Bribery and corruption

Read on

The Economist articles referred to above appeared as a Schools Briefs series weekly from 18 October to 6 December, 1997.

The Financial Times produced a series, The Global Company', 1 October to 7 November, 1997; also in ten parts, 'Mastering Global Business', 1998. These can be found on the FT archive at www.ft.com.

Zygmunt Bauman: Globalization, Polity, 1998. For social and cultural issues.

Michael J. Marquardt: The Global Advantage: How World Class Organisations Improve Performance Through Globalization, Gulf Publishing, 1998. For a corporate view.

John Gray: False Dawn: Delusions of Global Capital, Granta Books, 1998. For a view of the potential downsides.

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2. Brands

For the consumer-in-the-street, brands, along with advertising, are the most visible parts of marketing. For the skeptical small business, marketing is sales with a college education and, of course, marketing is an important part of the business school curriculum.

Marketing courses usually begin with the credo of the marketing orientation, the idea that success and profitability are attained through identification and satisfaction of customer needs. The market orientation implies that marketing is not just a set of activities, but an attitude that should permeate the entire company. In this view, marketing is not just about a company selling what it makes, but about knowing what it should make in the first place.

However, even in large companies that describe themselves as customer-oriented, most employees probably regard marketing as the preserve of the marketing department. Here, the head of marketing may be in charge of a team of brand managers or product managers, each responsible for promoting the company's products in one country or group of countries. The actual activity of getting sales outlets to order products may be dealt with by the sales department and its sales force.

But this way of organising things is changing. Some companies are now organising product teams around individual products, carrying out all activities, from research and development right through to selling, with information from the team's direct contact with the marketplace feeding back into research and development. This corresponds more closely to the integrated market orientation preached in business schools.

Marketing can be approached in terms of the classic four Ps - product, price, place, promotion: selling the right product, at the right price, through the right channels, with the right support and communication. These are the components of the marketing mix.

What is the company's product range? What are its top-end or upmarket (AmE upscale), mid-range and bottom-end or downmarket (AmE downscale) products? Does it have an entry-level product for people buying the type of product for the first time? Are new product s often launch ed?What are some of the features of buying behaviour?

What are the different customer groups or segments? How are products positioned in relation to competitors' products? Who are the important competitors in the market, the key players?

What is the company's policy on pricing: how does it set its price s? What is the mark-up for distributors? What sort of profit margins are there for the company? Are there discounts to distributors and consumers? Are there price wars between competitors?

How are products distributed to reach the outlets? Who is involved in the distribution channels? What is the relationship between wholesalers, distributors, resellers and/or retailers? What are the relationships between them? Who has the upper hand?

How are products promoted? Is there a sales force? If so, how is it organised? Is there advertising and/or direct mail? Who carries it out? Is packaging important? Who designs it?

These questions relate mainly to consumer marketing. They obviously need to be adapted for other companies, products and services. Bear in mind that most business takes place between companies: marketing in this context is industrial or business-to-business marketing.

Read on

PhilipKotler: Marketing Management: Analysis, Planning and Control, Prentice Hall, 1996, now in its 9th edition.A market leader among marketing textbooks.

J H Davidson: Even More Offensive Marketing, Penguin, 1997. Very good, among other things, on what characterises people in apparently non-marketing functions in market-oriented companies.

Rocket Marketing, Economist Books/Hamish Hamilton, 1993. Concise definitions of key terms.

Theodore Levitt: Marketing Myopia, Harvard Business Review, Jul-Aug 1960. A seminal text still often reprinted and quoted for its examples of industries that failed to identify and respond to changes in customer needs.

Nicolas Ind: The corporate Brand, Macmillan, 1997

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3. Travel

The most visible part of business travel is the airline industry. Everyone who travels, and these days that means almost everybody, has opinions about it. These opinions are often robust, perhaps because there is such a gap between the sophistication promised in airline advertisements and the reality of crowded terminals, endless waiting, limited legroom and inedible food served at unlikely times of day (or night).

People use cars as status symbols; governments use airlines in the same way. Every government wants one, and the national flag carrier is a visible sign of international status. But managing them is often in the hands of people who got their jobs through political patronage, they have no long-term business strategy, and many of them lose money.

Governments, negotiating with others in bilateral agreements, also have the power to decide who is allowed to fly where, when and how often, and can allocate take-off and landing slots at airports: the number and timing of these slots is a key factor in an airline's profitability.

