often show an inconsistency between their stated (green) intentions and their actual (not always green) purchase behavior.
Marketers, policy makers, and organizations may use the results of our study to foster eco-friendly product consumption, by developing communication programs that are specifically tailored toward ‘green’ and ‘non-green’ consumers. For example, the concern for the environmental consequences of purchasing and consuming products is relevant only for ‘green’ consumers, whereas this argument should be ignored when addressing ‘non-green’ consumers. When addressing ‘green’ consumers, companies may develop co-branded partnerships with pro-environmental organizations (as Kimberly Clark and WWF did) to address active green members with tailored marketing campaigns. The content of this communication should focus on the amount of natural resources that consumers may save by purchasing eco-friendly alternatives. For instance, Small Steps has developed a ‘Tree Calculator’ Tool to calculate the specific number of trees and amount of CO2 and water an individual or a family may save by purchasing one or more packs of eco-friendly tissue paper products.
Furthermore, consumers’ perceptions of the personal inconvenience of purchasing eco-friendly products reduces both ‘green’ and ‘non-green’ consumers’ eco-friendly products purchase intention and behavior. Unless market failures are corrected, both ‘green’ and ‘non-green’ consumers will not be able to buy responsibly. Hence, one class of public policy initiatives should focus on ‘economic policies’, such as ‘getting the prices right’ or using tax instruments to adjust for environmental impacts and other externalities not reflected in market prices. Additionally, and more importantly, when addressing ‘non-green’ consumers, marketers should seek to increase ‘non-green’ consumers’ intention to buy eco-friendly products through reducing their perceptions of eco-friendly products as ineffective substitutes of conventional goods. Conversely, when addressing ‘green’ consumers, companies should enhance consumers’ perception of eco-friendly products accessibility and awareness inside the store. In this regard, smart phone technology (e.g., GoodGuide app) may provide ‘green’ consumers with real-time information about the presence of eco-friendly products inside the store while they are shopping.
In conclusion, the diffusion of eco-friendly products in the market strongly depends on consumers acceptance of these products. Different consumer segments may be motivated to opt for eco-friendly alternatives for different reasons. Our research aimed at developing knowledge about the differences in these motivations across two consumer segments: ‘green’ and ‘non-green’ consumers. This knowledge is essential to build tailored versus standardized communication strategies when addressing one specific consumer group or different groups simultaneously.
This article was originally published in the Journal of Business Ethics (2016).
By Victor DOS SANTOS PAULINO and Najoua TAHRI
Innovation as the key driver of economic growth is nothing new. However, France, with the rest of Europe, continues to face significant challenges in stimulating innovation in its economy and maintaining its competitive edge.
In a study investigating what discourages French firms from innovating, we find that the biggest barriers to innovation are financial or market-related, and not technological. Financial constraints, lack of competent personnel and a perceived pointlessness of innovating are some of the main culprits behind this lag in innovation. Surprisingly, very few firms cited technological barriers, and similar results have been observed in other parts of the world.
The right skill-mix
Taking a closer look, we observe that many of the obstacles can be traced back to a shortage of managers with the relevant skill set. Various innovation studies point out that innovation success requires the effective combination of different expertise, both technical and commercial. However, managers with both attributes are rare, especially in France. And the absence of versatile managers can result in conflicting viewpoints between technical managers who tend to be preoccupied with technological performances and commercial managers who tend to be focused on market concerns. This in turn can lead to a communication breakdown and cooperation failure, impeding the innovation process.
Add to this, the prevalent culture of “technology push” innovation in France, where by innovation processes are spearheaded by R&D in new technologies but are plagued by a poor understanding of the market. This not only reinforces market barriers to innovation but also leads to financial constraints. Substantial resources end up being pumped into and prolonging the R&D phase, blurring the distinction between inventing something, innovation and achieving innovation success. The development of the Concorde is a good illustration of this. To date there are ongoing debates on whether the supersonic airliner was an innovation success or not. For some, the technological breakthroughs overshadow the fact that only 14 units were sold to two clients. In short, firms are discouraged from innovating because innovation, from their perspective, necessitates considerable resources to cover the excessive costs of invention.
Impact of government support
In Europe and notably in France, public authorities are wrapped up with technological progress leaving little room for commercial expertise in the innovation process. Inventions and discontinuous technologies are favored, often out of sync with market dynamics, and very costly. Too often public funding programs, for instance in the aerospace sector, push firms to undertake projects that are not always economically viable. Thus, firms tend to orientate their strategies on technological advances, to the detriment of market objectives, essential for anticipating returns on investment.
