ecaf(29)_836.fm Page 97 Friday, May 23, 2008 10:45 AM iea e c o n o m i c politicians and other opinion-leaders to speak out on behalf of free trade. However, that notion is not shared by Cambridge economist Ha-Joon Chang, author of Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World. In his book, Chang argues that the debate on development in poor countries has effectively been taken over by a powerful conspiracy of 'neo-liberal' economists and policy-makers. And even though their market-oriented solutions to Third World poverty do more harm than good they continue to promote them in the nave hope that developing nations will benet - thus earning them the title 'Bad Samaritans'. The so-called Bad Samaritans, the author writes, now dominate international institutions such as the World Bank and make little room for those with differing opinions on how to help, say, the African continent escape its backwardness. As their inuence has increased in recent years, Chang claims it has become harder to raise support for the kind of policies the developing world is in need of: trade protectionism, infant industry protection and unconditional aid, for instance. But this argument does not carry much weight. In fact, it is the case for free trade, conditionality in aid and the lowering of tariffs that is currently under re - also from the World Bank. A good example of this is the Bank's 2005 debt relief plan, which was hotly contested by the free-market ideologues, and whose chief architect was one of Chang's Bad Samaritans, the former US Defense Secretary Paul Wolfowitz. But despite these facts, Bad Samaritans does have some merits. It is a well-written and well-argued book with an original angle of attack. Chang's main critique against his foes is that these economists, who often come from Western and other developed countries, try to push policies down the throats of the developing nations which the rich countries themselves never used to become rich. It was, for instance, America that invented the concept of protecting infant industries in order to grow strong enough to compete in the global market. Britain also abolished protectionism in favour of free trade, Chang writes, only when its industries were strong enough. And many of the Asian tiger economies, including Japan and South Korea, shut their door on the world until their teeth were sharp enough. Moreover, developed countries frequently 'borrowed' ideas and technology from each other, something they now want to prevent poor nations from doing through patent legislation (which is indeed hurting Third World countries). Many of the rich countries, Chang continues, have also allowed for corporate welfare schemes in hard times as well as state-owned enterprises - policies they now want developing countries to stay away from (rightly so). By pushing for market-based solutions, Chang claims his Bad Samaritans are inadvertently 'kicking away the ladder' from under those who are trying hard to develop their economies. Chang even goes so far as to say that because of 'neo-liberal orthodoxy', Africa has 'seen a fall in living standards' during the last 20 years. This is obviously false, not least given the fact that poverty and hunger has been cut in half since the 1980s: a development which can largely be credited to the introduction of economic freedom and the shying away from the Keynesian schemes that Chang positively reminisces about. Trade does not only create jobs, but also, it seems, sustains life. Chang may be right in pointing out that a number of today's most successful economies have made use of protectionist policies in the past, although many did not, with Sweden being one of the best examples. But how can we be certain that, for example, Japan's infant industries would not have survived, or perhaps would not have done even better, without protection? What potential success stories never saw the light of day because they weren't picked as winners by the South Korean government? The idea that companies in developing countries need protection from the outside world is actually the true Bad Samaritanism. The fact that some rich countries have previously made mistakes should not disqualify their current leaders from stating the case for free trade, on the few occasions they do so. And they should not stop there. Developed nations must also translate words into deeds and leave protectionism behind altogether. It is not acceptable that, for example, the European Union keeps African farmers a f fa i r s j u n e 2 0 0 8 97 and Asian tailors out of the free market, because, contrary to what Chang believes, they both need and want to get in. Johan Wennstrm Student of Government University of Uppsala jwennstrom@gmail.com Original iea economic reviews Article affairs xxx 2008 2book 28 THE SCIENCE OF SUCCESS: HOW M A R K E T- B A S E D MANAGEMENT BUILT THE WORLD'S L A R G E S T P R I VAT E C O M PA N Y Charles G. Koch Hoboken, NJ: John Wiley & Sons, 194pp., ISBN: 047 013 9882, 12.99 (hb), 2007 Wander into any bookshop and you will nd books by business chiefs who have achieved success and want to pass on their 'secrets' of how they did it and how you could too. These books tend to be simplistic and some do not tell the whole story; for example, it is easy to be a business success if you have a monopoly patent of a life-saving medicine for which you can charge any price. Similarly, read management journalism and you will encounter the theories some management gurus have developed from a spectrum as wide as Henry V, poker and game theory, each of which make a name for the author for a couple of days. This book is very different in that it tells a story not only of business success but also of growing intellectual discovery and the application of ideas from a wide range of free-market writers who most of the readers of Economic Affairs will know well. The ideas of von Mises, Hayek, Polanyi, Vernon Smith, Schumpeter and many others have been considered and utilised in one way or another. To some people, this process conrms Keynes's famous dictum that businessmen espouse the ideas