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    robot restaurant waiter server

    Substituting humans in the service industry could backfire without adequate reasoning, a new study finds

    By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

    Automation is the backbone of modern industry. It streamlines processes, enhances efficiency, drives innovation, and even starts preparing and serving food for humans. International restaurants have deployed robot chefs, and more eateries have opted for robots to take orders and serve food. Business owners no longer worry about sick days as the machines are available 24/7.

    Cost-saving and efficiency are undoubtedly sensible considerations to take in the competitive markets. However, many argue that patrons come to restaurants to feel connected to other humans instead of interacting with touchscreens or watching mechanical arms. The loss of human connection could lead to adverse consequences.

    robot service
    Interacting with non-humanoid robots would lead a stronger urge to indulge, possibly seeking comfort through food choices.

    “Robotic service encounters can unintentionally lead people to choose unhealthy foods, partly because interacting with robots generates an exclusionary experience,” says Choi Sungwoo, Assistant Professor of the School of Hotel and Tourism Management at the Chinese University of Hong Kong (CUHK) Business School.

    Professor Choi argues that exclusionary experiences can threaten customers’ need to belong, one of the fundamental human needs that refers to the intrinsic desire to form and maintain interpersonal relationships. This concept is rooted in the idea that social connections are essential for emotional well-being and overall mental health. For example, those who feel excluded tend to show greater interest in meeting new people, conform to others’ choices, and behave prosocially to fulfil their affiliation needs.

    Surprisingly, such exclusionary experiences were found to be diminished when consumers interacted with a service robot with human-like features. Professor Choi and Lisa C. Wan, an Associate Professor in the same department, as well as Anna S. Mattila of the Pennsylvania State University, investigated the driving forces behind this in new research titled Unintended indulgence in robotic service encounters.

    “The impact of robotic service encounters on consumer indulgence is particularly pronounced in solo consumption, compared to group settings,” Professor Choi adds.

    Service exclusion and unhealthy food choices

    Many studies have shown that negative emotions influence people to spend more and consume more hedonic foods to ameliorate their feelings. Professor Choi and his collaborators found that consumers experiencing social exclusion tend to have their compliance with self-regulatory behaviours diminish.

    “Exclusionary experiences in consumer-robot interactions during robotic service encounters may lead to emotional distress (e.g., loneliness) and undermine one’s self-control,” he says. “This, in turn, triggers consumers’ situational need to belong, resulting in a tendency toward indulgence.”

    “Robotic service encounters can unintentionally lead people to choose unhealthy foods, partly because interacting with robots generates an exclusionary experience.”

    Professor Choi Sungwoo

    However, robots that are designed to look or act like humans, or called humanoids, appear to create social connections and have proven to enhance consumer satisfaction when interacting with robots. Consumers are less likely to indulge when interacting with a humanoid service robot because such interactions fulfil the situational need to belong.

    “This can be presented most strongly by appearance, such as facial features, body shape, and communication medium via voice. Basically, if non-humanoid robots integrate these features, they should be classified as humanoid,” says Professor Choi. “Given that, one of the possible ways for non-humanoids to reduce indulgence would be to design their interfaces (e.g., order taking) to be as human-like as possible.”

    How can eating together help?

    To come to this conclusion, Professor Choi and his collaborators carried out a set of experiments. The first study involved 233 participants in the US via an online research platform, Prolific. They were asked to imagine visiting a restaurant served by a humanoid robot, a non-humanoid robot, or a human waitress. The result showed that participants expressed a greater intention to order dessert when interacting with a non-humanoid robot than a humanoid robot or human staff.

    The second study tested the impact of robotic service encounters in a real setting at a university cafeteria in Hong Kong. 118 participants were told that the cafeteria was testing a service robot as a new ordering platform and were asked to order individually. Participants who were ordered via a non-humanoid robot were more likely to choose a soft drink or indulgent option than those ordered via a humanoid robot.

    robot service
    Interactions with humanoid robots mitigate indulgent tendencies, hinting at the unique impact of robot design on decision-making.

    But what if customers can fulfil this social need directly, like eating together with friends or family? The researchers found that eating together can diminish the drawbacks of robot service, as the presence of others influences customers to focus on their eating experience.

    This is shown in the third study involving 497 participants in the US on Prolific. Participants were asked to imagine visiting a restaurant alone or with a group of four. Those who dined alone indicated a greater likelihood of ordering dessert when the server was a non-humanoid robot, but this tendency did not occur in a group setting.

    Different designs for different menus

    As dining alone, service robots, and healthy diets have become global trends, Professor Choi suggests restaurants promote a better experience by deploying proper strategies.

    “To create a healthier dining environment, our findings suggest that it is crucial to make consumers feel ‘included’ in a service setting,” he says. “Thus, if a restaurant deploys service robots at its front stage, they may want to programme or design the robots as human-like or encourage human staff to be more welcoming and friendlier to customers so that people would not feel excluded or left out.”

    Restaurants may also consider providing different menus for different services. For instance, pairing healthy foods with a humanoid robot or a human server might be more effective than pairing healthy foods with a non-humanoid robot. On the contrary, dessert shops, fast-food chains, all-you-can-eat restaurants, or the like might benefit from utilising non-humanoid robots to improve sales.

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    Does the appearance of robots matter to customers?

    Establishments focusing on solo diners may consider using humanoid robots in their service. For those that only have non-humanoid robots, one strategy could involve integrating humanlike features, such as a smiling face, a friendly voice, and movement, to diminish the sensation of service exclusion and guide consumers to make fewer indulgent choices. Seating arrangements could also strategically position consumers closer to others, addressing their inherent need for social connection.

    Finally, Professor Choi notes that the need to belong manifests similarly across different cultures, as it could be evoked by the lack of “humanness” in robotic service encounters. “Both Asian and Western customers would feel the same ‘exclusion’, such as not being welcomed by another person in this situation,” he says.

    “In fact, one of the studies reported was conducted in Hong Kong, and the other two were in the US. The results were replicated in the two different pools of samples, indicating no cross-cultural differences in the effects of robotic service encounters.”

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      Traditional ways of going public rely on investment banks to determine a company’s value and equity price. A new study shows its significance is actually greater than that

      By Ellis Ng

      Going public is a big step for companies intending to raise significant capital, reduce debt, and expand operations. Before taking that path, financial institutions called underwriters are needed to help assess the risk and appropriate price of equities. These institutions normally are investment banks that employ specialists in initial public offerings (IPOs).

      However, a 2020 move by the US Securities and Exchange Commission (SEC) to approve rule changes by the New York Stock Exchange and Nasdaq allowed firms to conduct direct listing without underwriters. In a direct listing, a company’s existing shareholders can sell their shares directly to the public without issuing new shares or raising new capital.

      direct listing, IPO
      Before going public, companies normally engage with underwriters to assess the risks and appropriate price of equities.

      This move was propelled by digital music streamer Spotify, which was the first to list directly on the bourse in 2018, followed by the messaging app Slack and the data analytics company Palantir Technologies. After the SEC officially changed the rules, a few have joined the club, including eyewear maker Warby Parker, online game platform Roblox, and crypto exchange Coinbase.

      “The new SEC regulations beg for a thorough investigation of the effects of equity underwriting relationships on clients,” says Zhao Meiling, Assistant Professor of Accounting at the School of Accountancy at the Chinese University of Hong Kong (CUHK) Business School.

