HKUST Business School [SBM] Newsletter, August 1998 (Issue 3)

Abstract

[evdate 1998-08-15] HKUST Business School Newsletter Professor Anne Tsui, Head of Management of Organizations, has won the 1998 Award for Scholarly Contribution presented by the Administrative Science Quarterly (ASQ) and the Academy of Management Journal (AMJ) Award for the Best Paper Published in 1997. The ASQ award is presented annually to the author(s) of a paper published five years earlier in the journal that has had the greatest influence on subsequent theory and research. Professor Tsui won the award for her paper "Being Different: Relational Demography and Organizational Attachment", with T. Egan and C.A. O'Reilly. This is the second award Professor Tsui has won for the paper. In 1993, the paper was the winner of "Best 1992 Publication in Organizational Behavior" awarded by the Organizational Behavior Division of the Academy of Management. Since its publication, the paper has become widely cited in the research literature and newspapers. Tsui's work was regarded by the ASQ's award-selection committee as "a model of superb cross-level research and an example to all scholars of sound research design principles and elegantly conceived and executed methods". The committee commended the paper for its far-reaching effect on theory and research on organizational demography or work force diversity. Professor Tsui's other paper, "Alternative Approaches to the Employee-Organization Relationship: Does Investment in Employees Pay Off with J. Pearce, L. Porter and A. Tripoli, was chosen as the winner of this year's AMJ award. The study found that high-involvement employment relationships based on mutual investment and commitment tend to yield better results than loose, low-commitment and short-term relationships. The paper was chosen by the AMJ award-selection team from a list of over 60 full-length articles and research notes that the journal published in 1997. Tsui's research was described as "an extremely ambitious study on a fundamental and important topic The paper is an exemplar of high-risk, high payoff research." Professor Tsui felt honored to receive the two awards. She said, "it was a pleas-ant surprise to receive awards from the two most influential journals on manage-ment and organizational research almost at the same time. However, the biggest re-ward has been the debates and lines of inquiry that the studies have opened up which help extend our knowledge in the areas". ISSUE 3 AUGUST 1998 1PROFESSOR TSUI SCOOPS TWO MAJOR AWARDS Clear Water Bay, Kowloon, Hong Kong Dean Yuk-Shee Chan has been appointed a member of the Board of Directors of the Graduate Management Admission Council (GMAC) for a two-year term from July 1998. Dean Chan is the first dean of an Asian business school to join the Council as

a director. GMAC President David Wilson said, "we are honored to have Dean Chan on the GMAC Board. He brings a wonderful recipe of wisdom, perspective and stature to all of

our deliberations." Dean Chan noted that he is excited about his involvement with GMAC's increasingly

DEAN CHAN JOINS GMAC BOARD OF DIRECTORS Four international accounting standard setters and nine leading academics addressed current topics in the setting of global accounting standards and presented their latest research findings at the annual Accounting Symposium in June. Organized by the Department of Accounting, the four-day symposium took place on the HKUST campus. The first two days of the symposium featured lectures by Professor Ray Ball, Wesray Professor of Business Administration, University of Rochester, and Dr. Gerhard Mueller, Board Member of the Financial Accounting Standards Board. Professor Ball discussed research on the institutional structure of accounting, the influence of institutional structure on the demand for and the properties of accounting information and the rationale and The issue of increasing computer crimes was attacked from all fronts at a two-day seminar on IT security management, jointly hosted by the Department of Information and Systems Management and the Hong Kong Police Force, on the HKUST campus in June. Entitled "Information Technology Security Management Seminar 1998", the program aimed to increase the public awareness of IT security issues and to explore ways to deter and combat possible security breaches. Twenty-one speakers including IT professionals, academics, law enforcement officers, and management executives assembled to share their views and experiences on topics such as "Electronic Commerce in the Commercial Market", and "Enterprise Security". The seminar attracted more than 200 participants. SEMINAR ADDRESSES IT SECURITY ISSUES possible impact of making accounting more international. Dr. Mueller's lecture focused more on financial reporting, including the characteristics of various accounting standards, the setting of these standards and the trend towards more transparent accounting in global capital markets. The lectures were followed by the presentations of eight papers by nine academics from Europe, Hong Kong and North America. Some 70 leading accounting scholars from the US, Europe and Asia, including a delegation from the Chinese Mainland, attended the symposium. The highlight of the four-day event was a top-level panel discussion on "Setting Accounting Standards in the Global Economy". Panelists included Gilbert G幨ard, Board Member of the Executive Committee, I n t e r n a t i o n a l A c c o u n t i n g ACCOUNTING SYMPOSIUM PROBES GLOBAL FINANCIAL REPORTING ISSUES Standards Committee, London; Dr. Gerhard Mueller, Bernard Wilkinson, Chairman of the Accounting Standards Committee, Hong Kong Society of Accountants and Dr. Wei-Guo Zhang, Chief Accountant of the Securities Regulatory Commission, the Chinese Mainland. The discussion attracted students, representatives from professional bodies and members of the press. global operation and "looks forward to becoming a communication conduit between the