Contextual factors
Breaking down the obstacles by industry, the aerospace industry faces the highest obstacles, followed by the manufacturing and service industries. This is expected as aerospace companies are more likely to be innovative, face high productions costs and heavily rely on public investment. In contrast, firms in the service industry experience the fewest obstacles. The development of new-to-world products is rare in the service industry, where the intangibility of products allows for easy imitation by rival firms and thus raises a serious problem in convincing investors to fund new ventures. Service orientated firms therefore tend to adopt a market pull strategy with focus on continuous innovations, marginally enhancing or upgrading the service offering, and at a much lower cost. It is therefore not surprising that firms in this sector face the lowest financial barriers to innovation.
Overcoming barriers to innovation
As a starting point, firms should accommodate market research in their innovation processes. This is easier said than done as technical managers sometimes first need to move away from the idea that if you don’t know how to make a product, you won’t know how to sell it. Technical managers need to recognize the importance of bringing in the market perspective on board the innovation process. To combat the shortage of managers with both technical and business skills, firms could offer on-the-job training to develop deficient competencies (e.g. granting MBA opportunities to technical managers). Moreover, to tackle the root of the problem, higher learning institutions offering scientific degrees should integrate a strong element of social sciences in their programs. This would not only ensure a commercial dimension in the innovation process but may also go a long way to solving communication issues between technical and commercial teams, and add legitimacy to marketing insights.
However, this is not a substitute for involving commercial managers directly in the innovation process. Ideally, firms should go a step further and create a business intelligence unit to provide information on the market, to work side by side and complement the work of the technological team. The weight accorded to commercial competencies in the innovation process will vary according to the characteristics of the activity sector.
A fundamental change will also have to come from the public authorities who need to redirect their funding to support successful innovations rather than novel technologies, and allow firms to focus on continuous innovation – the natural course for most. By prioritizing downstream innovation processes, such as innovation commercialization, firms will face lower market barriers and innovation costs. To this end, public authorities need to make more room for firms in defining the strategic orientation of public support policies.Innovation is a powerful means by which to ensure long-term survival. Without innovation, it is extremely difficult to adapt to a changing environment. Although new product failure is high, innovation without any failure is impossible. In a nutshell, successful innovation requires not only a change in the mindset and innovation culture of firms but also shifts in the public institutional framework to be more in favor of continuous innovation. Firms, government agencies, higher education institutions all have a role to play in overcoming barriers to innovation and creating an enabling environment for innovation.
This article is based on the study entitled, “Les obstacles à l’innovation en France : analyse et recommandations ”, co-authored by Victor Dos Santos Paulino and Najoua Tahri, published in Management & Avenir, 2014/3, no. 69, p. 70 – 88, available here
The study, conducted in 2014, is based on the results from the 4th Community Innovation Survey (CIS 4) carried out in France between 2002 and 2004 and published by Eurostat. 175,533 firms in France participated in the survey, indicating if they have experienced any of 11 obstacles to innovation. For the purposes of our study, we then divided the obstacles into four categories: knowledge, market, financial and external obstacles, and analyzed the obstacles by nature of the firm and by sector (manufacturing, services and aerospace, the latter being a key industry in France).
By David LE BRIS
Despite the importance of the phenomenon, there is no clear definition of what is a market crash. Arguably, market crashes should be related to important news but it is frequently difficult to effectively match historical events with market reactions.
When WWI started in July 1914, the French stock index decreased by a modest 7.14 %; a monthly drop ranked only the 105th in the French stock market history. But, a given fall in percent has a stronger impact on a stable market than it does upon a highly volatile one. A crash is not solely a given percentage decrease but represents a significant discrepancy compared to what has been previously observed.
Thus, crashes need to be identified after having taken into account the prior financial context. I propose a simple new tool to identify market crashes by measuring price variations in numbers of standard deviations of the preceding period rather than in percent. French stock market was used to a low volatility before 1914, thus the modest decrease of 7.14 % represents a fall of 6.09 standard deviations, which is the second worst case in French history. This ranking is much more consistent with history.
In a paper in Economic History Review, this method is applied to long term series of US and French stock prices and UK state bonds. This new tool offers a renewed story of the financial shocks. A better match between crashes and historical events is achieved than with pure price variations. Events that were financially insignificant when measured in percent become important crashes after adjustment for volatility. This improved matching brings new insights to several historical debates.
Consistent with other historical sources pointing out the severity of the 1847 crisis, this episode appears to be in the top ten crashes of the UK bond market whereas it ranks 102th in pure price variations. The start of the American Civil War caused a significant crash, supporting the cost side in the cost/advantage debate about this conflict. The Berlin conference dividing up Africa caused a considerable fall in UK bonds, as if the market took account of the future cost of African colonization for UK public finances. Pre-1914 wars (Franco-Prussian, Russo-Ottoman, Boxer Rebellion in China, Boer War, etc.) led to many crashes on both the French stock and UK bond markets, supporting the traditional narrative of the importance of these confrontations despite the weak price changes they caused in this era of low volatility.