      While direct listings are typically faster and less expensive, the benefits for the market and public may be less obvious, particularly regarding what the underwriters can bring to the table. In a paper titled The role of equity underwriters in shaping corporate disclosure, Professor Zhao, along with Cheng Mei of the University of Arizona and Zhang Yuan of the University of Texas at Dallas, suggests that underwriters provide the edges that extend after the IPO process.

      “Our study suggests the important informational role of underwriters beyond the IPO period and could potentially better inform regulation,” says Professor Zhao.

      Reflection from the crisis

      The 2008 financial crisis served as a natural experiment to test the informational effects of losing an underwriter on corporate information disclosures. The collapse of Lehman Brothers, which had been involved in underwriting since 1899, had immediate and profound effects on companies having underwriting relationships with the fallen firm.

      After analysing the various data from Securities Data Corporation from 1998 to 2008 to compare Lehman clients to clients of other similar investment banks, the researchers found that since the collapse, Lehman clients significantly increased the frequency of their earnings forecasts by 13.31 per cent and voluntary SEC filings to update shareholders by 10.19 per cent. Such behaviour was more pronounced for Lehman clients with stronger underwriting relationships or those experiencing negative returns at the time of the collapse.

      “Our study suggests the important informational role of underwriters beyond the IPO period and could potentially better inform regulation.”

      Professor Zhao Meiling

      “Earnings forecasts and voluntary SEC filings are used to measure the companies’ level of voluntary disclosure activities,” says Professor Zhao. “These disclosures are critical to provide insights into a company’s future performance and operational expectations, which are essential for investors making informed decisions.”

      The study also found that Lehman clients that did not increase or only made small increases in their voluntary disclosures faced more challenges in trading their stocks after the collapse compared to non-Lehman clients. However, this predicament is significantly attenuated for Lehman clients with substantial increases in their voluntary disclosures, indicating that greater corporate transparency can partially offset the loss of an established relationship.

      Coping with the loss of underwriters

      Underwriters invest considerable effort in gathering detailed information about their clients to validate and endorse equity issuances. Although their main role is managing securities distribution and promotion, underwriters also build strong relationships with their clients. These connections enable them to gather and share non-public information with current and prospective investors, extending their influence beyond the transactions.

      direct listing, IPO
      Voluntary disclosures are critical to providing investors insights about the company’s expected performance and operations.

      This informational effect is likely to continue beyond IPOs, the researchers argue, and underwriters continue to shape firms’ information environments as information intermediaries. Information environments refer to the context and conditions under which information is created, disseminated, and utilised. So, when an underwriter collapses, as Lehman did, the companies begin to fill the information gap themselves.

      The study also shows that companies seem to balance their own voluntary disclosures against the information provided by their underwriters after an IPO. When underwriters offer strong informational benefits, companies tend to reduce their own voluntary disclosures, suggesting that firms consider the value of information from underwriters to be greater than the potential advantages of making additional voluntary disclosures themselves. “Thus, upon losing underwriting relations, firms actively manage their information environments by increasing public disclosures to offset the increase in illiquidity,” Professor Zhao adds.

      Is bypassing equity underwriting a good call?

      Equity underwriters play important and unique roles during IPO. Not only to reduce information gaps in the market and improve clients’ information environments, but also to provide business insights. “To secure potential future engagement for financing or other brokerage services, equity underwriters continuously meet with top managers of their clients post-IPO to discuss financing needs, business conditions, as well as potential merger and acquisition opportunities,” says Professor Zhao.

      The underwriter’s reputation was also found to negatively correlate to the number of voluntary disclosures the client makes. Reputable underwriters help their clients shape their information environments, and companies feel less of a need to disclose information voluntarily if they are partnered with a more reputable underwriter.

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      Reputable underwriters provide a certification effect for the companies they represent, Professor Zhao argues, enhancing investor confidence and potentially lowering the cost of capital for issuing firms. Given these benefits and the large network of institutional investors the underwriters have, clients may suffer significant value and information loss when the relationship ends.

      “The research indicates that the loss of an underwriter is associated with increased information uncertainty and consequently an increase in firms’ voluntary disclosure,” she adds. “Investors can use these findings to better anticipate the changes in firms’ information environment and makeup of where information comes from and thus make more informed decisions.”

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        supply chain

        American companies increasingly reduce risks by shifting their suppliers to replace China with intermediary sources, but “the world’s factory” perseveres

        By Pan Jingyi, Principal Writer, China Business Knowledge @ CUHK

        The ongoing trade disputes between China and the US since 2018 have triggered global supply chain disruptions. In response to the decoupling trend between the world’s two largest economies, many American companies are diverting their supply chains to alternative countries to reduce their reliance on China. Before the trade disputes, China saw its share of US imports peaked at 21.6 per cent in 2017.

        This percentage dropped to 13.9 per cent in 2023, the lowest level in two decades. In contrast, over the same period, the US saw significant increases in import shares from third-party countries, such as Vietnam and Mexico.

        “Our findings suggest that suppliers in Vietnam and Mexico cannot fully substitute China in an end-to-end capacity and continue to rely on Chinese inputs, resulting in the maintenance of indirect connections between the US and China.”

        Professor Wu Jing

        The rapid shifts in the global supply chain have raised questions about whether third-party countries possess the same end-to-end supply chain capabilities as China, or if they are merely replacing China in certain segments of the supply chain while still depending on Chinese inputs. These questions open up the possibility that, despite efforts to reduce its supply chain reliance, Uncle Sam is still closely connected to China through third-party countries.

        “We find that US importers’ indirect exposure to China through Vietnam increases by approximately 21 per cent, while through Mexico by about 5.5 per cent following the commencement of the trade war,” says Wu Jing, Associate Professor in the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School.

        “These results suggest that rather than being replacements for Chinese suppliers with equivalent end-to-end supply chain capabilities, US suppliers in Vietnam and Mexico may instead be intermediaries who retain a strong reliance on Chinese inputs.”

        supply-chain
        The ongoing trade disputes between China and the US since 2018 have triggered global supply chain disruptions.

        Along with Vernon Hsu, Choh-Ming Li Professor of Operations Management at the same department and his PhD student Peng Boya, Professor Wu investigated the dynamics of indirect supply chain connections in response to the US-China trade war in a recent research titled The paradox of de-risking: Global supply chain rerouting in response to the US-China trade war.

        The increased indirect exposure to China

        Researchers observed that suppliers for US companies still rely on inputs from China. “Despite the apparent trade diversion, China’s well-established supply chains continue to exert a significant influence on US global supply chains, even in the presence of trade barriers,” says Professor Wu.

        To get to this conclusion, the team developed a novel measure to assess the indirect exposure to China for American importers. This measure considers two key components: the share of US imports from Vietnam and Mexico, and Vietnam and Mexico’s dependence on inputs from China. Although American companies can import from other markets to replace China, both Vietnam and Mexico have emerged as primary beneficiaries of the recent global supply chain reallocation trends, with strategic locations of sharing borders with the conflicting parties.

        The researchers examined publicly listed manufacturing firms in the US that engaged in imports from China between 2013 and 2017 before the trade war,  and also from either Vietnam between 2018 and 2022, or Mexico between 2016 and 2022. They collected the transaction-level global shipping data from Panjiva, as well as firms’ financial statements and broader economic indicators from Compustat and Orbis.

