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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

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.

Retail marketing in the digital era

“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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New study finds that romantic theme plays a critical role in stimulating tourists’ impulsive buying behaviour

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

Have you ever felt that irresistible pull when exploring tourist spots, only to be drawn to something more? Imagine strolling through the Notting Hill district in London or Montmartre in Paris to take Instagrammable photos at a bookshop or cafe, but despite your intentions, you ultimately leave with a tote bag or souvenirs.

Well, you are not alone. Many travellers find themselves making these subconscious purchases due to the vibes rather than part of their itineraries. Tourists frequently engage in impulsive buying, making unplanned or spontaneous purchases without carefully considering the necessity.

The good part is this impulsive act offers an opportunity for tourism businesses to make profits and enhance the travel experience. Understanding the factors that contribute to such excursion can provide valuable insights into consumer behaviour and engagement.

“Impulsive buying is a manifestation of individuals’ personal control over themselves, and a low sense of personal control could induce impulsive behaviour.”

Professor Lisa Wan

Previous research has identified factors such as emotions, travel experience, and time pressure as drivers of impulsive buying. In a recent study, a group of researchers proposed a novel driver they call “romance-themed storytelling in a tourist attraction.”

“Romantic stimuli have been proven to elicit unplanned behaviour,” says Lisa Wan, Associate Professor of the School of Hotel and Tourism Management and Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

While researchers found that storytelling in tourism could stimulate purchase intentions, little is known about how specific themes, such as romance, can actually impact tourists’ spending behaviour. “We focus on examining the effect of romantic themes, which are commonly used in destination storytelling and marketing,” she says.

Professor Wan, together with Luo Xiaoyan of Sun Yat-Sen University and Liu Xing of University of Macau, explored the effect of exposure to romance-themed attractions on tourists’ impulsive buying in their latest research titled Harnessing romance: The effect of exposure to romance-themed attractions on tourists’ impulsive buying.

real-estate-housing-market — Travellers frequently engage in impulsive buying due to the vibes of romantic tourist attractions.

The team also delved deeper into the underlying mechanisms behind such behaviours: Why can romance-themed storytelling lead to impulsive buying? Drawing on recent studies, they assumed that travellers have an internalised belief that “romance is uncontrollable.”

The role of personal control

To test their hypothesis, Professor Wan and the team conducted three studies involving 820 participants recruited from a crowdsourcing platform, Amazon Mechanical Turk. The first study aims to examine the impact of exposure to romance-themed storytelling on impulsive buying, in which 210 participants were randomly assigned to one of the two conditions.

In the romantic condition, participants were shown pictures of a medieval bridge with a lifelong love story. On the contrary, participants in the non-romantic condition were told a story about friendship related to the bridge. As expected, the results revealed that participants exposed to romance-themed attractions were more likely to make impulsive purchases compared to those under the non-romantic condition.

In study 2, the team recruited 270 participants to test whether the perception of personal control would affect impulsive buying behaviour. “Impulsive buying is a manifestation of individuals’ personal control over themselves, and a low sense of personal control could induce impulsive behaviour,” says Professor Wan.

Similar to study 1, participants were invited to watch either a romance-themed or non-romance-themed video. The researchers explored participants’ tendency towards impulsive buying and measured their perceptions of personal control using a series of crafted questions. The findings showed that participants under the romantic condition felt more “uncontrollable”.

“Tourists’ exposure to romance-themed storytelling influenced their propensity for impulsive buying through their perception of personal control,” Professor concludes.

Then why do tourists experience a lower sense of personal control when exposed to romance-themed storytelling? Professor Wan attributed it to the lay belief, which refers to a mental shortcut to simplify the rational decision-making process, to the notion that “romance is uncontrollable.” As the idea of romance is uncontrollable has long been embedded in our daily language, literature and deeply ingrained in modern culture, it naturally emerges when travellers visit a romance-themed tourist attraction.

real-estate-agent-housing-contract — The research finds that consumers show a higher tendency to engage in impulsive buying when the romantic story is presented in blue compared to red.

Colours elicit diverse consumer responses

Colour plays a vital role in designing and promoting tourist attractions as it can trigger emotional and behavioural reactions. In study 3, Professor Wan and the team explored how red and blue colours are associated with tourists’ purchase behaviours, as widely studied in tourism literature.

Previous research suggest that blue often encourages approach behaviour, while red evokes avoidance motivation. For example, tourists prefer staying in a blue-painted hotel room over a red one because blue evokes positive feelings.

Consistent with such findings, Professor Wan and her team found that participants in the romantic condition showed a higher tendency to engage in impulsive buying when the story was presented in blue compared to red. She explains that red is often linked with risks and mistakes, while blue is associated with openness and peace.

However, the team didn’t find significant differences when comparing both colours in non-romantic settings.

“The background colour can moderate the relationship between romance-themed storytelling and the tendency to impulsive buying,” Professor Wan says. “When the romantic story was presented on a red background, the positive effect of the romantic theme exposure on the propensity for impulsive buying was mitigated.”

Mitigate unwanted impulsive behaviours

The findings of this research provide valuable insights for industrial practitioners by illustrating the impact of romance-themed storytelling on tourists’ responses. Professor Wan emphasises the importance of themes in presenting the setting of a specific attraction.

“We encourage attractions and destinations to use romance-themed storytelling, as our empirical findings reveal that the mere presence of a romantic theme is strong enough to intuitively activate a lay belief, along with the consequences of that belief for impulsive buying,” she says.

Throwing Back Travel Memories to Boost Creativity

However, Professor Wan also warns that impulsive tendencies may lead to adverse consequences. For example, travellers with an impulsive mood at a romantic attraction may become careless or prone to accidents.

“We offer findings of practical interest for those who wish to guide tourists in tempting situations,” says Professor Wan. “Romance-themed bars, museums, and heritage destinations could increase their use of red signs to prevent visitors from engaging in impulsive and dysfunctional behaviours.”

Finally, Professor Wan notes that their participants were mostly European American, and the research is primarily based on Western literature. “As culture shapes consumer mindsets and behaviours, future research should explore whether our findings would hold for Asians.”

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Either you have passion for your work or you don’t, researchers find this to be a myth and suggest passion can be cultivated and sustained over time

By Ella Chen

When hiring new staff, managers often look for candidates who show a great deal of passion for their work. But even if a new hire starts off with a bang, how long does that initial passion last? As literary giant Victor Hugo once lamented “passion does not endure” in a love letter, the same caveat can be applied in the context of work.

Much research has been conducted on the subject of passion at work, but it presented a static and one-directional view – one that assumes an employee either has the passion or doesn’t at all. Presumed to be simply a character trait, passion then leads to positive outcomes in the workplace and enhances employee satisfaction, job performance and career development.

