Spanish passport

As an American, I sometimes eye with envy people who hold a passport from a European Union country— with one, it’s so easy to travel to, from, and within the continent. But an EU passport also represents far more mobility than just the tourist kind. Citizens of EU countries can easily do their banking in other nations, make inter-EU business deals more expeditiously, and even work abroad with few barriers. In good times, the arrangement seems to have worked well for everyone.

But in tough times, as in recent years, some cracks begin to show. Low barriers used to be a way to gain opportunity. Today, they’re often used as a way to escape hardship. Last week the New York Times ran an article on Spaniards stashing either their cash or themselves in other, more prosperous, more stable EU countries.

Moving your bank account is a relatively trivial thing to do. And while it creates headaches for banks who are already low on capital, as easy as cash flows out of a country, it can flow back in. More troubling is when people pack their bags.

“Migration of a skilled part of the labor force can be costly as it depletes the country’s stock of human capital,” said Arvind Krishnaumrthi, a professor of finance.

“It will create problems for Spain, but I’m sure countries the countries they move to will be thrilled to have them,” said Camelia Kuhnen, an associate professor of finance.

On balance, though, Spain would probably prefer to keep its workers. Still, that won’t be easy given the debt crisis. “It will be difficult to hang on to the workers who can leave, given the high rates of unemployment that countries like Spain are experiencing,” said Sergio Rebelo, a professor of finance.

Even after unemployment rates fall, it may be a while before battered countries are able to lure home the workers who left. In many European countries, “Political and cultural realities might make it impossible to stop brain drain in the short run,” Kuhnen said.

Still, the EU’s relatively open labor market has its upsides. “In the short run it helps because it allows workers to find jobs elsewhere,” Rebelo said. “There are also some potential benefits in the medium and long run. Economies like India complained for decades about ‘brain drain,’ the migration of educated workers to other countries. But, once India opened up and created conditions for growth, the Indian diaspora became an important business network that linked India to the world economy.

“The same can happen in Spain or Portugal. These are countries with great weather and wonderful food. Many of the immigrants will end up returning, bringing contacts and business ideas. But there is a cost to migration, when the young seek work abroad they leave behind a country that becomes older and less dynamic.”

As migration between EU nations becomes more commonplace, there could be some additional, non-economic benefits. Historically, language barriers and strong cultural identities have kept labor mobility low in Europe, especially compared to somewhere like the United States, which shares not only a common currency but typically a common language. Yet as people pick up and move to find employment, some of those cultural barriers will surely dissolve. That doesn’t mean there won’t be some hurdles. “In the short run, you’ll see more anti-immigration sentiment,” Kuhnen said. Immigrants are often accused of “stealing” jobs, she pointed out, a charge that may be levied more frequently in bad times than good. But, she added, eventually those suspicions could wane with time.

Is labor mobility good for Europe, both culturally and economically, I asked her? “In the long run, for sure the answer is yes.”

Photo by Katratzi.

In early February, when Facebook’s IPO seemed imminent, Anup Srivastava, an assistant professor of accounting information and management, put together an interactive valuation tool that let people explore how tweaking different projections would affect the stock’s valuation. Built into that were Srivastava’s own projections. Projections that, as the stock’s price has sunk ever lower, have largely been proven true.

“We predicted a best case valuation of $25 billion,” Srivastava said. “The firm raised $16 billion dollars, and retained $7 billion. Facebook’s post-money valuation stands at $41 billion today, implying a pre-money valuation at $34 billion.

“That is not far away from $25 billion what we predicted, certainly a far cry from $100 billion that the market valued just nine months back.”

There’s a hidden message in FB’s continued slide, too, one that could apply to many more stocks. “The example shows that cash is king, and any valuation other than based on cash flows is unlikely to sustain for long,” Srivastava remarked.

India’s blackout

India's power grid

Last week’s massive blackout in India put the spotlight on one of the country’s open secrets—its infrastructure is antiquated and crumbling. Over 600 million people in India were without power for days—that’s nearly 1 in 10 people on the planet.

