A W O R L D O F - Management Department · 2008-11-14 · a world of perspective.wharton alumni magazine. 21 “ y o u h av e t o n o t s e l l y o u r s o u l t o the current government

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t a recent meeting with Indian CEOs in Mumbai, Professor Mauro Guillén was asked to put the de-

cline of the U.S. dollar into perspective. “Wouldn’t you want to be able to write checks that nobody

deposits because people keep them in a safe place as a store of value?”

This simple yet cogent reply is typical of Guillén, the Dr. Felix Zandman Professor in International

Management, Professor of Management and Sociology, and the new director of Wharton’s Joseph H.

Lauder Institute for Management & International Studies.

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WhenGuillénisnotteachingandrunningtheLauderInstitute,heisresearchingissuesrelatedtomultinationalcorporationsandtheglobaleconomy.Guillénisau-thorofthenotedbook,The Rise of Spanish Multinationals: European Business in the Global Economy,aswellasmanyop-edsandarticlesonthesubject.Increasingly,hisadviceandcommentaryaresoughtaroundtheworld.

Guillén’snextbookwillfocusonemergingcompaniesfromemergingeconomiesinLatinAmerica,China,andIndia—andwhatmakesthemsucceedorfail.Guillén,anativeofLeón,Spain,isalsostudyinginternationalinvestmentsbyU.S.ven-turecapitalfirms.A“fun”projectheisrevisitinginthisyearofthesummerOlympicGameslooksatwhysomecountriesdobetteratsportsthanothers.

“Ifyouonlyknowonecountrythenyouknownocountrybecauseyouhavenoperspective,”saysGuillén,whoknowsmanycountriesthroughhisextensiveinterna-tionalresearch.TheGuggenheimFellowwonin2005theFundaciónBancoHerreroPrizeforbestSpanishSocialScientistundertheageof40.“I’vealwaysthoughtthataninterestingwayoflookingattheworldisbycomparingcountries.”

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Emerging Companies in Emerging EconomiesFor the last 15 years, Guillén’s work has scrutinized successful businesses in countries one might not

think of as breeding grounds for world-class companies, work that began with a focus on Spain when it

was still regarded as an emerging economy. He has since expanded his focus to Latin America and plans

to further expand it to China and India.

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“WhenIstartedthisresearch,therewereveryfewSpanishcompaniesthatwereworld-class,butnowSpainisoneofthetop10economiesintheworldandisthefourthlargestacquir-erofcompaniesintheU.S.,”hesays.“Ianalyzedhowthosecompaniesmanagedtoestablishthemselvesinaglobalecono-myandnotjustintheirhomecountry.”

Guillén explains that, for many years, industry observerslookedforsomeuniqueaspectthatexplainedthesuccessofcom-paniesfromdevelopingcountries.Whathehasfound,howev-er,isthatthesecompaniessharemanyofthesametraitsastheirsuccessfulAmericanorEuropeancounterparts.

“Thetwististhatmanyofthesefirmshaveexpandedintheworldnotwithconsumerproducts,butwithinfrastructureindustrieslikeconstructionfirms,portoperators,ortelecommunications,whichareverypoliticalandregulatedbygovernments,”hesays.

Successful companies learnhow to anticipategovernmentalchangesandviewsuchchangesinapositiveway.Forexample,saysGuillén,ifacompanywantstobuildaprofitableturnpikeinChile,itneedstomakealong-termcommitment,enteringintoalicensewiththegovernmentfor20orevenasmanyas99years.Whilethecompanymayhopetohavealongrelationshipwiththegovern-mentthatgrantedthatlicense,italsoneedstoberealisticandrec-ognizethatgovernmentscomeandgo,evenindemocracies.

“Youhavetonotsellyoursoultothecurrentgovernmentonlytoseewhatevertermsyouhavenegotiatedwiththatgov-ernmentbecomenegatedafterthenextelectionorcoupd’état,”he says. “This is a unique capability that companies fromemerging economies have in infrastructure industries wherethegovernmentplaysanimportantrole.Successfulcompanies

havebeenabletousethisasaskilltohelpthemcompeteinforeignmarkets.Oncetheylearnhowtodealwiththegovern-mentandanticipatechanges,itgivesthemasetofproceduresthatwillhelptheminanymarketaroundtheworld.It’ssome-thingthat’sdifficulttolearnandonlyafewfirmslearnitwellandcanuseitacrossmultiplemarkets.”