A group of researchers believe that this view of work passion is too limited in scope and does not match the changing reality in the workplace. While previous research did find that even when an employee possesses passion, it fluctuates over time. The question remains: “How do you sustain it?”

career, work passion — Passion for work can be sustained over time through proactive “job crafting”.

Professor Li Wendong, Associate Professor in the Department of Management at The Chinese University of Hong Kong (CUHK) Business School, and his collaborators were one of the first to tackle this question in their study named Sustainability of passion for work? Change-related reciprocal relationships between passion and job crafting.

His team included a doctoral student at the same department, Yu Kaili, as well as Professor Zhang Xin of the Shanghai University of Finance and Economics, and Professor Hannes Zacher of Leipzig University.

New findings about passion and work behaviours

Professor Li and his team asked more than 3,500 participants at a German company over the course of 15 months to respond to questions about their work experiences and behaviours in the preceding three months.

The study demonstrates that passion for work not only can be developed on the job but also sustained over time despite its ebbs and flows. According to the study, an important factor that helps keep employees’ passion for the job alive is proactive “job crafting.”

“Job crafting is a type of goal-directed proactive behaviour that helps to align employees’ work more closely with their interests and values,” says Professor Li. “When we found out how influential job crafting is in fueling an employee’s passion for work, we realised how important personal agency is in keeping someone’s work passion alive.”

“An employee doesn’t necessarily start out with a ton of passion,” he adds. “By strategically directing and shaping the tasks, goals and connections at work, the employee can gradually grow their passion and sustain it in the long run.”

“By strategically directing and shaping the tasks, goals and connections at work, the employee can gradually grow their passion and sustain it in the long run.”

Professor Li Wendong

As a breakthrough from previous research, the study discovers a positive reinforcement loop between job crafting and sustained passion for work. This means one helps enhance the other and vice versa. So instead of a one-directional relationship, as previous research had shown, these two have a dynamic, reciprocal relationship.

Shaping the job to fuel passion

Based on existing research, there are two types of employees who exhibit passion for their work. One has “harmonious passion” while the other has “obsessive passion.”

“Those who have a high level of harmonious passion are driven by their intrinsic interests and values,” says Professor Li. “They are more likely to express their authentic selves at work and pursue goals that align with their genuine interests, talents and enduring values. They naturally devote more time and effort to job crafting. They would calibrate and recalibrate their work strategies over time to achieve their self-directed goals.”

While these employees incorporate work as part of their identity, work becomes well-integrated into their sense of self and does not take over their entire lives in an overpowering way. Their work is in harmony with other aspects of themselves, hence the term “harmonious passion.”

These employees would devote time and energy to tasks that are most meaningful to them. They also like to seek out new and stimulating tasks, and build connections with people at work who appreciate their values and support their efforts. In addition, they have a strong desire to grow their creative work capacities over time.

The close fit between their job and their internal values as a result of job crafting in turn gives these employees a greater sense of satisfaction, meaning, purpose, growth and enjoyment through their work. This further motivates them to put in even more effort to promote a higher level of alignment — thus positively reinforcing their passion for work.

The researchers conclude that a major key to sustaining passion at work is harmonious passion, and that engaging in job crafting itself can contribute to the development and enhancement of harmonious passion over time. These two forces positively reinforce each other.

When passion becomes an obsession

On the other hand, the researchers believe that this kind of positive reinforcement is less likely to occur among employees who exhibit “obsessive passion” in their work. These employees have mixed motivations in their passion for the job.

While they carry intrinsic motivations like those driven by harmonious passion, they also engage in work out of a sense of obligation, or with the goal of gaining social acceptance, meeting others’ expectations or achieving their own personal standards of excellence.

Although these employees love and value their work, they feel an intense pressure and an uncontrollable urge to work all the time. Their self-esteem may be dependent on other people’s recognition of their work contributions. They may feel compelled to work intensely to repeatedly experience the thrill of rewards from their job.

Because these employees hinge their sense of self-worth primarily on their achievements and recognitions, they are also more vulnerable to comments and events that threaten their ego. As a result, they tend to experience more negative feelings, such as anxiety and rumination.

Although less likely to engage in job crafting, when these employees do engage in it, their passion is still sustained, and the sustained obsessive passion in turn motivates them to engage in more job crafting. A caveat: the types of job crafting involved in this dynamic are more limited than the types that those with harmonious passion engage in.

Practical applications for managers and employees

The study findings shed light on how employees can cultivate and sustain their passion for work through their own efforts. So, instead of suggesting people to go find their passion and then get a job that matches it, the study demonstrates that a dynamic growth mindset can allow employees to grow their passion on the job over a period of time. This can be achieved through job crafting.

Understanding fundamental recruitment error in talent acquisition

At the same time, managers can take active measures to cultivate harmonious passion in employees by providing some flexibility in their work environment.

“If managers allow some degree of customisation in their employees’ work based on their strengths and values, employees will be more likely to engage wholeheartedly with their job,” says Professor Li. “Autonomy and support go a long way in making them more passionate about their work and motivating them to further craft their job on their own initiative. This is how we can fuel the fire of their passion and keep it going.”

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Sustainable hotels are on the rise, ushering in a fresh approach to their promotion. The key lies in matching the correct environmental cues with the right guests

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

Sustainability has been the common goal across industry sectors. In the hospitality industry, sustainability does not only translate to making impacts but also profit. While the demand for eco-friendly qualities increases, hotels benefit from long-term cost savings by simply reducing energy and water consumption. It’s a win-win solution.

No wonder eco-hotels are gaining popularity. From installing filtered drinking water, embracing new technologies, using reclaimed building materials, to disclosing social impacts, these hotels boast their eco-efforts to appeal to guests. Additionally, having eco-certificates from international institutions like Green Globe, EarthCheck, Leadership in Energy and Environmental Design, and the like is also important to provide further assurances.

However, not much is understood about how to promote green hotels effectively. According to the 2023 Sustainability Travel Report from Booking.com, 65 per cent of 33,000 surveyed travellers across 35 countries would feel better staying in accommodation if they knew it had a sustainable certification or label. Amid the growing concern about greenwashing or misleading environmental claims, a well-thought-out message is crucial to catering to sustainable-minded guests.

“The factors influencing tourists’ preferences for pro-environmental hotels are multifaceted and can differ significantly across demographic groups, but how eco-information is presented on booking platforms plays a crucial role,” says Lisa Wan, Associate Professor of the School of Hotel and Tourism Management and Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

Along with Assistant Professor Elisa Chan from the same department and doctoral student Xue Nan, Professor Wan looked into different types of information on sustainability practices that influence guests’ preferences. It turns out that guests who focus on outcomes tend to prefer hotels with eco-certificates, while those who focus on the process lean towards eco-effort information. Additionally, demographic and geographic factors also matter.