This is still largely the picture in Europe, despite the partial or total privatisation of some airlines, part of the process of deregulation and liberalisation driven by the competition laws of the European Union. (A similar process took place in the United States nearly 30 years ago. Since then, many airlines have been founded and gone bankrupt, or both, and there is debate about the role of deregulation in this). In Europe, deregulation means that airlines have the right to sabotage, picking up passengers in a second country and flying them to another place in that country or to a third country.

Another result of deregulation in Europe is no frills airlines offering basic in-flight service and selling tickets direct by phone, avoiding travel agents and the need to give them commission. Larger airlines are increasingly worried about these upstarts, as they are used not only by people who might have used low cost charter flights but also by cost conscious businesspeople who are fed up with paying full 'economy' fares on the usual scheduled airlines. Some of these airlines, such as BA, are trying to get in on the act by running no-frills operations themselves.

Airlines have very high fixed costs: with all the ground infrastructure required, it costs as much to fly a plane full as three-quarters empty, and the main aim is to get as many passengers on seats as possible, paying as much as possible to maximise the revenues or yield from each flight.

This has led to the growth of alliances, such as the one between BA and American Airlines, or looser forms of cooperation such as cost sharing, where the same number is shown on your ticket for the second part of a two-flight journey, giving you the impression when you book that you will be on the same airline for the whole trip. Cooperation means that airlines can feed passengers into each other's hubs for onward journeys and costs of marketing and logistics are not duplicated. The logic of this is that for intercontinental travel there may eventually be half a dozen global airlines, in the same way that there are half a dozen global computer companies, but while governments continue to bail out their national airlines 'one more time', this process will be long drawn out.

Read on

The Economist is particularly good on the airline industry. For the most recent information check their website at www.economist.co.uk

There are also regular surveys on the airline industry in the Financial Times. Their website is at www.ft.com

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4. Advertising

Whether or not you agree with Marshall McLuhan that advertising is the greatest art form of the 20th century, it is a big part of modern culture. Shared references feed into it and it in turn feeds into daily life: advertising catchphrases turn up in TV comedy sketches and everyday conversation. And we become 'ironic' about advertising, perhaps to show that we think we are able to resist it.

TV advertising is the most glamorous, but the other media are not to be ignored: radio, cinema, and the press, while hoardings (Br E) and billboards (AmE) are a characteristic part of the urban landscape. All these will be around for some time, despite Internet advertising and its promises of online shopping. While there are still shops there will be point-of-sale displays designed, among other things, to prevent last minute changes of mind about what brand to buy.

Advertising can be continued by other means with sponsorship of particular events, or product placement in films, where the product's makers negotiate for their products to appear and be used by the film's characters. A related phenomenon is product endorsement, where a celebrity is used in advertising a particular product. This can be dangerous if, for whatever reason, the celebrity falls from favour.

Some very creative minds come up with seductive combinations of sound, image and words, but tests show that we often don't remember the brand being advertised. Quantifying the effect of advertising is very difficult and there has been a backlash against it in favour of other, supposedly more targeted, forms of communication. This usually means direct marketing, otherwise known as direct mail, but as those living in apartments who receive mailshots for gardening products know, the targeting can still be ludicrously imprecise.

Advertising agencies may offer to run direct mail campaigns, but what they are best at is creating traditional advertising campaigns. When a client becomes dissatisfied and the agency loses the account this is major news in the advertising industry and means a big loss of revenue (and self-esteem) for the agency.

Until recently, agencies took 15% of the advertiser's budget, and what they did not spend on advertising (designing ads and media buying: buying time on TV and space in the press for the ads to be run) they spent on 'free' services in pack design, corporate identity (a unified look in all of a company's communication, from its advertising to its letterhead, perhaps with the use of a logo), market research, and even strategic advice. These ancillary activities are below-the-line activities. Today, most of these are undertaken by specialist organisations, leaving agencies to concentrate on their core activity, creating advertisements.

Despite all these activities and all this expenditure, the ultimate in advertising is word of mouth: mends and colleagues are often our most reliable sources of information. This form of advertising is usually free. All the advertiser can do is hope that it is positive.

Read on

David Ogilvy: Confessions of an Advertising Man, National Textbook Company, originally published in 1963 and'still the best book on advertising ever written' according to one agency head. Written by a co-founder of the agency Ogilvy and Mather, it recounts the heyday of Madison Avenue, the centre of the US advertising industry.

