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.”
By David Stolin
On March 31, 2005, Lehman Brothers chairman and CEO Dick Fuld was re-elected to the company’s board with 87.3% investor support. Four years later Mr. Fuld was ranked as “the worst CEO of all time” by Portfolio magazine, and widely described as having professional and personal qualities that contributed to Lehman’s collapse – and, due to Lehman’s position at the heart of the financial sector, to the international financial crisis.
We do not know how every Lehman shareholder voted in that election, much less the reasons for how they voted. We do know that around two-thirds of Lehman’s stock was held by other prominent financial institutions, the top ten being Citigroup, State Street, Barclays, Morgan Stanley Dean Witter, Vanguard, AXA, Fisher Investments, MFS, Mellon Bank, and Merrill Lynch. Most of these firms and their managers would be expected to have repeated dealings with Lehman and its management. As a result, we would expect these firms to be particularly well-informed about Mr. Fuld’s shortcomings and to have voiced concerns about his ongoing concentration of power.On the other hand, the combination of Mr. Fuld’s shortcomings and his power made him a formidable enemy. He is on record as saying “I want to reach in, rip out their heart, and eat it, before they die” about his professional adversaries.
It is a stimulating thought exercise to visualize Mr. Fuld’s reaction upon learning that, say, Citigroup or Merrill Lynch had voted against his re-election to Lehman’s board. We note that at Lehman, like at the vast majority of U.S. firms, voting was not confidential. This means that Lehman’s management could find out how each of the company’s shareholders voted. And this would raise a problem for Lehman’s institutional investors: even if they disagree with the management, is it worth incurring the management’s wrath by voting against it?
Of course, it is natural for managers to be unhappy with shareholders who vote against them. But for at least three reasons, such feelings matter more when the investee company is in the financial sector.
• The first reason is the “old boys’ network”. Decision-makers at the investing firm are especially likely to be connected to their counterparts at the investee if both have finance backgrounds: they are more likely to have received the same education, to be active in the same professional organizations, to have worked at the same companies in their past careers, and to expect to do so in the future. This increases the potential for retaliation (or reciprocation) at the individual level.
• The second reason is firm-level interaction. Financial firms are more likely to have competitor or supplier/client relationships with their investors than do non-financial firms. This means that retaliation and reciprocation can be channeled through such relationships as well.
• The third reason is cross-holdings of shares. A financial firm may hold shares in its own institutional shareholder, which gives the firm another potential means of retaliating for any anti-management votes by that shareholder, namely, voting against the shareholder’s own management. Conversely, investor and investee may reciprocate by supporting each other through voting.
How can we examine if our suspicions are founded? The only group of institutions systematically required to disclose their votes is U.S. mutual funds, and accordingly we focus our study on mutual fund companies. Our empirical tests suggest that all three types of conflicts of interest listed above do matter. Social ties between the voting and target firms increase the voting firm’s support for the target’s management. In addition, voting appears to be influenced by the fear of retaliation, both in the form of being voted against in the future and of being aggressively competed against in the future. Our results suggest that there is “clubbiness” in the way fund companies vote on each other. We then go on to examine the implications of this clubbiness. We show that directors elected in fund companies with greater own-industry support, monitor senior management significantly less.
To generalize our findings, we then use aggregate voting outcomes to assess whether financial companies as a group vote more favorably when it comes to their financial sector peers and we find that this is the case as well.
In short, the financial sector’s inevitable and extensive investment in itself has a deleterious effect on its governance. What can be done about it? We believe that our work has at least two important policy implications.
First, the notion of conflicts of interest which institutional investors address in their voting policies should be explicitly defined to include not only client/supplier relationships, but also conflicts of interest through product market competition and reciprocal investments. Such recognition would help take voting out of the hands of individuals most inclined to vote in a conflicted manner, or at least constrain these individuals’ discretion.
Second, proxy voting should be required to be confidential at firms in the financial sector; i.e. investee firms should not be able to discover how different shareholders voted. This would mitigate a key reason for conflicted voting, which is potential retaliation/reciprocation by the investee’s management.
It would be naïve to think that decision-making in business can ever be rid of conflicts of interest. But in the case of proxy voting in financial firms, the problem is important enough to deserve a close look from regulators.