“Younger people tend to prefer eco-hotels when the eco-effort information is highlighted, whereas older consumers are more influenced by eco-certificate information,” Professor Wan adds. “Other hotel segmentation bases—such as whether travellers are solo or in groups, or their cultural backgrounds—may also act as indicators of cognitive decision habits.”

Giving the right keys

As outlined in the paper titled How eco-certificate/effort influences hotel preference, the CUHK team analysed data across five studies deploying mixed methods to learn how eco-information influences tourists’ decisions. The study was based on the implicit theory of intelligence on whether or not intelligence or abilities can change, which explains two prominent cognitive decision habits: entity and incremental.

Entity theory views personal qualities as fixed, and those with entity decision habits tend to focus on the outcome. Meanwhile, incremental theory sees personal qualities as changeable and people with incremental decision habits are more likely to pay attention to efforts and intermediary processes.

When deciding on lodging, those with an entity decision habit lean towards hotels with eco-certificates as they value formal recognition and status. On the other hand, people with an incremental decision habit tend to prefer hotels that highlight their eco-efforts as they appreciate specific actions being taken.

Intriguingly, for those with incremental decision habits, the analyses also showed that the perceived difficulty in obtaining eco-certificates may reduce the influence of eco-information. In this case, incremental thinkers acknowledge the extra miles needed to earn the certificates, which leads them to view certified hotels positively. This is reasonable as they appreciate process and dedication.

Another factor that comes into play is processing fluency, which refers to how the customers process the information. Customers would find it easier to grasp and engage with the information that matches their own decision-making style, and as a result, sway their preferences. In practice, eco-certificate cues will go well with entity thinkers and eco-effort messages will match more with incremental thinkers, thereby enhancing processing fluency.

Designing suitable strategies

As mentioned above, crafting a green campaign needs to consider the cognitive decision habits and processing fluency of the customers. However, Professor Wan notes that it is not strictly necessary for eco-hotels to promote both eco-efforts and eco-certificates to all guests universally. “The more effective strategy would be to tailor the promotion to align with customers’ cognitive decision habits,” she says.

“Younger people tend to prefer eco-hotels when the eco-effort information is highlighted, whereas older consumers are more influenced by eco-certificate information.”

Professor Lisa Wan

Previous studies have indicated that age can be a proxy for decision habits, with older people more likely to resort to an entity decision habit and youngsters leaning towards incremental decision habits. Moreover, people in Western countries tend to hold entity beliefs, while those in Eastern countries tend to have incremental beliefs. The team’s follow-up studies confirmed these premises.

With that being said, Asians and young customers are more likely to focus on eco-efforts as they resonate more with process-focused information. In contrast, Westerners and elderly customers would appreciate eco-certificates more since they are inclined towards outcome-focused information.

sustainable-travel — Many customers would have preferred eco-hotels if the green initiatives or certificates had been made available earlier.

“The key lies in identifying and targeting the dominant cognitive decision habits of the guests to streamline the eco-information presentation accordingly,” Professor Wan explains. “It could be by tailoring their messaging to align with the cognitive beliefs prevalent in their target markets, particularly leveraging the popular digital platforms in the regions.”

For instance, hotels might focus on showing off their eco-certificates via social media to attract travellers from Western countries or emphasise their eco-efforts when targeting Asian guests. “This strategic approach allows hotels to cater to the varying cognitive preferences of environmentally conscious travellers in the digital age,” says Professor Wan.

Early cues get the books

While the results highlight various impacts of eco-information on individuals with different cognitive habits, in practice, most hotels opt for showcasing eco-certificates on reservation platforms. Those with incremental decision habits who are more effort-sensitive might find themselves struggling to buy it. The study suggests that displaying the efforts to get the certificate would help to bridge this gap.

“One of the primary challenges that hotels face is the clear communication of their ‘green’ attributes to enable tourists to recognise and understand the value of these efforts,” says Professor Wan.

Throwing back travel memories to boost creativity

To demonstrate, Professor Wan explains, some hotels in the US did not experience a performance boost despite having eco-certificates, likely because many travellers are unaware of sustainable practices during the search and booking stages. At the same time, the industry survey, as pointed out earlier, found a significant number of travellers would have preferred sustainable hotels over regular ones if the information had been made available earlier.

“To overcome these obstacles, hotels need to present their green initiatives effectively at the booking stage,” she adds.

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Nickel crisis nearly caused the London Metal Exchange and its members to collapse. An expert at CUHK Business School unveils how failure to recognise a thin line between hedging and speculation contributed to the catastrophe

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

The reopening of the global economy has seen strong commitments from countries around the world to achieve net-zero emissions by adopting electric vehicles to replace traditional diesel ones. As a result, the demand has turned nickel, one of the main ingredients in rechargeable batteries and stainless steel, into the most sought-after material.

However, nickel almost brought down the London Metal Exchange (LME), the world’s largest and oldest trading venue for industrial metals, two years ago. Over the course of three days, the nickel price traded on the bourse surged by more than 270 per cent from US$27,080 per tonne to more than US$100,000 on 8 March 2022 before falling to around US$80,000 per tonne.

The LME took action by suspending the trading and returning the price to the previous date, cancelling billions of US$ in transactions. The 147-year-old bourse saw it necessary to prevent a “death spiral” that could have led itself and its members to collapse. One of the members, a Chinese company and world leader in nickel production, Tsingshan, was saved from the verge of losing US$8 billion.

“The trigger point for this sudden price surge was the Russian invasion of Ukraine, which started on 24 February 2022,” says Dr Anson Au Yeung, Senior Lecturer in Finance at The Chinese University of Hong Kong (CUHK) Business School. “Market participants expected a sanction on Russia, which produced around 17 per cent of the global supply of nickel.”

In a masterclass on “Risk Management Strategies in Financial Derivatives: Hedging vs Speculation?” in January 2024, Dr Au Yeung delved into the complexities of the incident and how Tsingshan could have avoided the predicament.

Series of unfortunate events

As a major producer, Tsingshan’s profit and loss are highly affected by nickel prices. To protect itself against price fluctuations, the nickel producer sells a financial instrument called futures, which is a contract to buy or sell a particular commodity asset at a predetermined price at a specified time in the future.

With this contract, the company can protect itself against price drops by entering into short positions in futures, which means it locks today’s price to be sold in the future. If the company expects rising prices, it can enter long positions by locking in a future purchase price. This strategy to limit risks in financial assets is called hedging, and Tsingshan has built up a massive short position since 2021.

Dr Anson Au Yeung shares his insights during the master class.

“Hedging is not simple,” says Dr Au Yeung. “We need to question whether Tsingshan is actually doing hedging or speculation.”