Turning to the 20th century, the outbreak of WWI caused major crashes in both French stock and UK bond markets, mitigating the view of sleepwalking to disaster. It is not possible to distinguish more crashes before than after the creation of the Fed in 1913, whose role in stabilizing financial markets is still being questioned. Two crashes in France during the 1920s caused by monetary issues support analysis of French monetary policy as an important factor in the interwar troubles. Hot episodes of the cold war caused crashes on the US and French stock markets, which is consistent with narratives of the risk of disasters incurred at this time. There was no crash on the French stock and UK bond markets in 1929, supporting the views of a transmission of the Great Depression to Europe through other channels than financial markets. The 2008 crisis differs on this point because both French and US stock markets fell strongly. Maybe, our understanding of financial mechanisms could be enriched thanks to this new tool.
By Sylvie BORAU
The negative effects of exposure to advertising female models on women’s self-esteem and body satisfaction are now well known. But a new negative effect of advertising female models has been uncovered: they can be perceived as real sexual competitors by female consumers and trigger indirect aggression.
Female advertising models are highly physically attractive as well as ultra-thin, digitally-edited, and portrayed in a sexually provocative manner (for example, with pouting lips and arching hips). As a result, they represent formidable competitors. Of course, women know that they are very unlikely to meet these unreal threatening competitors in real life. But this knowledge does not stop them from considering these virtual models like real sexual competitors. Recent research I conducted with Jean-François Bonnefon from Toulouse School of Economics, investigated the consequences of this imaginary competition.
In a first series of studies, we asked 452 female respondents to answer online questionnaires. Female respondents were first exposed to the picture of either an ideal model (highly physically attractive, very thin, and adopting a sexually provocative attitude) or a non-ideal model (moderately attractive, average size, and with a non-provocative attitude). Then respondents answered some questions related to their reactions to the model. Results showed that women exposed to the ideal model expressed more mate-guarding jealousy (e.g., they were worried that their mate would leave them for a woman like this model), they expressed more derogatory comments (such as bullying, fat-shaming, or slut-shaming), and they expressed more social exclusion of their imaginary rival (e.g., they wouldn’t be friends with a woman like this model). In sum, female viewers engage in an imaginary intrasexual competition against ideal advertising models, targeting them with the same aggressive strategies they would use toward real-life rivals.
We then ran an additional study to identify which physical characteristic triggers indirect aggression. Does the provocative attitude of the models or their thin body size activate these aggressive strategies? To answer that question, we cross-manipulated the body size of the model and her provocative attitude. That is, female respondents were either exposed to a thin and provocative, a thin and non-provocative, an average size and provocative, or an average size and non-provocative female model. We found that the provocative attitude of the models, and not their thin body size, was the characteristic that triggered viewers to engage in indirect aggression. This is an important result, given the attention that the media put on the models’ body size, rather than on her provocative posture.
But why is the provocative posture of the models more likely to trigger intrasexual competition and indirect aggression than their thin body size? This is surprising considering the current obsession of women and the media for thinness. Further analyses suggested that female viewers engage in these aggressive strategies because the provocative attitude of the model – and not her thin body size – communicates an intention to seduce men, an intention to elicit men’s sexual desire, and, potentially, an intention to poach men. As in daily life, a sexually provocative attitude communicates confidence about one’s sex appeal, as well as flirtatiousness, sexual availability, and promiscuity. No wonder women feel threatened by provocative female models: they represent a menace to their current or prospective romantic relationships.
In daily life, when facing a menace to their romantic relationships, women usually experience jealousy. Jealousy is an emotion that warns the individual that an action must be taken to protect their current or prospective mate from a potential rival. And indirect aggression is women’s main action against female rivals and mate poachers. It involves the use of derogation and social exclusion. Our research shows indeed that women engage in indirect aggression when they are exposed to provocative female models, and do so regardless of the body size of the model displaying the attitude.
So, when advertisers feature a sexually provocative female model in their advertisements, they insidiously promote a culture of female bullying based on slut-shaming and social exclusion. Indeed, we have seen that the mere exposure to a sexually charged and provocative model is enough to activate Intrasexual competition and indirect aggression, as if female viewers were exposed to real-life rivals. We can imagine then that repeated media exposure to such imaginary rivals surely reinforces patterns of indirect aggression way beyond what would be expected from daily interactions with actual women, for at least two reasons: First, the use of sexually provocative models in advertising is pervasive. Second, the level of sexual provocativeness of models in advertising far exceeds the level of flirtatiousness performed by women in daily life.
To sum up, our research suggests that the use of sexually provocative models needlessly reinforces and fosters a culture of indirect aggression among women, fueling the alarming trends of Intrasexual bullying and slut shaming. Considering the unrealistic number of sexually provocative models in the media, women might be frequently subjected to these bouts of Intrasexual competition.
