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2014/04/17

Nuevo mandato de Dilma tendrá metas más realistas

En su primera iniciativa de política económica como candidata a la reelección, la presidenta Dilma Rousseff estableció ayer las bases de su política fiscal para 2015 en caso de que conquiste un segundo mandato. El proyecto de ley de Directrices Presupuestarias, enviado al Congreso, propone una meta más realista para el superávit del sector público, de 2,5% del PIB, en lugar del 3,1% que rige desde 2010. El proyecto plantea también la idea de un superávit primario mínimo, de 2% del PIB, que será asegurado por el compromiso del gobierno federal de compensar eventual déficit en las cuentas de los estados y los municipio.

En la práctica, la meta va a obedecer a una banda -un máximo de 2,5% del PIB y un mínimo de 2% del PIB-, pero eso no significa que el esfuerzo fiscal del gobierno central será más intenso. Lo que se hizo fue aumentar las previsiones de superávit de los estados y municipios.
La política de valorización del salario mínimo será mantenida, pero la fórmula de reajuste sebe ser alterada. Actualmente, el aumento tiene como base la inflación más la variación del PIB, que sería substituida por el PIB per capita a partir de 2016. Está descartado también un “tarifazo”. La corrección de precios administrados será hecha gradualmente.
Las directrices para el programa de gobierno del PT serán presentadas en el “Encuentro Nacional” del partido, que reunirá a Dilma y a Lula los días 2 y 3 de mayo, en Sao Paulo. En la ocasión, Dilma podría enviar más señales de lo que pretende hacer en su segundo mandato. Lula va a reiterar su apoyo a la reelección de la presidenta. El programa del PT constará de una propuesta de reforma política con énfasis en las consultas plebiscitarias y la “democratización” de los medios, tema que Dilma siempre ha defendido.
La presidenta no considera necesario por el momento adelantar los nombre de su futuro equipo económico, como se había especulado en los últimos días.

Entel invertirá US$ 600 millones en tres años para potenciar Nextel Perú

Entel invertirá US$ 600 millones en tres años para potenciar Nextel PerúInversiones de US$ 200 millones anuales durante tres años. Ese es el plan que tiene Entel para Nextel Perú. El objetivo es la renovación y expansión de las redes de acceso móvil y la transformación de las redes de acceso fijo desde microondas a fibra óptica. Así lo señala Entel en su memoria 2013.
En la carta a los accionistas Juan Hurtado, presidente de Entel, señala que la compra de Nextel Perú concretada en agosto del año pasado en US$ 410 millones, representa “una excelente plataforma de crecimiento en un mercado con alto potencial, como el peruano, en el cual esperamos alcanzar una posición relevante, replicando el modelo de negocios que hemos desarrollado exitosamente en Chile”.
Así, relata Hurtado, la compañía se ha puesto como meta expandir las operaciones de la compañía peruana hacia una oferta de “servicio móvil moderna, más centrada en la conectividad de datos, amplia, incluyendo empresas y personas de manera masiva”.
Esto, porque, si bien Nextel Perú es la tercera compañía de telefonía móvil de ése país -con ventas en 2013 de 
US$ 314 millones y una base de 1,6 millón de clientes-, y se posicionó en el segmento empresas y de clientes de mayor uso, “perdió posicionamiento de liderazgo y masividad”, dice Hurtado al señalar las características de la compañía que adquirieron y en qué esperan convertirla.
Transformación
En la memoria anual, la compañía señala que durante el último trimestre del año pasado completó la reestructuración de Nextel Perú, realizó el lanzamiento de una nueva oferta comercial y dio el punta pie inicial a la ejecución del plan de inversiones de mediano plazo.
El foco al inicio ha estado puesto en ampliar el servicio de 3G, aumentar la gama de terminales y “salirse de una propuesta de nicho”. Hacia el futuro, el desarrollo estará centrado en los servicios de datos móviles, pues cuentan con los 40Mhz de espectro en la banda AWS que se adjudicaron en julio de 2013 y por el cual la compañía ofreció US$ 105,5 millones.
Juan Hurtado señala que lo que esperan realizar en el mercado peruano “es un proyecto ambicioso, pero es una muy buena oportunidad, abordable para Entel. Nuestra industria y el mercado peruano están atravesando una transformación tecnológica hacia los smartphones y los datos, hacia una hiperconectividad total”, dice el empresario y agrega que las perspectivas en el mercado peruano son positivas dado que cuenta con una población de 30 millones de personas, la economía se expande a buenas tasas y “el ambiente competitivo da espacio para un operador que ofrezca calidad”.
Las cifras
Al cierre de 2013, la base de clientes móviles de Entel llegó a los 11.984.548, lo que representa un crecimiento de 19% con respecto a 2012. De esa cifra, 1.555.664 clientes corresponden a Nextel Perú. La adquisición de la operadora peruana le significó reconocer a Entel, a partir de septiembre del año pasado, ingresos ordinarios por $ 46 mil millones, equivalentes a cuatro meses de operación.
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Empresas chinas ven atractivo a México