GMAC and the institutions and students in Asia, in particular Hong Kong and the Chinese

Mainland." GMAC is a world-wide, not-for-profit organization of graduate business schools. Its

services such as the Graduate Management Admission Test (GMAT) are used by more than 1,500 graduate management programs. The council has over 130 member schools

from around the world. HKUST Business School was invited to be one of its members in

1997 and is presently the sole member from Asia. (cont'd on page 4) Dr. Tam Kai Yan (left) of ISMT and keynote speaker Daniel Lai, President of Hong Kong Computer Society. Dr. Mueller (left) makes a point at the Accounting Symposium.

2The Hong Kong University of Science & Technology BUSINESS FORUM CHALLENGES FACING FOREIGN DIRECT INVESTORS IN CHINA The enormous potential of the Chinese market has lured a large number of foreign direct investors to come to the Middle Kingdom since the country re-opened to the world in the late 70s. The two-decade history of those investors doing business in China has been like the construction of an expansion highway that is littered with projects gone bad and relationships turned sour. Along with its vast business opportunities, China presents investors with significant challenges (or risks) in their business pursuits. Such risks can be categorized as: country risks, contractual risks, cultural risks, operational risks and market risks. COUNTRY RISKS Foreign investors should be aware that in China's holistic society politics are all pervasive and often lead to country risks. Political agendas, however, are difficult to perceive or understand because very often what one sees on the surface is not always what is happening. What is underneath the surface is a complex and intertwined reality of personal agendas and relationships, which are difficult to separate from real business interests when projects and deals are negotiated. Investors have to remember that political/government agendas can dominate business agendas. Another country risk is the content and nature of policy-making and regulation. It is not unusual to see policies change midstream. Examples are the replacement of the automotive sector (which was identified as a pillar industry under the 9th five-year plan, 1996-2000) with housing as a pillar industry in 1997, and the recent ban of all forms of direct marketing. The problem is exacerbated because policy-making and implementation is reactive in China (i.e., practice precedes policy) and hence, one often has to work in a regulatory vacuum. Ironic as it may seem, this vacuum can create significant advantages for the "first-movers". For example, companies such as Philips and Ciba, who established holding companies before the introduction of the holding company law, achieved much greater flexibility in their holding structures and the scopes of their businesses than those who came into China later. The tight monetary policy initiated to control inflation in 1994, and still in place today has led to the disappearing of a lot of liquidity from the market. Ventures have had to rely on exports or equity increases to maintain cashflows and working capital. As banks are still under tight restrictions to offer RMB loans, funds are not easy to find. Foreign investors are sometimes told they should follow so-called "neibu" (internal) regulations, which are not publicly published. As there is nowhere to verify these regulations, it is difficult for one to follow them or to tell whether they are indeed regulations. Bureaucracy is yet another challenge. China's huge governmental bureaucracy, which is currently being downsized, can cause delays and interference in approval procedures, etc. There are concerns about conflicts arising from the differences between the agendas of the central and local governments as well as between industrial ministries and local governments. Another issue about the bureaucracy is its lack of internal discipline. One European multinational found itself negotiating a large chemical production deal with an SOE (state-owned enterprise) under SINOPEC (a central holding company that has ministerial status and has an equity stake in many of the major petrochemical complexes in China) while at the same time SINOPEC was sending internal memoranda to its companies telling them to buy the very product under negotiation from local companies. The last country risk is the rule of law, a frequent issue under criticism, particularly in the context of piracy and intellectual property rights. In