Global Performance Challenges

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G in AL PR p to ES art co S or py, W in p R fu rin IT ll, t TE on or N a sa PE ny ve R ret an M ri y IS ev c SI al on O sy te N s nt of te of th m, th e is co pd py f, rig ht -h ol de

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Global Performance Challenges Building and Sustaining Competitiveness

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Global Performance Challenges


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Building and Sustaining Competitiveness

Editors

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Prof. (Dr.) Padmakali Banerjee Prof. (Dr.) Vikas Madhukar Prof. (Dr.) Ashutosh Kumar

EXCEL INDIA PUBLISHERS NEW DELHI

First Impression: 2014 © Amity University, Haryana Global Performance Challenges: Building and Sustaining Competitiveness


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ISBN: 978-93-83842-74-2

No part of this publication may be reproduced or transmitted in any form by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the copyright owners. DISCLAIMER

The authors are solely responsible for the contents of the papers compiled in this volume. The publishers or editors do not take any responsibility for the same in any manner. Errors, if any, are purely unintentional and readers are requested to communicate such errors to the editors or publishers to avoid discrepancies in future.

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Published by EXCEL INDIA PUBLISHERS 91 A, Ground Floor Pratik Market, Munirka, New Delhi–110067 Tel: +91-11-2671 1755/ 2755/ 3755/ 5755 Fax: +91-11-2671 6755 E-mail: [email protected] Web: www.groupexcelindia.com Typeset by Excel Publishing Services, New Delhi–110067 E-mail: [email protected] Printed by Excel Printing Universe, New Delhi–110067 E-mail: [email protected]

Preface Companies across globe are operating in an increasingly competitive landscape. Achieving business success in emerging markets has become a key factor for multinational corporations worldwide seeking new growth opportunities and greater global supply chain efficiency.


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With the prospect of modest growth in developed markets, and cut throat competition in the emerging markets, there is an imminent challenge for the corporates around the world to look forward for new avenues which can enhance their business performance and let them win new markets. The gloablisation has become a progressively significant reality universally, which has, on one hand forced the domestic organisations to work hard to match the competitive advantages of their new global rivals and also on other hand created a highly competitive environment for the multinational corporations to operate. Therefore, in these situations, both domestic and multinational corporations are opting for continuous innovations and integrating themselves on their core competencies for building and sustaining competitiveness.

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Further, competition between multinational corporations has now transformed from hard competitiveness to soft competitiveness, from simple reliance on technology and product competitiveness to reliance on concepts like corporate social responsibility and social ethics. Advanced corporate social responsibility ideas and practices already constitute the heart of business competitiveness which has now extended from enterprise level to societal level. The patterns have been shifting to innovative business strategies and practices that can deliver profits from responsible behaviour of business leading to responsible competitiveness. This has surely galvanized the corporation’s across world to do a better analysis of themselves as well as the environment on a global scale and assimilate its benefits to a scalable level and win more markets by shaping their strategies in line with the economic and social goals. This edited book has the bouquet of papers exploring the building and sustaining competitiveness in various sectors such as finance, marketing, contemporary business management practices, organizational behavior, information technology etc. This volume has contribution from various academicians, researchers, business managers and scholars. The book has been divided into six sessions comprising of research papers, articles, case studies from in and around the globe, depicting a gigantic view of building and sustaining global competitiveness. The first session on Finance in Integrated Global Environment has papers on impact of government receipt on government expenditure in India, prospects and challenges of government process re-engineering in financial operations, a study of worldwide governance indicators and foreign exchange rate, competition and risk in banking sector, financial institutions and economic growth in the Nepal country, value creation through mergers &acquisitions, and money laundering in real estate sector. This section thus, discusses about the wider picture of government financial operations and its world wide acceptability.

The second session on Contemporary Business Management Practiceshas the papers on corporate governance and disclosure practices of MNC subsidiaries and domestic firms,practices and challenges of social entrepreneurship. It also studies the factors and preferences towards life insurance policy investment decision making, a study on corporate sustainability efforts and performance in Indian manufacturing firms, reappraisal of education system for education sustainability in Indonesia, the perspective of FDI in India, and corporate sustainability through social return on investment.


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The third session centered on Corporate Strategy Initiatives in the Global Context, wherein, the papers on differences in the choice of diversification strategies of multinational corporations and Indian companies, a effect of entrepreneurial orientation on business performance, country analysis of Russia to benefit Indian firms, a study on competitiveness of Indian telecommunication industry, managing cross cultural diversity, a study of Indian exhibition industry while building and sustaining competitivenesswere discussed. The fourth session is on Competitive Marketing in the Global Context. This session includes the papers on E-Retailing, IMC Strategies of Building Brand ‘NaMo’retail investor with in the taxation boundaries, Customer satisfaction towards high-end Smartphones in India using Importance-Performance Analysis Model, studyof Green Marketing on Eco-friendly Products, De-branding: a next generation marketing strategy, and a case on the Atari Fiasco.

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The fifth session on Human Resource Management and Organisational Behaviour discusses the workplace spirituality and decision making style of managers, future of HR –developing competency of “curiosity” to thrive in 21st century. It also studies the different faces of job satis faction, leadership style and job involvement, erecruitments, self-efficacy and self-impression predictor of counterproductive work behavior and strategies to build organizational commitment in challenging times.

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Finally, the last session on Information Technology and Serviceshas the papers on semantic friendly image search factors in content based image retrieval, current and future aspects of big data systems, technological advancement: a ripple for sustaining competitiveness in higher education, Indian laws in relation to cyber-crime, and role of digital technologies in rural India. We sincerely hope and believe that this edited book shall be a great source of learning to all the academic fraternity, researchers and business managers etc. in and around the globe. Dr. Padmakali Banarjee Dr. Vikas Madhukar Dr. Ashutosh Kumar

ii | Preface

Acknowledgement This book is a result of constant motivation and inspiration of our Dr. Ashok K. Chauhan, Founder President - RBEF and Mr Aseem Chauhan, Additional President– RBEF and Chancellor, Amity University. Our sincere thanks to Dr. P.B. Sharma, Vice Chancellor, Amity University Haryana for his constant support, encouragement and guidance to bringing out this book on the central theme of ‘Global Performance Challenges: Building and Sustaining Competitiveness’


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The publication of this book could not have been possible without the cooperation, hard work & dedication of ‘editing team’ consisting faculty members of Amity Business School. We sincerely appreciate them for their zeal & enthusiasm. We are grateful to our industry partners and all the paper contributors in bringing out this volume of the edited book. We also thank Excel India Publishers, New Delhi for taking up the task of publishing the book and executing it nicely.

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Dr. Padmakali Banerjee Dr. Vikas Madhukar Dr. Ashutosh Kumar

Organising Committee Patron Prof. (Dr.) P.B. Sharma Vice Chancellor-Amity University, Haryana

Conference Chairperson Prof. (Dr.) Padmakali Banerjee


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Pro Vice Chancellor & Dean Academics, Amity University Haryana and Director-Amity Business School

Conference Director

Prof. (Dr.) Vikas Madhukar Dy Director-Amity Business School Director-Events & Head-Admissions Amity University Haryana

Conference Advisors

Prof. (Dr.) Bhavana Adhikari, Dy Dean Academics

Prof. (Dr.) Gunjan M. Sanjeev, Director–International Affairs

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Convener

Prof. (Dr.) Ashutosh Kumar Amity Business School Amity University Haryana

Co-Convener Mr Sunil Kumar

Amity Business School Amity University Haryana

Coordinators Dr. Tanushri Purohit Dr. Vidhi Bhargava Dr. Deependra Kumar Mr. P.K. Sharma Mr. Bhaskar Kandap Mr. Rajni Kant Rajhans

Contents Preface Acknowledgments Committees

v vii viii

SESSION 1: FINANCE IN INTEGRATED GLOBAL ENVIRONMENT

3

Worldwide Governance Indicators and Foreign Exchange Rate: An Empirical Study Anuradha Jain

21

3.

Competition and Bank Risk: Evidence from Indian Banking Sector Santi G. Maji and Preeti Hazarika

28

4.

Financial Institutions and Economic Growth: A Case of Nepal Bharat Ram Dhungana

40

5.

Value Creation through Mergers & Acquisitions: To Exploit Synergies of the Company Nikita Jain

54

6.

Money Laundering in Real Estate Sector—Effects and Implications Surendran Sundarakani and M. Ramasamy

62

7.

Study of Micro and Small Enterprises Development Supported by Micro-Credit Institutions: A Case of Haryana Kapil Madan and Ashwani Deswal

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Microfinance Institutions and Remittances in Albania Altin Idrizi

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Government Process Reengineering in Financial Operations— Prospects and Challenges Lalit Kumar and Rohit Kumar

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SESSION 2: CONTEMPORARY BUSINESS MANAGEMENT PRACTICES 9.

Corporate Governance and Disclosure Practices of MNC Subsidiaries and Domestic Firms: An Empirical Study from India Pankaj M. Madhani

89

10. Social Entrepreneurship: A Review of Concepts, Practices and Challenges Monika Sansanwal

104

116

12. Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms Sraboni Dutta and Diganta Munshi

126

13. Reappraisal of Education System for Education Sustainability in Indonesia Rita Sutjiati and Emmy Indrayani

136

14. Corporate Governance and Firm Performance: Empirical Evidence from India Surya Bahadur G.C. and Ranjana Kothari

149

15. Current Status of Foreign Direct Investment in India O.P. Verma and Vijeta Sharma

164

16. Corporate Sustainability through Social Return on Investment (SROI) Suhas Chavan and Jayanti Ranganathan Chavan

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11. A Study of Factors and Preferences towards Life Insurance Policy Investment Decision Making Neelu Tiwari, Charu Yadav and Rajeev Kumar Saxena

SESSION 3: CORPORATE STRATEGY INITIATIVES IN THE GLOBAL CONTEXT

17. Differences in the Choice of Diversification Strategies of MultiNational Corporations and Indian Companies: An Empirical Investigation Aparna Bhatia and Anu Thakur

195

18. Business Performance: Orientation Saloni Raheja

207

Influence

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19. Russia: An Emerging Market for Indian Firms Mahesh Chandra Joshi and Richa Bhatia

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21. Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness Vinod Kumar and Rajiv Kumar

235

22. Managing Cross Organizations Meenu Rani

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20. A Study on Competitiveness of Indian Telecommunication Industry Sunita Rani and D.K. Choudhary

x | Contents

Cultural

Diversity

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Big

Challenge

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SESSION 4: COMPETITIVE MARKETING IN THE GLOBAL CONTEXT

261

24. IMC Strategies of Building Brand ‘NaMo’ B. Shafiulla

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25. Customer Satisfaction towards High-end Smartphones in India: A Study of Customer Satisfaction Using Importance-Performance Analysis Model Tahir Ahmad Wani and Shadma

278

26. Role of Green Marketing on Eco-Friendly Products: Perception of Stakeholders Kulwant Singh Pathania and Inderjit Singh

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27. De-Branding: A Next Generation Strategy Tanmay Satpathy and Saikamal Paradi

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28. The Atari Fiasco Vishwas Gupta and Ashutosh Kumar

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23. Background Music: An Assessment of its Usefulness for E-Retailing Rajiv Jain and Biswarup Chatterjee

SESSION 5: HUMAN RESOURCE MANAGEMENT AND ORGANISATIONAL BEHAVIOUR

333

30. Impact of Demographic Factors on Job Satisfaction: A Study on North Refineries Company of Iraq Saad Salih Hussein, S.G. Maji and N.M. Panda

347

31. The Relationship between Leadership Styles Involvement: An Empirical Study of Indian Employees Shehla Malik and Amirul Hasan Ansari

358

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29. Workplace Spirituality and Decision Making Style of Managers: An Empirical Study of Middle Level Managers in India Sunil Budhiraja, Meenakshi Malhotra and Ekta Narula

369

33. E-Recruitments: A Modern Tool for Optimum Efficiency of Human Resource Management Process Harjender Singh

375

34. Self-Efficacy and Self-Impression Predictor of Counter Productive Work Behavior Rishipal

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32. Future of HR–Developing Competency of “Curiosity” to Thrive In 21st Century Akshat Bhargava

Contents | xi

35. Analytical Study on Faculty Competencies and Performance Management Systems in Business School Kirti Dhrwadkar and Aparna Sethi

Current 399

414

37. Emotional Resilience for Sustaining Competitiveness Priti Suman Mishra and Prachee Mittal Tandon

426

38. Strategies to Build Organizational Commitment in Challenging Times: A Development Framework Poonam Sharma and Manish Arora

431

39. A Correlational Study on Occupational Stress and Mental Health Juhi M. Garg and Renuka Joshi

437

40. Work Place Stress and Mental Health: Impact and Management Simran Bedi Vats and Padmakali Banerjee

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36. Go SMART with S.M.A.R.T.: Yardstick for Global Performance Measurement Divya Gupta Chowdhry, Rakhi Gupta and S.N.P. Gupta

SESSION 6: INFORMATION TECHNOLOGY AND SERVICES

451

42. Big Data Systems: Current and Future Aspects Shivani Gupta

460

43. Technological Advancement: A Ripple for Sustaining Competitiveness in Higher Education Kshama Pandey and Neetu Singh

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41. Semantic Friendly Image Search Factors in Content Based Image Retrieval Neha Manchanda

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44. Cyber Crime & Indian Laws: A Critical Analysis Lalit Ajmani and Kush Kalra

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46. Portfolio Components Preferences of a Qualified Retail Investor with in the Taxation Boundaries: The Study of NCR Rakhi Sharma

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45. Role of Digital Technologies in Rural India Deepa Malra

AUTHOR INDEX

xii | Contents

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SESSION 1 FINANCE IN INTEGRATED GLOBAL ENVIRONMENT r

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Government Process Reengineering in Financial Operations—Prospects and Challenges Dr. Lalit Kumar1 and Sh. Rohit Kumar2


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Assistant Professor, (Faculty of Financial Management), Haryana Institute of Public Administration, Gurgaon, Haryana, India Assistant Professor in Commerce, Rajiv Gandhi Maha vidyalaya Uchana, Jind (Haryana), India E-mail: [email protected], [email protected] ABSTRACT

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The idea of e-Governance is getting momentum and changing the work practices of government organizations. The delivery of public services with more efficiency and without financial irregularities is a challenge for each government organization. The era of liberalization, globalization, and privatization has transformed the entire picture of Indian economy and the public sector enterprises are competing with multinational companies (MNCs) for delivering goods and services. It seems that the governance related issues will further transform the government machinery used to deliver products and services to the public. Like business process reengineering (BPR), an idea which has changed the work process of various business organizations to achieve the goals more effectively. In government enterprises, government process reengineering (GPR) is used to streamline the functions for improving efficiency and effectiveness in various operations. Finance is an area which is still affected with old practices; most of the government organizations still process their vouchers, accounting records manually. It is required to use GPR in making the financial operations more effective and efficient, reducing the financial irregularities, and chances of embezzlements. This study is basically related to using GPRin the financial operations of government organizations. The main objective of study is to identify and describe the challenges normally being faced by bureaucrats, ministers, and other officers in reengineering the process and mechanism of financial operations particularly to reduce financial irregularities and embezzlements. The economic offences, normally known as white-collar crimes and corrupt practices in dealing with financial matters; are still big challenges for the government. This study explores the initiatives may be taken to improve the financial mechanism for better utilization of financial resources with GPR. In various states, there is scarcity of financial resources and the states are facing difficulties even to finance basic needs of the citizens including water, electricity, shelter, cloth, and pure air. However, some government organizations have used GPR and also have faced various challenges in using it as a tool for making financial operations more efficient. The nature of this research is descriptivecum-explorative and the study provides direction to administrators regarding use of GPR in their organizations. In order to meet the research objectives, firstly secondary data is collected from relevant books, articles, journals, and websites and thereafter primary data is gathered with the help of questionnaire method. The findings disclose the initiatives to be taken by the government after taking into consideration various challenges. Keywords: Government Process Reengineering, Public Sector, Financial Operations, Challenges, Prospects, Financial Performance, Efficiency, Organizational Change, Prospects etc.

INTRODUCTION


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The Government Process Reengineering (GPR) brings innovative thoughts in the ways; organizational functions are performed in government organizations. It is done to improve the efficiency and effectiveness of an organization in meeting its objectives. Every organization has begun to realize significant cost savings and now-a-days taking steps to identify the methods for reengineering its operations. An organization creates value through its processes. The issues and concerns which normally create barriers are identified and prioritized to make the operations simplified. The GPR provides a structure to have open dialogue regarding various issues and concerns and makes the organization introspectivein assessing how it can do its activities to utilize the resources more effectively.Now-a-days, the idea of e-Governance is transforming the picture of Government organizations by creating a sense of accountability among the employees.There are a lot of barriers in proper communication of financial information such as*:Delays in movement of file from one desk/level to another desk/level, Nonstandard workflows i.e. non-conformance to office operating procedures, Deployment of staff efforts for mechanical jobs, Iteration and duplication of work, Too much effort goes into reporting and summary preparation, Lack of systems approach, To many manual approvals and checks, Time consumed in non-core work, Lack of coordination across departments etc. These barriers occur due to various reasons like lack of performance management, lack of transparency and accountability, lack of technical skills in personnel, bureaucratic work processes etc. In 2006, Income Tax Department created a separate Directorate of Business Process Reengineering†.

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The GPR can be used to improve the Government-Citizen Interface. Presently, the work is normally delayed by old rigid processes and GPR can easily reengineer the old processes and replace them with new processes to carry out the same functions with less effort, time, and cost. The GPR is must when the processes become old and inefficient and cannot deliver results that they were originally designed to. According to Balasubramanian (2010) Business Process Reengineering means not only change but dramatic change. What constitutes dramatic change is the overall of organizational structures, management systems, employee responsibilities and performance measurements, incentive systems, skill development, and the use of information technology‡.

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FINANCIAL OPERATIONS IN GOVERNMENT

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According to section 617 of the Companies Act, 1956; a government company is defined as a company in which not less than fifty one percent of paid-up share capital is held by central government, or by any state government or governments. In order to improve the efficiency and effectiveness in public services, finance function within government *

These facts are presented by Lekha Kumar, Director (e Governance), Department of Administrative Reforms and Pension Grievances, Government of India on 22nd July 2009; the facts are retrieved from http://www.icisa.cag.gov.in/egovernance/session_3/BPR%20for%20eOffice_Lekha%20Kumar.ppt%20[Compatibi lity%20Mode].pdf on 12th May, 2014. † Source: http://www.incometaxindia.gov.in/archive/NoteonBPR_ 26082008.pdf ‡ Balasubramanian, S., (2010). Successful reengineering implementation strategy: Hindustan college of engineering.

4 | Global Performance Challenges: Building and Sustaining Competitiveness

organizations must perform various critical roles. The GPR may be used to redefine the key tasks, reassigning the processes, and make the work more efficient. GPR IN HARYANA TREASURIES DEPARTMENT


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Haryana Treasuries Department (HTD) is an example of using GPR in financial operations. The department has a mechanism through which effective financial control is exercised over public spending by various Haryanagovernment departments. The HTD is responsible to look after the initial and subsidiary accounts of payment and send the accounts to higher authorities like Accountant General (AG) Haryana. The district treasuries working under its control receive money from public as well as departmental officers through banks for credit to the government. The HTD used GPR to streamline the financial operations and remove the following bottlenecks§ by replacing the old processes with new ones: Monitoring of expenditure worth Rs. 59451 Crores and Receipt Rs. 59173 Crores.

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Manual and time consuming Budget Preparation.

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Budget Communication in paper form from top to bottom.

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Budget Releases as per the proposal of the departments.

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Budget Revision by FD based upon information provided by the departments.

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Budget Re-appropriation not as per prescribed procedure and based on intuitions.

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Budget allocation / Revision by Head of Departments to its DDOs not linked to budget provisions.

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Late availability of budget /LOC allocated to DDOs in Treasury Office.

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Monitoring Ways & Means clearance of large amount Bills.

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Frequent visit of DDO’s to enquire about the status of bill.

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Non availability of timely Expenditure and Receipt details.

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Non implementation of instructions in letter and spirits.

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The department identified the following processes and the following activities are eliminated by using GPR:

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Manual posting of Accounts from Accountant General Office.

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Manual Communication of Budget.

These facts are disclosed in a discussion with Sh. Deepak Bansal, Additional State Informatics Officer and Sr. Technical Director, NIC-Haryana State Center.

Government Process Reengineering in Financial Operations—Prospects and Challenges | 5

Issuance of POL (Petrol Oil Lubricant) Coupons.

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The process of issuance of Loan Sanctions to various govt. Employees.

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Removing of Non Recurring Expenditure from budget to ease bill preparation.

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Issue of LOCs for Establishment and State Owned plan schemes for PWDs.

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Manual efforts at different level have been either eliminated or reduced to minimal.

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Preparation of manual bills (Salary and all other Bills).

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Preparation of Manual Pension Bills.

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The process of Photocopying of Budget Documents on the Transparent Sheets.

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No. of copies to be printed have been reduced to 1000 as compared to 2500 previously.

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Re-entry of e-salary and pension bills in the treasury.

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Providing monthly scroll to DDOs by treasury.


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The department realized the following benefits after using GPR:

Quick generation of consolidated budget abstract, wage bill, summaries and other budget linked reports.

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Saving in budget printing time by auto printing of budget document.

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Minimized fraudulent payments and without budget provision payments.

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Reduced number of Audit Para.

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DDO can view the status of the bill from his work place.

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Reduced number of reconciliation related problems.

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Online Tax payments by Tax payer from his work place.

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Prompt payment and tothe validpayersonly, through EPS.

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Minimized use of papers.

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Eliminated chances of error and brought more accuracy.

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STATEMENT OF PROBLEM It is evident from the above example of HTD that there are various benefits of GPR and it can be used in simplifying the financial operations and can change the entire picture of the ways government performs its financial functions. The GPR can be used only after having a clear vision of what the reengineering intends to achieve, how to implement it, and also how to ensure its success to bring the changes in the financial operations. 6 | Global Performance Challenges: Building and Sustaining Competitiveness

Presently, various scams are highlighted day after day in news, clearly states that there are various deficiencies in the system, the ways, the financial operations are performed in government organizations. It is required to improve the financial operations by using GPR, therefore, the study is upon, and “Government Process Reengineering in Financial Operations—Prospects and Challenges” is need of the hour. REVIEW OF LITERATURE

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Omar S. Al-Mushayt, KashifulHaqand Yusuf Perwej (2009) reviewed the e-government maturity models, synthesized them and explained that the main e-government maturity stages are: online presence, interaction, transaction, transformation and digital democracy. It is explained that E-Government can be used as an enabler toward accelerating processes, delivering a higher level of service to citizensand businesses, increasing transparency and accountability while lowering costs. The researchers used Meta-Synthesis approachto integrate multiple studies in order to produce comprehensive and interpretive findings by comparing, interpreting, translating and synthesizing different research frameworks. The research adopted Noblit and Hare (1988) seven-step approach, i.e., getting started, searching and selecting of relevant studies, reading the studies, determining how the studies are related, translating the studies into one another, synthesizing translations and expressing the synthesis. Finally, it is concluded that Saudi Arabia has improved the status and vision of improving its public services given to its citizens and by the end of 2010, the services will be better, and internal efficiency & effectiveness will be increased which will contribute to the country’s prosperity. In another study, Christoffel J. Hendriks (2012) identified the challenges and risks involved in implementing Integrated Financial Management Information Systems (IFMS) in South African Public Services. He also developed a set of best practice guidelines for the successful implementation of IFMS. He concluded that the sheer size and complexity of an IFMS poses significant challenges and a number of risks to the implementation process. Presbitero J. Velasco (2012) explained the applicability of Management Information System in administrative activities of Supreme Court of Philippines. He revealed various challenges in implementing Action Program for Judicial Reforms (APJR) and the issues to be considered while implementation of APJR. He provided a structure to build to website on court administration, which information should be displayed by the system, how to record data and reports on cases i.e. web based management reports, how to provide query facilities on website, and how to use the system in improving the status of pending cases i.e. to solve maximum number of cases more efficiently. KPMG** (2013) explained the use of E-accounting in Oil and Gas sector. It majorly emphasizes the use of financial instruments, recognizing revenues and managing fixed assets in the financial operations and how to use E**

KPMG (2013), “Accounting in the Oil & Gas Industry”, the study is retrieved from https://www.kpmg.com/CY/en/IssuesAndInsights/ArticlesAndPublications/Documents/Publication/EACCOUNTING-IN-THE-OIL-AND-GAS-INDUSTRY.pdf on 13th Jan, 2013.



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accounting in this area. MalleswaraTalla and Raul Valverde (2013) described that Service level management (SLM) can be integrated with Information Technology Infrastructure Library (ITIL). They analyzed the ways to apply the ITIL framework for reengineering of IT service support process in an organization. They first started with the process mapping, and then moved towards reengineering following ITIL guidelines. It is concluded that the ITIL framework consists of a well evaluated, explored and maintained set of guidelines and it certainly serves a tool for exploring process reengineering and improvements while meeting the budget constraints.Zuhoor AlKhanjari, Nasser Al-Hosni and NaoufelKraiem (2014) explained that E-Government offers a new electronic channel by means of which citizens and government ministries can interact with one another, unconstrained by the locations and schedules; and thereby improving government effectiveness. They proposed an architectural solution (Service oriented e-Government Architecture) and described its promised benefits. OBJECTIVES OF THE STUDY

The main objective of study is to identify and describe the challenges normally being faced by bureaucrats, ministers, and other officers in reengineering the organizational processes in Government organizations, particularly to reduce financial irregularities and embezzlements. Further, the research also explores the initiatives which may be taken by Government to improve the financial mechanisms for better utilization of the funds. RESEARCH METHODOLOGY

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In order to identify & describe the challenges and benefits of GPR in financial operations, data is collected firstly from the secondary sources including books, newspapers, journals, and internet. The primary data is gathered with the help of questionnaire method. The questionnaire consists of both close ended & open ended questions to find out the challenges and benefits of GPR in financial operations of government organizations. The population of the research comprises the administrative, financial, and accounting officers of government organizations. The researcher prepares a questionnaire and sends it in advance to the respondents. Thereafter, after taking the convenient time, the questionnaires are filled by discussing the questions thoroughly. The fact-finding enquiries are also done with the respondents.50Ministers, 75 Administrative officers, and 50 finance and accounting officers are taken as sample to meet the objectives of this research study. The respondents are selected as per following method: Ministers: Firstly, the list of ministers is prepared and then 50 ministers are selected by using strata random sampling method. Administrative Officers: Firstly, the list of administrative officers (IAS and HCS only) working in government organizations is prepared. Out of them, 75 officers with maximum work experience are selected.


Finance and Accounting Officers: From the list of accounting personnel, 75 officers are selected with the help of convenient sampling method. The primary data gathered with the help of questionnaire method is analysedby using percentage method and graphical presentations are shown to interpret the results. The mode is used to point out the critical challenges and potential benefits of GPR in financial operations particularly to reduce financial irregularities and embezzlements. ANALYSIS OF RESULTS In this section, the analysis and findings are discussed. PROFILE OF RESPONDENTS

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Table 1: Profile of Respondents


Functional Classification Administrative Finance and Officers Accounting Officers (N=75) (N=75)

Ministers (N=50)

Gender Male Female Age group (yrs.) Up to 25 26-35 36-45 Above 45 Educational level Under Graduation Graduation Post Graduation Above Post Graduation Source: Primary Data

38 12

54 21

67 8

159 41

1 11 32 6

1 11 24 39

4 26 16 29

6 48 72 74

0 12 16 47

3 28 33 11

48 72 74 64

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11 25 8 6

Total (N=200)

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The demographic information provides the socio-economic profile of respondents including gender, marital status, age, and educational level. The demographic factors play critical role in determining the living standards, awareness level, and tastes and preferences of respondents with regard to contents should be included in designing website. Table 1 shows that out of 200 respondents, 50 are Ministers, 75 are administrative officers, and 75 are finance and accounting officers. The gender section shows that out of 200 respondents, 159 are male and 41 are female. The age-group section shows only 6 out of 200 are below the age of 74respondents have age more than 45 means they have maximum exposure to the problems normally being faced while implementing GPR. Further, out of 200, 64 have qualifications more than Post Graduate means they may have more knowledge of the benefits of GPR in their organizations. CHALLENGES IN IMPLEMENTING GPR IN FINANCIAL OPERATIONS The respondents are asked to explain the real challenges normally being faced while reengineering the government processes for improving transparency in financial Government Process Reengineering in Financial Operations—Prospects and Challenges | 9

operations. It is found that there are seven challenges as given in Table 2. It is also found that each government organization has its own challenges as per the nature of work and the officers deployed to perform the functions. These challenges are indirectly putting pressure upon the government not to use GPR for reducing financial irregularities and embezzlements. The senior officers associated with reengineering of government processes should adhere to these challenges. The major challenges identified by the respondents are explained as under: Table 2: Challenges in Using Government Process Reengineering for Financial Operations (in numbers) Ministers (N=50)

Finance and Accounting Executives (N=75) Yes No 54 21 59 16

Yes 42 28

No 8 22

Yes 24 65

No 51 10

48 44

2 6

27 72

48 3

43 32

49

1

12

63

24

26

52

14

36

48

Total (N=200) Yes 120 152

No 80 48

32 43

118 148

82 52

41

34

102

98

23

63

12

139

61

27

31

44

93

107


a. Lack of technical skills in officers b. Lack of Commitment in Top Management Officers regarding change c. Expensive and Time Consuming Process d. Lack of willingness in employees for improving their capacities to work in upgraded new environment e. Fear of exploitation and more work burden (in employees) f. Possibility of hacking of secure and confidential information g. Element of Non-acceptance of accountability towards work (in employees) Source: Primary data

Administrati ve Officers (N=75)

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Particulars

LACK OF TECHNICAL SKILLS IN OFFICERS

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It is observed that most of the government organizations are still using manual accounting system and noting papers for internal communication. GPR in financial operations requires automation of such practices and it is must to impart technical skills such as use of e-mails for internal communication, using data warehouses for keeping confidential data etc. Tables 2 and 3 depict that 60% respondents accepted it as a challenge for using GPR. Every officer related to financial operations should have technical skills, to become able to understand reengineering of government processes. LACK OF COMMITMENT IN TOP MANAGEMENT OFFICERS REGARDING CHANGE The reengineering of financial operations will bring a change in the work practices already being performed by the officers. It requires change management on part of top managerial officers. Due to lack of commitment and red-tapism the GPR has become impossible to be used in government organizations. Tables 2 and 3 depict that 76% respondents including most of the administrative officers accepted it as a challenge. An officer with commitment and skills of change management can use GPR in financial operations.


EXPENSIVE AND TIME CONSUMING PROCESS In Government organizations, each financial decision is taken by a committee in order to reduce the chances of financial irregularities. The GPR is also a financial decision because the reengineering includes planning the processes and reorder them in order to meet the organizational objectives more efficiently and effectively. Tables 2 and 3 depict that 96% ministers consider it as a challenge for using GPR, however 64% administrative officers denied it as a challenge. LACK OF WILLINGNESS IN EMPLOYEES FOR IMPROVING THEIR CAPACITIES TO WORK IN UPGRADED NEW ENVIRONMENT


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The GPR will transform the way of work practices and definitely it will upgrade the official working environment. It will bring transparency in financial operations and anybody if involved in corruption can easily be traced out by the administrative officers. The officers can be trapped even by the ministers, if involved in financial embezzlements. Tables 2 and 3 depictthat 96% administrative officers and 88% ministers consider it as a challenge. However, 57% finance and accounting officers don’t accept it as a challenge in using GPR in financial operations. Table 3: Challenges in using Government Process Reengineering for Financial Operations (%) Particulars

Ministers

Yes 84 56

No 16 44

96 88

4 12

36 96

64 4

57 43

43 57

59 74

41 26

98

2

16

84

55

45

51

49

48

52

69

31

84

16

70

31

28

72

64

36

41

59

47

54

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a. Lack of technical skills in officers b. Lack of Commitment in Top Management Officers regarding change c. Expensive and Time Consuming Process d. Lack of willingness in employees for improving their capacities to work in upgraded new environment e. Fear of exploitation and more work burden (in employees) f. Possibility of hacking of secure and confidential information g. Element of Non-acceptance of accountability towards work (in employees) Source: Table 1.2.

Administrative Finance and Total Officers Accounting Executives Yes No Yes No Yes No 32 68 72 28 60 40 87 13 79 21 76 24

FEAR OF EXPLOITATION AND MORE WORK BURDEN (IN EMPLOYEES) The reengineering of government processes will change the role and responsibilities of the officers, and may leads to fixation of accountability towards work and extra work burden for lower level employees. The fear of exploitation is also a cause of not using GPR in financial operations. Tables 2 and 3 depict that 98% ministers considered that the employees have fear of being exploited with giving more work burden that is why use of GPR is not possible in government organizations. However, only 16% administrative officers consider it as a challenge in reengineering financial operations. Government Process Reengineering in Financial Operations—Prospects and Challenges | 11

Challenges in Using GPR in Financial Operations (%) 120

100

a) Lack of technical skills in officers

b) Lack of Commitment in Top Management Officers regarding change


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80

c) Expensive and Time Consuming Process

60

d) Lack of willings in employees for improving their capacities to work in upgraded new environment

40

e) Fear of exploitation and more work burden (in employees)

f) Possibility of hacking of secure and confidential information

0

Yes

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No

No

Yes

No

Yes

No

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Administrative Officers

Finance and Accounting Executives

Total

g) Element of Non-acceptance of accountability towards work (in employees)

POSSIBILITY OF HACKING OF SECURE AND CONFIDENTIAL INFORMATION Tables 2 and 3 depict that most of the finance and accounting officers (i.e. 84%) assumes that the use of GPR will make the work more based upon the information technology and the financial information which is confidential can easily be hacked by the technically expert hackers. 70% respondents accepted it as a challenge in using GPR. 12 | Global Performance Challenges: Building and Sustaining Competitiveness

ELEMENT OF NON-ACCEPTANCE OF ACCOUNTABILITY TOWARDS WORK (IN EMPLOYEES) Tables 2 and 3 depict that 64% administrative officers consider that there is nonacceptance of accountability towards work, which is normally the result of GPR. The reengineering will fix the accountability and ensure more transparency in the work practices. However, 72% ministers don’t consider it as a challenge for using GPR. BENEFITS AND PROSPECTS OF GPR IN FINANCIAL OPERATIONS

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The reengineering of government processes in financial operations can improve the financial mechanism. There are a lot of potential benefits of GPR, a few of them are admitted and accepted by the ministers, administrative officers, and finance & accounting officers:


Table 4: Potential Benefits and Prospects of Using Government Process Reengineering in Financial Operations (in Numbers) Particulars

Ministers (N=50)

Finance and Accounting Executives (N=75) Yes No 68 7

Yes 38

No 12

Yes 58

No 17

41

9

67

8

63

35

15

28

47

19

31

44

26

24

11 18

Total (N=200) Yes 164

No 36

12

171

29

71

4

134

66

31

67

8

130

70

39

36

64

11

129

71

39

42

33

48

27

101

99

32

72

3

58

17

148

52

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1. More efficient governance in financial operations 2. Reduction in scope of corruption, financial irregularities and embezzlements 3. Increasing transparency, and quick financial decisions 4. Greater scope for integration in processing accounting vouchers and preparing Final Accounts 5. Effective Financial Reporting and fulfilling Corporate Social Responsibility 6. Helps fixation of accountability towards work 7. Allows for decentralization of governance in financial operations Source: Primary data

Administrativ e Officers (N=75)

MORE EFFICIENT GOVERNANCE IN FINANCIAL OPERATIONS In order to reduce financial irregularities, the reengineering of financial operations will enable more efficient governance. The top managerial officers will be able to detect the financial irregularities at their level with more easiness and the GPR will help in implementing good governance in financial operations. Tables 4 and 5 depict that 91% finance and accounting officers accept this benefit likely to be after using GPR. In total, 82% respondents admitted that the GPR in financial operations definitely enable the more efficient governance in financial operations. Government Process Reengineering in Financial Operations—Prospects and Challenges | 13

REDUCTION IN SCOPE OF CORRUPTION, FINANCIAL IRREGULARITIES AND EMBEZZLEMENTS The GPR will reduce the scope for corruption and combating corruption is a top priority of government. Tables 4 and 5 depict that 86% respondents accepted it as a potential benefit of using GPR in financial operations. The GPR can transform the financial operations by using more IT-based activities and automation in order to make the process more quick and transparent. INCREASING TRANSPARENCY, AND QUICK FINANCIAL DECISIONS


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Tables 4 and 5 depict that 95% finance and accounting officers accepted that the GPR can improve the transparency in financial operations and may contribute to speed up their financial decisions. The increase in transparency makes the government more accountable to citizens. This benefit is need of the hour, as government is focusing upon effective implementation of Right to Information Act (RTI), Citizen Charter etc. GREATER SCOPE FOR INTEGRATION IN PROCESSING ACCOUNTING VOUCHERS AND PREPARING FINAL ACCOUNTS The reengineering of financial operations will definitely use information technology. It will be possible to enable digital storage of data and software applications which allow greater scope of integration of activities of different government offices as data can be shared easily and efficiently. Tables 4 and 5 depict that 89% finance and accounting officers admitted that after GPR in financial operations, there will be greater scope for integration in processing accounting vouchers and preparing final accounts. The datawarehouses can be maintained and the financial decisions will become more effective, when taken on the basis of more accurate information.

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EFFECTIVE FINANCIAL REPORTING AND FULFILLING CORPORATE SOCIAL RESPONSIBILITY

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It is observed that the government organizations are still using manual accounting system, single entry book-keeping method, and cash base accounting. The accounting standards require use of accrual base accounting and double entry system for reporting purposes. Further, in order to fulfill corporate social responsibility, each government organization is entrusted to publish its quarterly financial statements in leading newspapers and also to provide the details of revenues and expenditures on the websites. The GPR in financial operations will facilitate government organizations to fulfill such responsibilities with effective financial reporting. Tables 4 and 5 depict that 65% respondents accept this potential benefit of using GPR. Even 85% finance and accounting officers, directly associated with maintenance of accounts; admitted this potential benefit of GPR.


Table 5: Potential Benefits and Prospects of Using Government Process Reengineering in Financial Operations (in %) Ministers (N=50)

Finance and Accounting Executives (N=75) Yes No 91 9

Yes 76

No 24

Yes 77

No 23

82

18

89

11

84

70

30

37

63

38

62

59

41

Total (N=200)

Yes 82

No 18

16

86

15

95

5

67

33

89

11

65

35


1. More efficient governance in financial operations 2. Reduction in scope of corruption, financial irregularities and embezzlements 3. Increasing transparency, and quick financial decisions 4. Greater scope for integration in processing accounting vouchers and preparing Final Accounts 5. Effective Financial Reporting and fulfilling Corporate Social Responsibility 6. Helps fixation of accountability towards work 7. Allows for decentralization of governance in financial operations Source: Table 4

Administrativ e Officers (N=75)

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52

48

52

48

85

15

65

36

22

78

56

44

64

36

51

50

36

64

96

4

77

23

74

26

HELPS FIXATION OF ACCOUNTABILITY TOWARDS WORK

Benefits and Prospects of Government Process Reengineering in Financial Operations(%) 120

I. More efficient governance in financial operations

100

II. Reduction in scope of corruption, financial irregularities and embezzlements

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III. Increasing transparency, and quick financial decisions

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IV. Greater scope for integration in processing accounting vouchers and preparing Final Accounts

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No

Ministers

Yes

No

Administrative Officers

Yes

No

Finance and Accounting Executives

Yes

No Total

V. Effective Financial Reporting and fulfilling Corporate Social Responsibility VI. Helps fixation of accountability towards work

The administrative officers detailed that the main cause of financial irregularities and embezzlements, is non-fixation of accountability towards work. The responsibility of Government Process Reengineering in Financial Operations—Prospects and Challenges | 15

financial matters remained in the hands of drawing and disbursing officers, normally the administrative officers and the financial operations are performed by finance and accounting officers. Tables 4 and 5 depict that 56% administrative officers and 64% finance and accounting officers admits that the accountability towards work may be fixed more effectively after the reengineering of government processes. ALLOWS FOR DECENTRALIZATION OF GOVERNANCE IN FINANCIAL OPERATIONS


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The GPR also allows the decentralization of governance since data stored in digital format can be easily updated and accessed with the help of networking. The decentralization will also improve the expertise of middle level managers, and the more work can be allotted by the top management to the middle management. Tables 4 and 5 depict that 56% administrative officers admitted that with the help of GPR, the governance can be decentralized particularly in financial operations. However, 78% ministers have not accepted it as a potential benefit of using GPR. GETTING RID OF FINANCIAL IRREGULARITIES AND EMBEZZLEMENTS

Each and every government organization is responsible to ensure discipline, esp. in financial operations. The financial cases should be sorted out with financial prudence. The administrative officers are also responsible for ensuring work to be completed without financial irregularities and embezzlements. The use of reengineering in improving financial processes can definitely help the government, in getting rid of financial irregularities and embezzlements. Tables 4 and 5 depict that 96% administrative officers admitted that the GPR in financial operations may bring a change for improving financial discipline. STEPS FOR USING GPR IN FINANCIAL OPERATIONS

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The respondents are also asked to suggest the steps may be taken for using GPR in Financial operations. Basically, the reengineering begins with the appointment of a "process owner" by the head of organization. For example, in Haryana Treasuries Department, a senior officer of National Informatics Center is given the task of government process reengineering. Similarly, in Haryana Institute of Public Administration where GPR has been initiated; the HoD empowered an expert of Management Information System to undertake GPR in financial operations. While each reengineering effort is in many respects unique, but there are some common steps normally followed to use GPR i.e. a. Mapping of current processes. b. Identifying the new steps having potential to add value. c. Eliminate the steps that don’t add value. d. Put more emphasis on speed, quick and prompt operations. 16 | Global Performance Challenges: Building and Sustaining Competitiveness

e. Fix the responsibilities and make a single point of taking information. f.

Prepare a conceptual design first, then bring it in automation with the help of new information systems technology.

Steven Cohen and William Eimicke (1996) prepared a presentation to the 57th Annual National Conference of the American Society for Public Administration and pointed out that Russell Linden (1995) in his book, “A Guide to Reengineering Government” suggests seven principles to guide reengineering in the public sector: 1. Organize around outcomes not functions. 2. Substitute parallel for sequential processes.


4. Capture information once, at the source.

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3. Bring downstream information upstream. 5. Provide a single point of contact for customers and suppliers whenever possible. 6. Ensure continuous flow of the main process. 7. First reengineer, and then automate. CONCLUSION

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To re-engineer only by modifying processes using Government Process Reengineering (GPR) is like closing the barn door after the horse has bolted! The financial operations, which are not delivering full value to the top management and administrators, should be considered for GPR. Each financial decision related to policies, goals, objectives, strategies, and tactics in achieving organizational goals; may need information for decision making which is normally not available to the administrators. This information can be retrieved from the data warehouses which will be created by the IT-enabled financial processes may be used after using GPR. The speed and accuracy in financial operations can be easily ensured after reengineering of financial operations related processes. This study highlights both the challenges and potential benefits of using GPR in financial operations and provides guidelines for using GPR. This case study provides a direction to ministers, administrative persons, and finance and accounting officers to consider the challenges, use recommended steps and reengineer the processes related to financial operations for reducing financial irregularities and embezzlements. LIMITATIONS OF THE STUDY However, the study is very helpful for government administrators, but there are a few limitations to be considered. The study is directly related to government organizations working under control of Haryana State Government, therefore, should be used for Haryana state only. Other states may differ in various aspects; this study’s results should not be applied in case of other state governments. Secondly, due to time and money Government Process Reengineering in Financial Operations—Prospects and Challenges | 17

constraints, it was not possible to cover more sample units. However, instead of these limitations, the study is very useful for the government departments. SCOPE FOR FURTHER RESEARCH The use of GPR is a challenging job for the administrators of government organizations. In this direction, there is wide scope for further research like exploring best practices around the world, being used for effective implementation of GPR, tool facilitating government for easy and smooth implementation of GPR, Software designing as per need of government organizations, economy and efficiency linkage while implementing GPR, and impact of GPR on Governance issues etc. This study provides a base for further studies on various issues and such studies can easily facilitate government and let the image of brand India improved around the world.


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REFERENCES

Balasubramanian, S., (2010). Successful reengineering implementation strategy: Hindustan college of engineering. [2] Christoffel J. Hendriks (2012). Integrated Financial Management Information Systems: Guidelines for effective implementation by the public sector of South Africa. SA Journal of Information Management14(1), Art. #529, 9 pages. http://dx.doi.org/10.4102/sajim.v14i1.529 [3] KPMG (2013). Accounting in the Oil and Gas Industry. The study retrieved from www.kpmg.org/CY/en/IssuesAndInsights/ArticlesandPublications on 13th Jan, 2013. [4] Lekha Kumar (2009). Government Process Reengineering for e-Office. Presented at a presentation to Department of Administrative Reforms and Pension Grievances, Government of India. Retrieved from the website www.icisa.cag.gov.in/egovernance/session_3. [5] Linden, Russell. A Guide to Reengineering Government. Governing. May, 1995, pp.63-74. [6] MalleswaraTalla and Raul Valverde (2013). An Implementation of ITIL Guidelines for IT Support Process in a Service Organization. International Journal of Information and Electronics Engineering, Vol. 3, No. 3, May 2013. http://www.ijiee.org/papers/329-T133.pdf [7] Omar S. Al-Mushayt, KashifulHaq and Yusuf Perwej (2009). Electronic-Government in Saudi Arabia : A Positive Revolution in the Peninsula. International Transactions in Applied Sciences, January 2009, Volume 1, No. 1, pp. 87-98. ISSN-0974-7273 [8] Presbitero, J., Velasco Jr., (2011). Court Administration Management Information System. Supreme Court of Philippines, Taft Avenue, Manila, Philippines. [9] Stephen, B., & Harsh. (2006). Management Information Systems. Department of Agricultural Economics, Michigan State University. [10] Steven Cohen and William Eimicke (1996). Understanding and Applying Innovation Strategies in the Public Sector. Graduate Program in Public Policy and Administration. School of International and Public Affairs. Columbia University. Prepared for Presentation to the 57th Annual National Conference of the American. Society for Public Administration, June 29-July 3, 1996, Atlanta Georgia. The report is retrieved from http://www.columbia.edu/~sc32/documents/aspa96fnl.pdf [11] Zuhoor Al-Khanjari, Nasser Al-Hosni and NaoufelKraiem (2014). Developing A Service Oriented EGovernment Architecture Towards Achieving E-Government Interoperability. International Journal of Software Engineering and Its Applications. Vol.8, No.5 (2014), pp.29-42. http://dx.doi.org/10.14257/ijseia.2014.8.5.04

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[1]


QUESTIONNAIRE Government Process Reengineering In, Financial Operations–Prospects and Challenges, (The Information provided by you will be used only as the purpose of the case study and there will be no use to harm you; please answer the questions fairly.)


4. E-Mail Id: ________________________________ 5. Experience (in Years):_____________________________________

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1. Name: ____________________________ 2. Designation:________________________ 3. Address with Contact No: ___________________________________

6. Gender:______________ Male (____) Female

(____)

7. Age Group Up to 25 (____) 36-45 (____)

(____) (____)

26-35 Above 45

8. Educational Level Under Graduation (____) Post-Graduation (____)

Graduation Above Post Graduation

(____) (____)

Yes

No

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Lack of technical skills in officers Lack of Commitment in Top Management Officers regarding change Expensive and Time Consuming Process Lack of willingness in employees for improving their capacities to work in upgraded new environment e. Fear of exploitation and more work burden (in employees) f. Possibility of hacking of secure and confidential information g. Element of Non-acceptance of accountability towards work (in employees)

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9. In your opinion, which of the following can be seen as critical challenges in using Government Process Reengineering in Government Organizations? (Tick Please)


10. In your opinion, after implementing Government Process Reengineering, what will be the benefits to the concerned department? (Tick Please). Yes No 1. 2. 3. 4. 5. 6. 7.

More efficient governance in financial operations Reduction in scope of corruption, financial irregularities and embezzlements Increasing transparency, and quick financial decisions Greater scope for integration in processing accounting vouchers and preparing Final Accounts Effective Financial Reporting and fulfilling Corporate Social Responsibility Helps fixation of accountability towards work Allows for decentralization of governance in financial operations

11. Which steps are required to be taken for using Government Process Reengineering in Financial Operations of the Government Organizations (Detail the steps.


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12. Please Share your experience with regard to using GPR, you ever experienced.

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13. What actions can be taken to implement GPR effectively in Financial Operations?


Worldwide Governance Indicators and Foreign Exchange Rate: An Empirical Study Dr. Anuradha Jain

Professor, Vivekananda Institute of Professional Studies, New Delhi E-mail: [email protected] ABSTRACT


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Stability of foreign exchange rate is a prime concern for every country. High volatility in foreign exchange rate causes a problem of high business risk and negative business sentiments. This paper has taken five dimensions of Worldwide Governance Indicators (Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law and control of corruption) to understand the relationship between these five factors and foreign exchange rate.Granger Causality was used to study the relationship and Pooled regression analysis was conducted to identify the maximum influencing factor, if any. The policy implication of this paper is in the management of foreign exchange risk and optimizing the portfolio risk-return trade-off. Keywords: Causality, Governance, Exchange Rate, Pooled Regression

INTRODUCTION

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A stable foreign exchange rate is a prime requirement for a business to operate with a moderate level of risk in any economy. A stable foreign exchange rate provides a platform to businesses to mitigate its risk without much participating in the derivative market. A derivative market provides a risk hedging platform but it comes at a cost and is not very friendly for small business enterprises. Participation in derivative market requires skilled person in that market and along with this an extra amount of investment to hedge the risk. Hence, a stable foreign exchange rate helps in mitigating business risk at a lower cost. Operating in a business scenario where each country getting affected by the ups/downs of other country, it becomes even more critical to identify a more stable exchange rate market. There are various determinants of foreign exchange rate discussed in literature. The prime factors influencing exchange rate are international trade flow, money stocks, inflation, GDP, current account etc. The initial development in this line suggests a linear relationship among exchange rate and international trade flow, money stocks, inflation, GDP, current account. Grauwe and Dewatcher (1993), Frankel and Frot (1990), Killan and Taylor (2003) and Kurz and Motolese (1999) suggested a nonlinear relationship among above variables. One more argument related to determinant of exchange rate comes from random walk theory which suggests that forecasting of the values of exchange rate is almost impossible as the data follow a random walk.