Reformas y proyectos de obras atraen a compañías de esa nación asiática 
Empresas chinas ven atractivo a M�xicoPara los chinos, México tiene nuevos atractivos. Cuenta con mano de obra más barata y competitiva que China; además de que las reformas estructurales y las nuevas rutas ferroviarias que se incluyen en los programas de infraestructura, agradaron a cientos de empresas asiáticas que visitaron nuestro país durante los primeros meses de 2014.
Grandes compañías asiáticas del sector minero, autopartes y automotriz, construcción y de energías renovables exploraron las oportunidades en nuestro país, afirmó el jefe de la Oficina de Representación en México del Consejo Chino para el Fomento del Comercio Internacional, Feng Xiaoming, quien agregó que algunas firmas que se fueron a su país a principios del siglo, regresan a México, porque en los últimos 10 años los salarios en ese país subieron al 100%.
La situación es que, en los próximos años “seguirá subiendo la mano de obra porque la vida de los chinos mejora”, dijo.
Los costos de la mano de obra se incrementaron, aunque a ritmo lento, de acuerdo con el Consejo para el Desarrollo Comercial de Hong Kong, el cual elabora estadísticas cada trimestre sobre producción.
En 2013, se registró que 26 provincias chinas subieron sus salarios mínimos 18% en promedio, menos de 20.2% que en promedio se incrementaron en 2012.
Asimismo se documentó que los aumentos siguieron en el primer trimestre del 2014.
El 71% de las empresas encuestadas en Hong Kong que operan en China, tuvieron incrementos en sus costos laborales comparados con el mismo periodo del 2013, cerca de 28% de las empresas registraron aumentos mayores al 10%; y 50.7% de las compañías enfrentaron alzas de mano de obra de entre 5 y 10%.
Feng Xiaoming aseguró que México es “más competitivo como país” con respecto a China, “es más barato producir en territorio mexicano” sobre todo si se va a exportar la mercancía a países que están en el mismo continente, pero hay otras empresas que prefieren producir en Asia por cuestiones de mercado.
Invitan a visitar México
Por ello, el Consejo Chino para el Fomento del Comercio Internacional invita a las empresas de esa nación a que conozcan este país, sobre todo se invita a las empresas mineras de gran tamaño a que vengan, porque en China se requieren muchos minerales y metales.
En el sector de la construcción han llegado muchas empresas porque quieren participar en el programa de infraestructura y sobre todo en los proyectos de trenes de pasajeros que va a licitar el gobierno federal mexicano en este 2014.
A México, de acuerdo con datos de la Secretaría de Economía, solamente llega 0.2% de todas las inversiones que salen de China y ello tiene que ver con que no hay tanta apertura como en América Latina, dijo el funcionario.
“Las grandes inversiones en América Latina de empresas chinas son en petróleo, electricidad, y minerales”, dijo, pero en México son muy pocas las empresas mineras chinas que participan.
Para este 2014, se realizará una cumbre empresarial entre China y América Latina en la que se va a invitar a 500 empresarios chinos a participar en este continente, convocados por el Consejo Chino para el Fomento del Comercio Internacional y ProMéxico, la agencia mexicana encargada de promover el comercio y la inversión.