AnotherofGuillén’sfindingsisthatemergingcompaniesininfrastructureindustriestendtomakeaveryspecificmistake.“Companies know that they will be more profitable if theystrikeadealwiththegovernmentthatwillpreventmanyoth-erfirmsfromenteringthemarketorgivesthemasweetdealliketheabilitytochargehigherprices,”hesays.“Theyassumethesedealswillbeinplacefor20yearsanddonotrealizethatif there isachangeinthegovernmentafewyearsdowntheroad,thenewpresidentwillhaveeveryincentivetotrytore-negotiatethedeal.”

Guilléndescribesthisasa“systematicerror.”It’samistakeforcompaniestoprioritizerelationshipswithcountriesinwhichthegovernmentsaremorewillingandabletoprovideagooddealforenteringcompanies,heargues.“Theappropriatecountrytoenterisoneinwhichthegovernmenthaslessautonomyandhastogothroughmorechannelstochangeadeal,suchashavingCongressapproveaspecialdealforforeignfirms.”

Whileitseemslikeacatch22,hesays,itisimportantforfirmstolearnthatifagovernmentcanmakeagooddeal,thenitcanalsotakethatgooddealawaywhenadministrationschange.“Thishastremendousimplicationsbecausecompanieslosealotofmoneythisway…whichleadstohightensionsforboththecompanyandconsumers.”

VC Investors’ Leap of FaithGuillén is also looking at the largely unstudied area of venture capital outside of the U.S.

“This issue has become of great interest recently becausetherearejustnotenoughgoodentrepreneurstogivemoneytointheU.S.,buttherearealotofopportunitiesinotherpartsoftheworld,”hesays.“Theproblemforventurecapitalfirmsisthattheyhavetokeepacloseeyeontheventurestheyarefund-ing,whichishardtodowhentheventureisasix-hourormoreplanerideaway.”

Guillénsays,“Itisaleapoffaithtogivemoneytoanideaandmostoftheseinvestmentsendupwithnothing.However,outofevery10or15investments,theremaybeanIPOortradesaleandtheymakealotofmoney—whichcompensatesforalloftheotherlosses.Andwhenyougoabroad,therisksmul-tiplyandaresomuchmoredifficulttomonitor.”

Guillén says that when firms invest outside of the U.S.,theytendtoputtheirmoneyintoventuresinCanada,Britain,

France, Japan, and to a lesser extent into China, India andLatinAmerica.“Itisamazingthattheyaresupposedtoknowhowtomanagerisk,butareincrediblyriskaverseatacoun-trylevel,”hesays.

Anotherfindingisthatwell-knownandsuccessfulU.S.ven-turecapital firmsalso tend todowelloutsideof theU.S.“Itshouldn’tbesurprisingthatgoodfirmsherearegoodfirmselse-where,butventurecapitalfirmsdon’tusuallyinvestalone,”hesays. “They investwithother firms, governments, banks, orformsofsyndicates.Youhavetopersuadethecoinvestersthatyouarereliable,whichiseasierforprestigiousfirms.Soitisakindofrich-get-richerdynamicandrarelywillyouseesmallventurecapitalfirmsinvestabroad.”

GuillénhasalsofoundthatU.S.venturecapitalfirmstendtorelyquiteheavilyon“ethniclinks.”Heexplainsthat“ifa

21A W O R L D O F P E R S P E C T I V E . W H A R T O N A L U M N I M A G A Z I N E .

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companyhasalotofIndiansworkingforitoritislocatedinapartofthecountrywithalotofIndianmigration,thenittendstoinvestmoreinIndia.

“ThisexplainswhyplaceslikeIsrael,Ireland,India,China,Taiwan, andSouthKorea, for example, receivemore invest-mentsfromtheU.S.thanothers.”

