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    Corporate Disasters: Speculative Mania and Bubble Bursts
    Corporate Disasters: Speculative Mania and Bubble Bursts
    Corporate Disasters: Speculative Mania and Bubble Bursts
    Ebook102 pages1 hour

    Corporate Disasters: Speculative Mania and Bubble Bursts

    By Gale and Cengage

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    About this ebook

    Corporate Disasters: What Went Wrong and Why profiles the biggest corporate mistakes or misdeeds throughout history -- covering the people, the times, the decisions made. This volume covers Speculative Mania and Bubble Bursts. Each essay puts the business and its operators in the context of its own time, explaining the market, social, and technology forces at play, and each explores the key make-or-break decisions that led to disaster.
    LanguageEnglish
    PublisherCengage Learning - Gale
    Release dateNov 3, 2013
    ISBN9781535821223
    Corporate Disasters: Speculative Mania and Bubble Bursts

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      Book preview

      Corporate Disasters - Gale

      1987

      Introduction

      By all accounts, one aspect of California’s Silicon Valley differentiates it from other communities: it has a high tolerance for failure. In fact, while executives and entrepreneurs in many industries and locales take tentative steps to avoid risk of failing, in Silicon Valley these same people are encouraged to move forward aggressively and learn quickly from the failures that inevitably await them. There is no shame in failure, nor is there in highlighting failed ventures on a resume. In fact, those very failures are sometimes looked upon favorably by employers or financial backers as signs that a person has gone through some trials by fire and emerged smarter as a result.

      In every field of life, failure is often the precursor to success. This truism seems increasingly acknowledged by management consultants, political pundits, and the media. One of the most dramatic examples is Nike’s 1997 classic 9000 Shots commercial, popularly known as the Michael Jordan failure commercial, wherein the basketball superstar acknowledges his failures, only to point out how important they were:

      I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games.

      Twenty-six times I’ve been trusted to take the game winning shot...and missed.

      I’ve failed over and over and over again in my life. And that is why I succeed.

      Of course, not all players, in sport and in life, rise above their failures. But even though some stories may not be inspirational, they are still valuable, if only as examples of what not to do. In short, failure, as much as success, is worth studying for what it can teach us—providing us models of perseverance to emulate and examples of hubris to avoid.

      These are the kinds of stories we have sought to capture in this volume. They illustrate failure across industries—from retail to manufacturing to finance—and they showcase bad decisions in marketing, strategy, management and more. More than a few of them illustrate classic human foibles. Herein we see tales of crowd-induced mass delusion, underestimating threats from new competitors or new technologies, and the omnipresent temptation to bury one’s head in the sand and hope everything will just be okay.

      In some of the essays, we cover companies that ultimately learn from their failures and emerge stronger. In others, missteps bring down entire enterprises. In all cases, they serve as useful examples for students and teachers of business alike at the graduate and undergraduate level, and for advanced high school students.

      Each essay is focused on the story of a particular failure and was chosen for its ability to show, in a different time and context, why it occurred. An attempt was made to balance essays across disciplines and to be as pluralistic as possible. However, these essays tend to focus on the twentieth and twenty-first centuries. And they tend to cluster around the disruptive influences—globalization, technology, etc.—that have dramatically changed industries and markets.

      Special thanks go to Product Manager Michele LaMeau for leading this initiative. This book is the product of some innovative publishing work, as Michele applied techniques gleaned from our agile software development practice to the production of content, the result being high quality production in record time. Thanks also to Miranda Ferrara, who served as hands-on mentor to Michele, to Mark Springer, Mike Huellmantel, and Keith Jones, who played pivotal roles in making this book a reality, and to numerous others who shared their talents to create this volume. I am grateful to all of them.

      David Forman

      Vice President and Publisher

      Gale, Cengage Learning

      Asian Economic Meltdown in the 1990s

      Late 20th Century Powerhouse

      Economists, newspapers, and pundits called it a miracle. The economies of Hong Kong, Singapore, South Korea, and Taiwan, known collectively as the Four Asian Tigers, as well as neighboring nations Thailand, Malaysia, and Indonesia, experienced unprecedented growth in the late 1980s and early 1990s. By the mid-1990s nearly half the capital investment made in the world was pouring into Asia, and increases in gross domestic product in most of these countries was in the double digits.

      Even the major financial institutions of the world, such as the International Monetary Fund and the World Bank, lauded Asia’s economic successes. Investors, especially foreign investors, were captivated by the high rates of return offered in those countries. While each nation had its own strengths, there were several factors driving the growth that were common to all of them, according to a case study written on the crisis by Charles W. L. Hill, a professor of international business at the School of Business at the University of Washington.

      First, exports were an important economic engine. Inexpensive, well-educated labor; export-oriented economic policy; and decreasing barriers to international trade were all factors encouraging exports in these countries. According to Hill’s case study, exports from Malaysia grew by 18 percent each year between 1990 and 1996, Thailand’s grew 16 percent, Singapore’s 15 percent, Hong Kong’s 14 percent, and both South Korea’s and Indonesia’s by 12 percent. Second, the types of exports changed from commodities and basic materials like textiles to more complex products, such as cars, consumer electronics, and semiconductors, which brought in higher revenue.

      All of the export-created wealth drove an investment boom in commercial and residential real estate, industrial assets, and infrastructure. The price of real estate in major cities like Hong Kong, China increased dramatically and led to major increases in construction. Large amounts of debt were used to finance the construction, but since property values kept going up, the banks continued to lend.

      The governments of many Asian countries also supported the growth through policy and investments. For example, South Korea’s huge conglomerates, known as chaebol, were encouraged by the government to keep investing in new factories, even if it meant taking on greater and greater amounts of debt.

      Not everyone thought this situation was miraculous. In a 1994 article published in Foreign Affairs, Paul Krugman, a professor of economics at Princeton University and an opinion/editorial columnist at the New York Times, called the miracle a myth and the much-lauded countries driving it paper tigers.

      Krugman compared the buildup in Asia to that of the Soviet Union in the 1960s, when the United States was worried about an economic achievement gap. Asian growth, like that of the Soviet Union in its high growth era, seems to be driven by extraordinary growth in inputs like labor and capital rather than by gains in efficiency.

      Krugman’s words would prove to be prescient.

      The First Domino Falls

      In the winter of 1997 it became apparent that some of Thailand’s biggest property developers were having trouble making their debt payments. The explosive growth in construction was beginning to stall, and the companies, faced with slumping revenues and huge debt loads, were struggling. In February of that year, Thai company Somprasong Land announced it had failed to make a US$3.1 million interest payment on one of its loans. The Thai stock market, already beginning to decline because of concerns over the health of the property companies, fell even more.

      Somprasong Land was not the only Thai firm that was experiencing difficulties due to slowing growth and heavy loans. Perhaps more troubling was that the problems were spreading to

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