HKUST Business School [SBM] Newsletter, Spring 2001 (Issue 13)

Simulated Crisis...page 8

Inside

this

issue:

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he HKUST Business School has been ranked as one of the world’s top 50 business schools offering full-time Master of Business Administration (MBA) programs, according to the latest business education rankings released on 22 January 2001 by the Financial Times.

“With some 1,500 MBA programs available around the world, (the Financial Times) MBA 2001 lists the cream of the world’s full-time MBA programs,” writes Della Bradshaw, Business Education Editor of the

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i v e t e a c h e r s w e r e h o n o r e d w i t h formal recognition from the School in a ceremony in March for their excellent teaching, thanks to a prize set up by the School with generous support from an endowment fund donated by Professor Larry Franklin, a member of its faculty.

The awards, entitled “HKUST Business School – The Franklin Prize for Teaching Excellence”, accentuate the School’s on-going focus on fostering excellent teaching. Starting

paper. The survey is the only head-to-head comparison between business schools globally.

T h i s y e a r , t h e f i n a n c i a l d a i l y expanded the rankings to list the top 100 business schools in the world: 51 of them are from the US, 32 from Europe, 9 from Canada, 3 from Australasia, 2 from Asia and 3 from central and South America. The HKUST Business School is the only business school from Hong Kong to make this prestigious list of 100 and the only

TEACHING AWARDS LAUNCHED

NEW APPOINTMENTS

(cont’d on page 8)

EMBA...page 2 Right Strategy...page 7

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h e U n i v e r s i t y r e c e n t l y a n n o u n c e d t h e a p p o i n t m e n t of Professor Yuk-Shee Chan, Founding Dean of the HKUST Business School, as Acting Vice-President for Academic Affairs. The appointment took effect on 1 January 2001.

With effect from the same date, Professor K. C. Chan, Associate Dean and Head of the Finance Department, was made Acting

Dean of the School.

Professor Gary Biddle, Head o f A c c o u n t i n g , h a s b e e n appointed Associate Dean of the School while Professor John Wei has taken up the headship of the Department of Finance on an acting basis.

Professor Yuk-Shee Chan said he was delighted to have an o p p o r t u n i t y t o b e i n v o l v e d d i r e c t l y w i t h t h e U n i v e r s i t y administration as the institution celebrates its tenth anniversary in 2001 and goes through the change from the current to the incoming presidents. He vowed to do his best in his new role. Professor K. C. Chan said: “It is an honor for me to

be asked to take up the Acting Dean position. I am confident that I will be backed up by a strong management team and supported by the excellent academic tradition that has already been fostered in this young school.”

(cont’d on page 2)

from Fall 2000, the School intends to make five awards in each semester to recognize one top teacher for each of the undergraduate classes, one for MBA required courses, and one for MBA non-required/MSc courses.

“The purpose of the Prize is to encourage all teachers to strive to be outstanding teachers and to honor many different teachers for their teaching contributions to the School,” said Prof. K.C. Chan, Acting Dean of the School.

The first Franklin Prize winners (back row from the left), Andrew Carverhill, Jong Hag Choi, Lydia Price, T.J. Wong and Haresh Gurnani and guests of honor (from left) Gary Biddle, K.C. Chan, Larry Franklin, Mei Kwong Franklin and Yuk-Shee Chan.

Gary Biddle Associate Dean Yuk-Shee Chan Acting Vice-President for Academic Affairs K.C. Chan Acting Dean John Wei Acting Head of Finance

one from the whole of Asia to make the top 50.

The survey measures a school based on three broad dimensions: the career progression accrued from the MBA (in particular its purchasing power in the marketplace), diversity, and research.

The School ranks 48th overall. It is particularly strong in the areas of diversity and research. Within the categories of diversity, it ranks first in the world for the international experience that its MBA

program offers; and second (after IMD in Switzerland) for its international faculty.

In terms of research, the School ranks 33rd based on faculty publications in top journals, and is one of only 15 schools in the survey that possess a 100 percent PhD-qualified faculty.

Professor Chia-Wei Woo, the President of HKUST, congratulated the School on joining the world’s top business schools league. “The recognition attained by

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he third week of January marked the beginning of the fourth EMBA intake when 50 senior executives from around the region gathered at the HKUST campus for their first live-in session.

The new class boasts a diverse group of seasoned executives who come from a wide spectrum of industries with an average work experience of 15.5 years and an average age of 38.5 years. Both of these demographic indicators are much higher than for last year’s class. The group’s average annual total compensation is US$206,355, also higher than the previous class. Forty-seven percent of the students were born in Hong Kong. Fourteen percent were born in the Chinese mainland and 14 percent in other parts of Asia. Non-Asians account for 25 percent of the class.

T h i s y e a r , s o m e 5 0 0 b u s i n e s s executives showed interest in the program. “Over the past three years, our program has continued to expand against the backdrop of a slowing economic environment. There’s a growing demand for quality executive education around the

FOURTH EMBA CLASS TAKES OFF

region and competition is no doubt coming on strong. But there’s no other program in Asia that can offer such a unique mix of perspectives and content coverage like ours,” said Steve DeKrey, Director of the EMBA Program.

“What makes this program unique is our partnership with Kellogg. It enables us to bring together top-flight faculty members from the West and the East and offers a highly versatile and applied program to meet the needs of senior executives,” he said.

Not surprisingly, DeKrey’s remark is echoed by many of the students who fly in from as far afield as Hawaii and Singapore to attend the twice-monthly weekend sessions. David Chua,Vice P r e s i d e n t o f C a t h a y P a c i f i c S t e e l Corporation in Manila, lauds the variety of businesses represented in the class. “Our company wants to become a regional player and I think this course will help me in that pursuit,” said Chua. “It’s also about East meeting West. I think that this program combines the best of both worlds, the best of Western MBA programs with a

strong eastern, Asian base.”