THEORIES BEHIND EXCHANGE RATE DETERMINATION: BRIEF REVIEW 1. Purchasing Power Parity (PPP): It is based on the inflations theory of exchange rate vis-à-vis the balance of trade. It is also known as law of one price. Only relative PPP seems to hold true in the long-run. A permanent change in the real exchange rate can be observed with a shift in technology, tastes, policiesmonetary or fiscal etc. 2. Monetary Approach: These models are based on IS/LM/Phillip Curve paradigm. Basically the theories are based on finding the exchange rate which the available amount of currency supply is equal to the demand to hold the currency.

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MUNDELLFLEMING MODEL


The theory considers three markets: money, asset and goods markets under perfectprice flexibility in long run. One implication is devaluation may lead to further devaluation if fiscal discipline, inflation and balance of payments are not well managed. Another is that the higher the degree of reexport processing industry the country has, the lower the impact of devaluation for current account improvement. MONETARIST MODEL

This concept implies that the exchange rate level is perfectly correlated with the level of the relative money supply in long run. In astationary economy, the relative money growth rate would be zero and the exchange rate expectation would play a trivial role. Postulated in an inflationary and/or high growth economy, this model explains why a foreign exchange rate market may be characterized by aselffulfilling prophecy. When the money supply becomes stochastic, rational expectation and accuracy of market information play an important role in inter temporal analysis.

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As the globalization started taking a strong shape and the trade across borders of the globe started taking pace, it became important for the businesses to identify the other domestic factors influencing exchange rate like Political Stability (PS), Government Effectiveness (GE), Regulatory Quality (RQ), Rule of Law (RL), Control of Corruption (CC) etc. These five parameters were used to identify an index to be used to compare different nations and provide them a rank based on the score. This index is known as World-Wide Governance Indicators (WGI). This paper tries to evaluate the relationship among these five variables and the exchange rate. The remaining part of the paper is as below. Section II discusses about literature review, Section III describes methodology and findings and Section IV is conclusion. LITERATURE REVIEW A number of literatures are there related to determinants of exchange rate. Some of the literature evaluates linear relationship of different variables with exchange rate while some works on non-linear relationship. 22 | Global Performance Challenges: Building and Sustaining Competitiveness

In the early works of exchange rate determinants, PPP (Purchasing Power Parity) model was used. Study by Edwards (1988, 1989) and later by Rodriquez (1989), Elbadawi (1994) and Montiel (1997) evaluated short run and long-run determinants of real exchange rate. This was done by taking a panel of 12 countries between 1962 and 1985 and used fixed effect model. Study included Brazil, Columbia, Elsavador, Greece, India, Israel, Malaysia, Phillippines, South Africa, Srilanka, Thailand and Yugoslavia as sample and concluded that in short run both real and nominal variables affect the real exchange rate while in the long run only real variables affect the real exchange rate.


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Study by Edwards (1989) inspired many studies in the area of the determinants of the real exchange rate. These studies include Ghura and Grennes (1993) for a panel of sub-Saharan African economies, Elbadawi (1994) for Chile, Ghana and India, Cottani et al (1990) for a group of developing countries, Amin and Awung (1997) for Cameroon, Congo and Gabon, Parikh (1997) for South Africa, Aron et al. (1997) for South Africa, Baye and Khan (2002) for Nigeria, Mwega (1993) for Kenya, Olopoenia (1992) for Nigeria, Obadan (1994) for Nigeria, Ogun (1998) for Nigeria, Eita and Sichei (2006) for Namibia, Baffes et al. (1997) for Cote d’Ivoire and Burkina Faso, Hyder and Mahboob (2006) for Pakistan and Mungule (2004) for Zambia.

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Ghura and Green (1993), Cottani et al, (1990), Sekkat and Varondakis, (1998) and Afridi, (1995) have applied Ordinary Least Square (OLS) model to identify the determinants of real exchange rate. While studies by Elbadawi (1994), Montiel (1997, 1999), Elbadawi and Soto (1997), Gelbard and Nagayasu (1999), Kadenge (1998) have applied unit-root test and co-integration methods to identify the determinants. This paper has taken five dimensions of Worldwide Governance Indicators (Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law and control of corruption) to understand the relationship between these five factors and foreign exchange rate. Granger Causality was used to study the relationship and Pooled regression analysis was conducted to identify the maximum influencing factor, if any.

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METHODOLOGY AND FINDINGS

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Data of the five variables (Political Stability (PS), Government Effectiveness (GE), Regulatory Quality (RQ), Rule of Law (RL), Control of Corruption (CC) were collected from the Worldwide Governance Index website and the exchange rate data was collected from Google finance. Yearly data from 2006 to 2012 were collected to identify the relationship. Three countries were considered for the analysis: India, Japan and United Kingdom. Exchange rate was taken in domestic currency with respect to USD. The Table below shows the descriptive statistics of the collected data: The Table above shows that the data collected is normally distributed as the null hypothesis of Jarque-Bera test is accepted at a significance level of 5%. As the collected data is a pooled data and hence, before proceeding further, stationarity test of the data was done. ADF (Augmented Dickey Fuller Test) was used to check stationarity of the data. The outcome of ADF test is as below: Worldwide Governance Indicators and Foreign Exchange Rate: An Empirical Study | 23

CC 73.612 90.243 93.170 33.175 25.244 -0.721 1.586 3.570 0.167 1545.863 12745.31

ER 47.400 45.790 120.200 0.520 41.014 0.252 1.827 1.427 0.489 995.400 33643.60

GE 78.560 88.834 93.658 47.368 17.733 -0.717 1.604 3.504 0.173 1649.768 6289.349

Statistic 6.56595 0.53829

RQ 73.769 83.732 99.019 33.971 24.564 -0.570 1.564 2.942 0.229 1549.164 12068.39

RL 78.878 88.151 94.736 52.112 17.647 -0.665 1.528 3.441 0.178 1656.449 6228.382

Prob.** 0.8849 0.7048


Method ADF - Fisher Chi-square ADF - Choi Z-stat

PS 50.956 59.330 87.019 10.900 29.061 -0.390 1.503 2.493 0.287 1070.094 16891.74

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Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis Jarque-Bera Probability Sum Sum Sq. Dev.

The Table suggests that the data series at its level are not stationary as the null hypothesis of unit root gets accepted at 5% significance level. Hence, stationarity at first difference level was checked. The output is as below:

Method ADF - Fisher Chi-square ADF - Choi Z-stat

Statistic 75.3398 -7.07403

Prob.** 0.0000 0.0000

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The output shows that it is stationary at first difference as the null hypothesis of unit root gets rejected at 5% significance level.

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To evaluate a causal relationship among the variables, Granger Causality test was applied. The output of Granger Causality is as below:

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Output suggests that political stability (PS) and regulatory quality (RQ) are the two variables which influence the exchange rate at 5% significance level. This suggests that a stable government and an open regulatory environment help a country to keep its exchange rate less volatile. This also goes along with the fundamental principle of investment which says that an investor always prefer an investment destination which have stable political and a good regulatory environment. To evaluate a linear relationship among the variables, pooled regression was applied. Exchange rate was kept as dependent variable and all other five factors as independent variable. 24 | Global Performance Challenges: Building and Sustaining Competitiveness

Obs

F-Statistic

Probability

ER does not Granger Cause CC CC does not Granger Cause ER

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0.05208 2.59925

0.94944 0.10965

GE does not Granger Cause ER ER does not Granger Cause GE

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1.80666 0.11035

0.20045 0.89629

PS does not Granger Cause ER ER does not Granger Cause PS

192

5.30244 0.11846

0.00662 0.88917


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Null Hypothesis:

RL does not Granger Cause ER ER does not Granger Cause RL

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1.74963 0.00634

0.20978 0.99369

RQ does not Granger Cause ER ER does not Granger Cause RQ

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7.59792 0.00641

0.00710 0.99361

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Coefficient

Std. Error

t-Statistic

Prob.

10.32890 2.837120 -2.797530 0.051147 -3.714571 4.670955

79.22284 0.424629 1.090402 1.696924 1.436885 2.335321

0.130378 6.681408 -2.565595 0.030141 -2.585154 2.000134

0.8980 0.0000 0.0215 0.9764 0.0207 0.0639

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C PS CC GE RQ RL

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Variable

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.930792 0.907722 12.45904 2328.414 -79.23612 1.961930

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

47.40000 41.01439 8.117726 8.416161 40.34745 0.000000

Worldwide Governance Indicators and Foreign Exchange Rate: An Empirical Study | 25

The outcome suggests that exchange rate has three significant explanatory variables namely: PS (Political Stability), RQ (Regulatory Quality) and CC (Control of Corruption) which goes along with the findings of Granger Causality except for the variable CC. One more interesting finding is that the co-efficient of CC is negative indicating that if corruption increases, exchange rate will fall i.e. currency will depreciate. The outcome can be represented in equation form as below: ER = C(1) + C(2)*PS + C(3)*CC + C(4)*GE + C(5)*RQ + C(6)*RL i.e. ER = 10.328 + 2.837*PS - 2.797*CC + 0.051*GE - 3.714*RQ + 4.670*RL MODEL FIT

5


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The fitness of regression model can be evaluated by the normality of residuals and by drawing the graph of actual and fitted lines. Outputs are as below: Series: Residuals Sample 1 21 Observations 21

4

3

2

1

0 -20

-15

-10

-5

0

5

10

15

9.32e-14 0.764964 15.60573 -22.09852 10.78984 -0.226947 2.223472

Jarque-Bera Probability

0.707888 0.701914

20

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Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis

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10 0 -10 -20 -30 2

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Residual

10

12

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Actual


16

18 Fitted

20

The graphs suggest that residuals are normally distributed and the graph of actual and fitted lines is also almost overlapping. The Durbin –Watson statistics also suggest there is no problem of auto-correlation and adjusted R-square value of 0.90 also suggests a good fit-model. CONCLUSION


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A stable foreign exchange rate is a prime requirement for a business to operate with a moderate level of risk in any economy. A stable foreign exchange rate provides a platform to businesses to mitigate its risk without much participating in the derivative market. There are various determinants of foreign exchange rate discussed in literature. The prime factors influencing exchange rate are international trade flow, money stocks, inflation, GDP, current account etc. This paper has taken Political Stability (PS), Government Effectiveness (GE), Regulatory Quality (RQ), Rule of Law (RL), Control of Corruption (CC) (defined as Worldwide Governance Indicators) as five factors to find their relationship with exchange rate. These five parameters were used to identify an index to be used to compare different nations and provide them a rank based on the score. The results suggest that political stability and regulatory quality are the two most important variables that should be focused on in-order to have a stable exchange rate. Control of corruption is also related in negative direction with exchange rate and hence, a stable government with focus on corruption control and regulation can provide a stable exchange rate regime. REFERENCES

Amin, A. and Awung, W.J. (1997).” Determinants of real exchange rate in Cameroon, Congo and Gabon”. African Journal of Economic Policy Vol. 4, No. 1, PP. 29–59. [2] Baye, F.M. and Khan, S.A. (2002). “Modelling the equilibrium real exchange rate in Cameroon: 1970– 1996”.The Nigerian Journal of Economic and Social Studies Vol. 44, No. 1, PP. 129–147. [3] Cottani, J., Cavallo, D. and M.S. Khan (1990). “Real exchange rate behaviour and economic performance in LDCs”. Economic Development and Cultural Change Vol. 39, PP. 61–76. [4] Edwards, S. (1988). “Real and monetary determinants of real exchange rate behaviour”, Journal of Development Economics Vol. No. 29, PP. 311–341. [5] Edwards, S. (1989). “Real exchange rates, devaluation and adjustment”. Cambridge, Massachusetts. The MIT Press. [6] Ghura, D. and Grennes, T.J. (1993). “The real exchange rate and macroeconomic performance in subSaharan Africa”. Journal of Development Economics, Vol. 43, No. 1, PP. 155–174. [7] Grobar Snape, L.M. (1993). “The effects of real exchange rate uncertainty on LDC manufactured exports”. Journal of Development Economics Vol. 41, No. 2, PP. 367–376. [8] Obadan M.I. (1994).”Real exchange rate in Nigeria: A Preliminary Study”. Monograph Series No. 6. National Center for Economic Management and Administration, Ibadan, Nigeria. [9] Olopoena, R. (1992). “Determinants of real exchange rate in Nigeria”. AERC Interim Report, Nairobi Dec. 5-13 1992. Oxford. [10] Sekkat, K. and Varoudakis, A. (1998). “Exchange-Rate Management and Manufactures Exports in subSaharan Africa”, Development Centre Technical Papers. 134. Paris.: OECD.

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Worldwide Governance Indicators and Foreign Exchange Rate: An Empirical Study | 27

Competition and Bank Risk: Evidence from Indian Banking Sector Santi G. Maji1 and Preeti Hazarika2 1


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Assistant Professor, Dept of Commerce, North-Eastern Hill University, Shillong 2 Research Scholar, Dept of Commerce, North-Eastern Hill University, Shillong E-mail: [email protected]

ABSTRACT

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Competition is an important factor in the market because it eliminates the chance of inefficiency in the economic system. In today’s world, banks are exposed to various kinds of risk due to the dynamic competitive financial environment which has a direct impact on bank stability. Thus, assessment of competition and its impact on the risk-taking behavior of banking sector is of crucial importance. There are two theoretical frameworks relating to the association between competition and bank risk. Under the traditional “competition fragility” view, in a competitive market banks are forced to take more risk on behalf of the stakeholders to increase return because competition reduces the profits of the banks as well as the customer base. In contrast, “competition stability” view states that competition and bank risk are inversely associated.This paper makes an attempt to measure and analyze competition in Indian commercial banks and also investigate the impact of competition on risk-taking. For this, 40 commercial banks including both public sector and private sector are taken into consideration for a period of 15 years (1999-2013). In this study, Panzar & Ross (1987) HStatistics is employed to measure the degree of competition in the Indian banking sector. Gross NPLs and Net NPLs as a percentage of total loans and net loans respectively are used to measure the credit risk. Findings of the study indicate that Indian banks are working in a monopolistic free market structure and the competition is positively associated with banks’ credit risk.

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INTRODUCTION

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Keywords: Market Competition, Bank Risk, P R H-Statistics, Indian Banks

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Risk taking is an essential part of the core banking activities of lending and borrowing. In today’s world, banks are exposed to various kinds of risk due to the dynamic competitive environment which has a direct impact on bank stability. Thus, assessment of competition and its impact on the risk-taking behavior of banking sector is of crucial importance. There are two contradictory theoretical frameworks relating to the association between competition and bank risk. Under the traditional “competition fragility” view, in a competitive market banks are forced to take more risk on behalf of the stakeholders to increase return because competition reduces the profits of the banks as well as the customer base(Marcus, 1984; Keeley, 1990; Demsetz et al., 1996; Carletti and Hartmann, 2003). In contrast, “competition stability” view states that competition and bank risk are inversely associated (Boyd and Nicolo, 2005).


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There exists a large number of literature which examined the degree of competition in the banking industry all over the world (Schaeck and Cihak, 2007; Levy-Yeyati and Micco, 2007; Pawłowska, 2012; Simpasa, 2013). But empirical studies assessing competition in the Indian banking sector are very limited. Further, there is no study, to the best of our knowledge, which examined the impact of competition on risk taking behavior of Indian banks. Indian banking industry in the post reform period has witnessed significant changes in terms of emergence of new banks in the Indian market, expansion and diversification of banking business, quality and quantity of products and services and use of sophisticated technology, etc. and all of these has made the world of Indian banking a far more complex. It is also evident from the earlier studies accessing competition in the Indian banking sector (Prasad and Ghosh, 2007; Arrawatia and Misra, 2012; Maji and Hazarika, 2014) that the degree of competition is increases over the periods. In this backdrop, this paper makes an attempt to measure and analyze the competition in Indian commercial banks and also to investigate the impact of competition on banks’ credit risk. For this, 40 listed commercial banks including both public sector and private sector are taken into consideration for a period of 15 years (1999–2013). The study period covers both Basel I and Basel II periods. In this study, Panzar & Ross (1987) H-Statistics is employed to measure the degree of competition in the Indian banking sector. Credit risk is considered in this study because it is the oldest of all risk associated with the core banking activity of lending to customers (Bhattacharya and Thakar, 1993). It is also the combined outcome of default risk and exposure risk (Raghavan, 2003). We find that Indian banks are working in a monopolistic free market structure and the competition is positively associated with banks’ credit risk. The rest of the paper is organized as follows:

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Section 2 presents the review of literature. Section 3 is devoted for data and methodology used in this study. Results and discussion are presented in section 4, followed by concluding remarks in section 5.

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LITERATURE REVIEW

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Competition has a direct impact on banks stability. There are two theoretical frameworks, the traditional “competition fragility” view and the “competition stability” view, that explain the association between competition and bank risk. The traditional “competition fragility” view states that in a competitive market banks are required to undertake more risk in order to increase return because competition reduces the profits of the banks as well as the customer base (Marcus, 1984; Keeley, 1990; Demsetz et al. 1996; Carletti and Hartmann, 2003). According to this theory, there is an inverse relationship between competition and stability (Keeley, 1990) or in other words, the association between competition and bank risk is positive. As an alternative to this theory, Boyd and Nicolo (2005) suggest “competition stability” view that explains Competition and Bank Risk: Evidence from Indian Banking Sector | 29

negative association between competition and risk. According to this view, in a less competitive environment banks may charge higher interest rate on loans and advances, which may increase the credit risk of borrowers as a result of moral hazard and adverse selection problem. This increase in firms’ default risk results in increased bank problem loans and ultimately may enhance the risk of stability. In contrast, greater competition in the banking industry reduces the rate of interest that attracts borrowers with more safety projects and the risk of loan default decreases.


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Like contradictory theoretical views, empirical evidences relating to the association between competition and risk also offer mixed results. Nicolo & Loukoianova (2007) provide empirical evidence which supports the “competition stability” view of inverse association between competition and risk. In contrast, Lopez et al. (2010) provide empirical results that suggest a negative relationship between market power and risktaking in Spanish banking sector. They find that increase in banks’ market power (or decrease in competition) is associated with decline in bank risk-taking. Ultimately, the study concludes that increase in firm default risk leads to higher non-performing loan ratios and greater bank instability. On the other hand, Berger et al. (2009) have examined the two theories relating to the association between bank competition and risk using a large data set from 23 developed nations. The findings of the study to a large extent support the traditional “competition-fragility” view i.e. banks with a higher degree of market power (or less competition) have less overall risk exposure. Another study conducted by Stanek (2012) to investigate the relationship between competition and risk-taking in case of Czech banking industry for period 2002 to 2010 indicates that there exist a non-linear relationship between competition and risk taking. Interestingly, Boyd & De Nicolo (2005) and Martinez-Miera & Repullo (2008) observe that banks return on assets depend on the degree of competition in the loan market and the riskiness of banks assets depends on the behavior of borrowers.

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For measuring the degree of competition, researchers have used different measures of bank competition. Most widely used measures in the literature are Lerner index (Lerner, 1934), Herfindahl-Hirschman indexand H-Statistics (Panzar and Rosse, 1987). Among all these measures of bank competition, the most widely used measure is HStatistic suggested by Panzar and Rosse (1987). There are many empirical studies where H-statistic is used to measure the degree of competition in different countries. Varhegyi (2004) studied the degree of competition in Hungarian banking system during 1995– 2002 and found medium-stronger monopolistic competition. The study of Claessens and Laeven (2004) for 40 banks in Poland using H-Statistics in 1994–2001 observes monopolistic competitive condition in the market. Another study conducted by Schaeck and Cihak (2007) on 2,600 banks from ten European countries during 1999–2004 shows that banks hold more capital as a buffer against default when working in a more competitive environment and competition is positively linked with bank soundness at the firm level. Levy-Yeyati and Micco (2007) assess the effect of concentration on 30 | Global Performance Challenges: Building and Sustaining Competitiveness

competition in 8 Latin American countries using Panzar and Rosse (1987) H-Statistic during 1993–2002. They observe that foreign penetration is appeared to have lead to a less competitive environment. Again, Pawłowska (2012) finds monopolistic competition in Polish banking sector for the period of 1997 to 2009. Simpasa (2013) has analyzed the competitive environment of 18 chartered commercial banks in Zambia for a period of 1998 to 2011 and the result reveals that Zambian banks exhibit elements of monopolistic competitive behavior.


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In India, there are three studies relating to the measurement of degree of competition in the banking sector using H-Statistic.Prasad and Ghosh (2007) have analyzed competition in the Indian public sector using H-statistic for the period 1996–2004 and for two sub periods 1996–1999 and 2000–2004. Findings suggest that the competitive nature of the Indian banking system falls under the monopolistic competitive framework. In another study, Arrawatia and Misra (2012) have also used Panzar–Rosse H-Statistic to measure the competition of Indian banking during 1994– 2009. Their results indicate the existence of monopolistic free–entry market conditions, which is a feature of banking structure in developed countries and other emerging markets. On the other hand, the findings of Maji and Hazarika (2014) also observe monopolistic competition in the listed Indian commercial banks during 1999–2013. DATA AND METHODOLOGY DATA AND STUDY PERIOD

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This study is based on secondary data on Indian commercial banks collected from ‘Capitaline Plus’ corporate data database and annual reports of the respective banks for a period of 15 years from 1998–99 to 2012–13. There are 41 commercial banks listed in the BSE (of them 12 are also listed in the NSE) as on 31st March, 2014. Out of all the listed commercial bank, Standard Chartered Bank is excluded from the sample because it is the only foreign banks listed in India. The final sample, thus, consists of 40 commercial banks of which 24 are public sector banks and 16 are Indian private sector banks.

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MEASUREMENT OF VARIABLES

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Measure of the Degree of Competition

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For measuring the degree of competition H–statistic suggested by Panzar and Rosse (1987) is employed in this study. This is a non-structural approach designed to test the nature of market structure-whether it is a perfect competitive market, monopolistic or a monopoly market. H-statistics, based on profit maximization equilibrium condition, is considered to be the most appropriate measure of competition as compared to other measures (Claessens and Laeven 2004). Empirically, H-Statisticis derived from a reduced form revenue equation of the firm, which is calculated by summing all the elasticity’s of the total revenue with respect to changes in factor prices. It examines the impact of changes in factor input prices on the revenue earned by a particular bank by Competition and Bank Risk: Evidence from Indian Banking Sector | 31

applying bank level data (Prasad and Ghosh, 2005; Schaech and Cihak, 2007; Powlowska, 2012; Arrawatia and Misra, 2012; Simpasa, 2013).The basic form of the PR model is: 3

ln( TR )      i ln (W i )  i 1

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 j 1

j

ln ( CF j )  

... ( Equation

1)


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Where TR is the total revenue, Wi is the ith input factors and CF denotes other firm specific control factors. Bikker and Groenveld (2000), Bikker and Haaf (2002) and Claessens and Leaeven (2004) have used TR/TA as the measure of dependent variable instead of TR only. Following Bikker and Groenveld (2000), Bikker and Haaf (2002) and Claessens and Leaeven (2004), in this paper we use total revenue divided by total assets as a proxy for output price of loans and other services. Earlier researchers have used a common elaborated revenue equation where they assume a linear form of relationship between dependent and independent variables (Molyneux et al., 1994; Molyneux et al., 1996; Claessens and Laeven, 2004; Prasad and Ghosh, 2005; Al-Muharrami, Mathews and Khabari, 2006; Yuan, 2006; Turk-Ariss, 2009; Schaeck and Cihak, 2010; Simpasa, 2013). Again, for determining the appropriate panel data technique both Breusch-Pagan test and Hausman test are used in this study. The test results are shown in Table 1. While Breusch-Pagan test speaks in favour of random effect model than OLS model, Hausman test exhibits the appropriateness of fixed effect model than random effect. Hence, the following fixed effect regression model is employed in this study to measure the degree of competition in the Indian banking sector:

ln( R ) i   1 ln(W1 it )  2 ln(W 2it )  3 ln(W3it ) 1 ln(CF1it ) 2 ln(CF2it ) 3 ln(CF3 ) 4 ln( CF4it ) it Where,

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R= Total revenue/ total assets (proxy for output price of loans and other services and includes total interest revenue, fee income, commission income, and other operating income)

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W1:Interest expenses/total deposits and money market funding (proxy for input price of deposits),

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W2:Personnel expenses to total assets (proxy for input price of labor) W3:Other operating and administrative expense to total assets (proxy for input price of equipment and fixed assets) CF1: Ratio of deposits to deposits and money market funding CF2: Net loans to total assets, CF3: Equity to total assets, and CF4: Bank size, measured as total balance sheet assets. 32 | Global Performance Challenges: Building and Sustaining Competitiveness

3



The PR H-Statistic is sum of input elasticities, i.e. H 

i 1

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Models 2 and 3 are used for all the banks as well as segregating the banks into public sector and private sector banks. The interpretation of H-statistic is: H ≤ 0 indicates monopoly equilibrium 0 < H 10 million 10-100 million 100-500 million 5% 5%-25% Acquisition Price–VB

Comparison between the values of companies can be done on the basis of Gain computed; that is by deducting the value of the target firm from the price that acquiring company pays to the target company. Table 2: Data Showing Daily Actual Return and Its Consolidated Value on Merged Firm Value of Daily Actual Return Of Firm B 1 3 7 4 3 7

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Value of Daily Actual Return of Merged Firm AB 2.5 4.5 6 5.5 5.5 8

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Graph 1: Representation of Above Data to Show Valuation of Merged Firm AB

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Value of Daily Actual Return Of Firm A 4 6 5 7 8 9

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Market Model:

Value Creation through Mergers & Acquisitions: To Exploit Synergies of the Company | 57

It assumes that stock returns are determined by the following ordinary least squares equation: NRORt =α + βRORmt + et Where,NRORt = normal rate of return for company on day t α = least squares parameters - Intercept β = least squares parameters - Slope RORmt = rate of return of market index on day t et = error term for company on day t DISCUSSION AND ANALYSES


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Valuation is the central focus in fundamental Analysis, wherein the underlying theme is that the true value of the firm can be related to its financial characteristics, viz. its Growth Prospects, Risk Profile and Cash Flow. In a business valuation exercise, the worth of an enterprise which is subject to the M&A is assessed for quantification of the purchase consideration or the transaction price. The Key element here is “VALUATION” of the target firm. The valuation of an asset that has an observable market price must be distinguished from other bids for assets that trade frequently. For the Valuation purpose in Merger & Acquisition TAKEOVER PROCESS takes place: 1. The bidding firm identifies a potential target firm.

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2. A “Valuation of the Equity” of target firm is undertaken. The valuation would incorporate estimated economies due to the synergy effect and strong management.

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3. The value is compared to the current market price of the target firm.

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If, value of firm < the bid price = abandon the deal

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If, value of firm > the bid price = make the deal A typical individual bidder believes that the valuation is right and is convinced that the market does not reflect the full economic value of the combined firm. This is the underlying premise of the HUBRIS HYPOTHESIS- when there are no actual aggregate gains in a takeover. The takeover can be explained by the overbearing presumption of bidders that their valuations are correct. HUBRIS HYPOTHESIS (Roll 1986) says: 1. The stock price of the acquiring firm should fall after market becomes aware of the takeover bid. 58 | Global Performance Challenges: Building and Sustaining Competitiveness

2. The stock price of the target firm should increase with the bid of control. 3. The combined effect of the raising value of the target firm and the falling value of the acquiring firm should be negative. This takes into account the cost of completing the Takeover Process.

Creeping Acquisition

The Limit of 55%-74%

Old Takeover Code 1997 When an acquirer’s shareholding in a listed firm reaches 15% the acquirer has to bring a public offer to the existing shareholders As soon as the 15% limit is reached the acquirer has to bring a public offer to acquire another 20% of the voting share capital of the target firm. Here whenever an acquirer already holding 15% or more shares but less than 55% of shares, acquired more than 5% voting rights in the target firm in a FY then he had to bring another mandatory public offer to the remaining shareholders. Once the shareholding of an acquirer in the target firm reaches 55%, then he will have to bring a mandatory public offer every time he acquires even a single share in the target firm.

New Takeover Code 2011 In new takeover code rules, the triggering limit for making the public offer has been increased to 25%. The offer size too has been changed to 26%. In this, an acquirer holding 25% or more shares in a target firm will have to bring mandatory public offer if he acquires more that 5%voting rights in the target firm in the FY. No such provision.

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Table 3: Comparative Analysis of Takeover Code 1997 & 2011

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FINDINGS

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Above Research Paper shows various aspects of Merger & Acquisition. Our findings our confined to three aspects and various emerging trends which are drawn by analyzing each factor included in these aspects and trends. These aspects brings crux of “Valuation of company through Merger & Acquisition”. Following are: Economic Aspect: 

Shareholder Wealth



Synergy



Market share



Core Competence




Diversification



Increased Debt Capacity



Customer Pull

Valuation Aspect: The co-relation between increased market share and improved profitability ondrlies the motive of constant increase of the market share by companies.



Higher level of production and lower unit costs.



achieving economies of scale



Owner Value, Maket value, Fair Value

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Taxation Aspect: 

Carry forward and set off of accumulated and unabsorbed depreciation.



Capital Gains/ Capital Losses



Expenditure of Amalgamation or Acquisition



Deductibility of certain expenditure incurred at time of M&A by firms.

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Tax characterization of sale of business/ Slump Sale.



Proposed tax treatment under Direct Tax Code



Stamp Duty aspect.

Emerging Trends:

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1. Knowledge economy—focus on mgmt of knowledge in creating value of firms, emphasisi is on Human Capital and their intellectual responses. Microsoft plans to shift its head quarter from USA to India.

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2. Globalization- market and product growth—new market, new product and new technology. Whirlpool designs all its appliances for Asia in India.

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3. Information Technology—pool of knowledge, new media, computer networking and connectivity. Jack Welch Technology Centre, Texas has 125 patents filed by Indian engineers. CONCLUSION M&A are critical in corporate life and are considered as inevitable tools for inorganic growth. The main objective of a M&A is to add value to all the stakeholders, based on the assumption that it will produce higher Corporate Potential Value than the value of the two separate entities. Business houses tend to involve more and more in M&A to 60 | Global Performance Challenges: Building and Sustaining Competitiveness

meet various corporate goals. Dynamics of India are strong and M&A have become a strategic choice for the growth of Indian companies. Many International and Indian M&A have helped companies to scale to the next pedestal and maximize the long term value for stakeholders. However, practical experience shows that there are an equal number of cases where the M&A have failed to achieve the desired result. Major challenges faced are: 1. Commercial understanding including valuation and consideration. 2. Legal compliances to implement transaction. 3. Post transaction implementation issues to achieve the desired advantages of M&A.


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REFERENCES

Godbole Prasad G. 2009. Mergers, Acquisition and Corporate Restructuring. 1st ed. Vikas Publishing House Pvt Ltd. Noida. [2] Rao P. Subba. 2008. International Business. 2nd ed. Himalaya Publishing House. Mumbai. [3] Kothari C.R. 1998. Research Methodology. 2nd ed. New Age International (P) Limited Publisher. New Delhi. [4] Sharan Vyuptakesh. 2011. International Business: Concept, Environment and Strategy. 3rd ed. Pearson Education. South Asia. [5] India Meets The World. Accenture. September 2006 [6] Tariq H. Ismail, Abdulati A. Abdou & Radwa M. Annis (2011). The Review of Financial and Accounting Studies. Issue 1. EuroJournals Publishing, Inc. 2011 [7] Dr Abdelhafid Benamraoui (2013) University of Westminster, London, July 2013 [8] http://www.jbs.cam.ac.uk/fileadmin/userupload/research/workingpapers/wp0106. pdf [9] https://gupea.ub.gu.se/bitstream/2077/33389/1/gupea 2077333891. pdf [10] https://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-final-lowres. pdf

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[1]


Money Laundering in Real Estate Sector—Effects and Implications 1

Surendran Sundarakani1 and Dr. M. Ramasamy2


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Ph.D Research Scholar, Department of Science and Humanities, Sathyabama University, Chennai, India 2 Advisor, Siva Institute of Frontier Technology, Chennai, India E-mail: [email protected] ABSTRACT

Money laundering means that the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those funds can eventually be made to appear as legitimate income. The effect of money laundering is witnessed on several sectors during its transition from illegal to legitimate identity. Certain indispensable sectors like real estate, healthcare, education, agriculture etc., are not exception to this effect. In this paper the effects of money laundering in real estate sector discussed. The issues like price bubble, widening of social disparity, Economic instability, fraudulent and corruption practices, terrorist financing etc., were taken for the analysis here. Also the legal provisions for anti money laundering in India and international arena were emphasized and several suggestions from our side also given to implement Anti Money Laundering (AML) effectively. Keywords: Money laundering, Real estate, Legal Provisions, AML.

INTRODUCTION

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Money laundering is the process of washing the dirt offthe money or proceeds generated from illegal means such as Black money from real estate deals and tax evasions, Financial frauds, Drug trafficking, Prostitution, Corruption, Sale of illegally obtained wild life products and Smuggling of Arms, antique, gold, persons etc., There are three stages in Money Laundering namely, Placement, Layering and Integration. In Placement stage the physical cash received through illegal activity is disposed. This can be is accomplished by placing money into traditional or non-traditional financialinstitutions. The money is usually breakup in to smaller amount during this phase. In Layering stage or structuring stage, various layers created to conceal the identity of money. This is the most complex stage because it might have several links from origin of money to the laundered money. For example, the money may be divided and transferred to various countries. During the integration stage, themoney is injected in to the economy as normal funds and later the money divided in previous stage is integrated here through legal means.

The Real Estate is a most common and one of the simplest way to laundermoney. Since 1995, several leaps and jumps had been seen in the real estate markets globally. Along this way, several new ideas generated and paved the way for high economic growth, innovations and new technologies. Electronic finance is one of such development that made inter regional trades become faster and viable than before. Though this kind of technology benefited the business, it had been misused by several for transferring illegally obtained funds. EFFECTS OF MONEY LAUNDERING ACTIVITIES RELATED TO REAL ESTATE The summaries listed here illustrate suspected money laundering activities involving transactions or businesses related to the real estate industry.


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1. A bank reported that one of its officers was found to have suppliedfalse reference letters to non-resident people on several mortgage loans. Thebank officer resignedbefore this information was discovered,but a bank investigation found that the loan officer had abusiness relationship with real estate appraiser and the real estate agent.The bank thought that the real estate agent might be the actual owner of the properties being sold. The false reference letters along with the appraiserinvolvement, the bank might face multiple loan defaults, because the loans sanctioned to financially unqualified loan applicants on properties withinflated values. Such activity may lead the potential use of straw buyers toobtain mortgages, which could then be used to launder illicit funds.

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2. An investment company reported that an individual investor received a wire transfer from athird party remitter to his investment account and then drew down funds inhis personal account. Theinvestment company reported this case as it it believed this activities may indicatemoney laundering.

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3. A bank reported that with in a three-month period, a customer received nearly Rs.7,00,00,000 in wire transfers to his account from an escrow company. Thecustomer then purchased two large cashier’s checks payable to the same escrowcompany. This kind of activity might be layering stage of money laundering. 4. A bank reported that its customer, an employee of a loan company, made 25deposits and received 22 on-line payment transfers to his personal accountwithin a two-month period. During the same period, the customer sent fourwire transfers, purchased 14 official checks against theaccount. All of these payments were made to real estate-related companies.The banksuspected that these activities might be indicative of moneylaundering. 5. A bank reported that it made a several residential real estate loans throughthe same three mortgage companiesto numerous individuals aggregate over Rs.6 Money Laundering in Real Estate Sector—Effects and Implications | 63

crores. In each instance, the bank refused to rescind the loan(s) on the borrower’s argument, and then the borrower immediatelypaid off the loans. This experience suggested that these activities may suggest the operation ofsome type of layering scheme. 6. A bank reported that a customer operating as a mortgage company issuednumerous checks to individuals, all underRs.40,000. The mortgage company’s chief executive claimed that the checks representedsalaries of employee, but the company’s funding sources were title and realestate companies.


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7. A bank reported that three related customers opened seven depositaccounts with aggregate balances of Rs.1.5 Crores using funds from an undisclosedsource. Though the maturities on the accounts were two years, afternearly one year, the customers closed all of the accounts and purchased a cashier’s check payable to an escrow company. IMPLICATIONS OF MONEY LAUNDERING IN RESIDENTIAL REALESTATE TO PROMOTE OTHER ILLICIT ACTIVITIES The following summaries illustrate suspected structuring and/ormoney laundering to promote or facilitate other reported or suspected crimes. TAX EVASION

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1. A law enforcement official, who also owned a business,made a cash deposit to his account and purchased a check payableto a mortgage company with some additional cash totalling over Rs.40,00,000. The moneywas comprised mainly of Rs.10000 bills. The source of the cash didn’t mentioned and this amount deposited to the account in a periodof less than a month. This activity suggests that the cash may have been derived from the customer’sbusiness and may represent a conversion of cash business receipts in anattempt to evade taxes. By considering the occupation of the customerand the form of the cash, this activity also suggests potential publiccorruption.

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2. A bank reported series of transactions occurred within a one-month period inwhich the same property bought and sold among related individuals. Asa result of this movement of the property, the bank granted a loan re-finance of Rs. 30,00,000 to an individual who did not hold title to that property at the timethe loan closed. The bank indicated that these transactionsmay have been conducted to promote money laundering or tax evasion. 3. A bank reported that the wife of a real estate company ownercashed numerous checks payable to the real estate business totalling nearlyRs.1,00,00,000, in


amounts of or below Rs.50,000. The checks were cashed in a structured manner to lessen the reported incomefor their business and thereby evade taxes. 4. A bank reported the account activity for a customer who involved in buyingand selling real estate. The transactionswere being conducted through accounts intended for non-profit religiousorganizations. But the account activity showed no evidence of contributionsor purchases that might be particular to a religious organization. The bankbelieved that the customer was misusing his taxexempt status as a non-profit organization to run a real estate company and using his non-profit accounts to coverthe proceeds as contributions to evade taxes. FRAUD


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1. An investment company reported that individuals were allegedly involved in realestate investing attempt to kite over Rs.2.5crores through their company account by depositing a check drawn on a closed account. Theindividuals attempted to layer the proceeds by sending wire transfersto other financial institutions funded by theuncollected balance in their investment account. 2. A bank reported that a customer misused a Rs.50,00,000 home equity line of creditto start a major check kiting operation. During athree-month period, nearly Rs.15Crores moved through the customer’s personalaccount. The source of funds were the checks drawn on multiple real estate investment company accounts on which the customer wasthe sole signer. During this period no checks were returned unpaid. Thebank noted that these activities had the appearance oflayering.

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IDENTITY THEFT

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3. A bank reported that federal and state tax refund checks generated by filingof false tax returns were deposited to mortgage trust accounts. Thetrust accounts tied to properties to which the fraudulently obtained taxrefund checks were mailed.

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1. A bank reported that it received a request for change of address on a home equity line ofcredit account and later found that the actual accountholder’s identity hadbeen assumed by another person. Nearly Rs.26,00,000 was paid out against thehome equity line before this fraud was discovered. The funds were paid by checksto several different individuals. 2. A bank reported a similar case involving a home equity line of credit. In thiscase, the identity thief sent a change of address both to the bank and setup a bank account at different banks in the name of the actual accountholder. These activities suggests thismay have been done to both facilitate transfers that would less likely to raisesuspicions and to initiate the layering process. Money Laundering in Real Estate Sector—Effects and Implications | 65

IMPLICATIONS OF MONEY LAUNDERING IN SUSPECTED ILLICIT ACTIVITIES 1. A bank reported that an unemployed individual made cash deposits and official check purchases totalling more than Rs.35,00,000over a three-month period payable to the escrow company. This information suggests the individualmay have been layering funds and was potentially operating an money services business. 2. A bank found that one of its customers was arrestedfor his involvement in the sale of drugs. The bank records indicated the customermay have laundered proceeds through his title company, a health food andsupplements store and through the purchase of realestate.


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3. A bank reported that within a five-month period a customer made structuredcash deposits to his account. He also deposited large checks written byunrelated individuals residing in different states. Also,bank records indicated that the customer received seven wire transfers to hisaccount totaling Rs.75,00,000 several months before. All of these monies served tofund a wire transfer of over Rs.65,00,000 to an escrow company. One of the signoron the large checks deposited to the account was also found to havewritten large checks to the same escrow company. 4. A bank discovered through media reports that one of itscustomers, whose company had a mortgage loan with the bank, had beenpaying the mortgage with funds derived from sale of pirated compact discs. MONEY LAUNDERING AND REAL ESTATE PRICES

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Money laundering cause increase in prices, making it impossible for local individuals to acquire realestate. The threefold increase of property prices in Mombasa, Kenya, within 4 years made itincreasingly difficult for middle-income families to buy homes.( Denis Gathanju, “Laundered ransoms cause Kenyan property boom,” Baird Maritime, February 25, 2010). In the mid-2000s, accordingto the Economist, South Africa had the largest price increase in housing of any major market in the world.Money laundering also results in overconstruction of expensive housing and hotels. Theseproperties stay vacant for years because individuals cannot afford to buy or stay in them. INDIAN REAL ESTATE (REGULATION AND DEVELOPMENT) BILL, 2013: This bill approved by cabinet on 4th June 2013. Its objective is “to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Authority and for matters connected therewith or incidental thereto”. 66 | Global Performance Challenges: Building and Sustaining Competitiveness

This bill has limited applicability, only to residential real estate. The major highlights of this bill are listed here as follows: 1. Prior approval before launch and advertisement: This bill restricting launch of projects or advertisements unless all approvals are received.. 2. Mandatory deposit of fund: It is mandatory for the promoters to deposit 70 per cent or lesser per cent as notified by the government to cover the construction cost of the project in a separate bank account to ensure timely completion and to prevent fund diversion.


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3. Registration of real estate project and real estate agent: The bill ensures mandatory registration of real-estate projects and real-estate agents with the Real Estate Authority, except when the land to be developed is less than 1000 square meters. 4. Disclosing of mandatory information: The real - estate agents / developers are required to disclose material information such as the details of promoters, project, layout, land status, carpet area and number of the flats booked, status of the approvals and disclosure of agreements, names and addresses of the real estate agents, architect, contractors, engineer etc on the Authority's website. 5. Restriction on taking advance: Taking more than ten percent as advance from the buyers without a written agreement is prohibited.Also the developers/ agents are required to refund the full amount in case of delay of projects.

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6. Liability/ Penalty: Civil and criminal liability for the contravention of various provisions of the Bill, such as, imprisonment of three years or a penalty of ten per cent of the estimated cost of the project for misleading information in advertisements or prospectus.

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7. Real estate regulatory authority: The Bill give power to establish one or more Real Estate Regulatory Authority in each State/UT, or one Authority for two or more States/UT, by the respective Government, and to specifying their functions, powers, responsibilities to oversight of real estate transactions. The Bill also appoint adjudicating officers to settle disputes between parties, and to impose penalty. CONCLUSION Money laundering in necessary sectors like real estate could affect large number of people, especially in the middle class section. The potential and needful buyers couldn’t afford it due to inflated prices. The intrusion of money laundering in banking and financial sectors could worsen the situations further even at macro economic level, eventually lead to affect thecountry’s status. The proposed real estate regulation bill is along the line to curb money laundering through real estate, but its definitions should Money Laundering in Real Estate Sector—Effects and Implications | 67

be widening beyond residential units. Also the recommendations of international association like FATF taken in to considerations to draft stringent mandatory anti money laundering rules to financial institutions. REFERENCES

[5] [6] [7] [8] [9] [10] [11] [12]

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[13] [14]

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[3] [4]

Association of Certified Anti-Money Laundering Specialists (http://www.acams.org/Home/) AyodegiAluko, “The Impact of Money Laundering on Economic, and Financial Stability and on Political Development of Developing Countries”, Institute of Advanced Legal Studies,School of Advanced Study,University of London,2012. Banking Secrecy Act, United States (http://www.bankersonline.com/security/bsapenaltylist.html) Brent L. Bartlett, “The negative effects of money laundering on economic development”, International Economics Group, Dewey Ballantine LLP, 2002. Financial Action Task Force, “Money Laundering & Terrorist Financing Through the Real Estate Sector”, 2007, France, pp. 17-25. Financial Services Authority, United Kingdom (http://www.fsa.gov.uk/about/media/facts/fines/top) Financial Action Task Force (http://www.fatf-gafi.org/) Financial Action Task Force, “RBA GUIDANCE FOR REAL ESTATE AGENTS”,2008,France,pp.7-21. J. D. Agarwal, Aman Agarwal,” Money Laundering: The Real Estate Bubble”, Keynote Address at Indian Institute of Finance, Delhi, INDIA, 2007. KPMG Money Laundering 2003, Review of the Regime for Handling Suspicious Activity Reports KPMG International 2007, Global-Anti Money Laundering Survey 2007: How Banks Are Facing Up to the Challenge. Lim ChoonKiat, Lee Leok Soon, Dr. Josef Eby Ruin 2009, Guide To The Management Of Anti-Money Laundering And Counter-Financing Of Terrorism, Malaysia. Louise Shelley,” Money Laundering into Real Estate”, pp. 131-140. Prof Dr.NorhashimahMohd.Yasin 2004, INSAF–The Journal of the Malaysian Bar (Volume–33 No1), Malaysia.


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Study of Micro and Small Enterprises Development Supported by Micro-Credit Institutions: A Case of Haryana 1

Ashwani Deswal1 and Kapil Madan2

Head of Department, IBMR Business School Assistant Professor, Amity University Haryana E-mail: [email protected], [email protected]


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ABSTRACT

The Micro Finance Institutions (Development and Regulation) Bill, 2012 aimed to promote MFIs for the purpose of facilitating the credit support to micro and small enterprises as well as rural and urban household, laid the path of conducting this research The proposed research aimed to identify the extent of development of micro and smallenterprises supported by Micro credit institutions in Haryana state. Various phases of business like inception, survival and growth have been considered while evaluating the development. The study is based on primary research and data has been collected through a structured questionnaire from the respondents. The data is further validated by taking personal interviews of other stakeholders including bank and government officials. Chi-Square test and other statistical tools were appliedto extract meaningful inferences in this context. Keyword: Micro and Small Enterprises, Micro-finance Institutions, Micro-Enterprise Growth, Micro-Credit

INTRODUCTION TO THE STUDY

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In the recent past, the term financial inclusion has got much attention and MicroFinance and Micro-Credit has become an effective tool for the development of individuals, household and enterprises as well. All microfinance institutions such as not for profit MFI such as societies, public trusts, mutual benefit MFIs like cooperatives societies and profit MFIs like NBFCs are working for the development of individuals, household and enterprises in India. Most of the MFIs are engaged themselves in extending micro credit facility only and few MFIs provides other services such as micro insurance and pensions.Government of India has initiated many rural prosperity dimensions and, no doubt they have made progress in reducing poverty, but at an unsatisfactory pace.Today, a more holistic, multi-dimensional outlook of poverty has emerged and the sustainability or long-term (economic) impact dimension has become the central point of all programs. In order to attain and promote sustainable and equitable rural prosperity, Micro Credit program has been launched by the government of India.

WHO IS MFI (MICRO FINANCE INSTITUTION)?

According to “The Micro Finance Institutions (Development Andregulation) BILL, 2012” Micro finance institution” means,— a. A society registered under the Societies Registration Act, 1860. b. A company registered under section 3 of the Companies Act, 1956. c. A trust established under any law for the time being in force. d. A body corporate. e. Any other organization, as may be specified by the Reserve Bank. JUSTIFICATION OF THE STUDY

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Despite the apparent success and popularity of microcredit, no clear evidence yet exists that microfinance programmes have positive implications After a comprehensive literature review, it has been observed that very little work has been done in north India relatedto identification of the extent of development of micro and small enterprises supported by micro credit institutions, specifically in Haryana and as a result it has been comparatively less explored and requires further extension of work in terms of impact assessment ondevelopment of micro and small enterprises Moreover, another gap has been found in existing research studies is that the extent of development is unclear. As a result this topic i.e. “Study of micro and small enterprises development supported by micro-credit institutions: Acase of Haryana” has been chosen for research. This study will prove a helping hand for the government to decide whether to continue with the program with same approach or it requires a change. The present study will suggest appropriate measures for improving the performance of micro finance institutions. This research would be of interest to the bankers, the NGOs, the donor, the policymakers and governmental officials, microfinance consultants, economists and all those who are involved in thedevelopment of SMEs in the country

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REVIEW OF LITERATURE

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The review of literature about the microfinance sector in India and outside reveals the interest in assessing the performance of microfinance sector. Micro-credit is considered as one of the significant tool for solving economic problems and development of SMEs. It is argued that availability of micro credit by MFIs helps micro and small

Enterprises in inception of business and later on in the survival and growth of the enterprises. There are empirical studies that micro finance plays crucial role in the revenue and profit growth of SMEs.Wang (2013) analyzed the impact of microfinance on SMEs by using multiple linear equation model and reveals that microfinance plays a crucial role in the revenue and profit growth of SMEs. Nidfe (2013) observed that there is a significant relationship between microcredit and the growth and development of micro and small enterprises and suggested the role of MFIs is crucial and government 70 | Global Performance Challenges: Building and Sustaining Competitiveness


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need to reduce the interest rate on microcredit loans. Bekele (2008) examined the effects of micro credit on business performance of SMEs and the finding reveals a positive relation between microcredit and profit of the microenterprise. The study recommends a wider coverage of microfinance through effective implementation of micro-fund scheme and mandatory business related training for all micro entrepreneurs. On the another side some studies (Greeley, 2003; Rowe, 2010) which states that the investments in micro credit for the development of SMEs, community and agriculture did not always reach those that needed it the most. The reason for that is the program was not properly planned and as a result it has not been working up to the expectations of target audience. Abiola (2012) investigated the effect of microfinance using panel data and multiple regression analysis and found strong evidences that microfinance doesn’t enhance growth of micro and small enterprises and recommended recapitalization of MFIs to enhance their capacity to support the small business growth and expansion. OBJECTIVES OF THE STUDY

1. The primary objective is to study the impact of micro credit on development of micro and small enterprises. 2. To study the relationship between micro credit and setting up a new business. 3. To study the relationship between micro credit and survival and growth of business. 4. To identity the problems faced by micro and small enterprises. INDEPENDENT VARIABLE

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DEPENDENT VARIABLES

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The famous saying of Adam Smith “Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little” indicate the significance of microcredit. The independent variable of the study is “Micro-credit”

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The dependent variable in this study is the impact on the development of micro and small enterprises. It becomes difficult to directly study the impact of micro credit on the development of micro and small enterprises. This can be studied through the increase in sales, profit, current assets, working capital, and relationship with the vendors, less financial hardship in the business and other variables. RESEARCH HYPOTHESIS H0: Micro-credit does not have significant impact on setting up of new business. H0: Micro Credit does not have significant impact on survival and growth of business.