Why Huayi Brothers Wants to Become the Disney of China

Huayi Brothers Media is China’s biggest entertainment company and thefirst listed stock from its sector. The firm was initially focused on the signage business and quickly diversified into film production. Today, it accounts for one-fifth of China’s total box-office collections of 21.8 billion yuan ($3.6 billion). Huayi registered a growth of 27% in 2013.
In the past few years, Huayi has expanded into the areas of mobile games and theme parks. It has invested 148.5 million yuan and 672 million yuan, respectively, to acquire mobile game companies Ourpalm and Yinhan Technology, and spent 252 million yuan and 390 million yuan to acquire the controlling share in TV production companies Zhejiang Changsheng and Yongle TV. The company’s movie-themed entertainment park has an initial budget of 110 million yuan. Founder Wang Zhongjun says that he wants Huayi to be a player in all areas of the entertainment sector, with Disney as his model.
Huayi filed for an initial public offering (IPO) in 2009. Wang’s 26% share in the company has put him on the Forbes China Rich List; he was ranked 142 in 2013, with an estimated wealth of $1.1 billion.
Wang spoke to Knowledge@Wharton about the strategy behind the company’s diversification and what he has learned from the process.
An edited transcript of the conversation follows.
Knowledge@Wharton: Huayi Brothers has grown rapidly in recent years. What are the core elements of your success?
Wang Zhongjun: Huayi Brothers stepped into China’s entertainment business quite early. We explored many things before our peers did and this gave us a first-mover advantage. We have also been lucky that our decisions have always been in line with China’s macro policy changes and industry dynamics, such as the timing of the IPO.
Our success has three elements. First, leverage the power of capital. We are the first in China’s entertainment industry to explore and leverage capital to grow our business. We are the first company to use bank loans to produce movies. We had two rounds of crucial financing before we went public. We attracted capital from Jack Ma [chairman of Alibaba, the biggest e-commerce company in China] and other well-known entrepreneurs. We successfully launched our IPO in 2009 and became China’s first “movie stock.”
The second element is institutional innovation. We have explored new models in every level of business. Third, we have actively moved into new businesses including mobile games and location-based entertainment (LBE). This is in line with our strategic vision for the next three to five years. Observers may think our overall growth was quite smooth. However, there were some projects that did not go as planned.
Knowledge@Wharton: What experiments didn’t work out?
Wang: TV entertainment shows are currently very hot in China. Huayi organized professional teams to work with Shenzhen Satellite TV and Heilongjiang Satellite TV to broadcast such programs. But some did not progress too well. We also tried to build a franchise around If You Are the Oneand Personal Tailor (two popular movies produced by Huayi). It did not work. I think the reason is lack of talent. The entertainment business has to find the right person to do the right things. Finding the right person depends to some extent on luck.
In 2010, we invested several hundred million yuan and a lot of energy on TV programs. We spent much more than we did on mobile games. But, till today, the profit from TV has been less than 100 million yuan annually. Last year, we invested in TV production companies Zhejiang Changsheng and Yongle TV to improve our performance in this segment.
Our investment on cinemas is expected to give positive returns this year. Overall, the profit of Huayi Brothers has grown from 60 million yuan before listing to 660 million yuan last year. This is enough to finance our strategic businesses.
“There are a lot of uncertainties in China’s entertainment industry. You can’t think five years ahead as there may be transformative changes.”
Knowledge@Wharton: Why did Huayi invest so much in mobile games?
Wang: The game business is part of our cross-culture strategy. This has great potential. In 2010, when we first entered the business, we did not expect to amass revenue of several million yuan from a single game. Now, the revenue from a game has crossed 100 million yuan.
Knowledge@Wharton: Why did Huayi invest so much in mobile games?
Wang: The game business is part of our cross-culture strategy. This has great potential. In 2010, when we first entered the business, we did not expect to amass revenue of several million yuan from a single game. Now, the revenue from a game has crossed 100 million yuan.
“The core resources of entertainment are directors, actors and the ability to tell good stories.”
The most important capability for a leader of an enterprise is his learning capacity. We can grow only if we have a strong appetite to learn.
Knowledge@Wharton: Who and where do you learn from?
Wang: I have three categories of people I learn from. The first is friends, especially well-known entrepreneurs. My biggest asset is that I have a lot of friends. We could use bank loans to make movies mainly because of support from friends in the financial services industry. I am simple and easy-going; that may explain why I have so many friends. Many of my friends are our pre-IPO investors. By the way, the return on investment on Huayi is also impressive.
The second category is financial media people. Huayi is the first stock in entertainment, and media people like to ask questions on the industry, growth strategies, etc. I did not think about these issues in the early days. But if you are being asked about them every day, you are forced to get ideas into shape.
The third channel is to take part in forums. I love to join forums and interact with others, especially on Internet-related forums which bring a lot of fresh ideas. I learned about the B2C concept from an Internet forum. It started me thinking about who the consumers of our products ultimately are. There is ample scope for imagination here.
Knowledge@Wharton: What changes has Internet brought to your business?
Wang: I am personally not involved in the daily operations of our new media business. But I have full faith in our young team and give them strong support with both people and money. We have started copyright cooperation with the Tencent video business and have co-developed an entertainment product called Star Alliance. Tencent [China's biggest online communication company] offered the platform and it is operated by our team. The product has gained more than 20 million users in two months. I am confident that Huayi will be able to explore its own online model through cooperation with Alibaba and Tencent.
The impact of the Internet is not only on business operations. Many ideas from the Internet have inspired us. For example, Internet companies like to say “platform” all the time. In the future, Huayi might become a platform company instead of being a production company. Another example is our LBE business model. Huayi will not invest huge amounts of money on property development; properties will be planned and constructed by developers and we will share the profits.
Knowledge@Wharton: In terms of movie production, will Huayi go international?
Wang: Yes, definitely. I am personally responsible for this project. I visited Los Angeles five times last year. China’s movie market has been expanding rapidly in recent years. One big production might get more than $100 million in revenue. Two movies from Hollywood collected more box-office revenue in the China market than in the North American market. Most of the famous directors and producers in Hollywood are watching the dynamics of China. Some even predict that China’s market volume will exceed the American market by 2018-2019. In terms of capital investment, Chinese movie companies can put in millions of dollars to finance Hollywood productions.
“If Disney had concentrated on animation films only, it would not have become the Disney of today. If we had only made films, we would not have become the Huayi of today.”
I have started discussions with Warner Brothers and Lionsgate Entertainment on potential cooperation. We have just announced an investment of $120 million to $150 million in Studio 8 [a production house headed by former Warner chief Jeff Robinov]. Future cooperation will include joint production, joint ventures and M&A.
I believe that the internationalization of Huayi will make progress in the next two years. One day we will see reports that a Huayi movie earned three billion yuan ($476 million) in China and $800 million in the global markets.
Knowledge@Wharton: Talent is especially important in your business. How does Huayi attract talent, especially international talent?
Wang: You must have different methods to attract talent at different stages of your development. In the early days, it’s mainly motivation — the boss talking about dreams. At our current stage, there are more approaches to attract talent [such as] stock options [or] M&A…. For example, the founders of Yinhan Technology are very professional but simple people. How do you attract them? Through investment. The core resources of entertainment are directors, actors and the ability to tell good stories. We will not be able to create a monopoly in these resources. But we now have some long-term partners including outstanding directors like Feng Xiaogang and Xu Ke.
In the U.S., if you find a good CEO, what else do you offer him beyond material incentives? Does Chinese culture work? Can you talk to him about dreams? Yes, you can. Many dreams of Americans have inspired me. I once had coffee with an executive from DreamWorks. He talked passionately about how many places he had flown to and how many people he had met in one week. He was so excited with what he was doing. He lives for his dreams. It impressed me very much.
Knowledge@Wharton: Will there be any change in the role director Feng Xiaogang will take in Huayi in the future?
Wang: We are friends. He will continue to work for Huayi; there are still three production contracts with him at the moment. However, he is now adjusting the tempo of his life and may not be at the frontlines. He will focus on supervising and coaching young directors. He has so much experience; we believe he will be an excellent mentor.
Knowledge@Wharton: Huayi has made many movies. Which do you like the most?
Wang: Among Feng Xiaogang’s movies, I like Assembly the most. It has a nice story structure, strong characters and outstanding visual effects. Zhou Xingchi’s Kung Fu Hustle is very interesting because of its artistic presentation. I also like Xu Ke’s Detective Dee series, especially Young Detective Dee: Rise of the Sea Dragon. The cost for making this sequel was only around $20million, but its visual effects can rival Hollywood blockbusters.
Knowledge@Wharton: Will Huayi’s “big brother” status in the industry continue?
Wang: The Wanda group, Enlight Media, LeTV and others have entered the entertainment market at their own pace. This is a very open industry with no resource monopoly. We were the leading player in both 2012 and 2013 in terms of box-office revenue with 20% of total market. It will be very hard to sustain this rate in the future. China will be like the U.S. market with several top-class producers and no one leader. Leadership may change from year to year.
However, we cannot stay here. We have to move ahead and explore new models. That is why we are talking about straddling the entire entertainment value chain. If our strategy in games and LBE goes smoothly, we will be better placed than our competitors. Disney has been the biggest in the American entertainment market for many years. But it is not necessarily the biggest in movie production. The ultimate question for us is whether we can become big brother in the entire entertainment market and how long we can stay there.
Right now, some critics are obsessed with box-office revenue alone. Chinese entertainment companies have to look beyond the box office. They must learn from Disney and Warner Brothers to become pan-cultural.