“The fundamental cause is a supply-demand problem. Too much demand, not enough supply, and an inefficient and creaky distribution system,” said Lakshman Krishnamurthi, a professor of marketing.

Rolling blackouts are unfortunately common throughout India. Power grids are built with giant circuit breakers that can be thrown to isolate sections where surging demand could drag down the rest of the grid. The problem in India was, those breakers weren’t thrown. Many people suspect corruption caused this blackout—captured regulators and bureaucrats didn’t intervene when they should have, allowing various constituencies to draw too much power. Apparently this happens all the time in India, just not on this scale. But the ailing grid is ultimately to blame because without its underlying problems, such unscrupulous behavior wouldn’t have had as big of an impact.

The massive blackout has underlined concerns about India’s grid and its ability to effectively manage it. The grid’s unreliability has created massive headaches for businesses. “Most companies operate with backup power supply from diesel generators” not just to deal with blackouts, but frequent power shortages, said Sunil Chopra, a professor of managerial economics and decision science. While that means many companies were relatively unaffected by the blackout (save for employees unable to get to work because of the gridlock), it doesn’t mean electricity shortages haven’t taken their toll. Having to invest in expensive infrastructure like generators “often raises the cost of doing business,” Chopra pointed out.

Though Indian companies have long had to contend with electricity shortages, this blackout will undoubtedly pose new challenges. Investors may shy away from the country, fearing the unreliability of its grid. “In the short-term it will definitely be a negative,” Chopra said. “The long-term impact will depend on the response of the government, which currently controls most of the generation capacity.”

But, he added, “If this event serves as a wakeup call, it could be good in the long-term.”

India’s grid may ultimately become a bottleneck for growth. “To achieve sustained growth rates of 8% over the next 10 years, the country’s infrastructure problems have to be addressed,” Krishnamurthi said. “Energy is the prime driver of economic growth.”

What’s driving the supply shortage is multifarious. Transmission and distribution losses in India are over 20 percent, Krishnamurthi said. For reference, losses in the U.S. grid are about 7 percent. India’s estimated losses might be on the conservative side, too. Electricity theft by households and business is not uncommon, he added. Plus, India is heavily reliant on hydroelectric power, and the north has not received much rain this year. Coal-fired plants haven’t been able to make up the difference because of coal production shortages, Chopra and Krishnamurthi both pointed out.

“In the long-term, the solution is to increase supply,” Chopra said. “In the short-term, demand has to be managed with supply being rationed.”

Photo by daviddumas.

From a video at Big Think:

People tend to frame things very narrowly. They take a very narrow view of decision making. They look at the problem at hand and they deal with it as if it were the only problem.

Via professor of marketing Galen Bodenhausen.

Tony Dokoupil, writing for the Daily Beast:

But this past March Russell struggled to turn off anything. He forwarded a link to “Kony 2012,” his deeply personal Web documentary about the African warlord Joseph Kony. The idea was to use social media to make Kony famous as the first step to stopping his crimes. And it seemed to work: the film hurtled through cyberspace, clocking more than 70 million views in less than a week. But something happened to Russell in the process. The same digital tools that supported his mission seemed to tear at his psyche, exposing him to nonstop kudos and criticisms, and ending his arm’s-length relationship with new media.

Via professor of marketing Neal Roese.

Loretta Chao, reporting for the Wall Street journal

The factory, which assembles desktop computers and servers, resembles thousands of others across China. Robotic arms are in constant motion, moving parts and pieces around. Rows of workers clad in blue pop parts into place as computers make their way down the line. The factory can churn out about 25,000 machines in a day.

The difference: The facility, its equipment and its employees are all part of Lenovo.

Via associate professor of management and strategy Mike Mazzeo.

Kimberly Pohl, writing for the Daily Herald and interviewing our own Gad Allon:

“Firms now realize it’s not only about finding the cheapest location, but the cost from the moment of production to delivering it to the customer,” Allon said. “In order to be innovative in the market, it can be significantly more beneficial to have everything located in the same place, or at least the same country.”

%d bloggers like this: