ISSUE 5
MARCH 1999
1
Clear Water Bay, Kowloon, Hong Kong
T
he Kellogg-HKUST Executive MBA (EMBA) Program has grown in size despite the lingering Asian financial turmoil.Opened in January 1999, the second intake of the EMBA Program saw a total of 41 students, a 17% increase from last year. Of the new class, 40% are non-Asian and over 32% work in offices outside Hong Kong and fly in for the weekend courses.
Many of the new students were attracted to the program because of its reputation for quality and high admission standards.
One of the new students Roger Tai said, “I noticed the program last year but I did not apply. A friend of mine did instead. Having participated in the program for a year, he highly recommended it to me and so I decided to apply.” Mr Tai is a PhD degree holder and currently an operations manager with Schlumberger Technologies (Asia).
Another student, Lana Howell, Director of Leasing & Management, Hang Lung Real Estate Agency, also took advice from one of her colleagues who participated in the inaugural class of the program. “I am very confident in the quality of the program as my colleague who has first-hand information about it spoke so highly of it,” said Ms Howell.
The new class attended their first live-in week on the HKUST campus in January and they were impressed by many facets of the program, including the advanced facilities, world class performances of professors from HKUST and Kellogg, and among other things, quality of classmates and the interaction among themselves.
“It’s a refreshing experience. My classmates are all experienced executives and they all participated actively in class discussions,” commented Will Chen who flies in from Taiwan to attend the program. Mr Chen’s view was echoed by Roger Tai who expected that 50% of the learning would come from interaction between the students while the other 50% would come from the professors.
Program Director, Dr Steve DeKrey, said he was delighted with the program’s success in attracting yet another strong cohort of students. “The good response reflects a growing demand for quality executive education in the region. The School plans to capitalize on the reputation it has built up so far to further expand its executive education offerings, both degree and non-degree, in the near future.”
EMBA SECOND INTAKE
FEATURES A MORE DIVERSE
STUDENT BODY
A
team of four HKUST undergraduate business students succeeded in making its way to the final round at the 3rd Annual Marshall International Invitational Case Competition held in Los Angeles, USA in February 1999.Organized by the University of Southern California, this year’s competition included repre-sentatives from 14 leading business schools from Asia, Australia, Europe and the US. The HKUST team, along with teams from the
Uni-versity of Southern California and University of Illinois, were the three runner-ups who won the p e r f o r m a n c e awards. HKUST is the only Asian team which won an award this year. The cham-pionship went to the Copenhagen Business School.
The HKUST team was comprised of four final-year undergraduate students, Alice Kwan
(Accounting), Linda Chu (Finance), Tony Lau (Accounting) and Catherine Yu (Marketing). Professor Kar Yan Tam (left in the picture), the team advisor, said, “we are very excited about the outcome. It was a good experience for the students as through the competition, they got an opportunity not only to exchange views and share experience with students from some of the best business schools in the world, but also from experienced
ISMT DIVISION RANKED AMONG WORLD’S
TOP 25 IN RESEARCH PRODUCTIVITY
T
he diligent work of an i n g e n i o u s f a c u l t y h a s brought the ISMT (Information a n d S y s t e m s M a n a g e m e n t ) Department to a new horizon. In a recent survey published in the September/October 1998 issue of Decision Line, an Information Systems (IS) research journal, the IS division at HKUST was ranked among the top 25 institutions in the w o r l d i n t e r m s o f r e s e a r c h productivity in esteemed journals during the period 1991-1997.UG STUDENTS MAKE THEIR CASE IN
INTERNATIONAL COMPETITION
business executives who attended the competition as judges. The outcome is a strong proof that our business undergraduate program is comparable with other elite business schools worldwide.”
The four students all concurred that it was a fruitful and rewarding journey. Linda Chu said, “it widened up our exposure and let us understand that there are a lot more we should learn to improve ourselves.” Alice Kwan said, “I am very lucky to have the chance to participate. It is something that we cannot simply learn from the books.” The stu-dents would also like to thank the faculty who taught them tech-n i q u e s i tech-n c a s e analysis during t h e i n t e n s i v e training program organized by Dr Rami Zwick last summer.