Afin d’enquêter sur les conflits d’intérêts entre les gestionnaires d’actifs, les auteurs ont étudié la procuration de votes des fonds communs de placement sur des propositions de gestion d’actifs. L’étude couvre la période 2004-2013 et les variables explicatives étaient les fonds, la société et la relation fonds-société. Ils ont également analysé les résultats des votes rattachés. L’étude a été publié en Mars 2017 en la version papier du Management Science Journal.
By Sylvie Borau and Jean-François Bonnefon
The new mayor of London is planning to ban commercials that depict female models who are too thin or whose bodies are not realistic, but the question of how effective “natural” models are in advertising remains open. Even though an increasing number of publicity campaigns show models with fuller, more realistic figures, these remain few and far between. Why would this be the case?
While commercials for cosmetic products intended for women traditionally feature models with ideal beauty, some brands, like Dove for instance, have started to adjust their communication strategy by presenting more realistic women with fuller figures and less artificial editing of the image.
Presenting models, whether ideal or natural, poses two significant problems: the first is ethical and the second economic. On the one hand, idealized images of female beauty impose an unreachable standard and can have negative effects on the psychological wellbeing of women, for example in terms of body image anxiety. On the other, selecting an ideal model or a natural one also poses the question of the commercial’s economic impact.
From the perspective of the advertiser, like the creative agency, the choice of relying less on stereotypical, edited images, or even abandoning them completely, will be based mainly on commercial effectiveness criteria and probably less on issues surrounding social responsibility. As a result, it is essential to evaluate more precisely how women react to these natural models and their commercial effectiveness. While many studies have looked into the ability of an idealized model to generate anxiety, less attention has been paid to the ability of a natural model to also trigger negative emotions. However, if the reference point for female consumers is models representing ideal beauty, natural-looking models may be considered out-of-place in the media environment and thus elicit repulsion, unpleasant surprise, or even disgust.
The aim of this study was to compare the reactions of women to magazine advertisements containing either an ideal model or a natural model, both in terms of affective reactions, such as body anxiety and repulsion, and in terms of commercial impact, including their impressions of the advertisement, attitude to the brand, and interest in buying. Half of the sample subjects were shown the traditional ideal model used in commercials for cosmetic products, while the other half was presented with a natural model: a woman with a more realistic body, non-stereotypical physical traits, and no editing of the image.By focusing more specifically on two negative emotions, anxiety regarding the appearance of one’s body and the repulsion generated by the models, we put forward two hypotheses: first, that natural models reduce body anxiety among readers, particularly those with a high body mass index (BMI), and that this has a positive effect on the commercial’s impact, and second that natural models increase the feeling of repulsion that women feel, with a negative effect on the campaign’s effectiveness.
Concerning the effect of exposure to different models in terms of negative emotions, it was found that the natural model did not decrease body anxiety among the women. This result could be explained by the fact that the respondents already reported a very high level of anxiety; it would be difficult for this level to be affected further by exposure to the images. However, the natural model generated repulsion, even more so among the women with high BMIs. These women who are very unsatisfied with their appearance probably project the feeling of repulsion that they feel towards their own body onto the natural model.Concerning the effect of these negative emotions, the results showed that body anxiety increased the effectiveness of the commercial; in other words, the more a woman is anxious about her appearance, the more she will tend to like the advertisement and the brand, and the more likely she will be to want to buy the product. This positive effect of anxiety on the commercial’s impact is rather counter-intuitive, since negative emotions generally have a negative effect on advertising performance. The other result is more logical, showing that repulsion had a negative outcome on effectiveness.
In short, these results are not too encouraging if we consider the divide that exists between public policies that aim to encourage the use of natural models and advertising professionals who are more concerned with the economic effectiveness of this type of strategy, and who are therefore interested in advertising with ideal models.What would we need to do to counter this contradiction and reconcile ethical considerations with economics? If the aim is both to be effective and not generate negative emotions that may either increase effectiveness through anxiety, or decrease effectiveness through repulsion, an alternative could be to dispense with model images, whether idealized or natural. A number of brands have adopted this third approach, particularly in the area of drugstore products. This type of strategy, which is more respectful of the consumer’s wellbeing, requires the development of advertising discourse that is more informative, shifting the message from emotion more to rationale.Further studies could help to refine these conclusions, for example by looking at categories of products other than cosmetics, by presenting other types of models, or by calling on other reactions rather than emotions, such as the credibility that the readers assign to the model and to the advertisement.