China, the concept of a uniform code of law applicable to everybody as we know it in the West is new. Before the country's re-opening in the late 70s, China never had a uniform code of law. Even today, legal development is still slow and reactionary and its enforcement is doubly difficult. Legal protection is necessary and should be sought but it is not a perfect shield in China. CONTRACTUAL RISKS Clear risks arise in the context of contracts. It is perhaps most useful to define a contract as "a summary of the negotiation up to that point". Chinese continuously re-negotiate contracts and deals on the presumption that "things have changed". This view of a contract and the value attached to it can create some difficulties along the way. Enforcing contracts is difficult as well. One can sue in China but this is frowned upon. There are a few challenges in negotiating contracts, particularly JV contracts. Firstly, as part of the JV application, a feasibility study has to be conducted. However, such studies often turn out to be reports on whether a project CAN be done, not whether it SHOULD be done. This is one of the main reasons JVs fail. The second challenge is the difficulty in putting a fair price on assets contributed as equity. Assets such as land, buildings and machinery often have no real market (for example all land is owned by the government and only land-use rights can be obtained) and are always overvalued. CULTURAL RISKS On the cultural front, there are a number of unique Chinese cultural traits that foreign investors should be sensitive to and, if possible, adhere to. These traits are the importance of face, development of quanxi (connection or relationship), values of conflict avoidance, belief in fate and deference to authority. However, one should still remain professional and not become hostage to these cultural characteristics. OPERATIONAL RISKS Foreign investors are also faced with operational risks. Among those risks are the sourcing of materials and personnel. For materials, the issue is that often an industry lacks the ability to provide an adequate platform for localizing production. As a result, investors may have to buy from a selected few local suppliers who charge at a premium. There are also issues of quality and quantity. In many instances, the quality can deteriorate rapidly because the agreed-to quality assurance is no longer followed or the supplier has subcontracted some or all Inquiries can be directed to Wilfried Vanhonacker at mkwvan@uxmail.ust.hk of the manufacturing without informing the customer. Persistent monitoring and quality assurance checks are therefore necessary. Investors who require small orders may also face problems as many SOEs are accustomed to large batch sizes and large orders. Human resources problems include an inefficient workforce, welfare issues (housing, medical benefits, and retirement), a lack of management talent and expat and overhead costs. An underdeveloped infrastructure remains a problem in China. The lack of an efficient transportation network across the country means that logistical difficulties are likely to persist in the immediate future. MARKET RISKS As a market, China poses a number of challenges. First, the market is very competitive. While the size and attractiveness of the Chinese market has enticed many foreign companies to enter, local companies are also aggressively pursuing a piece of the pie. Foreign direct investors who typically produce products in the middle to high-end sector actually have a much smaller potential market that is often limited to the major urban areas, leaving the large majority of China's population out of the picture. The competition between the foreign investors and local companies and also among the foreign investors themselves result in over-capacity, which puts pressures on prices and costs. The market is dynamic. Many Chinese find themselves faced with a multitude of alternatives to choose from. Indeed, in department stores and supermarkets in Beijing and Shanghai, more variety is available than in comparable outlets in Hong Kong. As yet there are no real loyalty patterns, which can lead to large swings in market shares of brands/products over time. Finally, the speed of change in the market also entails the challenge in being able to develop an organizational capability that can develop and grow with the market. A "Beijing University Centennial Lectures Series" Presentation by Professor Wilfried Vanhonacker, Head of Marketing 10 June 1998 (Extract)