The only case c o m p e t i t i o n t h a t involves business schools from four continents in the world, Marshall International Invitational Case Competition aims to elevate students’ interest in international business and enhance their ability to solve problems pertinent to practical business issues. This year, participants were required to devise a business plan for Acer Computer and present their analysis and recommendations to two separate panels of judges. From receiving the case information to delivering the final presentation, each team was given 48 hours to formulate their strategies and plans.
The ranking was based on research productivity as measured by counting the number of articles a n d t h e n u m b e r o f p a g e s published in six leading IS journals including Communications of the A C M , D e c i s i o n S c i e n c e s , Information Systems Research, Journal of MIS, Management Science and MIS Quarterly. The journals were selected according to two of the most highly cited surveys carried out in 1992 and 1997. Both surveys identified the
same selection of journals as the most important journals in IS research.
Dean Yuk-Shee Chan was pleased with the outcome of the survey. He said, “the ranking recognizes our effort and strength in quality research as on a par with some of the most renowned institutions in the world.
“It serves as a benchmark as well as a stimulant for us to strive for even better results in the years to come.”
(key statistics on page 4)
Professor Gary Biddle (left) and Dr Steve DeKrey (right) share a light moment with participants at the live-in reception.
2
The Hong Kong University of Science & Technology
BUSINESS FORUM
INTERNAL CONTROL VS EXTERNAL MANIPULATION: A MODEL OF
CORPORATE INCOME TAX EVASION
by Kong-Pin Chen, Department of Economics, HKUST and
C.Y. Cyrus Chu, Department of Economics, National Taiwan University and Institute of Economics, Academia Sinica
G
overnments contemplating imposing higher tax rates on corporations should note that the increase in the amount of the government’s income from taxes may not be commensurate with the level of the increase in tax rates, according to a new model of corporate tax evasion being developed by two economists. The reason is that the higher the tax rates are: the greater the incentives for corporations to evade taxation. Tax evasion, in turn, will lead to possible loss of internal control of a company and thus decrease its profits.In their working paper on the new model, Dr Kong-Pin Chen of HKUST and Dr Cyrus Chu of National Taiwan University argue that when compared to individual tax evasion, the main thing that makes a corporate tax evasion decision more difficult is the involvement of the cost of internal efficiency.
In a nutshell, the techniques that can be used to mar an honest reporting to the tax authority are either over-stating costs or under-stating profits, or both. To over-state costs, the owner will tend not to include the cost variable in the wage function of the worker, i.e., not hold his manager’s ability to control costs as an element in his performance
Inquiries can be directed to Kong-Pin Chen at [email protected] evaluation. To under-state profits, the owner will tend to apply
a lax requirement on his manager’s ability to generate income. In either case, the owner of the company involved compromises his control over the manager of his business. “In fact, only when there is information vagueness can there be room for businesses to mislead outside auditors,” said Dr Chen. The loosening of internal control to create such “vagueness”, however, impedes the reliability of a company’s accounting data and its ability to improve efficiency.
THE NEW MODEL
Therefore, a corporation, or the owner of a corporation, will make a decision to evade taxation only when the benefits of such an act outweigh the loss of internal efficiency. Even if he decides to evade taxation, he may also choose between whether to use only one of the techniques or both. According to Chen and Chu’s model, all other things equal, a tax evasion decision will only become meaningful when the tax rate exceeds 25% and a company will only justify using both of the above-mentioned techniques if the tax rate is over 60%.
Dr Chen warns that the real world is a lot more complicated so governments should look at other factors when deciding the level of corporate tax rates. For example, it is more difficult for public companies to evade taxation as the financial data of such companies are under the scrutiny of public accountants, investors, and analysts, in addition to the tax authority. The more advanced the business environment is, the more incentives are needed for a company to evade taxation.
The new model and the relevant mathematical calculations are potentially an important addition to the frontiers of economic knowledge. While there has been much theoretical and empirical analysis on individual tax evasion, literature on corporate or business tax evasion has been conspicuously lacking. Probably because of its relatively more complicated nature, the area has not attracted any scholarly analysis.
Dr Chen said, “while individual tax evasion is more of a portfolio selection problem for a single person, business income tax evasion involves multi-person decision-making that will eventually alter the strategic behavior of all persons involved, and distort the optimal contract between these people.”