2014/04/16

India’s Sun Pharma Takes Over a Beleaguered Ranbaxy Labs

Indian pharmaceutical firm Ranbaxy Laboratories has struggled ever since its promoter family sold controlling interest in the company to Japan’s Daiichi Sankyo in 2008. No one, however, expected the Japanese pharma major to give up the fight. In an announcement made on April 7, Daiichi said that its board would vote in favor of accepting an offer by Sun Pharmaceutical Industries – Inida’s largest drugmaker by market value – to buy Ranbaxy.
It has been an expensive ride for the Japanese company. Daiichi now owns 63.4% of Ranbaxy. After the $4 billion deal (including $800 million in debt) is consummated – expected to happen by the end of the calendar year – it will have a 9% stake in Sun, valued at around $2 billion. That is less than half the $4.2 billion it paid for Ranbaxy in 2008. “Daiichi has lost out,” Ramesh Adige, former executive director of Ranbaxy, told television channel NDTV.
Was it expected? Sun has been eyeing the Japanese market, which always has been difficult to enter. A month earlier, Reuters had reported that Sun was “looking for partnerships or acquisitions to enter Japan, an especially lucrative market for manufacturers of low-cost drugs.” However, most analysts were surprised by the deal.
Ranbaxy shareholders will get eight shares of Sun Pharma for every 10 shares of Ranbaxy they hold. This exchange ratio represents an implied value of Rs. 457 for each Ranbaxy share, a premium of 18% to Ranbaxy’s 30-day average share price and 24.3% to the 60-day average share price. The deal values Ranbaxy at $3.2 billion.
Ranbaxy is, in fact, marginally the larger of the two in terms of sales. But in terms of market capitalization, Sun is far ahead. The day the deal was announced, Sun’s share price went up 2.68% on the Bombay Stock Exchange, while Ranbaxy’s dropped 3.12%.
Trouble for Ranbaxy
Meanwhile, Ranbaxy has been facing sanctions from the U.S. Food and Drug Administration (FDA). In January, the FDA prohibited Ranbaxy’s Toansa (in north India) facility from producing and distributing drugs for the U.S. market. According to the FDA: “The Toansa facility is now subject to certain terms of a consent decree of permanent injunction entered against Ranbaxy in January 2012. The decree contains, among other things, provisions to ensure compliance with current good manufacturing practice (CGMP) requirements at Ranbaxy facilities in Paonta Sahib and Dewas, India, as well as provisions to address data integrity issues at those facilities. In September 2013, the FDA added Ranbaxy’s Mohali facility to the CGMP provisions of the decree.” This means that four of Ranbaxy’s India units are affected by the FDA’s moves.
“Daiichi has not been able to do justice to the opportunity and potential that was there in Ranbaxy.”–Malvinder Singh
In May 2013, the FDA had reached a settlement with Ranbaxy. Under the settlement, Ranbaxy’s U.S. subsidiary — Ranbaxy USA, Inc. — agreed to plead guilty to violations of the Federal Food, Drug and Cosmetic Act. These related to “the manufacture and distribution of certain adulterated drugs made at two of Ranbaxy’s manufacturing facilities in India.” Ranbaxy agreed to pay a criminal fine and forfeiture totaling $150 million and to settle civil claims for $350 million. “The announcement marks the resolution of this past issue,” Arun Sawhney, Ranbaxy CEO and managing director, had told Knowledge@Wharton at the time. (See: “Trouble in India for Ranbaxy after $500 million U.S. Penalty”)
“We are confident that Sun Pharma is the ideal partner to help us realize our full potential and are excited to participate in future value creation opportunities,” says Sawhney today.
Dilip Shanghvi, managing director of Sun, is equally upbeat. “Ranbaxy has a significant presence in the Indian pharma market and in the U.S. where it offers a broad portfolio of ANDAs (abbreviated new drug applications) and first-to-file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma’s strengths. We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises.”
Reaching Critical Mass
The union of Ranbaxy and Sun will create India’s largest pharmaceutical company –displacing Abbott Labs — and the world’s fifth largest specialty generic company, according to J.N. Mukhopadhyay, dean of the Kolkata-based Globsys Business School’s global campus. “As it is an all-stock deal, the risk will continue to be shared by Ranbaxy shareholders after the deal is consummated,” he notes.
“Pharmaceutical companies in this country are small by global standards. This creates a giant with potential.”–J.N. Mukhopadhyay
Observers have noted, however, that Shanghvi has mitigated some of that risk in structuring the deal. The agreement refers specifically to the FDA strictures on the Toansa facility: “In connection with the transaction, Daiichi Sankyo has agreed to indemnify Sun Pharma and Ranbaxy for, among other things, certain costs and expenses that may arise from the subpoena.”
“I heard this morning of Ranbaxy and Sun coming together,” former Ranbaxy chairman Malvinder Singh told a TV channel. “I think it’s a very positive move. Daiichi has not been able to do justice to the opportunity and potential that was there in Ranbaxy. Over the past six years, Daiichi has failed to run Ranbaxy successfully.”
Daiichi’s surrender will give ammunition to those who feel that Japanese managers just can’t cope with the complexities in India. India’s top carmaker Maruti has been facing a succession of labor problems in recent times. “It is an open secret that Japanese managers just don’t understand the Indian situation,” says Ravi Venkatesan, former chairman of Microsoft India. With Shanghvi at the helm, the merged entity may go places. Daiichi has taken a hit today; the value of the Sun stock they will hold is valued at just about $2 billion. But the Japanese can hope that, with the evident synergies in the merger, their investment may break even in the future. What they have lost is management control; they are allowed to appoint only one director on the board of the merged entity.
“The merger is good news for India,” says Mukhopadhyay. “Pharmaceutical companies in this country are small by global standards. This creates a giant with potential.”