A survey was carried out including 400 French women aged between 18 and 35 years, representative of the population of France in terms of BMI, education level, socio-professional category, and marital status. The responders were asked to look at a women’s magazine online, in which there was an advertisement for a cosmetic product illustrated either with an ideal model or a natural model. They were then asked to complete a questionnaire.
Sylvie Borau has been a professor in marketing at Toulouse Business School since 2013. Before that, she worked for 8 years in various research institutes, particularly in Canada. Her thesis, as part of her doctorate obtained from the IAE of Toulouse in 2013, led her to win the 2014 Sphinx thesis award and to be a finalist for the AFM-FNEGE prize of the French National Marketing Association and the Foundation for Management Education. Her research work focuses on consumer behavior and more specifically on physical attractiveness in advertising.
In 2016, she published an article in the International Journal of Advertising, entitled: “The advertising performance of non-ideal female models as a function of viewers’ body mass index: a moderated mediation analysis of two competing affective pathways” in collaboration with Jean-François Bonnefon, CNRS Director of Research at the Toulouse School of Economics.
By Victor Dos Santos Paulino
Any company faced with a radical innovation in its sector of activity will hesitate between indifference and reaction, because of the impossibility of foreseeing whether the innovation is a radical breakthrough or a product that is doomed to fail. To resolve this dilemma, the solution might be to identify potentially disruptive innovations and assess their risk for established stakeholders, as illustrated by the case of the satellite industry.
The miniaturisation of satellites has affected space industry markets over the last 20 years. On the offer side, new manufacturers have emerged, marketing small satellites at a lower cost; on the demand side, there are new clients that see this innovation as an opportunity. Quite logically, the well-established manufacturers, positioned in the segment of traditional large-size satellites, are wondering whether they should consider these radically new technological choices as a threat?
Our research, conducted in the framework of the Sirius chair (http://chaire-sirius.eu), aims to answer this question, which first involves clarifying the concept of ‘disruptive innovation’. This is necessary because the expression, which is widely used and sometimes mistakenly, makes established players in the sector anxious, while fascinating and intriguing them, without it being entirely clear what exactly we are talking about.A disruptive innovation is a particular case of radical innovation which modifies the structure of an industrial sector and whose effects may lead to existing companies being replaced by new competitors. The difficulty is that it is only possible to be certain that it is a disruptive innovation in the long run, a posteriori, once it has staked out its place or even driven out the oldest technologies and the companies that marketed them. In the short term it appears rather to be a less efficient product or service, aimed at a marginal clientele, an immature technology proposed by small companies with limited resources, less know-how and less knowledge of the market.Because of these characteristics, it is very difficult to distinguish between a real disruptive innovation which has just been introduced and so requires that existing companies react, and an innovation destined to fail, that they can comfortably ignore. This creates uncertainty about what they should do, which is known as the innovator’s dilemma, since existing companies should promptly assess the danger and possibly invest in the new market while the disruptive innovation is not yet a threat, if they are to limit the consequences. If they wait too long, it might be too late.
What matters to company executives is to be able to anticipate trends and thus, if possible, to be able to use forecasting tools. Since it is not possible to affirm at an early stage that an innovation is disruptive, the solution is to try and determine in the short term whether it has the typical characteristics, in other words whether it is a potentially disruptive innovation and if so what type of threat it is likely to pose to well established stakeholders.
Not all disruptive innovations have the same consequences: some lead to complete substitution of the old technology by the new one and thus pose an extreme threat, the typical case being that of silver-based, emulsion film photography wiped out by digital photography; other innovations do not entirely replace the initial products. This is the case in air transport, for which low-cost companies have captured only some of the clientele of traditional companies, and in telephony, where landline technology continues to coexist with mobile technology. These examples are characteristic of three types of disruptive innovation for which only the first is associated with a high risk of the pre-existing market disappearing. In the two other cases, the threat appears to be lower for established companies.
