Weekend Reads from India: The Winner’s Curse, Start-Up Wisdom

Established businesses must overcome two mutually reinforcing phenomena: time decay and competition.

Of the two, competition perhaps receives more than its fair share of attention. Arguably, this has led to progress — but mostly horizontal, incremental progress, the kind that stable firms can absorb. Within the businesses themselves, competition may also encourage employees to become smarter and better workers.

But there is a dark side to competition — and to winning — especially for established companies. The ill effects of competition as a behavioral bias have largely escaped popular recognition. But as competition becomes institutionalized, detrimental thought patterns — an obsession with winning, of beating others — tend to be overlooked. That the inherent odds — for individuals as well as corporations — are against winning is often missed. Furthermore, the relentless quest for victory creates a naturally blinding side effect: missing out on innovations that offer no competition at all.

The older an organization gets, the greater the need for zero competition business opportunities rather than head-to-to-head rivalries in which no one gains. Some of the world’s biggest corporations have been able to rise to economic greatness by avoiding competition and focusing on niche areas. These corporations have successfully created deep long-term competitive advantages. But these advantages — or economic moats, as investors call them — are not eternal.

Family-owned businesses have a larger problem set. These firms have to deal with the additional burdens of personality clashes, succession struggles, and the lack of diverse thought leadership. Many of Asia’s oldest and most successful family owned global corporations have been facing all of these problems — and more.

In India this week, the board of directors of Tata Sons, a 148-year-old conglomerate, abruptly asked the group chairman to resign. South Korea’s  Samsung Group and other Korean chaebols like Lotte and Hanjin Group are facing difficult crosscurrents as well.

Samsung has struggled to maintain a competitive edge. Stories of its intensely dedicated South Korean workforce are inspiring, but the Galaxy Note7 fallout has dragged the entire company down.

In addition to a succession battle, Lotte is now facing a bribery probe and other serious investigations. The oldest Hanjin Group company, Hanjin Shipping, had to file for bankruptcy in the face of a highly competitive and weak global trade environment.

India’s largest conglomerate, Tata Sons has been facing difficulties for some time now. The Tata Group operates around 100 business lines, but only has a winning competitive edge in two — software services through Tata Consultancy Services (TCS) and autos through Tata Motors — and both of these have been under increasing pressure.

Asia has a high proportion of family-owned businesses. To endure, these firms need to innovate and find creative products and opportunities or prepare to fade away or be taken over. As PayPal co-founder Peter Thiel wrote in Zero to One:

“Tolstoy opens Anna Karenina by observing: ‘All happy families are alike; each unhappy family is unhappy in its own way.’ Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.”

Below is a list of interesting content that I came across in the last several weeks. Happy reading and enjoy the weekend.

Wisdom on Markets

• “$50 Trillion Cash Safety Net Aches for a Market Fall” (Bloomberg)
• Martingale bets (Janus Capital Group)
• “Global Banking Glut, Original Sin, Shadow Banking and the Cross Currency Bias” (Prof. Jayanth R. Varma’s Financial Markets Blog)
• Jesse Felder: The probability of a market crash has never been higher. (Business Insider)
• Howard Davies: “Taking Monetary Policy to the People” (Project Syndicate)

Investing

• “99% of Actively Managed US Equity Funds Underperform” (Financial Times)
• “Global Renewable Power Overtakes Coal as 500,000 Solar Panels Installed Every Day” (The Telegraph)
• “Knocking Down a Straw Man” (The Reformed Broker)
• “Global Wealth 2015: Winning the Growth Game” (BCG Perspectives)
• “The Psychology of Competition” (Psychology Today)

Family Businesses and Chaebols

• “Charred Chaebol” (The Economist)
• “Reconstructing Samsung” (The Economist)
• “Family Business in Asia-Pacific: Facts and Figures” (EY Family Business Yearbook 2014)
• “The Family Business Factor in Emerging Markets” (McKinsey & Company)
• “Family Firms Need Professional Management” (Harvard Business Review)

Lighter but Rather Important Readings

• Satirical quotes from the latest Man Booker prize winner. (Bustle)
• “Gliding Past a Century”: A tribute to mathematician Richard K. Guy. (Livemint)
• “Lessons from an Interview” (Livemint)
• “Some boundaries are taboo.” (Economic Times)
• Commentary on Bob Dylan’s recent Nobel Prize in literature. (Economic Times)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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