Susan Yuen, Vice President of Citibank, enrolled in the program to expand her horizons beyond banking. “This course presents a cross-fertilization of ideas, where it’s possible to refresh your mind and see what people in other industries are

doing,” said Yuen. Personal growth is another factor that drove her to take the course. “I’m doing a lot of volunteer work with local hospitals, and hope to use my financial management experience in this sector. This course is partly about how I can do that better.”

TEACHING AWARDS LAUNCHED

(cont’d from page 1)

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he School is introducing a Master of Science in Electronic Commerce Management (MScECM) Program starting in June this year. One of the unique features of this 20-month, part-time, weekend program is that it targets only students who already have an MBA degree.

“Although this (MBA degree prerequisite) limits our market and potential program size, it enables us to share with advanced students our cutting-edge management research and findings on successful eBusiness management,” explained Professor Ted Clark, Program Director of MScECM.

According to Professor Clark, the program is designed to reach beyond the surface glamor of dot.com startups to examine ways that eCommerce is transforming businesses today and in the future. The MBA requirement will allow the program’s professors to focus on very high levels of eBusiness management knowledge. Topics to be covered in the program include eMarketing, transformation and change management, supply chain management, eCommerce finance and business planning, legal issues, computer security and programming and applications development.

The program is now open for application. Visit the website at www.bm.ust.hk/mscecm/.

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ince the start of this new recruiting season, the MBA Program has launched a pilot scheme to accept online applications. The initiative will greatly facilitate the application process as candidates can now complete and submit their application through the Internet. Chris Tsang, Associate Director of Postgraduate Programs, noted: “For many business schools, the website, rather than the traditional MBA brochure, has become the ‘front door’ to MBA programs. There is no doubt that, in the future, the Internet will play an increasingly important role in our promotion and recruitment effort as we continue to expand beyond Hong Kong and even Asia.” By going to http://apply.embark.com/mbaedge/ hongkong/82/, applicants to HKUST Business School’s MBA program can submit an electronic application.

The initiative has indeed been very well received. As of 2 March, up to 80 percent of all the applications, both local and overseas, have been submitted through the Internet.

NEW E-COMMERCE MASTERS

PROGRAM TO REACH BEYOND THE

SURFACE GLAMOR OF DOT.COMS

MBA APPLICATION GOES ONLINE

KH04 students meet Professor Sid Deshmukh from Kellogg Graduate School of Management.

Finance for MBA Non-Required/MSc Courses.

There were 13 runners up. Prof. Gary Biddle, Chair of the School Appointments and Substantiation Committee (SASC), which is the selection panel for the awards, described the 13 as very impressive and in close contention with the winners.

The selection process involves three key stages. At the end of each semester, standard teaching ratings from students are used to identify the three top teachers in each of the five categories who achieve scores of 80 (of 100) or above. The nominees selected are then asked to submit a short statement to elaborate on teaching philosophy and a summary of past teaching scores. In the final stage, SASC members deliberate, based on the submissions and other relevant information, and select the winners.

The winners are each given a recognition certificate and a cash award. A plaque is displayed outside the Dean’s Office with the names and photos of the current winners and, in the future, the names of previous winners.

Larry Franklin, Adjunct Professor of Finance, who, together with his wife, established the Larry and Mei Kwong F r a n k l i n E n d o w m e n t F u n d , w h i c h contributed to the establishment of the Prize, said it was the opportunity to be a member of the teaching faculty of the School that inspired him to support this important initiative. “My experience at HKUST Business School enables me to appreciate more fully, and on a weekly basis, what kind of effort it takes to be a truly outstanding teacher,” he said. Prof. Franklin, a teacher who consistently scores high on his student ratings, has been on the School’s faculty since 1998/99 and is involved with MBA, EMBA and executive education teaching.

The five winners for Fall 2000 are Jong H a g C h o i , A s s i s t a n t P r o f e s s o r o f Accounting for Year One Teaching, Lydia Price, Assistant Professor of Marketing for Year Two, Haresh Gurnani, Assistant Professor of Information & Systems Management for Year Three, T.J. Wong, Associate Professor of Accounting for MBA Required Courses and Andrew C a r v e r h i l l , A s s i s t a n t P r o f e s s o r o f

Acting Dean K.C. Chan

HKUST Business School

Acting Dean: K.C. Chan

Associate Deans: Gary Biddle, Steve DeKrey, Kar Yan Tam Newsletter Editors: Elaine Chu, May Hung

Sub-editor: Virginia Unkefer

Contact us: [email protected], fax: (852) 2358 1467 Website: http://www.bm.ust.hk

© 2001 by the School of Business and Management, the Hong Kong University of Science and Technology. All rights reserved.

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o n g r a t u l a t i o n s t o six f a c u l t y m e m b e r s o n t h e i r r e c e n t p r o m o t i o n s a n d appointments.

With effect from 1 January 2001, Chris Westland has been promoted to Professor of Information and Systems Management and Songnian Chen and Son Ku Kim to Associate Professors of Economics. Laurence Franklin has been named Adjunct Professor of Finance. Fletcher Orlan Lee has been appointed Adjunct Associate Professor in the Law Program of the Department of Accounting. Susheng Wang will be promoted to Associate Professor of Economics with effect from 1 July 2001.