What then is the situation for the space industry? Given this conceptual framework, how should well established stakeholders react to the development of small satellites? According to the parameters chosen for our theoretical model, small satellites have most of the characteristics of potentially disruptive innovation: lower technological performance with respect to the requirements of the traditional main customers; they are less complex; they either cost less or on the contrary cost much more, for instance in the case of constellations of small satellites; they offer the perspective of introducing new performance criteria such as the possibility of designing, building and launching a new satellite in a very short time or again the improvements offered by constellations in low Earth orbit.
However, an analysis of the demand for these new satellites shows that they are intended mainly for new customers, which means that we can exclude the hypothesis of a disruptive innovation affecting an existing market, which is really the main risk case for manufacturers. Those who buy them can be divided into institutional customers from emerging countries, which do not have sufficient resources to launch conventional satellites, and private top-of-the-market customers with new needs for low orbit constellations, which conventional satellites do not meet.
Thus, small satellites are indeed a potentially disruptive innovation but they only pose a slight threat to well established stakeholders. Despite the structural changes they might lead to for this industry, there is not much risk that they will entirely replace conventional satellites. This in no way determines either their ultimate success or failure.
This study was conducted by Victor dos Santos Paulino (TBS) and Gaël Le Hir (TBS) in the framework of the Sirius chair, on a topic proposed by the chair’s industrial partners. For the theoretical part, the authors reviewed the existing literature on the theory of disruptive innovation, which enabled them to draw up a table classifying the characteristics of potentially disruptive innovations. They then applied this model to the satellite industry while referring to several sources of information (information published by manufacturers, sectoral information, interviews with experts, databases). The study was published in the Journal of Innovation Economics & Management in February 2016 under the title “Industry structure and disruptive innovations: the satellite industry”.
By Uche Okongwu
Supply chain optimization essentially involves finding a compromise between striving for customer satisfaction at the same time as profitability. By adjusting the different supply-chain planning parameters, each company can achieve the performance level in line with its strategy and objectives.
The concept of the supply chain is as old as economics: from the supply of materials to production and delivery, the successive players involved in any given market represent the links in a chain, acting as customers and suppliers to each other respectively. However, increased competition and globalization have made companies realize that all the different players in their supply chain share a common goal, namely customer satisfaction. Consequently, how the supply chain is organized and how it performs are of crucial strategic importance for companies, and increasingly so. In this regard, the example of the aerospace industry is regularly covered in business news and highlights this strategic role perfectly; indeed, the industry has had to increase production rates to meet the growing demand and this has created tension throughout the chain. However, this problem actually concerns all sectors of the economy, whether in industry or in services. Over the last twenty years, researchers and managers have been looking at ways of optimizing supply-chain management to improve companies’ performances, based on the ideas of collaboration, integration and information sharing.
The difficulty in resolving this issue lies in the complexity of the supply chain itself; in addition to the number of links in the chain, we need to take into account the number of performance indicators and particularly the number of parameters that a company can adjust in order to meet its performance targets, which is infinite. Until now, the research had focused on one parameter or another, sometimes combining them, but in a limited way. For the first time, our study aims to go further by combining several parameters positioned at different stages and functions in the chain (planning, procurement, production, delivery), in order to establish which combination of key factors produces the best performance.
The first issue that needs to be addressed concerns the supply-chain performance, indicators. Many indicators are used, some of which are contradictory, since certain indicators are linked to profitability and others to customer satisfaction. For our study, we selected three: profit margin, on-time delivery and delivering the quantities requested. Ideally, an optimized supply chain should make it possible to achieve maximum scores on all these parameters, but in reality, no company can claim to be the best in every area. As such, you have to reach a compromise at some point, according to your market and objectives, by accepting to “sacrifice” part of your performance on a given indicator. With this in mind, the idea of optimum supply-chain performance depends on the objectives the company sets in terms of profitability and customer satisfaction, but also in relation to its position in the market. Consequently, the main challenge in supply chain planning is finding this compromise.
The case on which we worked was inspired by a real situation. It concerns a supply chain in the field of furniture, for the production of tables and shelves. Out of the 12 general supply-chain planning parameters we identified, we decided to alter six and to observe the result of the simulation on our performance criteria: the planning time-frame(short or long), the production capacity in terms of human resources (constant or adapted to the demand), the production sequencing (priority given to the oldest or the most recent orders), the duration of the cycle, the reliability of the forecasts and the availability or otherwise of stocks.