Study of Micro and Small Enterprises Development Supported by Micro-Credit Institutions: A Case of Haryana | 71

SAMPLE OF THE STUDY AND DATA COLLECTION METHOD


SOCIO ECONOMIC PROFILE OF THE BENEFICIARIES

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It is a primary study and data is collected from the respondents through a structured questionnaire. The questionnaire was consisted of multiple segments such as demographic information of respondents and various variables to identify the impact of microcredit on development of micro and small enterprises in Haryana state. A sample of 200 respondents wasselected for the study. For this purpose four districts i.e. Panchkula, Jhajjar, Rewari and Mahendragarh were selected on the basis ofleast total enterprises establishedin rural and urban area. From each district50 respondentwere selectedby simple random technique to extract the information through the structured questionnaire. The data is further validated by taking personal interviews of other stakeholders including bank and government officials The study reports that out of the total 200 samples selected for the study, 63% respondents are below poverty line and rest i.e. 37% above poverty line. Of the total respondents, 40% respondents are female and 60% are male, out of which 63% live in rural area and 37% lives in urban area. 40% are in the age group of 26-30, 24% are in the age group 31-35, 16% are in the age group of 36-40, 15 % are in the age group of 40-45 and 5% are in the age group of above 46. Of the total respondent 22% are illiterate, 8% studied up to primary level, 40% studied up to middle level school, 30% studied up to high school. Regarding their profession 60% are involved in trade, 30% are engaged in services, 6% are engaged with handicraft industry, and 4% engaged in other activities. Of the total sample 76 are Hindus and 24 % are Muslims and 79% belongs to Schedule Cast, 11% belongs to Other Backward Classes and 10% belongs to general category. 93% are married, 7% are widowed, and none of them are separated or divorced. DATA ANALYSIS AND INTERPRETATION

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In order to identify the impact of MFIs behavior and loan provided by them on the development of micro and small enterprises twenty variable have been indentified, which further categorized in to five variables for business inception, five for business survival and ten for business growth.The measurement was taken on Likert’s five point scale as follows:

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1= Strongly Disagree (SD) 2 = Disagree (D), 3 = neither Agree nor Disagree (N), 4 = Agree (A) 5 = Strongly Agree (SA). Chi-square test was used for testing of hypothesis and the results are as under: H0: Micro-credit does not have significant impact on setting up of new business In order to test the hypothesis the result drawn from the primary sample were organized in a contingency Table and expected values were calculated accordingly. Whether there is any significant relationship exists between the micro credit and inception of the business following contingency Table has been prepared. The following Tables i.e. Table No.1, 2 and 3 represents the two set of data, one is observed frequency 72 | Global Performance Challenges: Building and Sustaining Competitiveness

of two hundred respondent sampled during the study and the figures are bracket ( ) representing the expected frequency which is calculated by using the following formula: (Row total * Column total) / Grand total for each cell Table 1: Contingency Table for the Relationship between Micro Credit Assistance and Starting up of the Business Business Inception D N A

SD

SA

1. Approval and opening of SHG account was done well in time 2. Amount of loan sanctioned to you was enough to meet your financial need 3. Credit was sanctioned to you in due time 4. Collateral security demanded by officials was appropriate 5. Proper guidance was given regarding, where to invest money Column Total (Source: Primary Data)

14 (16)

Row Total 12 (27.2) 20 (16.2) 114 (105.8) 40 (34.8) 200

12 (16)

14 (27.2) 8 (16.2) 136 (105.8) 30 (34.8)

200

17 (16) 10 (16)

44 (27.2) 17 (16.2) 85 (105.8) 37 (34.8) 14 (27.2) 21 (16.2) 108 (105.8) 47 (34.8)

200 200


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Micro Credit Institution

27 (16) 80

52 (27.2) 15 (16.2) 86 (105.8) 20 (34.8) 136

81

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174

200 1000

Results: According to the above Table calculated value of the X2= 101.25, which is more than the Table value, i.e. 26.30 at 5% level of significance. The contingent coefficient is = 101.25/101.25 + 1000 = 0.3032 The percentage value is = 30.32%

So according to the rule (if X2cal value >X2tab) the null hypothesis (Ho) stands rejected and hence it can be predicted that micro credit has significant impact on development of micro and small enterprises.

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H0: Micro Credit does not have significant impact on survival and growth of business

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Table 2: Contingency Table for the Relationship between Micro Credit Assistance and Survival of the Business

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Micro Credit Institution 1. In case of financial hardship MFIs helped 2. Interest charged on further requirement of loan was appropriate 3. MFIs provided necessary training time to time 4. Recognition and respect from the loan provider 5. Complaints/problems were well entertained by banking official Column Total (Source: Primary Data)

SD

D

Business Survival U A

SA

Row Total 24 (30) 36 (30.4) 12 (14.6) 92 (82.8) 36 (42.2) 200 43 (30) 36 (30.4) 14 (14.6) 68 (82.8) 39 (42.2) 200 34 (30) 20 (30.4) 8 (14.6) 84 (82.8) 54 (42.2) 15 (30) 20 (30.4) 14 (14.6) 102 (82.8) 49 (42.2) 34 (30) 40 (30.4) 25 (14.6) 68 (82.8) 33 (42.2) 150

152

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414

211

200 200 200 1000


Results: According to the above Table calculated value of the X2= 56.85, which is more than the Table value, i.e., 26.30 at 5% level of significance. The contingent coefficient is = 56.85/56.85 + 1000 = 0.2319 The percentage value is = 23.19% Table 3: Contingency Table for the Relationship between Micro Credit Assistance and Growth of the Business

Sales has increased Profit has increased Scale of operation has increased Working capital has increased No. of employees has increased Current assets has increased Fixed assets has increased Dependency on domestic moneylender has decreased 9. Relationship with the vendor has increased 10. Financial hardship has decreased Column Total (Source: Primary Data)

D

SA

12 (13.3) 11 (13.3) 8 (13.3) 10 (13.3) 20 (13.3) 10 (13.3) 40 (13.3) 10 (13.3)

8 (16.6) 20 (16.6) 18 (16.6) 12 (16.6) 32 (16.6) 17 (16.6) 32 (16.6) 8 (16.6)

42 (28.7) 102 (91.1) 36 (50.3) 40 (28.7) 68 (91.1) 61 (50.3) 20 (28.7) 88 (91.1) 66 (50.3) 10 (28.7) 111 (91.1) 57 (50.3) 56 (28.7) 80 (91.1) 12 (50.3) 44 (28.7) 70 (91.1) 59 (50.3) 22 (28.7) 59 (91.1) 47 (50.3) 12 (28.7) 118 (91.1) 52 (50.3)

Row Total 200 200 200 200 200 200 200 200

8 (13.3) 4 (13.3) 133

12 (16.6) 7 (16.6) 166

19 (28.7) 87 (91.1) 74 (50.3) 22 (28.7) 128 (91.1) 39 (50.3) 287 911 503

200 200 2000


1. 2. 3. 4. 5. 6. 7. 8.

Business Growth U A

SD

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Results: According to the above Table calculated value of the X2= 274.43, which is more than the Table value, i.e., 50.99 at 5% level of significance. The contingent coefficient is = 274.43/274.43 + 2000 = 0.3473 The percentage value is = 34.73%

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So according to the rule (if X2cal value >X2tab) the null hypothesis (Ho) stands rejected and hence it can be predicted that micro credit has significant impact on the survival and growth of the micro and small enterprises.

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FINDINGS OF THE STUDY

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The research was aimed to indentify the impact of micro credit provided by the MFIs on the development of micro and small enterprise in the Haryana state. Three segments were analyzed i.e. micro credit and Business inception relationship, micro credit and business survival relationship and microcredit and business growth relationship. During the study it was observed that apart from micro credit provided by MFIs to micro and small enterprise, the development of these enterprises is contingent upon other factors too like education, networking and risk taking ability of the entrepreneur. The contingent Table computed with the help of observed and expected frequency indicates that microcredit institutions needs to improve the activities for the welfare of micro and small enterprises, and the Table result showed that 30.32% success in started up the 74 | Global Performance Challenges: Building and Sustaining Competitiveness

micro and small enterprise is attributable to MFIs. As far as business survival is concerned MFIs guidance and support increases 23.19% chances of SMEs to perform better during their struggling phase. Thethird segment was crucial as it was directed towards theimpact assessment of micro credit on the growth of micro and small enterprises and the study showed that continuous interaction of MFIs and training provided to micro and small enterprises increases the growth their rate by 34.73%. CONCLUSION OF THE STUDY


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The study was aimed to identify the relationship between MFIs support to micro and small enterprises and to identify the various problems faced by them. The data collected through primary source indicated a positive relationship between MFIs direct (in the form of micro credit) and indirect (in the form of managerial assistance) support in starting up, Survival and growth rate of the micro and small enterprises. As far as problems are concerned few problems like inadequate reach in the few region, limited interaction by the banker and other MFIs institutions and less direct interaction between loan provider and loan taker, high rate of interest are some issues, which need to be considered by Haryana government for the better and proper implementation of micro finance scheme so that the funds can be reached to those who actually needs it. REFERENCES

Abiola, Babajide. (2012). “Effects of microfinance on micro and small enterprises (MSEs) growth in Nigeria” Asian economic and financial review, 2 (3), 463–477. [2] Bekele, E, &Zeleke, W. (2008). “Factors that affect the long term survival of micro, small and medium enterprises in Ethiopia”, South African journal of economics, 76(3), 1–33. [3] Greeley, M. (2003). “Microfinance and Poverty Reduction–Assessing Performance”, IDS Bulletin, 34 (4), 10–20. [4] Mead, D.C., and C. Liedholm, (1998). “The dynamics of micro and small enterprises in developing countries”. World Development, 26 (1), 6I–74. [5] Nidfe, Chinelofrance (2013). “The impact of micro credit institution on the development of small and medium enterprises in Anambra state”, IOSR journal of business and management, 14(5), 75–81 [6] P.V.V., Subrahmanyam, (2008). “Economic Empowerment of woman in the East district of Godavari (AP)”, Finance India, 2 (1), 584–586. [7] Rowe,A.Patrica and Michael.j.christie, (2010). “Microfinance agencies and SMEs: Model of explication of tacit knowledge”, international journal of entrepreneurship and small business, 11(1), 55–66 [8] Takahahi, Kazushi. (2010). “The short term poverty impact of small scale collateral free microcredit in Indonesia: A matching estimator approach”, The development Economics 48, 128–55 [9] Waheed, Seemi (2009). ’’Does Rural Micro Credit Improve well being of Borrowers in the Punjab’’, Pakistan economic and social review, 47 (1), 31–47. [10] Wang. Xitian (2013). “The impact of Microfiance on the development of small and medium enterprises: The case of Taizhou, China” The johns Hopkins University, Baltimore, MD, USA.

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Microfinance Institutions and Remittances in Albania Dr. Altin Idrizi

University of Elbasan, “A. Xhuvani”, Elbasan, Albania E-mail: [email protected], [email protected] ABSTRACT


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Another popular way to enhance the impact of remittances on the economy of the receiving country is using alternative financial institutions as the microfinance institutions (MFIs). These institutions can complement the needs of emigrants for financial services and financial products. They can play an important role by performing functions such as saving, investing and insurance. Channeling remittances to micro financial system can be an important tool for direct financing of local investments. A study in Mexico on MFIs shows that 27% of the capital invested in small companies and firms comes from remittances, and in areas with large inflows of remittances, this percentage reaches 40%*. It is very hard a successful, working or saving emigrant, with no previous experience in the business, to become a dynamic entrepreneur. It would be much easier and more realistic financial intermediaries to cover remittances as deposits and channel them into the small and microenterprises rather than focusing on specific investment programs for immigrants and transforming them directly into entrepreneurs. In other words, instead of focusing on specific investment programs for emigrants, the Government of Albania should be supporting microfinance institutions to accumulate remittances from emigrants. The main idea is the adoption of policies for channeling remittances towards microenterprises through MFIs. Furthermore, linking remittances with micro crediting can stimulate the development of local markets. Keywords: Microfinance Institutions, Remittances, Albanian Emigrants, Economic Development

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The aim of this paper is to give a general overview of the microfinance institutions in Albania and how they can engage in remittances market, thus enhancing their impact on economic development of Albania.

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Channeling remittances towards microfinance institutions is rational and bears potential effects for development. MFIs, its accessibility, customer relationships and areas of action, compared with those of commercial banks, are a pretty good alternative to the informal system. By dealing with the service of money transfers from migrants MFIs will find the necessary resources and profits to achieve financial stability without sacrificing their goals to reduce poverty and maximize the effects. Remittances can serve as a marketing tool to expand the number of their customers. Another important strategy should be based on the strengthening the links between microfinance institutions and some commercial banks in Italy and Greece with those in Albania to create a system of money transfer that offers transfer services to emigrants throughout the territory and to reduce the cost of transactions. This system must be *

Woodruf, Christopher, and Rene Zenteno–“Remittances and Micro-enterprises in Mexico”, 2001.

secure, fast, and must cover most of the territory of Albania. But most importantly, this system should be cheaper so there will be more money available to the recipients and so to have a greater multiplier effect of remittances on the economy. Such links should be created too with the money transfer operators such as Western Union and Money Gram. Microfinance institutions can reach rural clients to which large commercial banks are unable or unwilling to reach. The main function of these MFIs is to service clients, which are too small or without sufficient financial guarantees to obtain loans from commercial banks. They are interested in attracting more customers to open small accounts and this interest is greater than the big banks. One way to attract households that receive remittances and connect them with the financial system is to use these MFIs to receive transfers from emigrants.


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But we must be aware of the obstacles faced by MFIs in the market of remittances. MFIs usually do not meet the criteria and do not deal with international money transfers because of their small size and limited resources. Maintaining daily stable cash flows is a big problem for most MFIs, and so to deal with the transfer of remittances, they have to change the whole system of work. The process of realization of money transfers is quite different from the granting of a micro credit–remittances are money transfers in current time. This and other reasons, require MFIs to change their infrastructure and management systems so they can effectively be incorporated in the system of remittances.

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Most of MFIs, which are already included in the market of money transfers from migrants, are register as commercial banks and are often agents of money transfer operatorssuch as Western Union. MFIs are not the universal cure for reducing the costs of transfer, for a more affordable system for transfer, or for the integration of recipients of remittances in the big market of financial services. At the same time, the ability of MFIs as market players exist, but must be carefully assessed the aspects of the volume of transactions and the duration in time. As with other products, MFIs who want to develop money transfer as a service, must comply with its institutional capacity with regulatory requirements as well as the potential market for these services.

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Since 1994, in Albania began to develop the microcredit sector. The first MFI was created in Albania in 1994 as part of a development project funded by the Government of Albania and the World Bank. Thirteen international donors cooperate with the government to support the development of SMEs in Albania. Today MFIs act as independent institutions with the growing customer base. In the last 5-7 years, several other institutions focus on micro financing. Currently, in Albania there are 133 associations operating for individual deposits and loans organized in two Union. The number of its members exceeds 18,000 and the amount of loans is about 12 million euros. Moreover, in Albania there are also 7 MFIs operating with total assets in excess of

Microfinance Institutions and Remittances in Albania | 77

50 million euros and loans over 43 million euros†. Banks are also starting to be more active in microfinance sector, despite the low level of interest in this part of the financial services industry. This can be explained by the increased competition in the market and the need for new investment opportunities. Now it seems that an increasing number of loans go to small and medium sized companies to assist in the initial stages of opening a new business. Banks are more active in microfinancing in the big cities. One of the current commercial banks (ProCredit Bank-ALB) started its operations in Albania as a MFI. It continues to occupy a large part of the market of microfinance institutions, and it is mainly in the cities. Loans to the microfinance sector now represent 10% of all loans granted by the banking system.


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Nonbank financial institutions carry out one or more of the core activities of commercial banks, but they are prohibited from doing public collection of deposits. Associations of savings and loans are not allowed to accept deposits and offer loans to third parties. It is defined by the law that accepting deposits and offering loans may be made only within the community of the members of these credit unions. Although the number and size of this type of financial institutions at the moment is relatively small, their effect on the stability of the financial system is positive. They operate on the basis of market discipline and some of them became subsequently commercial banks. Some of the major MFIs operating in Albania are:

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1. The Albanian savings and loan association—ASKA (Albanian Savings and Credit Union-ASC Union)—with the main goal the financial and technical assistance to savings and credit associations, which are rural financial institutions, created and operated by their members, for the financing of productive activities in area in the countryside and villages. It is a voluntary association of individual savings and loan associations and was established in 2002 by law for savings and credit associations of the Bank of Albania, a product of the first programs for microfinance in Albania. ASC Union, similar to the Raiffeisen Group, is based in savings and credit associations, and has strong connections in villages and in the countryside. Their clients are residents of the villages and far provinces, which in fact are their members. These associations are legal entities and created by voluntary associations of individuals that deposit their money in the association. In turn, the association uses this money for lending to members of the association. A single individual, in order to obtain a loan, must be a member of one of the associations such as in the ASC Union‡.

† ‡

Bank of Albania–Annual Report–2008 http://www.ascunion.org.al.


ASC Union consists of 103 savings and loan associations across the country, operating in 14 districts of Albania and from 1226 villages in these areas, 805 are served by them. ASC Union has 24,682 members and 17,809 active clients from across the country§.


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2. BESA Foundation-Urban project for microcrediting began its operation in 1994 as a department of the Albanian Development Fund. In May 1999 by a decision of the Council of Ministers, the project was transferred from the Albanian Development Fund to the "Besa" Foundation, with the main founder the Soros Foundation. At the end of 2007, it is ranked as one of the 50 most successful MFIs in the world by the magazine "Forbes". To achieve its objective, it operates according to the principles of the private sector in the provision of loans. Each branch of the Foundation operates as an independent unit and covers all its costs from interest and commissions from loans. The Foundation develops relationships with Albanian and international banking sector to increase access to funds for small and medium entrepreneurs in Albania and to meet the demand for small loans. Currently the "BESA" Foundation has 41 branches throughout the country with about 200 employees. In 2008 11,340 loans that are worth approximately $ 37 million, were paid, with an average loan size of $3,262, which again shows that the foundation is definitely focused on small business in Albania**.

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3. Mounting Area Financial Fund (MAFF) is one of the two institutions for reaching the objectives of the program for development of mountain areas (the other institution is the Mountain Areas Development Agency). Both are involved in supporting the development of mountainous areas of the country by occupying over 60 % of the territory and 35 % of the population of Albania. The fund is created by the Albanian government in 1999 and was licensed by the Bank of Albania as a nonbanking financial institution in March 2002. In September 2006 was renewed the contracts between the Republic of Albanian and IFAD for funding the program for development of mountain areas and in 2007 2 new loan agreements were signed: the agreement with IFAD "The program for the development of mountain areas" worth $ 4.5 million and the agreement with OFID worth 753,000 dollars. MAFF has 20 branches covering 23 municipalities and offers loans in more than 800 villages in Albania. There are about 5,000 active clients and a loan portfolio of approximately 10 million††.

§

Albanian Savings and Credit Union–Annual Annual%20Report%202008.pdf. ** http://www.fondibesa.com/en/index.html. †† http://www.ffzm.org/index2/historia.htm.

Report

2008,

http://

www.ascunion.org.al/

en/pdf/


4. Albanian Partner for microcredit-Partneri Shqiptar per Mikrokredi (PSHM), now Opportunity Albania-is one Albanian-American MFI, established in 1999, which grants loans to small and medium sized companies in development. It has branches in 10 main cities in Albania and has over 50 employees. The main objective of this MFI is assisting to the individual and small firms in the detection and development of the new activities. It grants loans in all kinds of activities both in the cities and in the countryside and villages. PSHM has over 3,000 active customers and has granted by now over 9,000 loans with a value of $ 5 million. It has a portfolio of loans with value of $ 6 million. The level of return on loans is very high—98.7 %, which demonstrates once more the mutual trust and close connections of the MFIs in Albania and their customers.


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5. ProCredit Bank Albania-is a bank lending to very small, small and medium enterprises. Was created in 1995 as the "Foundation for Entrepreneurship, Finance and Development"-(FEFAD), where 100% of the capital was provided by the German banking group KfW. The main objective is lending to very small and small enterprises in Albania. Despite the chaos in 1997, FEFAD achieved very good financial performance and received a license to carry out banking activities in 1999, by becoming so the FEFAD Bank, and in 2003, changed its name to ProCredit Bank. It has 34 branches and agencies throughout the country and 873 employees. It has disbursed more than 40,000 loans worth over € 134 million and has about 177,600 deposit accounts amounted to € 203.9 million ‡‡. Table 1: Largest MFIs in Albania

Assets Equity Deposits Borrowings Loans Active ($) ($) ($) ($) ($) debtors ASC Union 50,425,473 13,755,958 11,141,501 22,776,931 40,501,796 16,141 BESA 43,127,516 23,139,937 17,823,522 41,316,674 11,340 FAF-DC 17,468,547 12,057,164 4,488,639 16,441,313 5,169 Opportunity Albania 49,351,331 10,198,014 37,623,985 42,424,368 15,834 ProCredit Bank-ALB§§ 339,971,198 31,907,254 278,907,525 11,364,113 198,690,941 40,122 (Source: International Monetary Fund, http://www.mixmarket.org/mfi/country/Albania/%252F2008/).

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Apart from the official sector in the area of lending in Albania, there is also the unofficial sector. This sector includes private creditors and family savings, which invest in small and medium-sized companies. This sector operates outside the control of laws and control bodies, so their activities are not included in official statistics. Activities in the informal credit market are reduced in recent years. The main reason for this is the increasing number of formal credit institutions, their security and lower rates of interest, which in recent years has fallen steadily.

‡‡

Data from Annual Report 2008 of ProCredit Bank–Albania, http:// www.procreditbank.com.al/ repository/ docs/ AR_albania_2008.pdf §§ This financial institution now operates as a commercial bank.



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The experience of the IFIs in Albania could be critical in a hypothetical channeling of remittances to formal channels. Firstly, MFIs are very comfortable for cash transfers because they are distributed and operate in areas where there is no banking presence. In other words, they can reach people who otherwise have no access to the banking system and banking services. Furthermore, they are close to the market, know the population of the given location where they operate and interact with the locals, which in turn feel more comfortable to do business with them. These factors are very important, especially in Albania, where each region has its own characteristics, so that the supply of financial services should be made locally in the same place where the branches of the MFIs are. Secondly, good relations with the locals create security and trust with customers. Finally, the MFIs have social interactions with people of the society where they operate and usually create stable personal relationships with their customers, who are mostly farmers and small entrepreneurs, people strongly associated with remittances. It is no accident that during the 1997 crisis, MFIs operating in villages and towns maintained a high rate of repayment of the loans, even when the government fell and many banks went bankrupt. In this sense, most of the Albanian MFIs and organizations can serve as local agencies to channel remittances. Especially, as the experts from the Italian Association "Microfinanza"*** stress out, the "BESA" Foundation can play a strategic role, by using its internal solid structures and their areas of operation, where there is a large flow of emigrants, such as Tirana, Durres, Vlora, Korca and other cities. MFIs may be appropriate participants in incentive policy for remittances, because of their skills and qualifications in provision of financial services (such as deposit and insurance services), which are more than just lending.

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These are voluntary organizations, and are structured according to the model of credit associations based in the capital of its members. They take licenses from the Bank of Albania and are governed by the law of 1996, amended in 2001. By law they can perform one or more activities that are typical of commercial banks such as: To lend.

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To pay and accept payments.

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To issue, receive and manage securities.

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To intermediate monetary transactions (including in foreign currency).

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To provide leasing.

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To provide services such as storing valuable things and the provision of safes.

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“Microfinanza” srl is an Italian advisory organization, which since 2000 operates nationally and internationally in the field of microfinance, financial ethics, finance, development, support of SMEs, ect.


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To provide other types of guarantees (which are not classified as bank guarantees).

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To serve as financial advisers or agents.

But unlike banks, they are not allowed in any way to accept and collect deposits from the public. The capital shall be not less than 100,000 to 1 million dollars and depends on the scope of the activity. Individual organizations are comprised an average of about 30 members and are scattered throughout the country. The Board of Directors consists of 715 people, elected by the members, and it decides the loan amount, method of payment and warranty. Besides this board, it has a committee of three people who monitor the activities of the association.


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So far, these MFIs do not support a policy of channeling remittances to the formal sector (e.g., through agreements with financial institutions in the countries where Albanian emigrants live and work), but it is very interesting for them to get involved in this market. This will not be easy because they are new institutions and still in constant change. Most of them are too small and without the necessary human resources and capacity to offer new products or to create a network of relationships with other financial institutions. But despite the obstacles, investments in this sector are strategically very important to them for several reasons: Cash transfers from migrants are primarily focused on the poor and very poor families, and MFI are lending especially to this particular social group. Given that they already have the infrastructure and are able to work and lend to those people with low incomes, it is logical MFIs to be interested in offering service on remittances. The question is whether they will be able to offer better and cheaper services.

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By offering also transfer of remittances, they can increase the number of their customers and can offer them also other microfinance products. If a customer enters into an MFI to receive money from abroad, most likely he will exchange money in Albanian lek if it offers this service. What is more, he can even open an account in the institution, become a member of the association and deposit part of the money, consequently increasing the amount of funds available to the MFIs. For example, in Kosovo Kasabank offers money transfers free of charge, because income received from customers exceeds the costs of transaction.

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By offering also money transfers, MFIs will increase their loyalty to their old customers. For an MFI one client becomes profitable after only a few loans. So, maintaining a customer is as important to it as finding a new customer. Because most clients of MFIs are most likely recipients of remittances from migrants, offering them also the money transfer service will increase their loyalty to

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customers and increase the chances to keep them as customers. Often the recipients of money transfers must travel long distances to get their money. If MFIs offer this service, they will contribute directly to reducing the costs of obtaining the transfer and will increase the confidence and the range of customers. The main reason for MFIs to enter the market of money transfers from migrants is the increase of income and profits. Given that they enter on the market of remittances it is expected that the size and number of transactions will increase continuously. This does not necessarily mean increased profits, but it still gives reason to expect that the potential of the use of that money will increase.

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For those MFIs collection of sufficient funds to support their business of lending to small and medium enterprises, is the key to their existence in the market. In this sense, a strategy to attract remittances could be very important for them.


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

I think, remittances should be collected by the savings bank and then be channeled to individual branches of the MFIs. This process can take between 1 and two weeks. The most important element here is the channeling of remittances and the use of that part of the money that is saved. Currently, recipients of remittances use most of the money for consumption and to cover their daily needs, and the rest is saved outside of official channels. It is exactly here that the MFIs can be included in the scheme, by stimulating savings by offering deposit services in those areas where there is no banking presence, with no higher interest rate than the base rate. If this becomes a reality, we can predict that the channeling of remittances toward MFI has a huge potential for development. As a conclusion, we must consider several constraints and challenges for the implementation of this process:

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1. Legislation and obtaining a license-the governments in both countries, which receive and send remittances, attempt to regulate and control remittances, money laundering, and terrorist financing. So, the fulfillment of the requirements for obtaining a license for the provision of money transfers from abroad can be the most important barrier to some MFIs. Legal requirements for MFIs may be for example: 

To have a license to enter into the market.

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To have a license for currency exchange.

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To have a license to become agents of money transfer operators.

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To have a license to access the payment system of the country.

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To control the transfer and report any suspicious activity to the authorities.

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To have a license for payments to their clients in foreign currency. Microfinance Institutions and Remittances in Albania | 83

In Albania, there is currently no law prohibiting MFIs to enter the market of remittances. 1. Willingness and institutional capacity to offer this service–entering the market of remittances poses a great challenge for the institutional capacity of MFIs in terms of management, staffing, operating system, and marketing. Operations to transfer money from abroad require large investments in human capital, preparation of staff relationships with customers and employees in transfers.

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Information systems should be able to manage the volume of transfers, providing speed, security, and communicate with other systems in the chain of execution of the transfer and issue reports on fulfillment of legal requirements.

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Marketing to a limited number of people can be the key to attracting new customers. Marketing is more important to be done in the receiving country where emigrants live and work rather than in Albania, although in Albania marketing need to be effective and planned.


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Remittances require a large amount of cash, which in turn requires careful management of resources and often increases the currency risk if MFI pay in foreign currency. Institutions have no interest in maintaining a large amount of cash for the safety and to increase investment returns and the entrance into the market of remittances requires cash to be always ready and in sufficient quantity.  Because the entrance into the market requires large investments, MFIs should carefully make a financial analysis of the costs and benefits before deciding to enter the market of remittances. 2. Identifying and entering the appropriate part of the market of money transfers from migrants-without a detailed analysis of the formal and informal money transfer operators in the region of operation of the MFIs, the mechanisms of transactions that they use, the volume of transfers and their strengths and weaknesses, it is very difficult to determine the relevant part of the market. Moreover, the number of formal money transfer operators in the market may not be very small and may include commercial banks, money transfer operators, credit associations, post offices, exchange offices, and other MFIs. Informal operators may include travel agents, couriers, bus drivers, owners of boutiques, businesspeople, etc. 3. The small number of customers of MFIs compared with the country’s population. 4. The high costs associated with the implementation of this policy to channel remittances toward MFIs. 84 | Global Performance Challenges: Building and Sustaining Competitiveness

In this sense, the role of government and other international donors and collaborators appears to be crucial. They should take measures and policies relating to the support of MFIs in capacity-building, their involvement in projects to train and consult their employees, create a network of connections to financial institutions that operate in the sending and receiving parties and subsequent-finding projects to strengthen the economic effects of remittances and their channeling toward investment. REFERENCES

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[4] [5] [6] [7] [8]

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Albanian Savings and Credit Union–Annual Report 2008, http:// www.ascunion.org.al/ en/ pdf/ Annual%20Report%202008.pdf. Bank of Albania–Annual Report–2008. Data from Annual Report 2008 of ProCredit Bank–Albania, http:// www.procreditbank.com.al/ repository/ docs/ AR_albania_2008.pdf http://www.ascunion.org.al. http://www.ffzm.org/index2/historia.htm. http://www.fondibesa.com/en/index.html. IMF-http://www.mixmarket.org/mfi/country/Albania/%252F2008/ Woodruf, Christopher, and Rene Zenteno–“Remittances and Micro-enterprises in Mexico”, 2001.

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SESSION 2 CONTEMPORARY BUSINESS MANAGEMENT PRACTICES r

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Corporate Governance and Disclosure Practices of MNC Subsidiaries and Domestic Firms: An Empirical Study from India Prof. Pankaj M. Madhani


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Associate Professor, ICFAI Business School, (IBS), Ahmedabad

ABSTRACT

This research studies impact of foreign-ownership on the corporate governance and disclosure policies of firms. Multinational corporations (MNCs) operate across different countries with different corporate governance regimes, which will often deviate from corporate governance practices in the home country of MNCs. MNCs have to thus manage multiple economic, legal, political and cultural environments. Using firms across different sectors listed in Bombay Stock Exchange (BSE), this paper aims to analyze difference in corporate governance and disclosure practices among firms owned by foreign owner (MNC subsidiaries) and local owner (domestic firms).

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The sample for the study was collected from the firms listed in BSE in the form of S&P BSE sector indices. Sectoral indices at BSE aim to represent minimum of 90% of the free-float market capitalization for sectoral firms from the universe of S&P BSE 500 index. This sector index consists of the firms classified in that particular sector of the BSE 500 index. The sample firms represent different sectors viz.: Auto, Metal, Oil & Gas,Consumer Durables, Capital Goods, FMCG, Health Care, IT and Power. In each of these sectors, top six firms as per market capitalization are selected for sample. Out of sample size of 54 firms, the sample consists of nine public sector firms (16.67%), 13 MNC subsidiaries (24%) and others with dominant Indian ownership (59.25%). Hence, sample represents 41 domestic firms and 13 MNC subsidiaries.

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Prior research suggested that Indian domestic firms were disclosing less compared to MNC subsidiaries in India. However, this research findingempirically proved that subsidiaries of MNCs are no better in disclosure practices than domestic Indian firms. It is mainly because of improvement in corporate governance norms and rules mainly in the form of Clause 49 of listing agreement have considerably improved corporate governance and disclosure practices of Indian firms. Keywords: Corporate Governance, Disclosure Practices, Globalization, MNC Subsidiaries, Clause 49

INTRODUCTION Multinational corporations (MNCs) are one of the world's most powerful types of organizations. MNCs operate across different countries with different corporate governance regimes, which will often deviate from corporate governance practices in the MNC home country. MNCs have to thus manage multiple economic, legal, political and cultural environments externally as well as complex networks of knowledge and resource flows internally (Volkmar, 2003). A MNC subsidiary is defined as a local affiliate of a

MNC located in a foreign country of which the parent company holds majority ownership in promoters’ holding. (Bouquet and Birkinshaw, 2008). As such, host country has domestic firms as well as MNC subsidiaries, operated and listed in the same legal institutional environment. As the regulatory environment in the host country is the same for both groups i.e. domestic firms and subsidiaries of MNCs, it is possible that subsidiaries of MNCs internalise some aspects of disclosure practices of their parent company.


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Using firms across different sectors listed in Bombay Stock Exchange (BSE), this paper aims to analyze difference in corporate governance and disclosure practices among firms owned by foreign owner (MNC subsidiaries) and local owner (domestic firms). The findings can shed light on the governance and disclosure practices of MNC subsidiaries and domestic firms, in legal institutional environment of India. The question is whether firms with foreign ownerships have better behaviour in their disclosure policies compared to domestic firms. Hence, we intend to investigate empirically whether MNC subsidiaries have better corporate governance and disclosure policies compared to domestic firms in India. LITERATURE REVIEW

Firms, across the globe, recognize that there are economic benefits to be gained from a well-managed disclosure policy. As La Porta et al. (1998) argue, good corporate governance is needed for better access to external financing at lower cost. This shows that firms in need of a good deal of external financing, such as rapidly growing firms, have an incentive to improve their disclosure and corporate governance.

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There is an expanding literature that examines whether a country's legal and judicial institutions affect disclosures practices across countries (e.g., Jaggi and Low, 2000; Bushman et al., 2004). Bushman et al. (2003) studied corporate transparency across 45 countries and found substantial differences in corporate disclosure practices that arose from a country’s legal as well as judicial regime. Researchers such as Hope (2003b), and Francis et al. (2005) also found that country-level institutional factors matter in explaining disclosure levels.

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Khanna et al. (2004) pointed out that customers require financial information to evaluate a foreign firm's long-term viability, and suppliers use financial statements in evaluating a foreign firm's creditworthiness. Likewise, employees or prospective employees can use disclosures in assessing employment opportunities with a foreign firm. These arguments are supported by Bowen et al. (1995) who argue that implicit contracts can affect a firm's accounting practices. Given the unfamiliarity of firms when they enter foreign labour, product or capital markets, MNCs have incentives to provide additional information in order to establish and maintain a reputation. This can reduce costs associated with these relational contracts in the long-run. 90 | Global Performance Challenges: Building and Sustaining Competitiveness

Despite some research interest among scholars in the corporate governance and disclosure practices of MNCs (Strange and Jackson, 2008), comparisons between MNCs subsidiaries and domestic firms on corporate governance and disclosure practices have received very little attention. MNCs subsidiaries face additional complexities and challenges in corporate governance and disclosure practices due to the diversity of corporate governance rules, regulations and stakeholder expectations in the various host countries in which they operate (Luo, 2005). Some studies have examined the differences in corporate disclosure practices between MNC corporate headquarters and domestic firms (Alpay et al., 2005; Kiel et al., 2006; Krigger, 1988; Leksel and Lindgren, 1982). However, very few studies have examined the differences between MNC subsidiaries and domestic firms in their corporate governance and disclosure practices in a host country (Cahan et al., 2005; Duru and Reeb, 2002).


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Several studies examine Indian corporate governance generally. Khanna (2008) reviews the development of corporate governance norms in India beginning from independence era. World Bank (2005), Sarkar and Sarkar (2000), and Mohanty (2003) examine how firm-level governance influences the behaviour of institutional investors, or vice-versa. Mohanty (2003) finds that institutional investors own a higher percentage of the shares of better-governed Indian firms. This is consistent with research in other countries (Aggarwal et al., 2005; Ferreira and Matos, 2008). Pattnaik and Gray (2012) found that subsidiaries of MNCs were more transparent and disclose more than domestic listed Indian firms. Their time frame of the study was before implementation of Clause 49. However, no study was conducted in India regarding corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed in India after implementation of Clause 49. Hence, this research fills this gap and compares corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed in India for the sample firms across various sectors in year 2011–2012.

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CORPORATE TRANSPARENCY AND DISCLOSURE FIRMS: AN INDIRECT MEASUREMENT APPROACH

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Equity analysts play role of intermediaries between firms and the financial market and serve as transparency enhancing mechanism in market. Analyst forecasts are more accurate and less dispersed for firms with more open disclosure policies (Lang and Lundholm, 1996). The accuracy and dispersion of analysts’ forecast depend on, and reflect the extent to which firms disclose information in the markets (Healy and Palepu, 2001). Prior research have demonstrated that corporate disclosure is positively linked to analysts’ forecast accuracy and negatively to the dispersion among analysts covering a given firm in their forecasts (Bhat et al. 2006; Hope, 2003). Ashbaugh and Pincus (2001) find that analysts' forecast accuracy is higher after firms adopt International Accounting Standards (IAS), and Hope (2003a) finds that analysts' forecast accuracy improves when firm-level disclosure increases. Leuz and Verrecchia (2000) find that German firms switching to US Generally Accepted Accounting

Corporate Governance and Disclosure Practices of MNC Subsidiaries and Domestic Firms: An Empirical Study from India | 91

Principles (US GAAP) reporting have lower information asymmetry than firms that continue to report under German GAAP, which is a lower disclosure-reporting regime.

Pattnaik and Gray (2012) used the measure of corporate transparency based on the characteristics of equity analysts’ forecast behaviour and conclude that voluntary disclosure is negatively related to analyst forecast errors. Analyst forecast error and forecast dispersion were used by researchers as proxies for corporate disclosure and transparency. However, it is subjective measure of corporate disclosure practices as analysts' subjective opinions could be influenced by firm performance. Hence, this research uses an alternate approach of direct method of calculating corporate governance and disclosure practices of firms as described below in research design and methodology section.


OBJECTIVE OF THE STUDY

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RESEARCH DESIGN AND METHODOLOGY 1. To study overall corporate governance and disclosure practices in sample firms. 2. To know that to what extent firms from groups such as subsidiaries of MNCs, and domestic firms differ in terms of corporate governance and disclosure scores. SOURCES OF DATA

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For the purpose of study, data of the sample firms collected from the annual reports of the same for the year 2011–12. The year taken for this study is the financial year ending 2012, which was the latest at the time of this study. Annual reports are important documents for assessing and analyzing the company performance in regard to corporate governance standards and compliance. The annual reports of 54 firms for the period ending March 2012 or December 2012 (based on the firms’ financial year) have been downloaded from the CMIE PROWESS database (Version 4.14).

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SAMPLING TECHNIQUE APPLIED

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Stratified sampling was used for obtaining data of firms listed in Bombay Stock Exchange (BSE) and is constituent of S&P BSE sectoral indices.

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SAMPLING AND DATA COLLECTION The sample for the study was collected from the firms listed in BSE in the form of S&P BSE sector indices. Sectoral indices at BSE aim to represent minimum of 90% of the free-float market capitalization for sectoral firms from the universe of S&P BSE 500 index. This sector index consists of the firms classified in that particular sector of the BSE 500 index. From these sectors, banking sector (Bankex) was eliminated as the disclosure requirements for these firms are specialized and regulated by other regulatory authorities. Likewise, realty sector was also not considered because of specific issues of 92 | Global Performance Challenges: Building and Sustaining Competitiveness

governance. Hence, remaining all nine sectors from S&P BSE sectoral indices were studied for this research. In each of these sectors, top six firms as per market capitalization are selected for sample. Out of sample size of 54 firms, the sample consists of nine public sector firms (16.67%), 13 MNC subsidiaries (24%) and others with dominant Indian ownership (59.25%). Hence, sample represents 41 domestic firms and 13 MNC subsidiaries. As shown below in Table 1, these 54 firms selected from 9 different sectors represent 91% of overall sectoral index weight. Hence, these samples of 54 firms truly represent selected 9 sectors. Table 1: Weight of Sample Firms in their Respective Sectoral Indices Weight in Index (Per Cent) 89 94 90 88 95 82 94 97 91 91

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No. of Firms Studied 6 6 6 6 6 6 6 6 6 54


Sr. No. S & P BSE Sectoral Indices 1 S & P BSE Auto 2 S & P BSE Capital Goods 3 S & P BSE Consumer Durables 4 S & P BSE Healthcare 5 S & P BSE IT 6 S & P BSE Metal 7 S & P BSE Oil & Gas 8 S & P BSE Power 9 S & P BSE FMCG Total Sample Size (Source: Calculated form BSE Web Site)

THE RESEARCH INSTRUMENT: DIRECT MEASUREMENT OF CORPORATE GOVERNANCE DISCLOSURE SCORE

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A review of the existing literature is undertaken to explore the methodology used for measuring corporate governance and disclosure practices of firms. Prior research studies on disclosure have been broadly classified as those on disclosure indices, event studies and specific disclosure analysis. Researchers have used various methods of computing disclosure score for determining the level of disclosures. The disclosure index provides a reasonable method for measuring the overall disclosure quality of a firm.

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Most prior international studies have used the transparency and disclosure index developed by S&P or the CIFAR scores. Many cross-country studies used externally developed measures of total disclosures, e.g., Hope (2003b) used CIFAR ratings and Khanna et al. (2004) used S&P's transparency and disclosure scores. Such externally developed indexes have the advantage of being objective and comprehensive; however, they also have disadvantages (Francis et al. 2008). This research study use a voluntary disclosure index based on Subramanian and Reddy (2012) and hand-collect governance and disclosure data for sample of 54 firms. They developed a new instrument to measure corporate governance and disclosure practices of firms, considering only voluntary disclosures in the Indian context. Corporate Governance and Disclosure Practices of MNC Subsidiaries and Domestic Firms: An Empirical Study from India | 93

Although, this instrument is based on S&P methodology, it overcomes the limitations of the S&P instrument regarding non segregation of voluntary and mandatory disclosures. The instrument had 67 items: 19 questions in the ownership disclosure category and 48 in the board disclosure category.


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In this study, only the annual report information is used for calculating corporate governance and disclosures (CGD) score of firms. The annual reports of the selected 54 sample firms were carefully examined for the financial year 2011–12. Hence, to arrive at the overall disclosure score for each category, i.e. ownership and board, annual reports of each firm under study was scrutinized for the presence of specific items under the above mentioned categories. One point is awarded when information on an item is disclosed and zero otherwise. All items in the instrument were given equal weight, and the scores thus arrived at (for each category), with a higher score indicating greater disclosure. DATA ANALYSIS AND INTERPRETATION

As explained earlier, with the help of instrument corporate governance and disclosure practices of firms were calculated by thoroughly scrutinising annual report of firms. The CGD score was calculated for all 54 firms of the sample and is tabulated in Annexure-II. Out of sample of 54 firms, 13 firms are MNC subsidiaries; while remaining 41 firms are domestic firms. Out of pool of domestic firms, 15 firms are cross-listed, some on more than one non-Indian exchange. Similarly, out of pool of MNC subsidiaries, three firms are cross-listed. Hence, finally we have sample of 10 MNC subsidiaries and 26 domestic firms, listed only in India. Table 2, below shows sector and CGD score for MNC Subsidiaries. Table 2: CGD Score of MNC Subsidiaries

Company

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Sr. No.

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1 Oracle Financial Services Software 2 ABB 3 Siemens 4 Sterlite Industries (India) 5 Maruti Suzuki 6 Cummins India 7 Cairn India 8 Hindustan Unilever 9 Colgate-Palmolive (India) 10 Nestle India 11 GlaxoSmithKline Pharmaceuticals 12 Ranbaxy 13 Cipla Overall (Source: Table developed by author)

Sector

IT Capital Goods Capital Goods Metal Auto Auto Oil & Gas FMCG FMCG FMCG Health Care Health Care Health Care

Overseas Listing

US

Europe Europe


CGD Score

Mean CGD Score

20 22 28 30 19 13 30 33 15 16 20 22 14 21.69

20 25 30 16 30 21.3

18.6

Table 3, below shows key statistics of CGD score for MNC Subsidiaries. Table 3: MNC Subsidiaries: Key Sector and Statistics Sector

No. of Firms

CGD Score Min. 22 13 15 14 30 24 20 13

Max. 28 19 33 22 30 24 20 33

Range 6 6 18 8 0 0 0 20

Std. Deviation

CV (%)

25 16 21.33 18.67 30 24 20 21.69

4.24 4.24 10.12 4.16 6.65

16.97 26.52 47.42 22.30 30.66


1 Capital Goods 2 2 Auto 2 3 FMCG 3 4 Health Care 3 5 Oil & Gas 1 6 Metal 1 7 IT 1 Overall 13 (Source: Table developed by author)

Mean CGD Score

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As Sterlite, Ranbaxy and Cipla are cross-listed (Table 1) they are excluded from our study. Table 4, below shows key statistics of CGD score for MNC Subsidiaries listed only in India. Table 4: MNC Subsidiaries Listed only in India: Key Sector and Statistics Sr. No.

Sector

No. of Firms

CGD Score

Min.

Max.

Range

20 30 13 22 15 20 13

20 30 19 28 33 20 33

0 0 6 6 18 0 20

Std. Deviation

CV (%)

4.24 4.24 10.11 6.69

26.51 16.97 47.41 30.96

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1 IT 1 2 Oil & Gas 1 3 Auto 2 4 Capital Goods 2 5 FMCG 3 6 Health Care 1 Overall 10 (Source: Table developed by author)

Mean CGD Score 20 30 16 25 21.33 20 21.60

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Table 5, below shows sector and CGD score for domestic firms listed only in India.

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Table 5: Domestic Firms Listed only in India: Key Sector and CGD Score CGD Score

Mean CGD Score

1 2 3 4 5 6 7 8

HCL TCS Mahindra Satyam Bajaj Auto Hero Moto Corp Pipavav Defence BHEL ONGC

Company

IT IT IT Auto Auto Capital Goods Capital Goods Oil & Gas

34 33 21 24 22 21 24 31

29.33

9

IOC

Oil & Gas

28

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Sr. No.

Sector

23 22.5 25.75 Table 5 (Contd.)…


…Table 5 (Contd.) Sr. No. Company 10 GAIL 11 Bharat Petroleum

Sector Oil & Gas Oil & Gas

CGD Score 20 24

Mean CGD Score

27.25

12 13 14 15 16

NTPC Reliance Power NHPC Power Grid Lupin

Power Power Power Power Health Care

28 27 29 25 24

17 18

Glenmark Coal India

Health Care Metal

23 24

25.33

19 20 21 22

Jindal Steel & Power JSW Steel Godrej Titan

Metal Metal FMCG Consumer Durables

17 35 36 26

36 20

23

TTK Prestige

Consumer Durables

15

24 25 26

Gitanjali Gems Rajesh Exports Bluestar

Consumer Durables Consumer Durables Consumer Durables

24 15 20


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Overall (Source: Table developed by author)

25

Table 6, below shows key statistics for domestic firms listed only in India. Table 6: Domestic Firms Listed only in India: Key Statistics No. of Firms

IT Power

3

Oil & Gas

4 5

Auto Capital Goods

6 7

Metal FMCG

8

Consumer Durables Health Care

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Std. Deviation

CV (%)

29.33 27.25

7.23 1.71

24.66 6.27

Min.

Max.

Range

21 25

34 29

13 4

4

20

31

11

25.75

4.79

18.59

2 2

22 21

24 24

2 3

23 22.50

1.41 2.12

6.15 9.43

3 1

17 36

35 36

18 0

25.33 36

9.07 -

35.82 -

5

15

26

11

20

5.05

25.25

2

23

24

1

23.50

0.71

3.01

15

36

21

25

5.68

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Mean CGD Score

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Sr. No.

Overall 26 (Source: Table developed by author)


Table 7, below shows sector and CGD score for domestic firms listed only in India. Table 7: Domestic Firms Listed Overseas: Sector and Listing Details Sr. No.

Company

Sector

Listing

CGD Score 37

Infosys

IT

2

Wipro

IT

US

47

3

Dr. Reddy

Health Care

US

40

40

4

Reliance Industries

Oil & Gas

Europe

34

34

5 6

ITC United Spirits

FMCG FMCG

Europe Europe

41 24

32.5

7

Mahindra & Mahindra

Auto

Europe

30

32

8 9

Tata Motors Reliance Infrastructure

Auto Power

US & Europe Europe

34 30

29.5

10 11

Tata Power L&T

Power Capital Goods

Europe Europe

29 31

12

Crompton Greaves

Capital Goods

Europe

23

13 14 15

Hindalco Tata Steel Videocon

Metal Metal Consumer Durables

Europe Europe Europe

20 32 18

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US

Mean CGD Score 42

Overall (Source: Table developed by author)

27 26 18 31.33

Table 8, below shows key statistics of CGD score for MNC Subsidiaries and domestic firms. according to cross-listing. Table 8: MNC Subsidiaries and Domestic Firms Listing: Key Statistics Listing Status

No. of Firms

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Sr. No.