3HKUST BUSINESS SCHOOL - Newsletter GDM WINS APPLAUSE FROM INAUGURAL CLASS Students recently completing the Business School's Graduate Diploma Program in Management (GDM)

has unanimously praised the quality of the program. Student Alice Chan, Vice President/Deputy Chief

Accountant of Banca Commerciale Italiana said, "the teaching faculty stands out as the best I've ever

encountered and they brought many new ideas into the classroom. If you asked me if it's worth joining, my

answer is definitely yes." Another student Patrick Tam, General Manager, Project Management, Mobile Services

at Hongkong Telecom said, "adding to my experience of more than twenty years, this program has brought

me to a new horizon. I was delighted with what management could be about." Professor Gary Biddle, Academic Director of GDM, noted, "we are glad that students of our inaugural class are so satisfied with the quality of the faculty and the content of the curriculum. GDM provides comprehensive and intensive training to business executives who are looking for a quality diploma program in business management." The program, launched last November, was the first part-time diploma program the School has offered to the public. A total of twenty students were enrolled. The one-year program has now been completed and the class will graduate in October 1998. The 98-99 class will commence in mid November 1998. Dean Yuk-Shee Chan Suggestions and comments on this newsletter are welcome. Please contact us by email at: bmmhung@uxmail.ust.hk (May Hung) or echu@uxmail.ust.hk (Elaine Chu) or by fax (852) 2358 1467. FROM THE DEAN EXECUTIVE TRAINING Dr. Ki Ling Cheung and Dr. Shu Ming Ng, faculty members in the Department of Information and Systems Management, have been actively applying the latest supply chain management practices to help local companies improve their efficiency. Their recent activities included a research and a consultation project and the publication of a volume of conference proceedings. The consultation project was for a leading Hong Kong knitting and garment manufacturer that has production lines in the Chinese Mainland and other Asian countries and an extensive distribution network spanning Europe, the United States and Asia. The project, spearheaded by Dr. Cheung, aimed to increase the efficiency of the company's operation systems and improve the competitiveness of its products. The other research was recently commissioned by the Federation of Hong Kong Industries. The study will consider supply chain management and the coordination between suppliers and customers of some of the Federation's member companies. It will be conducted by Dr. Ng, Dr. Cheung and Dr. Raymond Cheung of HKUST's Industrial RESEARCH TO HELP COMPANIES BENEFIT FROM SUPPLY CHAIN MANAGEMENT Engineering Department. The project is scheduled to be completed early next year. Dr. Ki Ling Cheung said supply chain concepts should be more widely used in Hong Kong. "Supply chain management is critical to the success of many industries. It helps integrate the different functions and disciplines within a supply chain and coordinate the materials, information and financial flows between the suppliers and the users," Dr. Cheung explained. "The concepts were developed and introduced to US businesses in the late 80s and early 90s and have attracted tremendous interest in the business and academic arenas since then. In view of the stiff competition in today's rapidly changing business world, Hong Kong should work hard to catch up." The HKUST Business School has recently published a volume of proceedings entitled "Global Supply Chain and Technology Management" following a conference held jointly with Stanford Global Supply Chain Management Forum in 1995. The conference is the first of its kind being held in the Asian region. The School has also incorporated the subject into its postgraduate and undergraduate curricula. Professor J. Christopher Westland has been named the Head of the Information and Systems Management Department with effect from 1 August. Professor Westland joined the HKUST Business School in 1995. Prior to that he was Associate Professor of Information and Systems Management at University of Southern California. His research interests include electronic commerce, IT microeconomics, software development and re-engineering, and IT security. CHRIS WESTLAND APPOINTED HEAD OF ISMT September brings two pieces of good news to all of us here at the HKUST Business School. Firstly, the heat of the summer will soon be easing. Secondly and more importantly, we will be welcoming our new faculty and groups of students for our undergraduate and graduate programs. In this issue, I am delighted to introduce our new student intakes as well as some non-degree program activities. The exciting thing about our UG Year I business students is that they have obtained stronger academic results than last year from the Hong Kong Certificate of Education (HKCEE) and Hong Kong Advanced Level (HKALE) examinations, the two determining examinations for Hong Kong students to be admitted to our University. Our entering class of 120 students in the Accounting program fared particularly well among the business disciplines - 86.67% of the class achieved a composite ALE/HKCEE score in the top rank of the University's scoring scheme. Our MBA program will be larger this year with a total of 122 students, of which 95 are in the part-time program and 27 are in the full-time program, compared with 94 part-time and 18 full-time students last year. During the last few years, we have continued to improve our MBA class profiles, particularly in terms of work experience, which are comparable to the top-ranked business schools worldwide. The profiles of our students are especially impressive from this perspective. Our part-time MBA students now have on average 7 years of work experience. And the full-timers in the entering class have set yet another record for our intakes, with an average work experience of about 4 years. 1998 will most likely also be the record year for our MPhil/PhD programs. Thanks to the great success of the cooperation scheme with the Ministry of Education, our School has enrolled over 20 PhD students from top universities in the mainland. It has been a mission of the HKUST Business School to contribute to management research and education in the region, and we hope to achieve our goals through rigorous training of our research graduate students who are the future scholars and researchers in management. Turning to our non-degree programs and activities, I am very pleased to report the great strides we have made in this area. The Graduate Diploma in Management program, launched last year, has been very well received by its participants. The second intake, to begin in November, has received numerous inquiries after our announcement of the program. Moreover, our Shui On Center for China Business and Management has, for the second time since its inauguration in December 1997, conducted lectures for business executives from Shanghai. This time the executives came to HKUST and mixed with our MBA students in their classes and seminars. The feedback from both groups was very enthusiastic and positive. The Business School has recently been awarded contracts to run tailored executive training classes for Daimler Benz and classes will be held in September. With all the new faces and booming activities, we are poised and ready for a very busy and exciting new school year at the HKUST Business School.