of some defunct economist, but this reviewer sees it as a rebuff to Keynesian cynicism. Charles Koch (pronounced Koke) succeeded to a private family business, Koch Industries Inc., which has done extraordinarily well. It is now a huge 2008 The Authors. Journal compilation Institute of Economic Affairs 2008. Published by Blackwell Publishing, Oxford ecaf(29)_836.fm Page 98 Friday, May 23, 2008 10:45 AM 98 book reviews multinational across a range of industries, and as the business has grown its owner/ manager has had to devise methods of control like any other multinational. This is very difcult for every rm as it expands. How do you ensure that all the managers and staff on whichever continent they are working are doing so as conscientiously as possible for the company? Charles Koch went into the family business in 1961 after graduating from MIT and a spell consulting with Arthur Little. He had some immediate business challenges but at the same time he began to read and was particularly impressed by Mises's Human Action, so he began to try to apply economic concepts to his business activities. Over the years he and his associates incorporated those ideas which they found useful so that at the present day a complete business model has been developed and applied. Back in 1961 Koch Engineering had sales of $2 million. Now it is active in 60 countries with a turnover of $90 billion and 80,000 employees. Running a conglomerate of this size is a massive task. This book explains the development of the rm and the incorporation of the ideas which make up the business model, its rationale, some of the failures along the way, as well as the successes. Reviewing a book like this requires identication of the really important factors which led to the present-day situation and it appears that in this case it is that Charles Koch has a strong enquiring mind and the personal willpower and energy to put the ideas he encountered into practice. Early in his career he found the ideas of W. Edwards Deeming (one of the founders of Total Quality Management) to be helpful and these were used. Deeming's statistical process controls have been useful in many contexts when applied properly and their later metamorphosis into continuous improvement, elimination of waste and development of the talents of the workforce, are now incorporated into many UK organisations (although bastardised and often ineffective). But what made the Koch initiatives different is the importance of incorporating an entrepreneurial approach and value creation into all aspects of management to secure a market advantage over rivals. Over the years the process of going beyond continuous improvement led the company to begin to develop a new model, 'Market Based Management' (MBM), and the process to doing this is described. In 1990 a company Development Group began work and by 1995 established a Problem Solving Process which has become the means by which MBM can be applied throughout the company. This book discusses all the ideas underpinning MBM - vision, virtue and talents, knowledge processes, decision rights and incentives. Some of these concepts are the same everywhere - for example, vision, strategy, maximising long-term value, to help identify priorities and opportunities - but at Koch there is a more expansive and entrepreneurial outlook at maximising every possible opportunity. The book conveys the sense of enthusiasm which Charles Koch has for these ideas and it is remarkable how the company has been able to expand and prot from them. There are two areas where the MBM model has gone further than other business models: the development of decision rights and accountability, and the use of incentives. Decision rights have been developed by Koch as an extension of property rights within the rm. All employees can be granted the right to make decisions which are appropriate for the tasks for which they are responsible. The employee then becomes accountable for the decisions taken, and an employee can be given more decision rights on the basis of previous decisions correctly taken. These ideas have been developed at Koch into the concept of principled entrepreneurship which encourages employees to think of ways in which value can be created in their areas of responsibility. These concepts lead directly into the area of incentives. Koch tries to incentivise its employees by sharing any increases in value developed by them. Each employee has a salary level but no salary ceiling so that salaries can be set in accordance with decision rights, accountability, value creation and entrepreneurial initiatives, and no employee has a limit on the value they can create. There are no rigid pay structures and all employees may be on different levels of pay. This is quite different to most business organisations, although in times past some rms only paid workers on the basis of actual work done. Koch Inc. has gone further by incorporating the concepts of value creation and entrepreneurial ideas into pay. It is quite clear from this book that the MBM model is very successful for this company. It is also quite clear that it is unsentimental. If a particular activity is not seen as having much of a future in Koch Inc. it is sold off. Opportunity costs are taken into account at all stages of decision-making. There is no emotional attachment to sunk costs. The company embraces change at all levels. If global competition makes production in China more protable a factory in China is built. If this leads to the Gloucester bres plant becoming smaller, so be it. Other multinationals are just as unsentimental about shifting production around the globe, but the strength of Koch is that it is able to control activities in diverse industries, maximise protability, incentivise its employees to behave in accordance with company policy and market possibilities, and continuously adjust activity levels in every subsidiary so that sudden changes in policy with their pain and costs are minimised. It is a considerable achievement. Roger Fox Visiting Fellow University of Buckingham r.g.fox@totalise.co.uk 