CGD Score

Min.

Max.

Range

Mean CGD Score

Std. Deviation

CV (%)

Domestic FirmsIndia & Overseas

15

18

47

29

31.33

8.01

25.58

2

Domestic FirmsIndia only MNC SubsidiariesIndia & Overseas

26

15

36

21

25

5.68

22.71

3

14

16

6

22

8

38.36

MNC SubsidiariesIndia only

10

13

33

20

21.60

6.69

30.96

54

13

47

34

25.96

7.44

28.64

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3 4 Overall

(Source: Table developed by author)


DISCUSSION AND DEVELOPMENT OF HYPOTHESIS MNCS SUBSIDIARIES AND DOMESTIC FIRMS Subsidiaries of MNCs operating in developing countries are expected to have higher standard of corporate governance and disclose more information and observe better reporting practices for the various reasons explained below: 1. As they have to comply with the regulations of not only their host country but also the parent country or home country, where accounting practices and standards of reporting are substantially higher.


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2. These firms are under closer scrutiny of various political and pressure groups within the host country, as they view them as sources of economic exploitation and agents of imperialist power (Kamran and Nicholls, 1994). Hence, such firms have an incentive to disclose more information in order to avert any pressure for excessive control for exploitation (Srinivasan, 2008). 3. MNCs have two related levels of corporate governance structures–one at headquarters and other at subsidiary levels. In the case of MNCs with subsidiaries listed on local stock exchanges in different host countries, those subsidiaries need to simultaneously conform to the host country’s legal requirements as well governance practices of the MNC (Luo, 2005; Kiel et al. 2006). Therefore, MNC subsidiaries face dual pressures, from the demand of the host country environment where they are operated and also from corporate headquarters of parent MNC in home country (Kostova & Zaheer, 1999; Rosenzweig and Singh, 1991).

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In recent years, there has been a heightened interest in applying institutional theory to the study of MNCs (Dacin et al. 2008; Westney, 2005), especially to examine factors influencing MNC subsidiary practices in different host country institutional environments (Kostova and Roth, 2002; Tempel et al. 2006). Prior empirical research has found that institutional pressures created by legal environment develops an institutional context within which organizations make decisions regarding what to disclose and how (Crawford and Williams, 2010).

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Institutional theory can also be linked to legitimacy theory, and that a joint consideration of these theories could provide a richer explanation of disclosure practices of MNC subsidiaries. The application of legitimacy to MNCs has been studied in detail by Kostova and others (Dacin et al. 2008; Kostova and Zaheer, 1999). They argue that a MNC subsidiary has to gain dual legitimacy and as such is in a state of institutional duality. TESTABLE HYPOTHESIS The study aims to find out if corporate governance and disclosure scores of MNC subsidiaries and domestic firms are significantly different. In the research sample of 36 firms listed only in India, 10 firms are MNC subsidiaries, while 26 belong to the domestic firms (Table 9). 98 | Global Performance Challenges: Building and Sustaining Competitiveness

Table 9: CGD Scores of MNC Subsidiaries and Domestic Firms Listed only India Sr. No. Industry MNC Subsidiaries 1 Power 2 Oil & Gas 1 3 Metal 4 Health Care 1 5 FMCG 3 6 IT 1 7 Consumer Durables 8 Capital Goods 2 9 Auto 2 Total 10 (Source: Calculated by author from Annual Report of Firms)

Domestic Firms 4 4 3 2 1 3 5 2 2 26


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This research study seeks to examine how MNC subsidiaries and domestic firms differ in corporate governance and disclosure practices. As MNCs conduct their global business in multiple institutional environments that require different disclosure rules, they may maintain higher disclosure standards and disclose more information than domestic firms. Thus, based on this argument, following null hypothesis is proposed: H01: There are no differences in corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed only in India. RESEARCH PROCEDURES FOR TESTING HYPOTHESIS

This research conducted an inferential statistical analysis for testing the hypothesis. In order to test the significant differences in the corporate governance disclosure of MNC subsidiaries and domestic firms, parametric t-test was used. SUMMARY OF FINDINGS AND EMPIRICAL RESULTS

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A detailed analysis of the CGD score for sample firms is presented in Table 10. Values of minimum, maximum, mean and standard deviation of CGD score for MNC subsidiaries and domestic firms have also been reflected. Results show that there is a difference between mean and standard deviation of CGD score for MNC subsidiaries and domestic firms. Analysis of the result shown in Table 4 indicates that mean of CGD score is higher for domestic firms at 25. Also, the standard deviation of CGD score is higher at 6.68 for MNC subsidiaries when compared to domestic firms in the sample.

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Table 10: Descriptive Statistics of Dependent Variable–CGD Score No. of Firms

Minimum CGD Score 13

Maximum CGD Score 36

Mean CGD Score 24.05

All Firms Listed 36 only in India MNC Subsidiaries 10 13 33 21.6 Domestic Firms 26 15 36 25 Source: Computed by author from company annual reports by applying Research Instrument

Std. Deviation 6.07 6.68 5.67

For the purpose of this study, the firms have been taken from nine different sectors for making meaningful comparison of MNC subsidiaries and domestic firms. The reason Corporate Governance and Disclosure Practices of MNC Subsidiaries and Domestic Firms: An Empirical Study from India | 99

behind this classification is to find out the extent of disclosure in MNC subsidiaries and domestic firms. The hypotheses have been tested using the univariate t-test. Group statistics and independent sample test output is given in Table 11 and Table 12 respectively. Table 11: Group Statistics for MNC Subsidiaries and Domestic Firms Listed Only in India Group Statistics Firms Listed in India CGD Score

No. of Firms

Mean

Std. Deviation

Std. Error Mean

MNC Subsidiaries

10

21.6000

6.68664

2.11450

Domestic Firms

26

25.0000

5.67803

1.11355

(Source: Calculated with SPSS 20)

Levene's Test for Equality of Variances F Sig.

T-test for Equality of Means


CGD Score

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Table 12: Independent Samples Test

t

df

Equal .505 .482 -1.533 34 variances assumed Equal -1.423 14.289 variances not assumed (Source: Calculated with SPSS 20)

Sig. Mean (2-tailed) Difference .135

-3.40000

Std. Error Difference 2.21835

.176

-3.40000

2.38979

95% Confidence Interval of the Difference Lower Upper -7.90823 1.10823 -8.51590

1.71590

Table 13, shows result of univariate test.

Table 13: Results of Univariate Test

T-Value 1.533

Significance Level .135

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Null Hypothesis No significant difference between corporate governance and disclosure scores of MNC Subsidiaries and Domestic firms listed only in India (Source: SPSS 20 output)

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Results of parametric test, as indicated in Table 13, show that significance value p is greater than 0.05, therefore at 5% level of significance; null hypothesis of equality of means fails to be rejected. Thus, there exists no significant difference between the average corporate governance disclosure scores of MNC subsidiaries and domestic firms. DISCUSSION AND RESEARCH IMPLICATIONS This study contributes to several areas of research. 1. The main contribution of this study is that it examines whether the interaction between globalization and the legal environment affects voluntary disclosures by firms. 100 | Global Performance Challenges: Building and Sustaining Competitiveness

2. This study adds to the growing literature that uses country-level institutional features, such as legal origin to explain cross-country differences in governance and disclosure practices. 3. This research contributes to the literature on globalization as well as MNCs. Hence, this research examines how MNC subsidiaries’ disclosures are affected by the legal environment of host country where it’s listed. Multinational presence of MNCs creates a demand for voluntary disclosure by such firms because multinational firms are likely to have greater information asymmetry as a result of their greater scope and complexity. Such effect will be larger for firms based in countries with weak legal environments than for firms based in countries with strong legal institutional environments. Hence, it is, expected that the subsidiaries of MNCs will provide more disclosures as a result of weak legal environment at host country.


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Pattnaik and Gray (2012) found that subsidiaries of MNCs were more transparent and disclose more information than domestic listed Indian firms. They used data of Indian firms listed in Bombay stock exchange (BSE) from 1995 to 2003 and used indirect method of disclosure measurement. During period of their research study (1995-2003), host country legal environment in India was not strong, as during this period corporate governance and disclosure rules were weak in comparison to developed countries. As their study period ends in 2003, after which the Clause 49 of listing agreement was made mandatory by SEBI, their study period reflects weak period of corporate governance in India. After 2003, corporate governance and disclosure practices by Indian firms improved as Clause 49 of listing agreement was announced in October 2004 with its implementation in staggered manner by 2005. After adoption of Clause 49 and its enforcement by SEBI, corporate governance and disclosure practices of domestic firms improved considerably and this research found that there is no statistical significant difference between corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed only in India.

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LIMITATIONS OF STUDY

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There are few limitations of this type of research. First, the focus of corporate governance and disclosure study in this research has been on corporate annual reports which are only a part of the information set. Second, key consideration with handcollected disclosure data is that because the process is time intensive, sample sizes are often small. For example, Botosan (1997) uses hand-collected data for a sample of 122 manufacturing firms, and Guo et al. (2004) use hand-collected data for a sample of 49 biotech firms. Third, this study analyses data of sample firms for the year 2011–12 only. Future study may be conducted with larger sample size and multiple year data. CONCLUSION In this research study, the corporate governance and disclosure practices of subsidiaries of MNCs as well as domestic firms listed only in India were measured. Prior research suggested that Indian domestic firms were disclosing less compared to MNC subsidiaries in India. These research findings suggest that subsidiaries of MNCs are no more Corporate Governance and Disclosure Practices of MNC Subsidiaries and Domestic Firms: An Empirical Study from India | 101

transparent than domestic Indian firms. In Indian context, corporate governance practices of subsidiaries of MNCs and domestic firms have converged as there is no statistical significant difference in CG and disclosure practices of MNC subsidiaries and domestic firms listed only in India. It is because of improvement in corporate governance norms and rules mainly in the form of Clause 49 of listing agreement have considerably enhanced corporate governance and disclosure practices of Indian firms. Clause 49 has improved disclosure and governance practices of Indian firms. This research concludes that institutional, legal and regulatory environment of a country have a major role in shaping corporate governance and disclosure practices of listed firms. REFERENCES [1]

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Social Entrepreneurship: A Review of Concepts, Practices and Challenges Monika Sansanwal


ABSTRACT

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Doctoral Student, Faculty of Management Studies, University of Delhi, New Delhi–110007 E-mail: [email protected]

The term social entrepreneurship (SE) have become highly noticeable change agents in developed economieswhere they have created an innovative and cost-effective methods for efficiently catering to basic human needs that existing markets and institutions have failed to satisfy.Despite receiving greater recognition from the public sector, as well as from scholars, the field of social entrepreneurship is still in the nascent stage though it is developing rapidly and drawing increased attention from both academicians as well as practitioners. The paper examinesthe various issues regarding the lack of consensus in the definition of social entrepreneurship due to its relative infancy as a field of intellectual enquiry. The origin of the field of social entrepreneurship is also discussed.The paper also addresses some best practices of the social entrepreneurship. Finally, conclude by discussing some implications specifically in relation to the achievement of the Millennium development goals (MDG), initiated by UNICEF to encourage social entrepreneurship worldwide, which can aid social innovators toward sustainability and self-sufficiency. Keywords: Social Entrepreneurship, Social Enterprise, Innovation, Change Agent

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INTRODUCTION

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Social Entrepreneurship as the concept was coined long ago but has been in the corporate parlance in just the recent past. Traditionally, entrepreneurship has been associated with profit making individuals who aim high and achieve a lot for themselves in the world of tough competition. And the success of enterprise was and is being judged on parameters like ROI and Net Income margins. But, with the empowerment and awareness of the citizens of the developing world, a new revolution has started, particularly among the youth of the world. This revolution is the growth of Social Entrepreneurship–the form of entrepreneurship where profits are not the end result, but just the means to achieve the end result of social upliftment and further empowerment. Initially, the concept of social entrepreneurship used to be associated with the Corporate Social Responsibility of the corporate houses that provided funds to the charitable institutions to run the philanthropic organizations at a small scale. These institutions or organizations did not have any business model of their own and largely operated with the funds from government or donations from the donors.

Globally, non-profit organizations however large they are, are funded completely by the donors who are the charitable trusts, individuals, governments or corporates. Though the objectives are noble and the achievements are incredible, the business model of these organizations is to be judged on two very important parameters: Sustainability and Scalability.


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Can these non-profit organizations sustain on their own if the external funding from them are unplugged? Can this model be applied to other sectors successfully? As explained by CK Prahalad through his book “The Fortune at the Bottom of the Pyramid”, social cause has always been considered a moral obligation that cannot be fulfilled by means of business. But the paradigm shift took place when the entrepreneurs realized the potential of the untapped markets that could generate profits for them and provide a better way of life to citizens of the society at the same time. The biggest boost was given by the Nobel Prize winner Dr. Mohammad Yunus when his brainchild Grameen Bank became so successful in one of the so-called least developed countries, Bangladesh. It was soon realized that profits can be made along with serving the society, provided you treat profits as a means and not the end result.

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Subsequently, initiatives like ITC e-choupal and Aravind Eye Care sprung up in India. Most of these initiatives are well into their second-generation, in business terms. In India, various other organizations like SEWA, AWAKE, Nandi Foundation and Jaipur Foot have been started by the awakened and empowered citizens of India. But as they say, Entrepreneurship is contagious and so is Social Entrepreneurship. This sector, called the “third sector” in the book “The Emergence of Social Enterprise”, has been growing at a very high pace even through the current economic downturn. Definition of social entrepreneurship has changed over time. From corporate philanthropy to nonprofit and now to self-sustainability, Social Entrepreneurship has evolved and will keep evolving with time and needs of the world.

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SOCIAL ENTREPRENEURSHIP: THE DISTINCTIVE AND DIVERSE DOMAIN AND LACK OF CONSENSUS OVER DEFINITION

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To date, efforts to define SE have conceptualised it in terms of the characteristics of a social entrepreneur (Alter, 2004; Dees, 2001; Thompson, 2002), the processes of social entrepreneurship (Wei-Skillern et al. 2007) and the outcomes SE generates (i.e. from purely social to socio-economical) (compare Jeffs, 2006; Mair & Martí, 2006). These definitional efforts can be distilled into four common themes: (i) an emphasis on ‘social goals’ as opposed to economic gains; (ii) the social activist role played by the social entrepreneur; (iii) elements of entrepreneurship and innovation (at least in most examples) and (iv) creating and using economic profit as a means to solve a social problem rather than as an end in itself. These four basic themes noted earlier are useful in helping to distinguish social enterprises from corporate enterprises. However, because these themes may apply to Social Entrepreneurship: A Review of Concepts, Practices and Challenges | 105

non-profits, NGOs, and charitable organisations, Harding (2006) argues that it is even more challenging to clearly distinguish social enterprises from voluntary civil society organisations. Although some have argued that one of the unique features of a social entrepreneur is his/her ability to combine elements of both the business and the voluntary/social sector to address social problems (Giddens, 1998; Sharir & Lerner, 2006), Johnson (2003) believes that using terminology such as ‘revenue streams’ and ‘return on investment’ when referring to social goals serves to anchor social entrepreneurial approaches in business language and creates ideological discomfort for many social entrepreneurs committed to improving societal conditions.

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In the literature, definitions of social entrepreneurship have been viewed differently by scholars. Some view it as ‘a process consisting in the innovative use and combination of resources to explore and exploit opportunities, that aims at catalyzing social change by catering to basic human needs in a sustainable manner’ (Mair and Martı, 2004, 3); with Noboa, Mair added that this social change is catalyzed through the ‘creation of organizations and/or practices that yield and sustain social benefits’ (Mair and Noboa 2006). For others, social entrepreneurship ‘encompasses the notions of ‘‘construction, evaluation and pursuit of opportunities’’ as means for a ‘‘social transformation’’ carried out by visionary, passionately dedicated individuals’ (Roberts and Woods, 2005, 49). Social entrepreneurship has also been expressed as an ‘innovative, social value creating activity that can occur within or across the non-profit, business, and/or public/government sectors’ (Austin, Stevenson, and Wei-Skillern, 2006, 1). Weerawardena and Sullivan Mort (2006, 22, 32) also use the notions of social value creation, opportunity exploitation, social mission, innovativeness, proactiveness and risk management behaviour. Stryjan’s (2006, 35) definition focuses on the role of collective actors in the resource gathering as ‘social entrepreneurship is viewed as a category of entrepreneurship that primarily (a) is engaged in by collective actors, and (b) involves, in a central role in the undertaking’s resource mix, socially embedded resources [...] and their conversion into (market-) convertible resources, and vice versa’. For Nicholls (2006, 23), ‘social entrepreneurship is a set of innovative and effective activities that focus strategically on resolving social market failures and creating new opportunities to add social value systemically by using a range of resources and organizational formats to maximize social impact and bring about change’. Simply put, ‘social entrepreneurship is defined by its two constituent elements: a prime strategic focus on social impact and an innovative approach to achieving its mission’ (Nicholls 2006, 13). This proliferation of definitions has gone along with the emergence of empirical studies of social entrepreneurship practices, mainly using a case study approach (Mair and Schoen, 2007; Jones, Latham, and Betta, 2008; Mair and Martı, 2009; Vasi, 2009). (Trivedi, 2010b), reveals the fundamental difference between these two types of organisations. Both NPOs and SEVs aim to mitigate a particular social problem, but 106 | Global Performance Challenges: Building and Sustaining Competitiveness

SEVs go one step further as they strive for bringing about positive social change. NPOs may not necessarily aim for a positive social change (Dees, 2001; Mair & Martí, 2006; Martin & Osberg, 2007). Similarly, the primary goal of an SEV is to identify and address long-standingunsolved social problems (e.g., the custom of dowry in India), while NPOs identify and address social problems that may or may not be long standing and unsolved (Alter, 2004; Alvord et al. 2004; Bornstein, 2007; Mair & Martí, 2006; Martin & Osberg, 2007). For instance, emergency disaster relief programs are not long-standing social problems. Dart (2004) argues that SEVs differ from other non-profits in terms of strategy, structure, norms and values and represent a radical innovation in the non-profit sector.


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Trivedi & Stokols (2011) found that key difference between social and corporate entrepreneurship that has received relatively little attention in the literature are the factors influencing the origin of social entrepreneurial ventures. Also emphasis to understand what values, motives and behavioural repertoires distinguish a social entrepreneur from a corporate entrepreneur. Short, Moss & Lumpkin (2009) foundleadership in social ventures has received little attention in social entrepreneurship research to date, and was the focus of only three articles in our review (Emerson, 1999; Prabhu, 1999; Rego and Bhandary, 2006). Also reveal that fact that the lack of social entrepreneurship research in the domain of personality traits. A number of studies in the psychology literature have examined personality and entrepreneurship (e.g., Stewart and Roth, 2001; Zhao and Seibert, 2006).Social entrepreneurship scholars could contribute to the greater psychology research on personality by examining social entrepreneurs in different types of social ventures, or through longitudinal studies during different phases of social venture startups to detect changes in the types of traits that lead to social entrepreneurship success.

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Hoogendoorn, Pennings & Thurik (2010), found that a case study approach is by far the most common research methods for the qualitative studies. The case study approach is apparently perceived as a suitable method for describing and explaining rather new phenomenon. Other methods found are a grounded theory methodology and discourse analysis.

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The quantitative papers used basic statistical methods such as correlations, descriptive statistics, and factor analysis. More advanced statistical methods such as regression analysis for predictive purposes were not found among the methods used. Previous research in the field of social entrepreneurship has mainly tried to answer the question: ‘what does ‘‘social entrepreneurship’’ mean?’ If an organization devotes part of its income to a social cause, can we necessarily speak of social entrepreneurship? The same question holds for all non-profit organizations that adopt managerial practices (Mair and Martı, 2004). Social Entrepreneurship: A Review of Concepts, Practices and Challenges | 107

Despite the academic interest generated by social entrepreneurship and its popularity in both corporate and voluntary sectors, foundational questions continue to persist in the expanding literature in this field (Haugh, 2005). One key question that remains to be satisfactorily answered is simply: How can we define ‘social entrepreneurship’? Or, what is a ‘social enterprise’? These fundamental questions arise to a certain extent from the fact that the concept of social entrepreneurship is inherently complex, and it is difficult to map its conceptual boundaries; and partly from the fact that relatively few theoretical and/or empirical analyses of social entrepreneurship, per se, have been published to date (Trivedi, 2010a). ORIGIN OF SOCIAL ENTREPRENEURSHIP


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Social entrepreneurship practitioners have always existed, everywhere around the world (Roberts and Woods 2005). Florence Nightingale, who revolutionized the theory of hospital conditions in the late 1900s (Bornstein, 2007), John Durand, who started working with mentally retarded people in the early 1960s (Alter, 2004),Vinoba Bhave, who redistributed more than 7,000,000 acres of land to aid India's Untouchablesand landless people through the “Land Gift Movement” and Muhammad Yunus, who founded Grameen Bank, that promotes rural development through microcredit, are just few examples of exceptional persons bringing about social change, whom we may label today as social entrepreneurs.

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According to Nicholls (2006), the term “social entrepreneur” was first introduced in 1972 by Banks, who noted that social problems could also be deployed by managerial practices whereas according to some authors the field originated in 1983, when Young wrote on ‘innovative nonprofit entrepreneurs’ in the lines of Schumpeter’s conception. Another early contribution to the field of social entrepreneurship was Waddock and Post’s (1991) who published a short paper on the topic in 1991. Even though social entrepreneurship, albeit under different headings, gained practical relevance during the 1970s and 1980s, it was not until the 1990s that the subject attracted attention from both governments and academia. The term ‘social entrepreneurship’ emerged in the academic world in the late 1990s in the US (Boschee, 1995; Bornstein, 1998; Dees, 1998a, b; Drayton, 2002; Thompson, Alvy, and Lees, 2000) and in the UK (Leadbeater, 1997; School for Social Entrepreneurs, 2002). To understand the contemporary status of social entrepreneurship in India, we will have to take into consideration the socio‐ cultural and historical context in which it exists. Various studies have highlighted that in the Indian psyche one’s place in the society has a moral perspective, in which one’s duty towards the society plays a significant role. Chakraborty (1987), for instance, found that an orientation of ‘giving’ and the need to fulfill one’s duty towards the society (as opposed to fulfilling individual needs) is deep‐rooted in Indian social values and identity. Interestingly, during the first half of 20th century, Independence movement that was led by leaders like Mahatma 108 | Global Performance Challenges: Building and Sustaining Competitiveness

Gandhi also had an idea of “Social transformation” embedded in their very concept of freedom. It was not just the struggle for political freedom against British Empire but also promoting a strong element of developing an empowered Grass-root society. Gandhian doctrine of “trusteeship” focused on not only the economic equality, empowerment of the society but also influenced large number of industrialists of that time (e.g. G D Birla, Jamunalal Bajaj). In the post-Independence India, it also became the guiding principle for many large social ventures such as SEWA, LIJJAT etc.

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The first social firm model was created by Italian government through a specific legal form for social co-operatives in 1991 and then, UK government followed in 2004 by introducing the Community Interest Company, a second juridical form for social enterprise within Europe (Nyssens, 2006). In that same period, a stream of research on the subject slowly appeared in academic work (Boschee, 1995; Dees, 1998; Leadbeater, 1997).


From the turn of the century onwards, the stream of publications became more substantial. At the same time, some highly successful social entrepreneurs attracted considerable media attention, notable amongst them are MuhammadYunus, founder of the Grameen Bank for microfinance and recipient of the Nobel Peace Prize in 2006, and Jeffrey Skoll of eBay, who founded the Skoll Foundation supporting social entrepreneurship. Since then, the concept of ‘social entrepreneurship’ has gained tremendous momentum throughout the world. So much so, that many traditional civil society organisational forms such as non-profits, non-governmental organizations (NGOs), charities as well as for-profit enterprises have begun to identify themselves as ‘social enterprises’, demonstrating not only the attractiveness of this concept but also the ambiguity surrounding its definition.

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The world of social entrepreneurship: Different origins, different schools

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Different perspectives of social entrepreneurship have emerged throughout the world. Their differences could be due to their geographical origin. The literature review shows that, even within the US, different perspectives of social entrepreneurship have emerged and coexisted. Dees and Battle Anderson (2006) identified two independent schools of thought in the US. On the one hand, the American Social Innovation School focuses on the establishment of new and better means to tackle social problems or to satisfy social needs. Although many people4 contributed to the birth of the Social Innovation School, one person and his organization were at its root: Bill Drayton and Ashoka (Dees and Battle Anderson 2006). Ashoka was created in 1980 in order to search and bring support to outstanding individuals with ideas for social change. Nevertheless, the term ‘social entrepreneur’ was not used before the mid-1990s as a substitute for the expressions ‘innovator for the public sector’ or ‘public entrepreneur’ Social Entrepreneurship: A Review of Concepts, Practices and Challenges | 109

which were used before. As these expressions attest, the individual is at the very core of this school’s attention. They regard the social entrepreneur as an activist of social change, in line with the Schumpeterian tradition. On the other hand, the American Social Enterprise School of thought focuses on income generation in conducting a social mission. The growing interest of non-profit organizations for new financial sources–the traditional ones being grants and subsidies–motivated the creation in 1980 of New Ventures, a consultancy company, and, consequently, of this movement.


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In Europe, attention has been mainly devoted to the concept of ‘social enterprise’. As Defourny and Nyssens (2006, 3) argued, ‘the increasing acknowledgement of the Third Sector in Europe, together with the broader interest in non-conventional entrepreneurial dynamics addressing current challenges, led to the emergence of the new concept of ‘‘social enterprise’’’. Two types of definitions can be found in the European literature: conceptual and legal. International organizations as well as research centres have given conceptual definitions. For instance, the Organization for Economic and Cooperation Development defines the ‘social enterprise’ as ‘any private activity conducted in the public interest, organized with an entrepreneurial strategy, but whose main purpose is not the maximization of profit but the attainment of certain economic and social goals, and which has the capacity for bringing innovative solutions to the problems of social exclusion and unemployment’ (OECD 1999). EMES takes the different European national realities into account and defines ‘social enterprises’ as ‘organizations with an explicit aim to benefit the community, initiated by a group of citizens and in which the material interest of capital investors is subject to limits’ (Defourny and Nyssens 2006). The conceptual definitions bear the advantage of not being rooted in a specific national legislation. STUDY OF TWO SOCIAL ENTREPRENEURS

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BANYAN

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While the term social entrepreneurship may be new, but the phenomenon is not. Evidences of social entrepreneurship practitioners have always been there worldwide such as Vinoba Bhave, Ela Bhatt and many more.

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When others moved on with their daily chores, indifferent to what was happening to fellow human beings, two young girls Vaishnavi and Vandana set out on a life of service. In 1992, a crazed nude women ran up and down a Chennai street under the mid day sun, brutally abused both physically and sexually, ignored by everybody, eating out of garbage bins and with no place to call home. The girls hugged her and took her to their college nearby. They cleaned her, clothed her and calmed her down. When they tried to find an organisation in the city that would take the woman in, they realised how hard it was to find one. It was a defining moment.


A moment when Vaishnavi and Vandana decided they can't wait any longer. The two close friends were both 22 years old then—they had made a pact with each other while still in their teens, that they would qualify as professional social workers and dedicate themselves to service. They sowed the seeds for The Banyan in 1993.Since then, there has been no looking back.

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The Banyan is now a home and a rehabilitation centre, providing not just psychiatric and medical services to mentally-ill destitute women, but also empowering them with an identity when they get back to the society they belong. Seventeen years ago, it was a challenge that these two women volunteered to shoulder with a spirit of adventure like any other youngster but later on it turned out to be a huge responsibility which they fulfilled with conviction. They are given treatment, rehabilitated and offered skill based training and once recovered are united with their family.


They had no model to look up to. They actually sketched out a strategy for themselves. With help from family and friends, the institution grew up to house 100 inmates. Things progressed when the then Chief Minister Jayalalithaa gave a third-ofan-acre in Chennai's suburbs to put up a modern facility in 1995. But there was a pressing need to raise funds to construct a building and to feed the residents. Vandana Gopikumar and Vaishnavi Jayakumar put their communication skills to best use to conduct fund raising events, started approaching people for money and sought the help of media. Slowly they started getting help from various people and found all sorts of people turned out as volunteers.

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Their focus widened to a broader view. From working just for the institution, they started working on ‘society and mental illness'. Many institutions started emerging in various parts of India and these two women have been offering their guidance. It was inspiring to see the transformation. “We saw people close to death rising to a life of hope,” says Vandana. As many as 2,500 women were treated and merged with their families. Regular follow-ups are also being done. “We are now networking with other NGOs and Government organisations to do an effective follow-up as the residents were from different parts of the country.”

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As far as the attitude of people is concerned, it has been only negative, regrets the duo. “People and media consider mentally-ill people to be dangerous or to be laughed at,” they say. They started BALM in 2007 to work on this perception. The Banyan Academy of Leadership in Mental Health (BALM) was initiated to increase active stakeholder participation in the mental health sector, to positively affect prevalent trends through research, networking and advocacy. It equips human resources in the mental health sector with appropriate knowledge, skills and competencies. “We can see a change only when we talk and think more about mental health issues. We need to unlearn what we learnt and reach a society where people accept each other despite disabilities,” says Vandana and this has been her vision. Social Entrepreneurship: A Review of Concepts, Practices and Challenges | 111

These women have shown great deal of confidence, by pioneering the cause with little help, have been positive even when they had Rs.3.50 to feed 13 residents and have come a long way by creating space for the invisible sufferers in the community. GOONJ


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Anshu Gupta, started out as a man on a mission, collecting unused clothes from well-todo urban households and distributing them among the poor. Today, his Delhi-based firm Goonj runs 60 collection centres that in addition to clothes, distributes shoes, utensils, bags, books and other essentials to the have-nots in the hinterland. This NGO acts as a bridge between urban India's under utilised resources and rural India's unaddressed needs. Anshu Gupta realised that of mankind's three primary needs (food, clothing and shelter), 'clothing was not considered an issue'. He says, "Clothing does not even figure in the list of development subjects that encompasses 100-150 issues from domestic violence to global warming." In his previous avatar as a journalist, Gupta once interviewed a man, Habib, who wandered cremation grounds, collecting clothes from corpses. Habib's little daughter told Gupta, "When I feel cold during the night, I hug the dead body and sleep. It does not trouble me, as it doesn't turn around". That memory never ceased to haunt Gupta. Therefore, in 1999, he started Goonj with 67 clothes from their own wardrobe.

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Ever considered an alternative career? For Gupta, Goonj is not just an organisation"It's an idea, a movement, a tool to talk, change, express and do," is how he puts it. In his quest, even his twin passions of photography and writing have taken a backseat. In his for-profit environment, Gupta has to deal more with volunteers than employees. He says, "My role is more to do with changing the attitude and mindset of people. The target is not defined, it's much larger. Resources are limited and the target and vision has no limit." Goonj seeks to bring dignity to the act of giving. In doing so, Gupta wants to shift the focus from donor's pride to receivers' dignity. "We certainly want to make clothing a matter of concern; it has to enter in the list of subjects." For the last 13 years, Gupta has invested considerable time in the field. He considers his team and volunteers as his assets. While his educational qualifications might not have come in handy, learning to convert something which was considered a non-issue into an issue is, to him, an earned qualification. Last year, Goonj's Mumbai centre, which housed tonnes of material, got flooded during the rains. But thanks to his spirited army of volunteers and employees who cleared the debris, and arranged for alternate space and transport, Goonj was up and running in 15 days! Also, the rising cost of logistics is a continuing issue, despite the fact that in his business model, all stakeholders share the costs. Goonj works across 21 states with about 250 partner groups. It has 10 offices with 150 full-time people and thousands of volunteers. It deals with 80-100 tonnes of material each month and has an annual budget of Rs 3-4 crore. Personal career goals: Gupta believes that one can't change the nation merely by changing infrastructure. "It will change if people change. That's my


career. I want to work as an informal incubator, as a person who just tells people-karke dekho...lage raho!" CONCLUSION


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Several problems have surrounded our society like miserable, unending conditions of poverty, conflict and a degraded environment. Past few years in particular has seen a remarkable growth of new social ventures in both the developed and developing worlds as old institution are incapable of dealing with new challenges. As in earlier technological and social transformations, there is a disjunction between the structures and institutions formed in a previous period and the requirements of the new. To maintain the equilibrium, new paradigms tend to flourish in areas where the institutions are most open to them, and where the forces of the old are weak. Therefore, we need social innovation as a tool in the social field to help in eradicating the most urgent contemporary problems that we are facing. In a board sense, we can say, that existing entrepreneurship fails to bring required change that could help in alleviating the poverty, reducing rural-urban divide gap, reducing gender-gap and many such problems. We can conclude that Social innovation is the possible solution for the long lasting problems. We need to encourage the grass root innovators through an award system so that their benefits can disseminate worldwide. The Millennium development goals (MDG) project further confirm that we are on the verge of problems worldwide. To achieve Millennium development goals such as Eradication of Extreme Hunger and Poverty, Promoting Gender Equality and Empowerment of Women etc., we need several social entrepreneurs who can eradicate and transform the society through innovative methods.

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[10] Dees, J. G. (1998). The meaning of social entrepreneurship.Stanford University: Draft Report for the Kauffman Center for Entrepreneurial Leadership, 6p

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Social Entrepreneurship: A Review of Concepts, Practices and Challenges | 115

A Study of Factors and Preferences towards Life Insurance Policy Investment Decision Making Dr. Neelu Tiwari1, Dr. Charu Yadav2 and Rajeev Kumar Saxena3 1


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Associate Professor, Jaipuria Institute of Management, Ghaziabad (U.P) 2 Assistant Professor, JIM 3 Associate Professor, Institute of Advanced Management & Research, Ghaziabad (U.P) E-mail: [email protected], [email protected] ABSTRACT

Human life is a most important asset and life insurance is the most important provides financial protection to a person and his family at the time of uncertain risks or damage. Life insurance provides both safety and protection to individuals and also encourages savings among people. LIC of India plays a vital role in the welfare of human well-being by providing insurance to millions of people against life risks such as uncertain death or accident.

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The present exploratory and descriptive based study was selected with an objective to identify those factors which influence customers policy buying decision and also analyze the preferences of customers while life policy investment decision-making. Various insurance related factors have been discussed in the paper. The data for the study has been collected from primary sources. The study area is limited to NCR region and sample size is 100 policyholders of LIC and different private life insurers have been selected through purposive sampling method. Researcher has taken hypothesis based on factors like advertisement, services provided by the company, tax benefits and reference groups tested with the help of statistical tools like chisquare test.

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LIC is the most accepted and popular brand in life insurance, It occupies important position in the financial sector of an economy. In a period of half a century, the insurance sector has come in a full circle from being an open competitive market to compete nationalization and then back to liberalized market. This paper concludes with that demographic factors of the people play a major and pivotal role in deciding the purchase of life insurance policies. Keywords: Investment, Life insurance policy, reference group

INTRODUCTION INSURANCE INDUSTRY India has a vast population of 125 crores and Insurance companies have a high potential of Business. The Indian Insurance Industry has undergone transformational changes since 2000 when the industry was liberalized.

There have also been a number of products & operational innovations necessitated by consumer need and increased competition among the players, changes in the regulatory environment also had a path breaking impact on development of the industry. There was exponential growth in the first decade of insurance industry liberalization. Backed by innovative products & aggressive expansion of distribution, the Life Insurance corporation grew at very high speed. However this frenzied growth also brought in its wake issues related to product design, market conducts complaints of management & necessity to make course correction for long term health of the industry.


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Regulatory changes were introduced during the past years and Life Insurance Corporation adopted many new customer centric practices in this period. Product related changes first in ULIP in Sep, 2011 & now in traditional products will have big impact on the industry. Life Insurance Corporation is a big saving vehicle along with Banking in such uncertain economic environment and so we expect the industry to fare reasonably well. Demographic factors such as growing middle class, young insurable population & growing awareness of t for protection & retirement planning will also support the growth of Life Insurance of India. PROFILE OF LIFE INSURANCE CORPORATION

Life Insurance Corporation is an Indian state owned insurance group & investment company. Its Headquarter is in Mumbai. It is the largest insurance company in India with an estimated asset value of Rs. 1560481.84 crore (US $ 260 billion) as of 2013 it had total life fund of Rs. 1433103.14 crore with total value of policies sold of 367.82 lakh that year.

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The company was founded in 1956 when the parliament of India passed LIC act that nationalized the private insurance industry in India. over 245 insurance companies & provident societies were merged to create the state owned LIC.

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The corporation which started its business with around 300 offices, 5.7 million policies & a corpus of INR 45.9 crores (US $ 92 million) had grown to 25,000 services around 350 million policies and a corpus of over Rs 80,0000 crore (US $ 130 million) by the end of 20th century. 

From its creation, the Life Insurance Corporation of India which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses and by 2006 was contributing around 7% of GDP.

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In August 2000, the Indian government embarked on a program to liberalise the insurance sector and opened it up for private sector.

A Study of Factors and Preferences towards Life Insurance Policy Investment Decision Making | 117

In 2003, the first year premium compound annual growth rate was 24.53% while total life premium CAGR was 19.28% matching the growth of life insurance industry and also out performing general economic growth.

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LIC offers various products such as insurance plans, pension plan, unit linked plans, special plans and group schemes.

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Today, the LIC has 8 zonal offices, 109 divisional offices, 2048 branches, 992 satellite and corporate offices, 54 customer zones and 25 metro area services hubs located in India.

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The Economic Times brand equity survey 2012 rated LIC as no. 6 most trusted service brand of India.


MAJOR COMPETITORS IN THE INSURANCE SECTOR IN INDIA

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1. HDFC Standard Insurance Company Ltd.

2. Royal Sundaram alliance Insurance Company Ltd. 3. Reliance General Insurance Company Ltd.

4. Max New York Life Insurance Company Ltd.

5. ICICI Prudential Life Insurance Company Ltd. 6. IFFCO Tokyo General Insurance Co. Ltd.

7. Kotak Mahindra Old Mutual Life Insurance Ltd.

8. TATA AIG General Insurance Co. Ltd. IJPSS Volume 2, Issue 6 ISSN: 224 9. Birla Sun Life Insurance Co. Ltd.

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10. TATA AIG Life Insurance Co. Ltd.

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11. SBI Life Insurance Co. Ltd.

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12. Bajaj Allianz General Insurance Co.Ltd.

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13. ING Vysya Life Insurance Co. Pvt. Ltd.

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14. ICICI Lombard General Insurance Co.Ltd. 15. Bajaj Allianz life Insurance Co.Ltd. 16. Metlife India Insurance Co.Ltd. 17. AMP Sanmar Life Insurance Co. Ltd. 18. Aviva Life Insurance Co. India Pvt. Ltd. 19. Cholamandalam General Insurance Co. Ltd. 118 | Global Performance Challenges: Building and Sustaining Competitiveness

20. Export Credit Guarantee Corp. Ltd. 21. HDFC-Chubb General Insurance Co. Ltd. 22. Sahara India Insurance Co. Ltd. 23. Shriram Life Insurance Co. Ltd. In this policy, the Investment Risk in Investment Portfolio is Borne by the holders, the following are the Key benefits under this plan: 1. Flexibility to choose the policy term 2. Flexibility to choose premium paying mode as per your convenience


4. Flexibility of partial withdrawls to meet your emergency needs

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3. Flexibility to choose from 2 fund types to suit your investment needs BENEFITS DEATH BENEFITS

On death during policy terms, when the cover is in full force, Immediate lumpsum payment equal to sum assured shall be paid to the nominee. An amount equal to sum of all future premium payable after the date of death shall be credit to the policy holder’s fund. MATURITY BENEFITS

On life assured surviving the date of maturity, an amount equal to policy holder’s fund value shall be payable.

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Athma and Kumar (2007) in their empirical based study conducted on 200 sample size comprising of both rural and urban market analyzed the various product and nonproduct related factors and their impact on life insurance purchase decision-making. Based on the survey analysis; urban market is more influenced with product based factors like risk coverage, tax benefits, return etc. Whereas rural population is influenced with non-product related factors such as: credibility of agent, company’s reputation, trust, customer services. Company goodwill and money back guarantee attracts many people for life insurance. Govind (2009) found that insurance company required to provide efficient services just can generate the confidence of customer toward company, however, allow customers to an undue delay is an important reason to lose the confidence by the insured in the talks by the insurer or his representative.


Praveen, Gaurave, and Vijay (2009) found that ease of procedures is a contributing factor towards the study. This factor includes various variable statements which are cooperative and friendly agent, settlement of claims easy and timely, the company provides claims on time, and agent is well informed about policies. Zeithmal (1981) state that some of the major determinants of brand loyalty for products and services are accessibility of substitutes, recognized risk related with a purchased, the cost of exchanging brands, and the previously satisfaction with a brand. Nelson (1970) distinguished between two characteristics of products: search qualities, attributes which are very tangible and can be evaluated by examination prior to purchase; and experience qualities, attributes which can only be evaluated during or after consumption. Objectives of the study: To know the customer influencing factors on purchase decision in insurance product.

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To analyze various factors like advertisement, services, tax benefit, reference group influence the purchase decision.

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To test the hypothesis factor like advertisement, services, tax benefits and reference group influence the purchase decision of LIC.


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EFFECT OF BRANDING IN THE PURCHASE OF LIFE INSURANCE PRODUCTS

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A Brand is the key aspects of purchasing the product or invest the money. Brands are important to consumers as they provide them with choice, a means of simplifying the decision, Quality Assurance, Risk avoidance & Self experience. A brand & Brand loyality is an important parameter, key element of decision making of investment. The brand loyality affects more on decision of the investor. In Insurance Business, people are more loyal towards this company.

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SERVICE FACTORS

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An Insurance is a service industry, the main focus is on the efficient and effective delievery of services to the policy holders. The other service factor is security of the amount insured and customer satisfaction. The most important service factor is the Quality Service. It is the only differentiating factor to attain sustainable growth in competitive environment. BEHAVIOURAL FACTORS Consumer behavior is defined as observable activities choosen to maximum satisfaction through the attainment of services. LIC can be considered as a product in terms of various types of policies bought. The power of marketing and ability of marketing research and consumer analysis to gain insight into consumer behavior should not be misused. 120 | Global Performance Challenges: Building and Sustaining Competitiveness

LOYALITY Customer loyalty depends on satisfaction of his multiple needs. They know them only when they are told about those needs. The Life Insurance Corporation of India has devised several life policies to satisfy these diversified needs of the customers. RESEARCH DESIGN The study was exploring in nature and aimed at exploring the factors and survey method was used to complete the study. The data was collected through personal contacts, the sample frame were individuals invested in LIC policies. Purposive sampling technique was used to select the sample and there were 100 respondents out of which 60 males and 40 females, age group between 20 to 65.


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Questionnaire was self designed for the evaluation of factors affecting consumer’s perception towards life insurance products. DATA COLLECTION

Primary data is collected directly through respondents using data collection methods. Here in this study the data collection method is questionnaires. A questionnaire has been developed which would help to identify customer preference towards LIC or private companies. The questionnaires includes open and closed ended questions, also likert attitude scale of measurement has been used to measure the customer preference. The customers are also being asked to rank some of the insurance companies. Before deciding onto collect the primary data there is a need to collect the sample for conducting the study. The sample would consists of 100 individuals of NCR region. SAMPLING TECHNIQUE

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Non Probability sampling involves the selection of units base on factors other than random chance. It is also known as purposive sampling.

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CONVENIENCE SAMPLING

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SAMPLING AREA

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The samples for this research study are insurable people in general public. The sample was selected based on their easy availability. This research study forms a basis for conducting a detailed research that generates ideas and hypothesis. The research was conducted in NCR. Conducting this study in NCR would be more effective to Life Insurance Corporation. SAMPLE SIZE For the purpose of study, 100 samples were taken.


INFLUENCING FACTORS IN PURCHASE DECISION Table 1 Factors Advertisement Services Provided by Company Tax Benefit Return & Death Benefit Reference Groups

Strongly Agree 12 28 32 36 14

Agree 40 48 46 52 48

Neutral 28 16 22 8 24

Disagree 14 8 0 0 10

Strongly Disagree 6 0 0 4 4

Factors having indirect impact over decision making of the Life Insurance policyholders have been listed below: Table 2 Respondents Percentage 60 60 14 14 10 10 16 16 28 28 40 40 16 16 16 16 56 56 20 20 24 24 64 64 36 36 26 26 30 30 32 32 12 12 24 24 52 52 18 18 6 6 18 18 46 46 36 36 0 0

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Endowment ULIP’s Pension Plan Children’s Plan Motivating Product related factor Expected returns of policy Range of coverage offered by policy Brand Name Needs to satisfy my changing needs Prefered Risk option Low Risk & Low returns High Risk & High returns Medium Risk & Medium returns Investment preferences Long Term Investment Short Term Investment Reasons for rejecting an insurance product High Charges Low returns Longer premium paying term Cost of the product Core benefits expected by customers Death benefit Saving Tax Planning To serve for urgent needs Major criteria in selecting insurance products Annual income Family needs Returns & benefits from product As suggested by others

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Factors Preference of Insurance Plan

CHI SQUARE ANALYSIS The analysis of various factors like advertisement, services provided, tax benefit, reference group have been considered in view of the objectives listed above. For this, the descriptive as well as inferential statistics have been applied for analysis. Firstly, Exploratory analysis and then Inferential analysis test as Chi square test has been applied. Chi square test is a non parametric test is used to determine if categorical data shows dependency or two classifications are independent. Chi square is applicable in 122 | Global Performance Challenges: Building and Sustaining Competitiveness

large number of problems. This test is, in fact, a technique to test the goodness of fit, test the significance of association between two attributes & test the significance of population variance. χ2 = ∑ (O – E)2 / E where O – Observed frequency, E- Expected frequency Expected Frequency = (Row Total * Column Total)/Total Population Null hypothesis (H0): Let us take null hypothesis that the factors like Advertisement, Returns & Tax benefits, Reference group do not influence the purchase decision.

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Various Factor Influencing Purchase Decision


Table 3: Observed Frequency

Factors Advertisement Services Provided by Company Tax Benefit Return & Death Benefit Reference Groups Column Total

Strongly Agree Agree Neutral Disagree Strongly Disagree Row Total 12 40 28 14 6 100 28 48 16 8 0 100 32 46 22 0 0 100 36 52 8 0 4 100 14 48 24 10 4 100 122 234 98 32 14 500

Table 4: (Expected Frequency)

Expected Frequency=Row Total Column Total/Total Population

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Observed Frequency 12 40 28 14 6 28 48 16 8 0 32 46 22

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Factors Advertisement Services provided by company Tax Benefit Return & Death Benefit Reference Groups Total

Strongly Agree 24.4 24.4 24.4 24.4 24.4 122

Agree 46.8 46.8 46.8 46.8 46.8 234

Expected Frequency 24.4 46.8 19.6 6.4 2.8 24.4 46.8 19.6 6.4 2.8 24.4 46.8 19.6

Neutral 19.6 19.6 19.6 19.6 19.6 98

O-E 12.4 6.8 8.4 7.6 3.2 3.6 1.2 3.6 1.6 2.8 7.6 0.8 2.4

Disagree 6.4 6.4 6.4 6.4 6.4 32

(O-E)2 153.76 46.24 70.56 57.76 10.24 12.96 1.44 12.96 2.56 7.84 57.76 0.64 5.76

Strongly Disagree 2.8 2.8 2.8 2.8 2.8 14 (O-E)2/E 6.30163934 0.98803419 3.6 9.025 3.65714286 0.53114754 0.03076923 0.66122449 0.4 2.8 2.36721311 0.01367521 0.29387755 Table (Contd.)…


…Table (Contd.)

0 0 36 52 8 0 4 14 48 24 10 4

6.4 2.8 24.4 46.8 19.6 6.4 2.8 24.4 46.8 19.6 6.4 2.8

6.4 2.8 11.6 5.2 11.6 6.4 1.2 10.4 1.2 14.4 3.6 1.2

40.96 7.84 134.56 27.04 134.56 40.96 1.44 108.16 1.44 207.36 12.96 1.44 Total

6.4 2.8 5.5147541 0.57777778 6.86530612 6.4 0.51428571 4.43278689 0.03076923 10.5795918 2.025 0.51428571 77.3242809


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Calculated chi square=77.3242809 Tabulated value=26.3 at 5% level of significance at 16 degree of freedom Calculated Chi square>Tabulated Chi square Null hypothesis rejected,

Alternative Hypothesis is accepted.

The various factors like, advertisement, Returns & Tax benefits, Reference groups influence the purchase decision. FINDINGS

1. With regard to gender, 60% are males and 40% are females belongs to age group between 20 to 65. 2. With regard to occupation, 70% are service people and 30% are business people.

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3. With regard to preference, 60% prefer Endowment policy, 14% prefer ULIP plan, 10% prefer Pension plan and 16% prefer children’s plan.

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4. With regard to Investment, 64% people preferred Long term investment and 36% preferred short term investment.

