Business school professors’ picks

Welcome to professors’ picks, offering a weekly curated selection of FT articles by and for business school faculty to connect classrooms to current events and to develop students’ critical thinking.

Read all submissions at www.ft.com/bschoolpicks. Save this link in myFT to receive emails alerting you to each new edition. Search the tags for relevant topics to illustrate teaching points. Encourage students to join the debate in the comments section beneath the article.

Comments or contributions? Get in touch at [email protected] 

Trade, geopolitics

Summary: These three pieces of analysis suggest we are entering an entirely new phase in global politics and economics. Rachman goes into details of how the Trump administration’s trade policy is a departure from long-standing US action, and how that will change the global trading regime forever. We are moving into a much more fractured international economic environment with immense consequences for private and public actors. Edward Luce shares his view that Trump is unaware of the scale of the changes he is unleashing and of their effects on both the US and the global economy. The new policy will be highly inflationary, will not produce the desired outcomes for the US economy and will simply destroy value. By contrast, Oren Cass outlines one of the grand visions behind the new US foreign and economic policy: an America far less dependent on external demand, with allies who shoulder a much larger share of global security, and a semi-permanent containment of China.

Classroom application: Understanding the direction of geopolitics and geoeconomics is fundamental for corporate leaders seeking to build or to lead sustainable businesses in the 21st century.

Questions:

• What are the drivers behind the changes in policy in the US?

• Are these changes temporary or structural?

• What are the implications of the Trump tariffs and others on the way business behave?

• Are there ways to hedge the risk emerging from the growing volatility of policy and markets?

• What opportunities, if any, does this new economic environment present to businesses?

• What kind of business leadership does this geopolitical/geoeconomic landscape call for?

Manuel Muñiz, Provost, IE/Chair of IE New York College

Economics, Managing Risk and Uncertainty

ECB cuts rates to 2.25% amid Trump trade war

Tags: Central bank, interest rates, inflation, tariffs 

Summary: The European Central Bank (ECB) cut its benchmark interest rate by 0.25 per cent to 2.25 per cent, its lowest in over two years, in response to economic uncertainty from US trade tariffs. ECB President Christine Lagarde cited deteriorating growth prospects and volatile markets. The decision, seen as dovish, signals possible further cuts. Analysts warned of inflation risks from supply chain fragmentation and rising government spending, although current inflation trends remain downward.

Classroom application: This article provides a platform for faculty and students to discuss central banks’ role with respect to inflation including targets, tools, and tactics — all against a backdrop of geopolitical and macroeconomic uncertainty.

Questions:

• What is the ECB’s inflation target and how does it compare to other central bank’s targets?

• What is a central bank’s intent when cutting its benchmark interest rate?

• Under what circumstances might a central bank’s benchmark interest rate go below zero?

• Why would each of three external factors cited in the article have the effect of driving inflation down in the Eurozone: lower energy prices; a stronger euro; increased imports from China?

• What direct impact do increased tariffs and trade barriers have on inflation broadly?

Tom Davis, Clinical assistant professor, Joseph M Katz Graduate School of Business, University of Pittsburgh

Mergers & Acquisitions

Article: Meta had ‘monopoly power’ after buying rival apps, FTC says

Tags: Monopoly power, killer acquisitions, antitrust, strategy, merger & acquisition

Summary: The US Federal Trade Commission (FTC) has accused Meta of gaining “monopoly power” through its acquisitions of Instagram in 2012 for $1bn and WhatsApp in 2014 for $19bn, as argued in a Washington district court trial. The FTC claims these acquisitions stifled competition, citing Meta’s 85 per cent market share of time spent on its apps and internal communications from Mark Zuckerberg indicating a “buy-or-bury” strategy. Meta denies having a monopoly, arguing its market share is lower when including competitors like TikTok and YouTube, and claims it improved Instagram and WhatsApp’s quality. The trial could lead to Meta having to unwind these acquisitions. 

Classroom application: This article provides opportunities to discuss “killer” or pre-emptive acquisitions done by firms, mainly in order to prevent upcoming competition either by the start-ups themselves, or by rival firms acquiring them. Typically, this happens at an early stage, so that antitrust regulations are not effective at the time of the acquisition. Classic valuation does not play a role in these cases. Even the typical negative share price reactions of the acquirer around the announcement of the transaction can be interpreted differently: without buying, the acquirer might lose more in the long run. Additionally, the article exemplifies the difficulties to define “the market” — here for social media — which is the classic argument in antitrust cases. 

Questions: 

• What could have happened to Meta/Facebook in the case of Google buying Instagram and WhatsApp? How do you judge the acquisition of WhatsApp in light of these arguments? 

• What would you tell investors in Facebook who worry about a decline in share price after the transaction becomes public? 

• Is there a way for antitrust authorities to intervene in these pre-emptive early stage acquisitions? 

• Do European antitrust authorities need the power to unwind acquisitions like in the US? 

Michael Grote, Professor, Frankfurt School of Finance & Management

Global Commerce, International Entrepreneurship, International Strategy

Gulf petrostate Kuwait tries to kick-start diversification from oil

Tags: Kuwait, Oil, Political and Economic diversification, Sustainability

Summary: Kuwait is poised to borrow for the first time in eight years after passing a long-delayed public debt law, signalling a potential shift towards economic diversification in a country that has remained heavily reliant on oil revenues to fund its extensive welfare state. Political stalemate has caused Kuwait to lag behind its regional neighbours, such as Saudi Arabia and the United Arab Emirates, who have implemented ambitious reform agendas. To overcome this, Emir Sheikh Mishal suspended parliament in order to enact reform. In order to finance significant infrastructure projects and reduce Kuwait’s reliance on oil, which remains the mainstay of its economic strategy despite mounting fiscal strain, the new law permits borrowing up to $97bn. Critics emphasise that the government needs to provide a clear, strategic vision for sustainable development beyond hydrocarbons, even though optimism is growing and is reflected in a robust stock market.

Classroom application: This article provides an opportunity for faculty to discuss how and why a country only a little bit larger than New Hampshire (although with a GDP of nearly $300bn) is behind some of their Arab neighbours who have been more aggressive at economic and political reform. It’s also surprising that a country with such a large GDP now is going to have to borrow money and embrace sustainability.

Questions:

• After eight years of holding back, what are the advantages and disadvantages for Kuwait of borrowing from global debt markets?

• What possible macroeconomic effects might Kuwait’s efforts to achieve economic reform have on the country’s rising debt-to-GDP ratio?

• What potential effects would Kuwait’s economic transformation plan have on its ability to compete in the Gulf Cooperation Council (GCC)?

• What obstacles must Kuwait overcome in order to create and implement a cogent national economic strategy?

• The question of why Kuwait is rescinding citizenship from so many of its residents is outside the purview of this paper (in a country of 1.5mn people) but check out FT’s coverage here: The Gulf state purging tens of thousands of its citizens.

Case discussion positioning: This is a wonderful opportunity to focus on the changes in one of the Gulf’s smallest countries, which is happening in real time. On one hand, does it matter what Kuwait does, while on the other, might this be a leading indicator for other Arab nations? Many changes are happening in the region, including Syria, the renewable energy market outside China and political jockeying.

Gregory Stoller, Master Lecturer, Boston University Questrom School of Business

Got feedback on professors’ picks or willing to contribute? Get in touch at [email protected] or add your selected articles and questions in the comments below.