To curb the detrimental impact of sexual provocativeness in advertising, it would be wise to contain its pervasiveness and to avoid the most vulnerable consumers to be overly exposed to such ads. Because exposure is inevitable though, we recommend educating young audiences about these unintended effects – as young audiences are both more targeted by sexual appeals and more vulnerable. We do not recommend eradicating sexual provocativeness from advertising though, as banning these advertisements would be tantamount to giving a politically correct and archaic representation of women. However, consumer-advocate organizations, media watchdogs, and concerned citizens have a large role to play, both for raising public awareness and for incentivizing companies to maintain responsible practices.
This article was originally published in Brand Quarterly Magazine (January 2018).
By Jean-Marc Décaudin and Denis Lacoste
Selling services requires a very different approach to selling products. Services are intangible, and they are often produced and consumed simultaneously. Services cannot be stocked. It’s very difficult to maintain consistent quality and the customer is involved in the production of the service, which isn’t the case for tangible goods.
Marketing specialists started to consider these differences in the 1980s. Two French researchers, Pierre Eiglier and Eric Langeard, created the concept of “Servuction”, a neologism created from the words Service and Production, and which underlines the need for a specific approach to managing non-material goods. Since then, much work has been done in the field of services marketing, echoing their growing role in wealth- and job-creation. The goal of the research is to help managers in the banking, air transport, rental, health and wellbeing and other sectors, to consider the specifics of consumption and production that are driven by the characteristics of the different services.
Research focussed in particular on the field of advertising communications. There are many questions to be put to marketers, the main one being: how do you communicate something that can’t be seen, touched, smelled, heard, or tasted? Advertisers also had to work out how to communicate an experience which is perceived differently by different customers and whose quality can’t be guaranteed to be identical in all places and at all times. Coming up with communication axes which rest on objective technical characteristics – for cars, computers, TVs – is relatively easy. It’s a lot harder to communicate the type of experience on offer in an amusement park, on a dating site, or even in a university.
So the issue facing advertisers is how to successfully express what a service is, to represent it to a potential client in a manner powerful enough to make him or her notice the brand, become interested, and want to try out the service. Specialists have identified five key strategies. Businesses are advised to communicate:• About the consumer benefits (price and performance)• About the customer (testimonies drawn from customer reviews)• About the customer-facing staff (focus on skills, the quality of customer relations)• About the hardware associated with the service (the quality of the planes for air transport, equipment and supplies for a diving club or a ski resort)• About its corporate image with a focus on the company’s values and commitments
How well the strategies work has been very little investigated, and most studies have focussed on only one communication strategy, so their usefulness to advertisers is limited.
That’s why our research aimed to test the effectiveness of each of the various communication axes by exposing customers to a series of adverts, each using a different axis. The results show that the effectiveness of the advert is hugely dependent on the dominant axis.In the two sectors under study (banking and tourism), the most effective adverts are those that emphasise the customer. It could be a laughing child riding the Mine Train in Disneyland, a family eating out together at McDonald’s or a happy couple moving into their first home thanks to a mortgage agreement. The presence of a customer in the advertising reassures the consumer because it causes them to identify with someone who appreciates the service. We know that customer reassurance is fundamental in the service sectors, where risk is perceived as being high. In both the sectors, emphasising the physical dimension of the service also seems to be a very effective strategy (although a little less so than the first). The three other advertising axes under study are of far more limited effect, either on one of the two sectors, or on a single effectiveness variable.
The results of this research are useful for businesses in the service sector as well as to advertisers, because they give them specific elements with which to create new campaigns. Care is nonetheless called for because the results could be different in a different cultural context, in a different advertising format, or in other sectors.
The study looked at 50 press adverts in two markedly different sectors: banking (25 adverts) and tourism (25 adverts). Each ad chosen uses one of the communication axes (competitive advantage, contact staff, customers, physical dimension, brand image). In each of the two sectors, 5 different adverts using the same axis were used in order to limit the influence of creativity on the interviewees’ assessment of the product. The sample was made up of 249 respondents who were questioned online. Each respondent evaluated 25 adverts. 1245 evaluations are therefore available: 620 for banking and 625 for tourism. For each advert, a series of 22 questions were asked to measure attention level, how interesting the ad was, understanding the message, the level of curiosity sparked, attitude to the advert and the brand, and finally the impact of the ad on purchasing intentions.
This research was published in the Journal of Marketing communications (2016) under the title “Services advertising: Showcase the Customer!” ».
By Louise Curran
In this paper, written with Michael Thorpe of Curtin University in Australia, we explore the recent evolution of Chinese investment in the wine industries in the Bordeaux region of France and compare them with investments in the same sector in Western Australia (WA).
We found that investments are not as widespread as often implied by the media, although the speed of growth in Bordeaux has been impressive. Several difficulties with the investments, as well as potential synergies, were identified.