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5. With regard to preferred risk option, 56% people are interested in low risk & low returns, 20% people are interested in high risk & high returns and 24% preferred medium risk & medium returns option. 6. With regard to preference 64% policy holders believe in public sector and 36% believe in private sector. 7. With regard to selecting insurance product, 46% people thinks that there is a family needs, 36% returns & other benefits from products, 18% annual income. 8. Out of 100 respondents, 70% people are insured and 30% are not insured. 124 | Global Performance Challenges: Building and Sustaining Competitiveness

CONCLUSION


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The study revealed that LIC is a dominant market player with more than 70% of market. It is heartening to note that Life Insurance corporation is doing good service and the customers are happy about the various services rendered by this company in NCR region. There is a good bond between Insurance services and the customers which is reflected in the analysis. During the study it is found that policy holders prefer insurance sector public & Private both. They prefer private insurance sectors because they provide them the banking facility and a lot of value added services. So it will be beneficial both to the private and the LIC if it offers banking facility to the policy holders. Brand image and service is the major contributor to influence the prospects mind. Advertisements and other communication methods have to be very much effective in making the brand name of LIC a popular one in the minds of people. REFERENCES

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Anderson, E.W., Fornell, C. and Rust, R.T., 2008, Customer Satisfaction, Productivity, and Profitability: Differences between Goods and Services, Marketing Science. Vol. 16, No. 2, pp. 129–45. Athma, P. And kumar, R., (2007)" an explorative study of life insurance purchase decision making influence of product and non-product factors ", ICFAI journal risk & insurance, Vol. iv, October 2007, pp. No 19–21. Rajagopalan, R., (2006), "Comparing traditional life insurance products in the Indian market: a consumer perspective," Journal of Insurance and Risk Management, Vol. 4, No. 8, pp. 27–40. Rajesham, Ch. and Rajender, K. (2006), "Changing scenario of Indian insurance sector", Indian Journal of Marketing, Vol. 36, No. 7, pp. 9–15. Reddy, G.S., (2005), "Customer perception towards private life insurance companies' policies with reference to Bangalore city", Indian Journal of Marketing, Vol. 35, No. 4, pp. 913. Pfeffer, I., (2011), "Measuring the profit potential of a new life insurance company", The Journal of Risk and Insurance, Vol. 32, No. 3, pp. 413–22.

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Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms 1

Dr. Sraboni Dutta1 and Diganta Munshi2


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Associate Professor, Birla Institute of Technology, Mesra, Kolkata Campus 2 Assistant Professor, Techno India College of Technology, New Town, Kolkata E-mail: [email protected]/[email protected], 2 [email protected] ABSTRACT

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Addressing the issue of corporate sustainability via the Triple Bottom Line approach has emerged as one of the key dimensions of business firms across the globe. An important aspect of the TBL thought process is the “Planet” and reducing the problem of environmental degradation is increasingly occupying centre stage in corporate, regulatory and research circles. To emerge as a successful firm, it is becoming imperative for Indian manufacturing firms to shift their focus towards undertaking environmental initiatives for protecting the environment in addition to maintaining their bottom-line. This necessitates them to take proactive action on resource consumption, resource conservation, and emissions so as to preserve the ecological balance. The objective of this study is to review the efforts taken by 10 Indian corporate firms listed on the Nifty, with respect to 6 environmental parameters, namely expenses on power and fuel, expenses on material consumption, water consumption, green house gas emission, hazardous waste discharged and energy consumption. The proportionate increase/decrease in each of these environmental parameters over two financial years spanning 2010-2012 has been computed and then averaged to derive the firm’s environmental score. A comparative analysis of these 10 firms on the basis of this score has been undertaken. Bivariate regression has been conducted to see whether environmental initiatives as proxied by the environmental score have translated into better financial performance.

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INTRODUCTION

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Keywords: Corporate Sustainability, Environmental Initiatives, Environmental Score, Net Operating Profit

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Sustainable Development is a visionary development paradigm, and over the last 20 years governments, businesses and civil society organizations across the globe have committed themselves to sustainable development goals. The term “Sustainability” refers to the necessity to ensure that the social, environmental and economic systems that build our community are providing us a healthy and meaningful life. According to the US National Research Council, sustainability is: “the level of human consumption and activity, which can continue into the foreseeable future, so that the system that provides goods and services to the humans persists indefinitely.” Thus sustainable development calls for a convergence between economic development, social equity and environmental protection.

For businesses to build their competitive advantage, it becomes imperative for them to rethink their business strategies. Although the bottom line of companies is of considerable importance, organizations cannot ignore the significance of their impact on society and environment, when implementing business strategies, building brands and focusing on customer relationships. In order to be sustainable an organization, must not only be financially viable, it must also aim at minimizing or eliminating environmental degradation, and work towards meeting societal expectations.


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In 1987, World Commission on Environment and Development (WCED) which was later known as the Brundtland Commission, adopted the concept of sustainable development with the primary focus on environmental dimensions. Later in the UN Conference on Environment and Development (UNCED) in Rio de Janeiro, 1992 also known as the Earth Summit, the principles of sustainable development were established and it was agreed that a comprehensive and integrated approach to environmental, economical and social processes is required for sustainable development. Thus the National Sustainable Development Strategies were finalized.

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With the forces of globalization gaining in prominence, it has become imperative for Indian manufacturing firms to shift their focus from traditional methods of considering profit as the only dimension of business success. Indian business organizations are concentrating on sustainability and building Triple Bottom Line which translate into long term success and help them to create a better image in the global scenario. Sustainability reporting is now becoming a standard practice for global companies and for Indian companies to be competitive with their global counterparts, they need to adopt GRI based sustainability reporting framework. Considering the importance of sustainability in businesses, the Ministry of Corporate Affairs, Government of India has launched Corporate Social Responsibility Voluntary Guidelines (2009). The pressure on organizations to respond to and communicate their response to sustainability concerns is increasing through legislative levers and regulatory mechanisms. With SEBI’s mandate of August 2012 to include Business Responsibility Report (BRR) as a part of the Annual Report for the top 100 listed entities in India, there is a definite shift from voluntary to mandatory sustainability reporting.

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Protecting the environment is one of the most important facets of sustainability. Environment protection envisages policies and procedures aimed at conserving the natural resources, preserving the current state of natural environment and where possible reversing its degradation. Environment Impact Assessment has become an emerging field of research in the business and academic circles in all developed and emerging countries. Yet in a developing country like India such research has not gained much attention as a tool for evaluating corporate sustainability. Thus this paper examines the efforts made by top 10 Indian manufacturing companies to reduce environmental degradation and thus ensure their future sustainability. Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms | 127

LITERATURE REVIEW Hubbard (2009) in his paper developed a conceptually based model for measuring organizational performance. It is built on the well established, stakeholder-theory-based, Balanced Scorecard. It widens that stakeholder base by adding factors specifically designed to capture a firm’s social and environmental performance to create a Sustainable Balanced Scorecard (SBSC). He mentioned the integration of environmental performance as a separate entity with indicators as key material use, energy use, water use, emission, effluent, waste and industry factor e.g. GHG emissions.


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Fatimah Y.A. et al. (2013) suggested that necessary opportunities should be identified for adopting manufacturing processes which are eco efficient, clean, and green. These initiatives will be useful for remanufacturing products which will more acceptable to customers due to its technical, economical, environmental and social sustainability Zubir et al. (2012) presented a review which categorized the literature on sustainability into three main research areas; sustainable manufacturing practices, sustaining lean improvements, and sustainable performance. They also suggested a conceptual model that established a relationship between sustainable manufacturing practices and sustainable performance

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Prakash and Potoski (2012) focus on voluntary environmental program and through its comparative perspective, illustrates its potential and limitations. The survey was focused on the need for voluntary environmental programs and the factors that encouraged the firms to join such programs. The survey identifies that U.S. auto industry tier I and tier II suppliers/vendors, many of which, located abroad, were advised to implement and maintain environment management system by adhering to ISO 14001. Countries like U.S. and Japan have improved modestly in their environmental performance after implementation and maintenance of such standard.

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Plambech, E.L. (2012) suggests opportunities of firms to reduce green house gas emissions in their supply chains. His study revealed that primary green house emissions is due to carbon dioxide gas from fossil fuel, which is 50% above higher than that 1990 levels (the reference year of Kyoto Protocol) and is growing very fast in countries like India and China.He provides a framework to assess the impact on climate change due to supply chain management system adopted by firms Asaolu et al. (2012) suggests that in manufacturing firms, materials will be a major component for cost of production, which has an impact towards profitability. Efficient materials management can be performed through proper coordination between different sections of production, vendor management, inventory management, store management and adopting different state of art technologies. Manufacturing cost of a product is heavily dependent on the cost of materials; hence firms need to constantly monitor materials cost. Different costs associated with materials, are purchasing cost, inventory 128 | Global Performance Challenges: Building and Sustaining Competitiveness

carrying cost, transportation cost, materials handling cost, packaging cost, and wastage; the optimization of these cost will lead to higher profitability. Due to liberalization of economy, it has become necessary for manufacturing firms to reduce waste and to adopt lean manufacturing strategies. Optimizing material management, which minimize production cost which will ensure manufacturing firms to remain in competition. Ahmed et al (2009) identified that firms have adopted environment management systems to address different environment issues. Sustainability of firms can be ensured only if there is a proper mapping with environment management system and the fundamental principles of sustainability. ISO 14001 environmental management systems provides the mechanism of auditing, communicating and reporting the environmental management system implemented and maintained by firms and it provides an opportunity to integrate the features of sustainability.


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Henri and Journeault (2007) examined the use of environmental performance indicators (EPI) within manufacturing firms in Canada as a measurement tool, which provided information related to environmental issues. EPI is an important dimension for environmental management system. METHODOLOGY

OBJECTIVE OF THE STUDY

An attempt has been made to focus on the extent to which the companies have been successful in reducing environmental degradation by putting a check on different parameters like expenses on power and fuel, expenses on material consumption, water consumption, green house gas emission, hazardous waste discharged and energy consumption. This paper has two objectives

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1. To compute a firm –wise environmental score which reflects the efforts taken by the company to reduce environmental degradation and thereby better corporate sustainability over a two year period.

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2. To examine the correlation between this environmental score and two financial performance indicators, namely return on and earnings per sharemarket price of share. DATA Out of 50 companies listed in the Nifty, the target population of this study was 40 manufacturing firms. The period of our study spans between 2010 and 2012. Out of the 40 manufacturing firms, only 10 firms have published Sustainability Reports for the financial years 2010–2011 and 2011–2012. Hence all these 10 firms have been included in the study. Public Sector Units (PSUs’) like GAIL, ONGC, BPCL and private manufacturing firms like Tata Steel, Tata Motors, ITC, HINDALCO, Reliance Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms | 129

Industries, Mahindra & Mahindra and Larsen & Toubro are the companies examined in this study. Secondary data related to financial and non-financial performance parameters has been collected from the companies’ Annual Report and Sustainability Report, for the years 2010–11 and 2011–12. Data on Net Revenue, Profit After Tax, Expenses on Power and Fuel and Expenses on Material Consumption data were collected from the Annual Reports of the companies whereas data on Water Consumption, Green House Gas Emission, Hazardous Waste Discharged and Energy Consumption were collected from the Sustainability Reports published annually by the organizations. SAMPLE PROFILE


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The firms examined in this paper are diverse with respect to their nature of business and include automobiles, petrochemicals, heavy engineering equipment, construction and oil and gas. All firms have large number of employees. 70% of the firms have employees’ strength ranging between 10,000 and 50,000. There is only 1 firm, i.e. GAIL which has employee strength less than 10,000. The net revenues of the firms studies are considerably high. 50% of the sampled firms have revenue ranging from Rs. 20,000 to 35,000 crores and only BPCL has reported net revenue above Rs. 2,00,000 crores. The asset base of all the firms is large with 70% of firms having assets between Rs. 10,000 to 30,000 crores and RIL and ONGC have fixed assets above Rs. 50,000 crores. While 40% of the firms report a PAT below Rs. 3,000 crores, another 40% have PAT ranging between Rs. 3,000 to 10,000 crores. All the firms in the sample are mature firms and have been in operation above 20 years. Of them, Tata Steel, ITC and L&T are the 3 firms which have been incorporated and functioning for more 70 years RESULTS & DISCUSSION

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COMPUTATION OF THE ENVIRONMENTAL SCORE

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Taking reference from the framework used by Hubbard (2009) to formulate Organizational Sustainable Performance Index, we selected the dimensions of environmental performance for our study. Data for the expenses on power and fuel (in rupees crores), expenses on material consumption (in rupees crores), level of water consumption (in cubic meters), level of green house gas emission (in tones), level of energy consumption (in gigajoules) and quantum of hazardous waste discharged (in tonnes) along with data on Net Revenue from Operations (in rupee crores) have been collected for the financial years 2010–2011 and 2011–2012. The ratio of each of the environmental indicators with respect to the net revenue from operations has been calculated for the respective financial years. Corresponding to each of the 6 environmental indicator, proportionate increase / decrease in this ratio, between the two years i.e. 2010–2011 and 2011–2012 is computed. A proportionate increase in the ratio for a particular indicator suggests that the firm has failed in its effort to improve 130 | Global Performance Challenges: Building and Sustaining Competitiveness

environmental performance with respect to that particular indicator Similarly a proportionate decrease in the ratio for a particular indicator implies that the firm has been successful in its initiatives with respect to that environmental indicator and has contributed positively towards reducing environmental degradation.


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After computing the proportionate increase/reduction in each of the 6 environmental indicators with respect to the previous year, the values are summated and then divided by number of indicators to deduce the respective environmental score of each firm. This environmental score reflects the overall performance of the firm with respect to all the 6 environmental parameters. It shows whether the respective firm has improved or deteriorated in its efforts to protect the environment and reduce degradation. A negative environmental score points towards an improvement in the firm’s environmental performance and vice-versa. Firms with negative Environmental Score (E Score) are the ones which have been more successful with improving their environmental performance by proportionately reducing the values in each of the dimensions considered in this study in the year 2011– 12, as compared to the previous year 2010–11. From Table 1 we found that ITC Ltd. has a negative Environmental Score, and that is because the company has been successful in reporting reduction in all 6 environmental indicators considered in this study in 2011–12 as compared to 2010–11. So is the case with Mahindra & Mahindra Limited Hindalco Industries Limited has a negative Environmental Score, which is due to considerable reduction in water consumption, discharge of hazardous waste, energy consumption and GHG emissions over the two financial years. The case is similar with Reliance Industries Limited and Larsen & Toubro Limited.

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Tata Steel Ltd. does not have a negative Environmental Score but there is reduction in water consumption, green house gas (GHG) emission and discharge of hazardous waste in 2011–12 as compared to 2010–11.

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Out of the six environmental indicators, Tata Motors Limited has reported reduction only with respect to water consumption in comparison to the previous financial year. GAIL (India) Limited has a negative Environmental Score because of proportionate decrease in 5 out of 6 indicators over the 2 years. Only the ratio with respect to hazardous waste discharged has shown an increase. ONGC does not have negative Environmental Score, but there is reduction in power and fuel consumption and water consumption over the 2 year period. BPCL does have a negative Environmental Score although hazardous waste discharged and consumption of power and fuel reported an increase.

Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms | 131

CORRELATION AND REGRESSION BETWEEN ENVIRONMENTAL SCORE (E SCORE) AND NET OPERATING PROFIT MARGIN (NOP) In order to examine whether efforts to reduce environmental degradation affects the financial performance of the firms, we conducted a bi-variate linear regression analysis preceded by a test for correlation between the Environmental Score (E Score) and proportionate change in Net Operating Profit Margin (NOP).


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The Pearson’s correlation coefficient between Environmental Score (E Score) and for the 10 companies included in the sample was computed by using SPSS 20.0 and was found to be -.744, Table 2. The results were significant at 5% level of significance. The value of the correlation coefficient indicates that a moderately high negative relationship exists between Environmental Score (E Score) and proportionate change in Net Operating Profit Margin (NOP) over the 1 year period. The negative correlation implies that a company having a lower Environmental Score (which in our study indicates better efforts at saving the planet) also benefits from better financial performance over the same time span, Table. 1: Comparison of the Sampled Firms on the basis of their Environmental Score

-0.0508

-0.8083

-0.0775

0.0306

0.1592

0.1509

0.3146

0.0889

0.3628

0.0862

0.0357

0.1446

-0.3475

-0.1125

-0.2003

-0.0620

-0.0813

-0.2142

-0.1393

-0.2307

0.0698

0.3657

0.1600 0.0660

-0.1457

-0.0108

-0.1522

0.0823

0.2551

0.0259

-0.4554

-0.3489

-0.0570

-0.2566

-0.0584

-0.1005

0.2128

-0.1791

-0.3163

0.6804

-0.2097

-0.0780

-0.1185

-0.1321 -0.3597

0.0118 -0.2241

0.1860 0.0407

0.0292 -0.2609

0.0896 -0.0242

-0.0115 0.0764

0.0369 0.0288 0.1253

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-0.0204

-0.1841

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Reliance Industries Limited Larsen & Toubro Limited Mahindra & Mahindra Limited GAIL (India) Limited ONGC BPCL

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Tata Steel Limited Hindalco Industries Limited Tata Motors Limited ITC Limited

EProportinate Proportinate Proportionate Proportionate Proportionate Proportonate Increase in Increase in Increase in Score Increase in Increase in Increase in Hazardous GHG Power & Fuel Water Energy Material Waste Consumption Emissions/ Consumption Consumption Consumption Discharged/ /Net Revenue Net / Net Revenue / Net / Net Net Revenue Revenue Revenue Revenue -0.1638 -0.1385 -0.3108 0.4197 0.1119 0.1062 0.0041

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Firm Name


Table 2: Correlations ESCORE

ESCORE 1

Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N

NOP

NOP -.744* .014 10 1

10 -.744* .014 10

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The linear regression model is based on the premise that the change in financial performance of a firm (measured in this case by net operating margin) depends amongst other factors on the efforts to reduce environmental damage. Mathematically the general form of the regression model is represented as:


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NOPj = 0 + 1 ESCORE j

Where, NOPj = Proportionate change in net operating margin of firm j and ESCORE j= Environmental Score of firm j

From the model summary of the results given in Table 3, it is seen that the Value of R2 is 0.554. Thus one may suggest that the predictor variable of this model explains approximately 55 percent of the variation in the proportionate change in net operating profit margin. The Adjusted R2 is 0.498 which reflects that the model fits the population moderately well. Table 3: Model Summary

Model 1

R .744a

R Square .554

Adjusted R Square .498

Std. Error of the Estimate .2352745

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Predictors: (Constant), ESCORE

Unstandardized Coefficients B Std. Error -.008 .087 -2.329 .739

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(Constant) ESCORE

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Model

Table 4: Coefficientsa

Standardized Coefficients Beta -.744

T

Sig.

-.093 -3.153

.928 .014

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a. Dependent Variable: NOP

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The significance of the predictor variable is displayed in Table 4. ESCORE has a significance level of. 05. The results indicate that the estimated partial regression coefficient corresponding to ESCORE is negative in sign. This implies that an decrease in the environmental score (which implies better results of environmental initiatives) shall have a positive impact on the net operating profit margin of the firm. This validates the reason why firms all over the world are embarking on more and more efforts that can improve environmental conditions and contribute towards sustainability. Of course, better results can be expected if the study is conducted over a larger time span and over a larger set of companies. Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms | 133

ENVIRONMENTAL INITIATIVES TAKEN BY THE FIRMS IN THE SAMPLE Tata Steel Limited has adopted best available technologies and is replacing multiple blast furnaces with a smaller number of high capacity furnaces and is taking several other measures to enhance energy efficiency and bring about a planned improvement in CO2 emissions per tonne. They have implemented environmental management systems in accordance with ISO 14001. ITC Ltd. has significantly expanded its renewable energy portfolio. More than 38% of its energy consumption is now met from renewable sources and this is expected to touch 50% in next 4–5 years. All its super luxury hotels are now LEED Platinum certified, which is a green building movement.


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Hindalco Industries Limited’x main focus area is on conservation of materials and energy, which is critical for their business and also for environment. Lot of research and development work is still going on in this area and many of their manufacturing units have taken up projects on energy conservation. In Tata Motors Limited, impact on climate change has been the main focus area at the operational level. The company aims to reduce energy intensity. The Sanand plant is certified with the newly launched energy management system standard ISO 50001:2011. Various energy conservation projects were undertaken at the manufacturing units for reduction of greenhouse gas emissions.

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In Reliance Industries Limited, all manufacturing divisions and upstream businesses have initiated ISO 14001: 2004 environmental management system (EMS). British Safety Council conducted Five Star environmental audits and all manufacturing divisions have been covered under this audit. Several other measures towards environment preservation such as mangrove plantation in the coastal area and maintenance of green belts in and around manufacturing divisions have been maintained. Recycling has been used for cooling water system and horticulture activities.

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Larsen & Toubro Limited has commissioned India’s largest solar photovoltaic based power plant at Dhursar village in Jaisalmer district of Rajasthan, thereby L&T is currently country’s largest EPC player in solar power. They have also initiated carbon sequestration, environment assessment and water footprint mapping at their key campuses. Mahindra & Mahindra Limited has commissioned its first 5 MW solar power plant, as a part of the Jawaharlal Nehru National Solar Mission. They are also working on integrating a comprehensive ecosystem of sustainability mobility solutions, encompassing alternative technologies such as electric, hybrid and fuel cells. In GAIL (India) Limited, energy conservation with the use of alternate power and fuel sources from biomass and agricultural waste like cob, wild bushes and grass was undertaken. It was a part of the Anhad Gram Village Development Program in Jhabua. 134 | Global Performance Challenges: Building and Sustaining Competitiveness

BPCL has been the first oil company to successfully utilize non conventional energy source by generating 5 MW power through windmills in the hilly region of Kappatguda in Karnataka. It has been exploring the possibility of promoting green fuels with a view of protecting the environment by reducing pollution and dependence on imported fuels. CONCLUSION


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Worldwide efforts are increasing to control the degradation of our planet, and Indian manufacturing firms have also adopted different measures to protect the environment. In this study, we have considered 10 Indian manufacturing firms. The study focused on the proportionate change in 6 environmental parameters, namely expenses on power and fuel, expenses on material consumption, water consumption, green house gas emission, hazardous waste discharged and energy consumption per unit of net revenue from operations between 2010–11 and 2011–12 to compute an Environmental Score for each firm. We found Mahindra & Mahindra Limited to be most successful and Tata Motors Limited the least successful in its efforts to become a more environmentally friendly firm. there exists a high nagative linear correlation between this Environmental Score and the proportionate change in Net Operating Profit Margin. We also found that this Environmental Score explains approximately 55 per cent of the variation in the proportionate change in Net Operating Profit Margin. An improvement in the environmental efforts can translate into better financial performance as the image and brand name of the firm becomes better. REFERENCES

Ahmad, S., et al. 2009, Water pollution: Major issue in urban areas, Internal Journal of Water Resources and Environmental Engineering,4 (3), 55–65. [2] Asaolu, T., et al. 2012, Materials Management: An effective tool for optimizing profitability in the Nigerian food and beverage manufacturing industry, Journal of Emerging Trends in Economics and Management Sciences, 3 (1), 25–31. [3] Farid, S., et al. 2012, Water pollution: Major issue in urban areas, International Journal of Water Resources and Environment Engineering, 4 (3), 55–65. [4] Fatimah A.Y. et al. 2013, Sustainable manufacturing for Indonesian small- and medium-sized enterprises (SMES): the case of remanufactured alternators, Journal of Remanufacturing 2013, 3:6. [5] Henri, J., and Journeault, M., 2007, Environmental performance indicators: An empirical study of Canadian manufacturing firms, Journal of Environmental Management 87, 165–176. [6] Hubbard, G., 2009, Measuring Organizational Performance Beyond Triple Bottom Line, Business Strategy and Environment, 19, 177–191. [7] Plambeck, E., 2012, Reducing greenhouse gas emission through operations and supply chain management, Energy Economics 34 (2012) S 64–S74. [8] Prakash, A., and Potoski, M., 2012, Voluntary Environmental Programs: A comparative perspective, Journal of Policy Analysis and Management, 13, No. 1. 123–138. [9] Wuana, R., 2011, Heavy metals in contaminated soils: A review of sources, chemistry, risks and best available strategies for remediation, International Scholarly Research Network, Article ID 402647. [10] Zubir et al. 2012, The Development of Sustainable Manufacturing Practices and Sustainable Performance in Malaysian Automotive Industry, Journal of Economics and Sustainable Development, 3, No. 7.

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Examining Corporate Sustainability Efforts and Performance in Indian Manufacturing Firms | 135

Reappraisal of Education System for Education Sustainability in Indonesia 1

Rita Sutjiati1 and Emmy Indrayani2

Faculty of Letter, Gunadarma University, Indonesia Faculty of Economics, Gunadarma University, Indonesia E-mail: [email protected], [email protected]


ABSTRACT

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The quality of education in Indonesia today is quite worrying. United Nations Educational, Scientific, and Cultural Organization (UNESCO) 2012 report, stated that the education system in Indonesia ranks 64 out of 120 countries in 2010. Based on the results of the United Nations Development Programme (UNDP, 2014), the quality of human resources in Indonesia ranks 121 out of 208 countries. It seems clear that there is serious problem in the quality of education in Indonesia both formal and informal education. This study aims to examine the education system in Indonesia and then find the cause of the poor quality of education in Indonesia. Appraisal results are expected to show a gap that needs to be fixed in the Indonesian education system. This study also shows that some efforts have been undertaken by the government in addressing the problem. Keywords: Education, Reappraisal, Sustainability

INTRODUCTION

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Education in Indonesia in entire, are structured and unstructured. In structured, education in Indonesia is the responsibility of the Ministry of National Education of the Republic of Indonesia, formerly named the Ministry of Education and Culture of the Republic of Indonesia. In Indonesia, all residents must follow the compulsory education program for nine years, six years in elementary school and three years in junior high school. Nowadays education in Indonesia is regulated by Law No. 20, Year 2003 on National Education System.

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National education is based on Pancasila (indonesia’s ideology) and the Republic Indonesia Constitution (UUD 1945). It serves to develop skills and forms the behavior of the nation's dignity in the context of the intellectual life of the nation aiming to develop the potential of society in order to become a man of faith in God, a democratic and responsible citizen. To carry out these functions, the government held a national education system as listed in Law No.20 year 2003 on National Education System. National education should be able to guarantee equal educational opportunities, improving the quality and relevance of education and management efficiency to face the challenges of life in accordance with the changing demands of local, national, and global, so we need educational reform planned, directed and sustained.

EDUCATION SYSTEM IN INDONESIA


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Education in Indonesia is divided into three main lines; they are, formal, non-formal, and informal. Education is also divided into four levels, namely kindergarten, elementary, junior high, and high school. Non-formal education is the most numerous in early childhood, i.e., Al Qur’an Education for kids or TPA (Taman Pendidikan Al Quran) which is widely available in every mosque and also Sunday school, contained in all churches. Informal education is the family education and environment which is a form of independent learning activity. The level of education is the stage of education set by the level of student development, the objectives to be achieved, and skills to be developed. Educational way is a means to develop the potential of learners in an educational process in accordance with the purpose of education.

Source: Ministry of Education, 2013

Fig. 1: Indonesia’s Education Profile 2010

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There are various types of education in Indonesia. Public education is a primary and secondary education that promotes the expansion of the knowledge required by learners to continue their education to a higher level. For example: elementary school (Sekolah Dasar / SD), junior high school (Sekolah Menengah Pertama/ SMP), and senior high school (Sekolah Menengah Atas/ SMA). Vocational education is a secondary education that prepares students primarily for work in a particular field, i.e., is vocational senior high school (Sekolah Menengah Kejuruan/ SMK). The vocational schools have a wide range of specialized expertise. Academic education is a higher education undergraduate and graduate programs, which is directed primarily on mastery of specific education. Professional education is a higher education after degree program that prepares students to enter a profession or be a professional. Vocational education is a higher education that prepares students to get a job with certain maximum applied skills in diploma level 4 equivalent to degree programs. Religious education is a primary, secondary, and higher education that prepare learners to be able to carry out the role that demands mastery of the knowledge and experience of religious teachings or a theologian. Special education is Reappraisal of Education System for Education Sustainability in Indonesia | 137

the provision of education for learners with special needs or students who have extraordinary intelligence held inclusively (joining the regular schools) or a special education unit at the level of primary and secondary education (SLB).


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National education has a vision, that is the establishment of a national education system as a strong social institution and commanding to empower all citizens of Indonesia to develop into a quality human being, so that it proactively responds to the challenges. With the vision of national education, of course, there will be a mission of national education, they are: to try extending and equal opportunity to obtain a quality education for all Indonesian people, to help and facilitate the development of the full potential of the nation's children from an early age until the end of life in order to realize a learning society, to improve the quality of the education process, to optimize the forming of a moral personality, to increase the professionalism and accountability of the institution as a center acculturation of science, skills, experience, attitudes and values based on national and global standards, and to empower community participation in education based on the principle of autonomy in the context of the Republic Indonesia (Negara Kesatuan Republik Indonesia). However, the quality of education in Indonesia is still far from what is expected. United Nations Educational, Scientific, and Cultural Organization (UNESCO) 2012 report, stated that the education system in Indonesia ranks 64 out of 120 countries in 2010. Based on the results of the United Nations Development Programme (UNDP, 2014), the quality of human resources in Indonesia ranks 121 out of 208 countries.

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The quality of education in Indonesia today is quite worrying. This is proved by the Indonesian human development index that has been declined, and also the quality of teachers, learning tools, and the students. Indonesia has a low competitiveness, and still according to a survey by the same institution, Indonesia is categorized as a follower not only as a technology leader of 53 nations in the world. Education is fundamental to human life. Education can be an indicator of the level of social life in the community. Awareness of education affects one's education level; the higher the education, the higher the social status acquired in the community. Now there is the gap in the quality of education. Education has become the backbone to improve Indonesian human resources for nation-building. Therefore, we should be able to improve Indonesian human resources that can compete with human resources in other countries. Once we observe, it seems clear that the serious problem in improving the quality of education in Indonesia is the low quality of education at all levels of education, both formal and informal education. And that's what has led us to the low quality of education that impedes the provision of human resources with the expertise and skills to fulfill the nation's development in various fields. The education system has become less relevant when compared to the demands of the present age. Educational system with particular graduation standards also tend to produce a generation with smart mindset in 138 | Global Performance Challenges: Building and Sustaining Competitiveness

the academic field; however, it is not necessarily able to survive. The children were given a passing grade, so they must learn to pursue this target, but it makes them forget about the other soft skills that are important and useful to them in the future. Again, these conditions produce graduates who scramble jobs in the industrialized world, although there are many other opportunities to make money if only they would think a little more creatively.


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The way Indonesian children think since childhood has also been boxedcompartmentalized, so that they become less creative. Since childhood, Indonesian children were brainwashed by the adult perspective, through the judgment of right and wrong to their work. Something different from the view of an adult would be considered wrong and may actually make the child become mentally inferior. The children will be fearful to express their opinions and creativity of being rated wrong by their environment. The key is that the education system should be able to produce a generation that is willing and able to think socreatively that our country could be more advanced. With the creative generation, field work is not solely focused on the industrial world, and the potential of natural resources and human resources in Indonesia can be optimized. The realization of Indonesian education system now, looks like there are several factors that must be addressed. It is so constructed that the education system itself can be done well. REAPRAISAL TOWARD EDUCATION QUALITY IN INDONESIA

The poor quality of education in Indonesia can be caused by various factors, they are: FIRST, THE LOW QUALITY OF PHYSICAL INFRASTRUCTURE

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The quality of infrastructure in Indonesia seems to be an important problem in our education. Government should work hard to improve the quality of school infrastructure, especially in remote areas. The main thing to be first made by the government in improving school infrastructure in the area is to improve the school building itself. For physical infrastructure, for example, many schools and colleges buildings are broken, ownership and low media usage study, library books are no complete. While no laboratory standards, inadequate use of information technology and so on are available. In fact there are many schools that do not have their own buildings, do not have a library, and do not have a lab and so on. If the MI condition is into account, the damage rate is higher because the MI condition is worse than (SD) in general. This situation also occurs in the (SMP), (MTS), (SMA), (MA), and (SMK) although the percentages are not the same. With the infrastructure in a good school, it will have an impact on the emergence of teaching and learning activities among teachers-students become comfortable and conducive.

Reappraisal of Education System for Education Sustainability in Indonesia | 139

r G in AL PR p to ES art co S or py, W in p R fu rin IT ll, t TE on or N a sa PE ny ve R ret an M ri y IS ev c SI al on O sy te N s nt of te of th m, th e is co pd py f, rig ht -h ol de


Fig. 2: High School Laboratorium Facilities

SECOND, THE LOW QUALITY OF TEACHERS

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We all know that in addition to the parents, teachers also play an important role in helping to educate the intellectual, emotional and spiritual for each son-daughter in this beloved homeland. Therefore, teacher quality also determines the quality of the student itself. Teachers in the state of Indonesia are also quite worrying. Most teachers do not have sufficient professionalism to carry out their duties as referred in article 39 of Law No. 20/2003 which covers learning, implementing learning, assessing learning outcomes, coaching, training, planning conducting research and performing community service. Not only that, the majority of teachers in Indonesia are even declared not worth it to teaching. As reflecting the quality, teachers contribute greatly to the quality of the education for which they are responsible. The teacher’s low quality is also influenced by low levels of their well-being. This is what needs special attention, especially from the government in solving this problem. Here I can explain what are the things that should be our concern and need to be addressed among others, are:

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Firstly, the process of a recruitment of a competitive teacher’s candidate. This is necessary, so that the teacher candidates are selected later are indeed qualified teacher candidates. From now on we have to crush out the recruitment process of teachers on the basis of political candidates. It is feared that every teacher is generated to be pragmatic and just think of the interests of the family or himself. Secondly, reconstruct the paradigm of the teacher. The point here is that many votes among the general public or even from teachers themselves think it is only as a teacher of teachers alone. Then it should be, rather than as a lecturer, a teacher is also an educator of students. Most of the teachers now just to teach the students. Though the important things that should not be 140 | Global Performance Challenges: Building and Sustaining Competitiveness

ruled out that emotion is that a teacher should also be able to educate each student to be a student who has a good personality and behavior. By returning to the guidelines paradigm “teacher as a lecturer and educator” it is then expected that every student apart from both in terms of learning but also in terms of both behavior and personality.

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Thirdly, by improving the welfare of teachers. There are many different ways to make this effort; one of which is to raise teachers' salaries. To improve the welfare of teachers is important because it can be an encouragement and motivation for teachers to be more active to teach and educate his students. We all know that teachers are essentially unsung heroes who have a great responsibility in nurturing each student. The eventual goal is to create quality human resources products and who able to contribute to build this country for the betterment again.

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Fig. 3: Indonesia High Schools Teachers Education Background 2010/2011

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THIRD, THE LOW STUDENT ACHIEVEMENT With the low physical facilities and teacher quality, student achievement becomes unsatisfactory. For example, physics and mathematics achievement of Indonesian students in the world is very low. Indonesian children were only able to control 30% of the material and it turns out that it is very difficult for them to answer the questions that require reasoning shape description. This may be because they are so used to memorizing and doing multiple choice questions.


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Source: PISA, 2009

Fig. 4: Math and Sains Score

http://dikmen.kemdikbud.go.id/dak/Renstra%20Ditjen%20Dikmen%202013.pdf FOURTH, THE LACK OF EQUITABLE EDUCATION OPPORTUNITIES

The Educational opportunities are still limited to the elementary school level. Meanwhile, early childhood education services are still very limited. Failure of early childhood development in the future will certainly hamper the development of human resources as a whole. Therefore, it is necessary for educational equity policies and strategies appropriate to address the issue of inequality. FIFTH, THE LOW RELEVANCE OF EDUCATION AND NEEDS

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This can be seen from the number of unemployed graduates. Each year, approximately 3 million children are out of school and do not have the life skills that lead to employment problems of its own. Any inconsistency between educational outcomes and the needs of the workforce is due to the lack of functional curriculum materials for the skills needed when students enter the workforce.

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SIXTH, THE HIGH COST OF EDUCATION Quality education is expensive. The phrase often appears to justify the high costs associated with the community to get an education bench. High cost of education from Kindergarten (TK) to university (PT) makes the poor have no choice but to not go to school. Increasingly high cost of education today is not separated from government policy to implement MBS. MBS in Indonesia in reality is more understood as an attempt to mobilize funds. Because of this, the School Committee / Board of Education which is the organ of MBS always requires an element of entrepreneurs. This condition will be worse with the Bill on Legal Education (Bill BHP). Changing the status of education of public property to the form of legal entity makes clear economic and political 142 | Global Performance Challenges: Building and Sustaining Competitiveness


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consequences enormous. With the change of status, the Government could easily throw the responsibility for the education of its citizens to the owners of legal entities that figure is not clear. State University was turned into a State Owned Legal Entity (BHMN). BHMN emergence and MBS are some examples of controversial education policies. BHMN impact on the soaring cost of university education in several favorites.


Fig. 5: School Participation (Angka Partisipasi Sekolah /APS) According to Age and Economic Status

SEVENTH, PRIVATIZATION OF EDUCATION SECTOR

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Privatization or weakening the role of the state in the public service sector did not escape from the pressures of debt and policies to ensure debt repayment. Indonesia's foreign debt amounting to 35-40 percent of the state budget each year is a driving factor privatization of education. As a result, the sector absorbs a large funding such as education which is a victim. The government plans to privatize education legitimized through a number of regulations, such as the Law on National Education System, Legal Education Bill, Draft Government Regulation (RPP) of the Elementary and Secondary Education, and RPP on Compulsory Education. With the privatization of education, it means that the Government has legitimized the commercialization of education by handing over the responsibility of providing education to the market. By doing so, schools have the autonomy to determine their own cost of providing education. School will set a maximum cost to improve and maintain the quality. As a result, access to people who are less able to enjoy the quality of education will be limited and increasingly fragmented society based on social status between rich and poor is increasing. For certain people, some state universities which are now changing the status to be a State Owned Legal Entity (BHMN) was a scourge. If the reason says that the quality of education should be expensive, this argument will be valid only in Indonesia. Reappraisal of Education System for Education Sustainability in Indonesia | 143

EIGHTH, THE QUALITY OF CURRICULUM

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Curriculum used in the system now does not seem to pay attention to the state of the social conditions of society in various regions. It is possible for schools that exist in many large cities can run existing curriculum system. This is because the school has been supported by several components of adequate support, especially in terms of facilities and infrastructure. It is inversely proportional to the existing schools in various parts of the region. It would be grossly unfair to apply the system of curriculum that emphasizes science and technology (Science and Technology) to these schools. Not to mention now we hear discourse in 2014, which would remove the system, Kemendikbud will write exams for college entrance and will make the results of the value of the UN as a qualification for university entrance. The question that arises here is whether it is appropriate to compare the value of quality schools in large cities with schools in remote or small rural areas. It seems that the discourse needs to be reviewed because it can be bad and inhibits primarily for students who come from the village to enter public universities which they hoped. Therefore, in this case the government should fix the system back to existing curriculum so that the curriculum can be said to be qualified and to be able to be implemented evenly in every school in Indonesia.

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Fig. 6: Acceleration and Increasing Education Access Graph

To overcome the above problems, in general there are two solutions that can be given as follows: First; they are systemic solutions, is a solutions with changing social systems related to the education system. As we all know the education system is closely linked to the economic system that is applied. Thus, the solution to the problems that exist, particularly concerning the subject of financing, such as low physical facilities, teachers' welfare, and the high cost of education, in turn, demands also change the existing economic system.


Second, technical solutions; it is a solution regarding technical matters directly related to education. The solution is to resolve problems such as teacher quality and student achievement. Thus, solutions to technical problems returned to the practical efforts to improve the quality of the education system. The low quality of teachers, for example, in addition to the given solution of increasing prosperity, is also given a solution as to the finance teachers to continue to pursue higher education, and to provide training to improve the quality of teachers.


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Entering the 21st century, education in Indonesia is in an uproar. The uproar was not caused by the greatness of national education quality but by more awareness of the dangers caused by underdevelopment of education in Indonesia. This feeling is caused due to some basic issues. One of them, as entering the 21st century, is a wave of globalization which is felt strong and open. Advances in technology and it’s changes provide a new awareness that Indonesia no longer stands alone. Indonesia is in the midst of a new world. The world is open so that people are free to compare life with another country. What we feel now is the gap in the quality of education, both formal and informal education. And, the results can be obtained when we compare it with other countries. If the factors that I described above can be realized well, the quality of the education system which is expected will run well. In addition, the state of business in advancing the welfare of the people and in educating the nation can truly be realized. THE PROBLEM SOLVING TO ACHIEVE SUSTAINABILITY OF EDUCATION COOPERATING WITH NATIONAL INDUSTRY ON EDUCATION & RESEARCH

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A distinguishing feature of Indonesia’s universities and business schools are their close relationships with industries. Private universities are often founded by the country’s tycoons as part of their efforts to give back to the country and play a role in the education of the future generation. These intimate ties translate into curriculums being effectively molded to meet the needs of the country’s economy, being reviewed by industry players themselves as well as providing the advantage of giving students real work experience though internship programs which lead to employment on graduation.

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The surge in the number of universities over the past two decades, from around 900 in 1990 to over 3000 to date, has come from the opening of private establishments with leading figures from the public and private sector as patrons. Business schools such as Prasetiya Mulya and IBII were founded by businessmen wanting to address the lack of qualified, ‘ready to work’ graduates. Universitas Pelita Harapan is part of Lippo Group, the largest real estate company in Indonesia by assets. This link is put to use when designing the curriculum to impart practical knowledge to students in concentrations such as retail and real estate management where the group holds expertise.


President University is a further example, being founded in 2001 by SD Darmono, the President Director of Jababeka the first publicly listed real estate developer in Indonesia, and Professor Juwono Sudarsono who is a former Minister of Defense. The university is found within the grounds of the Jababeka Industrial Estate which is home to 1500 local and international companies. The rector, Professor Ermaya Suradinata is focused on ensuring graduates have practical skills for business, ‘our curriculum is customised to company needs... all students undertake a two semester internship and we have a high rate of those students being taken on for full time employment.’


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Such mandatory internships are becoming common place in universities around the world. Yet in Indonesia they are part of the everyday discourse in higher education to ensure that graduates have employment on finishing their studies and that industries have the right human resources with the skills they need to grow. The lack of connection between education and industry in the past has led to high rates of youth unemployment; the World Bank noted that the country’s youth unemployment is five times higher than the regional average. In January 2010 the official figure stood at 68,000 unemployed graduates out of the 350,000 graduates created every year. This challenge is being taken up by leading universities as they seek to take full advantage of their industry links to produce high rates in graduate employment.

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Despite listening to the needs of industries when it comes to educating future graduates, developing a similar relationship in the needs for research has failed to materialise. Research in universities across all disciplines is still at an embryonic stage in Indonesia, but the demand for research from industry itself has been slow to come forward. Research has failed to be taken into account as part of company’s long term investment and development strategy. Dr Kim of Universitas Pelita Harapan Business School explains ‘there has been a misunderstanding on both sides, from the industry side there is a disbelief in the quality of research from universities’.

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In order to overcome the challenge in promoting the potential of research, Universitas Indonesia set up PT Makara Mas as a vehicle to develop commercially viable research projects. Since establishment in 2008, Makara Mas has developed and marketed products to ensure that they find success outside of the laboratory including a foldable bicycle and a tuition fee payment system. Obtaining funding from the private sector is a persistent obstacle to realising projects and so the company has to appeal to the corporate social responsibility obligations of SOEs. Director of the organisation, Tjahjanto Budisatrio echoes the feeling of skepticism among the private sector ‘the private sector does not trust us, even if our software is cheaper, they prefer to use foreign technology as they are familiar with it. They do not want to invest in our projects as they see them as high risk and there are no facts behind them, but without financing for the pilot project we cannot produce the facts’. Through eventually spinning off commercially successful projects, Makara Mas continues to fund itself and is planning a number of interesting projects such as renewable energy from algae and further software programs. 146 | Global Performance Challenges: Building and Sustaining Competitiveness

Developing the research capabilities of their universities is a sentiment echoed by rectors throughout the education system. As they develop to build up the capacity for research centres, it opens up the possibilities for foreign universities looking to broaden their business research with a partner in a key emerging market. (Global Business Guide Indonesia, 2012) COOPERATION AND PARTNERSHIPS FOR EDUCATION FOR SUSTAINABLE DEVELOPMENT (ESD)


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To overcome the lack of education quality in Indonesia, government also build networks and partnerships established at an international level. Some examples include, (1) Participation and connections with the UN and UNESCO at regional and international levels. (2) Network for the Promotion of Sustainability in Postgraduate Education and Research. (3) Regional Centres of Expertise (RCEs). (4) Participation in international conferences such as the UNESCO World Conference on ESD (Bonn, Germany, 31 March–2 April 2009); the Advanced International Training Programme on ESD in Higher Education (Stockholm, Sweden, 27 April–15 May 2009); the Advanced International Training Programme on ESD in Higher Education (Thani, Thailand, 3– 14 August 2009); and the International Conference on University-Community Engagement (Penang, Malaysia, November 2009). (UNESCO, 2014)

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CONCLUSION

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The opportunities for Education System in Indonesia to achieve sustainability according to UNESCO (2014) are, (1) a closer cooperation between the NCESDI, the UNESCO National Commission and the Ministry of Education could enable a more efficient coordination of ESD planning, implementation and monitoring. (2) Policy change could also be initiated to support ESD developments at institutional levels. Despite the support of ESD policy in Indonesia, the allocation of budgets and the execution of programmes and projects is relatively slow. Furthermore, ESD remains to be embedded in the operations and systems of all government departments.

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Government are already aware of education for sustainable development of Indonesia, thus several effort has been made to overcome the lack of education qualities. However, there are many challenges to overcome in order to achieve the ambitious goals of the long term development. In Indonesia, ESD is viewed as an excellent opportunity to tackle these problems and to shape the future of a society ready to move towards sustainable development. REFERENCES [1] [2]

2013. Indonesia’s education system is one of the worst in the world according to a recent report. A Liquid Future. www.aliquidfuture.com/indonesias-education-system-is-one-of-the-worst-in-the-world-according-toa-recent-report/ 2012. Education Database: Education System in Indonesia. Classbase. www.classbase.com/ countries/ indonesia/ education-system


[3] [4] [5] [6] [7] [8] [9] [10] [11]

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Using the Whole Language Approach. U.S.A.: Charles C Thomas Publisher. Abdulhak, Ishak. 2000. “Pelaksanaan Inovasi Pendidikan” dalam Pengantar Pendidikan. Jakarta: Pusat Penerbitan Universitas Terbuka. Alwasilah, et al. 1996. Glossary of educational Assessment Term. Jakarta: Ministry of Education and Culture. Animo. 2009. “Masalah-masalah Pendidikan di Indonesia” (online), (http:// meilanikasim.wordpress.com/ 2009/03/08/makalah-masalah-pendidikan-di-indonesia, diakses tanggal 11 Maret 2012) Arikunto, S & Jabar. 2004. Evaluasi Program Pendidikan. Jakarta: Bumi Aksara Bastian, Abdul Qowi. 2013. Indonesian Education system Fails Student. The Jakarta Globe. www.thejakartaglobe.com/news/indonesian-education-system-fails-students/ Brown, Sam ED dan Everett, Rebecca Samalone. 1990. Activities for Teaching Buchori, Mochtar. 1994. Spektrum Problematika Pendidikan di Indonesia. Yogyakarka: Tiara Wacana Yogya. Direktorat Jendral Pendididikan Menengah. 2013. Restra (revisi). Direktorat Jendral Pendidikan Menengah Kementrian Pendidikan dan Kebudayaan. Jakarta. Global Business Guide.2012. Cooperating with Industry on Education and Research. Education-GBG. http://www.gbgindonesia.com/ Human Development Team. 2014. Sustaining Human Progress: Reducing Vulnerabilities and Building Resilienc. UNDP. Johnson, James H., 1993. ‘Total Quality Management In Education”, Journal Of Oregon School Study Council. Eugene. v36 n6 Feb. Kurniawati, Dewi. 2013. The Long and Winding Road to Improving the Quality of Education in Indonesia.. The Establishment Post. www.establishmentpost.com/long-and-winding-road-to-quality-of-education-inindonesia/. Nana, Sudjana. 1999. Penilaian Hasil Proses Belajar Mengajar. PT. Remaja Rosdakarya. Bandung. Dimyati & Mudjiono.2006. Peraturan Menteri Pendidikan Nasional Republik Indonesia Nomor 20 Tahun 2007 Tentang Standar Penilaian Pendidikan. Jakarta: Biro Hukum dan Organisasi Departemen Pendidikan Nasional. Belajar dan Pembelajaran. Jakarta: Departemen Pendidikan dan Kebudayaan Kerjasama dengan PT. Rineka Cipta. Edi Hendri Mulyana. Putri, Tri Artining. 2013. 2013 Education Curriculum Guaranteed Relevant for 20 Years Ahead. Tempo.co. Jakarta. en.tempo.co/read/news/2013/05/30/055484451/2013-Education-Curriculum-Guaranteed-Relevantfor-20-Years-Ahead. Rosyada, Dede. 2007. Paradigma Pendidikan Demokrasi: Sebuah Model Pelibatan Masyarakat Dalam enyelenggaraan Pendidikan. cet. III. Jakarta: Kencana Prenada Media Group. Sallis, Edward. 2008. Total Quality Management in Education, diterjemahkan oleh Ahmad Ali Riyadi dan Fahrurrozi dengan judul: Manajemen Mutu Pendidikan, cet. VII, Yogyakarta: IRCiSoD. Sardjan Kadir dan Umar Ma’sum. 1982. Pendidikan di Negara Sedang Berkembang. Surabaya: Usaha Nasional. Soebagioatmodiwiryo.2000. Manajemen Pendidikan Indonesia. Jakarta: PT. Ardadizya-Jaya. Tilaar, H.A.R. 2003. Manajemen Pendidikan Nasional, cet. VI, Bandung: Remaja Rosda-karya. UNESCO. 2011. National Journeys towards Education for Sustainable Development. http:// www.unesco.org/ new/ fileadmin/ MULTIMEDIA/ HQ/ED/ pdf/ gmr2012-report-edi.php. Zainul & Nasution. 2001. Penilaian Hasil belajar. Jakarta: Dirjen Dikti.