Before the fiasco, Tsingshan had accumulated a short position of 300,000 tonnes in early March 2022. Although the company produced around 600,000 tonnes of nickel annually, around 120,000 tonnes of these total productions were nickel matte, which only has 70 per cent purity, well below the LME’s strict requirement of a minimum of 99.8 per cent purity.

This indicated that the company hedged the high-purity nickel with low-class nickel. In the good days, the prices of both nickels were highly correlated, but the company didn’t expect the prices would deviate greatly during the crisis.

“A perfect hedge is not possible. The cross hedging replaces commodity price risk with basis risk,” says Dr Au Yeung. “Using the LME nickel to hedge lower-class nickel would also introduce an additional risk called short-term basis risk, and this risk should not be overlooked as it can be very huge.”

Basis risk is the potential risk that arises from mismatches in a hedged position. “The spread between high-quality and low-quality nickel widened to 8 to 12 per cent due to sanctions against Russia.”

Weighing the escape routes

Dr Au Yeung argues, Tsingshan could have considered three scenarios to deal with this short-squeeze situation before the LME intervened. The first one was retaining the short position, which mainly hoped the price would go down. The second one was to surrender and accept the loss. The third one was buying nickel from the market.

Hoping the price to go down would require Tsingshan to continue satisfying the margin call, prompting it to settle initial and variation margins. When the value of an account drops below the maintenance level, a margin call is triggered to require the account holder adding funds to bring the account back to the initial margin, which is the amount of money needed to initiate a futures contract.

“If a company doesn’t have good risk management practices, even though it makes a significant profit, it can lose all of the money very easily”

Dr Anson Au Yeung

On 4 March 2022, the LME increased the initial margin requirement by 12.5 per cent, which would require Tsingshan to deposit US$7.5 million. It also required the company to deposit an extra US$6.35 billion on 7 March, based on the variation margin derived from the difference between the closing price on both days, multiplied by 300,000 tonnes.

If surrendered, at the US$80,000 per tonne level on 8 March, Tsingshan would expect to lose US$18 billion. The last option, buying nickels from the market, mainly from Russia, was impossible due to the sanctions announced in February.

“The futures contract has a zero-sum game principle, which means when the seller loses, the buyer wins, and vice versa,” says Dr Au Yeung. “So, why did the nickel buyers were willing to take the opposite position? Because they did see one weakest point, Tsingshan’s liquidity management.”

Small mistakes, huge consequences

In early March 2022, the LME’s nickel inventory only had 76,800 tonnes ready for physical delivery. Meanwhile, the total outstanding contract or average open interest in the contract reached 1,158,000 tonnes.

“This means the counterparty already foresaw Tsingshan would not be able to get the physical nickel in the freight because there was not enough nickel in the market, and it takes time to source and refine the nickel,” says Dr Au Yeung.

Tsingshan management also underestimated the market volatility of nickel. Looking at the standard deviation, the magnitude of the maximum daily three-month price growth and the number of times daily three-month price moves, nickel price is more volatile than other metals like lead, zinc, copper and aluminium.

“The buyers saw a low nickel inventory and it triggered the market speculation,” he says. “The imbalance between the market expectation and the physical supply increased the price volatility and risk.”

Hedging through the futures contract met the margin calls requirement. However, when the market suddenly becomes so volatile, it would cause a huge cash flow impact.

When wealth grows on inventories

“When making any risk management or financial decisions, the management needs to have an accurate estimate of the worst-case scenario,” Dr Au Yeung says. “In this case, Tsingshan did not fully estimate the worst case.”

Finally, he highlights that having good investment decisions and financing strategies is not enough. “If a company doesn’t have good risk management practices, even though it makes a significant profit, it can lose all of the money very easily.”

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How can companies innovate? New research suggests clear goals can harm, and the answer lies in giving employees the freedom to make decisions

By Pete Sabine

In today’s competitive business environment, innovation is an often-heard mantra that eclipses all else. At the same time, teamwork has also gained greatly in importance, supported by the rise of workplace tools such as Slack, which have brought a “social media” design to collaborative corporate culture. While organisations must have individuals working together to create innovation, do excellence and innovation actually arise from having clearly defined goals that all employees must universally support?

This is a question set out in a new study by Dr John Lai, Senior Lecturer at the Department of Management at the Chinese University of Hong Kong (CUHK) Business School. Will goal clarity lower team innovation? A moderated mediation model of inter-team trust is a body of research between Dr Lai and Steven Lui at the UNSW Business School, Ben Luo Nanfeng at Renmin University of China, and Peter Moran at China Europe International Business School. Their work challenges conventional views that clear goals make innovation more likely.

team innovation — A clear strategy makes for more cohesiveness among teams, while a trusting environment would bolster innovation with more knowledge acquisition and sharing.

“When a team’s goal is clear, team members become more selective in the information they are motivated to seek and acquire and less selective in what they screen out,” says Dr Lai. “This resulting selectivity and commonality of knowledge sought by each team member suggests that the team as a whole is more likely to acquire less knowledge.”

Many existing studies have assessed the question of whether clear goals foster innovation due to a “team climate” or “knowledge integration” perspective. In team climate thinking, a clear strategy makes for more cohesiveness among teams. From a knowledge integration point of view, if the workplace is a trusting environment, innovation should further increase with more knowledge acquisition and sharing.

Dr Lai and his collaborators challenged the team climate perspective for neglecting how having clear goals affects gathering and disseminating knowledge. As the researchers point out, goal clarity could inadvertently restrict learning. The team also indicated that while trust is crucial to innovation, it is not uniform or universal within organisations. Some colleagues and teams can get along, while others have relationships that are marked by distrust. This will impact how much innovation can take place.

Debunking the myths of innovation

The researchers point out that previous studies have not resulted in a clear link between the impacts of team climate or knowledge integration perspective towards innovation. “Research often takes on a reduced form of hypothesis, where no empirical test of the specific mediating mechanism is reported,” Dr Lai points out.

Meanwhile, an increasing number of recent studies have demonstrated that knowledge transfer in an organisation is unrelated to innovation, and is much more specific to individual team relationships. Could this mean that if certain people or teams are particularly talented, they should be left to their own devices and away from the company-wide dictates and goals?

“Our finding suggests that while goal clarity does not reduce the amount of knowledge acquired from other teams, it reduces the impact of the acquired knowledge on team innovation. ”

Dr John Lai

The gap was there that obviously needed to be bridged, and the team set about addressing this with a moderated mediation model. This showed how the interaction of goal clarity and inter-team trust impacts innovation, while looking at knowledge inflows within the symbiosis of inter-team trust and innovation. To test the model, the researchers examined service innovation at 150 outlets of a large apparel retailer in mainland China, Hong Kong and Macau.