Professor Chris Westland is currently Head of the Department of Information and Systems Management. Before joining HKUST in 1995, he was on the faculty of the University of Southern California from 1988-96. His research interests focus on electronic commerce, IT microeconomics, software development and rengineering, and IT security. He is a co-author of an e-commerce textbook Global Electronic Commerce: Theory and Case Studies published by MIT Press (with Ted Clark).

Songnian Chen came to HKUST in 1994 as Assistant Professor of Economics after obtaining his PhD degree from Princeton University. His research interest is econometrics.

Son Ku Kim was Visiting Assistant Professor at University of California, Los Angeles before he accepted an Assistant Professorship at HKUST in 1992. His research interests are microeconomics, uncertainty and information, game theory, and industrial organization.

Laurence Franklin has been teaching part-time for the School since 1998/99. He currently works for Hutchison Whampoa (China) Limited as General Manager in charge of direct investment in Greater China, and as Head Legal Counsel. Previously, he was an investment banker with the American International Group (AIG). During the ’80s, he worked for The First National Bank of Chicago, first as Asia-Pacific Regional Counsel and then as China Country Head. He has taught in several MBA programs including at Stanford and the University of Chicago.

Orlan Lee spent 10 years with legal and financial institutions in the United States, including the Wall Street law firm of Brown & Wood and the Capital Markets Group of Citibank (New York), before coming to HKUST. Prior to that, he was a Carnegie Study of New Nations Fellow at the University of Chicago and later Associate Professor and Assistant Director of the Center of East Asian Studies at Washington University, St Louis. Lee was recently elected Visiting Fellow and Life Member of Clare Hall,

the College of Advanced Studies, at the University of Cambridge. He has published widely on the emergence of law and public policy and their relationship to international business problems.

Susheng Wang came to HKUST in 1993 as Assistant Professor of Economics. Prior to that, he was Assistant Professor of Economics at Concordia University from 1991-93. He was also a Visiting Scholar at University of California, Los Angeles from January to July 1998. His research interests are information theory and agency models.

PROMOTIONS AND APPOINTMENTS

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he Year of the Golden Snake was ushered in with major developments at the School, including job shifts among senior personnel, our latest rankings achievement and the beginning of the celebration year of the School’s 10th Anniversary.

As reported on the front page of this issue’s

Newsletter, our Founding Dean, Yuk-Shee Chan, has been appointed as Acting Vice-President for Academic Affairs of the University, a very important job at this juncture of the University’s development. Professor Chan’s appointment was followed by a series of new and acting appointments and shifts among senior personnel in the School’s administration.

I am honored by my appointment as Acting Dean in a school that has a strong tradition of excellence in the many areas in which we are involved. This tradition will certainly continue and the School will do its best to contribute to the development of the University as it begins its second decade.

At the start of the year, the School was ranked by the Financial Times as 48th in the world in their global MBA rankings. This is the second time the School was included on the list of top MBA programs in the world by the prestigious financial paper. Last year, we were the only Asian school among a list of top 75 schools and this year we moved up to 48th of 100 and were the only Asian school to earn a place among the top 50. We are both overwhelmed and humbled by the outpouring of praises and well wishes from the University community and the Hong Kong community for our ranking. The South China Morning Post (the de facto city newspaper of Hong Kong) described this ranking as a prize that “brings honor both to it (HKUST) and the city it serves”.

The support from the Hong Kong public is going to be very crucial to our future plans. Despite our fine record of achievement in ten short years, further development of our MBA programs will be challenging as a result of withdrawal of funding support from the Government. The School will increasingly need more support from the corporate sector, in addition to the support from the University, to sustain the high quality of the MBA programs that it offers.

Looking ahead, year 2001 looks to be full of challenges and exciting events. The joint academic and corporate advisory board meeting that the School is holding in April will provide a venue for the School to gather advice and to formulate its strategies for future development.

Meanwhile, planning of activities in celebration of the School’s 10th Anniversary is in the pipeline and I look forward to bringing you more updates in this column in future issues.

FROM THE DEAN

Laurence Franklin Chris Westland Son Ku Kim Songnian Chen

PROMOTIONS

Orlan Lee

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he Business Mentoring Program, now in its third year, has welcomed a new batch of mentors and mentees. A reception was held in March to mark the occasion.

In addition to the 20 executives from Friends Unlimited, a non-profit organization of young professionals and a founding supporter for the program, six MBA alumni, including Kitty Chan (Part-time ’98), Kevin Chui (Part-time ’97), Petty Lai (Full-time ’95), Nelson Lam time ’98), Wilson Lee (Part-time ’99) and Leo Li (Part-(Part-time ’00), have

MBA ALUMNI BECOME MENTORS FOR

UNDERGRADUATE STUDENTS

joined the program as mentors. Each mentor is matched with an undergraduate student selected for the program. The mentors will share valuable experiences in work, study and personal development, with their student partners.

The program is jointly organized by the School and HKUST’s Student Affairs Office. It is a six-month program from March to August during which mentors and mentees meet to discuss issues and ideas or to work on projects together.

INSIDER TRADING CAN BRING BENEFITS TO SHAREHOLDERS

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researcher has shown by using a theoretical model that managerial insider trading should be allowed in some situations in order to promote better shareholder control over corporate decisions.

Using a carefully constructed model and with the help of a series of quantitative analyses, Guochang Zhang, Assistant Professor of Accounting, suggests that insider trading, if suitably regulated, can serve as an effective means in helping shareholders acquire information to which hitherto only professional managers are privileged.

INFORMATION ASYMMETRY

Prof. Zhang said that while managers normally control various aspects of a firm’s operations, there is a trend that shareholders are increasingly finding it necessary to intervene in major corporate decisions. Indeed, due to differences in preferences between the manager and shareholders, it may be undesirable to fully decentralize corporate decisions to a professional manager who owns little stock in the firm. However, shareholders face a major obstacle in exercising control - they do not have access to all the information available to the firm’s manager.