2Original 28 book iea economic reviews Article affairs xxx 2008 M O D E R N C AT H O L I C SOCIAL TEACHING: C O M M E N TA R I E S A N D I N T E R P R E TAT I O N S Kenneth R. Himes (ed.) Washington, DC: Georgetown University Press, 563pp., ISBN: 158 901 0531, 35.50 (pb), 2005 The best way I can think of describing the intellectual approach of this book in a nutshell is to suggest that it mirrors the standard of BBC journalism. It is engaging, resourceful, well researched and scholarly yet accessible. Some chapters are also dispassionate and balanced. However, many authors cannot resist making statements of political and economic opinion, some of which are bizarre, as if they are factual statements. But it is still a book well worth reading for 2008 The Authors. Journal compilation Institute of Economic Affairs 2008. Published by Blackwell Publishing, Oxford Project Requirements: The project demanded the analysis of two Multinational Companies from different countries competing in the same industry. The document should include a brief background, a description of their markets and product lines, and the international strategies in place. Finally, some recommendations should be done for future strategic movements. Theoretical Foundation: Wild, Wild & Han are the authors of the text book used during this class, Business - The Challenges of Globalization . The theoretical structure for international business, according to these authors, differentiates the international strategies from the multinational strategies. In addition, it identifies four corporate level strategies: Growth, Retrenchment, Stability and Combination. This framework, along with the ones studied in the International Marketing and Seminar of Marketing classes, is used to develop the analysis in this comparison. Critical Elements and Feasibility: This analysis of the two companies was done in light of the relevant components of international strategy formulation: corporate structure, markets, products, financing, R&D, socio-political environment, organizational practices, and future perspectives. A SWOT analysis comparing both MNCs was also performed. The corporate structure refers to the use of an international division structure, an international area structure, a global product structure or a global matrix structure (Wild, Wild & Han, 2009). The main trait retrieved from the marketing theory has to do with Michael Porter's postulate of applying a cost strategy, a differentiation strategy or a niche strategy according to the analysis of the market forces. Evidence of Strategy: The paper accounts for the broad market scope of both companies. It also analyzes the particular issues regarding their main products and applications of these products, as well as upcoming changes for their markets. For instance, in the case of Oracle, the paper points out the strength of the company in the field of data base systems. However, the strategy recommended highlights the importance of OLAP functionalities and data mining abilities, in which competitors like Microsoft have made substantial progresses. In the case of SAP, the strategy even risks foreseeing a near future in which friendlier and low cost online applications will challenge the advantageous position of the German company. Implementation: Oracle and SAP are world leaders in their main product lines. Budget is not really a problem for either one. SAP is the world's largest business software company with revenues of EUR 12.464 billion and profits of EUR 1.816 billion in 2010 (SAP AG, 2011). Oracle's market capital value is around USD 181.993 bilion according to the Value Line, with revenues of USD 26.82 billion and net income of USD 6.14 billion by 2010 (Oracle Corporation, 2011). In addition, both companies have a presence in hundreds of countries including the main economies. This circumstance ostensibly reduces the limitations to tackle international strategies. However, the strength of their size is offset by the low flexibility to adapt to sudden changes. For Oracle it will be very challenging because they have to work simultaneously in improving their current product line of off line applications while leading the on line revolution. For SAP it means abandoning their system of certifications on private software to adapt to open source applications. Oracle, on the other hand, should be ready to respond to eventual attempts of hostile takeovers, for example, from Microsoft which happens to have enough cash to do it. This paper reflects the awareness of such issues that are crucial for the implementation of the proposed strategies. Conclusions, Implications, and Consequences: The document specifically emphasizes on the advent of cloud computing due to the implications it has on the business model of SAP and Oracle. Cloud computing threaten to open the offer of all kinds of software applications in a more open environment. The complex settings for storage and networking used by Oracle databases and SAP ERPs would be demystified. This will have effects on the way these MNCs will shape their strategies. Notwithstanding, due to the importance of this corporations, the opposite is also true. The way in which they shape their strategies can also define how cloud computing is going to evolve. The summarized consequences for stake holders in either case will be an escalation of competition, a reduction of prices and an enlargement of the offer of technological solutions. Comment: As in all other projects, there was not an awareness of the specific traits to which this document was expected to be matched with at the end of the MBA program. Under these circumstances the effort of putting together all the ideas developed to coincide with the COB goals is really worth it. However, it is not as fruitful as it would be if the professors were aware of this purpose and have prepared their students accordingly. Thus, it is likely that this and the other papers will not fulfill the requirements of this class. However, this should not be the students' responsibility. It is a structural flaw in the program that must be corrected