Knowledge at Wharton

In a recent newsletter Wharton finance professor Jeremy Siegel noted that ”everything is coming up roses for the equity markets -- except for the latest developments in the commodities markets.” What does that imply for the economy and stock markets? Siegel who is also the author of the book The Future for Investors notes that the economy is heading for a soft landing which means it is slowing down. ”But we’re not going to a recession by any means ” he told Knowledge at Wharton in a recent discussion.

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The biggest takeover battle in the global steel industry came to an end in late June when Mittal Steel the world’s biggest steelmaker acquired Arcelor the industry’s second-largest company. For five months before shareholders signed off on the $32.2 billion transaction both sides were engaged in an acrimonious fight. At times it seemed as though the deal would collapse but finally after Mittal Steel significantly increased its offer it went through. What was Mittal Steel’s strategy in pursuing this acquisition? When the company encountered resistance how did it frame its negotiation strategy? What will the deal mean for the world steel industry? Aditya Mittal president and chief financial officer of Mittal Steel -- and son of founder Lakshmi Mittal -- spoke recently with Knowledge at Wharton.

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For the 41 million Mexican voters who went to the polls on July 2 the major decision was whether they were going to continue to follow the same free-market model with limited spending and greater foreign investment that the country has had for the past six years or opt for change. Ultimately in one of the most expensive and contentious elections in the history of the country Mexicans chose the continuity represented by Felipe Calderón -- by a mere margin of 236 000 votes. Now that the election is over tensions are running high and the defeated candidate leftist Andrés Manuel López Obrador has rejected the results announcing that he will appeal the election in the courts. Scholars and other analysts believe that Calderón has no other course but to sit down and negotiate with the opposition so that the country can move forward on the most urgent reforms that it needs. In the process Calderón also has to try to convince the half of the population that did not vote for him that he can redistribute wealth more effectively create jobs and foster stable economic development.

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The commercial real estate market has been on a tear in the last few years. Banks insurance companies and institutional investors have funneled money into the market because its returns in an environment of low interest rates exceeded those of other asset classes. As interest rates begin to climb how will that situation change? Experts discussed those issues at a recent conference on Innovation and Risk Management in Real Estate Markets organized by the Wharton Financial Institutions Center and Mercer Oliver Wyman.

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In 2004 engineers at Massachusetts-based Bose Corp. a maker of stereo speakers and other audio equipment introduced a startling new product that had nothing to do with sound: an automobile suspension. Bose’s founder Amar Bose had suspected that his company’s knowledge of the physics of acoustics could also help drivers defeat bumps and potholes. The suspension now ready for the mass market exemplifies a technique known as knowledge bridging -- taking expertise from one field applying it to a completely different one and thus creating an unprecedented product or service. A recent study co-authored by Wharton management professor David Hsu ”Knowledge Bridging by Biotechnology Startups ” suggests that knowledge bridging can help companies bring products to market faster and raise money more quickly.

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On July 11 Sony Pictures Home Entertainment became just the latest media giant to put its heft behind a small startup as the white-hot online video market has players both big and small placing bets on digital distribution. Add up the venture capital dollars funding online video startups the technology advances the willingness of established players like ABC CBS and NBC to try new distribution models and the increasing web viewership and it’s clear that the video market is at an inflection point say experts at Wharton and media research firms. However several questions remain: What will ultimately become of all the wheeling and dealing in the online video market? What are the most important technologies needed to expand online video? Can online video startups find viable business models? And aren’t all parties simply hedging their bets since it’s unclear which online video distribution models will win?

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When she worked on Wall Street launching IPOs Alicia Polak helped generate new wealth. Now she is working to build wealth in the dirt-poor black township of Khayelitsha 30 minutes down a dusty road from Cape Town South Africa. Two years ago Polak founded The Khayelitsha Cookie Co. which now employs 11 women from the sprawling shantytown to bake high-end cookies and brownies that are distributed to top hotels restaurants and coffeehouses throughout South Africa. Working in conjunction with the Societal Wealth Generation program in Wharton’s Sol C. Snider Entrepreneurial Research Center which explores ways to apply entrepreneurial business models to social problems such as healthcare education and unemployment Polak says her ultimate goal is to change the lives of the women she employs ”using this company as the vehicle.”

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Earlier this week Warren Buffett made a $31 billion gift to the Bill and Melinda Gates Foundation to help find cures for the world’s 20 worst diseases and to improve the educational opportunities for all Americans. Buffett’s contribution -- in the form of 10 million shares of Berkshire Hathaway stock to be transferred in increments over a number of years -- will more than double the size of the existing Foundation which is already the world’s largest. But questions have immediately arisen as to how $60 billion can be effectively managed what impact the donation will have on other donors and whether the Foundation has come up with the best approach to solving systemic health problems in developing countries. Ian C. MacMillan Wharton professor of innovation and entrepreneurship and director of the Sol C. Snider Entrepreneurial Research Center talked with Knowledge at Wharton editorial director Robbie Shell and senior editor Steve Guglielmi about this gift. MacMillan’s areas of interests include societal wealth creation technology strategy and managerial and entrepreneurial approaches to knowledge management.

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Risk is part of the landscape when investing in start-up firms and venture capitalists need to approach this peril across a range of dimensions including geography industry and the timing of investments in the product development cycle according to speakers at a Wharton conference titled Innovation and Organic Growth: Balancing Risk and Reward hosted by the Mack Center for Technological Innovation. ”We have generated a lot of wealth for people and also created our fair share of losses ” noted one firm’s principal. In a panel discussion called ”Financial Perspectives on Managing Risks ” he and others from the industry described how their firms determine which new technologies -- whether from the energy high-tech or healthcare sectors -- are good investments and what strategies they employ to manage and mitigate risk.

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The greatest future growth in the United States is likely to take place in the West the Sunbelt and along the I-85 corridor between Raleigh N.C. and Atlanta Ga. In a literal sense Americans are following the sun since factors such as the number of ”bright” or ”sun” days in January and the absence of winter heating costs are significant aspects of this anticipated redistribution of population note Wharton real estate professors Peter Linneman and Albert Saiz in their study ”Forecasting 2020 U.S. County and MSA Populations.” The areas that can expect the largest drop in population or a slow-down in their rate of growth are mostly in the Northeast Mid-Atlantic and Midwest. ”Americans are rapidly leaving cold damp and snowy areas for sunnier and drier climates ” the authors write.

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