The creation of such a formal model can lend researchers a tool to study this more complicated behavior and hence help correct this unbalanced development in the research on tax evasion.
OTHER APPLICATIONS
The model is potentially useful in studying the operation of an organization or a bureaucracy and their decision in making a tradeoff between external profit and internal control. It can, for example, be used to determine the transfer pricing and the costs and benefits of vertical integration.
The transfer price is the price charged by one sector of a firm to another sector for the output delivered from the former to the latter. The owner of the firm can either set the price with the purpose of encouraging internal efficiency or shifting the profit from a high-tax sector to a low-tax sector. Often the internally optimal transfer pricing between sectors is different from that which minimizes the company’s external tax payment. The model can help researchers understand how the owner goes about setting the transfer pricing and why.
Similarly, the choice of a company acquiring a supplier’s firm to create vertical integration of operations can also be analyzed using this model as the firm’s decision will also be based on the trade-off between the cost of external purchasing and the availability of internal information.
Explanation: Line π1 denotes a company that pays tax honestly and as a result does not suffer any loss due to internal inefficiency. The company will however, lose all its profits when the tax rate reaches 100%.
Line π2 denotes a company that evades tax by over-reporting costs.
Line π3 denotes a company that evades tax by over-stating costs as well as under-stating profits.
0
5
10
15
20
π
1π
2π
325
0.1
0.2
0.3
0.4
0.5
Tax Rate
Profit
0.6
0.7
0.8
0.9
1
3
HKUST BUSINESS SCHOOL – Newsletter
W
hen Paul Cheng, Chairman of N M Rothschild & Sons (HK), set his foot in an HKUST classroom a few months ago, he had no way to tell what he should expect. Teaching was an entirely new experience for him. But he excelled. His course was rated one of the most popular MBA courses in the last semester.“It was a very rewarding experience for me,” said Mr Cheng. “I have never taught before, but I am delighted I decided to do it.”
Though a first-time instructor, Paul Cheng was entrusted a complete MBA elective course – “Organization Leadership and Strategy”. The course featured four case workshops. During each workshop, a renowned business executive was invited as speaker. Each speaker focused on an area related to the theme of the course. The principal aim of Mr Cheng’s course was to encourage two-way discussion between the students and the speakers.
“We covered real-life issues in the classroom. It was a highly interactive course. Not only the students found it useful, but the speakers also enjoyed it. One of the speakers even called me up after his session to thank me for including him in the course,” said Mr Cheng.
Apart from the teaching aspect, Mr Cheng said the course also gave him the opportunity to get to know more about the younger generation.
“The pace of change is gaining speed as we move through the knowledge and information era. Policy-makers may not be entirely keeping pace with the younger generation. The exposure I have gained from teaching this course will enable me not only to understand the younger generation better but I can now provide more first-hand insights to my policy-making friends in the Government,” said Mr Cheng. After his first semester, Paul Cheng’s impression of the MBA students was very positive. When asked about his advice on how MBA students could increase their competitiveness as an executive or an executive-to-be, he highlighted three key elements:
• Language skills, especially English, both oral and written
• The ability to make useful suggestions in
Dean Yuk-Shee Chan
Suggestions and comments on this newsletter are welcome. Please contact us by email at:
[email protected] (May Hung) or [email protected] (Elaine Chu) or by fax (852) 2358 1467.
FROM THE DEAN
T
he quiet arrival of the spring and the Year of the Rabbit has coincided with a few pieces of very good news for the Business School.First, we have welcomed in a new class of EMBA students, which is larger in size and broader in terms of
geographi-cal representation than the last. What remains unchanged is the superb profile, the enthusiasm, and the commitment of the participants. And in April, we will celebrate the graduation of the inaugural class of our EMBA students, who after 16 months of demanding work in office and on campus have finally seen the “light at the end of the tunnel”.
Second, a group of our undergraduate students was honored at the University of Southern California’s Marshall School of Business International Invitational Case Competition. Nicknamed “The Super Bowl of Undergraduate Scholastics”, this year’s competition has brought together more than 60 students from Asia, Australia, Europe and the US. Judged by a distinguished panel of business faculty and executives, our team has won a finalist award – the only Asian team with this honor. This is certainly a great experience and accomplishment for our students and reinforces our commitment to continue support for programs that broaden the international exposure of our students.