“Bridging the information gap between shareholders and the manager is an important step for shareholders to exercise effective control,” said Prof. Zhang. The question is how to do it.

One possible way to overcome the problem of information asymmetry between the manager and shareholders is information acquisition by shareholders. But direct information acquisition can be costly and ineffective and also defeats, to a certain extent, the purpose of hiring professional managers to run the business. Furthermore, most shareholders prefer to free-ride, hoping that others will take the effort to acquire the necessary information and to curb undesirable managerial behavior.

Consider a situation in corporate investment where a manager has private information about the potential investment. When the manager proposes an investment, shareholders do not know whether the investment is profitable or if it is merely intended to serve the personal interest of the manager, that is, for example, to realize personal ambition, to enhance his own human capital, or even to manipulate business transactions for personal gains.

But this will be less of a concern if the manager can invest his own money in the proposed investment. “If the manager is allowed to buy the company’s stock before the investment decision is made, his action to buy the stock conveys information about the project’s profitability,” said Prof. Zhang. “As a result, shareholders will be able to screen more effectively the investment proposal based on

the revealed information.”

Allowing this to happen, however, requires significant changes to existing regulations that prohibit an insider from profiting on “material” information. The Securities (Insider Dealing) Ordinance of Hong Kong, for example, includes detailed elaborations on the definition of an insider and the circumstances under which an insider trading offence may be committed. The rationale and spirit behind such regulations are easy enough to appreciate. It is clear that they are there to protect shareholders from being victimized by unscrupulous managers.

Zhang argues that insider trading can be turned around as a mechanism to alleviate information asymmetry between the manager and shareholders. Regulations are still required but for a different purpose.

Two conditions need to be imposed for this mechanism to be effective. First, the insider’s trading activity has to be disclosed publicly so that the shareholders can observe the signal. A second condition is that the manager must

hold on to his purchased shares for an adequate length of period until the “uncertainty” associated with the investment is resolved, meaning that the insider should not be allowed to sell the purchased stock shortly after purchase, otherwise the signal would be non-credible.

ABILITY TO PROFIT

It is important that, in order for this mechanism to work, the insider is allowed to profit on this private information, which is contrary to existing regulations. According to Prof. Zhang, the ability to make a profit provides the incentive for t h e i n s i d e r t o r e v e a l t r u t h f u l information. “The key issue is whether shareholders as a group a l s o g a i n f r o m t h e i m p r o v e d corporate decisions made possible

by the insider’s trading,” he said. He suggests that it may be useful to distinguish different circumstances under which insider trading takes place by examining the impact of such trading on corporate decisions and shareholder wealth.

While Zhang’s model is cast in the context of capital investment decisions, the central idea is intended for application to other decision situations, such as corporate acquisition, restructure, and divestiture, in which shareholders may wish to intervene directly. For illustration, suppose a firm’s manager proposes to acquire another firm, and the decision is voted on by shareholders who have limited information on the worthiness of the target firm. If the manager is allowed to trade his firm’s stock on his personal account, an action to increase ownership by the manager, at the time when he proposes the acquisition, may be seen as an investment considered to be profitable by the manager and he will attempt to seize the opportunity; this in turn will lead to approval of the acquisition by shareholders. Guochang Zhang is Assistant Professor of Accounting at HKUST; email: acgzhang@ ust.hk

RESEARCH

Original research “Regulated Managerial Insider Trading as a Mechanism To Facilitate Shareholder Control” by Guochang Zhang

ACCOUNTING SYMPOSIUM 2001

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he 9th Summer Symposium on Accounting Research will be held on the HKUST campus from 18-21 June 2001. The theme this year is “Market-Based Research: The Road Ahead”. The Symposium will cover a wide range of topics and methods related to capital market research, both analytical and empirical.

The Symposium will start with two days of lectures by Professors S.P. Kothari of MIT and Charles Lee of Cornell University, followed by two days in a conference format consisting of invited and contributed paper presentations on market-based research. There will also be a panel discussion between academic participants and leading professionals and regulatory authorities from the Chinese mainland, Hong Kong and the U.S.

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he advent of digitization and Internet technologies has opened up new frontiers for pure information products. Making such products available on the Internet has become more than just a trend in most developed countries where people’s interaction with the computer is part of their daily lives.

W h i l e t e c h n o l o g i e s o ff e r m o r e alternatives for information products, i n c l u d i n g m u s i c , n e w s , s o f t w a r e , document products, or even greeting cards, to be produced and distributed, these products will develop in new ways and face new competition, according to recent research.

Based on a theoretical analysis built upon two theories of competition, namely, the Theory of Resource-Based Competitive Advantage and the Theory o f N e w l y Vu l n e r a b l e M a r k e t s , t h e researchers, Eric Clemons and Bin Gu, both from The Wharton School of Business at the University of Pennsylvania, and K a r l L a n g , A s s i s t a n t P r o f e s s o r o f Information and Systems Management, predicted that popular music and daily newspapers will take different paths in t h e f u t u r e d e v e l o p m e n t o f t h e i r respective markets.

Before gazing into the researchers’ crystal ball, it will be helpful to first look at the two theories they used.

The Theory of Resource-Based Competitive Advantage stresses the

importance of critical resource differences between firms as a source of sustainable competitive advantage. A firm will have significant advantage over its competitor if it is in a strong ownership position to hold the kind of critical resources needed for that particular industry. This is especially important in the information technology industry.