        The results showed that US imports from Vietnam and Mexico and both countries’ imports from China increased following the trade war. Specifically, there has been a substantial increase in the imports of inputs from China among Vietnamese suppliers, surpassing the rise in US imports from Vietnam. However, the increase in the US imports from Mexican suppliers slightly exceeds the increase in Mexican imports from China.

        Vietnam: A bridge to downstream goods

        Both Vietnam and Mexico stand as viable alternatives for US companies seeking new suppliers, but what sets these two nations apart? Delving deeper into this question, Professor Wu and his team thoroughly analysed the channels influencing product rerouting through either Vietnam or Mexico.

        supply-chain
        Downstream goods such as those in the textile industry experience a more significant increase in indirect exposure via Vietnam.

        Their investigation unveiled the crucial roles of geography and product characteristics in shaping supply chains. Product characteristics refer to whether products are upstream or downstream and the degree of China’s comparative advantage in their production. Upstream products are raw materials, components, and intermediate goods used in early supply chain stages to create downstream products or finished goods ready for sale.

        The results indicated that more downstream goods and products for which China has a greater comparative advantage experience a more significant increase in indirect exposure via Vietnam, particularly in the textile, footwear, and electrical industries.

        “China leverages Vietnam as a bridge to continue exporting products that are more downstream—products that typically involve more labour-intensive final assembly and for which it retains a significant comparative advantage,” Professor Wu says. “Vietnam’s proximity to China and comparable cost-effective production capabilities facilitate its smooth integration into Chinese supply chains.”

        For instance, the researchers found that Nike witnessed a 153 per cent increase in indirect exposure to China through Vietnam for textile and footwear products after the trade war, but the company seldom imports from Mexico.

        Mexico’s advantage in upstream products

        Upstream products, particularly in the chemicals, plastics or rubbers, metals, and machinery industries, showed a notable increase in indirect exposure through Mexico. “These upstream products are typically imported into the US to be further integrated into products that are higher-value-added, which require greater supply chain responsiveness for which Mexico’s close proximity to the US is a major advantage,” Professor Wu explains.

        Professor Wu further notes that their empirical evidence supports the strategies adopted by American firms in response to the trade disputes.

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        Safeguarding supply chains in fragmented world

        For example, 3M saw a 20 per cent increase in indirect exposure through Mexico for chemicals, plastics and rubber products and a 47 per cent increase for machinery products. Power management company Eaton’s indirect exposure via Mexico increased by 123 per cent for chemicals, plastics and rubber products, and by 94 per cent for metals products. Both companies have limited interaction with Vietnam.

        Reviewing reliance beyond primary suppliers

        The study underscores the necessity for reassessing global supply chain risks and dependencies. “It is important to consider sub-tier supply network structures in managing supply chain risks,” says Professor Wu. To fortify supply chains, he recommends that companies review dependencies beyond primary suppliers and proactively assess their supply network’s exposure to key markets.

        Moreover, while the trade war has posed challenges for Chinese firms, the researchers note that companies can still capitalise on the third-party countries’ markets as China’s role in the global supply chain remains difficult to fully replace. “Our findings suggest that suppliers in Vietnam and Mexico cannot fully substitute China in an end-to-end capacity and continue to rely on Chinese inputs, resulting in the maintenance of indirect connections between the US and China,” Professor Wu concludes.

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          funding imbalance Chinese banking system

          A unique monetary policy in the Asian powerhouse creates a financial disparity between state and non-state banks, but the market finds its way

          By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

          When the US Federal Reserve, or the Fed, delivered an interest rate cut in September, its first in four years, the widely-anticipated decision created a ripple effect overnight. As the same interest rate influences all banks in the US, those with ample cash can park their funds with the Fed while those needing liquidity can tap into the Fed’s resources for a capital boost.

          “You can think of the Fed as a big player with whom you can always trade. As a result, every bank has a pretty similar situation in terms of funding,” says Luo Dan, Assistant Professor in the Department of Finance at the Chinese University of Hong Kong (CUHK) Business School. “However, in China, the central bank is the one deciding to give money, and the banks cannot freely trade with the central bank.”

          funding imbalance
          China’s monetary policy results in some banks having excess funding while others experience a lack of resources.

          Unlike many Western countries that primarily use interest rates to control the economy, China employs a different approach known as quantity-based monetary policy. “When the People’s Bank of China implements a monetary policy, it influences the overall quantity of money in the economy,” Professor Luo adds.

          However, such monetary policy often favours certain banks, leaving some with more funding than they need while others face shortages. In a new study titled Imbalance and reallocation of funds under Chinese quantity-based monetary policy, Professor Luo delves into the cause of such disparity and how the market navigates its own path to address the issue.

          Along with Michael Weber of the University of Chicago, Yang Zhishu of Tsinghua University and Zhang Qi of Shanghai Jiaotong University, Professor Luo conducted a combination of data collection, empirical analysis, model development, and literature review, focusing on the period from 2013 to 2019, with particular attention to the implications for monetary policy and funding imbalances in the Chinese banking system.

          Understanding China’s unique banking system

          China’s central bank only deals with selected financial institutions called primary dealers, which is crucial in implementing monetary policy. As of 2022, there are 49 primary dealers, consisting of 39 non-state banks, six state banks, two policy banks and two securities companies.

          Despite the small number, state banks are massive compared to non-state ones, representing more than 40 per cent of the sector assets. These six include the notable Big Four—Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China—and two minor ones—the Bank of Communications and Postal Savings Bank of China.

          However, due to their non-market objectives and focus on traditional intermediation between depositors and borrowers, state banks are discreet in lending and investment. “We found that state banks act very conservatively when they have extra funds and are reluctant to lend or reallocate funds to other banks,” Professor Luo says.

          “We found that state banks act very conservatively when they have extra funds and are reluctant to lend or reallocate funds to other banks.”

          Professor Luo Dan

          Imbalance as the byproduct of monetary policy

          China’s macroprudential regulation aims to reduce the risk and the macroeconomic costs of financial instability. For this purpose, the central bank implements quantity-based monetary policy through several key mechanisms.

          funding imbalance
          Varying information about each other’s financial health and lending constraints can limit interbank transactions.

          Specifically, the central bank sets the reserve requirement ratio, which dictates the percentage of deposits banks must hold as reserves. By adjusting the reserve requirement ratio, the central bank can influence the amount of funds available for banks to lend. A lower ratio will increase the money supply by allowing banks to lend more, while a higher ratio restricts lending and reduces the money supply.

          The central bank also provides medium-term lending facilities to primary dealers with collateralised loans, typically with a maturity of one year, to inject liquidity and support lending to the real economy. Despite these mechanisms, Professor Luo discovered the funding imbalance persists.

          Banks normally transact with each other through interbank lending and borrowing. However, banks may have different levels of information about each other’s financial health and may face constraints that limit their ability to lend to others.

          “State banks with massive sizes and many branches can naturally raise a lot of money from depositors, while they actually may not need that much,” he adds. “Meanwhile, non-state banks, especially those on the east coast of China, have many investment opportunities but may have fewer deposits and funds as they cannot borrow from the central bank sufficiently.”

          Tackling funding imbalance in the banking system

          Due to the large gap between deposit rates and the return on the money market in 2017, households started to migrate funds out of banks to money market mutual funds, and more broadly, wealth management products. Money market mutual funds are typical investment vehicles that pool money to invest in short-term, high-quality, and low-risk financial instruments.

          smartfunding imbaance, chinese banking

          “The fact that the state banks are reluctant to lend money to other banks is important because they decide how to allocate the money. If the money moves out of the banking system to money market funds, the money market can decide how to allocate the money, and they are not subject to such conservatism,” Professor Luo says.