Corporate Governance and Firm Performance: Empirical Evidence from India Surya Bahadur G.C.1 and Ranjana Kothari2 1


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Assistant Professor, Faculty of Management Studies, Pokhara University, Nepal 2 Assistant Professor, Amity University Gurgaon, Haryana, India E-mail: [email protected], 2 [email protected] ABSTRACT

The paper attempts to analyze linkages between corporate governance and firm performance in India. The study employs a panel data of 50 Nifty companies from 2008 to 2012. Using LSDV panel data model and 2SLS model the study reveals that that good corporate governance practices adopted by companies is positively related with financial performance. Board independence, number of board committees, and executive compensation are found to have positive relationship while ownership by promoters and financial leverage have negative relationship with performance. There is existence of bi-directional relationship between corporate governance and financial performance. Companies with sound financial performance are more likely to conform to corporate governance norms and standards and implement sound corporate governance system. The findings indicate that companies can enhance business performance and sustainability by embracing sound corporate governance practices. Keywords: Corporate Governance, Firm Performance, Ownership Structure, Capital Structure

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INTRODUCTION

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Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined (OECD, 2004). Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital (Mallin, 2008). There has been reasonable consensus among practitioners and academicians about the importance of good corporate governance in the economy (Klapper & Love, 2002). Sound corporate governance can increase access to external financing by firms, which can lead to larger investment, higher growth, and creation of more jobs. It can lower the cost of capital and raise the value of the firm, making investments more attractive, which in turn can lead to growth and more employment. Good governance produces better operational performance through better allocation of resources and better management, creating wealth more generally. It can reduce the risk of financial

crises, which can have devastating economic and social costs. It can lead to better relationships with all stakeholders, and thus improve labor relations as well as the climate for improving social aspects such as environmental protection. Hence, companies that take a strategic approach to the challenge of complying with tough new corporate governance requirements can create opportunities to strengthen their internal processes and enhance their business performance, competitiveness and sustainability (Bebchuk & Ferrell, 2009).


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In recent years, corporate governance has attained significance all over the world. Two important factors have led to rapid developments in the area; integration of financial markets and a surge of corporate scandals in developed as well as emerging nations such as Enron, Tyco, World Com, Lehman Brothers, Olympus, Satyam and others (Srinivasan & Srinivasan, 2011). Scholarship in the field of corporate governance has been growing steadily over the last two decades. For emerging and developing countries, improving corporate governance can serve a number of important public policy objectives. Good corporate governance reduces emerging market vulnerability to financial crises, reinforces property rights, reduces transaction costs and the cost of capital, increases FDI and leads to capital market development (Vo & Phan, 2013).

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Many empirical studies have been conducted over the last two decades to investigate a relationship between corporate governance and a firm’s performance in the world. Most of the research in the area of corporate governance is done for developed economies, as rich data is only available for these economies where active market for corporate control exists and the ownership concentration is low. India like many developing countries is characterized by relatively weak investor’s protection and corporate law enforcement. Indian market is also characterized by the ownership concentration; cross-shareholdings, pyramid structure and the dominance of family business. Some institutional investors have identified corporate governance as a key factor affecting their willingness to invest in an emerging market (Dharmapala, 2011). These calls for corporate governance reform are based on the premise that corporate governance in emerging markets is in need of improvement. There are good reasons to think that the effectiveness of corporate governance might be quite different in developed and emerging markets (Kumar, 2004).

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Since its financial liberalization began in 1991, India has undergone significant corporate governance reform. The Securities and Exchange Board of India (SEBI)— India's securities market regulator – was formed in 1992. By the mid-1990s, the Indian economy was growing steadily, and Indian firms began to seek equity capital to finance expansion into the market spaces created by liberalization and the growth of outsourcing. The need for capital, amongst other things, led to corporate governance reform. The Confederation of Indian Industry (CII), an association of major Indian firms, issued a voluntary Corporate Governance Code in 1998, and then pressed the government to make the central elements of the code mandatory for public firms, which 150 | Global Performance Challenges: Building and Sustaining Competitiveness

SEBI did the following year, by adopting a reform package known as Clause 49 (Balasubramanian et al., 2009).


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A good system of corporate governance in India has long being recognized as important for the domestic economy, in that it can raise efficiency and growth; particularly when stock markets are playing an increasingly significant role in financing investment. CG has implications for the functioning of the Indian financial system in terms of: better allocation of capital over time; the ability of Indian firms to raise funds overseas and compete internationally, reducing the likelihood of a domestic financial crisis as well as an external payments crisis; and laying a strong foundation for further opening of the capital account (Saravanan, 2012). In India, with low dispersion of ownership, the primary methods to solve agency problems are the legal protection of minority investors, the use of boards as monitors of senior management, and an active market for corporate control. The research problem in this study is to determine the extent to which corporate governance has an impact on overall firm performance. Hence, the focus of this study is to examine the relationship between corporate governance and firm performance for publicly listed National Stock Exchange (NSE) firms in light of recent corporate governance reforms in India. LITERATURE REVIEW

CORPORATE GOVERNANCE AND FIRM PERFORMANCE

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Good corporate governance practices can help promote global financial market integrity and efficiency (Subrahmanyam, 2008). Corporate governance framework leads to equity market efficiency, innovation, entrepreneurship and economic growth. A good number of research studies have documented a positive relationship between corporate governance and financial performance although other studies showed mixed or no relationships (Julien & Rieger, 2003). Although it is difficult to clearly define what a well-governed firm is, Gompers et al. (2010) believed that firms that promote shareholder rights, have less management entrenchment, and independent board are well governed firms. Perhaps it is easier to identify and define bad governed firms by reversing these variables. Schlimm et al. (2010) believed that bad-governed firms pursue strategies that do not fit the core business strategy, have excessive turnover in executive ranks, and have CEO as board chairman. Thus, corporations that do not have independent board, have less shareholder rights, and more management control will be considered bad governed firms (Aglietta, 2008). The board serves as a bridge between owners and managers; its duty is to protect shareholders’ interests. Specifically speaking, taking responsibility for managing and supervising, the board should monitor managers’ behaviors for shareholders’ interests, make important decisions, supervise management team and superintend firms to obey the law. Jensen (1993) finds out that directors in a large board have diverse opinions and consensus is difficult to reach. Kirkpatrick (2009) unveil that board size is negatively Corporate Governance and Firm Performance: Empirical Evidence from India | 151

related to corporate performance. Nevertheless, Lampart et al. (2011) holds an opposite opinion that larger board implies members with diverse background and viewpoints, which is helpful for the quality of decisions. Hence, board size is positively related to corporate performance.


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A board includes internal and external directors. Fama and Jensen (1983) detect that internal directors, by virtue of their positions, possess much more information, are likely to collude with managers and make decisions against shareholders. By comparison, external directors in neutral position, acting as supervisor, are good for eliminating principal-agency problem. Lei (2006) find that board independence, significantly and negatively, correlates with short-term performance, but board independence makes no difference in improving corporate performance. According to Agency Theory, when a chairman assume the role of CEO, namely acting as decision maker and supervisor at the same time, the function of the board to minimize agency cost could be weaken tremendously; in the end, corporate performance goes down. Jensen and Meckling (1976) and Fama and Jensen (1983) unveil that CEO duality could bring about negative effects for corporate performance. Nevertheless, according to stewardship theory, executives’ responsibility may neutralize self-interest behaviors derived from CEO duality, and they are even much more devoted to advance corporate performance. Lu and Chang (2009) agree that CEO duality brings in positive effects for corporate performance.

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The nature of relation between the ownership structure and corporate governance structure has been the core issue in the corporate governance literature. In most of developing markets including India, the closely held firms (family or promoter controlled) dominate the economic landscape. The main agency problem is not the managershareholder conflict (i.e. the agency conflict) but rather the risk of expropriation by the dominant or controlling shareholder at the expense of minority shareholders (i. e. principal-principal conflict) (Appasamy et al., 2013 & Bebchuk et al., 2009). The agency problem in these markets is that control is often obtained through complex pyramid structures, interlock directorship, cross shareholdings, voting pacts and/or dual class voting shares that allow the ultimate owner to maintain (voting) control while owning a small fraction of ownership (cash flow rights). The dominant shareholder makes the decisions but does not bear full cost (Mallin, 2008). The negative impact that large family shareholders can have on firm value can be even greater when family members hold executive positions in the firm (Kirkpatrick, 2009 & Reinganum, 2009). The empirical evidence on corporate governance suggests that large owners have stronger incentive and better opportunities to exercise control over manager than small shareholders. Wu et al. (2010) find evidence of a positive relation between shareholding concentration and firm performance. However, Fama and Jensen (1983) and Shleifer and Vishny (1997) reveal that blockholder ownership above a certain level may lead to entrenchment of owner-mangers that expropriate the wealth of minority shareholders. 152 | Global Performance Challenges: Building and Sustaining Competitiveness

However much of the existing literature is based on the functioning of developed markets' firms where there exists wider dispersion in ownership structure than one find in emerging markets like India where large share holdings are common. REVIEW OF STUDIES IN INDIAN CONTEXT Rajagopalan and Zhang (2008) argued that corporate governance is particularly important for emerging economies where capital inflow is required for economic growth and development. There is a large of body of empirical research that has assessed the impact of corporate governance on firm performance for the developed markets. Corporate governance in emerging markets has not been studied as intensively as in developed markets. However, itt has now become an important area of research in emerging markets as well.


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Several studies examine Indian corporate governance generally. Mohanty (2004) finds that institutional investors own a higher percentage of the shares of bettergoverned Indian firms. Chakrabarti et al. (2007), study instances of minority shareholder expropriation by Indian firms and provide evidence on tunneling within Indian business groups. Dharmapala (2011) analyze the impact of corporate governance on firm value using a sequence of reforms in India (Clause 49) enacted in 2000. The study reveals a substantial positive causal effect of the reforms in combination with the 2004 sanction increase. The results, taken together, present evidence supporting a causal effect of the reforms on firm value.

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Saravanan (2012) made an attempt to study the impact of corporate governance in the determination of firm value in the manufacturing firms in India. 1732 firms and the relevant data were collected during the period 2001 to 2010. The data were analyzed using a multiple regression analysis to identify the factors that affect firm value. It is found that the firm value is significantly affected by the corporate governance variables for manufacturing firms. Balasubramanian et al. (2009) examine whether there is a crosssectional relationship between measures of governance and measures of firm performance and find evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. The association is stronger for more profitable firms and firms with stronger growth opportunities. Mohanty (2004) used 19 measures of corporate governance to develop a corporate governance index for a sample of 113 Indian companies. Based on the corporate governance index, he found that companies with better governance index scores generated higher returns as measured by Tobin’s Q and excess stock returns. Varshney et at. (2012) investigate the relationship between corporate governance and firm performance in the Indian context by constructing a corporate governance index based on internal and external corporate governance mechanisms. They conclude that there is a positive relationship exists between corporate governance based on the corporate governance index and firm performance, when the performance is measured in terms of the value-based performance tool. Corporate Governance and Firm Performance: Empirical Evidence from India | 153

RESEARCH METHODOLOGY DATA DESCRIPTION


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The research explores and analyzes the interrelationship between different variables related to corporate governance mechanisms and firm performance of Nifty-50 National Stock Exchange (NSE) listed firms. The data for this study is obtained from Prowess, a database that is maintained by the Center for Monitoring the Indian Economy (CMIE). Prowess reports financial statements, share prices, corporate governance indicators and other relevant data for publicly traded Indian corporations. All fifty companies that comprise the Nifty Index have been selected as sample for the study. The 50 Nifty companies selected, guaranteed assurance of those firms with highest performance with sufficient disclosures regarding best practice recommendations of corporate governance. The panel data set consists of 250 observations which includes time series data from 2008 to 2012 and cross-section units of 50 sample firms for all variables. Then, the underlying sample is divided into 2 major industry categorization (i.e. service and manufacturing) and 4 sub industry-wise groups (i.e. financial services, information technology, industrial production and manufacturing) to capture industry-wise differences in corporate governance characteristics and to facilitate analysis, comparison and interpretation. MODEL SPECIFICATION

The study uses multiple regression model to analyze relationship between board characteristic variables and firm performance. As the study is based on panel data, the OLS estimation will be biased. Hence, the following Least Squares Dummy Variable (LSDV) panel data regression model is used employing both firm and time dummies:

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PERF it = α0 + β1INDit+ ß2 SIZEit + ß3OWNit + ß4COMit+ ß5LEVit + ß6RUMit+

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Where i and t represent the firm and periods, respectively, di is the firm-specific effect, tt is time effect and eit is the error term. The Xit variables are vector of control variables. This specification allows for a firm specific fixed effect di, time effects that are common to firms captured by year dummies (tt), and a random unobserved component eit. In the model, α0 = intercept, IND= board independence, SIZE = board size, OWN= ownership structure as a proxy for shareholder rights, COM = committees, LEV= Capital Structure, RUM= Executive Remuneration, and. β1….β6 are the beta coefficients of the regression model. The dependent variable PERF is firm performance represented by Tobin’s Q and Market to Book value ratio. Brief review of the inter-relationships among corporate governance, corporate performance, corporate capital structure, and corporate ownership structure suggests that, from an econometric viewpoint, to study the relationship between corporate 154 | Global Performance Challenges: Building and Sustaining Competitiveness

governance and performance, one would need to formulate a system of simultaneous equations that specifies the relationships among the above mentioned variables. It further suggests that one might need to utilize an instrumental variables approach, such as two-stage least squares or three-stage least squares, to properly account for any potential simultaneity or endogeneity in the system. The study utilizes an instrumental variables approach to dealing with the potential endogeneity among governance, performance, ownership and capital structure. Hence, the study employs econometric method using the following system of four simultaneous equations specified by Bhagat and Bolton (2008):


Governance = f2(Performance, Ownership, Capital Structure, Z2, ε 2) Ownership = f3(Performance, Governance, Capital Structure, Z3, ε 3) Capital Structure = f4(Performance, Governance, Ownership, Z4, ε 4)

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Performance = f1(Governance, Ownership, Capital Structure, Z1, ε1)

Where, the Zi are vectors of control variables (Firm Size, Firm Value and Board Size) and instruments influencing the dependent variables and the εi are the error terms associated with exogenous noise and the unobservable features of managerial behavior or ability that explain cross-sectional variation in performance, governance, ownership and capital structure. RESULTS DISCUSSION

OUTPUT OF PANEL DATA MODEL

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The study employs panel data least square dummy variable model incorporating firm and time effects. The outputs of the model are given in Table 1 and Table 2. Table 1 presents the output of the regression models in which Tobin’s Q a measure of financial performance is used as the dependent variable.

Board Independence Board Size

No of Board Committees

Model II 0.926 (1.569) (0.590) 0.013 (0.012) (1.079) 0.058 (0.081) (0.719) -0.136*** (0.090) (-1.502)

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Model I 1.288 (1.394) (0.924) 0.009* (0.010) (0.907) -0.006 (0.074) (-0.081) -0.093 (0.068) (-1.367)

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Table 1: Relationship between Firm Performance as Measured by Tobin’s Q and Corporate Governance Model III -1.329 (3.115) (-0.427) 0.008 (0.020) (0.423) -0.097 (0.185) (-0.527) 0.070 (0.115) (0.069)

Model IV 2.913* (0.939) (3.102) -0.010 (0.007) (-1.441) -0.147** (0.059) (-2.465) -0.203* (0.042) (-4.882)

Model 3.991 (34.385) (0.116) -0.063 (0.064) (-0.991) -0.284 (0.854) (-0.332) 0.460 (0.825) (0.558)

Model VI 0.761 (1.098) (0.693) -0.025* (0.010) (-2.602) -0.125** (0.059) (-2.136) -0.102 (0.067) (-1.513)

Model VII -2.230 (4.577) (-0.487) 0.027 (0.032) (0.850) 0.343*** (0.206) (1.667) -0.061 (0.295) (-0.207) Table 1 (Contd.)…

Corporate Governance and Firm Performance: Empirical Evidence from India | 155

…Table 1 (Contd.)

0.002 0.002 0.010*** 0.008*** 0.005 0.003* 0.001 (0.001) (0.004) (0.006) (0.004) (0.011) (0.001) (0.004) (1.211) (1.291) (1.714) (1.967) (0.458) (2.997) (0.186) Promoter 0.034* 0.047* 0.038** 0.046* 0.074 0.097* 0.051 Shareholding (0.012) (0.016) (0.016) (0.008) (0.234) (0.014) (0.038) (2.870) (3.027) (2.326) (5.714) (0.317) (6.776) (1.333) Leverage -0.374** -2.203* 0.010 -0.022 -9.637 -1.425* -2.697** (0.145) (0.475) (0.140) (0.47) (21.237) (0.342) (1.374) (-2.573) (-4.845) (0.073) (-0.465) (-0.454) (-4.165) (-1.963) R-Squared 0.332 0.234 0.467 0.545 0.697 0.537 0.295 Adjusted R2 0.187 0.156 0.243 0.376 0.475 0.423 0.178 F-Statistics 1.865* 1.085* 2.107* 3.757* 3.007* 6.710* 0.565* Total df 217 167 49 39 14 92 69 Model I consist observation of all Nifty companies. Model II and III are based on observations of manufacturing and service sector while models IV, V, VI and VII are based on observations of financial, IT, industrial production and other manufacturing industries respectively. *, ** & ***means the variable is significant at 1%, 5%, and 10% level of significance respectively. The first value is beta coefficient. The values in parentheses are standard error followed by t-statistics.


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Director Remuneration

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Model–I uses the data of all sample firms. In the model, the variables board independence, promoter shareholding, leverage are significant variables while board size, number of board committees and directors remuneration have been found to be insignificant in explaining firm performance. The beta coefficient of independent director variable is 0.009 and it is significant at 1% level of significance. The sign of the beta coefficient is positive. Hence, there exists positive and statistically significant relationship between board independence and TOBIN’S Q. It means firms with higher number of independent directors on board have higher TOBIN’S Q. The variable promoter shareholding is also significant at 1% level of significance. The beta coefficient of the variable is positive. It illustrates that higher share ownership by promoters results into better financial performance. Leverage has negative beta co-efficient of -0.374 and is significant at 5% level of significance. Hence, higher leverage will lower down the performance. The value of R-squared is 0.33 for the model. It means that the independent variables in the model explain around 33% of the total variation in the dependent variable. The F-value is significant at 1% level of significance representing adequacy of the regression model.

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Model–II explains the data of manufacturing firms. In the model, number of board committees, promoter’s shareholding and leverage are found to be significant variables affecting firm’s TOBIN’S Q while independent directors, board size and director’s remuneration have been found to be insignificant. The beta co-efficient of number of board committees is negative and is significant at 10% level of significance. It reveals existence of negative statistical relationship between number of board committees and TOBIN’S Q. It means higher number of board committees will have negative impact on firm’s performance. Promoter’s shareholding has beta co-efficient of 0.047 and is significant at 1% level of significance which reveals that higher promoters shareholding 156 | Global Performance Challenges: Building and Sustaining Competitiveness

will result into better performance. Leverage has negative statistical relationship with TOBIN’S Q and is significant at 1% level of significance. An increase in leverage of manufacturing firms will lower down the performance of the firm. The value of Rsquared is 0.23 for the model. It means that the independent variables in the model explain around 23% of the total variation in the dependent variable. The F-value is significant at 1% level of significance representing adequacy of the regression model.


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In Model–III, the variables director’s remuneration and promoter’s shareholding has significant relationship with dependent variable TOBIN’S Q. Director’s remuneration has positive beta co-efficient of 0.010 and is significant at 10% level of significance. Hence, an increase in remuneration will improve firm’s TOBIN’S Q. Similarly, promoter’s shareholding is positively significant at 5% level of significance. Therefore, higher promoter’s shareholding will result in to better TOBIN’S Q. Model–IV gives output of model for financial service firms. In the model, variables board size, board committees, director’s remuneration and promoter’s shareholding have significant relationship with TOBIN’S Q. In Model-V all the independent variables have insignificant relationship with dependent variable TOBIN’S Q. In Model-VI, the data of various industrial production firms exhibits that only one variable i.e. board committees has insignificant relationship with TOBIN’S Q. All other variables have significant relationship with TOBIN’S Q. In Model VII variables board size and leverage have significant relationship with TOBIN’S Q while variables board independence, board committee, directors remuneration and promoters’ share-holding have insignificant relationship with TOBIN’S Q. In all models, the firm and time effects are significant indicating presence of sector-wise and industry-wise differences in effect of corporate governance variables with firm performance.

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Table 2 below presents the output of the regression models in which M/B Ratio a measure of financial performance is used as the dependent variable. In the model-I, the variables board independence and director remuneration, are significant variables while board size, number of board committees, promoter’s shareholding and leverage have been found to be insignificant in explaining firm performance. The beta coefficient of independent director variable is 0.016 and it is significant at 10% level of significance. The sign of the beta coefficient is positive. Hence, there exists positive and statistically significant relationship between board independence and M/B Ratio. It means firms with higher number of independent directors on board have higher M/B Ratio. Director remuneration is significant at 5% level of significance and has positive relationship with M/B Ratio. It means increase in compensation for board of directors contributes for better financial performance. The value of R-squared is 0.42 for the model. It means that the independent variables in the model explain around 42% of the total variation in the dependent variable. The F-value is significant at 1% level of significance representing adequacy of the regression model. Corporate Governance and Firm Performance: Empirical Evidence from India | 157

Table 2: Relationship between Firm Performance as Measured by M/B Ratio and Corporate Governance Model I

Model II

Model III

Model IV

Model V

Model Model VI VII Constant 0.583 0.943 -0.496 2.767*** 5.019 -0.300 -2.630 (1.390) (1.691) (3.127) (1.639) (33.654) (0.582) (5.216) (0.419) (0.571) (-0.159) (1.688) (0.149) (-0.515) (-0.504) Independent 0.016*** 0.016 0.016 -0.003 -0.060 0.001 0.006* Directors (0.010) (0.013) (0.020) (0.012) (0.062) (0.005) (0.036) (1.575) (1.274) (0.808) (-0.228) (-0.958) (0.229) (0.167) Board Size 0.043 0.059 -0.056 -0.120 -0.323 0.011 0.274 (0.073) (0.085) (0.185) (0.104) (0.835) (0.031) (0.234) (0.581) (0.688) (-0.302) (-1.155) (-0.387) (0.347) (1.170) No of Board -0.013 -0.061 0.131 -0.156** 0.430 0.037 0.175 Committees (0.068) (0.095) (0.116) (0.073) (0.807) (0.035) (0.336) (-0.190) (-0.643) (1.133) (-2.144) (0.533) (1.033) (0.529) Director 0.004** 0.003** 0.010*** 0.017** 0.006 0.004* 0.004** Remuneration (0.001) (0.002) (0.006) (0.007) (0.010) (0.001) (0.007) (2.487) (1.963) (1.735) (2.425) (0.620) (5.914) (1.033) Promoter 0.011 0.010 0.013 0.040* 0.067 0.017** 0.038 Shareholding (0.012) (0.016) (0.016) (0.014) (0.992) (0.008) (0.043) Ratio (0.941) (0.592) (0.768) (2.291) (0.292) (2.248) (0.132 Leverage -0.095 -0.373 0.037 0.043 -10.129 0.235 0.017 (0.145) (0.500) (0.140) (0.083) (20.785) (0.181) (1.566) (-0.408) (-0.746) (0.267) (0.522) (-0.487) (1.296) (0.011) R-Squared 0.423 0.532 0.723 0.702 0.706 0.428 0.287 Adjusted R2 0.347 0.421 0.475 0.485 0.642 0.382 0.182 F-Statistics 4.144* 4.697* 4.135* 12.978* 3.200* 10.742* 1.475* Total df 217 167 49 39 14 92 69 Model I consist observation of all Nifty companies. Model II and III are based on observations of manufacturing and service sector while models IV, V, VI and VII are based on observations of financial, IT, industrial production and other manufacturing industries respectively. *, ** & ** means the variable is significant at 1%, 5%, and 10% level of significance respectively. The first value is beta coefficient. The values in parentheses are standard error followed by t-statistics

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Model–II explains the data of manufacturing firms. In the model, only independent variable i.e. directors remuneration proved to have significant relationship with M/B ratio all other variables will have insignificant relationship with M/B ratio . Director’s remuneration has beta co-efficient of 0.003 and it is significant at 5% level of significance. It has positive relationship with M/B Ratio, which means increase in Director’s remuneration will increase in better financial performance. The value of Rsquared is 0.53 for the model. It means that the independent variables in the model explain around 53% of the total variation in the dependent variable. The F-value is significant at 1% level of significance representing adequacy of the regression model. In Model–III, the variables board independence and directors remuneration has significant relationship, all other variables are having insignificant relationship with M/B ratio. Board independence has positive beta co-efficient of 0.016 and is significant 158 | Global Performance Challenges: Building and Sustaining Competitiveness

at 5% level of significance. Hence, we can say that an increase in number of independent directors will improve M/B Ratio of service sector firms. Director’s remuneration is significant at 1% level of significance and has positive statistical relationship with M/B Ratio. Therefore, an increase in remuneration of directors serving in service sector will have greater profitability. The value of R-squared is 0.72 for the model. It means that the independent variables in the model explain around 72% of the total variation in the dependent variable. The F-value is significant at 1% level of significance representing adequacy of the regression model.


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Model–IV explains data of financial service providing firms. In the model, variable like board committees, directors remuneration and promoter’s shareholding has significant relationship with M/B Ratio while Independent directors, board size and leverage is having insignificant relationship with M/B Ratio. In Model-V, the data of various IT firms explains that no independent variable will have significant relationship with M/B Ratio. All the variable are insignificant and carries no statistical significant relationship with M/B ratio. In Model-VI variables like Promoter’s share-holding and directors remuneration has significant relationship with M/B Ratio. In Model VII variables like independent directors, and directors remuneration will have significant relationship with M/B Ratio while variables like board size, board committee, leverage and promoters’ share-holding has insignificant relationship with M/B Ratio. In all models significant firm and time effects have been observed which reveals that the effect of corporate governance on firm performance is different across industry and sector. DISCUSSION OF 2SLS MODEL OUTPUT

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Table 3 presents the output of the 2SLS equation models used for estimation of endogenous relationship between firm performance and corporate governance. In Model A, ROA, measure of financial performance is the endogenous variable in this first equation of the simultaneous equation model. As a measure of corporate governance, an index of corporate governance is created using summated score of different corporate governance characteristics. The coefficients of governance (CGINDEX) and capital structure (LEVERAGE) are significant at 1% level of significance. The coefficient of governance is positive. It indicates that firms with sound corporate governance practices have better financial performance. The coefficient of capital structure (LEVERAGE) is negative indicating leverage has negative relationship with performance measured by ROA. The coefficient of instrument variables LNTA and LNMCAP are significant at 1% and 5 % level of significance respectively. Total asset has positive and market capitalization has negative relationship with performance. The F-value is significant at 1% level of significance representing overall model adequacy. Corporate Governance and Firm Performance: Empirical Evidence from India | 159

Table 3: Output of Two-stage Least Squares (2SLS) Simultaneous Equation Model Model-A (ROA) -1122.5* (374.721) 1.16299 (1.78104) 208.174* (53.218) -319.2* (59.68)

C OWNERSHIP CGINDEX LEVERAGE ROA

164.843* (32.05) -96.391* (32.80) -9.4721 (9.94) 0.66795 0.5932 518.307 7.92779*

-0.085 (0.073) 0.00609* (0.001) -0.5962* (0.15) 0.38604* (0.11) 0.08203** (0.03) 0.72053 0.6992 1.70827 12.6684*

Model-C (OWNERSHIP) -61.205 (40.36)

-2.2511 (4.14) -11.233* (2.60) -0.2473* (0.04) 24.7329* (5.36) -6.2708*** (3.31) 0.34198 (0.09) 0.60197 0.51547 49.3114 7.95182*

Model-D (LEVERAGE) -5.4487 (3.32) -0.089* (0.02) -0.2004 (0.38)


LNTA

Endogenous Variables Model-B (CGINDEX) 7.80888* (1.25) -0.071* (0.001)

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LNMCAP BSIZE R-squared Adjusted R-squared S.E. of regression F-statistic

-0.022* (0.004) 2.20184* (0.41) -0.5583** (0.26) 0.03045 (0.08) 0.72093 0.64793 4.38993 5.58597*

*, ** & ***means the variable is significant at 1%, 5%, and 10% level of significance respectively. The first value is beta coefficient. The values in parentheses are standard errors.

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Model–B presents the output of 2SLS regression model using governance as the dependent endogenous variable. Performance, ownership, size, and market value are significant variables. ROA is positively related to governance. It indicates that firms with good performance seem to have better governance practices adopted. The sign of ownership variable is negative, indicating higher proportion of ownership by promoter group results in inferior corporate governance practices. It supports the principalprincipal conflict that exists in most countries with ownership concentration. The sign of total asset is negative and the sign of the coefficient of market capitalization is

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positive. The R value is 0.72 and F-statistic is significant at 1% level of significance.

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Model–C presents the output of the structural equation model using ownership as the dependent variable. The variables ROA, leverage, total asset, and market capitalization are significant variables. The governance variable is found to be insignificant. It indicates that ownership doesn’t depend on governance. The variables in the model explain around 60 percent variation in the dependent variable as represented by the R-squared. The overall fit of the model is adequate as exhibited by the significant F-value. Model–D provides the output of the final simultaneous equation model taking leverage as the dependent endogenous variable. The CGINDEX indicator of corporate 160 | Global Performance Challenges: Building and Sustaining Competitiveness

governance is not significant. It means governance practices adopted by a firm doesn’t impact its capital structure decision. The variables ROA, Promoter shareholding and Total Asset are significant at 1% level of significance while exogenous variable market capitalization is significant at 5% level of significance. The ROA has positive beta coefficient supporting the fact that profitable companies have high debt level. The coefficient of ownership variable is negative indicating firms with ownership concentration in hands of promoters employ lower financial leverage. The coefficient of variable Total Asset is positive. It provides the support for the fact that firms with higher total asset have higher debt level. The coefficient for market value is negative. It indicates that firms that have higher market value have lower debt level. The R-squared value is 0.72 and the value of F-statistics is significant at 1 % level of significance.


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The results of the 2SLS model reveal the existence of endogenity in performance and governance. The findings show that firms adopting sound governance mechanism have better performance. Hence, financial performance of a firm is influenced by governance practices adopted by the firm. The governance is found to depend on performance and ownership structure. Firms with good financial performance have better corporate governance practices. It has been found that stock ownership concentration in promoters hand leads to weaker governance practices. CONCLUSION

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From the results of the study we can conclude that companies with higher stock ownership by promoters have weaker corporate governance. Greater number of board committees is positively associated with corporate governance practices. Similarly, increase in director remuneration can contribute to better corporate governance. However, ownership concentration is found to weaken corporate governance practices. Firms with higher financial leverage have weaker corporate governance. The findings of the study reveal that good corporate governance practices adopted by companies is positively related with financial performance. Hence, Indian companies can improve their financial performance by applying good corporate governance standards. There is existence of bi-directional relationship between corporate governance and financial performance. Companies with sound financial performance are more likely to confirm to corporate governance norms and standards and implement sound corporate governance system. REFERENCES [1] [2] [3]

Aglietta, M. (2008). Corporate governance and the long-run investor. International Review of Applied Economics, 22 (4), 407-427. Appasamy, C., Lamport, M., Seetanah, B., & Sannassee, R. V. (2013). Corporate governance and firm performance: Evidence from the insurance industry of Mauritius. Paper presented at the Cambridge Business and Economic Conference, Cambridge University, U.K. Balasubramanian, N., Black, B. S., & Khanna, V. (2009). Firm-level corporate governance in emerging markets: A case study of India. India Corporate Governance Overview, 5(2), 123-145.


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Current Status of Foreign Direct Investment in India Dr. O.P. Verma1 and Vijeta Sharma2 Professor in Department of Commerce, Himachal Pradesh University, Shimla 2 Ph.D Research Scholar, Department of Commerce, Himachal Pradesh University, Shimla


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ABSTRACT

Foreign direct investment (FDI) policies play a major role in the economic growth of developing countries around the world and the development of the nation. India has only very recently emerged as a destination for FDI since the pre-reform years were marked with a sharp antipathy toward foreign capital unless under certain conditions and was encouraged by financial liberalization and market-based reforms in many emergent market economies (EMEs). After liberalisation of trade policies in India, there has been a positive GDP growth rate in Indian economy. The benefits of FDI vary greatly across sectors by examining the effect of foreign direct investment on growth in the primary, manufacturing, and services sectors and inflows into different sectors depending upon their propensity to attract FDI. The prospect of new growth opportunities and outsized profits encourages large capital inflows across a range of industry and opportunity types. The paper focuses on the trends of FDI inflows by categorizing them into sector-wise, region-wise, year-wise and country wise FDI inflow in India. The result depicts that among the sectors; Service sector, among the regions Mumbai and among the countries Mauritius are at the top. It also shows that there has been a remarkable increase in FDI inflow in India during the year 2000 to (May) 2014.

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INTRODUCTION

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Keywords: FDI, Development, Inflow, Economic Growth

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Rapid economic growth in India over the last sixteen years has drawn attention from all over the world. The change in India’s policy towards liberalization in 1991 has provided a good external environment for sustainable economic growth. The main elements of the reform are the abolition of the licensing requirements for governing domestic investment, reduction in tariffs on imports, liberalizing trade policy and relaxation of controls over Foreign Direct investment (FDI). As a result, the inflow of FDI in India in almost all the sectors has increased the ceiling even up to 100 per cent. Besides, the policies on export promotion has been pursued by a number of radical reforms, like liberalization of the foreign exchange market, encouragement on FDI by Special Economic Zones (SEZs), Export Promotion Zone (EPZs), and relaxing industrial restriction to exploit India’s comparative advantages in international trade. Due to the economic reform, India has become one of the fastest growing economies in the world. Among the developing countries, India has now emerged as the second most preferred FDI destination after China (RBI Annual Report, 2006-07).The period after 1991 is termed as post liberalization period during which not only the quantum of FDI to India

escalated but the sector-wise composition of FDI also underwent incredible change. The post liberalization period was very productive for the Indian economy to head with a swift pace. Though the liberal policy position and strong economic fundamentals appear to have driven the sharp rise in FDI flows in India over past one decade and continued their strength even during the period of global economic crisis (2008-09 and 2009-10), the subsequent moderation in investment flows despite faster recovery from the crisis period appears somewhat inexplicable. Survey of empirical literature and analysis seems to suggest that these divergent trends in FDI flows could be the result of certain institutional factors that reduced the investors; sentiments despite continued strength of economic fundamentals.


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FDI–means investment by a non-resident entity, person resident outside India in the capital of an Indian company, under schedule of the foreign exchange management Regulations, 2000 .The UNCTAD World investment Report (WIR) 2012, in its analysis of the global trends in foreign direct investment (FDI) inflows has continued to report India as the third most attractive location for FDI for 2012–2014.The report also mentions that India accounted for more than four fifths of FDI in south Asia in 2011.The financial year 2011 survey of the Japan Bank for international cooperation conducted among Japanese investors, continues to rank India as the second most promising country for overseas business operations in the medium term. For the long term, India has been rated as the top investment destination with china being rated as the second. Ernst &young’s 2012 attractiveness survey has mentioned India as the 4th global destination for FDI in terms of the number of FDI projects. It has reported that 71% of business leaders surveyed are keen to invest in India in the near future. The 2012 A.T.Kearney confidence index rates India second in terms of future prospects for FDI inflows after china followed by Brazil, USA, Germany, Australia, Singapore, U.K., Indonesia, Malaysia, South Africa and Russia.

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Borensztein et al. (1998) examine the relationship between FDI created growth and technological differences and human capital. They suggest that the absorptive power of a country’s technological capabilities might be able to explain the variation in the growth spearheaded by FDI across countries. Their analytical framework suggests that the level of human capital prevalent in a country is what determines its ability to attract foreign technology. Thus, given the amount of FDI coming in, a country with a larger endowment of human capital would induce greater growth rates than a country whose labour force is not as skilled. It also states that countries may require a minimum threshold of human capital stock for higher productivity of FDI. K. Durairaj (2010) examines the causal nexus among Export, Economic Growth and Foreign Direct Investment (FDI) in India using the autoregressive distributed lag (ARDL) co integration procedure on monthly data over the period 1992 to 2008. Current Status of Foreign Direct Investment in India | 165

Gurmeet Singh (2012) reveals that after liberalisation, there has been a shift in favour of service sector and a steep fall in the share of manufacturing sector. It was also observed that FDI has helped to raise the output, productivity and employment in some sectors especially in the service sector. Hiranya K Nath (2013) analyses the retail trade in the wake of the country’s new policy that will allow foreign capital in multiband retailing .It was observed that economic dynamics play an important role in determining the outcomes of this move to allow FDI in the retail sector and will ultimately determine the effects on various stakeholders.


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Rajdeep kaur (2014) reveals that Mauritius emerged as the most dominant source of FDI contributing 77,083.47million US $ of the total investment in the country .It has been observed that service sector has been found at the top in term of FDI stocks in India followed by construction development, telecommunication & computer software and hardware. OBJECTIVES OF THE STUDY

1. To analyse the country wise and sector wise status of FDI in India from 2000–2014. 2. To analyse trends and pattern of FDI inflows since2000.

3. To recommend suggestions to improve the level of FDI in economic system. RESEARCH METHODOLOGY

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This research is a descriptive study in nature. To study the objectives of the present research, secondary data has been used. The relevant secondary data has been collected from reports of the Ministry of Commerce and Industry, Department of Industrial Promotion and Policy, Government of India, Reserve Bank of India, and World Investment Report. The time period of the study has been taken w.e.f April, 2000 to May 2014. Graphical and tabulated presentation of data have also been used where ever to represent the trends of FDI during the study period.

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ANALYSIS OF THE STUDY FOREIGN DIRECT INVESTMENTS FLOWS TO INDIA Table 1 shows the amount of FDI inflows from April, 2000 to May, 2014. In the first block, the sum of equity inflows, reinvested earnings and other capital. Cumulative amount of inflows are 331,923 million in US $. In the second block, cumulative amount of FDI equity inflows which excludes amount remitted through RBI’s+ NRI schemes are Rs 1,075,560 crores and 222,890 million in US $.


Table 1: Cumulative FDI Flows into India and Total FDI Inflows w.e.f. April, 2000 to May, 2014. 1

CUMULATIVE AMOUNT OF FDI INFLOWS (Equity inflows+ Re-invested earnings+ other capital) 2 CUMULATIVE AMOUNT OF FDI EQUITY Rs (excluding, amount remitted through RBI’s- +NRI Schemes) 1,075,560 Crore Source: As per Department of Industrial and Promotion (DIPP), Federal Ministry Industry, Govt of India

US$ 331,923 Million US$ 222,890 Million of Commerce and

TRENDS AND PATTERNS OF FDI SINCE 2000 TO 2014 (UP TO MAY, 2014)


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FDI is now widely recognised as an important source for industrial development in developing countries in view of the fact that it brings new intermediate goods and bundle of capital technology. Industry in developing countries like India is now under pressure to speed up the production process for the global competitive market .Economic reforms were initiated in India after 1990s in a systematic shift toward an open economy along with privatisation. The removal of quantitative barriers in a phased manner opened up the economy to international market forces and led to the rapid emergence of a highly competitive environment especially in the industrial sectors in India. This has emphasized the importance of continuous improvement in productivity and efficiency in the industrial sector. Table No 2: Year-Wise FDI Equity Inflows to India Years

Amount of FDI Inflows In Rs Crores In US$ Million 10,733 2,463 18,654 4,065 12,871 2,705 10,064 2,188 14,653 3,219 24,584 5,540 56,390 12,492 98,642 24,575 142,829 31,396 123,120 25,834 97,320 21,383 165,146 35,121 121,907 22,423 147,518 24,299 31,663 5,309 1,076,094 223,012

%Age Growth Over Previous Year (in Terms of US $) (+) 65% (-)33% ( - ) 19 % ( + ) 47 % ( + ) 72 % (+ )125 % ( + ) 97 % ( + ) 28 % ( - ) 18 % ( - ) 17 % (+) 64 % (-) 36 % (+) 8% -

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2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09‘*’ 2009-10# 2010-11 # 2011-12 # ^ 2012-13 # 2013-14 2014–2015(Apr - May, 2014) CUMULATIVE TOTAL (From April, 2000 to May, 2014) Source: Department of Industrial and Policy and Promotion (DIPP), Federal Ministry of Commerce and Industry, Government of India

Current Status of Foreign Direct Investment in India | 167

Table No 2 depicts that an inflow of FDI to India during April, 2000 to May, 2014 has been worked out 223,012 million US$. FDI inflows have increased till 2002.This may be the result of Foreign Exchange Management Act (FEMA) which is introduced in 1999. Further it followed negative trend up to period 2003–2004, despite the suitable progressive Indian policy regime. But from the year 2004–05 to 2008–09 investment into India has shown increasing trend. The highest FDI inflows growth in the country in 2006–2007 year was 125%. Further, FDI inflows rose by 64%to US$ 35,121 million during 2011–12. FDI has again shown declining tendency during the year 2012–2013 as compared to the previous year. Country wise FDI equity inflows have been exhibited in Table–3. COUNTRY WISE FDI


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From Table 3, it is very clear that Mauritius remains the highest investor in India with a total FDI inflow of US$80,808.09 million, while the Singapore and the United Table No 3: Statement on Country-Wise FDI Equity Inflows from April, 2000 to May, 2014 Amount of Foreign Direct Investment Inflow % Age with Total FDI Inflows (+) (In Rs crore) (In US$ million Mauritius 384,077.44 80,808.09 36.25 Singapore 131,603.97 26,417.34 11.85 United kingdom 104,123.46 21,308.99 9.56 Japan 82,559.65 16,587.26 7.44 U.S.A 56,652.77 12,081.08 5.42 Netherlands 57,194.55 11,384.91 5.11 Cyprus 36,590.62 7,590.07 3.41 Germany 32,108.27 6,602.76 2.96 France 19,191.28 3,959.27 1.78 Switzerland 13,452.24 2,758.28 1.24 UAE 13,235.38 2,738.79 1.23 Spain 9,370.27 1,862.25 0.84 South Korea 7,168.50 1,453.30 0.65 Italy 6,552.87 1,384.27 0.62 Hong Kong 5,949.72 1,231.82 0.55 Source: Department of Industrial and Policy and Promotion Federal Ministry of Commerce & Industry, Government of India

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Name of the country

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Kingdom are on the second and third position respectively with a total investment of US$ 26,417.34 million and US$ 21,308.99 million followed by Japan with 7%. On the other side, investments from France, Switzerland, UAE, Spain, South Korea, Italy, Hong Kong remain very low ranging between 1% and 0.01% respectively. The very fact due to which Mauritius is the highest investor in India is that the Double Taxation Avoidance Agreement (DTAA). Under this agreement the investors from Mauritius are protected from taxation in India. It has been observed that some of the countries like Israel, Thailand, Hong Kong, South Africa and Oman increased their share gradually during the period under study. It is also interesting to note that some of the new countries such as Hungary, Nepal, Virgin Islands, and Yemen are making significant investments.


Country wise FDI inflows 40 35 30 25 20 15 10 5 0

%

Fig. 1: Country-Wise FDI Inflows


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In the next Table, an attempt has been made to analyze sector-wise FDI equity inflows during the study period Table 4 depicts the sector wise FDI inflow in India during April, 2000 to May 2014. The sector wise distribution of inflows of FDI presented in Table 3 is quite peculiar. The analysis indicates that the sector attracting the highest FDI inflows during 2000 to May 2014 is the services sector (both financial and non-financial) which is almost 18% of total inflows of FDI. Service sector includes financial, non financial, banking, insurance and business outsourcing. In the manufacturing sectors, the second highest position is construction development and its share holding is 11% of the total FDI inflows. The top ten Leading sectors for FDI Table 4: Sector-Wise FDI Equity Inflows from April, 2000 to May, 2014 Sector

Amount of FDI Inflows (In Rs Crore) (In US$ Million) 189.015.09 40,033.89 23,527.08 23,527.08

% Age with Total FDI Inflows (+) 17.96 10.56

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Service Sector* Construction development(townships, housing, built-up infrastructure and construction-development projects) Telecommunications 75,685.13 15,674.61 Computer software & hardware 60,338.96 12,929.26 Drugs & pharmaceuticals 60,100.90 12,277.13 Automobile industry 48,632.26 9,885.21 Chemicals(other than fertilizers)_ 45,796.49 9,761.60 Power 43,530.99 9,047.04 Metallurgical industries 38,939.53 8,189.75 Hotel & tourism 37,587.00 7,348.09 Food processing industries 34,385.16 5,893.46 Trading 28,224.84 5,530.31 Petroleum & narural gas 25,486.80 5,493.71 Information & broadcasting(including print media) 18,134.00 3,726.59 Electrical Equipments 15,888.53 3,385.83 Source: Department of Industrial Policy and Promotion, Federal Ministry of Commerce Government of India.

7.03 5.80 5.51 4.44 4.38 3.67 3.67 3.30 2.64 2.48 2.46 1.67 1.52 & Industry,


Sector wise FDI inflows Service sector Construction development Telecommunications Computer software and hardware Drugs &pharmaceuticals Automobile Chemicals Power Metallurgical


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Hotel &tourism Food processing industries Trading

Petroleum & natural gas

Fig. 2: Sector-wise FDI Inflows

inflows in manufacturing industries include the automobile industry and chemicals industry. The automobile industry did not even rank in the top ten leading sectors for attracting the highest FDI inflows before 2009 but in 2009, it was one of the leading sectors and attracted US $ 9,885.21 million that is 4.44% out of the total FDI inflows. Overall manufacturing industries accounts for nearly 50% of the total FDI inflows during 2000 to May 2014. While hotel and tourism with the amount of Rs. 37,587.00 crores (7,348.09 US million $) which is 3.30% of FDI inflows to India.

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CONCLUSION

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Foreign direct investment plays an important role in the economic development of the country. It helps in transforming of financial resources, technology and innovative and improved management techniques along with raising productivity. It is concluded that the trend of FDI in India showed a positive picture. Foreign investors are enjoying the benefits of liberalised FDI policy by investing into equity shares of Indian corporate on automatic route. The study shows that there has been remarkable increase in FDI inflow in India during the period 2000 –May 2014. No doubt, there are some factors which are restricting the flow of FDI to India but Indian economy is growing day by day. It is expected that in the upcoming year FDI will grow more than the last years. India is considered second largest country amongst all over developing countries and ranks fourth in the PPP in the world. So India has high potential to attract FDI inflow. The present study found that total FDI inflow in India from April 2000 to May 2014 is 331,923 US$ million. The study also reveals that Mauritius emerged as the most 170 | Global Performance Challenges: Building and Sustaining Competitiveness

dominant source of FDI contributing 40,033.89 US$ million of the total investment in the country. The services sector accounted for a steeply rising share of FDI stocks in India followed by construction, Telecommunications and Computer. RECOMMENDATION AND SUGGESTIONS

We should welcome inflow of foreign investment in such a way that it should we convenient and favourable for Indian economy and enable us to achieve our cherished goal like rapid economic development, removal of poverty, internal personal disparity in the development and making our Balance of Payment favourable.

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Government should lookout against the risk of foreign retailers becoming monopolistic and charging high prices by allowing them in restrictive manner.


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Thus it can be seen that FDI can play a significant role for economic growth and development through its strengthening of domestic capital, productivity and employment creation by integrating its economy with that of the global economy. REFERENCES

[3] [4] [5] [6]

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Annual Report 2012-2013, Govt of India, Ministry of Commerce & Industry Department of Industrial Policy Promotion. Borensztein, E, De Gregorio, J & Lee, J.W., (1998), “How does foreign direct investment affect economic growth?” Journal of International Economics, Vol 45 No.1, pp.115-135. Gurmeet Singh, Justin Paul (2012), “Foreign Direct Investment in India-Trends, Pattern and linkage”, Journal of Business Management Studies,Vol.10,No.1, January-June,PP.19-29. Hiranya K Nath (2013), “Foreign Direct Investment (FDI) in India’s Retail sector”, Space and Culture, India, Vol.1, No.1, May, PP.1-12. http://ssrn .com/abstract-1945556. Jasbir Singh, Sumita Chadha, Anupama Sharma (2012), “Role of Foreign Direct Investment in India: An Analytical Study”, Research/Inventory, International Journal of Engineering and Science, Vol.1, No.5, October, PP.34-42. K. Durairaj (2010) “Foreign Direct Investment, Export and Economic Growth in India: An Application of ARDL Model”, Asian-African Journal of Economics and Econometrics, Vol.10, No.2, PP.245-259. Mamta Sharma, Satbir Singh (2013), “Foreign Direct Investment in India: Regulatory Framework, Issues and Current Status, International Journal of Management and Social Sciences Research (IJMSSR), Vol. 2, No. 8, August, PP.108-120. Rajdeep kaur,Nikita,Reena(2014), “ Trends and Flow of Foreign Direct Investment in India”, Abhinav National Monthly Refereed Journal of Research in Commerce & Management,Vol.3,No.4,April,PP.42-47.

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Corporate Sustainability through Social Return on Investment (SROI) Dr. Suhas Chavan1 and Prof. Jayanti Ranganathan Chavan2

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Associate Professor, Sinhgad Institute of Business Management, Mumbai 2 Dr. T.D. Singh's Institute of Science and Religion, Navi Mumbai E-mail: [email protected], [email protected] ABSTRACT

Today we are seeing increased awareness and active participation by business professionals in the development of CSR policies. Organizations are becoming more involved in green initiatives by adopting sustainable processes and practices, adapting products and services to the low-carbon economy and innovating in all areas of their business. The net positive on reducing waste, designing green buildings, implementing green operations and maintenance plans-is they all have continually proven to yield a positive social return on investment (SROI). Purpose of Research

This paper reviews how corporate can use SROI as a tool for strategic planning and improving, for communicating impact and attracting investment, integrating strategic initiatives with their core competencies, for making investment decisions. Research Methodology

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Major Results

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Primary and Secondary data collection will be done by conducting interviews, documentary analysis and observation to carry on evaluative SROI analysis at three steps establishing scope, Identifying stakeholders and deciding how to involve stakeholders.