Varied situation in France and AustraliaWe chose to look at France and Australia as they were, respectively, the first and second wine exporters to the Chinese market in 2013. We looked at two regions with rather similar market positioning: both Bordeaux and WA focus on the higher end of the market and specialize in red wine. The phenomenon of Chinese investment in the sector is rather recent in both contexts, although Chinese investment in the wider Australian economy has a longer history. The objective of our study was to explore the extent of investment and highlight any difficulties experienced.
We found that the extent of Chinese investment in both regions was rather low, even if the number of investments in Bordeaux (about 80) was impressive, as was their very rapid growth. Still, less than 1% of Bordeaux vineyards are owned by Chinese investors and many of these vineyards are very small, thus the actual acreage covered by investments was low. The number of investments is even lower in WA (7 vineyards), but the large size of some acquisitions makes their coverage higher (6% of vineyard land area). Indeed the large size of Australian vineyards was a clear advantage for Chinese investors, who favoured large scale production structures which could better cater for the Chinese market.
Difficulties for investors, but also potential advantages
We found evidence of all of the classic difficulties faced by foreign investors which have been identified in other studies, but the most significant was their lack of familiarity with the local context. This was considered to be a particular problem in France, where there is little history of Chinese investment and no significant Chinese diaspora. The usual problems of understanding a foreign culture were compounded by the fact that most Chinese investors come from sectors – including jewelry, metals and petroleum – which were unrelated to wine, or even agro-food. The specificity of the wine sector thus caused them further difficulties. In Australia, we found much less evidence of such problems, mainly because the investors most often had existing business relationships in Australia prior to investing in wine and tended to make their investments in partnership with a local business person, rather than alone. Although most Chinese investors in Bordeaux did not invest together with local partners, they usually retained the existing management to continue the day to day running of the vineyard. There was recognition of the need to build on this local expertise, if their investment was to flourish.
The local institutions in both WA and Bordeaux recognized that there was need to provide support to Chinese investors in order to ensure the success of their endeavors. The Bordeaux Chamber of Commerce and Industry organizes regular seminars on Bordeaux and Hong Kong to ensure that investors are aware of the potential, but also the pitfalls, of such investment. The WA Department of Agriculture organized a similar seminar for Chinese investors interested in the whole agricultural sector in 2014.
Finally, Chinese investors in both regions brought two key advantages. The first was financial capacity. Many of the acquired vineyards were in a poor state of repair and in several cases significant sums have been invested in upgrading facilities and increasing productivity. The other key advantage was their knowledge of the home market and capacity to leverage their business networks to develop that market. China has become a key world market for wine, especially red wine in the last few years. Although exports have fallen from their peak, in 2014 their wine imports were worth $1,4bn. Especially for smaller, lower quality vineyards, the capacity of their Chinese owners to provide support for their evolution on this important market was a key factor in enabling their development.
The future – consolidation rather than expansion
In terms of the future, most people interviewed agreed that the peak in investments had passed and that we were entering a stage of consolidation. There have been far less investments in Bordeaux in 2015 than in 2014 and especially 2013-2. Partly this reflects the fact that the Chinese wine market is maturing and growth rates are now less attractive. Several of those interviewed pointed out that China is not, and indeed never has been, an ‘el Dorado’ for wine merchants, but is rather a challenging and difficult market. The recent fall in investments also an anti-corruption drive in China which has resulted in a significant fall in wine sales linked to gift giving (formerly a key motivation for high end wine sales) and official banqueting (which has been extensively reduced). There was also reported to be concern amongst wealthy individuals that high profile investments in luxury products like wine, could attract unwanted attention from the authorities.
Our research involved twenty interviews in the two regions studied with institutional agents, consultants and other service providers working with investors, as well as with local company personnel in three companies owned (wholly or in part) by Chinese investors and two Chinese investors, one based in China and one the manager of an Australian investment. The interviews took place over the period December 2013 to October 2014. We also used press reports to identify pertinent investments.
Our research indicates that the most successful investors in the two contexts we studied were those that partnered with local business people. It seems that in cases like this, where there are large differences in the institutional and cultural environments between the home country and the country of investment, working together with a local business person provides an important bridge to reduce unfamiliarity. Investors who acquired vineyards without local partners more often experienced difficulties, although many retained local staff and took a rather ‘hands-off’ approach to the production side of the business, which seems prudent given that they frequently lacked knowledge of wine. The most important asset which Chinese investors brought was their expertise and linkages to their home market, so the potential for synergy was significant, provided that understanding and trust was present.
By Louise Curran, Chinese FDI in the French and Australian Wine Industries: Liabilities of Foreignness and Country of Origin Effects. Co-authored by Michael Thorpe, Economics Department, Curtin University Western Australia. Appeared in Frontiers of Business Research in China, Volume 9, issue 3 in 2015. This research was supported by a Research Fellowship awarded to Louise Curran by Curtin University in 2013.
By Pierre-André Buigues
Despite significant state aid, the French meat sector is losing ground against other European countries which are also in the Eurozone. Indeed, it’s the European market which has caused the deterioration of France’s position, and not globalisation, China, or other emerging economies.