Third, we have completed the final stage of AACSB’s accreditation evaluation in February when a team of nine AACSB members visited our School. AACSB, based in US, is a renowned organization which has evaluated and accredited business programs in North America for many years, but has begun only recently the evaluation of programs in Europe and Asia. The whole process of rigorous quality evaluation included an initial invitation, a self-evaluation report and critical assessment, and finally an on-site visit. The outcome of the evaluation will be announced officially during AACSB’s annual meeting in April.
For more effective dissemination of information and communications, we have launched the first phase of a new web site of the School in February. The new design now features a more solid corporate look and more elaborate information on our programs and activities. The second phase, to be developed in the near future, will introduce some changes to individual departments’ and centers’ web sites.
All these developments have brought about much joy and excitement to members of the school community. At this early part of the year I would like to wish all of you a productive and prosperous year.
POPULAR INSTRUCTOR STRESSES
IMPORTANCE OF 2-WAY COMMUNICATION
meetings from thorough preparation • P e o p l e s k i l l s , i n c l u d i n g e f f e c t i v ecommunication with superiors and treating subordinates with respect
Dean Yuk-Shee Chan remarked enthusiastically about Mr Cheng’s involvement with the course as an adjunct professor. “We are very grateful that Paul took the time to impart his business knowledge and skills to our students despite his busy schedule. His success in teaching will hopefully encourage more business leaders to follow in his footsteps to provide guidance and advice to our students. We are looking forward to seeing Paul more often on the campus,” said Dean Chan.
Mr Cheng is currently involved with facilitating an end-of-program project with the EMBA graduating class. The project is titled “The Social Environment of Business”. Using his proven formula with the MBA course, he has lined up five illustrious speakers for this project. The speakers include Laura Cha, Deputy Chairman & Executive Director of Securities & Futures Commission; Emily Lau, Legislative Councilor; Vincent Lo, Chairman and Chief Executive of the Shui On Group; Michael Sze, Executive Director of the Trade Development Council; and Lawrence Wong, Chief Executive of The Hong Kong Jockey
Club. The project will take place over the last two weekends in March.
NEW ASSOCIATE DEAN
P
rofessor Kar Yan Tam, Department of Information and Systems Management, has been appointed Associate Dean and Undergraduate Programs Director with effect from 1 March 1999. He succeeds Dr Patrick Chau, who will leave the School in the spring.Professor Tam joined HKUST in 1992 and has since then held various positions in the Business School. His research interests include electronic commerce, adoption and application of information technology (IT). He has published extensively on these topics in major international information system journals. Professor Tam has coordinated IT projects for many multinational companies such as IBM, Merrill Lynch, and Hong Kong Telecom.
In addition to professional services, Professor Tam is also involved with the work of the University’s senate, scholarship committee and computing committee. He also has vast experience in student advising and the coordination of undergraduate programs and activities.
When announcing the appointment, Dean Yuk-Shee Chan welcomed Professor Tam and thanked Dr Chau for his many years of contribution to the development of the School’s Undergraduate Programs.
4
The Hong Kong University of Science & Technology HKUST Business SCHOOL – Newsletter
MEETING THE CHINA CHALLENGE
EXECUTIVE DEVELOPMENT
B
usiness executives will be able to sharpen their skills in doing business in China within just a few days, thanks to a specialized program to be offered by the HKUST Business School.Organized in a five-day residential format, the program will be conducted in Beijing in May and r e p e a t e d i n H o n g K o n g i n N o v e m b e r t o accommodate the busy schedules of working executives.
The program, entitled “Meeting The China Challenge”, will be led by four academic experts-cum-consultants in China businesses and enriched b y s e l e c t e d g o v e r n m e n t a n d i n d u s t r y representatives. The four academic experts include:
• Professor Wilfried Vanhonacker, Head of Marketing, HKUST and Professor of Marketing and Asian Business at INSEAD
• Professor Justin Lin, Department of Economics, HKUST and founding Director of the China Center for Economic Research at Beijing University
GDM GRADUATION
P
rofessor Carolyn Woo, Dean of the College of Business Administration at the University of Notre Dame, spoke on “Women in Business and Management Issues” at an MBA Luncheon in February. Professor Woo is one of the only two female business school deans in the top 50 business schools in the US.The talk featured a real-life success story – herself, a Hong Kong – born woman who has made it to the top in a realm that is still by far under male influence.