DavidOgilvy: Ogilvy on Advertising, Prion Books, 1995

Winston Fletcher: Advertising, Advertising, Profile Books, 1999

For a moreacademic approach:

Rajeev Batra, John Myers, David Aaker: Advertising Management, Prentice Hall, 1996

Philip Jones: The Advertising Business, Sage Publications, 1999

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5. Employment

Personnel is the Cinderella of company departments. Production managers manage production, sales heads head up their sales teams, but personnel directors do not, strictly speaking, direct personnel.

They act more as facilitators for other departments: they deal with recruitment in conjunction with department managers, they administer payment systems in tandem with accounts, they are perhaps present at performance appraisal reviews when employees discuss with their managers how they are doing, they may be responsible for providing training, in industrial relations they are involved in complaints and disputes procedures, and they often have to break the news when people are dismissed.

Companies like to say that people are their most valuable asset, and personnel management has in many organisations been renamed human resources management to reflect this.

HRM specialists may be involved in:

introducing more 'scientific' selection procedures: for example the use of tests to see what people are really like and what they are good at, rather than just depending on how they come across in interviews.

-implementing policies of empowerment, where employees and managers are given authority to make decisions previously made at higher levels.

-actions to eliminate racial and sexual discrimination in hiring and promotion and to fight harassment in the workplace: bullying and sexual harassment.

-incentive schemes to increase motivation through remuneration systems designed to reward performance.

But their services may also be required when organisations downsize and delayer, eliminating levels of management to produce a lean or flat organisation, trying to maintain the morale of those that stay and arranging severance packages for employees who are made redundant, sometimes offering outplacement services, for example putting them in touch with potential employers and advising them on training possibilities. (These packages are not to be confused with the compensation packages of top managers: their basic salary and other benefits.)

Professional people who are made redundant may be able to make a living as freelancers, or in modern parlance, portfolio workers, working for a number of clients. They hope to be on the receiving end when companies outsource activities, perhaps ones that were previously done in-house.

This is all part of flexibility, the idea that people should be ready to change jobs more often, be prepared to work part-time and so on. The message is that the era of lifetime employment is over and that people should acquire and develop skills to maintain their employability.

Read on

W Cascio: Managing Human Resources, McGraw Hill, 1995

For more speculative writing on what motivates people in the era of downsizing and globalisation, see Charles Handys later books, such as:

The Empty Raincoat, Hutchinson, 1995

The Hungry Spirit, Hutchinson, 1997

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6. Trade

International trade takes place within the framework of agreements worked out by countries in the World Trade Organisation (WTO), formerly known as the General Agreement on Tariffs and Trade (GATT). Over the last 50 years trade barriers have been coming down and free trade, open borders and deregulation now form the ideal for almost all nations, even if the situation is far from one of complete laisser-faire, with no government intervention. Protectionism is no longer the order of the day in most places; even if same developing countries argue that protectionist measures are the way to get their economies going, they avoid using the term.

Trade negotiations are well-known for their epic eleventh-hour negotiating sessions, where individual nations argue for what they see as their specific interests. Countries argue for protection of their strategic industries, ones they consider vital to future prosperity such as the electronics industry in the developed world. A less developed country beginning car assembly might want to protect it as an infant industry. European farmers argue for their subsidies, where governments guarantee farmers a higher price thanthey would normally get, making it hard for developing nations to compete in agricultural products. The French argue for cultural protection, pointing out the uniqueness of their film industry and winning restrictions, or quotas, on the number of Hollywood products that Europe imports.

Countries accuse each other of dumping, where exported goods are sold at less than in the home market, or for less than they cost to produce, usually in order to gain market share in the export market. The offending country may reply that it has a comparative advantage in producing these goods (the ability to produce them cheaper than anyone else) and that they are not selling at below cost.

Of course, there are trading blocks with no trade barriers at all such as the single market of the European Union. The North American Free Trade Organisation, or NAFTA (the US, Canada and Mexico) is also eliminating its tariff walls and customs duties. Their equivalents in Asia and Latin America are ASEAN and MERCOSUR.

One major concern in international trade between smaller companies is payment. The exporter wants to be sure about getting paid and the importer wants to be sure of getting the goods. A common solution is the letter of credit mentioned in the unit, where a bank guarantees payment to the exporter's bank once it receives the related shipping documents, including the clean bills of lading, showing the goods have been shipped without damage or other problems. Shipping terms like CIF, or Carriage insurance freight, where the exporter pays for insurance of goods while they are being transported, are part of the standard: Incoterms defined by the International Chamber of Commerce. These terms are used in standard contracts that form the basis, with adaptations, for most international trade contracts.

