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strategy and business
 / Summer 2003 / Issue 31(originally published by Booz & Company)


Recent Studies

China’s first venture capital firm opened in 1985 and was bankrupt by 1997. Today, venture capital firms appear to be on firmer ground. According to these researchers, in 2002 there were 210 venture capital firms in China. They further calculate that in China there are 86,000 new technology-based ventures employing 5.6 million people, 465 technology business incubators, and 53 high-tech zones. The incubators alone are reported to have produced 4,000 companies.

Initially, the Ministry of Science and Technology and other government bodies played a central role in financing new ventures. Funds from government sources, the authors say, are more accurately described “as ‘leading funds,’ serving as a signal to local governments and banks that the venture is politically and socially legitimate.” Only now is venture capital beginning to be recognized as a commercial activity rather than simply government funding in a different guise.

The swift expansion of China’s technology sector — in combination with nascent corporate laws that are not always enforced — means opportunity abounds, but opportunism is rife. For foreign venture capital firms, China is very appealing, especially considering the current downturn in Western economies. Eight of the top 10 venture capital investors in China are foreign. (They include Intel Capital, Goldman Sachs, and Walden International.)

There’s irony in such an overtly capitalist entity as a venture capital firm being utilized by a Communist regime to meet its economic targets. Perhaps more interesting, however, is that the venture capital industry has not been successful around the world, even in capitalist economies. In Germany and the U.K., venture capital is regarded with tepid enthusiasm. For China, the questions are whether venture capital is the most effective means of distributing resources — and whether it can be a force for sustained growth.

Media’s Influence on Business

Alexander Dyck ([email protected]) and Luigi Zingales ([email protected]),
“The Corporate Governance Role of the Media,”  Harvard Business School Working Paper Number 03-051.

Look back at the business magazines of the 1960s and you will find an unquestioning, monochromatic world. Newspapers and magazines largely regurgitated the corporate line. The very thought that the media could set the corporate agenda — or influence executives’ decisions — would have been risible.

Alexander Dyck, an associate professor at Harvard Business School, and Luigi Zingales, the Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago’s Graduate School of Business, make clear how times have changed. They show persuasively that the media, in their efforts to pressure managers and directors to “behave in ways that are more socially acceptable,” increasingly do drive corporate agendas and action — sometimes for the better, sometimes not.

By way of introduction, the researchers recall an instance in March 1988 when all of the major U.S. networks broadcast a tape of a Panamanian tuna boat killing hundreds of dolphins while it was fishing. This led a number of environmental groups to campaign against tuna fishing that endangers dolphins, which, in turn, led the H.J. Heinz Corporation to announce it would sell only “dolphin-safe” tuna. Other major tuna producers followed Heinz, and each adopted programs to source and promote dolphin-safe tuna.

This appears to be a simple case of corporate strategy’s being shaped by the media for an environmental good. The reality was not so simple. In the tuna incident, the media raised consumer awareness of the issue and forced corporations to respond to environmentalists’ demands, mostly by shifting tuna fishing to another area, the western Pacific, where it did not kill dolphins. This significantly increased costs for producers but didn’t necessarily result in less damage to the environment. In fact, environmentalists criticized the decision for reducing biodiversity in the western Pacific, where tuna fishing “does not kill dolphins, but it does kill other species that, unlike dolphins, are on the endangered species list.”

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