          Money market mutual funds channel capital from investors to banks and other financial institutions by acting as intermediaries between depositors and borrowers. This process helps redistribute excess liquidity from banks with surplus to those in need, alleviating funding imbalances and reducing reliance on the central bank.

          “Money market funds basically allocate households’ money, and banks borrow from money market funds,” he adds.

          When the table turns

          The high interest rate in recent years has caused a boom in non-bank investment vehicles, and state banks found themselves struggling to attract depositors. Therefore, state banks began to issue a financial instrument called a negotiable certificate of deposit in 2018 and eventually became net issuers in 2019.

          As the name suggests, negotiable certificate of deposits are negotiable fixed-term deposits issued by banks offering fixed interest rates and maturity dates, normally within a year, and can be traded like securities. “The good thing about a negotiable certificate of deposit is no need for any collateral, so banks can raise much money without pressure. It’s like a bond, very convenient with high liquidity,” says Professor Luo.

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          This change of direction challenges a conventional view of the Chinese banking system, which posits state banks possess abundant financial resources and provide funds for other banks. When state banks shift from net lenders to net borrowers, it allows for a more efficient distribution of financial resources and enables non-state banks to increase their lending relative to state banks, reducing funding imbalance in the system.

          Finally, a thorough analysis was conducted to isolate the impact of other factors in the banking system, such as the real estate sector, which has been accounting for a substantial portion of bank loans and overall economic activity, and non-bank financial institutions called shadow banking, which provide some of the key services of banks despite not being traditional lenders. The analysis affirms the lending behaviour shifts reflect the banking system’s underlying dynamics rather than the above confounding factors.

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            Conflicts are inevitable and can lead to adverse outcomes, but new research suggests ways to harness them for enhanced workplace creativity

            By Pan Jingyi, Principal Writer, China Business Knowledge @ CUHK

            Conflicts frequently arise in workplaces and are often viewed in a negative light. Nonetheless, different types of conflict can lead to various outcomes, with some instances even fostering improved job performance.

            Scholars have long been captivated by the connection between team conflict and creativity. Disputes over resource allocation or problem-solving strategies are proven to stimulate diverse ideas. Meanwhile, others argue that conflicts stemming from personal disputes and emotions can constrain creative output.

            team-conflict-creativity
            Conflicts frequently arise in workplaces and are often viewed in a negative light.

            “Conflicts are so prevalent in teams that managers might not have enough energy and resources to handle all the conflicts that happen,” says Liao Huiyao, Assistant Professor in the Department of Management at the Chinese University of Hong Kong (CUHK) Business School. “They have to direct their attention to handling conflicts that are most critical for team success.”

            Against this backdrop, Professor Liao conducted a study to find out what kind of conflicts are more crucial for a team to function and the underlying reasons. The study titled Team conflict at the core: Exploring the influence of critical team member conflict on team creative functioning was conducted in collaboration with Brad Harris of École des Hautes Études Commerciales de Paris, Li Ning of Tsinghua University, and Han Yuqing of Shanghai Jiao Tong University.

            The influences of critical members

            Professor Liao compares task conflict, which refers to disagreement on viewpoints, ideas, and opinions related to the team’s tasks, and relationship conflict, when friction becomes personal and emotional. He notes that many assume that both task and relationship conflicts impact all team members equally and that different members’ involvement in conflict has the same influence on team functioning, but it’s actually inaccurate. “Conflicts typically occur uniquely and asymmetrically between team members rather than being dispersed evenly across teams.”

            “Conflicts are so prevalent in teams that managers might not have enough energy and resources to handle all of them, they have to direct their attention to handling conflicts that are most critical for team success.”

            Professor Liao Huiyao

            The researchers argue that the effects of conflicts on team function and outcomes depend on where such conflicts reside. “If team conflicts occur between a critical team member and other members, such conflicts are of greater impact on team performance, compared to conflicts that occur among less critical members,” Professor Liao adds.

            Critical members in this study are defined as individuals who hold pivotal positions within the team’s operational network. To test their hypotheses, the researchers conducted surveys among 70 new product development teams from a wide range of Chinese high-tech enterprises by paper and email.

            Different conflicts lead to various outcomes

            In their theoretical model, the researchers posited that task conflict involving critical members positively correlates with creativity through team reflexivity, where members retrospectively analyse their performance and adjust their strategies for better performance in the future.

            team-conflict-creativity

            “Team reflexivity facilitates divergent thinking because it involves intensive information exchange, exploration of dissenting opinions, and scrutinising the status quo,” Professor Liao says, adding that divergent thinking enhances creativity by generating a greater variety of ideas.

            However, the researchers initially didn’t discover significant evidence supporting the positive correlation between task conflicts and creativity, as the main analysis showed that task conflicts did not bring about team reflexivity. However, they found a twist in a supplementary analysis.

            “The difference between our main and the supplementary analyses was that we identified critical members differently,” Professor Liao explains. In the main analysis, critical members are those occupying central positions within the team, meaning others need to go through them to complete tasks, but critical members in the supplementary analysis are those seen as having great influence by others.

            “Our results may suggest that a member’s criticality is determined not only by how central this member is in the team workflow but also by other factors yet to be identified.”

            Regarding relationship conflicts, the researchers found they are negatively associated with creativity via diminishing team cohesion. Team cohesion reflects the closeness and connection felt among members, which provides a supportive and safe environment that encourages the open-mindedness and perseverance required for collaborative problem-solving.

            “When a team has high cohesion, they stick together and are more likely to support each other and work well as a unit,” says Professor Liao. However, the results indicated that relationship conflicts involving critical members are significantly and negatively related to team cohesion, adversely impacting team creativity.

            Shared goals and emotional intelligence matter

            team-conflict-creativity
            Shared goals emphasise team members’ mutual interests and increase their willingness to consider opposing views.

            Professor Liao and his collaborators also note that the influence of conflicts involving critical members probably depends on other factors. Firstly, they believe that when the team has shared goals, members are more likely to work together to resolve discords and be more creative via team reflexivity. “Shared goals emphasise team members’ mutual interests and, by extension, increase their willingness to consider opposing views and approach task-related disagreements constructively,” says Professor Liao.

            Secondly, they argue that the emotional intelligence of critical team members, which involves understanding and managing emotions, can help resolve conflicts within the team, reducing the negative impact on creativity by promoting unity.

            The research findings indicate that shared goals accentuate the indirect positive link between task conflicts involving critical members and creativity through reflexivity. Moreover, a team with strong bonds and a sense of unity may be better equipped to handle conflicts involving critical members, thereby lessening the detrimental impact on the creative output.

            Choose your team members wisely

            Helping critical team members and their colleagues handle conflicts well is essential for managerial insights. Leaders should also ensure that key members don’t take on tasks others can do to prevent unnecessary overlap and potential disputes. “Training programmes aimed at helping individuals regulate emotions and have open-minded discussions may also be useful,” Professor Liao adds.

            It’s not uncommon to see task and relationship conflicts coexist. If task conflict is not handled properly, it could lead to relationship conflict. Thus, Professor Liao highlights that it is important to resolve task conflicts constructively, such that members do not take them personally, leading to relationship conflicts.