In recent years,Wharton students have become so inter-estedinthisphenomenonthatacoursecalledPrivateEquityin Emerging Markets, taught by lecturer Stephen Sammut,hasbeenadded.Guillén’sownGlobalStrategicManagementcourse forMBAsandMultinationalManagementcourse forundergraduatestudentsoffersimilarinsight.

New DirectionsGiven his love of working with students and his focus on globalization, Guillén’s new role as director of the

Lauder Institute is a perfect fit. As he looks ahead, a primary goal is to make the Institute even more relevant.

An Olympic-Sized StudyWhile studying the Olympics may seem far afield to topics like emerging economies and venture capital,

Guillén says that his sports research is actually an extension of his globalization work.

Afterthe1996AtlantaOlympics,Guillénsortedthemed-alresultsbycountrytoseeifhecouldexplainthedifferences.Hefoundsomeinterestingpatterns:Richercountriesearnedmoremedals,countrieswithgovernmentsthatintervenemoreintheeconomyalsoearnedmoremedals,anddemocraciesonaverageearnmoremedalsthannon-democracies.

“Somewouldsaythatthisisanindicationofthepowerofthefreespiritandthatindividualinitiativeismoreimportantthangovernmentstellingpeoplewhattodo,”hesays.“Ihaven’thadtimetocompilemoredataonalloftheOlympicssince

then,butthatiswhatIintendtodointhefuture.IwanttoknowtowhatextentthewealthofacountryplaysaroleandIwanttolookattheinterplaybetweenhowmuchacountrycandotomakeitmorecompetitiveanditsactualabilitytowinmedals.Cangovernmentsdoanythingaboutitandtowhatex-tentisindividualinitiativeplayingarole?”

SinceallthisplaysoutintheOlympics—andinindividualsportsliketennisandgolfingeneral—GuillénplanstostudythequestionwithseveralundergraduateWhartonstudents.

“WhenLauderwascreatedin1983,itwasextremelyinno-vative,asitwaswellbeforebusinessschoolswereeventhink-ingaboutincorporatingglobalizationandemergingeconomiesintotheircurricula,”Guillénsays.“Backthen,LauderstudentsweregettingsomethingthatotherMBAstudentswerenot,”hesays,adding:“ThereisaneedtoredefinetheInstitute’smis-sioninsuchawaythatitcontinuestobeasrelevanttodayasitwas25yearsago.”

He plans to achieve this goal by helping students inte-gratewhattheylearnattheLauderInstitute,whichcombinesaWhartonMBAwithamasterofartsininternationalstud-ies.TheInstitutealsooffersamasters/JDjointdegree.Lauderstudents receive high-level language and culture training, atwo-monthin-countryimmersionandcourseworkfrombothWhartonandtheSchoolofArtsandSciences.

“Wearegoingtobetterhelpourstudentsintegrateevery-thingtheylearnbycreatingnewhands-onprojectsaroundtheworld,”saysGuillén.SuchprojectsincludestudentstravelingtoSenegalorCapeVerdetohelp localentrepreneurs launchbusinessesbyteachingthemhowtousebasicaccountingandmarketing principles in areas such as agriculture for export,tourism, health care, and even credit unions. Another proj-

ectwillcompileemergingcompanies’databasesinChinaandIndia.Andathirdproject,inconjunctionwithKnowledge@Wharton,willallowstudentstotraveltheworldtogatherdata,conductinterviews,andcompilematerialsforaseriesofreportsontopicssuchasfamilybusinesses.

HenotesthathisbiggestsurpriseasdirectorhasbeenthehighlevelofcommitmentfromLauderalumni,ofwhomtherearemorethan1,100aroundtheworld,aswellastheactivein-volvement of the Lauder family, and in particular Leonard Lauder,W’54,whoco-foundedtheInstitutewithhisbrother,Ronald Lauder,alsoW’54.“Igetane-mailfromLeonardev-eryweekorsometimeseveryotherday.Hehasbeenverygener-ousnotonlyinendowingtheinstitute,butalsowithhistime.Heprovidesadviceandafreshperspectivefromtheoutside.It’sgreattohavesomeoneonhislevelwhoisverysmartandknowshowtoanticipatechanges.”◆

Frequent contributor Meghan Laska is a senior associate director for Wharton Communications.