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agartenb@umich.edu
How often during the MBA application process did you wish you could find another perspective on what each of the business schools were really like? Not the official statistics in the guide books, not the quotes in brochures from Deans, admissions officers, or career development councilors. No, I'm talking about the real, honest, unadulterated truth.
Business Week Magazine is trying to provide prospective students with just this kind of information through its new "MBA Journal" series available in the online version of the magazine (http://www.business week.com/bschools/mbajournal/right2.htm). The series will follow seven MBA students, including one from the University of Michigan Business School, through their first year at top-tier business schools, from the application process and orientation through finals, with the inside dirt on all the case studies, team projects, and job interviews in between.
The UMBS student chosen by BusinessWeek Online is Renee Rhoten, MBA1. She spoke excitedly about the opportunity to relate her experiences at Michigan to prospective students.
"I thought it was a great idea, and a tremendous opportunity to show what the experience is like first-hand," Rhoten said.
The first two entries of Rhoten's journal are already available on the BusinessWeek website. In the first she relates her educational and professional background, along with motivation for attending business school. She graduated from Dillard University, an historically black college/university (HBCU) in New Orleans, after which she worked for GE Capital.
As she relates in her journal, Rhoten realized that she was ready for a switch, but that in order to get the position she wanted in management consulting, she would first need an MBA. She also quickly decided that she was at the appropriate stage in her life (single, no kids, minimal debt) to leave work and attend school full time, and set her sights on a top-10 school.
Rhoten's second journal entry focuses on the application process. She applied to her schools through a program offered by the Consortium for Graduate Study in Management. The Consortium is a non-profit group that promotes management education opportunities for African Americans, Hispanic Americans, and Native Americans interested in business careers. Eligible applicants can apply for admission and merit-based full-tuition fellowships through this Consortium for up to six of the 11 participating business schools, of which UMBS is one.
Rhoten narrowed her top choices down to three Consortium schools Michigan (her first choice), UC Berkeley's Haas School, and UVA's Darden School. After visiting Berkeley, Rhoten said she was disappointed by the small minority population at the school, and at how few first-year black students there were in particular. On the other hand, she said she was very taken with Michigan, both in terms of the types of students the school attracts as well as the personality and culture of the school and its students. The laid-back attitude she found when visiting and talking to UMBS students fit in much better with her interests, she said.
Over the course of this school year, Rhoten will write six more entries. The next submission will cover her experiences at the Quantitative Skills Workshop and the Leadership Development Program. Future entries as the year progresses will focus on her experiences with courses, cases, exams, and the recruiting process.
According to Nadav Enbar, the BusinessWeek Online staff reporter responsible for the MBA Journal series, one of the reasons BusinessWeek's rankings and reports on business schools have been so highly regarded is their focus on obtaining student views of the schools. He sees this project as another extension of these efforts.
"It was brainstormed by us to give students another forum to talk about their schools, and business programs in general," Enbar said.
He said that BusinessWeek, and the Online section in particular, have done a lot to try and present the student perspective of attending business schools, including student chat sessions and articles from the students' perspective.
According to Enbar, BusinessWeek would have liked to have been able to have reports from all 25 of the top schools in BusinessWeek's rankings, but the coordination involved and editing constraints limited the number of schools that could be reported on at this time. The other schools featured are the University of Chicago, London Business School, New York University, MIT, UCLA, and Wharton.
When asked about the inclusion of Michigan in the final list, Enbar said that BusinessWeek holds the school in very high regard.
"We think of Michigan very highly.... They've done a lot of innovative things," he said.
While he was limited in how many schools they could feature at once, Enbar said it was important to get a cross-section of schools and students from diverse backgrounds. To this end, the journals include an international student studying in the United States, a US citizen studying in London, and Mexican-American and African-American women.
In addition to having a diverse group of students, Enbar said it was important that these students be able to paint an accurate picture of the school. While the journals are not intended to be completely unbiased, he wanted to be sure the participants wouldn't sugar-coat any problems they might have with the school or their fellow students, or unrealistically portray their school in a positive light. He said they reached this goal by building a relationship with the prospective writers before asking them to participate in the program (he found Rhoten through her involvement with the Consortium). He added that none of the students are receiving pay or other compensation from BusinessWeek for their participation.
Another way BusinessWeek sought to keep the MBA Journals as "real" as possible was to exclude as much formal contact with the school administration as possible. He said none of the seven featured business schools were contacted before hand, although he believes that all of them are aware of the feature by now.
