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MBA Student Study Trips Draw Lessons from Seven Nations

January 2005

MBA students in TokyoSTANFORD GRADUATE SCHOOL OF BUSINESS—Each year, Business School MBA students organize and conduct roughly a half-dozen study trips that offer students a brief but intensive learning experience somewhere in the world. During December 2004, student groups visited Brazil, China, Italy, Japan, Russia, and Singapore/Thailand. Another study trip will visit Washington, D.C., later this year.

The roughly two-dozen students on each trip meet with leaders of industry, government, and other major organizations in the country being visited, in many cases including Business School alumni. Below are some observations made by students or faculty taking part in the 2004 trips.

JAPAN, Tokyo
Japan's population is aging and its birthrate is declining-and somehow this affects everything and everyone.

Japanese business and political leaders were nearly unanimous on the single issue that will most impact the nation in the next 20 years. By 2025, Japan's population is expected to contract by 10 million people—and 30 percent of its citizens will be over 65. This demographic shift is being felt by nearly all the organizations with which we met—from cosmetics maker Shiseido to convenience store chain Lawson to the nonprofit Nippon Foundation.

However, the impact of the shift isn't clear. Japan's enviable productivity is one feat that can't be maintained amidst an aging population. A controversial solution to import foreign labor would change Japan's relatively closed society. Another concern is that services like social security, health care, and pension plans will decline in quality. On the other hand, economic optimists wonder if older citizens' purchasing power will present new business opportunities.

The complexity of the issue will affect Japan for years to come, but in the short term we learned this important rule: If you run out of questions during a meeting, this topic never fails.

RUSSIA, including Moscow, Suzdal, Vladimir, St. Petersburg
Sistema is a conglomerate focusing on innovative technologies. Sistema keeps a set of GAAP books to increase transparency and allow the firm to raise capital in the Western markets. Its strategy focuses on bringing in Western partners to succeed in each line of business; for example, Deutsche Telekom in mobile phones and Allianz with insurance. Sistema refuses to invest in oil and gas because of a fear of governmental intervention.

Hermitage Capital Management is a billion-dollar investment fund run by Bill Browder, MBA '89. It invests heavily in oil and gas, focusing on companies that are undervalued by Western institutional investors and companies where shareholder activism adds value. We learned new accounting terms while we were there: "Profits before stealing" and "Profits after stealing." Mr. Browder invested heavily in Gazprom, the state gas monopoly. After some in-depth research, he concluded that billions of dollars were being stolen from the company. After bringing this to light through shareholder activism, he was able to end a $750 million scheme and raise earnings significantly.

Yandex, the Russian Google, is the market leader in Internet indexing. It sees its advantage in proprietary language morphology algorithms and local content. Yandex was one of the few startups we met with. It sees tremendous growth potential in the Russian high-tech market because of a well-educated and talented workforce.

Sputnik, a Russian private equity fund with $400 million under management, focuses on small business because of political concerns. Sourcing and exits are difficult and because of that, the firm sometimes starts businesses from scratch and tends to hold longer than its competitors.

Norilsk Nickel is the fourth-largest metal producer in the world with more than 20 percent of the world market share in nickel and 40 percent in palladium. The company represents 2 percent of Russian GDP. Its strategy focuses on simplicity (i.e., it refuses to hedge currency risk), and its competitive advantage lies in owning mines with multiple revenue streams. Norilsk Nickel's biggest concerns are politics and world metal prices.

SINGAPORE/THAILAND, including Bangkok
Singapore's government still holds a remarkable reputation for transparency and honesty. Indeed, Transparency International's 2004 report recognizes Singapore as one of the least corrupt countries in the world, well ahead of the United States.

Singapore's efforts have proved highly successful in economic terms. Its per capita GDP of $24,000 ranks as one of the region's highest.

Given the important role of government in Singaporean business, we met with many political and civil service figures including Prime Minister Lee Hsien Loong. Other meetings included a briefing by the Economic Development Board and private meetings with George Yeo, the Minister for Foreign Affairs; Khaw Boon Wan, the Minister for Health; and the head of the Singapore Civil Service, Lim Siong Guan.

Despite the Asian business world's reputation of Confucian conservatism and a male dominance, women in Singapore hold important management positions. Of our five private-sector firm meetings, women headed up three. Moreover, women comprise the majority of entrepreneurs. The lineup included Ho Ching, Stanford MSEE '82, CEO of Temasek, the $54 billion government-owned holding company; Jennie Chua, chairman of Raffles Holdings (owner of the Raffles and Swissôtel hotels); and Olivia Lum, founder and CEO of Hyflux, which specializes in water technology.