There were several criteria involved in choosing these companies – continuous knowledge sharing through regular training workshops for shop managers, the importance placed on company-wide innovation, a recent corporate-wide brand revamp, and staff being introduced to new practices, with managers being able to adopt at their own pace. The study used two questionnaires in Chinese, one that was answered by retail shop managers and one by retail staff, along with 14 interviews with senior managers within the organisation. All studies were kept confidential to eliminate bias.

Goal clarity is a double-edged sword

In the age of social media and ever-increasing consumer demands, innovation is ever crucial to sales and profits. Retail was chosen as the arena for this study, as the stores are run by teams that sell an existing product and innovate to serve customers better. This study is important to show clear goals can have a negative effect on innovation, while trust only supports innovation when team goals are less clear.

Having goal clarity is a double-edged sword for innovation, which according to Dr Lai “reinforces a shared mental model and hence sustains and amplifies the cognitive bias of a team that will restrict the acquisition and interpretation of external knowledge.”

This crucial aspect is often overlooked by previous studies, and can also be applied to the concept of trust. Dr Lai and his collaborators found that inter-team trust and innovation are linked positively when goal clarity is low. However, trust is hard to define within an organisation, and there are myriads of overlapping relationships between team leaders, co-workers, other teams and departments. In general, the connection between trust and innovation fluctuates significantly.

“Our finding suggests that while goal clarity does not reduce the amount of knowledge acquired from other teams, it reduces the impact of the acquired knowledge on team innovation,” says Dr Lai.

Harmful group-think can be avoided

The study offers practical advice for retail operators – teams competing for sales can nonetheless benefit each other by sharing knowledge of local markets, customers and inventory levels. “It is useful for business firms to build a trusting relationship among their work teams rather than advocating a hostile competition-based atmosphere that has become common in the retail industry nowadays,” says Dr Lai.

Having said that, managers need to be highly attuned to the cognitive biases that goal clarity creates among team members. “When goals are clear, team members could be biased against the use of new ideas and practices, and such bias could harm innovation,” Dr Lai adds.

How business talents embrace an innovative and sustainable future

With clear goals, the net positive effect that knowledge transfer has on innovation can be harmed. This is especially the case when managers have been assigned clear performance goals for their teams. As the study pointed out: Goal clarity benefits innovation, while cognitive bias deters innovation. The double-edged sword of goal clarity is an increase in biases and a reduction of knowledge transfer through inter-team trust.

To reduce bias, managers can seek to add diversity to their teams. This could be gender, cultural, educational, and personality-wise. They may also rotate people across teams. “Greater team diversity and personnel rotation may lower the tendency of group think. Importantly, both are readily employable in the retail sector,” says Dr Lai.

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cultural diversity corporate earnings report

A new study reveals that cultural diversity among investors can lead to abnormal stock trading volume, and firms headquartered in culturally diverse places are more prone to crash risk

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

Corporate earnings can ultimately affect stock prices. In February, when chipmaker Nvidia announced its record-high quarterly revenues of US$22.1 billion, almost triple from the previous year, the company’s stock price soared by 14 per cent within hours. Meanwhile, in the same month, Alibaba Group’s disappointing quarterly earnings sent its stock price lower by 6.1 per cent year-on-year.

Publicly traded companies are required to disclose their profits so external investors can learn crucial information when making financial decisions. Consequently, investors’ concerns regarding corporate performance will be reflected in the stock markets.

stock trading — Different understandings of identical earnings reports among investors lead to elevated trading volume and stock return volatility.

Considering the significant impact of such disclosure, it is crucial to understand the factors that influence investors’ perceptions. A new study entitled Investor cultural diversity and market reactions to corporate earnings announcements delves deep into this question. Specifically, it focuses on the role of cultural diversity, measured by the extent of linguistic diversity, among investors.

After analysing earnings reports issued by listed companies in China, the results suggest that a wider variety of dialects spoken among investors leads to greater differences in interpretations, which eventually affects stock trading activities.

“Heterogeneous interpretations of identical public signals among investors lead to elevated trading volume and stock return volatility,” says Kevin Tseng, Associate Professor of the School of Accountancy at the Chinese University of Hong Kong (CUHK) Business School.

Professor Tseng conducted this study in collaboration with Professor Chang Yen-Cheng of National Taiwan University, Professor Su Yu-Siang of National Chi Nan University, and Professor Wang Na of Hofstra University.

Different cultures yield varied interpretations

Previous research have demonstrated that different understandings of news surrounding earning reports can cause elevated trading volume and stock return volatility, but how could the same announcement have various interpretations? Professor Tseng argues that investors may use the same announcement but infer value-relevant information differently. In other words, investors can have unique “economic models” that help them interpret market news and signals.

“Linguistic diversity is our empirical measure to capture cultural diversity among investors,” says Professor Tseng. “We test whether investor diversity translates into diverse views on how an earnings announcement maps into stock valuations. If investors have divergent views regarding stock valuations, they will trade more in the market, leading to elevated volatility.”

“A diverse investor base has more heterogeneity, and they may have more creativity in interpreting the value relevance of market signals. ”

Professor Kevin Tseng

To test their hypothesis, the researchers collected data from the China Stock Market and Accounting Research, as well as a nationwide record called the Language Atlas of China, which contains a detailed classification of local linguistic features. While the country has the same written language, there is a rich variation in spoken languages. In this research, investor cultural diversity is defined as the number of languages spoken in a province.

Using this data, Professor Tseng and his collaborators studied how investor cultural diversity in a company’s home region is related to trading volume and return volatility around earnings announcements. The sample period ranges from reports issued from 1998 to 2019.

Cultural diversity spurs market reactions

The researchers use two metrics to measure how different investors interpret information when a company announces its earnings: abnormal trading volume and return volatility in a three-day window. Abnormal trading volume refers to the unusual amount of stock trading during a specific period, while abnormal return volatility refers to the deviation of a stock’s return volatility around an earnings announcement from what would be expected based on historical patterns or market norms.

The result showed a significant positive effect of linguistic diversity on abnormal trading volume. A one-standard-deviation increase in the cultural diversity measure leads to an increase in abnormal trading volume by 10.29 per cent. Similarly, investor cultural diversity is also positively associated with abnormal return volatility.

cultural diversity investors — Negative information is more discernible during a slowdown when investors have different understandings of the market.

“A diverse investor base has more heterogeneity, and they may have more creativity in interpreting the value relevance of market signals,” Professor Tseng explains, adding that the results remain strong even when they consider various factors such as demographics and different ways of measuring cultural diversity and trading volume.

Existing literature shows that negative information tends to be more noticeable during market downturns when investors have different interpretations of what to do. This can lead to stock price crash risk, referring to the tendency of stock prices to experience significant downward movements.