Enbar said he has been getting some feedback already on the Journals, most of which has been positive. He said most of the critical feedback centered on the selection of schools that are featured. He expects that the section will gain a lot more visibility once BusinessWeek's b-school rankings come out next month. He said the rankings are to be unveiled in the Online site at 5:00pm on October 8.
Enbar said that the MBA Journals are only appearing in the Online edition of BusinessWeek due to space constraints and to take advantage of the functionality and interactivity offered on the internet. It is much easier for the publication to include pictures (a photo scrapbook is a possibility), and enables them to offer links to related websites and e-mail access to the writers. He said that a chat session with the journal writers might also be added later in the year.
As for the future of the series, Enbar said that it will be decided by BusinessWeek based on how successful this year's trial program turns out to be. It's possible that they will expand the number of schools featured, and he didn't rule out the possibility of asking the current group of journal writers to keep submitting entries through their second year of school.
For more information on the program and to read Rhoten's entries, keep checking the BusinessWeek website.
leslieks@umich.edu
Concerned by the under-representation of women at leading MBA programs nationwide, the University of Michigan Business School is participating in a study to investigate the causes of this situation. Launched in March 1998, this study is being conducted by three prominent organizations concerned with the future of women in business Catalyst, a non-profit organization that works with business to advance women, The Center for the Education of Women (CEW) at the University of Michigan, and UMBS.
"The enrollment of women at the nation's leading business schools has stagnated, even while enrollments of women in other professional programs like law and medicine mirror the nation's economic trend toward having nearly equal representation of men and women," said Catalyst President Sheila Wellington. Female enrollment in medical and law schools has consistently been above 40%, while women in top-rated business schools, according to 1996 Business Week rankings, average no more than 29%.
"The numbers suggest that the corporations that drive the success of our economy are missing out on a vast pool of potential business talent," said Dean B. Joseph White. "We need to get beneath the surface if we hope to have any real impact on changing things. I want Michigan and all business schools to have a thorough understanding so we can take substantial actions."
Carol Hollenshead, Director of CEW, has said that, "a great deal of progress has been made in understanding how to attract women to scientific and engineering careers and we hope to replicate that trend for women and business.
Since March of 1998, much has been accomplished. In addition to creating this survey, the research team conducted focus groups with sutdents and graduates and conducted a comprehensive literature search on the topic. At this point, the survey is being reviewed by faculty and corporate advisors to further refine the questions and to ensure that their expertise and viewpoints have been incorporated. This survey will be sent to graduates of approximately 10 leading business schools around the country.
Also advising the research team is Steve Heeringa, Director, Division of Surveys and Technologies, of the University of Michigan's highly respected Institute for Social Research. ISR staff has advised the research team on sampling techniques to ensure they have the highest standards of statistical reliability possible for the study.
People have asked, "Why study graduates of these programs if we're trying to find out why people aren't attending?" According to Jeanne Wilt, Assistant Dean of Admissions and Career Development, "We need to develop a fact-based foundation to understand the experience of women in business school and their career outcomes. To do that, we need to start with MBA graduates. Clearly, there is much to learn about the process by which women decide to attend business school and this study is just a beginning."
Thirteen leading corporations are sponsoring this study (see box). A report is due out late spring or early summer.
*Faculty Advisors:
Susan Ashford, Associate Dean; Michael and Susan Jandernoa Professor of Organizational Behavior & Human Resource Management, UMBS; Connie Cook, Director, Center for Research on Learning and Teaching, and Associate Professor of Education, University of Michigan; Taylor Cox, Associate Professor of Organizational Behavior & Human Resource Management, UMBS; Jane Dutton, William Russell Kelly, Professor of Organizational Behavior & Human Resource Management and Corporate Strategy and Associate Professor of Psychology, UMBS; Laurie Morgan, Associate Director and Assistant Research Scientist, Institute for Research on Women and Gender, University of Michigan.
Amoco
Chase Manhattan
Citicorp
Cummins Engine
Deloitte & Touche LLP
Eli Lilly
Equity Group Investments
Ford
Kraft Foods
McKinsey & CO.
Motorola
Procter & Gamble
Whirlpool
fchong@umich.edu
More than 230 people attended Professor Linda Lim's presentation on "Asia's Financial Crisis One Year Later: How Bad, How Long, and What's Next?" in the opening session of the Asian Business Association's Trends Shaping Asian Business lecture series last Wednesday. A noted specialist on the Asian economic situation, Lim explained that a year ago the currency crisis affected only a few countries in Southeast Asia, primarily Thailand and the Philippines, with minor influence on Indonesia and Malaysia. At the time, most economists, investors and the International Monetary Fund (IMF) projected for most of these countries a 20-25% currency devaluation, real gross domestic product (GDP) growth slowdown to 1-4%, and recovery within 18-24 months. For Thailand, it was predicted that recovery could take 2-3 years.