In the case of this supply chain, the production capacity appears to have a strong impact on margins and the ability to meet demand, whereas sequencing has a greater impact on the promptness of deliveries and the extent to which the response meets the demand.
These results confirm the initial hypothesis, namely that different combinations of planning parameters will have different impacts on the performance indicators. The different planning parameters cannot be considered independently of the performance criteria, hence the need to make choices. The ideal combination of parameters depends on the performance sought by the company.Using the model developed in this study, managers responsible for supply-chain planning have a theoretical and practical tool to help them in their decision-making, allowing them to determine the best combination based on the company’s priorities. The framework and methodology developed, as well as the results obtained, are a genuine breakthrough in terms of research. To take things further, it would be interesting to combine even more parameters – as long as the computer-simulation tools available make this possible -, and to test the model on different supply chain structures and in other market environments.
To conduct this study, Uche Okongwu (TBS), Matthieu Lauras (TBS, Ecole des Mines Albi), Julien François and Jean-Christophe Deschamps (Bordeaux University) reviewed the available literature on the topic of supply-chain performance. Based on the following research question: “What combination of key factors in supply chain planning make it possible to optimize the performance of the supply chain?”, the authors developed equation models that they tested on a real supply-chain case in the furniture industry. The study was published in January 2016 in the Journal of Manufacturing Systems, in an article entitled: “Impact of the integration of tactical supply chain planning determinants on performance”.
Uche Okongwu has been a Lecturer in Operations Management and Supply Chain Management at Toulouse Business School since 1991. He has combined his career as a researcher with that of an engineer and consultant in industrial organization. In 1990, he obtained a doctorate in Industrial Engineering at the Institut National Polytechnique de Lorraine (Nancy, France). He is currently Director of Educational Development and Innovation at TBS, having already set up the School’s industrial organization division.
By Pierre-André Buigues and Denis Lacoste
French car-makers exported fewer and fewer cars over the course of the first decade of the 2000s. At the start of the 2000s, PSA was exporting 54% of its French production and Renault 47%.
Ten years later, that percentage had dropped by over 20 points for PSA; Renault’s case is even more critical since the company has even started importing vehicles to France. Today, Renault now produces fewer vehicles in France than it registers! And France now has a significant trade deficit in the car sector; the last surplus was in 2004!
Absolutely not. Indeed, during this same period, French manufacturers invested heavily in building assembly plants abroad. In the early 2000s, the number of cars manufactured by Renault and PSA abroad represented about 70% of domestic production. In 2010, the ratio of foreign production to domestic production was close to 170% for PSA and almost 300% for Renault.One might think that these developments are related to macroeconomic and monetary conditions in the Eurozone. However, when you look at the development of German car-manufacturers’ strategies over the same period, it is clear this is not the case. Between 2000 and 2010, we can see that Volkswagen’s exports remained stable while Mercedes and BMW’s exports rose.
Specialists in business strategy generally agree that the choices made for an international development strategy are determined by two key factors: the company’s competitive advantages and the economic conditions affecting production in the home country.
The competitive advantages of French manufacturers. . Basically, industrial companies can choose between strategies based on low production costs or differentiation strategies based on technological innovation. A low-cost strategy drives companies to delocalize a significant part of production to low cost countries. On the other hand, a differentiation strategy generally goes hand in hand with increased exportation, because the competitive advantage is based on R & D and hence on the high-level expertise that is only available in developed countries. Companies that opt for a low-cost strategy will look abroad for cheap labor whereas those who base their strategy on differentiation will be less affected by the higher production costs linked to domestic production and can draw on the positive effects of the interaction between production and R & D.
In the case of the car industry, there are considerable differences between the innovation strategies of French companies – which seek to set up production abroad – and German companies, which maintain a high level of exports. At the start of the 2000s, Volkswagen was already investing more than twice as much as Renault and PSA in research, and in 2010, Volkswagen’s research budget was three times greater. If we specifically look at the R&D content of each vehicle sold, there is naturally a quite significant technology input with high-end manufacturers like Mercedes and BMW (more than €2,000 per vehicle), but this is the case even with mid-range manufacturers; the R&D content in a Volkswagen car is 20% higher than that of Renault and 45% greater than that of PSA. Again, the gap widened during the first decade of the 2000s; the increase in R&D expenditure per vehicle is significantly higher in German-made cars compared to French-made cars.