The Theory of Newly Vulnerable Markets encompasses three essential

components. A market is defined as newly vulnerable if it is newly easy to enter (as a result of regulatory change, technological change or consumer preferences), attractive to attack (due to the presence of extreme differences in profitability between

INFORMATION PRODUCTS IN AN ONLINE AGE - AN ANALYSIS

OF THE MUSIC INDUSTRY AND DAILY NEWSPAPERS

the best and the worst customers in a market and the need for cross subsidies between product lines), and difficult to defend (for reasons such as regulatory restrictions, fixed commitments to existing customers, or investments in inappropriate systems or physical infrastructure).

The key similarity between the music industry and daily newspapers is that both require significant input from individuals who have specific talents. The former requires artists who create the works of music by composing, writing or performing while the latter requires writers and photographers who cover, report and at times comment on the news. In both markets, the value of a product comes from creation of the works (music or news story) whereas revenue comes from creating and selling the product (copies of records, tapes, and CDs, or newspapers), that is, value creation and revenue generation are actually decoupled.

There are two major differences between the two. While contributing to the content value of the products that record companies produce, the artists are, in a real sense, captive “customers” of the record c o m p a n i e s , b u y i n g p r o m o t i o n a n d production services in exchange for giving up their copyrights and accepting royalty payments as compensation. Journalists and photojournalists do not practice their professions in such captive relationships with their publishers. The other area of difference is that daily newspapers are usually bundled with advertisements. Advertising, not sales at the newsstand, is traditionally the most important source of income for newspapers.

THE MUSIC INDUSTRY IS MORE VULNERABLE TO ATTACK

The researchers predict that the music industry is vulnerable to attack by the artists and musicians it employs but newspapers are unlikely to be attacked by their content staff. This is despite the fact that technological advancement such as digitization of information and easy access to on-line distribution of products has the same effect on both markets by

essentially reducing the significant advantage that a record company has over a song composer, or a publisher has over a writer. The brand name of a reputable newspaper signifies quality in terms of accuracy and reliability and extends to the entire paper as a bundle rather than individual stories or reporters. In the music industry, on the other hand, branding occurs mostly at the artist’s level, which gives artist the ability to potentially take the brand away and go self-publishing. New digital technologies make producing and distributing sound recordings possible and affordable, even outside the traditional studio system.

Using the same definitions that the Theory of Newly Vulnerable Markets describes, both markets will become newly easy to enter because of the technological changes brought about by the Internet.

A record company may have to provide cross subsidies between products by different artists (i.e. their customers), and indeed there can be a strong customer profitability gradient among these groups -some acts desperately require the promotional services offered by a record company (i.e. they are more costly to the company and therefore less profitable, or even loss making), while others have little need for these services (lower cost and more profitable). However, there does not appear to be a strong customer profitability gradient in the news reporting business. As a result, the music industry will be more attractive to attack when compared to the newspapers.

In terms of the difficulty of defending their established market, the music industry is more vulnerable when compared with the newspapers owing to two main reasons. First, very few reporters are consumer brands of what they produce to the extent that popular artists are to the public. Second, news stories need some form of authentication or certification that popular music will not require. The certification role involves the newspaper editorial staff in addition to the individual news story creators. If a writer or publication lacks a

Original research “Newly Vulnerable Markets In An Age of Pure Information Products: An Analysis of Online Music & Online News” by Eric K. Clemons, Bin Gu and Karl R. Lang

strong reputation for r e l i a b i l i t y a n d timeliness, it will be difficult for them to e n t e r t h e d a i l y newspaper market. In a w a y , t h i s a l s o makes it less difficult for newspapers with good reputations to defend their current markets.

While the market for newspapers is unlikely to face as

much challenge from its editorial content providers as the music industry will from its composers and artists, the researchers warned that the same “safety” may not, in the long-term, bespeak the advertising side of daily newspapers and indeed there are changes that undercut the defenses of newspapers and render them vulnerable. For example, there is a growing trend toward personalized, direct distribution of electronic advertisements with the help of powerful consumer marketing databases that may make buying advertising space in a newspaper unnecessary.

SOLUTIONS

The researchers suggest that: “As the landscape of the markets for information products continues to change, different strategies are being pursued by different companies. The effectiveness of these strategies, and outcomes that will result are as yet not clear, but a theoretically sound analysis should enable us to make both predictions and strategic recommendations.”

Realizing the challenges facing them, newspaper publishers can, for example, try to create a modified value proposition. Ideas suggested by the researchers include focusing on an audience that is willing to pay for the news, providing a personalized news service that does not require subsidies from advertising, or using online distribution as an essential supplement, rather than a competitor or alternative, to their paper-based business.

Karl Lang is Assistant Professor of Information & Systems Management at HKUST; email: [email protected]

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itigroup, the world’s leading financial institution and the School announced the launch of the “Citigroup Young Fellowship Program” in an agreement signing ceremony held last December. The Program will see Citibank, N.A. and Salomon Smith Barney, two of the major operations under the Citigroup umbrella, donating scholarships and offering part-time working opportunities for selected business students from HKUST on an on-going basis.

Beginning this academic year (2000-2001), a maximum of 10 students from the School’s undergraduate and MBA programs will be selected each year to join the Program as Citigroup Young Fellows. These Young Fellows will be given opportunities to work in the Hong Kong offices of Citibank, N.A. and Salomon Smith Barney on work-study or summer internship arrangements. They will also be awarded Citigroup Exchange Scholarships to support their participation in international student exchange programs organized by the School.

Speaking at the ceremony, T.C. Chan, Country Corporate Officer, Citibank, N.A., said the joint efforts between HKUST and Citigroup would help develop some of the finest young talent in Hong Kong who would grow up to contribute to the prosperity of our society. “The students selected will have the opportunity to broaden their horizons from their overseas experience. They will also be given the chance to gain valuable work experience from various business units under the Citigroup umbrella,” he said. He added that the bank will provide mentors for these students to make sure that their time in Citigroup is well spent and that they will treasure the experience throughout their future careers.