Now, people are talking about an "Asian Great Depression," affecting Japan, Korea, Southeast Asia and Hong Kong, with contagion to Taiwan, China, India, Latin America, Russia, and all emerging markets. Moreover, spillover effects are being felt in the United States and Europe. Currencies and stock markets in the worst affected countries have plummeted 40-80%. Most are in severe recession, and real GDP growth ranging from -5% to -20%. Recovery is projected to take 3-5 years.
Professor Lim gave a short history of what was once known as the "Asian miracle." East Asian countries were among the world's fastest-growing economies in the 1990s, with an annual growth rate exceeding 10% in the first seven years of the decade. The growth strategy featured high domestic savings and investment, budget surpluses and low inflation, openness to foreign trade and investment, export orientation, and heavy investments in education and infrastructure. Eight of the top twelve fastest growing economies were located in the Far East. International investment poured into these countries because of strong economic fundamentals, high returns, low political risk, and open capital markets.
Lim explained that these Asian countries pegged their currencies to the U.S. dollar. The situation was stable when the dollar was weak in 1987-1995. Exports and assets were cheap, and currency risk were minimized. However, when the U.S. dollar strengthened and the Japanese yen weakened in 1995, troubles came. Exports and assets became less competitive, so current account deficits ballooned and foreign capital inflows slowed. This put downward pressure on exchange rates, which was exacerbated by high domestic growth, full employment, and rising inflation.
To resolve the imbalance, the Asian governments could have allowed currencies to gradually depreciate to restore competitiveness. They could have also tightened fiscal and monetary policy by reducing money supply and raising interest rates. This would have slowed down growth, reduced imports, and attracted new capital inflows.
However, taking these measures would have harmed the booming Asian economies. Depreciation would have increased external debt burdens by raising the cost of foreign capital and heightened currency risk by discouraging foreign capital inflow. "Fiscal and monetary austerity would hurt domestic political constituencies in new democracies, increase domestic debt burden, and slow domestic economic growth," explained Lim.
Except for Thailand, conditions in other Asian countries in the early 1990s were not bad. Government policy acted in accordance with sound, conventional economic policy. Current account deficits were less than 5% of GDP; inflation kept below 10%; interest rates were rising; budgets were either balanced or running small deficits; foreign capital inflows were mostly long term; and foreign exchange reserves were considered adequate.
What happened? The Thai baht became subject to short-selling by currency speculators. This drained Thailand's foreign currency reserves, eventually causing the baht to devalue on July 2, 1997. Since other Asian economies possessed overvalued currencies resulting from the rising U.S. dollar, the other countries in the region also tumbled after being subjected to currency speculation. The contagion resulted from anticipated competitive devaluation in other Asian countries, intra-regional trade and investment linkages, and inadequate disclosure leading to capital outflows. The situation worsened when banks began to convert local currencies to U.S. dollars to cover there currency exposure, resulting in even further devaluations. In addition, foreign investment funds pulled out their capital due to the negative financial impact from the devaluation and the anticipated recession.
As a result, Asia has been thrown into economic, social, and political crisis. Economic crisis resulted from the currency devaluation, capital flight, and high interest rates. Social crisis resulted from massive loss of wealth, employment, and income. Poverty and hunger have increased. Riots and social unrest have arisen, with protests on layoffs, food shortages, and removal of subsidies on basic goods. Political crisis has forced a change in most Asian countries, and current governments are politically weak and thus unable to quickly accomplish needed political reforms.
Recovery will require foreign exchange inflows, which includes rebuilding reserves, stabilizing currency, repaying external debt, and providing domestic investment capital. Why has this been delayed? Many have contrasted the Asian crisis to the Mexican peso crash of 1994. The Mexican government swiftly implemented the IMF austerity and restructuring policies; foreign funds came pouring in from the IMF and the United States to prop up the Mexican currency; and Mexico rapidly increased its imports into the United States, which was experiencing an economic boom. For Asia, the implementation of the IMF package has been extremely slow; injection of foreign capital has only trickled into the region; and its biggest economy, Japan, has been mired in a long financial recession.
