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 / Third Quarter 2001 / Issue 24(originally published by Booz & Company)


Recent Studies

But these changes amount to “a Europeanization of national bargaining systems,” Professor Teague says. He argues it’s unlikely that a transnational union (such as the European Trade Union Congress) will ever end up gaining power at the expense of national unions. The differences in wages among the EU member states are too great for one organization to try to unify across borders. Moreover, the tough financial medicine implemented by the euro — a fully independent European Central Bank and punishment for member states that incur big deficits — makes it unlikely that unions will be stronger in the new economic order. For now, multinationals will conduct negotiations with labor unions as they always have — one country at a time.

Economic Forecasts — Take Your Pick
William T. Gavin and Rachel J. Mandal, “Forecasting Inflation and Growth: Do Private Forecasts Match Those of Policymakers?” Business Economics, National Association for Business Economics, January 2001

When determining which economic forecast to use, should you choose the Federal Reserve’s predictions for growth and inflation, or stick with those of a private forecaster?

In 1978, Congress mandated that the Federal Reserve produce economic forecasts twice a year. These are produced by the Federal Open Market Committee (FOMC). But according to economists William Gavin and Rachel Mandal of the Federal Reserve Bank of St. Louis, it doesn’t really make any difference today which one, FOMC or private forecast, you choose.

Mr. Gavin and Ms. Mandal found that in the 1980s the FOMC’s forecast was better at predicting the inflation rate and total U.S. output than was the Blue Chip forecast (a consensus of private forecasters). Blue Chip forecasters between 1983 and 1994 thought, on average, that the inflation rate would be 0.7 percent higher than it actually was. FOMC researchers’ predictions also exceeded actual inflation, but only by 0.5 percent. For U.S. output, the Blue Chip forecasters came out with estimates that, on average, were 0.04 percent too high, whereas FOMC economists overshot U.S. output by an average of 0.06 percent.

However, between 1995 and 1999, the private and FOMC forecasts converged. Inflation forecasts for both teams remained too high, but the difference was only one-tenth of 1 percent (0.6 percent error for the Blue Chip forecasters, 0.5 percent for the FOMC). Both sides also underestimated U.S. output; here the Blue Chip forecasters were 1.1 percent too low, and the FOMC forecast was nearly the same, at 1 percent too low.

Why did the private and the FOMC forecasts come together? “Both the FOMC members and the economists who contribute to the Blue Chip consensus now observe the same statistical releases and use similar economic theories to interpret their data,” the authors conclude. So it’s not surprising the two groups come to strikingly similar conclusions.

Building Multinational Product Teams
Mohan Subramaniam and N. Venkatraman, “Determinants of Transnational New Capability: Testing the Influence of Transferring and Deploying Tacit Overseas Knowledge,” Strategic Management Journal, John Wiley & Sons Ltd., April 2001

Any multinational corporation knows that in order to sell products in more than one country, you need to understand the differences among nations. Some of these are technical, such as the differences among the videotaping systems PAL, SECAM, and NTSC. But others are cultural differences that could make or break a product. For example, when Campbell Soup Company introduced condensed soups in Brazil in the 1980s, the product failed, because Brazilian housewives thought they were not doing their job if they served soup straight from the can. These women would buy dehydrated soup mixes, but not condensed soups.

How can managers learn to adapt their products to different nations’ cultural needs? Professors Mohan Subramaniam of the Carroll School of Management at Boston College and N. Venkatraman of the Boston University School of Management surveyed 40 managers responsible for new-product development at large multinational firms like 3M, General Electric Company, and Johnson & Johnson. They discovered three key components that new-product development teams must have if they are to be successful selling products in multiple countries:

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