Implications

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Findings will highlight an impact Map of stakeholders indicating the activities and analysis using certain resources (inputs) to deliver activities (outputs) and will help corporate for building brand recognition and realizing increased sales and fostering trust with employees and community. The qualitative and quantitative information will be recoded to calculate the financial value of the investment and the social costs and benefits to stakeholders, corporate green programs and overall environmental stewardship. Keywords: SROI, Sustainability, Corporate, Stakeholders

INTRODUCTION Today we are seeing increased awareness and active participation by business professionals in the development of CSR policies. As an example, organizations are becoming more involved in green initiatives by adopting sustainable processes and

practices, adapting products and services to the low-carbon economy and using innovationsin all areas of their business. The net positive on reducing waste, designing green buildings, implementing green operations and maintenance plans-is they all have continually proven to yield a positive social return on investment.(SROI). With the development of new carbon trading markets, verifies emission reductions (VERs), also known as carbon offsets, and renewable energy credits (REC’s), it has become easier for organizations to create and measure direct SROI from CSR. Likewise CSR efforts have shown to yield measurable returns in waste reduction, improved efficiency, diminished liabilities, improved community relations, and brand recognition.


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Now innovative organizations that understand the value of CSR, work to create a corporate culture in which each employee is committed to doing his or her part to improve the environment. Organizations of all sizes are rapidly discovering that corporate social responsibility (CSR) and sustainable business practices can foster improved green programs and overall environmental stewardship. Innovative, forward thinking companies have learnt that they must be fully committed to strategic initiatives that are directly tied to their business’s core competencies (or those of clients, employees etc.) The advantage of doing so through an effective CSR program, such as building brand recognition and realizing increased sales and fostering trust with employees and community, can be achieved as a win-win in almost all situations. With committed leadership and a strategic approach most companies can find a substantial SROI benefit in CSR. This paper will make attempt to examine how CSR and sustainable business practices can foster the green programs and overall environmental stewardship and direct corporate to achieve SROI.

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OBJECTIVES

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1. To examine whether corporate can use SROI as a tool forstrategic planning and improving, for communicating impact and attracting investment.

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2. To examine whether corporate can integrate strategic initiatives with their core competencies, for making investment decisions. LITERATURE REVIEW Many researchers have done extensive research in SROI covering the meaning, stakeholders, purpose, program, principles, types etc. We have also given live case study of SROI and howl corporate sustainability is achieved thro SROI program (Refer 3.1) The research findings are mentioned herewith along with the source.

Corporate Sustainability through Social Return on Investment (SROI) | 173

REPORT SOCIAL RETURN ON INVESTMENT (SROI) ANALYSIS OF THE APPLE COLLECTION POINT AT CHAUSAL, ‘APPLE PROJECT’ SHRI JAGDAMBA SAMITI, UTTARAKHAND, INDIA, MAY–JUNE, 2013 Since 2007, Shri Jagdamba Samiti (SJS) and Stichting Het Groene Woudt (SHGW, a Dutch family foundation that acts as a social investor), together with other local and international consortium partners have beeninvolved in a programme to improve the well-being of small and marginal apple farmers in the state of Uttarkhand, India.


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The programme provides technical, managerial and investment support to enable farmers collectively to strengthen their position and move up in the value chain. The ‘collective’ feature of the business model is promoted to save individual time, distribute risk, maintain price assurance, pursue damage control and save on handling costs such as storage and transportation. SROI Training

SJS in consultation with the SHGW management decided to carry out a Social Return on Investment study for one of the collection centres. MrFons van der Velden of Context, international cooperation was invited to coordinate this exercise. The trajectory was carried out in three stages. First, a three day orientation workshop was organised at the Long Term Storage, at Naugaon, Uttarkashi. The workshop was attended by representatives from the LTS, Joint Venture Companies (JVC), farmer trust and Shri JagdambaSamiti. The aim of the workshop was to ascertain that different stakeholders fully understand the concept of Social Return on Investment. SROI Workshop at the Chausal Apple Collection Point

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In a second stage, from May 29 till May 31, 2013, fifteen representatives of farmer’s organisations gathered in Chausal village in order to engage in a participatory SROI analysis of the Apple Collection point that has been established by the Apple project1. The SROI workshop was conducted in Hindi and facilitated by Mr Sanjay Pundir (Finance & Accounts of FFT Himalayan Fresh Produce Pvt Ltd), Mr Suresh Uniyal (HR in-charge SJS) and Mr. Diwakar Vyas (engineer) who all participated in the SROI training which was held prior to the analysis in April 2013. Mr. Fons van der Velden provided back up support during this process. During the SROI analysis, ample use was made of the SROI material that was translated in Hindi during the SROI training. In between the SROI training and the actual SROI analysis, staff members of SJS had carried out preparations for the SROI analysis in terms of collection of relevant documents, explaining the purpose of the exercise and the SROI methodology to representatives of farmer’s organisations and had made all the necessary organisational and logistic arrangements.


The SROI analysis was organised as per the nine steps of a (standard) SROI analysis: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Defining the boundaries; scope of the case study. Stakeholder analysis. Value chain mapping/ Theory of change. What goes in/ resources. What comes out/ benefits. Valuation of the resources and benefits. Calculation of the SROI ratio. Verification of the data. Formulation of the narrative.


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Scope of the SROI Analysis: The Boundaries

The collection point in Chausal was chosen as the focus of the SROI analysis. This collection point was established in 2008 and has developed further over the past five years. These days, farmers from 29 villages participate with this centre. Table 1: Area Coverage Chausal Apple Collection Point Year 2008 2009 2010 2011 2012 2013 Average

No of Villages 21 21 28 28 28 29 26

No of Farmers 531 531 645 833 833 705 680

Total Prod in kg 49,901 49,901 117,844 60,560 66,275 51,110 65,932

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Over the Past Five Years the Centre has been Engaged in the Following Activities 2008 Construction of Apple Collection Point in Chausal village.

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Base line survey in the area.

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Area selection.

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Formation of farmer committee (18 villages, 525 farmers). 2009.

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Base line survey in the area.

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Formation of trust.

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Selection of farmer trainer (Trainer of Trainers).

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Premium distributed among the farmer in presence of state minister of Panchayat Raj (Rural Development Minister) 2010.

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Construction of three pick up points in Dangutha, Fanar and Bagi.

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Eight Farmers trained at Masobra Institute in Himanchal Pradesh about quality control of apples.

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Farmer Joint Venture Company was formed.

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Formation of women’s groups.

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Women trained in production of juice, jam, pickles.

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Start-up of production of juice (apple, apricot and rhododendron), jams (apple and apricot) and pickles.

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Marketing and sales of juice to local market 2011.

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Shareholder cards distributed among the farmers.

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Refrigerator van purchased.

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Soil test of orchard (of selected farmers) has been done 2012.

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Dividend on shares has been distributed to farmers.

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Premium has been distributed.

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Distribution of organic fertilizer to farmers.


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Table 2: Incremental Benefits for Chausal Centre SROI Case Study S. No. Benefit 1 Removal of the middle man 2

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Farmers receive a higher price for the apples and a premium Standard of living has been increased Improved ability to learn by farmers Sources of income have been diversified

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3

Risk of the farmer has been reduced Expenses have been reduced

Description of Incremental Benefits Earlier middlemen share of procurement was 85% of production. Now after establishment collection point, this is reduced to 20%. Risk of transportation from farm to market. Loss on the way, theft during the transport reduced Expenses relating to transportation from farm to market (Average INR 70 per box), packing material (Average Rs 70 per box) ,packing cost per box (Average INR 15 per box) Mandi commission (6% of sale amount) and labour loading & unloading (INR 4 per box) etc reduced Out of a average total of 1200 Farmers, a total no of 680 farmers getting a better price (price increased of 8 INR) for their apple as well as profit sharing from Collection point (to the amount of 10 INR per box) People getting good income & allocating them to increase the standard of living Farmers keen to learn more to improve their productive performance. Now Farmers getting job opportunities during off season time to enhance their source of income.

Valuation As far as benefits are concerned, the values were estimated by the team based on (1) discussions during the workshop, (2) verification of the data through additional meetings with farmers and staff of the companies and (3) final adjustments of the calculations by Mr Sanjay Singh Pudir with backup support from Mr De Greve. Details 176 | Global Performance Challenges: Building and Sustaining Competitiveness

of the calculations are available in spread sheets developed by the team. The total values here under represent totals for the period under review (2008–2013) and were developed on the basis of historical price data. Table 3: Values of Incremental Benefits for Chausal Centre SROI Case Study Value in INR 2,026,512 310,800 not valued 828,736 1,062,900 207,180 Reflected in higher income See 1 Not valued 69,067 30,000 2,448,000 See 12 Not valued Not valued Reflected in higher production Not valued 6,983,195

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4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Details of Incremental Benefits Removal of the middle man Risk of the farmer has been reduced Awareness, self-confidence and self-dependency of women has been increased Farmers receive a higher price for the apples and a premium; Expenses have been reduced; Farmers receive good rates for B and C grade apples; Standard of living has been increased; Productivity has increased; Involvement of women in decision making process; There is time saving in work related issues; Technical knowhow has improved; Sources of income have been diversified; Production of a variety of fruits is now possible Better education and health is available Better relationship and empowerment in society; Improved ability to learn by farmers; It has become easier to work in groups. Grand Total


Sr. No. 1 2 3

A number of benefits have not been valued, mainly those related to strengthening the position of individuals, both men and women in society. These are nevertheless regarded as important achievements by the stakeholders, notably the farmer Calculation of the SROI Ratio

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SROI = Total (adjusted) value of results/Total value of inputs

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INR 6,983,195/INR 5,154,340

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= 1.35 or 35%

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The calculations of the Social Return on Investment of the Chausal apple collection point thus resulted in a positive return on investment of 35% which only reflects past performance and does not yet include expected future returns due to anticipated expansion of production.The programme reportedly has an empowering effect among the community beyond mere economic gains. First, market dynamics and the apple business as such became more transparent and easier to understand for everyone. Thereby, people were enabled to participate actively and accumulate broader ownership instead of depending on traders and middlemen. Also, people were encouraged to view and understand power no longer purely along the lines of traditional class boundaries, but become aware of the power and possibilities for participation they have. Also, the Corporate Sustainability through Social Return on Investment (SROI) | 177

Centre has an empowering effect on women. It was for instance repeatedly noted that women were for the first time participating in public meetings, and daring to speak up in public. As indicated above, farmers and their household members indicated that they appreciated the SROI exercise notably the broader spectrum that the SROI provides beyond the immediate productive and financial results at farm level. (Source:http://partneringforruralprosperity.in/images/130925_SHGW_present_report_S ROI_analysis_Chausal_Apple_Collection.pdf) AS PER KPMG.COM/IN What is SROI? SROI is a tool for measuring the total value generated for every rupee invested in development sector interventions.

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It monetizes social, environmental and financial outcomes of a development sector project or programme, organisation or even a policy, through a combination of Cost Benefit Analysis (CBA), Opportunity Cost Analysis and Impact Assessment methods.

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It is a participatory tool, and uses financial proxies to uncover the value of all outcomes, including those that do not have direct market values and which are often left out from traditional impact assessments.

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A SROI analysis provides a ratio and a narrative–the narrative being the story of how a project, programme, organisation, or policy creates and destroys values in the course of making a change in the world; the ratio being how much social value is created per rupee of Investment.

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SROI differs from traditional cost benefit analyses by internalising and monetisting the direct qualitative outcomes, which CBA generally captures through case studies.

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Who can use SROI?

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SROI can be used by anybody wishing to understand their value creation, using a structured and credible methodology built on a clear set of principles that enable flexibility in application. It will enable you to robustly communicate the impact created, which helps if you are justifying your spend or seeking funding. Why Use SROI? SROI can enable you to increase the value or impact of your work. It facilitates: 

Clear understanding of wider impact.


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Clear communication of your impact.

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Refinements and improvements.

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Informed decision-making.

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Stronger partnerships with stakeholders.

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Profile raising.

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Risk management.

AS PER HTTP://EPRINTS.MDX.AC.UK/7104/1/THE_AMBITIONS_AND_CHALLENGES_OF_SROI.PDF


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SROI is described as an approach towards identifying and appreciating value created. It involves reviewing the inputs, outputs, outcomes and impacts made and experienced by stakeholders of an organisation in relation to the activities of an organisation, and putting a monetary value on the social, economic and environmental benefits and costs created by an organisation. In order to estimate the positive (or negative) social value of non-traded, non-market goods the use of financial proxies is the main attraction in deciding to use the SROI approach, although organisations have reported other benefits too particularly in terms of planning their activities and developing relationships with stake holders. The outcome, i.e. the value created, should be related to the investments made, and is expressed through a ratio; an SROI that is 3:1 means that for every pound invested the organisation generates a social value of three pounds (net of cost). Although using monetary terms, the SROI ratio does not express financial value as such, but should be seen as a comprehensive way of expressing the ‘currency of social value’.

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SROI measurement should be matched by qualitative evidence based on stakeholder inquiry, wherein the ‘stakeholder’ is defined as ‘people or organisations that experience change, whether positive or negative, as a result of the activity being analysed’ (Nicholls et al. 2009: 20).

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AS PER NICHOLLS ET AL., 2009: 9, THE GUIDE TO SROI LISTS THE FOLLOWING SEVEN PRINCIPLES

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1. Involve stakeholders. 2. Understand what changes. 3. Value the things that matter. 4. Only include what is material. 5. Do not over-claim. 6. Be transparent. 7. Verify the result. Corporate Sustainability through Social Return on Investment (SROI) | 179

For Conducting an SROI: The Six Stagesare Mentioned as Guidelines (http://socialventures.com.au/assets/SROI-Lessons-learned-in-Australia.pdf) The Guide sets out the following stages. Stage 1: Establishing scope and identifying stakeholders The scope of the analysis is clearly delineated with the organisation, and the stakeholders to be involved as key informants are identified. The active involvement of stakeholders, which includes staff, management, investors and others, is a key element of SROI, and distinguishes it from classic cost-benefit analysis approaches. Stage 2: Mapping outcomes


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This step articulates the program logic: how resources (inputs) are used to deliver activities (measured as outputs), and how these activities result in outcomes for stakeholders. The rigour taken in this step is also a feature which distinguishes SROI from cost-benefit analyses. Stage 3: Evidencing outcomes and giving them a value

Once outcomes are clearly identified, data is gathered to evidence and measure the extent to which they are being achieved and how long they last. The effort involved in undertaking this step varies in accordance with the quality of the organisation’s planning and the extent of its information systems.The last task in this stage is to ascribe a monetary value to the outcomes. Stage 4: Establishing Impact In this stage, the extent to which the activities contribute to the impact achieved is determined by placing the organisation’s impact in context.

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Stage 5: Calculating the SROI

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In this stage the data that has been gathered is expressed in the form of an SROI ratio. Steps are taken to express financial figures in terms of net present value, and to conduct a sensitivityanalysis. The final result may also be expressed in terms of a payback period.

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Stage 6: Reporting, using and embedding The results are written up in a report which is provided to all stakeholders. The SROI report includes qualitative, quantitative and financial findings, to provide the reader with information on the social value being created in the course of an activity. It tells the story of change and explains the decisions made in the course of the analysis. WWW.GBFUND.ORG/.../SOCIAL%20RETURN%20ON%20INVESTMENT%20FACT%2...

The steps of Calculating the SROI Estimate are mentioned below.


The steps that are taken to calculate the SROIestimate are: The first stepinvolves identifying the social‐economic impact that will occur to the Base of the Pyramid (BoP) beneficiaries. This type of impact although varies across sectors, onlycaptures impact data that can be easily quantifiable and eventuallyverifiable.

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The second step is to actually determine the number of beneficiaries that the enterprise will reach. Thiscalculation is correlated to how well the enterprise is doing financially and therefore is generated fromthe financial model.

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The third step involves estimating the total social‐economic returns and the external financing By using the financial model where the numerator in the SROI calculation is the total estimated social‐economic return (including terminal value). This is determined by quantify the dollar amount generated per beneficiary because of the enterprise’s existence and then multiplied by the number of beneficiaries that areprojected to exist. The denominator is the total external financing capital that the enterprise will need to generate that social‐economic impact. Both figures mentioned above are both discounted at 5%.


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The fourth step involves calculating the SROI

The numerator and the denominator are then divided to arrive at the SROI estimate. This estimateinforms that for every $1 that is invested in the enterprise, the enterprise generates X dollars ofsocial economic impact for its beneficiaries. THE FACTORS THAT GO INTO CALCULATING SOCIAL RETURN ON INVESTMENT (SROI) ARE MENTIONED BY JEAN FOLGER ARE (WWW.INVESTOPEDIA.COM/.../WHATFACTORS-GO-CALCULATING-SOCIAL-RETURN-INVESTMENT)

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Social return on investment (SROI) is a method for measuring values that are not traditionally reflected in financial statements, including social, economic and environmental factors, which can identify how effectively an organization uses its capital and other resources to create value for the community. While a traditional cost-benefit analysis is used to compare different investments or projects, SROI is used more to evaluate the general progress of certain developments, showing both the financial and social impact of the corporation. SROI is useful to corporations because it can improve program management through better planning and evaluation; increase the corporation’s understanding of their impacts; and allow better communication regarding the value of the corporation’s work (both internally and to external stakeholders). Philanthropists, venture capitalists, foundations and other non-profits may use SROI to monetize the social impact, in financial terms.


A general formula used to calculate SROI is as follows: SROI = (social impact value–initial investment amount)/ initial investment amount *100%) RESEARCH METHODOLOGY

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Upon reviewing the literature on performance measures of the corporate, this study examined three social enterprises in terms of how they do strategic planning, communicate impact and attract investment and how they evaluate performance in terms of core competencies for making investment decisions.The research aimed to explore and delineate performance evaluation from the practitioners’ perspective, identifying and translating what types of outcomes and impacts were valued (i.e., measured, monitored, and/ or considered important) among the three social enterprises such as Infosys, Good earth & DCM, to represent and compare performance evaluation across these three organizations. Exploratory case studies were developed based on interviews with social enterprise managers, observation during the interview process, and review of (limited) publicly available documents (e.g., websites) relating to each social enterprise. This range of data sources, and the individual and collective analysis amongst the three researchers (with backgrounds in accounting, sociology, and anthropology), provided the opportunity to explore a range of differentiated realities through the eyes of the participants and the researchers. Interviews provided the opportunity to explore the history and background detail on each social enterprise, as well as its operating environment, developments and achievements, opportunities and challenges, evaluation and measurement of performance. Specifically, interviews uncovered the nature of the benefits generated, and the different groups of 10 stakeholders to whom these benefits related. Initial interviews were conducted in person inJune 2014 by the researchers at either the offices of the social enterprise, or a place convenient to them. Interviews were semi-structured, lasting approximately 1.25–2 hours each. Discussion was shaped by a comprehensive schedule of questions relating to each social enterprise’s history, developments, funding, activities, outcomes, and plans for the future.

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STAGES USED IN SROI ANALYSIS

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1. Establishing scope and identifying key stakeholders: In this stage, clear boundaries were set, about coverage of SROIanalysis and the key stakeholders involved in the process and how the process will take place. 2. Mapping outcomes: Through engaging with the stake holders, an impact map was developed and the relationship between inputs, outputs and outcomes was examined. 3. Evidencing outcomes and giving them a value: This stage involved finding data to show whether outcomes have happened and this is followed bytheir valuation


4. Establishing impact: The evidence was collected on outcomes and it was monetized afterwards. 5. Calculating the SROI:At this stage all the benefits were added, subtracted any negatives and compared the result to the investment. 6. Reporting, using and embedding: This vital last step involved sharingof findings with stakeholders and responding to them, embedding good outcomes processes and verification of the report. FINDINGS: PERFORMANCE EVALUATION IN PRACTICE


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Consistent with the dual objectives of social enterprises, managing financial and social performance, this section examined performance evaluation within the three social enterprises with respect to each objective. With respect to social performance, we consider findings from three levels of analysis: micro (individual and organizational), meso (community and regional), and macro (society and national), to evaluate performance across these levels. Last, we examined how performance is recorded and reported by the social enterprises to external stakeholders. (Ref. Table 4 and Table 5). Table 4: Quantitative Measures of Social Performance

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Measures Social return ratio (SRR) (Emerson and Cabaj, 2000) Social return on investment (SROI) (Emerson and Cabaj, 2000 Social accounting and audit Socio-economic value (Emerson and Cabaj, 2000) SROI rate (Emerson &Cabaj, 2000) (Social Ventures Australia, 2012) At Kisson Compass assessment for investors

• externally audited report of social value created • income + net savings – grants/donations, calculated as present values internal rate of return calculation based on total socio-economic value compared to total ‘costs’ evaluates social and environmental impacts in four areas linked to corporate social responsibility (nature, society, environment, wellbeing), together with ‘Synergy’ between these areas social outcomes – changes that would have otherwise occurred

metrics developed for a range of sectors

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Social impact (via the impact value chain) (Clark, Rosenzweig, Long, and Olsen (2003) Impact reporting and investment standards (IRIS) (Global social venture competition, 2012) Economic rate of return (World Bank International Finance Corporation, 2012)

Details • net social benefits and business cash flow / philanthropic dollars invested project’s net benefits compared to the investment required

based on an internal rate of return calculation where future benefits are calculated and discounted to present value equivalents • investments are compared to returns, to calculate a percentage return from the project


Table 5: Summary of the Range of Outcomes and Impacts from the three Social Enterprises Level of Analysis

S

C, I

S S S S, F* S

I, C I, C I I, C I, C, N*

S

C

S, F*

C

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Outcome  Reconnecting and actively including those who are disadvantaged or marginalized  Capture waste (of unused produce)  Build community capacity through involvement  Encouraging to serve society  Intrinsic value through helping others  Integrating social projects in training and employment programs  Educating children about gardening, healthy eating, and active lifestyles  Green strategy and investment in green projects Impact  Environmental benefit through decreased waste  Better connected community; nourished community spirit  Inclusion through participation in training and employment  Integration of green initiatives with core competencies Outcome  Venue for exchanging goods and buying products, opportunity to connect,  Social forum for visitor to meet and connect  Develop relationships with local, community, and state organizations  Enhanced green profile of the region and the state  Revenue from markets represents valuable source of funding for festival  Teaching future generations about the importance of volunteering, life lessons in green technology  Enhanced local trade and Green tourism Impact  Economic stimulus for the town  Reinforcing a sense of community  Fostering a sense of giving and belonging within the community  Intrinsic benefits from the value of volunteering  Conflict/lack of support from some local business owners, due to perceived negative impact on their trading Outcome  Establishing a school for disadvantaged  Provision of a local facility for family and parents of children with disabilities  Training to assist people with disabilities transition into open employment

Social/ Financial

F

I, N

S, F* S

C, N C, N

S, F F

I, C C

S

I, C, N

S, F

C, N

S, F* S, F*

I, C, N I, C

F, S*

I, C

S, F*

I

S, F*

C, N

S, F

I, C

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Goodearth Education Foundation (GEF)

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DCM Shriram Consolidated Limited

Outcome/ Impact


Social Enterprise Infosys


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 Mentoring for both life and work skills through gradual change  Public identity of organization focusing on commercial services provided versus underlying social cause  Organizational success through financially sustainable operations and green projects Impacts  Facilitating social inclusion for long-term unemployed, indigenous, school leavers, those not  engaging with the community  Organizational learning shared with other social ventures, locally, nationally and internationally  Helping people to be integrated into the community, living independent and rewarding lives in harmony with nature  Providing people with the confidence to build career pathways  Intrinsic reward through success of individuals and the organization  Self development, increased self esteem and confidence, creating a ripple effect for individuals,  families, the community  Profitable self-funding businesses contributing to the local economy through taxes, local supply  chains  Strengthening the community through a two way exchange of support  Networking and relationships with other organizations  Opportunity costs (e.g. social welfare) forgone, through training and employment  Competing with other local businesses with green intiatives

Key abbreviations

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S: social, F: financial

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*Indirect impact, () negative impact

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I: individual or organisational (micro level), C: community or region (meso level)

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N: national or society (macro level)

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FINANCIAL PERFORMANCE Within each of the social enterprises, findings on financial performance reinforce a priority on the availability of continued funding (either generated internally or sourced externally), rather than profits, by social enterprise management. While this may have been a reflection of life-cycle stage for the small social enterprise (which had been operating for less than five years), even the large and mature social enterprise expressed little concern regarding projects’ financial outcomes, particularly in the short-term. For small social enterprise, for example, significant time and effort was allocated to Corporate Sustainability through Social Return on Investment (SROI) | 185

applying for funding, which was often short-term in nature. As an operation based on non-cash transactions, grants and donations were an essential source of funding on which the enterprise depended. Without this assistance, continued operations (much of which was supported by donated time) were threatened. Uncertainty regarding continued funding raised questions around the longevity and perceived legitimacy of the enterprise from an internal and external perspective.


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In relation to a mature social enterprise which had established profitable operations, security through self-funding provided flexibility within the organization to expand its programs, and pursue new projects which may not be commercially viable in the short-term. We made sure that we do not lose sight or what we’re here for; that is to provide services in response to the need. Sure we need to make money to survive, but that [service is] what we're here for. Hence financial independence of the organization meant support for projects relied only on legitimacy from an internal perspective, satisfying management. As such, for all three social enterprises, financial security through ongoing funding (generated internally or granted externally) was the fundamental financial priority. Further, there was no perceived loss of value or organizational legitimacy by social enterprise management through reliance on external grants or donated funds, but rather a sense of satisfaction that the work undertaken was valued (considered important) and perceived as worthy by funders. SOCIAL PERFORMANCE

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With respect to social performance, a range of outcomes and implications was identified for the three social enterprises. These included developing and reinforcing a sense of community, creating community capacity and identity, ‘giving back’, facilitating social inclusion, developing the economy through local supply chains, and giving people with disabilities the skills and opportunity to be integrated into the community and live rewarding and independent lives. With respect to Infosys for example, outcomes included collecting and redistributing otherwise unused produce, ensuring food security; with impacts of reducing waste, nourishingcommunity spirit, and educating children about gardening and nutrition. Similarly, discussions with management of DCM revealed outcomes such as establishing profitable businesses which helped to develop the regional economy through local supply chains, assisting people in need to lead independent and rewarding lives. These outcomes were facilitated through a two-way exchange with the community where DCM both received and gave support. In each case, the achievement of these goals resulted in a sense of organizational legitimacy; satisfaction through fulfillment of social objectives. Further, social enterprise management within each organization were aware of the extent of social impact at a micro (individual or organizational), meso (community or region), and macro (national or society) level. In the case of Infosys for example, micro level impacts included reconnecting with the disadvantaged in the 186 | Global Performance Challenges: Building and Sustaining Competitiveness

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community. Meso level impacts included capturing waste, and macro level impacts included integrating social projects in training and employment programs. While these outcomes were not always articulated in terms of micro, meso, and macro level impacts, comments by interviewees indicated an awareness of the extended impacts, and direct and indirect outcomes from each social enterprise. A summary of the range of outcomes and impacts from the three social enterprises is detailed in Table II, identifying the nature of the implications (e.g., social and financial), and the relevant level (s) of analysis. As detailed in Table II, while some implications maybe social in nature, they also have financial implications. None, however, were referred to in monetary values by the interviewees. Similarly, benefits may extend beyond one level of analysis, as indicated below. It’s not just for the person; it’s for the family, it’s for the [Government department], the wider people that support us.


With respect to formally valuing or measuring the costs and benefits associated with each social enterprise, there was a level of awareness regarding this issue, but no formal evaluation such as SROI was reported to have been completed. Again, this was in part due to lack of resources for two of the three social enterprises, but also due to ambiguity regarding the values involved (e.g., determining the ‘value’ of volunteer labour), and a sense that a dollar value could not appropriately account for the value created. For Infosys, quantitative data required for grant applications helped to highlight the extent of the program’s cost, and the contributions of the volunteers. Concerns were expressed, however, that costing or values for some inputs (e.g., volunteer labour) were unclear. Despite this uncertainty, ultimately there was a sense the enterprise was valued (i.e., appreciated), as funding and public support continued, reinforcing its social legitimacy.

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RECORDING AND REPORTING VALUE

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While each of the three social enterprises acknowledged the importance of documenting and recording outcomes and impacts, the two smaller social enterprises noted they had not yet done this due to resource constraints (e.g. lack of time and human resources). Both, however, referred to anecdotal evidence regarding outcomes and impact. The Five Steps were Used in Filling out an Impact Map 1. Starting on the Impact Map 2. Identifying inputs 3. Valuing inputs 4. Clarifying outputs 5. Describing outcomes Corporate Sustainability through Social Return on Investment (SROI) | 187

There are Four Steps in Stage 3 i.e. Valuing Inputs 1. Developing outcome indicators. 2. Collecting outcomes data. 3. Establishing how long outcomes last. 4. Putting a value on the outcome.


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We collected all the information together to enable us to calculate SROI and then recorded qualitative and quantitative information (refer Table 1) needed in the report. After that, summarization of the financial information was done to calculate the financial value of the investment and the financial value of the social costs and benefits.An evaluative SROI analysis was done after the period for which the outcome was expected to last. However, interim valuations was also done in order to assess how well the intervention is working and to provide information to support any changes. There are Four Steps to Calculating SROI Ratio, with an Optional Fifth 1. Projecting into the future.

2. Calculating the net present value. 3. Calculating the ratio. 4. Sensitivity analysis. 5. Payback period. CONCLUSION

In concluding, we return to the concerns previously raised in this paper:

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1. How can social enterprises’ performance be effectively evaluated? From a practitioner’s perspective, what measures matter?

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2. Why might undue emphasis on financial measures be misleading?

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3. Is a dollar value always appropriate in evaluating performance?

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For each outcome possible indicators were pinpointed. These indicators should allow to conclude if the outcome was achieved (or not) and by how much. Once the indicators are in place, the next step is to collect data about them. Part of the data was collected during the interviews. However, it was not possible to quantify someoutcomes, as their calculation was beyond the scope and resources available for this Work Project. Drawing from the findings, several issues emerge with respect to the diverse range of objectives relevant to the different social enterprises, the close relationship between the social and financial dimensions of their operations, and the identification of value across various levels of analysis; each of which is considered in Table 2. The broad range of 188 | Global Performance Challenges: Building and Sustaining Competitiveness

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outcomes and impacts, much of which cannot be meaningfully measured or quantified in monetary terms, highlights that an evaluation of performance should notnecessarily be reduced to quantifiable values, but valued (considered important) for what it represents. Even within a profitable or surplus-generating organization such as DCM, the ‘returns’ that were prioritized focused firmly on the personal development within the individual (with implications at other levels of analysis), and no attempt was made to ‘devalue’ that benefit by symbolically quantifying it. Similarly, for Infosys, the ‘value’ created through the social enterprise’s operations was not considered to be something which could be meaningfully quantified. Rather, ‘legitimized’ performance was evaluated and communicated in non-financial terms considered relevant to the performance outcomes. In each of the three cases financial objectives and performance remained a means to a social end. Thus, while the social enterprises balanced dual objectives (Emerson & Twersky, 1996), organizational legitimacy was perceived by the social enterprise management primarily through social performance, with financial performance (particularly through profitable operations) being a secondary factor. In contrast, calculation of the SROI ratio does not place a value on change such as increased quality of life and community spirit (Arvidson et al., 2010), risking devaluation of these outcomes or changed priorities if an organization’s performance objectives are governed by returns such as SROI. The issues identified by each social enterprise in relation to measuring various inputs and impacts highlights the challenge inherent to undertaking a calculation such as SROI where all inputs, outcomes, and impacts need to be expressed in monetary terms to arrive at a single figure for performance. Further, a complete performance evaluation would need to consider the relevant objectives of the enterprise, which were clear within the cases, but could be overlooked within a calculation where ‘success’ is recognized as benefits exceeding costs even though social objectives may remain unmet (Arvidson et al., 2010). Regarding the close relationship between the financial and social outcomes and impacts, there is clearly a risk that if what gets measured gets done (Osborne and Gaebler, 1992), favors the identification of financial impacts or those which can be monetized, then social impacts (which are less likely to be monetized accurately or valued in relevant and reliable terms) may inadvertently be ‘devalued’. This issue is particularly relevant for social enterprises that rely on donated inputs (e.g. goods, services, time), and have outputs which are difficult to measure in monetary terms. In the three social enterprises examined, the priorities of each lay not in calculations, but in a passion for pursuing social causes to create positive social change, reinforcing organizational legitimacy from an internal and external perspective. In relation to the quantitative measures required by external stakeholders, Goodearth (the smallest of the three social enterprises, and largely reliant on grant funding), noted a need to provide budget calculations in order to comply with grant funders’ requirements. Yet, if those requirements subsequently extend to calculations such as SROI, there is a risk that social projects may be inappropriately valued and may not proceed. A final issue from the cases is the identification of value across various levels of Corporate Sustainability through Social Return on Investment (SROI) | 189

analysis, such that achievements at the individual level (for example) flow on to broader social and financial benefits impacting on the community, region, and economy. Hence, just as it is important to identify the social and financial dimensions of performance, it is also important to acknowledge the extent of impact. In the nutshell,the findings was that each of the three social enterprises seemed aware of the benefits being created at different levels of analysis, but seemed to emphasize the importance of the local community in terms of being a necessary component of ‘inputs’, and an important beneficiary in terms of outcomes and impact. While this may be attributable to the regional location of the social enterprises, it highlights the potential value of regions (an input which also has no formal value under SROI) to addressing social challenges and the associated financial implications at broader levels of analysis.

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Atkinson, A.A., Waterhouse, J.H., and Wells, R.B. (1997), “A stakeholder approach tostrategic performance measurement”, Sloan Management Review, Spring, pp. 25–37. At Kisson (n.d.), Tools: The ISIS Accelerator. Retrieved 3 July, 2012, from ttp://atkisson.com/wwd_tools.php Barraket, J., Collyer, N., O'Connor, M., & Anderson, A. (2010), Finding Australia’s Social Enterprise Sector. Brignall, S., and Modell, S. (2000), “An institutional perspective on performance measurement and management in the 'new public sector'”, Management Accounting Research, Vol. 11 No. 3, pp. 281–306. Chell, E. (2007), “Social enterprise and social entrepreneurship”, International Small Business Journal, Vol. 25 No. 1, pp. 5–26. Clark, C., Rosenzweig, W., Long, D., and Olsen, S. (2003), Double bottom line project report: Assessing social impact in double bottom line ventures. Clarkson, M.B. (1995), “A stakeholder framework for analyzing and evaluating corporate social performance”, Academy of Management Review, Vol. 20 No. 1, pp. 92–117. Dart, R. (2004), “The legitimacy of social enterprise”, Nonprofit Management and Leadership, Vol. 14 No. 4, pp. 411–424. De Bruin, A., and Stangl, L.M. (2011), “Measuring social enterprise performance: Toward a universal Dashboard”, Proceedings of the Massey University Social Innovation and Entrepreneurship Conference: Extending theory, integrating practice, Auckland NZ. Dowling, J. and Pfeffer, J. (1975), “Organisational legitimacy: Social values and organizational behaviour”, Pacific Sociological Review, Vol. 18 No.2, pp. 122–136. Eccles, R.G. (1991), “The performance measurement manifesto”, Harvard Business Review, Jan-Feb, pp. 131–137. Emerson, J., and Twersky, F. (1996), New social entrepreneurs: The success, challenge, and lessons of nonprofit enterprise creation, Roberts Foundation, San Francisco. Emerson, J., and Cabaj, M. (2000), “Social return on investment”, Making Waves, Vol. 11 No. 2, pp. 10. Flockhart, A. (2005) ‘Raising the profile of social enterprises: the use of social return on investment (SROI) and investment ready tools (IRT) to bridge the financial credibility gap’ Social Enterprise Journal, Vol. 1(1), pp. 29–42 Gibbon, J., and Dey, C. (2011), “Developments in social impact measurement in the third sector: Scaling up or dumbing down?”, Social and Environmental Accountability Journal, Vol. 31 No. 1, pp. 63–72. Lingane, Alison and Olsen, Sara, Guidelines for Social Return on Investment (2004). California Management Review, Vol. 46, Issue 3, p. 116-135 2004. Available at SSRN: http://ssrn.com/abstract=1510626 Lyon et al., 2010 (http://socialventures.com.au/assets/SROI-Lessons-learned-in-Australia.pdf) Nicholls et al., 2009: 9, The guide to SROI

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REFERENCES


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[19] http://eprints.mdx.ac.uk/7104/1/The_ambitions_and_challenges_of_SROI.pdfhttp://socialventures.com.au/as sets/SROI-Lessons-learned-in-Australia.pdf [20] www. kpmg.com/in [21] http://eprints.mdx.ac.uk/7104/1/The_ambitions_and_challenges_of_SROI.pdf [22] http://socialventures.com.au/assets/SROI-Lessons-learned-in-Australia.pdf [23] www.gbfund.org/.../Social%20Return%20On%20Investment%20Fact%2... [24] www.investopedia.com/.../what-factors-go-calculating-social-return-investment [25] http://partneringforruralprosperity.in/images/130925_SHGW_present_report_SROI_analysis_Chausal_Appl e_Collection.pdf)


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SESSION 3 CORPORATE STRATEGY INITIATIVES IN THE GLOBAL CONTEXT r

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Differences in the Choice of Diversification Strategies of Multi-National Corporations and Indian Companies: An Empirical Investigation 1

Dr. Aparna Bhatia1 and Anu Thakur2


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Assistant Professor, Department of Commerce, Guru Nanak Dev University, Amritsar, Punjab, India 2 Senior Research Fellow, Department of Commerce, Guru Nanak Dev University, Amritsar, Punjab, India E-mail: [email protected], 2 [email protected]

ABSTRACT

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The LPG reforms started in1991 brought radical changes in India andopened theIndian economy for world trade. These reforms lured Multi-National Companies (MNCs) to enter India and as a result, Indian economy got flooded with MNCs. In order to adapt to these changes in the business environment, the companies, both MNCs and Domestic companies, required some strategic changes in their structures. Among others, diversification became an important growth strategy for these companies. This made it essential for the managers to examine various types of diversification strategies and to finally choose the appropriate diversification strategy for their businesses. This leads to an important research question: Do the diversification strategies differ across MNCs and Indian companies? Literature survey suggests that very few studies have examined this issue. However, it is an important issue to explore the differences in the strategic choices of Multi-National Corporations and Indian companies. Thus, the present paper aims to compare the nature and extent of diversification of the Multi-National and Indian companies using Jacquemin-Berry Entropy-Index measure (1979). The study covers a period of 10 years, further split into three points of time as 2001, 2006 and 2011. This period takes into account the influence of both liberalization reforms and global recession. The results show thatboth the Multi-National and Indian companies have preferred the diversification strategy for growth. But, the extent of diversification has been much higher in case of MNCs as compared to Indian companies.

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Keywords: Diversification, Domestic Companies, Multi-National Corporations, India

INTRODUCTION The LPG reforms started in1991 brought in radical changes in India andopened the Indian economy to world trade. These changes lured Multi National Companies (MNCs) to enter India andalso motivated Indian companies to enter into foreign collaborations and set up joint ventures abroad. The advent of MNCs in India brought multiple challenges and cut-throat competition for the corporate sector in terms of squeezed market share (Weston and Mansinghka, 1971), shortened product life cycle (Emde, 1999); high obsolescence rate (Arnold, 2003; Impullitti, 2006 and Delios and Singh, 2012) and many more challenges (Bhatia and Chander, 2007; Ajay and Madhumathi,

2012). However, it also brought in opportunities in terms of technical expertise and know-how, foreign investments (Ajay and Madhumathi, 2012), application of capital, and a range of skills (Gupta and Qiu, 2013).


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In order to adaptthesechanges and to face the challenges in the current scenario, strategy planning, and strategy execution has incredibly needed (Baum and Wally, 2003; Raman et al. 2003 and Bhatia and Chander, 2007). Diversification has been increasingly used by large corporations as a strategy for adapting to changes in the unstableenvironment. Diversification is a very important growth strategy (Claver et al. 2006). It involves new experiences, new products and also new markets (Gort, 1962; Ansoff, 1965 and Rumelt, 1974); which results increase in available managerial competencies (Rumelt, 1974). Diversification help firms to develop new innovations through R & D and helpsto enter foreign markets and collaborate with technologically advanced countries through international diversification (Hittet al. 1997 and Bhatia and Chander, 2007). It also allows faster growth (Christensen and Montgomery, 1981); helps to spread risk (George, 1985); helps in increasing market share and market profitability (Khanna, 1994; and Miller, 1998). But the tool of diversification needs to be handled prudently (Mehta and Samanta, 1996; Pandare, 2013). Diversification needs new technology and new markets; which lead to dysynergetic effects in the shape of lack of experience and knowledge (Mclntosh, 2001); lack of specialized staff and high cost (Oijein and douma, 2000). But still most of the companies like to experience this strategyforexpansion, survival and most important to face the cut-throat competition. Table 1: Review of Literature on Nature and Extent of Diversification Sample

Time Period Berry (1971) 460 largest US 1960 and corporations 1965

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72 large public 1960–1975 and private sector companies in India

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Chaudhuri et al. (1982)

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Author

Research Objectives To measure extent of diversification

Measures of Diversification Herfindahl Summary of Index of Industrial Concentration Extent of Rumelt’s diversification Approach is used in Indian for the industry in the measurement of private and diversification public sectors.

Results of the Study

It was found that the extent of diversification in the US was low and had decreased from 1960 to 1965. Both private and public sector enterprises diversify rapidly and at roughly equal rates, but in quite different directions. While the private sector enterprises are diversifying mostly into areas unrelated to existing businesses, the public sector enterprises seem to be diversifying mostly into related businesses. Table 1 (Contd.)…


…Table 1 (Contd.)

Fortune 500 1958–1973 Japanese firms

Extent of diversification

Rumelt’s Methodology

Rumelt (1982)

273 Fortune 500 Firms


Lecraw (1984)

200 largest Canadian firms

Kauraet al (1987)

251 Indian private sector companies

Shanker (1989)

1694 Indian firms

1975–1978


Not Available

Nature of diversification in Indian industries

It classifies the firms as: Single Business, Vertical Integrated Business, Dominant Business, Related Business and Unrelated Business. Firms were classified in four strategic groups: Single Business, Vertically Integrated Business, Related Business and Unrelated Business. Modified version of Rumelt’s Methodology (1974)

Analyze the extent of product diversification

National Industrial Classification (NIC) 1970

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1949–1974

In the period 1958–73, the number of Single Business companies fell steadily whereas the number of vertically integrated companies and the related business companies increased; diversification became the preferred form of growth in this period. During the period 1949–74: the number of Single Business companies fell steadily whereas the number of diversified firms increased; diversification became the preferred form of growth during this period.

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Itami et al. (1982)

1975–76 to 1980–81

During the period 1978, from 200 largest firms 32 were in single business, 42 were in vertically integrated business, 72 were in related business and 54 were in unrelated business.

Only 36.7% of the Indian firms remained undiversified, while 63.3% of the firms adopted diversification as a strategy. it was also observed that the unrelated diversification was the most popular strategy among Indian corporate sector. The results showed that both the extent and magnitude of diversification was low as companies diversified into activities related to their main activity only. Table 1 (Contd.)…

Differences in the Choice of Diversification Strategies of Multi-National Corporations and Indian Companies | 197

…Table 1 (Contd.)

Bosworket al (1997)

942 US firms

Raman et al. (2003)

The sharp decline in the number of SB companies over the period of the study is observed. DC or RB category is preferred. The UB strategy is found least popular. The study showed that the extent of diversification increased over the total study period. 118 largest 1973–1998 Nature of Three measure of The study observed that the Japanese Diversification diversification lower diversification manufacturin were used as, the strategies that is SB followed g firms number of 4-digit by DB or RB strategies were industry segments, the most preferred strategies Herfindahl index whereas UB was the least and core sales popular strategy. ratio. 252 Indian 1995–2004 To measure Rumelt’s It was observed that various companies the nature and Methodology diversification strategies have extent of been preferred by Indian diversification companies. It is clear from the increased proportion of diversified categories. DB and RB were the most popular strategies while UB were the least preferred strategies. 19 were focused organizations 33 African 2001–2009 To ensure a. SR listed whether categorization and 14 were conglomerate b. SIC code organizations during the companies organization classification study period. remained either focused or conglomerate

Ushijima and Fukui (2004)

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Subbramoney (2010)

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Bhatia and Chander (2006)

During the period 1989–1994, 942 firms have been divided into three parts: 290 firms of highly diversified firms, 345 firms of intermediate diversified firms and 307 focused firms; thus suggesting a preference for in-between strategies only.


Singh et al. (2003)

1989–1994 To examine HERF: the extent of Herfindahl Index diversification. INDS: 4-digit ASIC SUBS: Industry sub-segments REL: captures how closely a firm’s businesses are related. 109 Indian 1991–2000 Analyze the Rumelt’s large private extent of Typology is used listed diversification for the manufacturin in the Indian measurement of g companies corporate diversification sector. 1127 Firms 1994–1996 Nature of SIC-Entropy Diversification Measure Classification

Table 1 (Contd.)…


…Table 1 (Contd.)

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Review of Literature on Nature and Extent of Diversification: Comparison of MNCs and Domestic Companies Kaura et al. From the total Not Compared the Rumelt’s It found that Indian (1987) sample of Available nature of Methodology subsidiaries of MNCs 248Indian diversification followed diversification more companies, 32 between rigorously rather than Indian were Indian Indian companies, as 37.5% of the subsidiaries of companies and MNCs followed RB strategy MNCs. Indian as against 25.8% of the Indian subsidiaries of companies following the MNCs. same. Though, UB strategy was followed by both the groups to the extent of 37.5%. Raman et al. From total 1991–2000 To measure an Rumelt’s The study found, similar (2003) sample of 109 industry-wise Methodology preference of diversification manufacturing comparison of strategies by both Indian and companies, 14 Indian foreign companies operating were foreign companies in India. companies with foreign operating in companies India operating in India. Bhatia and Out of total 1995–2004 To study the Rumelt’s The extent of diversification Chander sample of 252 extent of Methodology was more in case of MNCs as (2006) companies, diversification compared to Indian 208 were followed by companies such as, in the Indian and 44 MNCs and year 1995, 6% higher; in were MNCs. Indian 2000, 3% and in 2004, 7% companies. more. For both of the group of companies DB strategy was the most favored strategy followed by RB strategy. Bhatia and Out of total 1995–2004 To study the Rumelt’s The results of Chi-square test Chander sample of 252 extent of Methodology were insignificant. (2007) companies, diversification 208 were followed by Indian and 44 MNCs and were MNCs. Domestic companies statistically.

NEED AND OBJECTIVES OF THE STUDY In the present dynamic era, diversification has become an important growth strategy. Plethora of studies have initiated to study the diversification strategies in corporate sector. As literature reveals thatthere is a dearth of studies that compare the nature, extent and pattern of diversification in Indian companies and Multi-National Companies (MNCs). Less number of studies (Kaura, 1987; Raman et al. 2003; Bhatia and Chander, 2006, 2007) has tried to find the difference between the strategic choice of Multi-National and Domestic companies in response to a changing environment. Thus, Differences in the Choice of Diversification Strategies of Multi-National Corporations and Indian Companies | 199

a humble effort is made in the present paper to address this research gap. Hence, the main objective of the paper is: 

To compare the nature and extent of diversification of the Domestic and MultiNational Companies.

DATA BASE AND METHODOLOGY SAMPLE 1000 companies taken from BS-1000 (March, 2012) represent the universe of the study. These companies are the leading companies of India in terms of net sales. In order to arrive at the sample following filters have been applied:


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1. Only manufacturing companies have been selected and companies from service sector i.e. Shipping, Air Transport, Entertainment, Media, Hotel & Restaurants and Trading have been eliminated. Also companies from financial sector i.e. banking and insurance have not been taken. This is because these companies offer only intangible services and hence cannot be compared with the companies in the manufacturing sector that produce tangible products. 2. Only companies that existed between the time period of study i.e. 2001-2011 have been taken. 3. Companies not existing in the CAPITALINE database have been eliminated. 4. Companies whose split sales information was not given in CAPITALINE database have also been eliminated.

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TIME-PERIOD

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Thus, as a result of these filters, an effective sample of 536 companies has been obtained and studied.Further the sampleof 536 companies was divided into Multinational Companies and Domestic companies. From 536 companies, 223 companies were the MNCs while remaining 313 were the domestic companies.

The study covers a total time span of ten years from 2001–2011. The total time period has been divided into three points of time i.e., 2001, 2006 and 2011 to study the extent and pattern of diversification. The year 2001 has been taken as the base year representing post liberalization period as well aspre recession period; 2006 represents the recession period and 2011 represents the post-recession period. This time period would help to compare pace and the momentum of diversification that Indian companies have followed vis-a-vis their foreign counterparts after LPG reforms and during the recessionary phase. 200 | Global Performance Challenges: Building and Sustaining Competitiveness

DATABASE Majority of thedata has been taken from CAPITALINE database. It is the database of capital market and contains information for approximately 13000 listed as well as unlistedcompanies. MEASUREMENT USED FOR MEASURING DIVERSIFICATION


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The Jacquemin-Berry entropy-index measure (1979) has been used. It is based on three elements of a firm’s diversity of operations; first, the number of product segments in which the firm operates; second, the distribution of the firm’s total sales across the product segments and third, the degree of relatedness among the various product segments. What distinguishes the entropy measure from the other diversification indices, is its ability to consider the third element. Products belonging to different 4-digit SIC industries within the same 2-digit industry group are treated as related; products from different 2-digit SIC industry groups are defined as unrelated. Entropy measure of diversification (Berry 1979), is calculated as follows: Total Diversification DT = ∑

Related Diversification DR = ∑ With DRj =∑ &

∗ ln ( ) ∗

∗ ln ( )

Unrelated Diversification DU = ∑

∗ ln ( )

Also DT = DR + DU

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Where,

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M = Number of industry groups (number of 2 digit SIC codes the firm is involved in)

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N = Number of industry segments (4 digit SIC codes the firm is involved in within each 2 digit SIC code)

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Pi = Share of segment i's sales of total corporate sales

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Pj = Share of group j's sales in total corporate sales Pji= Share of segment i's sales of total sales for group j, and ln = Natural log In order to divide the companies into strategic categories, first of all, mean values of the Related and Unrelated Diversification have been calculated over the three points of time. The use of mean values of TD, RD and UD for three years alone is not sensitive. Only calculating the mean values, cannot measure the changes in strategies and the Differences in the Choice of Diversification Strategies of Multi-National Corporations and Indian Companies | 201

movement between diversification strategies. So to gauge the extent and the movement between diversification categories, the sample of 536 companies has been split into four groups by using the cut-off mean values of Related (RD) and Unrelated Diversification (UD). The cut-off values of RD and UD, the entropy measures of Jacquemin and Berry (1979) has 0.2298 for Related Diversification (RD) and 0.1922 for Unrelated Diversification (UD), on the basis of base year 2001. The classification has been made as follows: VERY LOW DIVERSIFIED (VLD) The firms with low mean Related Diversification and low mean Unrelated Diversification has been labeled as Undiversified or Very Low diversified.

