LT Week 3 Flashcards
Motivation
Does Management Matter? Evidence from India (Bloom et al., 2013)
To understand whether differences in management practices across firms can explain differences in productivity, especially in developing countries.
Special settings
Does Management Matter? Evidence from India (Bloom et al., 2013)
“Significantly wider spread in firm productivity in developing countries, 90th percentile 5x more productive than 10th percentile in India
Scepticalism about effect of management by economists, despite acceptance by business schools and policy makers
Main reasons for scepticalism: 1) objective of profit maximisation causes cost minimisation, i.e. cheaper to repair defects rather than having quality control systems; 2) difficulty in measuring effect of management practicises
If these are to be profitable methods, then why hadn’t firms already done so?”
Theory
Does Management Matter? Evidence from India (Bloom et al., 2013)
- “Providing management consulting services to firms to assess the improvement in business standards on performance
- Assess why firms do not already use management consultants if it’s going to be profitable
- Wages are low to remain profitable, epsecially in developing countries.
- Businesses may pass through families and not seek outsiders who are more skilled
- Organised management promotes efficency
- Incentive schemes: Promteo workers to be more productive
- organisation: E.g. cleaner work floor prevent accidents
- strong rule of law to punish managers if they cheat the owner.
Ways in which managers are important:
* Factory operations: maintenance of amchines and factory floor
* Quality control: Prevention of defects
* Inventory: Keeping records of inventory
* Human resources: Defining each woerk’s tasks and establishing incentive systems
* Sales and order managament
Why are managment practices so poor?
* Informational frictions
* Lack of awarness of good practices
* Lack of awarness of return to better practices
* Imperfect markets = Badly run firms not forced to exit the market
Empirical design
Does Management Matter? Evidence from India (Bloom et al., 2013)
“Large multi-plant Indian textile firms and randomly allocated into treatment and control groups through an RCT, then also control plants that are owned by treatment plants
Sample firms randomly chosen from population of textile firms around Mumbai (100-1000 employees)
Treatment plants received 5 months of extensive management consulting from large international consulting firm
Consultant diagnosed all firms on 38 operational management practices during first month, followed by 4 months of intensive support for implementation of recommendations for treatment firms”
control group recieved diagnosis but not implemtation support and no effect
Data
Does Management Matter? Evidence from India (Bloom et al., 2013)
“Small cross-sectional sample size of 28 plants across 17 firms; addressed through permutation tests (proof by contradiction) which are independent of sample size
Exploited large time series of 100 weeks of data per plant by using estimators reliant on large T, rather than large N
Firms are rated 1-5 on a range of practices to take an average to monitor impact over time, as well as business performance data”
Key findings
Does Management Matter? Evidence from India (Bloom et al., 2013)
“Significant improvements in quality, inventory, output; estimate first-year productivity increased 17%, increasing annual profitability by $300K+
Also saw faster growth with suggestive evidence that better management allowed them to delegate more and open more production plants in following 3 years since start of experiment
Spread management improvements from their treatment plants to other plants they owned, showing beneficial impact through knowledge spillover
Suggests informational constraints on why firms hadn’t previously adopted the practices; believed that practices would not improve profits, given they were as good as the other local firms and were already profitable
Firms typically unaware of daily meetings, standarised operating procedures or inventory control norms
Competition did not force badly-run firms to exit given restriction on competition (i.e. import tariffs, lack of credit market access), only bound by the number of males in a family, given firms typically only being run by the family”. Need more legal systems to reduce reliance on social capital (e.g. family) for trust in managment
Interpretation / policy implications
Does Management Matter? Evidence from India (Bloom et al., 2013)
“Provides experimental evidence of a set of practices that at least one industry would be profitable for firms to adopt
Shows the usefuleness of consulting services vs management training in the argument of training on business performance (like the Nigeria paper)
Supports some common recommendations for firm productivity such as increasing competition (domestic and MNCs) and improving rule of law
Given the lack of implementation due to informational constraints, might be useful to provide training programmes for basic operations management”
Motivation
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
To estimate effect of foreign supermarkets entry on household welfare in Mexico.
* What
Special settings
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
“Arrival of global retail chains in developing countries is rapidly changing the way households source their consumption, which cause policy debates due to impacts on traditional retail sector versus the lowering of consumer prices
Causes wider debates on FDI in developing countries”
Theory
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
“Bring together microdata to assess consequences of retail FDI in conext of Mexico which has had international retails dominanting since entering over prior 20 years
Number of foreign supermarkets went from 365 to 1,335 over 12 year sample period
Use of newly available microdata to explore effects of retail FDI on welfare gains (in particular barcode data on prices and quantities, worker-level incomes, store-level profit) to capture all levels of welfare change. Event study design to indentify moments to feed into welfare expression”
Why might developing countries prefer smaller retail firms that are less efficent?