The Hiring Advantage of High-status Firms

I have discovered that our [MBA] students talk about becoming an ‘MBB.’ That’s [a reference to] ‘McKinsey Bain BCG’, the three highest-status consulting firms,” says Wharton management professor Matthew Bidwell, co-author of a recent paper titled, “I Used to Work at Goldman Sachs! How Firms Benefit From Organizational Status in the Market for Human Capital.” The paper – also co-authored by Wharton management professor Ethan Mollick, Roxana Barbulescu, a McGill professor of organizational behavior, and Shinjae Won, a Wharton PhD student — draws connections between the status rankings of firms and their hiring power in the labor market.
In some ways, says Bidwell, the paper puts solid research behind a dynamic that many people have known intuitively. If a firm is high status, it possesses a hiring advantage (“preferential labor market access” in the paper’s language), but the advantage is not what one might think. It isn’t better pay or more interesting or challenging work: It’s the belief that having worked for such an employer can help you get a better job later on.
“You essentially can pay people in reputation,” says Mollick. “They will take less salary early on because the reputation will result in a higher salary later.” He compares this phenomenon to the argument for attending a business school: It may mean reduced earnings for a couple of years, but it benefits your future career.
According to the researchers, previous studies have outlined conditions thought to be necessary for a company to have a hiring advantage. The company must have some attribute that motivates job-seekers to work for it, and must be able to protect that attribute from being trumped by either their competitors or the employees themselves. But the studies have offered few specifics and have implied that a rare, unique confluence of circumstances may be necessary, says Bidwell. He and his co-authors suggest instead that a broad group of employers — those highly-ranked in the market — meet the conditions for having a hiring advantage. Status is rare because only a few firms can be at the top, and status rankings tend to persist, which makes them hard to imitate or copy.
This advantage, though, has an Achilles heel, according to the researchers. When hiring employees early in their career, a high-status firm can offer lower wages and still get high-quality job-seekers to sign on. However, later in these workers’ careers — when they have acquired more experience and can “signal their quality” — the high-status firm must reach ever-deeper into its coffers to retain them.
Bidwell and his co-authors chose investment banking as a living laboratory because it is an industry in which status is extremely important, there is a clear hierarchy among firms and moving among firms is common. First, to establish employer status, Bidwell and colleagues drew on publicly-available prestige rankings of investment banking firms for the years 2001 to 2009 from Vault.com. Vault.com is a New-York based company that provides career-related information for recruiters and job seekers based on surveys of industry professionals.
The researchers found employer status rankings in investment banking to be generally agreed-upon and very stable. Of the 10 highest-status firms in 2003, seven were still in the top 10 in 2009. The only firms to drop out of the top 10 were either bought by other firms or not primarily involved in investment banking. “The investment banks and consulting firms that our [MBA] students want to go to are probably very similar to the list from 10 or even 20 years ago,” Bidwell notes. “We have had a couple of interesting entrants, like Evercore and Blackstone. I think both have roots in private equity, and that has given them a lot of prestige. But for lower-ranked firms to move up has turned out to be very hard.”
A Critical Need to Retain Top Talent