Professor Tseng and his collaborators then investigated whether stocks with elevated levels of investor cultural diversity have higher stock price crash risk. They anticipated that companies located in areas with high cultural diversity, where investors exhibit greater disagreement regarding firms’ financial disclosure, would encounter a higher level of crash risk. “Overall, our results are consistent with the prediction that investor cultural diversity leads to elevated stock price crash risk,” he says.

Clear and concise announcements matter

One of the purposes of accounting disclosure is to make sure that all investors have equal opportunities, and this study offers a fresh perspective for addressing this objective. On top of that, Professor Tseng suggests that firms should be aware of the local social landscape, apart from purely financial or accounting factors, which also plays a role in how investors responding news.

“Linguistic diversity is our empirical measure to capture a critical aspect of investor cultural diversity,” he adds. “More broadly, our results apply to other aspects of diversity, to the extent that investors may have differential views on economic issues, which may include nationalities, ethnicities, and gender.”

When diversity becomes a problem in startups

Overall, the study highlights a social factor that has implications for capital markets. The findings emphasise the significance of diversity and underscore the effectiveness of communication with investors through disclosures.

To avoid ambiguities, Professor Tseng suggests firms cover quantitative and qualitative aspects of their announcements as clearly and concisely as possible. Additionally, allocating resources towards investor relations and collaborating with media outlets or financial intermediaries, such as analysts, would be useful to improve communication with diverse investors.

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While intuition can be a valuable tool, it can also deceive us. A new study delves into the reasons why blindly trusting your gut is not the best approach

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

Have you ever found yourself in a situation where you made a decision that later turned out to be wrong, but you felt stuck and couldn’t change your mind? It’s like when you confidently solve a math problem, only to realise later that you made a mistake. Or perhaps you bought something you didn’t really need, only to regret it later.

Well, you’re not alone. A new study has shown that this is actually quite common. The way our brain makes decisions is more complex than we thought. Take a classic quiz called the “bat and ball problem” below to understand how people make decisions.

A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

A significant number of participants in the study failed to solve the problem, even after getting the hint that the 10 cents was the wrong answer. In another experiment with the same question, the researchers gave the respondents the correct answer, but many were still stuck with their initial responses. And if you’re struggling too, you may find the answer at the end of this article.

The result of the study showed that our first thoughts can be really strong, and it can be hard to change our minds once we have made a decision.

bat and ball problem — A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

“The biggest takeaway from this research is that initial conclusions can be very sticky, even if they were based on very little thought, and even if there’s simple logic that contradicts them,” says Andrew Meyer, Research Assistant Professor with the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

The study, conducted by Professor Meyer along with Professor Shane Frederick of the Yale School of Management, focused on how our intuition can sometimes lead us astray. So, how can we minimise these misleading hunches?

Two schools of thought

The study titled The formation and revision of intuitions documents Professor Meyer and Professor Frederick’s attempts to investigate methods to encourage reflective thinking and found that incorrect intuition often persists despite an additional reflection. They highlight that sometimes our quick, intuitive thoughts can be tricky, and it’s important to take our time and think things through carefully.

Furthermore, the researchers argue that the human brain has two systems for making decisions: system 1, which is fast and intuitive, and system 2, which is slow and analytical. Unfortunately, system 1 processes often override or corrupt system 2 processes, which means that people often rely on their intuition rather than taking the time to reflect on a problem.

“In other experiments, we told one group of people that a bat cost US$100 and a ball cost US$10, and we asked another group to solve the bat and ball problem for the prices of both objects, which most people said were US$100 and US$10,” says Professor Meyer. “Then, we asked everyone whether the prices differed by US$100.”

In the group that was given both prices, hardly anyone made the mistake of thinking that these two prices differed by US$100. But in the group that generated those two prices themselves, three-quarters went on to try justifying their answers by arguing how they differ by US$100.

“This suggests that once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error,” Professor Meyer explains.

“Once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error”

Professor Andrew Meyer

“The only way we could stop people from giving the erroneous intuitive response was by changing the question so that the easy calculation no longer led to a plausible answer,” he adds. “One takeaway is to expect lots of errors if there is an easy calculation that leads to a plausible answer.”

Practical implications

Dual system theory suggests that both systems work together to help individuals make decisions and judgments. However, the balance between the two systems can vary depending on the situation and individual differences.

This theory can be applied to various fields, including psychology, neuroscience, economics, and decision-making. It has been used to explain a wide range of phenomena, such as cognitive biases, heuristics, and decision-making errors.

“I would expect a lot of these forces to be particularly powerful in financial decision-making, where there are many potential calculations, and easy ones often lead to wrong answers and bad decisions,” says Professor Meyer.

dual system theory — Dual system theory can be powerful in financial decision-making, where there are many calculations and rooms for error.

For instance, if a person borrows US$100 and has to pay back US$10 per month for a year, the total payment would be US$120. Some might think that this is a 20 per cent effective annual interest rate. However, this would only be true if US$120 is paid at the end of the year.

As the borrower has to pay most of it back much earlier, the loan becomes a lot worse than a 20 per cent effective annual rate. Taking into account the impact of compounding – the process of earning interest on the original amount borrowed and the accumulated interest from previous periods – then the effective annual interest rate is actually 41.3 per cent.

“One prediction from the bat and ball research is that people will not only make the initial mistake and think that this monthly instalment plan is a 20 per cent effective annual rate, but persist and continue to make that mistake even if the logic, that the loan is paid back in much less than a year, is made clear to them,” Professor Meyer adds.

Does extra time help?

The researchers believe that solving the bat and ball problem requires deliberate thinking. Those who manage to solve it take much longer time, and solution rates are markedly reduced after imposing time limits or cognitive load. Therefore, in situations where time is limited, the intuitive system may dominate.

“Time pressure greatly reduces bat and ball solution rates, but encouraging people to take extra time has little effect, which is somewhat disappointing” says Professor Meyer.

The power of memory in stimulating purchases

Although a previous study suggests that many people can solve the problem intuitively, Professor Meyer is skeptical as the respondents in the previous study answered various modified versions of the problem, and many “intuitive” solutions came from later trials that participants had encountered repeatedly. The researchers believe that it’s crucial to differentiate between intuiting an answer and quickly applying a previously learned solution strategy.

Circling back to solving the ball and bat problem, setting up a simple equation will help. If “x” is the cost of the ball, then the cost of the bat is x + 1 and the total cost is x + (x + 1) = 1.10, or it can be simplified to 2x + 1 = 1.10. After subtraction and division, we get x = 0.05. Therefore, the ball costs US$0.05 or five cents.

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A recent study shows that herd-like behaviour could undermine a crowdfunding project, but establishing an all-or-nothing threshold can counteract this effect

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

Startups often face the challenge of securing funding to scale up their operations. How are they going to get their first bucket of gold? In the modern era, crowdfunding has emerged as an alternative to traditional financing like bank loans or angel investments for its edge to raise funds from a large pool of individuals, while showcasing innovative ideas to a broad audience.