To many people’s surprise, there are many more female university presidents than there are female business school deans in the US. Dean Woo is also one of the very few Asian women to serve on one US and four other corporate
boards. When asked a b o u t w h a t s h e r e -garded as the most im-portant attributes that led her to success, she of-fered a succinct answer: “ p e r s e v e r a n c e a n d diligence”.
Dean Woo com-pleted her secondary education in Hong Kong before pursuing her bachelor and postgradu-ate degrees in the US.
A
pilot program on business mentoring will introduce a new dimension to the learning experience of a select group of second-year students starting from March 1999.Organized by the Undergraduate Programs Office and the HKUST Student Affairs Office, the business mentoring program aims to establish mentor-mentee relationships between business executives and HKUST business students to nurture the academic, career and personal
the summer. Evaluation and follow up are to be done in the last three months from August to October. Activities such as lunch meetings, simulated formal conferences and presentations will occur most often in off-campus settings.
Undergraduate Programs Director Dr Patrick Chau is very excited about this innovative activity. He noted, “we expect that the mentees, i.e. our students, will be able to acquire practical business skills and knowledge and, more importantly, positive
business values, personal beliefs and life philosophy throughout the process.
“The program is especially meaningful as it provides the students an opportunity to continue to learn outside classrooms. They will be able to try out their freshly acquired knowledge on projects under the guidance of seasoned executives. This will definitely be a good experience for them.”
The School and Friends Unlimited will hold a formal reception at the end of March to mark the inception of the program.
LEARNING OUTSIDE THE CLASSROOM
development of the students.
The pilot program will involve 13 mentors, all of whom are from Friends Unlimited – a non-profit organization founded by a group of young professionals, and 13 second-year business students.
The program will feature 10 months of structured interaction between the students and their mentors. For the initial three months, the mentors and mentees will identify a project/internship or a series of assignments for the mentee to complete in
KELLOGG-HKUST EMBA STUDENT PROFILE (Class 1999 versus Class 1998)
1999 1998
Total number of enrollment 41 35
Men 73% 74%
Women 27% 26%
Average age 37 36
Average work experience 13 13
Average annual remuneration US$191,000 US$180,000 Place of origin
Hong Kong 37% 33%
Chinese Mainland 3% 14%
Other parts of Asia 20% 21%
Non-Asia 40% 32%
Office location
Hong Kong 67% 80%
Chinese Mainland 13% 8%
Other parts of Asia 20% 12%
• Professor Katherine Xin, Department of Management of Organizations, HKUST • Professor John Hulpke, Department of
Management of Organizations, HKUST The program will cover key issues pivotal to doing business in China such as the economic and legal environment, marketing, distribution strategies and entry strategies. It is designed to be highly interactive so that participants can benefit from in-depth discussions and experience sharing within the classes.
Professor Wilfried Vanhonacker, Academic Director of the program said, “China is a rapidly changing market and a great challenge to foreign companies. Meeting The China Challenge will address the most critical issues that these companies are facing and provide practical insights and strategies to help them stay ahead of their competitors.”
M o r e i n f o r m a t i o n a b o u t t h e program is available on the School’s web site at “http://www.bm.ust.hk”.
WOMEN IN BUSINESS AND
MANAGEMENT ISSUES
T
he Graduate Diploma in Management (GDM) graduates celebrated their graduation with style in December 1998 with the highlight of event being the recitation of a poem by program director-turned-poet Gary Biddle.The graduation ceremony was filled with joy and high spirits from the graduates and their families, friends and mentors. Dean Yuk-Shee Chan presented certificates and congratulated the graduates on their successful completion of the program. He also commended the exemplary standards set by this first class of graduates.
Picture shows Dean Yuk-Shee Chan (Center, front row), faculty and administrators, and the first class of GDM graduates.