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            Given that shared goals and emotional intelligence are imperative for critical member conflicts for creativity, Professor Liao suggests team leaders can foster shared goals by clearly communicating them to team members. In addition, the leaders should not only design teams based on the functional heterogeneity needed for problem-solving but also work to select emotionally intelligent members.

            Finally, Professor Liao notes that this study was conducted in China and that cultural differences may play a role in their findings. “Evidence shows that Chinese, compared to Westerners, often rely more on conflict avoidance approaches in handling task conflict because they prioritise allowing others to ‘save face’. We encourage future tests of our hypotheses in different cultures.”

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              multinational enterprises digital platform

              Digital platforms are complex and costly ventures for companies. New research highlights strategies to optimise their efficiency in boosting international sales

              By Pan Jingyi, Principal Writer, China Business Knowledge @ CUHK

              As part of the world’s second-largest economy, Chinese enterprises have become increasingly important in global business and are actively expanding their digital outreach. According to the latest report by the National Data Administration, core industries in China’s digital economy contributed 10 per cent to the country’s GDP in 2023.

              Chinese multinational enterprises (MNEs), including tech giants Huawei, Tencent, and Xiaomi are also advancing globally. For instance, Tencent Cloud has seen double-digit growth in international business over the past three years, excelling in Southeast Asia, Japan, the Middle East, and Europe. Thus, it is imperative for MNE managers to prioritise their digital strategies to maximise benefits while minimising costs.

              digital platform attention
              Digital platform attention refers to the overall focus, effort, and resources that MNEs allocate to managing and optimising their digital platforms.

              “The overall time and efforts MNEs invest in developing and operating digital platforms impact their international sales in this fast-moving global technological era,” says Li Jingyu, Assistant Professor of the Department of Management at the Chinese University of Hong Kong (CUHK) Business School.

              In collaborative research, Professor Li delved into the impact of managerial attention on digital platforms on international sales. The study titled Digital platform attention and international sales: An attention-based view was co-authored with Pan Yigang of York University, Caleb Tse of Nanyang Technological University, and Yang Yi of Shanghai Jiao Tong University.

              Digital platform attention refers to the overall focus, effort, and resources that MNEs allocate to managing and optimising their digital platforms. It is a concept derived from the attention-based view theory, which emphasises the significance of managerial attention in influencing firm performance.

              “MNEs with more intensive and persistent digital platform attention are more effective in reaching global customers and achieving better international sales, but MNEs with a more diversified or scattered scope suffer from constrained international sales,” says Professor Li.

              Three dimensions of digital platform attention

              In this research, the team explored how three dimensions of digital platform attention, including intensity, persistence, and scope, affect MNEs’ international sales. Intensity reflects the total managerial attention devoted to digital platforms, while persistence indicates the consistent focus that managers and decision-makers maintain on digital platforms over time. The scope refers to how many kinds of platforms managers focus on.

              “Persistent managerial attention to digital platforms over time enables managers to spot opportunities, limitations, and problems.”

              Professor Li Jingyu

              The researchers analysed multinational enterprises in the China Stock Market and Accounting Research database from 2013 to 2018, when China’s digital platforms grew rapidly. They identified digital platform attention by extracting sentences with keywords related to digital features in companies’ annual reports, such as “platform,” “digital,” “online,” and “internet.” In total, they scrutinised 2,423 sentences from their sample of 784 Chinese MNEs.

              The intensity of digital platform attention was measured by counting the number of sentences with digital keywords in the annual report, while the persistence of this attention was assessed based on the frequency of these mentions over a three-year span. Furthermore, the scope of attention was evaluated by categorising the types of digital platforms companies focused on.

              Intensity and persistence are valuable

              The results confirmed that MNEs with a higher intensity of digital platform attention have more international sales. A higher level of concentration on digital platforms compels managers to acquire profound insights for improving these platforms effectively, enabling companies to address issues with ample resources and enhance stakeholder engagement.

              “As a result, problems and potential issues associated with the digital platform will be identified in a timely manner,” Professor Li says. “It can help organisations maintain good relations with their existing customers and identify potential new customers to achieve more sales.”

              Likewise, MNEs with higher persistence of digital platform attention, reflecting their consistent focus, also demonstrate higher levels of international sales. “Persistent managerial attention to digital platforms over time enables managers to spot opportunities, limitations, and problems,” Professor Li explains, adding that consistent attention allows stakeholders to establish specialised routines and procedures, which can enhance communication with global partners and customers.

              Contrary to the intensity and persistence, MNEs with a wider scope of attention have fewer international sales. Professor Li attributed this to the potential distraction stemming from a broader scope. “When MNEs divide their managerial attention across a diverse array of digital platforms, they likely experience information overload, which in turn may prevent them from realising the full benefits of those platforms,” she says.

              The influence of geographical distance

              digital platform attention
              A consistent focus on digital platforms helps companies maintain stable routines, ensuring steady operations even with distracted managerial attention.

              MNEs may establish subsidiaries in remote areas to capitalise on opportunities like market expansion, cost efficiency, and government incentives. However, the geographical distance can create significant communication challenges and may influence the degree of focus companies allocate to their digital platform engagement. Consequently, MNEs need to pay more attention to effectively solving operational issues.

              “When limited managerial attention has been resituated to remote subsidiaries, the focus on digital platforms may be reduced,” says Professor Li. “As a result, managers may neglect some details in improving their digital platforms.”

              As anticipated, the team found that remote geographical distance weakens the positive impact of intense digital platform attention. However, the findings revealed that the impact on persistent attention remains unaffected. Professor Li notes that consistent focus on digital platforms can help companies establish stable routines, so digital platform-related operations can remain steady even when the managerial attention is distracted. “Some managerial attention can be released from digital platforms and redirected to remote subsidiaries and other operational issues to help promote international sales,” she adds.

              Remote subsidiaries narrow digital platform focus

              Managers may struggle to spread their attention across various digital platforms and remotely located subsidiaries simultaneously. Remote subsidiaries would force managers to focus on fewer types of platforms.

              As a result, the negative impact of a wide scope of digital platform attention can be attenuated by remote geographical distance between headquarters and subsidiaries. While having a wide scope of digital platform attention can create challenges, the distance between headquarters and subsidiaries can help alleviate some of these issues by encouraging a more focused approach to platform management. Managers can address the needs of the platforms they focus on, and improvements will occur.

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              “We suggest that top managers of MNEs should pay intensive, persistent, and focused attention to digital platforms when trying to sell more internationally, but be cautious about spreading managers’ attention across diverse platforms,” says Professor Li.

              However, she notes that this study exclusively examined listed MNEs in China, suggesting that unlisted MNEs within China and MNEs from other markets could possess unique characteristics. “Future research can extend this study by exploring the relationship between digital platform attention and internationalisation in various types of MNEs.”

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                Insurance bond

                A new study finds that insurance companies investing in bonds are actively changing their external sources that value their investments, but not for good reasons

                By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

                There are many avenues for insurance companies or insurers to invest and generate profits while fulfilling their financial obligations. Among various options, bonds are particularly appealing due to their relatively stable returns and low risk. As a matter of fact, bonds play a crucial role in the overall investment strategy of insurers.