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ore students will be able to participate in the School’s international student exchange programs, thanks to the continuous and growing support from the business community.

In addition to the Young Fellows Programs that the School has recently established in collaboration with major companies including Citigroup, Ernst & Young and Morgan Stanley Dean Witter Asia, the list of exchange student scholarships that are available to HKUST business students is also growing.

LATEST ADDITION

The irasia.com Exchange Scholarship was established recently to provide financial support to undergraduate students participating in the School’s international student exchange program.

The scholarship, donated by irasia.com, will be given to one undergraduate student each year. Priority will be given to Accounting or Finance students and awards will be made based on academic merits, extracurricular activities involvement, and financial n e e d s o f t h e a p p l i c a n t s . C h e u n g M a n Ya n (Accounting, Year 2) was selected as this year’s winner and received the award at a ceremony held in December 2000 at the donor’s company. She is currently studying at Copenhagen Business School i n D e n m a r k o n a o n e - s e m e s t e r e x c h a n g e arrangement. She will submit to the donor a report on her overseas study when she returns.

By offering the scholarship, irasia.com joins other sponsors, namely Federal Express (which each year offers three exchange scholarships for MBA students), Mr Paul M. F. Cheng (one each for an undergraduate and an MBA student) and Shell (one for a business undergraduate), to help HKUST students in this valuable pursuit.

FEDEX SCHOLARSHIPS

In February, three MBA students, Charles Lee, Patrick Shao and Vivian Zhou, shared their exchange experiences with senior executives of Federal Express

CITIGROUP AND HKUST

JOIN HANDS TO GROOM

YOUNG TALENT

EXCHANGE SCHOLARSHIPS KEY TO

ENHANCING STUDENTS’ INTERNATIONAL

EXPOSURE

Clifford Chiu, Managing Director and Head of Hong Kong Investment Banking, Salomon Smith Barney Asia Pacific, opined that Hong Kong possesses an enormous pool of motivated and talented young people. He said: “The Program is one of the ways to empower them with financial support and invaluable on-the-job training.” He applauded the leadership role taken by HKUST and confided that the University is “the best kept secret in Hong Kong”.

Professor Yuk-Shee Chan, Founding Dean and Acting Vice-President for Academic Affairs, said the Young Fellowship Program had received very strong support from the corporate sector. Including the Citibank Young Fellowship Program, there are now three such programs that the School has established with major corporations. He said: “The best business education does not happen on campus alone. The Young Fellowship Program will be instrumental in providing the participants with the broad exposure and experience as well as the skills for a successful career. We are delighted to have Citigroup as our sponsor and partner in this important endeavor.”

From left are: Clifford Chiu, Managing Director, Asia Pacific Investment Banking, Salomon Smith Barney, T.C. Chan, Country Corporate Officer, Citibank, N.A., and Yuk-Shee Chan, founding Dean and Acting Vice-President for Academic Affairs at the signing ceremony of Citigroup Young Fellowship Program.

David Cunningham, President, Asia Pacific Division, Fedex (third from right), poses with the scholarship winners and members of the selection panel after the award ceremony. From left are Calvin Mui, Managing Director, Marketing, Charles Lee, Patrick Shao, Vivian Zhou, Sam Tam, Managing Director, Information Technology Division and Peter See, Managing Director, Planning & Engineering.

(Fedex) at a scholarship presentation ceremony held at the Fedex office in Hong Kong.

This is the third year Fedex has awarded scholarships to HKUST MBA students in support of their exchange activities. David Cunningham, President of Fedex’s Asia Pacific Division, noted that the development of local business talent is crucial to the competitiveness of Hong Kong as a global business center and the company is pleased to be offering support to help students participate in the student exchange program, an important part of the School’s MBA curriculum, to broaden their international exposure.

This year’s scholarship winners were selected based on a 2,000-word essay they submitted on the express delivery industry. The essays were evaluated by a selection panel at Fedex who then recommended winners for the awards.

All three scholarship recipients studied in the US for their exchange semester last Fall, with Charles at UCLA, Patrick at the University of Washington and Vivian at the University of Michigan. All three described their exchange experiences as invaluable and were glad to have had first-hand information and felt for themselves the atmosphere during the recent US presidential election.

Cheung Man Yan (left) receives a scholarship from C.Y. Lau, founder of irasia.com.

ALUMNI NEWS

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embers of the 2001 Executive Committee (ExCo) of the MBA Alumni Association (MBAAA) were inaugurated in February at the Association’s Annual General Meeting (AGM) held at the American Club. The inauguration was followed by a dinner buffet, rounds of table games and lucky draws. More than 150 alumni attended the event. The new ExCo comprises ten members representing alumni from the full-time and part-time MBA programs, as well as the Kellogg-HKUST Executive MBA program. Lawrence Liu, EMBA 2000 and Vice President (External) of the ExCo 2001, said, “I hope my involvement will help foster communication and cement the bonds among the students and alumni of both the MBA a n d E M B A p r o g r a m s . ” Lesley Kong, MBA Part-time ’99 and President of the new ExCo, gave an inaugural

speech at the AGM and vowed to build a stronger alumni network and further the interests of its members. “To become a world-class alumni association, we require the support of our fellow alumni. It is encouraging for me that I already have the blessing from Professor K.C. Chan, Dr Steve DeKrey, and fellow classmates... As members of ExCo 2001, we have committed to serve our fellow alumni and to reengineer the MBAAA to mirror the new and ever-changing environment of the new millennium.”