Today, crowdfunding is now a mainstream capital source for entrepreneurs. According to a recent report by Fortune Business Insights, the global crowdfunding market is expected to reach US$3.62 billion by 2030, growing at a compound annual rate of 14.5 per cent.

Comparable with a real-life crowd, economic interactions in crowdfunding platforms normally see investors following others by relying on simple observations to make decisions without pondering their own critical thinking. This phenomenon is called an “information cascade”, which can lead individuals to restrain their true preferences, leading to herd-like behaviour and distorting the perception of project quality. As a result, funded projects attract more backers while unfunded projects struggle to gain traction.

Information cascades can occur in various settings, including financial markets, social media, and consumer behaviour, where individuals are influenced by the actions of others. In crowdfunding, this can result in flawed information gathering as individuals may not contribute their knowledge to the collective process and amplify errors in decision-making, which results in suboptimal outcomes.

“The implementation of all-or-nothing thresholds in crowdfunding can improve project feasibility, efficiency and information aggregation.”

Professor Xiao Yizhou

To address this issue, a recent study suggests that implementing an all-or-nothing threshold, where the proposer receives all contributions only if the campaign reaches pre-specified funding, can help. This model is an alternative to keep-it-all and partial funding models, where the campaign creator is allowed to retain all or a portion of the funds raised, irrespective of the goal achieved.

“The implementation of all-or-nothing thresholds in crowdfunding can improve project feasibility, efficiency and information aggregation,” says Xiao Yizhou, Associate Professor of the Department of Finance of The Chinese University of Hong Kong (CUHK) Business School.

The real decision-maker

Professor Xiao notes that many projects in the real world can be only implemented after reaching a certain funding goal or threshold. With an all-or-nothing threshold, the project would not take off if the crowdfunding does not reach its goal, and the funds are returned to the supporters, leading to a more efficient allocation of resources.

Professor Xiao, along with Professor Cong Lin from Cornell University, in their study titled Information Cascades and Threshold Implementation: Theory and an Application to Crowdfunding, explain that a crowdfunding campaign begins with a certain number of potential investors whose decisions inspire others. Before making any decisions, investors receive and collect informative signals while observing the actions of preceding investors.

travel-memory — The gatekeepers, who have observed a longer history of preceding supporters can make a more informed decision to influence subsequent supporters.

“Through game theory and economic modelling, our analyses showed that all-or-nothing threshold implementation drastically alters informational environments and economic outcomes,” says Professor Xiao.

As the campaign progresses, reaching the funding threshold becomes dependent on the decision of a supporter whose contribution will bring the total funds to the threshold. These supporters are referred to as “the gatekeepers” by the researchers. Considering this circumstance, people are more eager to contribute with all-or-nothing thresholds as it would lead to “uni-directional cascades”. This occurs when early supporters delegate their key decisions to the gatekeepers, who have observed a longer history of preceding supporters and can make a more informed decision to influence subsequent supporters.

While information cascades refer to the phenomenon of individuals relying their decisions more on observed actions than on their own information, uni-directional cascades specifically describe a sequential pattern of decision-making where individuals are influenced by the actions of those who have made decisions before them.

“Individuals with positive signals will always support because they essentially delegate decisions to the gatekeeper. The gatekeeper is the last one to reach the threshold and the real decision-maker,” says Professor Xiao. “This delegation hedges against mistakenly supporting a bad project because the subsequent gatekeeper makes the contribution decision with better information by observing a longer sequence of previous actions.”

Although people may make emotional decisions in real life, Professor Xiao highlights rational investors tend to send accurate signals they receive to the gatekeeper. Investors or supporters in crowdfunding campaigns can signal each other through their contributions, endorsements, information sharing, engagement with project creators, early support, and the like, which significantly impact the perceptions of potential supporters in the ecosystem.

Positive implications of thresholds

travel-memory-creativity — crowdfunding is now a mainstream capital source for entrepreneurs.

The presence of all-or-nothing thresholds in crowdfunding has several positive implications. Firstly, it enhances project feasibility by supporting good projects with high production costs. Without a threshold, the first investor may reject even with a positive signal due to high production costs. However, with a threshold, investors are incentivised to support such projects. Secondly, these thresholds improve project implementation efficiency by ensuring that projects are pursued only when there is strong confidence in their positive quality, which prevents premature or suboptimal implementation.

Furthermore, all-or-nothing thresholds enhance information aggregation, particularly in the context of a large crowd. When investors realise that they are not the sole decision-makers, they become more inclined to support a project. At the same time, they also recognise the responsibility to convey the right signal to the gatekeeper. Therefore, individuals at the back of the sequence possess more knowledge than those at the front, resulting in improved information aggregation.

On the other hand, a higher threshold, albeit less likely to be reached, can achieve a higher contribution price by allowing more individuals to participate in the crowdfunding process. “In general, a larger crowd mitigates the concern about implementation failure and generally permits a higher optimal price,” Professor Xiao says.

Providing insurance to investors

The findings of this research shed light on how crowdfunding projects can be made more successful, particularly by emphasising the crucial design of all-or-nothing thresholds. By implementing all-or-nothing thresholds, the information aggregation, proposal feasibility, and project selection of crowdfunding projects will be improved.

How to Create a Successful Crowdfunding Campaign

Additionally, as the number of investors approaches infinity, project implementation and information aggregation achieve socially efficient levels, even if there are some challenges in getting and sharing information. “Enough investors in the market can kill the information cascades,” Professor Xiao says.

In general, the implementation of thresholds in crowdfunding campaigns offers a promising solution to address the challenges associated with information cascades.

As crowdfunding continues to gain prominence as a capital source, Professor Xiao says that companies can adopt marketing strategies that provide insurance to investors, reassuring them that costs will only be incurred if there is sufficient collective support, “People won’t worry too much if they know they are not the only one to jump in.”

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Impressing recruiters and gaining an edge in the job market is no easy feat. However, a new study reveals different priorities between candidates and hiring managers

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

While talent is often coveted, many believe success stems from a blend of competence and diligence. Cristiano Ronaldo, the renowned Portuguese football player, once emphasised the significance of diligent effort. “Talent without work is nothing,” he said.

Although having high natural talent doesn’t necessarily indicate a lack of commitment to hard work, or vice versa, some may see these two attributes as opposing qualities. As a result, individuals may need to make a trade-off between highlighting either innate talent or hard work in their resumes and interviews when seeking employment.

It is common for job seekers to try to predict recruiters’ preferences and adjust their responses accordingly. However, accurate prediction is often challenging, and the mismatch between expectations can lead job seekers allocated to undesirable positions, impacting their productivity and the company.

“Job candidates may face trade-offs between choosing either innate talent or hard work to highlight in their job application processes due to practical constraints.”