                The US National Association of Insurance Commissioners (NAIC) points out in its Year-end 2023 capital markets update that the US insurance industry has a total investment of around US$2.85 trillion in corporate bonds, which accounts for 35 per cent of the industry’s total cash and assets. The European Central Bank also reported in September last year that US insurers hold nearly 40 per cent of US corporate bonds.

                In many countries, insurers are highly regulated and mandated to report the value of their investment in financial statements to regulators and investors. Considering its significant portion, an estimated value or “fair value” of invested bonds would affect the insurers’ balance sheet and overall financial health. While insurers can value their own bond investments, many outsource this task to third parties to enhance transparency and comply with regulatory requirements.

                insurance bonds
                A recent study discovered that insurers strategically switch between external sources to find more favourable fair value estimates for their bond investments.

                However, a new study found that insurers strategically switch between external sources to seek out favourable fair value estimates of their bond investments. This practice is called fair value opinion shopping, which involves selecting sources that provide higher estimates and potentially inflate the real value of bond investments.

                “There is a very common way of valuation where insurers switch the pricing sources, called third-party source switching behaviour,” says Koo Minjae, an Assistant Professor of Accounting at the Chinese University of Hong Kong (CUHK) Business School.

                “There might be some opportunism going on when switching the pricing sources to get a more favourable estimate that is more consistent with what the insurers want: boosting their assets. After looking at certain instances where different sources generate conflicting estimates, we found that the opinion shopping motive dominates.”

                Opinion shopping could impair financial reporting transparency and lead to mistrust among investors and policyholders. Policyholders may also misallocate and make inefficient investment decisions if the financial statements are misstated or inflated.

                Opinion shopping vs. objective valuation

                In the research paper titled Third-party source switches: Objective valuation or fair value opinion shopping? Professor Koo, along with Konduru Sivaramakrishnan of Rice University and Zhao Yuping of the University of Houston, analysed documents submitted to the NAIC by US insurers on their investments in bonds and other securities. The researchers obtained a sample comprised of 662,528 security-insurer-year observations from 1,852 unique insurer-years from 2014 to 2017.

                The result confirmed that insurers strategically switch between third-party sources to either provide objective valuations or inflate fair value estimates by opinion shopping. While both motives exist, opinion shopping tends to be prevalent. The study highlights that opinion shopping is more widespread among financially weaker insurers with lower risk-based capital ratios. Opinion shopping is also more common among illiquid bonds or securities that are not traded frequently.

                Furthermore, the researchers found that insurers engage in block-switching behaviour, where they strategically switch the price source for groups of securities rather than individual ones to make it less obvious to the regulators or the auditors. This can result in changes in fair value estimates for multiple securities within a block.

                “We found evidence of opportunistic opinion shopping among insurers, even when they are regulated to disclose the source and pricing vendors at the security level.”

                Professor Koo Minjae

                As US insurers are regulated at the state level, with each state having its own regulations, Professor Koo and the team further interviewed several regulators. Many admitted that some insurers may opportunistically inflate their value estimates.

                “What the regulators typically do is compare the same securities owned by an insurer with those of other insurers,” says Professor Koo. “If they think that the price is deviating quite a lot from other insurance companies, the regulators would advise or recommend the relevant insurers to readjust their financial statements.”

                This comparison method is quite normal for valuing level-two assets that have no regular market pricing, such as bonds that are traded in not very active markets. Companies usually infer bonds at this level with other bonds that have similar interest rates or maturities.

                Meanwhile, level-one assets are the easiest to value for their readily observable and transparent prices, such as listed stocks. On the other side of the spectrum, level-three assets have no observable market prices and can only be valued based on internal models or “guesstimates”.

                Indicative signs of opinion shopping

                In an additional analysis of 280 unique price sources, Professor Koo and her team found that the “Big Five” external price sources accounted for 63.2 per cent of the market share during the sample period, dominated by Intercontinental Exchange and followed by Bloomberg, Thomson Reuters, S&P, and Markit. These top players have more capital and the ability to better estimate the value of the securities.

                Insurance bond

                Surprisingly, after re-estimating the effect of switches to Big Five and non-Big Five sources, the researchers found that switches to non-Big Five are associated with a greater deterioration in fair value estimate quality than switches to Big Five price sources. This result is consistent with opinion shopping.

                “If we see some cases where the securities had been measured by Big Five but not anymore, there is a likelihood of manipulation ongoing,” says Professor Koo. “In such cases, the insurers might have switched to a vendor that can give them more favourable estimates.”

                insurance bonds
                Regulators can enhance fair value estimates among insurers by conducting cross-verification and frequent external auditory reviews.

                Enhancing fair value estimates

                There is much literature on a fair valuation, and according to Professor Koo, the general view is that companies manipulate or engage in opportunistic inflation of the fair valuation to boost their assets. For example, opinion shopping can also be found among hedge funds, which are not mandated to disclose their security holdings, giving them incentives to inflate their value estimates.

                Although insurers need to maintain their risk-based capital in a highly regulated industry, this does not apply to the less-regulated mutual fund industry.

                “We found evidence of opportunistic opinion shopping among insurers, even when they are regulated to disclose the source and pricing vendors at the security level,” says Professor Koo. “Public companies are not mandated to disclose at the security level, so in that case, we are suggesting that there can be more opportunistic opinion shopping going on.”

                To enhance the fair value estimates, Professor Koo recommends using multiple pricing sources for the same securities, instead of relying on only a single source. Regulators could also help by carrying out cross-validation and verification. For instance, state regulators can observe in real-time how the same security is valued by different states or different insurers in different states.

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                “The disclosure itself should be more transparent, in the sense that there may be something going on when insurance companies switch from a certain source to another,” she says. “Therefore, there should be more mandatory disclosure on why insurers are switching to another source.”

                Lastly, more frequent external auditory reviews and regulatory reviews may be necessary. Currently, regulators only review an insurance company once every three to five years. “This frequency should be increased to verify and cross-validate the insurers’ estimates,” Professor Koo adds.

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                  Despite their limited product assortment, a new study reveals that small businesses can challenge industry leaders by effectively capturing consumers’ attention

                  By Pan Jingyi, Principal Writer, China Business Knowledge @ CUHK

                  “A wealth of information creates a poverty of attention,” writes Herbert Simon, an American Nobel Laureate who proposed the concept of attention economy. In a world of information inundation, it is vital for businesses to master the art of attracting and monetising consumers’ attention.

                  Platforms like YouTube, Instagram, and TikTok have given birth to many content creators or “influencers”, many of whom have become global celebrities. The influencer marketing industry has seen exponential growth, expanding from US$1.7 billion in 2016 to US$24 billion by the end of this year, according to The state of influencer marketing 2024: Benchmark report by a social media research firm, Influencer Marketing Hub.

                  “The attention monetisation via e-commerce (AMveC) model allows businesses to focus on garnering consumer attention, which becomes the core strategic resource for businesses.”

                  Professor Tony Ke

                  ecommerce
                  It is vital for businesses to master the art of attracting and monetising consumers’ attention.

                  In China, live stream selling has become a common norm among top influencers, with Crazy Little Yang Brother or Crazy Xiaoyangge, who also hosts e-commerce live streams, outperforming his peers with an annual net income of 3.21 billion Chinese yuan (US$451 million). This is no surprise as a new report by KPMG, Navigating the future of seamless commerce in Asia Pacific, found that Gen Z ranked social commerce and live streaming commerce as important parts of their shopping experience.