Next, Bidwell and colleagues investigated whether workers were more likely to choose jobs in firms based on anticipated career benefit. They analyzed a 2013 job-seeker survey of Wharton MBA students. Bidwell says that in addition to being asked what they looked for in a job offer, the respondents were also asked what they thought colleagues were looking for, “in case the thought ‘I just want to work for a really high-status place’ made them look a bit shallow.” In addition, the researchers analyzed a 2011 Wharton MBA alumni survey with information about jobs held since graduation, supplementing this with academic awards data from the MBA program office.
“The investment banks and consulting firms that our students want to go to are probably very similar to the list from 10 or even 20 years ago.” –Matthew Bidwell
According to the paper, the results demonstrated the significant role that an employer’s status plays in its ability to attract the most talented workers. This emerged especially clearly in investment banking, where respondents’ odds of accepting a job offer nearly doubled with a one-unit increase in their perception of the firm’s reputation. “We think of firms as competing on pay when it comes to hiring, but this demographic is competing much more on career opportunities,” says Bidwell. The status factor was prized above all others — not only pay rate, but the opportunity to develop new skills, the chance for advancement within the firm, interesting work, cultural fit, work-life balance, and formal training and mentoring.
Bidwell and co-authors also found support for their theory that the hiring advantage of high-status firms peters out as workers move further along in their careers. Young workers are very happy to work for a high-status firm even if the pay is unimpressive. But as the employees log more years with the company, they demand higher wages. In fact, workers’ pay rises faster with seniority in high-status firms than lower-status firms, given that the high-status firms have a critical need to retain top talent. As Bidwell notes: “The senior workers have the attitude, ‘Everybody knows I’m good. I’m a VP at Goldman or whatever, and that’s visible to everybody, so the incremental value of continuing to have Goldman on my CV is not very high. If you’d like to keep me, then I’d like some more money.’”
Mollick says he and his co-authors “were surprised by how status played out [in real-world data]: It really [got] you the smartest people at a lower cost [in the beginning], but the effect disappeared as time went on. That timing issue turned out to be really interesting as well.”
Human resources directors and other executives looking to make their firm more competitive in the labor market might think about ways they can offer to advance workers’ careers, the researchers suggest. Bidwell points out that McKinsey, for example, has a strong alumni network that generates a sense of supporting people in their future endeavors. It might also be to companies’ advantage to realize how different rewards — such as career advancement and pay — can vary in importance to employees at different career stages, as demonstrated in the paper.
“You essentially can pay people in reputation.” –Ethan Mollick
They also note that high-status firms tend to hire large numbers of junior workers who receive wages that are much lower than the clients are billed. High-status firms, the authors suggest, might exploit their industry advantage further by hiring these workers on an even larger scale.
Do the paper’s findings apply outside of the financial industry? Bidwell believes they are relevant in businesses where there is a recognized status hierarchy. “When there is a clear, agreed-upon ranking, it’s particularly important to be at the top.” If not, the situation may be more nebulous, for example in technology: “Do you want to work for Google and Apple because they’re at the top of the tree, or is it actually better to go work for a really cool start-up?”
The research tells “a story about the effect of status,” Bidwell adds. “Why do people want to work for a high-status firm? Not because they want to be able to brag about it to their friends – although I’m sure that doesn’t hurt – but particularly because they believe it’s going to make it easier to get the next job.” The researchers also found that it does make it easier to get the next job. In the study, people who left high-status firms consistently attained higher-level jobs compared to people from firms of lower status.