- Differences in shopping amentiieis
- Difference in varieties offered
- Maintain traditions. Traditioanl products vs imported products
- Social capital/ networks
- Habit formation
- Lack of information
- Access (by car vs by foot)
Identification concerns: Barcode data
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
Identification concerns: Event study
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
Methodology
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
Channels
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
recommendations
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
Identification concerns:
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
Empirical design
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
“1) General expression for effect of retail FDI on household welfare in municipality of entry, decomposing effects into 6 looking at househould cost of living (procompetitive price effect, procompetitive exit effect, direct price effect) and household nominal incomes (retail labour income effect, retail prpofits effect for domestic store owners, indirect effect on non-retail)
2) Estimate emperical required to identify the underlying effects: pro-competitive price effect (estimate how prices change in domestic stores in response to first entry of a foreign supermarket in the municipality by using monthly prices of barcode data before and after entry); procompetitive exit effect and direct price effect (exploit consumer panel microdata with barcode equivalent data matched to individual retailer indentities); nominal household incomes (construct quarterly time series of individual income/occupation/sector to capture effect on retail profits for owners of local domestic stores and efects on store exit, complementing with confidential microdata on store counts and profits)
3) Combine estimated effects on consumer prices, quantities and nominal incomes from (2) with theoretical framework in (1) to quantify household welfare effects; use pre-entry data to then estimate predicted welfare change for each household in sample depending on work and consumption patterns”
Data
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
“Combine data on all foreign-owned supermarket locations and opening dates over 2002-2014 with 5 other datasets:
1) monthly store-level consumer prices at barcode equivalent level from confidential microdata of Mexican CPI
2) daily household-by-store-level data on consumption quantities and prices at barcode equivalent level from consumer panel of Mexican large international market research company
3) store-level revenues, costs, profits for urban retail establishments from 2 cross-sections of Mexcican retail census
4) quarterly worker-level incomes by occupation and sector from urban employment and occupation surveys
5) household-level income shares by occupation and sector matches to consumption shares across products and store formats from biannual income and expenditure surveys
6) the administrative records of the Mexican National Retail Association (ANTAD): used to see how foreign-owned supermarkets differ from the domestic retailers
(eg price, floor space records, variety of goods offered) “
Key findings
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
“Foreign supermarket entry causes large and significant welfare gains for average household in municipality of entry (6% of initial household income)
Majority of effect driven by significant reduction in cost of living (0.7% increase in cost of living due to procompetigive exit effects outweighed by 1.6% decrease due to procompettivei effects on consumer prices by falling prices at preexisting stores; as well as 5.5% reduction due to direct price index effect such that there are more options and lower prices)
Foreign supermarkets entering versus before: 12% lower prices for identical bar code in same location and time; 5x more products offered; capture 1/3 of total household retail spending on average
No effect on average municipality-level household incomes or employment rates
Evidence of store exit and fall in store profits, employment, labour incomes for traditional retail sector; but only for a fraction of households so are lost in aggregate by fall in cost of living others face
Distribution gains from retail FDI felt 50% more for richest group than poorest (although everyone benefits), due to richer valuing foreign brands and variety more
Presence of local spillovers from foreign entry (management practices, logistics, price reductions by local suppliers)”
Interpretation / policy implications
Retail Globalisation and Household Welfare: Evidence from Mexico (Atkin et al., 2018)
“Findings for Mexico are specific to retail FDI
Studying developing countries sheds light on impact of exposing largely traditional retail environment to a technological frontier in retail”
Motivation
Why Do Management Practices Differ across Firms and Countries (Bloom & Reenen, 2010)
examines how variations in management practices contribute to persistent differences in productivity at both firm and national levels
Special settings
Why Do Management Practices Differ across Firms and Countries (Bloom & Reenen, 2010)
“in early 2000s, plants at the 90th percentile in US manufacturing industry produced 4x as much as the plant in the 10th percentile on a per-employee basis.
- Only half of this difference in labor productivity could be accounted for by differential inputs, such as capital intensity. What abt other half?
- understanding key drivers of productivity important in influencing policy and business decisions”
Theory
Why Do Management Practices Differ across Firms and Countries (Bloom & Reenen, 2010)
Empirical design
Why Do Management Practices Differ across Firms and Countries (Bloom & Reenen, 2010)
“RCT. 17 firms randomly allocated into treatment and control groups
- Treatment plants received 5 months of extensive management consulting from large international consulting firm. Initial diagnosis - 18 practices evaluated on a scale from 1 (““worst””) to 5 (““best””), covering areas such as modern manufacturing techniques, performance monitoring, target setting, and employee incentives. Followed by implementation.
- To ensure unbiased data collection, the surveys were conducted using a double-blind method where neither the interviewers nor the managers were aware of the purpose of scoring during the interviews.”
Data
Why Do Management Practices Differ across Firms and Countries (Bloom & Reenen, 2010)
Key findings
Why Do Management Practices Differ across Firms and Countries (Bloom & Reenen, 2010)
“Firms with higher management scores show better performance across various metrics
- a one-point increase in the mgmt score is associated with significantly higher labor productivity, 57% higher sales per employee, 1.8% higher return on capital employed.
- better management scores correlate with a 4.4% higher annual sales growth and significantly lower exit rates due to bankruptcy
- foreign multinationals generally exhibit better management practices compared to domestic firms.
- firms with a higher share of college-educated employees have better management scores.”
Interpretation / policy implications
“strong product market competition enhances overall management quality by weeding out poorly managed firms.
- policies that enhance educational opportunities can also improve management quality across firms.
- presence of multinational companies plays a positive role in disseminating good management practices. policies to attract FDI e.g tax incentives.”