No matter which sector we look at – poultry, pork or cattle – French meat farmers are in difficulties compared with their European competitors. – The French pork market : Production is markedly down, from 25.5 million pigs a year in 2000 to 21 million in 2016. Over the same period, it went up in several other European countries. In 2000, France and Spain were producing pigs at the same rate, whereas today Spain is producing 46 million pigs a year. France is now a net importer of pork products. The sector’s competitiveness has been eroded due to high costs and lack of investment. – The French cattle industry : France was the biggest European producer of beef in 2015: 1.49 million tons compared with Germany’s 1.12 tons and the UK’s 0.9 tons. 79% of the meat consumed in France was also produced there. Imports are essentially European. However, the average income of cattle farmers is among the lowest in the farming sector and is projected to decline steeply. In 2014, a typical cattle farmer’s earnings after tax were 22% below the average over an extended period (2000-2013). – The French poultry sector has also seen a drop in production over the last decade. France used to be the second biggest exporter of poultry in the world, but today it imports 40% of the poultry it consumes. The country has a trade deficit with other European countries in terms of both volume and value, and this deficit continues to deepen. The majority of French imports come from other European countries, with far less coming from non-European countries like Brazil or the USA.
Why are we seeing such a serious deterioration in the French meat sector? We will look at the two main factors behind the decline: Le refus français d’une industrialisation de la filière viande, d’où des économies d’échelle insuffisantes. France’s resistance to the industrialisation of its meat sector, and hence insufficient economies of scale: France has always supported family farms but the international meat markets are high-volume markets where price is the determining factor. Unlike the French domestic market where quality is highlighted by labels (red label – farm quality) and constitutes a competitive advantage, on the international market, price is key. While Germany has positioned itself as a producer of cheap and standardised meat products with an “industrial” image, France has a “gourmet” image and premium products. Unfortunately, at this stage in its development, the international meat market, whose growth is being powered by emerging countries, has little interest in quality. Cost is therefore the strategic variable for success on the international markets, so the French sector is paying the price for high costs and an absence of economies of scale.
In the pork production sector, the average size of a pig farm in France is between 1,000 and 2,000 pigs, as against Denmark and Holland, whose farms average 2,000 to 5,000 pigs. Moreover, between 2000 and 2010, the average size of a pig farm has grown by 98% in Denmark, by 37% in the Netherlands, by 29% in Spain and by only 16% in France. Finally, German abattoirs often exceed 50,000 pigs slaughtered annually. In France, what is needed is far fewer abattoirs and comprehensive modernisation.
In the beef and lamb sector, France is likewise suffering from the small size of its farms. The lawsuit taken against the only French farm with 1,000 cows (ultra-modern farm with a giant facility to produce energy from cattle waste via a methanizer and fitted with solar panels), shows how hostile French public opinion is towards industrialised farming.
In poultry production, French farms are far more numerous and also far smaller than German ones: German, Dutch and British poultry farms are the biggest in Europe, with an average volume above 60,000. In France, more than half of all poultry farms have a capacity of between 1,000 and 10,000, because of the importance of quality and origin labels (Red Label, organic, Appellation d’Origine Contrôlée), whose product specifications limit the size of buildings.
With farm sizes which don’t allow for economies of scale, and with labour costs well above some of its European competitors, the French animal agriculture sector is in great difficulty and is losing market share.
An avalanche of costly production standards and over-regulation compared with European norms
Stringent regulation is an indisputable factor in the economic difficulties facing the French meat sector. (2) Often complicated and sometimes incomprehensible, these regulations place a very heavy administrative burden on farmers. A Senate report estimated that an average farmer spends 15 hours a week on office work. There are two main reasons for the relatively high cost of these production standards in France.
First and foremost, farms in France are, as we have seen, smaller than in European competitor countries. They therefore don’t possess the human or financial means to assimilate and implement these standards. Second, regulations often change in this sector, environmental standards are more and more exacting and require significant investment.
What does the future hold for French meat farming?
European farming is no longer just a sector regulated by the Common Agricultural Policy, but a competitive sector. In order to develop French meat farming, there are two possible strategies: – Strategic development of a quality-oriented farming sector : How can we find enough outlets for a high-end product with strong export branding to allow small farms to survive with high costs? There is a model in the French wine sector where prices are, on average, twice as high as the competition, and yet which still hold their own. This “high-end” strategy could save French farming. However, it will involve considerable investment in marketing and the international distribution chain. – Strategic development of intensive, low-cost farming : How can production costs be reduced? By heavy restructuring, and the elimination of uncompetitive “small farms”. Massive investment would also be needed to create ultra-modern farms, with state agencies fostering fully automated mega-farms – a far cry from today’s situation. Is there a middle way? Xavier Beulin, former president of the FNSEA (the French farmers’ union) has estimated that investment to the tune of 6 billion Euros will be needed “to develop a third way between industrial farming and diversity, high-tech and diversified farming, organic and robotic farming”.