                  “The business strategy to monetise attention through e-commerce is economically feasible both in the short term and for the long haul,” says Tony Ke, Associate Professor of the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

                  E-commerce platforms are not the only ones that leverage content to captivate consumers and monetise their attention through direct product sales. The New York Times has introduced a digital store that not only offers books but also a diverse range of apparel and accessories, while Vogue went further by opening an online shop showcasing products curated by its editorial team.

                  However, there is much to understand about how attention monetisation works in a competitive market and how it helps smaller companies or individual content creators compete against the giants. Professor Ke and Mandy Hu, Associate Professor of the same department, along with their PhD student Wee Chaimanowong, as well as Cao Jingcun of the University of Hong Kong, delve into the model of attention monetisation via e-commerce (AMveC) in their latest research titled Attention Monetisation via e-commerce: Why do people buy groceries on an education app?

                  Differences from traditional business models

                  business-model

                  Unlike conventional business models like product merchandising and attention monetisation via advertisement, the AMveC model boasts its distinctive characteristics. Businesses adopting AMveC invest in content creation to allure consumer attention before monetising it by selling products from third parties and relying on e-commerce platforms to sell and deliver their products, instead of engaging in manufacturing.

                  “This model allows businesses to focus on garnering consumer attention, which becomes the core strategic resource for businesses,” Professor Ke explains, adding that the AMveC model also allows businesses to control over product assortment and price directly.

                  To formulate this model, the researchers conducted a large-scale randomised field experiment with a private online education service provider in China to scrutinise the viability of the AMveC model.

                  Various and updated product choices win

                  The researchers created a new in-app store and randomly assigned 100,000 users to one of their four stores that differ in product assortment (educational vs. non-educational) and prices (regular vs. high). The study revealed insights into consumer behaviour and purchasing trends over a 32-day period.

                  The findings indicated that the non-educational store with regular pricing tends to attract the most buyers and generate the highest sales, revenue, profit, and repeat purchases. Although fewer people shop in education stores due to the less popular product assortment, those who shop are more willing to spend more money. However, Professor Ke notes that the sales declined quickly over the experiment period for all the stores.

                  “This suggests that even though some customers indeed make repeated purchases, the stores still need to change the assortment of products frequently to boost sales,” he says.

                  Building competitive advantages for small firms

                  ecommerce
                  Consumers visit the fringe firms for the content, instead of product consumption.

                  Given consumers’ limited attention, Professor Ke and his collaborators also explore how smaller companies can compete with industry leaders.

                  Compared to the leading firms with a wide range of products, small companies or fringe firms usually provide limited product selections. “The fringe firms may have limited resources to develop the necessary technologies, and therefore, even if they have access to a large selection of product assortment, it may not be optimal for them to offer all of them,” Professor Ke says.

                  Therefore, smaller firms can harness the AMevC model to compete against the dominant seller. Professor Ke highlights that in this model, the core strategy for small firms is to create appealing content that can capture consumers’ attention, and third-party products are just a means to monetise the attention. “Consumers visit the fringe firms for the content, instead of product consumption.”

                  On the other hand, the researchers also found that a discounted rate works best for businesses adopting the AMevC model. “A lower price compensates the business’ disadvantage in product assortment and also discourages consumers from continuing to search,” Professor Ke adds. “Fringe firms can secure consumers’ first visit via attention-grabbing content and retain consumers by charging a lower price.”

                  Managerial insights for companies

                  With the unstoppable rise of e-commerce platforms, more businesses are now leveraging the AMveC model, selling unrelated products to monetise the attention of a larger consumer base.

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                  The management team of the education platform Professor Ke collaborated with did not expect non-educational products to sell better than educational ones. After implementing an in-app store showcasing a mix of educational and non-educational products, as learned from the experiment, the platform saw a substantial 45 per cent revenue increase.

                  “Our research not only demonstrates AMveC as an economically viable business strategy, but also offers managerial insights on product assortment and pricing decisions,” says Professor Ke.

                  He emphasises that by focusing on engaging content creation, strategic product offering, and competitive pricing, small businesses can foster growth and co-exist in a frictional market with the leading seller.  “Sales are old and inaccurate, while eyeballs (attention) are new and informative.”

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                    Consumer-to-consumer platforms can overcome significant cash burns and achieve long-term growth by leveraging scarcity, a new study finds

                    By Aaron Woolner

                    Amazon’s three-decade journey from a Seattle garage to a US$1.8 trillion market cap demonstrates the almost limitless potential of two-sided marketplaces in the internet age. It’s a simple concept; match buyers and sellers using their smartphones and then take a cut from the resulting trades.

                    Two-sided marketplaces, also known as consumer-to-consumer (C2C) platforms, lack inventory and have low staff costs, which powered the concept into sectors as diverse as freelancing, holiday rentals and second-hand clothes. They also permanently changed global shopping habits with China alone recording US$3.3 trillion worth of sales in 2023.

                    e-commerce
                    Many consumer-to-consumer platforms encounter significant cash burn to grow their markets in the early stage.

                    The success of Amazon and its Chinese peer Taobao demonstrates the other major advantage of this business model – scalability. But achieving scale costs money, lots of it. Amazon’s first profit in 2001 came off the back of losses close to US$150 million in the previous year, and other big names have plunged even further into the red as they pursued growth.

                    Uber burned through US$25 billion of cash over 13 years before recording its first quarterly profit in 2022, vacation home platform Airbnb lost US$1.2 billion in the year ahead of its 2020 IPO, and Walmart-backed Indian e-commerce outfit Flipkart burnt US$3.7 billion of investor’s cash in 2022.

                    “We have probably all seen many business cases where companies burn cash to grow their marketplaces in the early stage,” says Kevin Chen Hongfan, Assistant Professor of the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School.

                    While matching buyers and sellers and taking a cut is a simple idea, the interplay between the diverse groups active on these platforms is complex. With the established business model of C2C platforms typically being to subsidise the early stages of growth and then make profits over the long term, discovering the most efficient way to incentivise participation has major cost implications.

                    “What should the growth strategy be for a two-sided market that has many supply and consumer types? How is the growth strategy related to the most basic economic intuition that scarcity creates value?” Professor Chen asks.

                    In a paper titled The optimal growth of a two-sided platform with heterogeneous agents, Professor Chen uses an analytical model without a true dataset to answer the above questions. Co-authored by his colleagues from the same department, Professor Sean Zhou and Associate Professor Philip Zhang Renyu, as well as doctoral student Zhu Yixin, the paper delves into how growth potential and network structure influence the optimal commission approach for platforms during the growth and maturity phases.

                    “We have probably all seen many business cases where companies burn cash to grow their marketplaces in the early stage.”

                    Professor Kevin Chen Hongfan

                    Finding the scarcest agents in the marketplace

                    The number of variables involved in C2C platforms is vast, but Professor Chen says three key components exist for designing commissions in the platform’s growth strategy. “Firstly, scarcity creates value,” he says. “Targeting the scarcest type of market participants is a good growth strategy.”

                    The scarcest agents refer to either buyers or sellers that are currently underrepresented or have the lowest population ratio compared to a benchmark in the long run. For example, if the platform finds the benchmark to be optimal to serve 20 sellers and 100 customers on the platform, while currently there are two sellers and only five buyers, the buyers are the scarcest agents because they are in lower numbers relative to the platform’s targeted state.