Professor Lim noted that many economists failed to predict the severity of the crisis and to prescribe effective policy solutions. Due to lack of transparency in the international arena, they possessed inadequate information about individual country and company conditions. She stated, "Economists underestimated the importance of local politics in shaping national economic policy and the impact of economic policy adjustments on local politics." They also misinterpreted the importance of building appropriate institutions to oversee domestic capital markets, which should precede capital market liberalization. Finally, economists underestimated the effect of contagion and speculation, making the small Asian economies vulnerable to large flows of international capital.
Malaysian Prime Minister Dr. Mahathir Mohammed has been vocal in criticizing global capital market players for bringing about and worsening the Asian crisis. He has advocated controls on the activities of currency traders and rejected IMF policies. He argued that open capital markets are not necessarily good for developing countries. Capital controls and government market interventions may be required. Mahathir claimed, "Our economic fundamentals are good, yet anyone with a few billion dollars can destroy all the progress that we have made over 40 years. We are told that we must open up, that trade and commerce must be free. Free for whom? For rogue speculators?...We want to embrace borderlessness, but we still need to protect ourselves from self-serving rogues and international brigandage."
As of last week, Malaysia has imposed currency controls. "The only way to manage the economy is to insulate from currency speculators and traders. The free market has failed disastrously because of abuses," stated Mahathir. Trading of Malaysian currency (ringgit) is now prohibited outside the country, and central bank approval is required for disposal of foreign-held ringgit accounts. Proceeds from the sales of foreign-owned assets must be held in ringgit for a minimum of one year, and all external trade must be settled in foreign currencies. Malays are now restricted in the amount of foreign currency they can hold, and trading in Malaysian securities is prohibited offshore. The Malaysian ringgit is currently fixed at 3.8 to the U.S. dollar.
Is the Malaysian solution to right answer for Asia? Imposing controls has enabled the government to lower interest rates and to stimulate the economy without weakening the currency. Some economists are sympathetic, and many Malaysians approve. However, economic controls will make it difficult to attract foreign direct and portfolio investment, which has historically accounted for a large share of the economy. They also impose high transaction costs on external trade and may discourage much needed economic reforms. The exchange rate of 3.8:1 is probably overvalued, which will result in lower exports, capital inflows, and economic growth.
What is the impact of the Asian financial crisis on the United States? The U.S. export market in Asia has collapsed, and the U.S. trade deficit will increase as Asian exports become increasing competitive in American markets. U.S. multinational earnings will fall, adversely affecting stock prices. Costs of managing currency volatility will increase, and global market growth will slow. On a positive note, U.S. inflation and interest rates will stay low despite full employment because of cheaper imports and slowdown in economic growth. The asset purchasing power of U.S. corporations in Asia has greatly increased, and numerous companies have taken advantage of the acquisition opportunities. Furthermore, the crisis has weakened Asia competitors in global markets.
For other emerging markets, the Asian financial crisis has resulted in a collapse in commodity export prices. Capital has been leaving the emerging markets as institutional investors rebalance portfolio requirements, fear competitive devaluations, and become increasingly sensitive about similar overseas economic conditions. As a result, there now exists a high risk premium for investments in emerging markets.
In summarizing the causes of the Asian crisis, Professor Lim explained that too much foreign money flowed into short-term investments in Asian countries, feeding current account deficits and domestic asset bubbles, which governments did not take sufficient action to deflate. Foreign capital left all at once, and domestic money followed suit, resulting in a collapse of Asian currencies and assets values. Interest rates had to rise in response. Standard fiscal and monetary policies were implemented too late to restore confidence and capital flows, especially given unstable political environments and increased political risk. Instead, austerity exacerbated the downward spiral into economic crisis.
What are the lessons from the Asian crisis? First, capital market liberalization, globalization, and regionalization deliver many benefits to countries, including increased investment, income, and technology transfer. However, there are also many costs, including vulnerability to volatile capital flows and to imperfections in market actors' behavior. Second, countries which liberalize their capital markets must have sound domestic institutional infrastructure and government macroeconomic policy management capacity to deal with the costs. Third, international institutions may need to be developed or adjusted to minimize and mitigate extreme currency fluctuations and capital flow volatility.
Over the past year, Professor Lim has addressed numerous audiences on the Asian Economic Crisis, including members of the United Nations General Assembly, U.S. State Department, as well as trade associations and multinational corporations. Professor Lim's presentation was the opening session of the Asian Business Association's Trends Shaping Asian Business lecture series. The next session on September 22, 1998, will feature William J. Best, Vice President and Managing Director of Asia for A.T. Kearney, Inc.
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