Elie Cohen et Pierre-André Buigues « Le décrochage industriel », Fayard, 2014; and Pierre-André Buigues, « Refonder l’agriculture française » Journée de l’économie, Jeco , Lyon, Novembre 2016
The British vote to leave the EU has enormous implications for both parties, many of which are only beginning to be explored. One of the policy areas which will be most affected is trade policy. For the last forty years, the UK has essentially had no independent policy on international trade relations. Trade policy making was undertaken by qualified majority in the European Council and the resulting consensus became the UK’s effective policy.
Much of the discussion on Brexit has focused on the future trade relations between the EU and the UK. However Brexit will also have important impacts on the rest of the world, which are often ignored in the public debate.
In a recent conference paper, I explored the potential impact of Brexit on Global Value Chains (GVCs) through an analysis of its likely impacts on suppliers which rely on access to the UK market to integrate GVCs. The Brexit White Paper rejects membership of either the European Economic Area or a Customs Union. In this scenario, Brexit will lead to an independent UK trade policy. Thus the UK must create a new trade policy to govern its relations with suppliers (and customers) around the world. Indeed the wish to regain independence on trade policy was a key reason behind the rejection of a Customs Union.The UK government has made grand statements about their intention to negotiate Free Trade Agreements (FTAs) with a variety of emerging (China and India for example) and developed country (US, Australia…) partners as part of their ‘Global Britain’ vision. They have said precious little about what the shift from the EU trade regime will mean in terms of trade relations with less economically interesting partners. This situation creates huge uncertainty for developing country suppliers which rely on existing trade agreements with the EU for access to the UK market. In this paper I sought to highlight which countries were most vulnerable to policy change.
In order to understand why certain suppliers are vulnerable, it is important to understand that trade policy is not just about FTAs. It is also about a whole structure of EU unilateral trade regimes which have evolved over decades. These provide special market access preferences to developing countries and very high levels of access to the poorest of them. What this means, in real terms, is that if you are an exporter from Bangladesh (classed as a Least Developed Country (LDC) by the UN) you pay no tariffs on your exports of shirts to the EU (and thus to the UK), whereas a Chinese shirt exporter will pay 12%. Similarly, if you are a Pakistani exporter of bedlinen, you will also pay no tariffs on your exports, while India also pays 12%. This is because Pakistan benefits from a special EU access regime for countries which have ratified and applied a long list of international agreements on everything from labour rights to environmental protection (called GSP+).
Over the last twenty years there has been extensive research exploring the evolution of Global Value Chains (GVCs) which seeks to understand why certain GVCs are structured in the way they are. Trade regimes have emerged as being an important factor in deciding where production ‘lands’ in the global economy. They are particularly important in sectors where special access regimes provide high levels of tariff advantages, like textiles and clothing for Bangladesh and Pakistan in the above example. Other sectors where trade regimes have been highlighted as important to the geography of GVCs are fish processing, especially tuna (where Papua New Guinea pays no tariff and Thailand pays 25%) and cut flowers (where Kenya pays zero compared to 8% for Australia).
In addition, these kind of special access regimes are contingent on the goods exported from a given country being considered by the EU to be ‘made in’ that country. The definition of these ‘rules of origin’ is complex and the result of long hours of debate and consultation. Research has consistently found these rules to have an important influence on the geography of GVCs. For example, US rules stipulate that for a shirt to count as ‘made in’ a country, it must be sown from fabric woven in that country, which has been woven from yarn which is also spun domestically. A country which theoretically has free market access, nevertheless needs a functioning, competitive textile and spinning industry in order to avoid paying tariffs. The EU has a more liberal approach to these rules, especially for LDCs like Bangladesh. My own research has confirmed that these rules have had an important stimulating effect on EU imports from both Bangladesh and Cambodia.
In order to identify which countries are most vulnerable to changes in the UKs trade regime, I analysed non-oil exports. I focused on those countries which, on the one had rely a lot on the EU for their exports and, on the other export a large share of their EU exports to the UK. The countries subject to unilateral market access which emerge as most dependent on the UK market are Kenya, Bangladesh, Cambodia and Pakistan. The biggest trade flows are in Bangladesh – which exports over $3.5bn to the UK, much of it clothing.
The continued integration of these developing countries into UK-oriented GVCs post-Brexit requires continued and consistent market access. There is no guarantee that the UK will provide this, although it would be, to say the least, surprising if they abandoned their long standing support for developing countries’ integration onto the world economy. There will almost certainly be a UK special access regime for developing countries after Brexit, however it may not be as generous as the EU’s and at the very least it is likely to differ, especially over time. A key question will be the extent to which the UK retains the very generous access regime for LDCs like Bangladesh and Cambodia and whether it retains something like the current GSP+ regime, which is vital for Pakistan. This uncertainty is unhelpful. Current GVCs have been constructed over time in response to existing trade regimes and their framing rules. The quicker future policy is clarified, the easier it will be for GVC actors to integrate any changes into their strategies and adapt to the new reality. The UK’s Department for International Trade (DIT) is exploring possibilities, but with so many issues to consider in the post-Brexit landscape, developing countries are concerned that they will not be top priority for UK policy makers. Academic research indicates that they are right to be worried.