The economic conditions in France The more or less favorable domestic business environment, particularly in terms of cost, also has an impact on their choices in terms of international development. What about the French car industry? What are the differences between the French and German environments? If we look at things on a very general level, we see that the hourly labor costs for manufacturing in general increased by 38% in France, compared with only 17% in Germany, during the first decade of the 2000s. If we look closer at the car sector, we can note that productivity per employee was lower in Germany than in France in 2000, but that productivity increased sharply over the decade in question, while it decreased in France. In 2008, employee productivity was 25% higher in the German car industry compared to France. This can be explained by the fact that French car manufacturers have made little investment in France, their priority being their overseas factories.
Even though we may bemoan the extremely negative consequences in terms of employment and the creation of wealth in France, French car manufacturers made strategic choices that are coherent in terms of international development in view of their low R&D expenditure, their medium- and low-end positioning and the unfavorable domestic production conditions in terms of cost. However, it is not surprising that French manufacturers’ profit margins are lower than those of their German counterparts. For example, over the period 2000-2010, the operating profit per car was €635 for VW and around €250 for Renault and PSA.
Unfortunately for French international trade and the employment market in France, the car sector is not an isolated case. France has far fewer companies that export than Germany, and the share of exports in French GDP is almost two times lower. On the other hand, France has more large multinationals than Germany (14 companies in the world’s top 100 compared with 10 for Germany) and these French multinationals have a larger proportion of their workforce abroad than their German counterparts.
Consequently, for France to become an “export country” once again, it would take a radical change in the strategic positioning of companies located in France as well as more favorable production conditions in the country.
Written by P.A. Buigues and D. Lacoste. The information in this text is taken from the following articles: “Les déterminants des stratégies internationales des constructeurs automobiles européens : exportation ou investissements directs à l’étranger” (Determining factors in the international strategies of European car manufacturers: exportation or direct investment abroad? ”), published in 2015 in the magazine “Gérer et Comprendre”, written by the authors in collaboration with M. Saias M, and “Les Stratégies d’internationalisation des entreprises françaises et allemandes : deux modèles d’entrée opposés” (International business development strategies of French and German companies: two opposite input models), written by the authors and published in “Gérer et Comprendre” in 2016, as well as their book “Stratégies d’Internationalisation des entreprise” (International Business Development Strategies), published in in 2011 by De Boeck.
The database was essentially built using information published by the manufacturers in their annual reports, as well as data provided by the French Automobile Manufacturers’ Committee (CCFA), the International Organization of Motor Vehicle Manufacturers (OICA) and by Eurostat. The data relating to international business development, strategies and economic conditions were analyzed over the entire 2000-2010 period.
This study shows that any assessment of a company’s choice in terms of international development cannot be cannot be conducted without analyzing other aspects of its strategy (particularly in terms of positioning) and the economic conditions in the company’s home country. The study also suggests that foreign investments are not necessarily the best way forward in terms of international development. The case of the car industry shows that it is possible for a company to keep a significant part of its production in its home country while remaining efficient, even in a global industry.
By Servane Delanoë-Gueguen
When looking at business creation, people tend to take more interest in the project than in the entrepreneur behind it. However, starting a business has strong personal implications. Assessments of personalized support programs would be more relevant if they paid greater attention to gauging how entrepreneurs feel about their ability to see their project through to completion, particularly as regards the strategic and financial aspects.
What drives someone to want to start a company? Obviously there is the initial project, which may or may not result in the creation of a start-up, but above all there is the individual behind the project, the budding entrepreneur, who will end up transformed by the experience, whatever the result. The process is a form of apprenticeship, during which the business creator acquires new skills, develops new ways of looking at things, and builds networks. If the individuals manage to create their business, this personal transformation will provide them with valuable skills for the company’s development. If not, they will be able to draw on these newly-acquired skills to prepare an entrepreneurial project later in life, or to use their new knowledge working for someone else.