Professor Dai Xianchi

This dilemma then poses questions. Do job candidates and recruiters perceive talent and hard work differently? If so, what are the reasons behind this phenomenon? Dai Xianchi, Associate Professor of the Department of Marketing at The Chinese University of Hong Kong (CUHK) Business School, and Professor Si Kao of the University of Macau examined these questions in their latest study titled The fundamental recruitment error: Candidate-recruiter discrepancy in their relative valuation of innate talent vs. hard work.

The study found that job candidates are career-minded and recruiters are relatively position-driven. The recruiters also prefer hard work over innate talent, while candidates value the latter as more important. Professor Dai and Professor Si term this phenomenon the “fundamental recruitment error”, where the focus of job candidates and recruiters differs.

“Innate talent and hard work are two qualities regarded by many as the most fundamental sources from which achievement in any domain emanates,” says Professor Dai. “Despite the varying personnel selection criteria, innate talent and orientation toward hard work hold prominent positions in the minds of corporate gatekeepers.”

What to consider in talent acquisition?

Talent acquisition includes identifying, attracting, selecting, and retaining highly qualified individuals for specific roles within an organisation. In human resources planning, talent acquisition strategy normally focuses on long-term growth. Effective talent acquisition and development not only fill immediate vacancies but also align with the company’s broader business goals, ensuring sustained growth and success.

Hard work or innate talent?

Before coming to the conclusion, Professor Dai and Professor Si conducted a series of experiments with participants from over 100 industries in the US and China. Participants were divided into candidate and recruiter groups. The candidate group was asked to choose between two reference letters for job applications – one praising their innate talent and the other highlighting their hard work. The recruiter group then had to decide which candidate they would prefer.

The results indicated that more participants in the candidate group chose to submit the reference letter emphasising their innate talent. In contrast, more participants in the recruiter group preferred the hardworking candidate.

Professor Dai notes that the results provide evidence of the discrepancy between job candidates and recruiters in their valuation of innate talent versus hard work. The misaligned valuations could lead job candidates to use ineffective strategies that reduce their chances of getting suitable jobs.

“Orientation toward hard work has been widely recognised as a key determinant of workers’ career potential and attainment,” says Professor Dai. “It is associated with a handful of closely related personal attributes that are indispensable to an individual’s long-term excellence in the workplace.”

Moreover, Professor Dai adds that hard work and deliberate practice constitute the primary means by which people can circumvent inborn or external constraints to attain high levels of expertise and performance. On the other hand, individuals’ innate talent has been consistently associated with high levels of career potential.

“Many studies have shown that precocious and gifted individuals are far more likely than their peers to become tenured professors of elite universities, distinguished judges and attorneys, and top executives of prestigious organisations,” says Professor Dai.

Career potential vs. current performance

The researchers then aimed to explore participants’ perspectives on the essential qualities associated with career potential and current position performance, which are two crucial dimensions used to evaluate a candidate’s suitability for a job.

Firstly, participants were asked to list three important characteristics for workers to have high career potential and high performance in their current job positions. Two independent graders then rated how they perceived the listed characteristics to be related to workers’ natural talent and inclination towards hard work.

Subsequently, another group of participants were presented with a list of characteristics derived from the previous step. Their task was to classify these characteristics into two categories, whether they are related to career potential or current job performance. The results suggested that people consider innate talent and hard work equally important in predicting individuals’ career potential.

Overall, more participants consider hard work more essential for individuals’ current job performance because it is a prominent predictor of output level. Additionally, researchers also found that people prioritised innate talent for career potential and hard work for current job performance when facing a trade-off.

Trying to uncover the reasons behind the different expectations between job candidates and recruiters, participants were again divided into candidate and recruiter groups. Both groups were required to indicate the qualities they preferred to secure a job and choose pieces of assessment between career potential and expected position performance.

Participants in the candidate group tend to prefer talent-related characteristics and select more pieces of assessment information about career potential, while the recruiter group have a relatively stronger focus on current position performance.

“Job candidates may face trade-offs between choosing either innate talent or hard work to highlight in their job application processes due to practical constraints,” says Professor Dai. “They prefer innate talent relatively more than recruiters because the quality is associated with high levels of career potential.”

Getting the right match

The misaligned expectations between job seekers and recruiters can impede the efficient allocation of workers to their best-matched positions, which has adverse effects on productivity. As getting the right match between job candidates and recruiters is the most essential goal in an efficient job market, this study has crucial implications for job candidates and recruiters.

Designing a talent acquisition strategy that addresses these discrepancies can enhance talent acquisition success. By focusing on effective talent acquisition methods and incorporating talent acquisition tips, companies can improve their talent recruitment processes. Talent acquisition management should take into account both innate talent and hard work to ensure a well-rounded approach to hiring.

Developing an optimal talent acquisition strategy involves understanding the fundamental differences in how candidates and recruiters perceive talent and hard work. This awareness can guide the creation of more effective talent acquisition and development plans, ensuring that companies attract and retain the best candidates.

Professor Dai suggests that job candidates should put more effort into demonstrating their orientation toward hard work. For instance, individuals should emphasise and provide evidence of their hardworking personality when writing a cover letter or doing a job interview. Recruiters, who tend to focus more on current job position performance, should also take candidates’ career potential into account.

The power of being nice: How prosocial motivation can benefit your career

“The position-focused approach or mindset of recruiters could cause firms to suffer negative consequences in the long term, such as high turnover, low morale and lack of innovation,” Professor Dai says.

By understanding and addressing the discrepancy between job candidates and recruiters’ expectations, both can improve their chances of finding the right match and foster a productive and fulfilling work environment.

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New findings about passion and work behaviours

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When passion becomes an obsession

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How can companies innovate? New research suggests clear goals can harm, and the answer lies in giving employees the freedom to make decisions

Debunking the myths of innovation

Goal clarity is a double-edged sword

Harmful group-think can be avoided

A new study reveals that cultural diversity among investors can lead to abnormal stock trading volume, and firms headquartered in culturally diverse places are more prone to crash risk

Different cultures yield varied interpretations

Cultural diversity spurs market reactions

Clear and concise announcements matter

While intuition can be a valuable tool, it can also deceive us. A new study delves into the reasons why blindly trusting your gut is not the best approach

Two schools of thought

Practical implications

Does extra time help?

A recent study shows that herd-like behaviour could undermine a crowdfunding project, but establishing an all-or-nothing threshold can counteract this effect

The real decision-maker

Positive implications of thresholds

Providing insurance to investors

Impressing recruiters and gaining an edge in the job market is no easy feat. However, a new study reveals different priorities between candidates and hiring managers

What to consider in talent acquisition?

Hard work or innate talent?

Career potential vs. current performance

Getting the right match

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