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ost businesses start with the kernel of a good idea. But how to germinate good ideas into well-run profitable companies is something more tricky. Lee Shing Put (2000 FINA & ECON), Chairman and CEO of XINYI Network - an IT system i n t e g r a t o r w i t h m o r e t h a n HK$30 million in assets, knows the drills.

Lee had taken a liking to the IT industry after a temporary stint at a computer company the summer before he entered

HKUST. The experience inspired an idea that would become XINYI Network, which is now the parent company of Shenzhen X I N Y I C o m p u t e r C o m p a n y Limited established in October 1997, and i-Application Limited, a Hong Kong-based application services provider acquired earlier

NEW MBA ALUMNI ASSOCIATION EXCO FORMED

RIGHT TIMING, RIGHT STRATEGY SPELL THE DIFFERENCE

this year. “Back in the summer of 1997, I realized that the business opportunities were just starting to open up on the Internet and I would have missed the cut if I didn’t seize the chance to start my own business. Fortunately, my family is also running a business in the mainland and is very supportive. They invested HK$300,000 and also saw me through the early stages of my first venture,” said Lee.

During the first month of his freshman-year at HKUST, Lee

founded XINYI Computer, a S h e n z h e n - b a s e d c o m p a n y d e v e l o p i n g m a n a g e m e n t software and building network infrastructure for mainland corporations. “I’m very pragmatic. I realized early on that I had to build my business on solid ground. And I would assess

potential investments on bottom-line factors. I just don’t think a company would last long if it ignored the bottom-line factors and simply wanted to make a fortune from the financial market. The dot.com market meltdown last year proved that we are h e a d i n g t o w a r d s t h e r i g h t direction.”

Lee chose to start his first venture in Shenzhen for several reasons. Cost was his primary concern. “It’s much cheaper to set up an office in Shenzhen than in Hong Kong. The lower costs would keep me going for a longer while and even if I failed, it w o u l d n ’ t h u r t t h a t m u c h . Moreover, my family also has business in Shenzhen. They could provide me the support that I needed most in the first months of running my own business,” explained Lee. He admitted that the network that his family has e s t a b l i s h e d w i t h m a i n l a n d companies and officials over the years had given him a leg up. “G u a n x i , o r r e l a t i o n s h i p s , c o n t i n u e s t o b e c e n t r a l t o Chinese culture,” said Lee. “It m a y b e a k e y e l e m e n t i n accessing interesting business opportunities, but guanxi is not a sure bet that customers will keep coming back. It is sound business practice that matters most.” In fact, many of XINYI clients nowadays are referred by other companies that are or had

o n c e b e e n u s i n g X I N Y I ’ s services.

In 1999, XINYI Network was e s t a b l i s h e d a s a h o l d i n g company of XINYI Computer. Earlier this year, with additional funding from Lee’s family, XINYI acquired i-Application to broaden its business and customer base. Today, XINYI’s business spans across Hong Kong and the Chinese mainland with an annual turnover of more than HK$8 million and 72 staff on the payroll. It boasts a coveted list of blue-chip clients, including Johnson Electric Industrial Manufactory, China Merchants Holdings, Shum Yip Holdings, Bank of East Asia, to name a few. Lee is also the CEO-elect of a joint venture with Cheung Kong (Holdings) to be set up in the first half of this year. The new venture, CKX Network Infrastructure, will develop and offer leading-edge technologies i n c l u d i n g o p t i c f i b e r , s y s t e m i n t e g r a t i o n , network infrastructure and broadband services.

In the past three years, Lee was sandwiched between work and study, Shenzhen and Hong Kong. “My typical schedule is Monday to Friday in Hong Kong for my study and weekends in Shenzhen for my company. I’m lucky to have hired some very competent staff who could keep things going briskly when I was away.” True, few challenges are

as important as choosing the right people to work with. It is therefore not surprising that he has invited three of his best friends from HKUST, Henry Chan (ISMT), Edward Lam (FINA & ECON) and Peter Wong (FINA) to join XINYI to take charge of different business areas.

The foursome’s friendship dates back to when they first met at HKUST in 1997. “We studied together, played together, and even lived together. Put was my roommate while Peter and Edward lived right across the corridor in the same hall,” said Chan. When asked if there’s any difficulty to work for a good friend, all three gave the same answer -No. “On the contrary, I think it’s more like an advantage. Over the years, we all got to know each other very well. We know Put’s business and where it is heading. We know his work style and he knows ours. We trust each other and are very open to voice our opinions at work. This background makes our work much more efficient and easy,” Wong added.

Lee, who joined the interview late and did not know what his good friends and employees h a d s a i d a b o u t t h e i r w o r k relationships, coincidentally gave an almost identical answer. It seems that they do indeed know each other very well!

MEMBERS OF THE 2001 MBAAA EXCO

Lesley Kong (Part-time ’99) President (front, second from left) Lawrence Liu (EMBA ’00) Vice President (External) (front, far left) Oscar So (Part-time ’00) Vice President (Internal) (back, center)

Sarah Chan (Full-time ’01) Vice President (University Liaison) (front, far right) Aaron Au (Part-time ’99) Treasurer (back, far left)

Jason Tang (Part-time ’00) General Secretary (back, 2nd from right) Amy Chan (Part-time ’96) Social Secretary I (front, 2nd from right) K M Chiu (Part-time ’01) Social Secretary II (back, 2nd from left) Wilson Lee (Part-time ’99) Membership Secretary (back, far right) Isabel Lui (Part-time ’99) Publication Secretary (front, center)

Lee Shing Put (left) meets Li Ka-shing, Chairman of Cheung Kong (Holdings) on an occasion in Shenzhen.