4The Hong Kong University of Science & Technology HKUST Business SCHOOL - Newsletter

The Department of Accounting announced the founding of its Advisory Board and Alumni Association in June. The Accounting Advisory Board comprises 21 senior corporate executives, accounting professionals, academics and policy makers (see list below). Coordinated by Professor Gary Biddle, Head of Accounting, the Board will provide expert advice to the development of the Department. The Accounting Advisory Board Members (1998) Gabriel AZEDO Managing Partner Grant Thornton Raymond BALL Wesray Professor University of Rochester Nicholas M. BALDWIN Partner KPMG Peat Marwick Representing Hong Kong Society of Accountants Arthur J. BELFER Senior Vice President & Chief Financial Officer American International Assurance Co Ltd Patrick Shee-Sing CHENG Managing Partner Deloitte Touche Tohmatsu Leslie Li-Hsien CHANG General Manager, Finance CITIC Pacific Limited Stephen CHANG Chairman, Audit & Business Advisory Services Ernst & Young Gilbert G彳ARD Member International Accounting Standards Committee, London Richard HAW Managing Director Schroder Investment Management (HK) Ltd Andy Shiu-Chuen LEE Deputy Director (Finance) Hospital Authority of Hong Kong Sir Gordon MACWHINNIE Dr. Gerhard MUELLER Member Financial Accounting Standards Board, USA Vineet NAGRANI Managing Director & Co-Head of Asia Pacific Equity Research Morgan Stanley Asia Ltd David PRINCE Financial Director Hong Kong Telecom Ltd ACCOUNTING FORMS ADVISORY BOARD AND ALUMNI ASSOCIATION Six MBA students recently completed their international field study project with the c o n c e r t e d e ff o r t o f t h e Copenhagen Business School (CBS) on a Danish hearing aids manufacturer, Oticon. The research project was divided into two parts. The first part was conducted by students at CBS who evaluated the management, sales and marketing, production, as well as other related issues of the company. Based on the findings of their CBS counterparts, the HKUST students looked into the company's distribution network in China and identified problems that hinder sales growth. Before setting off for China to collect first-hand information on the hearing aids market, the HKUST students had met with Oticon's executives in Copenhagen where they were briefed about the company's business operations in China. The project culminated in June when senior executives from Oticon and students from CBS MBAS FROM HK AND DENMARK TEAM UP FOR A RESEARCH PROJECT Stephan Engel, Alex Ng and Elaine Wong are MBA students at HKUST. This summer, they will go abroad to study for a semester in other universities under the exchange program for MBA students. Born in Germany, Stephan had worked for a few years in London and Japan before coming to Hong Kong to embark on a full-time MBA program at HKUST. "Hong Kong is the center of Asian business and serves as a gateway to China. It is very natural for me to study here because I will focus on Asian business after graduation." He will go to China-Europe International Business School in Shanghai for the summer semester. Alex is a graduate of HKUST. He was attracted to the University's MBA program because it offers every full-time MBA student a chance to study in a world-class business school. "I will be going to UCLA this summer with four other classmates. I plan to take some of the well-known courses over there such as the enterprises and management studies. These