Read on

Peter Briggs: Principles of International Trade and Payments, Blackwell Paperback, 1994

Joanne Gowa: Allies, Adversaries, and International Trade, Princeton University Press, 1995

The Financial Times Exporter Surveys appear in the paper every two or three months and are valuable sources of information.

The international Chamber of Commerce has very good documentation on international trade. Some of it is very pedagogical in approach, with typical trade transactions explained in cartoon form, and easily adaptable for language teaching. It is based at 38 Cours Albert 1er, 75008 Paris and a website at www.iccwbo.org

Government-sponsored export credit guarantee organisations play a big role in assisting exporting and assuring they will be paid. In the United States, the Ex-lm Bank is extremely important. Its website is: www.exim.gov

7. Innovation

Traditionally, a company's new ideas and products come from its research and development (R&D) department. The initial idea for a car will be turned into a series of prototypes and tested. In software development, the final 'prototype' is the beta version, which is beta-tested. Pharmaceuticals go through a series of trials.

Different industries have different lead-times, the time between conception and product launch; a new drug might take 10 or 15 years to develop. In consumer goods, market research will be a key part of the development process, with focus groups: small groups representing cross-sections of consumers talking about their reactions to proposed designs, and wider consumer surveys. Services also offer enormous potential for innovation; think of telephone banking, and now e-commerce: selling over the Internet.

The launch of a new product might involve a national, international or global rollout. A well-oiled public relations machine will have prepared the way for the new product by getting the required media coverage, where the terms leading edge and state of the art will perhaps appear. Any teething problems will hopefully be ironed out during development rather than after the launch. The ultimate nightmare is when a company has to recall products because of design defects. The coverage this might get is the least welcome imaginable.

How do you develop innovation and creativity in large, bureaucratic companies? Company leaders talk about corporate venturing and intrapreneurship, where employees are encouraged to develop entrepreneurial activities within the organisation. Companies may set up skunk works, outside the usual structures, to work on innovations. Development of the PC at IBM is the most famous example of this.

Innovations are perhaps more easily developed by entrepreneurs in start-up companies, but here the problem is finance: how to get the venture capital to develop the product, manufacture it on an industrial scale and market it

Read on

Tom Peters: The Circle of Innovation, Coronet, 1999. The bestselling co-author of In Search of Excellence.

Joe Tidd, John Bessant, Keith Pavitt: Managing Innovation, Wiley, 1997

James M. Utterback: Mastering the Dynamics of Innovation, Harvard Business School Press, 1996

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8. Organisation

Businesses come in many guises, from the lonely-sounding self-employed person and sole trader, through the SME (the small or medium-sized enterprise) to the multinational with its hierarchy and tens of thousands of employees. But the questions about what motivates people in work are basically the same everywhere. The first question that self-employed people get asked is how they find the self-discipline to work alone and motivate themselves, with no one telling them what to do. Companies are also looking for this: job advertisements often talk about the need for recruits to be self-starters. Organisations want to attract the right people and find ways of motivating them to be ever more productive and creative.

The current buzzword is flexibility. This has a number of related meanings. One type of flexibility has existed for some time in the form of flexi time or flextime, where people can choose when they work within certain limits. Then there is the flexible working of the British Airways office in the main course unit, with some of its staff hot-desking, particularly those who are homeworking, teleworking or telecommuting and only need to come into the office occasionally.

A third type of flexibility is where employees are recruited on short contracts to work on specific projects, maybe part-time. Perhaps the organisation only has a core staff, and outsources or contracts out work from outside as and when required. Some management experts say that this is the future, with self-employment as the norm, and portfolio workers who have a number of different clients.

For the moment, most company employees still go to what is recognizably a job in a building that is recognizably an office, even if it is open plan with some flexibility. How long this will go on is an interesting question. The tradition of managers who like to see their subordinates working (or pretending to) has a lot of mileage in it yet, with some countries and industries evolving more quickly than others for all sorts of cultural and practical reasons.

Read on

DS Pugh and DJ Hickson: Writers on Organizations, 5th edition, Penguin, 1996. A good round-up of academic writing on what makes organisations tick.

Charles Handy: Understanding Organizations, 4th edition, Penguin, 1993

Again, Handy's more speculative writing on present and future developments can be recommended; in addition to the books in the Read on Section Employment, there is: The Age of Unreason, Hutchinson, 1995; and Waiting for the Mountain to Move, Hutchinson, 1995

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9. Money

Money makes the world go round, they say. Perhaps it is even truer that the world makes money go round, especially in an era of globalisation when capital can flow freely to and from almost everywhere. Money is always looking for places where it will be most profitable and earn the greatest return on investment.

As anindividual, you can put your money on deposit in a bank, and as long as the bank doesn't fail and the economy keeps functioning, you will get interest. Your money is lent out to people, businesses and government who need it to finance their own projects, and the bank will make its money on the difference between what it pays out in interest on deposits and what it gets in interest from its loans.

If you want to live more dangerously you could buy some bonds, and as long as the organisation or country you've invested in by lending it money doesn't default, you will get your interest payments, and later your bonds will eventually be repaid. To live even more dangerously, buy some shares and share in theprofitability of your chosen company. In good times, the dividends will be more than what you would get from bonds, and the shares themselves will increase in value, giving you a capital gain if you sell them.But if the company runs into trouble and goes bankrupt, you will be among the last to be paid back, and you may get only part of what you put in, or you may lose all your money.

This illustrates the trade-off between risk and return. The higher the risk of your investment not being repaid, the more you will want it to pay back in return on investment. Venture capitalists will invest in many different start-ups, knowing that most will fail, but that a few will do reasonably well and one or two will, with luck, hit the jackpot, paying back all the money they lost on unprofitable projects and much more.

From the point of view of investors, the world's financial markets exist in order to channel money to profitable investment activities and projects. From the point of view of borrowers such as companies and governments, financial centres exist so that they can find capital on the best terms.

Mostinvestors are not private individuals but institutions like banks, insurance companies, mutual funds (unit trusts in the UK) and pension funds who may, of course, be investing the money of private individuals indirectly. The markets they invest in include the money and currency markets, stock markets for shares (also known as equities), commodities markets for anything from gold to pork bellies (used for making bacon), and property (buildings and land).

There are also markets for futuresin currencies, equities, bonds and commodities: a future is a fixed-pricecontract to buy a certain amount of something for delivery at a fixed future date.

There are markets for options in currencies, equities, and bonds. Here, an investor buys the right to buy or sell a certain amount of these things at a certain price and particular date in the future. This is a form of betting on how prices will move.

Some of these markets, like stock markets, are based in particular buildings, some with trading floors, but most trading is now screen and telephone based. Others, like bond and currency markets, are Virtual inthe sense that selling and trading takes place by phone and computer between the premises of issuers, brokers and traders. (A broker is an intermediary between an issuer of securities such as bonds, a seller of a property, etc., and potential investors who buy the securities. But with Big Bang deregulation, many brokers of securities are also traders, having their own supplies of securities to sell, and make money on trading or dealing, hence the term securities house.)

Central banks like the Bank of England and the European Central Bank are crucial for financial centers because they set basic interest rates (the 'price of money'), and control money supply (the amount of moneycirculating in an economy). Both of these controls have an enormous effect on the economy as a whole, and on the financial markets, even if the link of cause-and-effect between the fundamentals of the real economy and the financial markets is not always clear.

Read on

Longman Dictionary of Business English, new edition, 1999. Explains financial terms in clear language. MichkaelBrett: How to Read the Financial Pages, Century Business, 4th edition, 1995

MichkaelLewis: Liar's Poker, Coronet, 1989. A brilliantly readable and funny account of bond trading in the 8os.

Bannock and William Manser: International Dictionary of Finance, Economist Books/Hutchinson, 1999. Very c omprehensive.

Pocket Finance, Economist Books/Hamish Hamilton, 1994

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10. Ethics

Bribery and corruption

Whether persuading key officials to give authorisation to set up in business, grant government contracts, or just let your goods through customs, the alternatives for the word bribe are many and varied: kickback, sweetener, backhander, baksheesh and the greasing of palms. The law courts, if it gets that far, will refer more prosaically to illicit payments and defendants in such cases may just talk about commissions. If payments go to a slush fund to finance a political party, this form of corruption may be referred to as sleaze, especially by journalists.

Price fixing

When the strain of competing gets too much, competitors may go for the easier option of price fixing, so that each can maintain a reasonable profit margin. Competitors who do this form a cartel. This is an area where outsiders may only find out what is going on if one of the managers involved contacts the authorities. Someone doing this is a whistleblower.

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