EXECUTIVE EDUCATION

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ennis Wong, Senior Information Technology Manager, Leisure and Cultural S e r v i c e s D e p a r t m e n t , w a s awakened at 6 am on a chilly Sunday morning in February. He was not expecting the call to c o m e . B u t w h a t w a s m o r e unexpected of was that he and 30 other senior government officers were given the task to rescue a group of Japanese hikers stranded in the remote countryside in Sai Kung.

It was a crisis situation. In the less than an hour that followed, they would have to organize

HIGH-POWERED PROGRAM FOR SENIOR GOVERNMENT OFFICERS

t h e m s e l v e s i n t o t e a m s o f rescuers and be ready to carry out the mission. By 2 pm that day they were required to bring the situation under control. Each move they made could involve putting lives at stake. Wong and the others were unfazed. Partly because of their experience as v e t e r a n o ff i c i a l s , a n d a l s o b e c a u s e o f t h e c r i s i s management workshop they just attended as part of the M a n a g e m e n t D e v e l o p m e n t Program offered to them by HKUST.

“The crisis was a real-life

simulation specifically designed to let the participants of the program get a grip on how to react and handle emergency situations, which most of the t i m e c o m e c o m p l e t e l y unannounced,” said Kitty Chan, Director of Executive Programs and External Development. Participants were required to perform the roles of rescuers so that they could experience for t h e m s e l v e s h o w f r o n t l i n e operations could be like.

“It epitomized the kind of experience our program offers to the participants - highly applied, interactive, and intense,” she said.

The program, which ran from November to February, aimed to develop cross-functional team leaders to rise to the challenges posed by a changing political, economic and organizational environment. It was structured around two residential and two w e e k e n d s e s s i o n s , a n d i t featured a mixture of faculty lectures, case studies, luncheon seminars, experiential learning, and the surprise simulated crisis situation described above.

Participants were senior

Participants of the Management Development Program tread the rugged trail on their “rescue” mission.

officers from the Architectural Services Department, the Food and Environmental Hygiene Department, the Leisure and Cultural Services Department, and the Transport Department.

Instructors for the program included Hilton Chan, Adjunct Professor of Information and Systems Management (ISMT); Ted Clark, Associate Professor of ISMT; David Croson, Assistant Professor of Operations & Information Management of Wharton School of Business; Dilip Soman, Assistant Professor of Marketing; and Katherine Xin, A s s i s t a n t P r o f e s s o r o f Management of Organizations.

This was the first time a local university had been entrusted to tailor a professional training program for government officials, from the SAR.

Despite the jam-packed s c h e d u l e a n d d e m a n d i n g workload, participants touted the p r o g r a m a s a r e s o u n d i n g success because of the active l e a r n i n g e x p e r i e n c e a n d exposure to erudite faculty and business mavens. Dennis Wong said: “The program provides a very good forum for participants to learn the latest management philosophy and tools, and to share valuable and practical experience among government officers from different disciplines and from guest speakers from the private sector.” Winnie Lin, Chief Music Officer, the Leisure and Cultural Services Department, described the program as very intensive and well-organized. “It provided participants with useful information and unforgettable experience,” she said.

Academics and Corporate Leaders Featured at the Luncheon Seminars of the HKUST Management Development Program:

Eddy Chan, Regional Vice President, China and Mid Pacific Region, Federal Express John Chan, Managing Director, Kowloon Motor Bus

K.C. Chan, Acting Dean

Philip Chen, Director and Chief Operating Officer, Cathay Pacific Airways Leonard Cheng, Professor and Head of Economics

Allen Lee, former Chairman of the Liberation Party Justin Lin, Professor of Economics

Lo Chi Kin, Managing Director, CK Lo & S Lam Limited Francis Lui, Professor of Economics

Mei Ng, Director, Friends of the Earth HKUST’s Business School says much about the high status of management education in Hong Kong. There is no doubt that our MBA program will continue to be the premier provider of management education in the region, as seen by the world’s leading authorities,” he said.

Professor Yuk-Shee Chan, Founding Dean of HKUST Business School and currently the University’s Acting Vice-President for Academic Affairs, said: “When the School was established less than ten years ago, it was mandated to be the leading

business school in Asia by the turn of the century. This prestigious ranking indicates that in addition to achieving this significant milestone, our MBA program has also been recognized as one that offers the best international experience and exposure for the students.”

Professor K.C. Chan, Acting Dean, said the survey results recognize the level of high quality that a publicly-funded Hong Kong program can achieve. “The School is committed to providing high quality management education in support of Hong

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Kong’s role as a world city. The Financial Times ranking is a strong endorsement of our work. I believe the Hong Kong public will be as happy as we are about this prestigious recognition, because it is a direct result of their support without which our achievement would not have been possible. Looking ahead, we hope the community will continue to invest in us so t h a t w e c a n m a k e e v e n g r e a t e r contributions to Hong Kong,” Professor Chan said.

D r S t e v e D e K r e y , H K U S T M B A

Program Director, said: “The Hong Kong business community deserves its own top quality management education program for the development of Hong Kong’s talent pool. And, the good news is, as these results confirm, they have one.”

This is the second year the Financial Times has ranked business schools on a worldwide scale (including Asia). In the year 2000 survey, the paper named 75 top schools in the world, and HKUST Business School was the only one from Asia to make the list.

Left to right: Kitty Chan, John Chan, Managing Director, Kowloon Motor Bus, Lolly Chiu, Deputy Director (Admin), Leisure and Cultural Services Department and Prof. Yuk-Shee Chan at the Closing Dinner of the Management Development Program.