How to Solve the Jobs Dilemma: Attract and Retain More Entrepreneurs

Despite an unemployment rate hovering at 6.7%, American businesses still struggle to fill jobs, with executives saying there’s a lack of innovative minds to lead new projects. But it seems the blame for this can be placed on the C-Suite, with leaders overlooking entrepreneurial-minded employees who are actively pitching the next big thing. Companies are wasting innovative energy by failing to support ideas. Business strategist and best-selling author Kaihan Krippendorff explains how this jobs dilemma is hurting progress and how business leaders can fix it.
“The Polar Vortex Didn’t Stop Us!” might have been an apt title for this year’s February jobs report: Despite the cold weather — which tends to put a damper on hiring trends — the economy added 175,000 jobs. The good news continued into March, during which nonfarm payroll employment increased by 192,000, according to the Bureau of Labor Statistics.
But these better-than-expected results hide a growing challenge for corporate leaders. It’s an oft-repeated concern echoing through corner offices and human resources departments: “Where is the talent to feed our projected growth?”
I help business managers build growth plans and too often hear that they are limited by their inability to find the right kind of talent to ensure a new innovation’s success. The customers and technologies are ripe for the taking, but the innovative workers needed to seize new business opportunities probably do not want to work for you.
Cathy Benko, vice chair and managing principal of Deloitte LLP, notes that “in California there are 840,000 critical jobs unfilled, yet unemployment is 10%.” She believes there is a fundamental misalignment between the skills employers need and those job seekers have. This results in scarcity, which has become a high-priority strategic business issue.
Studies show that entrepreneurs within companies are significantly more likely to be on the lookout for new growth opportunities than managers.
Recent studies suggest that part of the blame should fall on entrepreneurs. I’m not referring here to the young tech businesses that lure your talent away with better pay packages and more exciting growth options. But I am talking about the entrepreneur who should be working for you right now or, worse yet, the one who is part of your ranks but is about to leave. I’m talking about my friend Jody Johnson who left a career as a nurse to start Sage, now one of the largest business-coaching firms in Florida. I’m talking about Wharton grad David Klein who should have returned to McKinsey, but instead co-founded CommonBond, a peer-to-peer student loan program that recently raised $100 million. I’m talking about the person working at your company right now who wants more meaning, freedom and possibility. People like Matt Reilly, who was a partner at Accenture and left to join a smaller, more entrepreneurial firm.
Studies show that entrepreneurs within companies are significantly more likely to be on the lookout for new growth opportunities than managers, making them more likely to recognize opportunities. If growth and innovation are an important part of your corporate strategy, you want to attract and retain these employees with entrepreneurial mindsets.
Reilly has a particularly interesting perspective on this challenge because he can approach it from both sides. He eventually sold his business back to Accenture and today heads Accenture’s North American management consulting business, where recruiting innovative talent is a top priority. Accenture has over 280,000 employees and is seeking to hire 50,000 more. So Reilly has done some interesting research to understand the challenge.
Your Employees Want to Stay
For example, in a recent survey of 1,000 corporate employees, decision-makers and self-employed individuals, Accenture uncovered a missed opportunity: Your entrepreneurial employees want to stay.
A myth persists of the entrepreneurial employee who develops an idea while working full-time and leaves. For example, Saleforce.com sprang from Oracle, and Adobe from Xerox. But actually the opposite is happening. Of the self-employed surveyed by Accenture who previously worked at large corporations, 93% pursued an entrepreneurial idea within their previous company first.
This means that the overwhelming majority of future self-employed entrepreneurs working for you right now want to pursue new growth ideas within your walls and for your benefit. They are willing to pursue these opportunities without giving up other responsibilities. Only 30% left because they wanted to pursue the idea without having to focus on other projects.
But companies waste innovative energy by failing to support ideas. Of this same population, 57% say their company did not support their pursuits. In other words, entrepreneurs want to build their ideas inside companies; they don’t mind doing so while they continue other duties, but companies are not supporting them.
You Are Measuring the Wrong Objectives
New ventures always pass through a phase of uncertainty, when the effort put in does not match the tangible results that come out. One of my clients, a Fortune 100 firm that’s remarkably adept at leveraging the entrepreneurial power of its people, ensures that it does not expect new projects to produce the same results as established businesses. In the early stages of a new initiative, a team’s performance is judged by market share, later on revenue, and only after time, on profits.
The overwhelming majority of future self-employed entrepreneurs working for you right now want to pursue new growth ideas within your walls and for your benefit.
Yet most companies miss the point. The majority of corporate leaders believe a new idea should be considered successful based on the following measures:
  1. Makes measurable financial gains
  2. Makes the company more cost efficient
  3. Improves the company’s status as an industry leader.
But industry-shaping ideas rarely show signs of being able to meet these measures early on. Innovative plans are usually ripe with option-value. They are moves that “buy” you an option to potentially do something valuable in the future, but whose value cannot be accurately predicted in their early stages.
One trick that successful large-company entrepreneurs use is to focus their business cases on elements of an idea that address immediate threats. For example, a team we worked with recently at a major consumer products company had developed an idea that looked more like building a movement than producing a can of sugar-water. Knowing the CEO may resist this new idea, we reframed it as a defensive move to protect against a threat to the company’s core brand. The idea won funding. In two to three years, we hope this idea provides brand protection and also generates profits. But had we argued its attractiveness based on profits alone, senior management would have probably killed the idea.
Committed entrepreneurial employees may go the extra mile to trick your corporate system into embracing innovative ideas, as this team did. And you are likely to benefit down the line. But most will leave or choose not to join your firm, leaving you struggling again with your “big talent dilemma.”
The implications of this are simple. If you want to attract and retain the right entrepreneurial talent for innovation, consider these three steps:
  1. Let them know you care about their ideas.
  2. Give them job descriptions that allow them to pursue ideas, even as they maintain the core business objectives.
  3. Measure their ideas with the right metrics (e.g. new customers, not profits).