People with new business projects do not have to go through the process alone. They are even encouraged to participate in support programs, which may have a profound impact on the project as well as the person behind it. Unfortunately, when assessing such programs, this personal dimension is rarely taken into account: to evaluate their effectiveness, we tend to focus on the participants’ satisfaction with the program or the fact that they managed to create their business, but not on the effects that the programs have had on the budding entrepreneurs. Our study looked at people participating in a support program set up by Brittany Chambers of Commerce and Industry (CCI). The aim of the study was specifically to analyze this personal impact. Rather than focusing on the project leader’s actual skills, we studied their perceived entrepreneurial self-efficacy , i.e. how the individuals perceived their ability to create a business.
This perceived entrepreneurial self-efficacy – originally developed in the field of psychology – is a key determining factor in the process of creating a company, because not feeling capable can be a major obstacle. If properly evaluated, it can even foster the entrepreneur’s tenacity in the face of difficulties. However, this remains a perceived ability, which is not necessarily representative of the actual ability; indeed, certain individuals have a tendency to underestimate their abilities whereas others overestimate them. Finally, the perception can change, according to four major influences: personal experience, observation of others, verbal persuasion by third parties and emotional state.
The study sought to measure the change in the perceived self-efficacy of budding entrepreneurs who took part in a support program by interviewing them at the beginning of the project, and then a year later. While we might expect participation in a personalized support program to have a positive effect on entrepreneurial self-efficacy (that is to say, the project leaders feel more capable of creating their company), the results of the study actually show an overall decrease in self-efficacy. If we look in more detail, the only positive impact was on entrepreneurial administrative self-efficacy – concerning the planning of the project and formalities – whereas perceptions related to strategy and finance tended to deteriorate.
These results can be explained by what we could term a “reality check”. At the start of the process, many budding entrepreneurs think that the administrative side is highly complex and focus on this aspect; then they realize that this is not actually the most complicated aspect, particularly since a number of measures have simplified business-start-up procedures over recent years. At the same time, they start to realize how difficult it is to find customers and funding, that there are competitors in the market, and that they never have enough time to do everything. All these aspects are often under-estimated when they build their project.However surprising it may be, this result shows the value of having an objective assessment of start-up support programs, by focusing on the personal impacts: the aim of support programs is to help people with start-up projects set up viable businesses and understand the realities of the market, not to simply ensure that the majority of the individuals actually start their businesses. With this in mind, it is not necessarily a bad thing for prospective business creators to feel less capable at the end of the process than at the beginning. Participants who ultimately decide not to start their business, after appreciating the importance of having a customer base and a network, have the opportunity to ask themselves the right questions, to readjust their perceived ability, and sometimes realize they are simply not made to be entrepreneurs. They will be better equipped for the next project, or at least thy will have more realistic perceptions.
This evaluation method is a valuable tool for improving support programs, with practical uses that can be taken advantage of almost immediately. For example, it may be interesting to adopt a differentiated approach depending on whether the people at the start of the program underestimate or overestimate their ability to create a company, in order to help them reach a more realistic self-perception. In relation to the case analyzed in this study, the support programs could focus more on strategic issues and funding.These results are a step towards achieving an objective assessment of support mechanisms for budding entrepreneurs. Now, it would be useful to fine-tune the results with a more representative sample group of budding entrepreneurs and extend the research to different types of support initiatives.
Servane Delanoë-Gueguen is a research professor in entrepreneurship and business strategy in Toulouse Business School. She is responsible for the TBSeeds incubator and is joint Head of the “entrepreneur” vocational option. She has a PhD in emerging entrepreneurship from the Open University (UK). Her research focuses on budding entrepreneurs, entrepreneurial ecosystems, business-creation support programs, entrepreneurial desire and business incubation. This publication is a summary of the article “Aide à la création d’entreprise et auto-efficacité entrepreneuriale” (Support for business creation and entrepreneurial self-efficacy”) published in 2015 in theRevue de l’entrepreneuriat.
Within the framework of her research, Servane Delanoë-Gueguen conducted a longitudinal study. Based on a literature review, she developed a theoretical model with 3 research hypotheses concerning the evolution of entrepreneurial self-efficacy over the course of one year concerning individuals with business start-up projects involved in a support program, who had ultimately created their business or not, with gender differentiation. The model was then tested with a group of budding entrepreneurs. In the first year, a total of 506 people answered a questionnaire to assess their perception of their entrepreneurial abilities. The following year, she managed to re-contact 394 of the people concerned, of whom 325 had a genuine start-up project in progress. Out of this group, 193 people answered the questionnaire again.