                    Secondly, while the above example illustrates how to identify the scarcest resources in the marketplace, the platform needs to identify the state of the size of market participants, under which it can maintain and maximise long-term profit. Here, the scarcest agent refers to the user segment that has the lowest population ratio compared with this state.

                    e-commerce
                    By focusing on the scarcest agents, the platform can create a thriving environment for all.

                    “Such a benchmark can provide good guidance for the platform’s commissions,” he says. By focusing on the scarcest agents, the platform can implement strategies to attract more of them, such as offering incentives, lowering fees, or enhancing marketing efforts to bring in more buyers or sellers, depending on which group is lacking.

                    “The scarcest type could change over time, but the platform should always focus on the growth of the market’s scarcest resources – this could be either sellers or buyers. Combined with the network effects in a two-sided market, this could support strong long-term revenue growth.”

                    “Thirdly, the platform could target the quality of service from both sides as the metric in the design of its commissions, and these should be structured to achieve the fraction of market participants to participate in trades out of the potential market size,” Professor Chen adds.

                    Different strokes for different folks

                    C2C marketplaces vary widely. The needs and spending power of a corporate client looking to hire a web developer for a long-term project over Upwork are markedly different from those of a teenage Taylor Swift fan scouring Etsy for a new friendship bracelet.

                    Take Amazon, the most visited e-commerce platform globally. Its network effects can power supersized growth in C2C marketplaces, which can result in a winner-takes-all competitive landscape. However, this is not true for all businesses and every location.

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                    Consumers are willing to use multiple food delivery services, and ride-hailing apps such as Uber and Lyft have been unable to repeat their US success in numerous Asian markets when faced with competition from local players like Grab and Gojek.

                    “Every platform is different and the competitive landscape of the platform determines how urgent the platform needs to take the market.  However, growing the scarcest agent type relative to the long-run benchmark could create value in the long term,” he says.

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                      luxury-passion

                      Luxury consumption often garners mixed perceptions, yet openly expressing one’s passion for luxury can be beneficial

                      By Pan Jingyi, Principal Writer, China Business Knowledge @ CUHK

                      The adage “you are what you wear” often leads many to buy branded products. People normally buy luxury brands for their extraordinary appeal and the confidence they can inspire. For some professionals like lawyers, accountants, investment bankers, and the like, wearing a Rolex watch or a Louis Vuitton handbag could help them catch elite clients.

                      The consumer’s thirst for high-end products is no secret in China, where the luxury market is expected to reach 816 billion Chinese yuan (US$112 billion) in 2025, accounting for about 25 per cent of the global luxury market share, according to PwC’s 2023 report. However, luxury consumption can lead to negative judgments.

                      “Luxury consumers are conferred higher status and receive preferential treatment from others, but such benefits come with a hefty social price.”

                      Professor Jung SungJin

                      Adam Smith, a pioneer in modern economics, classified goods into necessities, basic goods, affluence goods, and luxuries. Since then, scholars have viewed luxury products as exclusive and expensive items only accessible to the wealthy.

                      However, recent economic uncertainties have led Chinese consumers to avoid flaunting their wealth in favour of more discreet fashion due to “luxury shame”, similar to what happened in the US during the 2007-2008 financial crisis, according to a June report published by Bain consultancy.

                      “These are the social costs of luxury consumption,” says Jung SungJin, Assistant Professor in the Department of Marketing at The Chinese University of Hong Kong (CUHK) Business School.

                      Many luxury consumers worry that their choices may be judged negatively by others, leading them to appear pretentious, wasteful, and snobbish. These concerns can deter individuals from fully enjoying their luxury items as they grapple with potential backlash.

                      luxury-consumption
                      People normally buy luxury brands for their extraordinary appeal and the confidence they can inspire.

                      “Luxury consumers are conferred higher status and receive preferential treatment from others, but such benefits come with a hefty social price,” he adds. “They are often viewed as striving for status and managing impressions, and therefore judged as inauthentic.”

                      Express your true emotions

                      In a series of experiments, Professor Jung found that many individuals actually enjoy and love luxury products, yet a significant portion of them choose to keep this fervour hidden from others, especially from co-workers and social media followers. “This is because they worry about receiving negative judgments,” Professor Jung explains, citing an example of one individual who indicated wanting to avoid being thought of as a snob.

                      So, how can luxury consumers alleviate those negative social consequences? Professor Jung, in collaboration with Charlene Chen of Nanyang Technological University and Andy Yap of INSEAD, sought to answer this question in their latest research titled Expressing passion for luxury enhances perceived authenticity. The researchers proposed that openly sharing one’s passion for luxury can lead others to perceive them as more authentic. “Authenticity here refers to acting in accordance with one’s true self,” says Professor Jung.

                      The team carried out multiple studies to examine their hypotheses. The first experiment examined the consequences of expressing passion for luxury sneakers. The results show that demonstrating one’s passion for luxury helps alleviate the negative impressions associated with luxury consumption.

                      “We found that the luxury consumer was perceived as less warm than the non-luxury consumer,” says Professor Jung, “However, more importantly, expressing passion for luxury helped mitigate these social costs, making the luxury consumer appear more authentic and, therefore, warmer.”

                      Positive interpersonal outcomes

                      In the following experiment, Professor Jung and his co-authors aimed to investigate the reasons why luxury passion expression can enhance one’s perceived authenticity. “This occurs because luxury passion expression makes the luxury consumption appear more intrinsically motivated,” Professor Jung says.

                      luxury-consumption
                      Publicly expressing one’s passion for luxury can make individuals appear more authentic.

                      Existing literature indicates that observers often attribute luxury consumption to external motives. In other words, they assume that consumers engage in luxury consumption to gain external benefits like status, social approval, and favourable impressions.

                      However, expressing passion shifts this inference. “A consumer who expresses passion for luxury will be seen as pursuing the enjoyment and stimulation inherent in the usage of luxury products, such as the pleasure derived from craftsmanship,” Professor Jung explains.

                      Publicly expressing one’s passion for luxury can make individuals appear more authentic, leading to several positive interpersonal outcomes. Firstly, increased perceptions of authenticity tend to make individuals seem warmer and more trustworthy. “People often associate warmth with genuine intentions, and feel less defensive toward authentic individuals and regard them as more trustworthy,” Professor Jung explains.

                      Another positive behavioural outcome of enhanced perceived authenticity is people’s increased interest in learning more about luxury consumers. “Disclosing a genuine, unvarnished self and not having a hidden motive is highly valued in interpersonal relationships,” says Professor Jung, adding that these positive effects can coexist with the status benefits of luxury consumption.

                      Unlike luxury consumption, non-luxury consumption is generally not linked to underlying motivations such as status enhancement or impression management. Thus, the researchers found that the benefits of passion expression are attenuated under the scenario of non-luxury consumption.

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                      A win-win scenario

                      While the luxury market continues to grow, this research offers practical insights for both luxury brands and their consumers.

                      On the one hand, the findings inform consumers that there is no need to hide their passion for luxury goods. On the other hand, Professor Jung suggests that companies can encourage consumers to showcase their passion explicitly. For example, they could nudge consumers to talk about the craftsmanship of the brand, or share and engage with specific social media content.

                      While expressing passion for luxury is generally viewed positively, Professor Jung underscores that the impact of passion expression on social evaluations might differ depending on what people are passionate about. “One avenue worth investigating is whether passion expression generates similar benefits when applied to other types of impression management behaviours, such as humblebragging about one’s professional achievement.”

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