The impact of Brexit on trade regimes and Global Value Chains, Paper for the GIFTA seminar: Implications of Brexit: Navigating the Evolving Free Trade Agreement Landscape. Commonwealth House, London, February 6-7 2017
Par Yuliya Snihur
In the construction of a corporate identity for their business, creators of innovative start-ups have to simultaneously highlight their distinctiveness and also show that they belong to a pre-existing category of similar businesses. The objective is to reach “optimal distinction” which means finding a balance between an identity which is distinct from other businesses, and a “group” identity where they can show they belong to well-established business category. This balance is important if starts-ups are to grow their reputation and legitimacy.
To be unique but not too unique, that is the dilemma. A business’s first few years of existence are critical for the construction of its identity. It’s a period when creators make strategic choices which they must implement rapidly so that the business project survives and develops, but whose consequences are difficult to modify over the long term. The aim is to highlight the distinctiveness of the business while reassuring potential customers and partners about its normality. This balance is what’s known as “optimum distinction”. To succeed, a midway point has to be found between being unique, which contributes to the reputation of the firm, and the need to be like the others, to belong to a pre-existing and recognised group or category, which delivers legitimacy.
The challenge of building a corporate identity is something all new businesses have to face, but it’s even more intense for innovating companies with new business models, ie, a way of running their business which breaks away from existing practices in their sector. By definition, start-ups have no history or track record and are unknown to the general public, who have no frame of reference or benchmarks to rely on when it comes to trust.
What this study seeks to identify is the means by which innovating start-up companies build their reputation and legitimacy in the eyes of the public. To answer this question, we have analysed the way in which four young businesses built their identity. All four had introduced new business models, but each belonged to a different market sector: health, restaurants, digital services and the hotel sector. The results reveal four specific actions that were present in every case: these are storytelling, the use of analogy, seeking accreditation or reviews, and the establishment of alliances or partnerships. On the basis of these results, we have come up with a theoretical model which shows the link between each action taken and its consequences for the business’s corporate identity as perceived by the public, each action tending to influence both the reputation and the legitimacy of the firm.
The first two actions are the sole responsibility of the creator and are linked to the way the business proclaims or declares itself from the start. Storytelling describes the genesis of the enterprise and gives it meaning. If it highlights individual experience or the personality of the creator, it will have an influence the reputation of the firm; if it highlights a social issue, like sustainable development, it will be more likely to establish its legitimacy. Analogies, on the other hand, allow the firm to explain its contribution by comparing it to other players in other sectors, close to or distant from the firm’s own activity. When the players are from the same sector, we speak of a local analogy whose aim is to build up the firm’s legitimacy. If they are from different sectors, this more distant analogy will result in a strengthening of its reputation.
The two other types of action involve a broader cross-section of collaborators. These actions need to be taken later on because they require more time to put in place and call for a more objective assessment of the firm’s competency compared with other businesses or organisations. A third-party evaluation can take multiple forms, from rankings and prizes to processes of certification or accreditation. In the first instance, the evaluation should grow its reputation, in the second, it will impact on its legitimacy. And finally, establishing partnerships, with the regular meetings that entails, leads to stronger relationships with third parties. This leads also to image enhancement through association, which fosters the firm’s reputation or justifies its membership of a group or a category and thus confers legitimacy.
The size of our sample and the short period over which the study was undertaken do not allow us to draw any general conclusions about the effects of these four actions. Nonetheless, the replication of similar results in a sample of four businesses belonging to four different sectors does make it possible to offer hypotheses that make a fresh contribution to the theory of business identity, especially in the particular instance of businesses operating an innovative business model in their sector. These hypotheses could be tested in future studies on a larger sample and at a more advanced stage in the development of the business. On a practical note, new businesses engaged in innovation could use them to find pointers on the timing and the actions to implement to construct their firm’s corporate identity.
The approach chosen for this qualitative study draws on the field of multiple case-by-case studies. Yuliya Shilhur selected the four most innovative businesses in terms of their business models in four different sectors, from a representative line-up of 165 firms chosen at the start. The results were obtained by studying 620 pages of documentary sources (both internal and external) supplied by the firms and 29 interviews with inside sources (founders, employees) and external ones (investors, clients). The study was published in February 2016 in the review, Entrepreneurship and Regional Development, under the title “Developing optimal distinctiveness: organizational identity processes in new ventures engaged in business model innovation.”