should be useful if I start my entrepreneurial career in the future." Besides full-time MBAs, part-timers are also eager to participate in the exchange program. Elaine Hong Kong Business Law in a Nutshell, a new book authored by Dr. Orlan Lee, Law Professor at Department of Accounting, has become a fresh addition to the collection of standard textbooks of Hong Kong business law. Dr. Lee's book focuses on the principles of legal reasoning and problem solving that are generally useful and applicable to the students in legal studies as well as other disciplines. It the course "Engineering Law" in December 1997. The debates saw 150 graduating engineering students re-argue leading cases in courtroom-style settings. The book was published by Dobbs Ferry, New York, Juris Publications. Wong is prepared to quit her job for a semester's exchange experience with ISA, HEC School of Management in France. MBA STUDENTS GET SET FOR INTERNATIONAL EXCHANGE PROFESSOR LEE'S NEW BOOK HELPS READERS MASTER CONCEPTS OF BUSINESS LAW covers the historical and theoretical background and traditions of law, the key statements of the structure of the various areas of business law, and illustrates the application of business law by cases. It also addresses the conceptual differences in the role of law at it is understood in the Chinese and Western contexts. The cases in Hong Kong Business Law in a Nutshell were used in the end of term debate in PUBLICATIONS Video clips of the term-end debate. STUDENTS flew in Hong Kong to attend the presentation given by the six students. "Collaboration of such kind provides precious opportunities for students to augment their international exposure and gain valuable hands-on experience," said Chris Tsang, Associate Director of MBA programs. "Besides CBS, we also partnered with the Leon Recanati Graduate School of Business Administration in Israel to carry out similar projects over the past two years." David WHITE Commission Member & Executive Director Securities & Futures Commission Thomas C.H. WONG Chief Executive Hong Kong Securities Institute Ltd Lawrence YEE Partner White & Case Solicitors Stephen K.W. YIU Partner KPMG Peat Marwick Carrie YU Audit Partner Coopers and Lybrand Raymond YUNG Partner Arthur Anderson Dr. Wei-Guo ZHANG Chief Accountant China Security Regulatory Commission Professor Gary Biddle, Head of Accounting, was pleased with the enthusiastic response the symposium generated. "This is the 6th Accounting Symposium we have held since 1993. Each year we were able to attract top academics in the field from around the world and this year was no exception. What was more encouraging was that practitioners and the media showed an increasing interest in keeping abreast of the development of accounting knowledge and practices. The symposium was an excellent example of how we could bring value to the community by actively sharing the latest of our knowledge," said Professor Biddle. ACCOUNTING SYMPOSIUM (from page one) Three MBA students were awarded scholarships by the Federal Express (FedEx) in support of their participation in the exchange program. Each award includes US$5,000 and a summer internship. Pictured at the presentation ceremony are, from left: Ann Mullis, Vice President, Personnel, FedEx; Albert Chan; Steve DeKrey, Associate Dean and MBA Program Director; Paul Lau; Roy Beard, Vice President, ITD, FedEx; Carrie Chan and Ray Sluk, Managing Director, China Operations, FedEx.