We met with innovators in health care delivery at the for-profit luxury health care center Bumrungrad Hospital. We met Bill Heinecke, an American-turned-Thai raised in Bangkok who ditched college to start his own business in Thailand, a business he turned into the $250 million Minor Group. CRP was probably the most dynamic young business, a jewelry manufacturer that has leveraged Thailand and India's skilled jewelry crafters and relatively low labor costs to become one of the largest-selling suppliers to the United Stages.

The tourist mecca of Phuket was our third and final stop. We had only one formal meeting with Gulu Lalvani, who retired from an electronics business in England and found himself restless in Thailand. Impressed with the natural beauty and opportunities for year-round yachting, he persuaded the Thai government to lift its exorbitant 200 percent import duty on personal boats. Two hundred percent of zero, he explained with impeccable arithmetic, is zero. Once the government lifted these duties, Lalvani began building a luxury marina and apartment complex. (Fortunately, Phuket's marinas escaped the tsunami largely unscathed, according to the Chiangmai News.)

CHINA, including Hong Kong, Shanghai, and Beijing

With an all-star cast of local or semi-local GSBers to lead the way, the study trip got off to a promising start in Hong Kong. The energy and excitement of development in China was palpable. Everyone in Hong Kong was talking about the mainland. Real estate development, urban planning, and infrastructure were recurring themes. The first meeting of the trip, with Sir Gordon Wu, CEO and founder of Hopewell Holdings, a large construction conglomerate, set the bar for the tone and quality of the next two weeks. Wu put China's development into the historical context of global develop me nt and transportation. In Wu's view, the constructio.n and development of a world-class highway system is the most critical next step for accelerating China's economic development. Almost ready to retire and bring his son, Thomas Jefferson Wu, MBA '99, to the helm, Wu is currently developing the longest bridge in China, linking Macau and Hong Kong.

Also in Hong Kong, the group met with Vincent Lo, the CEO of Shui On Land, who recently worked with the Shanghai municipal government to create a master plan and develop part of the central business district known as Xintiandi. Imagine speaking with a developer who conceived of and developed Central Park or Battery Park 50 years ago. The politics, the planning, the profits, and the controversies were astounding. When asked about a solitary investment in New York, Lo replied, "Well, when Donald [Trump] proposed it to me, I figured fine. But now he's busy being a movie star."

ITALY, including Milan, Turin, Bologna, Florence, and Rome
Throughout the week we met with top politicians to understand their inside view of the challenges facing Italy from local to national to international levels. European Union Commissioner Mario Monti provided us with an intimate discussion of the EU's needs and progress. Sergio Cofferati, mayor of Bologna and former leader of the major labor union (and potential candidate for prime minister), enlightened us with the challenges facing the city that is home to the oldest university in the world (at least that is what [was] translated for us). Domenico Siniscalco, Italy's current Minister of Economy and Finance, was kind enough to field our difficult questions on the state of the Italian economy and the efforts under way to bolster growth. Finally, Giuliano Amato, former prime minister, shared with us his ardent enthusiasm for the future of Europe and his belief in the inevitable ascendancy of the EU.

We discovered during these 10 days how family values and entrepreneurship have impacted business life in Italy. Many families have owned their companies for generations and maintained tight control over expansion (like Furla and Ferragamo) or sole minority positions via IPOs (like Bulgari). Others have completed full buyouts (like Ducati, which U.S.-based private equity investors TPG took over in the '90s and restructured to deliver U.S. sales expertise while keeping central the Italian identity). For this set of companies, brand integrity clearly trumped the more market-oriented need to grow rapidly.

BRAZIL, including São Paulo, Brasilia, and Rio de Janeiro
Evan Porteus, the Sanwa Bank, Limited, Professor of Management Science, and his wife, Ann, participated in the trip and shared some of their key observations:

  • The smartest government minister used to be a revolutionary guerrilla fighter.
  • There is only one thing harder than starting a company in Brazil: ending a company.
  • The key to social reform is to have the money go to the woman.
  • Hunger is the biggest weapon of mass destruction.
  • The left is more conservative than the right.
  • In Brazil, if you come in second, you're the first loser.
  • The way for a beer company to help educate the public on drinking and driving is to buy breathalyzers for the police.