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RELATED DIVERSIFIED (RD)


The firms with high mean Related Diversification and low mean Unrelated Diversification has been labeled as Related Diversified. UNRELATED DIVERSIFIED (UD)

The firms with low mean Related Diversification and High mean Unrelated Diversification has been labeled as Unrelated Diversified. VERY HIGH DIVERSIFIED (VHD)

The firms with high mean Related Diversification as well as high mean Unrelated Diversification has been labeled as Very High Diversified. RESULTS AND ANALYSIS: NATURE AND EXTENT OF DIVERSIFICATION NATURE AND EXTENT OF DIVERSIFICATION IN MULTI-NATIONAL CORPORATIONS (MNCS) AND DOMESTIC COMPANIES (DCS)

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The nature and extent of diversification in MNCs and Domestic Companies has been studied over three points of time, i.e. 2001, 2006 and 2011. Table 2 presents the results of the same as follows:

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Table 2: Nature and Extent of Diversification in Multi-National Corporations and Domestic Companies 2001 MNC DC No. % No. % Very Low Diversified 90 40 167 53.4 Total Diversified 133 60 146 46.6 TOTAL (A+B) 223 100 313 100 Related Diversified 69 52 74 50.7 Unrelated Diversified 40 30 51 35.0 Very High Diversified 24 18 21 14.3 TOTAL 223 100 313 100 Source: Author’s Calculations Categories

2006 MNC DC No. % No. % 82 37 146 46.6 141 63.2 167 53.4 223 100 313 100 78 55.3 84 50.3 36 25.5 54 32.3 27 19.2 29 17.4 223 100 313 100


2011 MNC DC No. % No. % 81 36.3 138 44 142 63.7 175 56 223 100 313 100 87 61 95 54.3 34 24 58 33.1 21 15 22 12.6 223 100 313 100

Multi-National Corporations


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From Table 2, it is seen that in 2001 out of 223 MNCs, 40% followed Very Low Diversified strategy whereas 60% were in Total Diversified group. From Total Diversified group, out of 133 companies, as high proportion of 52% of MNCs followed Related Diversifiedstrategyand 30% followed Unrelated Diversified category; while only 18% were in Very High Diversified category. In the year 2006, the proportion of companies in Very Low Diversified category declined to 36.8% while those in Total Diversified category rose to 63.2%. Those that followed Related Diversified and Very High Diversified category increased to 55.3% and 19.2% respectively.Those followed an in-between strategy of Unrelated Diversified category declined by 4.5% to 25.5%. In 2011, MNCsthat followed Very Low Diversified strategy further declined but only meagerly by 0.5% as just one company moved from Very Low Diversified category towards diversification. MNCs that followed Very High Diversifiedstrategy declined tremendouslyfrom 19.2% to 15%. LikewiseUnrelated Diversified strategy too declined to 24% while Related Diversified strategy showed a sharp increase from 55.3% to 61%.It is evident from the results that more than half of the MNCs adopted Total diversified category over the total study period evaluated at three points of time.However at all the three points of time, RD has been the most popular strategy while UD is the least favored strategy for Multi-National Corporations. Domestic Companies

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In the year 2001, out of 313 Domestic companies, 53.4% followed Very Low Diversified strategy and 46.6% were in Total Diversified group. From Total Diversified group, out of 146 companies higher percentage of companies, that is, 50.7% followed Related Diversified strategy; 35% companies followed Unrelated Diversified strategy, while only 14.3% were in Very High Diversified category. In 2006, the proportion of companies in Very Low Diversified category declined to 46.6% while those in Total Diversified category rose to 53.4%. In Total Diversified category, Domestic companies following Related Diversified and Unrelated Diversified category showed some decline of 0.4% and 2.7%, respectively, while those following Very High Diversified category increased by 3.1% and rose to 17.4%. In 2011, companies those followed Very Low Diversifiedstrategy further declined to 44% and those in Total Diversified category increased to 56%. In Total Diversified group, Very High Diversifiedstrategy showed a sharp decline of 4.8% and stood at 12.6%. However, the move in Related Diversified category increased by almost a similar proportion and reached at 54.3%. Unrelated Diversified category too showed a mild increase from 32.3% to 33.1% at these points of time.Thus, Domestic companies too have started preferring the strategy of diversification but slowly over a period of time. Like their Multi-National counterparts, RD is the most popular strategy for them while VHD is the least favored one. Differences in the Choice of Diversification Strategies of Multi-National Corporations and Indian Companies | 203

COMPARISON OF NATURE AND EXTENT OF DIVERSIFICATION BETWEEN MULTINATIONAL CORPORATIONS AND DOMESTIC COMPANIES


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From Table 2, it is clear that the extent of diversification is high in case of MNCs at all points of time. The nature of diversification in both groups of companies is the same, as RD followed by UD is the popular strategies for MNCs as well as for Domestic companies. However, there is higher proportion of companies in extreme diversification categories (RD and VHD) in case of MNCs while proportion of companies in case of Domestic group is higher in in-between strategy i.e. UD category. As it is evident from Table 2, in 2001, extent is high in MNCs while low in case of Domestic companies; as noticeable that 60% of MNCs fallin‘Diversified group’ while 46.6% of Domestic companies following the same. In 2006, the proportion of MNCs those followed ‘Diversified group’ increased to 63.2%; whereas 53.4% Domestic companies falling in the same strategy. Likewise in 2011, 63.7% MNCs fall in Diversified group as against 56% in Domestic companies falling in same. It is also noticeable, that MNCs are showing more preference towards extreme strategies of diversification that is, RelatedBusiness and Very High Diversified; whereas the Domestic companies favored in-between strategy i.e. Unrelated Diversified, at all points of time.

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It is analyzed that in 2001, extent of diversification in MNCs is much higher than Domestic Companies; and also manifested that as more proportion of MNCs preferred extreme strategies such as more proportion of Domestic companies favored in-between strategies. The year 2001 represents post-liberalization pace; which showed that even after a decade of liberalization Indian companies did not step into VHD category and preferred in Low diversification categories only. Also this is an obvious observation that both Indian as well as Multi-National Corporations has significantly expanded their footprint over the past decade on the globalization path. In the year 2006 in both the cases, extent increased in VHD category as it was a pre-recession period. Perhaps companies were growing and booming with greater confidence and adaptation to LPG reforms. It shows that both Multi-National and Domestic companies wanted to explore the market with newer products. As globalization rises, firms started adopting higher level of diversification strategy so they can gain more competitive advantages, to better compete on the global level. It also seems that Indian as well as MNCs adjusted themselves with the reforms and both the groups enjoying the benefits of diversification strategies. In 2011 the extent of diversification in both the cases has further increased, whereas Indian companies increased by 3% while MNCs only by 0.5%. As the year 2011 represents the post-recession period when the whole world was recovering from the ripples of USA meltdown. Recession had seized almost entire world but major attacked area was U.S.; which is also clear from the results of 2011 as only one MNC moved to diversification. It clearly showed that India got less affected by U.S. recession, whereas perhaps MNCs started withdrawing their investments and also retrieving back to its related businesses. 204 | Global Performance Challenges: Building and Sustaining Competitiveness

CONCLUSION


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To conclude, it is clearly foundthatboth Multi-National and Indian companies have preferred the diversification strategy for growth in the unstable environment. The nature of diversification in both groups of companies is the same, as RD followed by VHD is the popular strategies for MNCs as well as for Domestic companies. But, the extent of diversification has been much higher in case of MNCs as compared to Indian companies. However, in case of MNCs, higher proportion of companies preferred extreme diversification categories (RD and VHD) while in-between strategy i.e. UD category, is more favored for the Domestic group of companies.During this time period the corporate sectors has experienced many changes over the last two decades with the initiation of liberalization reforms and U.S. meltdown 2008. Corporations seem to be playing with their strategies in order to and are trying to maintain a balance between profitability and stability in the globalized competitive markets. In fact the managers seem to have followed a cautious behavior and made prudent decisions related to strategic planning; so that the companies earn stabilized revenues even during the dynamic environment and compete each other cautiously. REFERECNES

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[15] Gort, M. (1962), “Diversification and Integration in American Industry”, Princeton, New Jersey: PrincetonUniversity Press. [16] Gupta and Qiu, (2013), “The Rise of the Indian Multinational Corporations and the Development of FirmSpecific Capabilities”, Journal of Business Theory and Practice, Vol. 1, No. 1, pp. 45–65. [17] Hitt, M.A., Hitt, M.A., Hoskisson, R.E., and Kim, H., (1997), “Intemational Diversification: Effects on Innovation and Firm Performance in Product Diversified Firms", Academy of ManagementJournal, Vol.40, pp. 767–798. [18] Hoskisson, R.E., Hitt, M.A., Johnson, R.A., and Moesel, D.D., (1993), “Construct Validity of an Objective (Entropy) Categorical Measure of Diversification Strategy”, Strategic Management Journal, Vol. 14, pp. 215–235. [19] Impullitti, (2006), “International Competition, Growth, and Optimal R&D Subsides”, Available (online) athttp://www2.dse.unibo.it/soegw/paper/Impullitti.pdf, accessed on july 20, 2013. [20] Itami, H., Kagono, T., Yoshihara, H., and Sakuma, A., (1982), “Diversification Strategies and Economic Performance”, Japanese Economic Studies, Vol. 11, pp. 78–110. [21] Jacquemin, A.P., and Berry, C.H., (1979), “Entropy Measure of Diversification and Corporate Growth”, The Journal of Industrial Economics, Vol. 27, pp. 359–369. [22] Kaura, M.N., (1989), “Diversification: A Profile of Indian industries”, ASCI Journal of Management, Vol.10 No.1, pp. 121–35. [23] Khanna, S., (1994), “Core vs Anti-Core”, Business Today (August 7), Vol. 21 pp. 68–77. [24] Lecraw, D.J., (1984), “Diversification Strategy and Performance”, The Journal of Industrial Economics, Vol. 33 No. 2, pp. 179–198. [25] Luffman, G.A., and Reed, R., (1982), “Diversification in British Industry in the 1970s”, Strategic Management Journal, Vol. 3, pp. 303–314. [26] Mehta, D., and Samanta, S., (1996), “The Nature and Significance of Strategic Alliances”, Vikalpa, Vol. 21 No. 2, pp. 15–29. [27] Miller, A., (1998), “Strategic Management”, Intemational Edition, Irwin McGraw- Hill. [28] Oijein, A.V., andDouma, S., (2000), “Diversification Strategy and the Roles of the Center”, LongRangePlanning, Vol. 33, pp. 560–578. [29] Pandare, (2013), “Impact of Multinational Companies on Indian Economy”, Project Report, University of Mumbai. [30] Raman, R., Dangwal, R.C., andBatra, G.S., (2003), “Corporate Diversification Patterns in India”, South Asian Journal of Management, Vol.10 No.3, pp 32–41. [31] Rumelt, R.P., (1974), “Strategy, Structure, and Economic Performance”, Division of Research, Harvard Business School, Boston. [32] Rumelt, R.P., (1982), “Diversification Strategy and Profitability”, Strategic Management Journal, Vol. 3, pp. 359-369. [33] Rushin, L.T., (2006), “The Impact of Diversification on the Financial Performance of Organizations Listed on the Industrial Sector of the JSE”, A Research project submitted to the Gordon Institute of Business Science, University of Pretoria. [34] Shanker, K., (1989), “Characteristics of Diversification in Indian Industry”, Economic and Political Weekly, Vol. 24, pp. 1241–1250. [35] Singh, D.A., and Delios, A., (2012), “Corporate Governance, Board Networks and Growth Strategies”, Academy of International Business, Washington DC. [36] Singh, M., Davidson, W.N., and Suchard, Jo-Ann., (2003), “Corporate Diversi cation Strategies and Capital Structure”, The Quarterly Review of Economics and Finance, Vol. 43, pp. 147–167. [37] Subbramoney, P., (2010), “Do Conglomerates in Emerging Economies Suffer a Diversification Discount? An Application on South African Listed Companies”, A Research project submitted to the Gordon Institute of Business Science, University of Pretoria. [38] Weston, J.F., and Mansinghka, S.K., (1971), “Tests of the Efficiency Performance of Conglomerate Firms”, The Journal of Finance, Vol. 26 No. 4, pp. 919–936. [39] Zahra, (1993), “New Product Innovation is Established Companies: Association with Industry and Strategy Variables. Entrepreneurship: Theory and Practice, Vol. 18 No. 2, pp. 47.


Business Performance: An Influence of Entrepreneurial Orientation Saloni Raheja


ABSTRACT

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Assistant Professor in Commerce, DRV DAV Centenary College, Phillaur, Punjab E-mail: [email protected]

The global current business environment is hyper-competitive and very much affected by the emerging accessible technologies worldwide. This business environment forces organizations to be innovative and show fast responses to all the environmental changes. The organizations have to keep pace with the new technological advancements and be able to keep in business, have to adopt innovative strategies which results in high level of customer satisfaction. Due to many growing challenges in the global business environment, all organizations have to adopt entrepreneurial strategies to keep in pace with the speed changes and rapid challenges. So, the present study explores the influence of entrepreneurial orientation on business performance. This study refines our understanding of the effects of entrepreneurial orientation on business performance. This will help and have meaningful implications for managers and policy-makers. Keywords: Entrepreneurial Orientation, Business, Performance

INTRODUCTION

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The global current business environment has been characterized as hyper-competitive and being very much affected by the emerging easily accessible technologies worldwide. This business environment forces organizations to be innovative and show fast responses to all the environmental changes. More specifically, organizations, to keep pace with the new technological advancements and be able to keep in business, have to adopt innovative strategies that results in high level of customers’ satisfaction. Due to many growing challenges in the global business environment, all organizations have to adopt entrepreneurial strategies to keep in pace with the speed changes and rapid challenges. A close look at the literature review investigating the effect of entrepreneurial orientation (EO) and organizational performance, one can come across inconsistent findings. This situation calls for more research to be conducted in this regard. The present study is about the influence of entrepreneurial orientation on the business performance. It will help to know the relation of dimensions of entrepreneurial orientation and business performance. This will help and have meaningful implications for managers and policy-makers. ENTREPRENEURIAL ORIENTATION Entrepreneurial Orientation (EO) refers to the strategy making processes that provide organizations with a basis for entrepreneurial decisions and actions. It refers to the

processes, actions, methods, practices and decision making styles within a firm/ organization. Entrepreneurial orientation is a commonly used measure in entrepreneurship literature. Entrepreneurial orientation is the presence of organizationallevel entrepreneurship (Wiklund and Shepherd 2005). Several researchers have agreed that entrepreneurial orientation could be explained by innovation, proactiveness, and risk taking (Wiklund 1999). The notion of a single factor entrepreneurial orientation concept also has been examined in some studies. Because the three dimensions of entrepreneurial orientation can vary independently of one another (Krauss et al. 2005; Kreiser et al. 2002; Lumpkin and Dess 1996; Lyon et al. 2000; Venkatraman 1989). Entrepreneurial Orientation is usually defined as a multidimensional construct, applied at the organizational level, which characterizes firm’s entrepreneurial behavior and includes one or several of following dimensions of EO.


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INNOVATIVENESS

Innovation is the development and use of new ideas in organizations in terms of a new product, service, technology, or organizational structure. A firm adopting an innovative style relies on knowledge that is possessed by players of the market (Mahmood &Rufin, 2005). It embraces creativity in technology adoption and internal processes (Baker &Sinkula, 2009). PROACTIVENESS

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Proactiveness is a forward looking, opportunity seeking perspective (Ahuja &Lampert, 2001; Rauch et al., 2009). It reflects a posture of anticipating and actingon future changes in the market and pioneering new processes and products (Li et al., 2010; Lisboa et al., 2011). Proactive firms can be expected to devote effort to environmental monitoring in order to spot new trends and stay abreast of the competition (Sciascia et al., 2006). Hence, the greater is the proactivity of the firm, the greater is the tendency to favor innovation generation.

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Risk taking involves the willingness to commit significant resources to exploit opportunities or engage in business strategies in which the outcome may be highly uncertain (Keh et al., 2002). Risk taking behavior related with tends to underestimate of exporting obstacle and effort towards the pursuit ofnew opportunities in overseas market. Rauch found that the risk taking is positively related to performance. In the other study, risk taking considered as an independent dimension of EO in family firms that is positively associated with the other dimensions of EO. COMPETITIVE AGGRESSIVENESS Competitive aggressiveness refers to the company’s way of engaging with its competitors, distinguishing between companies that shy away from direct competition with other companies and those that aggressively pursue their competitors’ target 208 | Global Performance Challenges: Building and Sustaining Competitiveness

markets. Competitive aggressiveness is the intensity of a firm’s efforts to outperform rivals and is characterized by a strong offensive posture or aggressive responses to competitive threats. AUTONOMY Autonomy is the independent action of an individual or a team in bringing forth an idea or a vision and carrying it through to completion (Lumpkin and Dess, 1996) without being held back by overly stringent organizational constraints.Autonomy refers to the independent action undertaken by entrepreneurial leaders or teams directed at bringing about new idea or a vision or a new venture and carrying it through to the completion without being held back by overly stringent organizational constraints.


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BUSINESS PERFORMANCE In the field of strategic management and organizational studies, business performance has been attracting the scholar attention as one of the most important constructs (Combs, Crook, & Shook, 2005). This is why, over the last few decades, practitioners as well as researchers conducted huge attention to explore the determinants of the organizational performance and what are the mechanisms that through which some variables can affect, positively or negatively, the organizational performance (Jing & Avery, 2008). Nevertheless the extensive research work related to the organizational performance, there is no universal definition of the construct (Ford &Schellenberg, 1982; Johannessen, Olaisen, & Olsen, 1999). One of the most recent definitions was provided by Antony and Bhattacharyya (2010) who defined the organizational performance as the measure of organizational success with regards to the value it creates and deliver to internal as well as external customers.

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ENTREPRENUERIAL ORIENTATION AND BUSINESS PERFORMANCE

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Entrepreneurial orientation involves a willingness to innovate, search for risks, take selfdirected actions, and be more proactive and aggressive than competitors toward new marketplace opportunities (Lumpkin&Dess,1996;Wiklund&Shepherd,2005).We distinguishedfive dimensions of entrepreneurial orientation, including innovativeness, risk-taking, proactiveness, competitive aggressiveness, and autonomy, as suggested by Miller (1983) and Lumpkin and Dess (2001). The importance of entrepreneurial orientation to the survival and performance offirms has been acknowledged in the entrepreneurship literature (Miller, 1983; Lumpkin and Dess, 2001; Wiklund, 1999; Wiklund & Shepherd, 2005; Zahra & Covin, 1995; Zahra & Garvis, 2000). The empirical evidences from Zahra and Covin (1995) and Wiklund (1999) showed that the positive influence of entrepreneurial orientation on performance increases over the span of time. From the perspective of resource-advantage theory, entrepreneurial orientation can be regarded as organizational resource (Hunt, 1995; Hunt & Morgan, 1996). Such resource can differentiate afirm from other rivals and result in economic dynamism and wealth Business Performance: An Influence of Entrepreneurial Orientation | 209


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creation in the competitive process (Hunt & Morgan, 1996; Ireland et al., 2003; Shane & Venkataraman 2000). Firms can respond to challenges to prosper and flourish in the competitive and uncertain environment (Lumpkin &Dess, 1996; Shane & Venkataraman, 2000). Prior researchhas employed avarietyoffinancial measures such asrevenue, cash flow, return on assets, return on equity, and so forth toassessfirm performance (Haber & Reichel, 2005). Such objectivefinancial measures are necessary but not sufficient to capture overallfirm performance (Aggarwal & Gupta, 2006; Clark, 1999; Murphy, Trailer, & Hill, 1996). Thus, some studies have suggested the combination offinancial and non-financial measures to offer morecomprehensive evaluation onfirm performance (Clark, 1999; Haber & Reichel, 2005; Venkatraman & Ramanujam, 1986). Subjective non financial measures include indicators such as perceived market share, perceived sale growth, customer satisfaction, loyalty, and brand equity etc. (Clark, 1999; Haber & Reichel, 2005).

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Several studies have suggested that the dimensions of entrepreneurial orientation can lead to market growth rate (Ireland et al., 2003; Shane & Venkataraman, 2000) andfirm performance (Lumpkin & Dess, 1996; Wiklund & Shepherd, 2003, 2005; Zahra & Garvis, 2000). The innovativeness dimensions of entrepreneurial orientation reflects the tendency to engage in and support novelty to create and introduce new products, services, or technology (Lumpkin & Dess, 1996). Innovative companies may have a broader base of skills and knowledge which they can exploit in building distinctive competences (Zahra & Garvis, 2000). According to resource-advantage theory, innovative competences may be a source of competitive advantage because they are deeply rooted in the context of the organization and cannot be explicitly articulated and imitated (Barney, 1991; Hunt & Arnett, 2006; Hunt & Morgan, 1996; Nonaka, 1994). By increasing commitment to innovative products or processes, firms can renew their operations in marketplace and improve their profitability (Lumpkin and Dess, 1996; Miller, 1983; Zahra &Garvis, 2000). Risk- taking orientation indicates a willingness to engage resources in strategies or projects where the outcome may be highly uncertain (Wiklund& Shepherd, 2003; Zahra &Covin, 1995). If new ventures have risk-taking orientation, they may seize market opportunities to obtain higher returns and make lucrative deals. Hence, risk-taking tendency may be positively related to success (Frese, Brantjes, & Hoorn, 2002; Lumpkin &Dess, 1996). Proactiveness refers to afirm's response to promising market opportunities (Lumpkin &Dess, 1996). Competitive aggressiveness involves the propensity to directly and intenselychallenge its competitors (Lumpkin & Dess, 1996). A successfulfirm could efficiently or effectively produce market offerings that are valued by particular market segments (Hunt & Arnett, 2006; Hunt & Morgan, 1995). If new ventures have more aptitude for innovativeness, risktaking, proactiveness, competitive aggressiveness, and autonomy, they will gain greater competitive advantage and accomplish higherfirm performance.


From the above discussion, we conclude that the greater the autonomy, the higher the performance of organization, the greater the innovativeness, the higher the performance of organization and the greater the competitive aggressiveness, the higher the performance of organization. So most of the dimensions of entrepreneurial orientation have positive influence on the performance of the business. The risk taking and proactiveness has not considered the important factor in the performance of the firm. SUGGESTIONS Entrepreneurial orientations will be advanced by paying greater attention to the role of organizational context for different dimensions of entrepreneurship.

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Government should provide the necessary infrastructure and social service for the economic development.

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Entrepreneur should have an insight into the job requirement and also carry out a continuous update of the learning to fulfil the job requirement.

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They should have good communication with colleague to improve the standard and the prestige of the managerial function.


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CONCLUSION

Entrepreneurial orientation is an important factor for the success of business. The Entrepreneurial orientation is something inherently good, something firms should make an effort to achieve it. This vision is supported by the results of the research. This study refines our understanding of the effects of entrepreneurial orientation on business performance. This will help and have meaningful implications for managers and policymakers.

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Al-Swidi, A.K., & Al-Hosam, A. (2012). The Effect Of Entrepreneurial Orientation On The Organizational Performance: A Study On The Islamic Banks In Yemen Using The Partial Least Squares Approach. Arabian Journal of Business And Management Review, Vol. 2, No. 1. Christian Lechner, S.V. (2014). Entrepreneurial Orientation, Firm Strategy And Small Firm Performance. International Small Business Journal, Vol. 32, No. 1, pp. 36–60. Douglas W. Lyon, G.T. (2000). Enhancing Entrepreneurial Orientation Research: Operationalizing And Measuring A Key Strategic Decision Making Process. Journal Of Management, Vol. 26, No. 5, pp. 1055–1085. Frank, H. (2010). Entrepreneurial Orientation and Business Performance–A Replication Study. Sbr, pp. 175–198. J.B. Arbaugh, L.W. (2009). Is Entrepreneurial Orientation A Global Construct? A Multi-Country Study of Entrepreneurial Orientation, Growth Strategy, and Performance. The Journal of Business Inquiry, Vol. 8, No. 1, pp. 12–25. Jake G. Messersmith, W.J. (2013). Entrepreneurial Orientation and Performance in Young Firms: The Role of Human Resource Management. International Small Business Journal, Vol. 31, Issue 2, pp. 115–136. Jalali, S.H. (2012). Environmental Determinants, Entrepreneurial Orientation and Export Performance: Empirical Evidence from Iran. Serbian Journal of Management, Vol. 7, No. 2, pp. 245–255.

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Johan Wiklund, D.S. (2005). Entreprenuerial Orientation And Small Business Performance: A Configurational Approach. Journal Of Business Venturing, Vol. 20, pp. 71–91. Marie-Noëlle Albert, M.M. C. (2013). The Support To An Entrepreneur: From Autonomy To Dependence. Sage Journals, pp. 1–9. Mehrdad Madhoushi, A.S. (2011). Entrepreneurial Orientation And Innovation Performance: The Mediating Role of Knowledge Management. Asian Journal of Business Management, Vol. 3, No. 4, pp. 310–316. Muhammad Haroon Hafeez, M.N. (2012). Relationship Between Entrepreneurial Orientation, Firm Resources, Sme Branding And Firm’s Performance: Ist Innovation The Missing Link?. American Journal of Industrial and Business Management, Vol. 2, pp. 153–159. Rodney Runyan, C.D. (2008). Entrepreneurial Orientation Versus Small Business Orientation: What Are Their Relationships To Firm Performance?. Journal Of Small Business Management, Vol. 46, No. 4, pp. 567–588. Sascha Kraus, J.P. (2012). Entrepreneurial Orientation and The Business Performance of Smes: A Quantitative Study From The Netherlands. Rev Manag Sci, Vol. 6, pp. 161–182. Sriprasert, P. (2013). The Effect of Entrepreneurial Orientation on the Success of Community Enterprise: A Study of Nakhon Si Thammarat, Thailand. Ipedr, Vol. 59, No. 33. William E. Baker, J.M. (2009). The Complementary Effects of Market Orientation and Entrepreneurial Orientation on Profitability In Small Businesses. Journal of Small Business Management, Vol. 47, No. 4, pp. 443–464. Yang, C.W. (2008). The Relationships among Leadership Styles, Entrepreneurial Orientation, and Business Performance. Managing Global Transitions, Vol. 6, No. 3, pp. 257–275. Yong-Hui Li, J.W. H.T. (2010). Entrepreneurial Orientation and Firm Performance: The Role of Knowledge Creation Process. Industrial Marketing Management.


Russia: An Emerging Market for Indian Firms 1

Dr. Mahesh Chandra Joshi1 and Richa Bhatia2

Associate Professor, Lovely Professional University, Punjab Assistant Professor, Lovely Professional University, Punjab

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ABSTRACT


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Russia has one of the largest populations in the world and will become the world's fifth largest economy in 2016 in PPP terms. It has Plentiful natural resources of Oil and natural gas, which has made Russia as a spot for investors play a major part in the Russian economy in terms of production for internal purposes and exports. Russia has 24 Special Economic Zones (SEZs), which fall in one of four categories: industrial and production zones; technology and innovation zones; tourist and recreation zones; and port zones. Since India and Russia have old economic as well as political ties, so Indian firms could have advantages to explore Russia as compared to third nation firms. Indian companies will come across political risk, market risk, investment risk, legal risk i.e. (risk of right to private ownership, dispute settlement), capital control risk at Russia. Russia recognizes foreign investment's critical role in the country's economic development and has encouraged foreign investment by removing administrative barriers and establishing special economic zones, high-technology parks, and investment promotion funds yet independent organizations continue to rank Russia as one of the most difficult economies in which to do business.

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Russia has no capital controls and there are no barriers to remitting investment returns abroad, including dividends and returns of capital. Although the Russian government has strong requirements and an extremely cumbersome process of approval and renewal for visas and residence permits for foreign businessmen and investors but Indian firms could have better acceptance in Russian market because both countries are emerging and have similar technological environment.

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The paper includes country analysis of Russia to benefit Indian aspirants.

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Keywords: PPP, SEZ, Investment Risk, Third Nations

INTRODUCTION This research paper is based on secondary data and it is combination of descriptive as well as exploratory research. BRICS represents economic association with five major upcoming economies: namely Russia, Brazil, India, China and South Africa. In year 2013, the 5 BRICS economies show approximately three billion population and combined GDP (nominal) of US$16.039 trillion. As per the statics available for 2013, the BRICS nations contribute 18 percent to the world economy. The BRICS members are promoting, political and cultural ties within the BRICS nations, which was formed in 2011. Russians has market oriented economy with huge natural resources, specifically natural and oil gas. Russia is the 9th largest economy by nominal GDP in the world and

by purchasing power parity (PPP),the 6th largest. As per the data available for twenty first century, the domestic consumption as well as political stability is higher, which have enhanced growth of Russian economy. This country is member of the G20 and the member of COE, i.e., Council of Europe, where as the economy of India is the 10th largest world's- economy by the criteria nominal GDP and third-largest by purchasing power parity (PPP). According to the criteria of International Monetary Fund (IMF), as per 2013 the economy of India is approximately US$1.842 trillion, by market exchange rates (it is the 11th-largest economy) and by PPP it is the 3rd largest with approximately US$ 4.962 trillion value.

By the GDP growth rate average annually of 5.8%, of about the last 2 decades, and achievement of about 6.1% in the year of 2011–12, Indian economy is one of the fastest G in AL PR p to ES art co S or py, W in p R fu rin IT ll, t TE on or N a sa PE ny ve R ret an M ri y IS ev c SI al on O sy te N s nt of te of th m, th e is co pd py f, rig ht -h ol de

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in the world. Table 1: Facts about India and Russia

Russia India

Population 143,451,702 1,210,193,422

GDP (Nominal) Export $2,021.9 bn $542.5 bn $1,824.8 bn $309.1 bn

Import $358.1 bn $500.3 bn

Govt Spending $414.0 bn $281.0 bn

Source: “World economic outlook “IMF. April 2013 data

BRIEF HISTORY OF USSR

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Earlier in the continent of Eurasian, the USSR existed as the socialist state between the year from 1922 to 1991. It was earlier under the governance by the Communist Party as the single-party state in coherence with Moscow as the capital. The union of many subnational Soviet republics, its governance and the economy were majorly centralized. The Azerbaijan SSR, Armenian SSR, ByeloRussian SSR, Georgian SSR, Latvian SSR, Kazakh SSR, Kyrgyz SSR, Moldavian SSR, Lithuanian SSR, Tajik SSR, Ukrainian SSR, Turkmen SSR,and Uzbek SSR. All of the above states became separate entities after the dissolution of Union in the year 1991.

Chart 1: Russia’s Competitors in Terms of Market Attractivness 214 | Global Performance Challenges: Building and Sustaining Competitiveness

Until the decline till the year of 1991, the USSR Covered approximately 8,649,500 sq mi (22,402,200 sq km) and had the extension from the Artic Ocean in the border of Afghan. The various 150 ethnic groups which earlier were a part of the USSR includes a total population of about 293 million, majorly in Russia currently. The USSR was the first to have the planned economy, in which the distribution as well as production of goods were centralised and were directed by the government. On December 8 in year of 1991, the presidents of Ukraine, Belarus and Russia, (previously named ByeloRussia), had signed the the Belavezha Accords, which announced the the dissolution of USSR and establishment of (CIS) i.e the Commonwealth of Independent States. The Russian S.F.S.R. (Soviet Russia proper) constitutes of approximately 70 per cent of Soviet Union population includes nearly 92 per cent majorly of the territory.


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RUSSIA AFTER THE DISSOLUTION FROM USSR

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The U.S.S.R. was by law, dissolved earlier in December 31, 1991. The new state, namely called the Russian Federation, had moved on to the path of democracy and maintained its importance in political and economic map of the world. Since independence, Russian country has come across many economic challenges. It had to faced challenges posed by earlier economic policy of the Gorbachev period.Moreover from the year of 1991 there was a decline in gross domestic product (GDP) approximately by one-sixth, and at that time the budget deficit was approximately 1/4th of GDP. The Gorbachev government then lead to the printing of the large amounts of money for financing both the large subsidies and also the budget to factories and on food also during the time of collapse of tax system. Moreover, there was scarcity due to the price controls over the most of the goods. By the year of 1991 only few items that were essential for everyday life were in the outlets of various retail stores. The complete system of distribution of goods was on the way of dissolution. Transformation to a market economy from a command economy had been tougher for Russia as compared to any other country of eastern Europe. The economic reform threatened various entrenched interests, and the reformists had to balance the necessities of economic reform with powerful vested interests. The government specifically removed the price controls majorly on all items in the year of January 1992—which was the first major step for creation economy which is market based. In 1995 the Russian government, with the help of secured loans through the International Monetary Fund (IMF) and through income from the selling the natural gas and the oil, established the stabilization of the national currency through the establishment of a ruble zone. Another element which bought about the reform in the economy was the privatization of industries of Russia. Under the governance of the Yelstin the Reformists speeded up the privatization, with a belief that the threat of a communism would be more rare once if a Russian capitalist comes into existence. Many of the Western economist’s reformists had a thought that only privatization of factories and enterprises would let them survive would revive the economy. Earlier, the government of Russia also implemented a system known as voucher system as per which Russia: An Emerging Market for Indian Firms | 215

every citizen could in theory become a shareholder in the industralization and privatization of Russia. POLITICAL AND SOCIAL CHANGES Although the Russia had to the face many economic as well as political reform, the mojor priority was that of retension of the authority and the power by yestlin government.In addition to this he also had to protect the government and to fight against the bureaucracy. During early years, the legal system of Russia which was suffered from the lack of resource, the staff (the trained personnel) and a proper legal code raced to the collapse of the new market economy. PESTEL ANALYSIS


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The PESTEL analysis helps to visualize the macro environment that would be affecting the business, it constitutes different factors which consist of Political, Economic, Social, Technological, Environmental and Legal factors. The business decisions that are made by managers are majorly affected by the above mentioned factors both in a direct or indirect way. Moreover the PESTEL was designed solely for the scanning the macro environment. PESTEL ANALYSIS OF RUSSIA

Russian economy has faced one of the toughest challenges. It has faced leadership issue that could help them avoid the major decline over past years. The Russian Federation had gone through a notable decade, which averaged around 7% of the annual growth since 1998. But by the end of this decade the average of income is approximately $640 per head, with their life expectancy of about 66.

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POLITICAL LANDSCAPE

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In the month of July 2009, the President Barack Obama and Medvedev reached to an contract to cut back their countries' stock of the nuclear weapons. Russian economy also supported the US decision to shelve the controversial missile defense bases in Poland and the Czech Republic. In the year of April 2010, the country of Russia and Ukraine signed the inter-governmental procedure on the supply of goods on the industrial cooperation in the year of 2010. The both sides also signed the treaty on cooperation in the aviation industry and also on the industrial policy. ECONOMIC LANDSCAPE Although, the country managed to maintain 6% growth in 2008, the Russian economy declined by 8% in 2009. With the existing economic dissolution, the government has drawn the policies to reduce deficiency of budget which was approximately 6%of GDP in the year of 2009 to around approximately 3% by 2012. The insurance market in Russia has grown continuously for the last five years, despite of the sharp declines in the sector of life insurance segment’s year since 2003. The market of Russia in the sector of 216 | Global Performance Challenges: Building and Sustaining Competitiveness

insurance market generated a gross premium of about the income of approximately $36.9 billion in 2008, representing a compound annual growth rate (CAGR) of about 18.4% for the period spanning 2004. Russian economy is an unusual among the major economies in a manner that it relies on energy revenues for driving the growth. The Russian country has an abundance of natural resources, which includes natural gas and oil, with that of precious metals which constitutes the major share of Russia's exports. Acc to the year of 2012,the sector of oil and gas has accounted for approximately 16% of the GDP, approximately 70% of total exports and around 52% of federal budget revenues


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Russian country has a large and very sophisticated industry for arms industry, where it is possible to manufacture and design the high-tech equipment of military, which is inclusive of a fifth-generation fighter Jet. In accordance with the value of Russian arms exports was around $15.7 billion in the year of 2013.The uttermost military exports from the Russia are inclusive of combat aircraft, air defence systems, ships, submarines. SOCIAL LANDSCAPE

The concept of Income inequality in the Russian economy has broadened in the postliberalization period. The difference between the people belonging to 10% richest and 10% poorest in the population of the city of Moscow was approximately 42 times in the year of 2008 as compared to the value of 38.6 times in the 2005. Although the country went through a severe crisis in the economy during the year of 2009, the government was in a position to carry out anti-crisis measures on an large-scale without any cuts in the social spending. The actual social spending in this year was increased by over the 27% in the year of 2009 in comparision to year of 2008.. TECHNOLOGICAL LANDSCAPE

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The Russian country has been known historically its excellence in the space technologies and is the one amongst the most successful countries in consideration of its regards to many spacial programs. The government of Russia has also allocated more than around $11 billion for the Space Agency of Russia for the year 2006 to 15.The Russian country's IT market is currently the fastest of the growing market in the Central and East European (CEE) region. There is a mass potential for the IT spending by traditional industries of Russia' to make their system as a ITcompliant.

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LEGAL LANDSCAPE

There is complete list of reforms by the new government which are expected to bring about the improvement in the country’s judicial system. Russian country has also agreed upon various lawful assistance programs to solve its domestic as well as the international legal issues., from many countries. ENVIRONMENTAL LANDSCAPE The government of Russia Russian is planning in setting up an effective system of security for preventing pollution and man-made environmental disasters. The major Russia: An Emerging Market for Indian Firms | 217

tasks which are outlined through the government includes the implementation of the environmental decisions effectively, and also the creation of the effective system for the ecological security in the country.


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From the year of 1993 to 2010, the Russian companies has been engaged as either an acquirer or acquired company with the 13,834 mergers and acquisitions with a total value of about 613 bil. USD. The deals which occurred in 2010 are around 3,662, which is the new record as compared to the year of 2009, there was an increase by 12%. Also the value of deals in the year of 2010 was approximately US$100 billion, which was the second highest number ever; in comparision the year of 2009 there was an increase of 143%.Russian country had the record for trade surplus of around 17742 USD Million in January 2013. Previously, from the year of 1997 to the year of 2013, the balance of trade for the Russian economy averaged 8338.23 USD Million,also touched the peak of 20647 USD Million in the year of December 2011 but also recorded a low record of−185 USD Million in February 1998.

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Table 2: % Change of Regional Attractivness as Compared to 2012

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Source: Russia attractivness survey, 2013, Erst &young

Chart. 2: Results of Regional Attractivness Survey for an Investmet

Russia being the sixth most attractive regions to establish operations. 218 | Global Performance Challenges: Building and Sustaining Competitiveness

PESTEL ANALYSIS OF INDIA POLITICAL LANDSCAPE


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The political environment of India is highly dependent on the multiple factors such as government’s policies, political stability, the viewpoint of different political parties, the interest of politicians, and also the impact the political forums possess. Therefore, the different political factors have impact on the business dealings (Chakranarayan 2009). These constitute taxation, costituting well structured it three-tier structure of governments: Union, state and Urban & Rural bodies. The Union government function includes the imposition of the income tax, custom duty as well as excise, sales and service tax. The state government has the function of imposing principal taxes inclusive of land revenue, stamp duty, state excise, professional and callings tax and entertainment duty and Various taxes on properties, various markets, and also on utilities is charged by the local bodies. In addition to it, the government supports free business. There are changable regulations on the international trade; the government is stable from the previous decade without any external wars. ECONOMIC LANDSCAPE

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Since the announcement of industrial reform policies in 1991, the economy of India has been quite stable. For example, there was the huge reduction on industrial compulsory licensing, FIBP, foreign capital liberalization, liberalization of foreign capital, granting aids to agreements on foreign technological, and the formation of (Chakranarayan 2009). Therefore an continuous improvement is seen of Indian economic factors. In the year of 2009 the country had undergone the GDP of U.S$3.965 trillion, with a growth of 6%. Similarly, there was an growth of FDI for the same year 2009 to U.S$10.532 billion. Thus Indian economy settled and adjusted t through its ability to tackle readjustment in the economy.

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Social factors such as changes include trends which have major impacts on a business exchange. Being the world’s second highly populated nation, India’s population is estimated at 1.1 billion. This is into various structures with different percentages: at 31.8% is 0–14 years, 63.1% is 14–64 years and at 5.1% are those over 65 years. These factors include different lifestyle, perception, mobility, leisure, education, demographics, demographics and income distribution of the population. TECHNOLOGICAL LANDSCAPE Technological factors include innovation as well new product development with fresh ideas. The changes in the technology has impact on the cost reduction, quality, as well as innovation. India is now operating with the 3G. Moreover, India has entered into the strong IT sector as well as in a very strong market for mobile and communication Russia: An Emerging Market for Indian Firms | 219

provision. There is an development in the IT sector with, funding of technology by the government with the software upgrade, as well as the technological transfer (Chakranarayan 2009). LEGAL LANDSCAPE


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Legal factors have been one of the major factors in India which are having impact on the business. For example, the laws on disability discrimination, emphasis on the recycling and also the law for minimum wage increase have impacted the businesses. Previous legislations also affect the businesses directly such as the 1969 Act on trade mark, the 1955 Act on essential commodities etc. standards and measures as well as the consumer protection Act of 1969. In addition, there are several forms of IPR applied in India for various category of products such as trade mark, licensing, patents, copyrights, legislations on employment, product and trade restrictions, safety and health regulations, compliance to EU laws and commission on monopolies. On environment, Indian business sector and government understands the impacts on society. Environmental factors including climate and weather can have impact over the settlement of the industries. In the country, the quality of air is affected due to urbanization and industrialization. Several problems are also associated with environmental degradation in India which includes pollution and occurence of premature deaths (Chakranarayan 2009), which has led to the existence of detoriation lof the environment,noise controls, and also on the regulations of waste disposal. RUSSIA AS AN EMERGING MARKET FOR INDIAN FIRMS

The Indian companies that can fit to the Russian market are from the sector of aviation, construction, mineral & metal, power (nuclear), equipment and artificial jewellery.

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India had joined the hands for servicing the a Russian-built aircraft carrier delivered to the country last month (JUNE, 2014) jointly with Russia’s Sevmash shipyard for the the next 40 years for the shipbuilding. These two countries have ties for the long term association in respect of military ties and also for the various other projects.India has built an a training facility for naval pilots with the help of Russian team for practicing aircraft carrier operations. The Indian companies, that are seeking oppurtunities in Russia are from various sectors like mining, mieral, metal sector (NALCO, National Aluminium Company Limited,) which was incorporated 1981. It has its units in units in Odissa at various places like in the city of Angul and Damanjodi. It was incorporated as an public sector enterprise of the Ministry of Mines,Government of India in 1981. It is expanding presently by employing new projects. Nalco is developing its markets in the water and chemicals treatment and process improvement in services mainly for minning, energy, metal industry, chemistry pulp and paper, food and beverage production etc. Nalco also has representatives centred in several big industrial cities of Russia and various other countries of the former USSR who helpby playing the role of an consultants, problem-solvers also on site experts and the business partners. Nalco had 220 | Global Performance Challenges: Building and Sustaining Competitiveness


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first started its own business in the former USSR of about 25 years ago. In the year of 1990 Nalco came forward with a closed joint parternership company as a Joint Venture with the Soviet State Research Institute for Nitrogen Industry. In the year1996 the JV became Nalco fully owned branch named Nalco ZAO. For about the past years, significantly the progress is made to expand Nalco business onto the territory of Russian Federation and other former USSR countries. Russian government is ready for working with the Indian economy by giving them the chance to indulge as an investor and to buy some shares in the Elkon uranium deposit in Yakutia, which is considered as the world’s second biggest deposit for uranium in the whole world, and for together extracting the uranium. Russia could also be a major retail market for Indian finished jewellery. The Russian jewellery retail industry is growing with annual turnover estimated to reach around $16 billion. Indo-Russian trade in gems and jewellery trade is far below its potential. Analysts believe there is a lot of potential for Indian jewellery companies to establish themselves in Russia through distribution and marketing offices, considering the heavy import duties and very limited local manufacturing in Russia. Why Russia?

Table 3: Real GDP Growth and CPI in G7 and BRICS

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Source: (Buildig better global economic BRICS, Global economics Paper No 66, 30th November 2001 by J O ‘ Neill)

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Russia’s open-market economy encourages free enterprise and competition through privatization and price liberalization yet due to high operation costs and lack of modern wholesale distribution system, it is difficult for companies to enter and operate at Russia.

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APPLICABILITY OF “PORTER FIVE FORCES MODEL” TO RUSSIA 1. Threat of new entrants-the threat of new entrants to Russia is medium to high. 2. Bargaining power of buyer-the bargaining power of buyer is moderate. For example in the mining industry, Russia has faced many challenges as a consequence of which many foreign investors are active in this sector. 3. Bargaining power of supplier-Because of Geo Political situation of Russia, bargaining power of supplier is high.

Russia: An Emerging Market for Indian Firms | 221

4. Rivalry- Rivalry is moderate to low in majority of indusrties. 5. Threat of substitutes- It is also moderate to low because of its geographical location and political situations. CONCLUSION The above macro environmental conditions are indicative and provides opportunities to Indian firms at Russia. REFERENCES [1] [2]

[12] [13] [14]

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[11]

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[10]

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[9]

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[4] [5] [6] [7] [8]


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[3]

India-Russia Strategic Partnership Challenges and Prospects Nivedita Das Kundu (ED.), 2010, Edition BRICS in the World Trade Organization:Comparative Trade Policies by Vera Thorst ensen & Iva n Tiago Mac hado Ol iveiran, 2014 http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=91&pr.y=5&sy=2011&ey=20 18&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223%2C924%2C922%2C199%2C534&s=NGDPD%2C NGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a= http://rusembassy.in/ http://www.content.gs.com/japan/ideas/brics/building-better-pdf.pdf http://archive.indianexpress.com/news/brics-should-coordinate-in-key-areas-of-development-pm/775130/ http://timesofindia.indiatimes.com/topic/Russia Alon, Han (1999a), "International Franchising Modes of Entry," in Franchising Beyond the Millennium: Learning from the Past, John Stanworth, David Purdy Grosse, Robert and Walter Zinn (1990), "Standardization in Inter national Marketing: The Latin American Case," Journal of Global Marketing, 4 (1), 53–78. Fladmoe-Lindquist, Karin (1996), "International Franchising: Ca pabilities and Development," Journal of Business Venturing, 11 (5), 419–38 Ageev, A.I., Gratchev, M.V. and Hisrich, R.D. (1995), “Entrepreneurship in the Soviet Unionand PostSocialist Russia”, Small Business Economics, Vol. 17 No. 5, pp. 365–376. Barney, J. (1991), “Firm resource and sustained competitive advantage”, Journal of Management,Vol. 17 No. 1, pp. 99–120. Kacker, Madhav P. (1975), "Export-Oriented Product Adaptation? Its Patterns and Problems," Management International Review, 16 (1), 61–70. Burton, F.N. and A.R. Cross (1995), "Franchising and Foreign Mar ket Entry," in International Marketing Reader, S.J. Paliwoda and J.K. Ryans, eds. London: Routledge, 35–48. Justis R. and R., Judd (1986), "Master Franchising: A New Look," Journal of Small Business Management, 24 (3), 16–21. Batra, Rajeev (1997), "Executive Insights: Marketing Issues and Challenges in Transitional Economies," Journal of International Marketing, 5. (4), 95–114.


A Study on Competitiveness of Indian Telecommunication Industry Dr. Sunita Rani1 and Prof. D.K. Choudhary 2 1


ABSTRACT

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Sr Assistant Professor, VIPS, Pitampura 2 Professor, Gibs Rohini 1 2 E-mail: [email protected], [email protected]

Telecom sector is one of the integrated parts of economy of any country. The challenges imposed on the Indian telecom market are increasing day by day because of the new technologies and knowledge. The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry.The Government regulatory and policy initiatives have also been directed towards establishing a world class infrastructure. The objective of the study is to analyze the competitiveness of Indian Telecommunication Industry along with the shortcomings faced by it. Data Envelopment Analysis are used to analyze the efficiency of companies in Indian telecom, sector, secondary data of three years i.e. 2010, 2011 and 2012 are used of eight firms. The scope of the present study is not to help the existing operators but also new entrants to capture the untapped market segment and flourish in the long run by earning normal profits. The study finds out that Bharti Airtel, BSNL and MTNL are efficient DMUs in all the years and the rest five firms (Reliance, Tata, Aircel, Vodafone and Idea) are inefficient DMUs, Aircel being the most inefficient one. Keywords: Competitiveness, Efficiency, DEA, VRS, DMU

INTRODUCTION

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Telecom sector is one of the integrated parts of economy of any country and the Government regulatoryand policy initiatives have been directed towards establishing a world class infrastructure inIndia also. It provides an ideal environment for the investment but it also has a verycomplex structure. The challenges imposed on the Indian telecom market are increasing day by day because of the new technologies and knowledge. Despite the gloomy outlook owing to the global recession/ slow down in the economy, the telecom sector of India continues to attract record number of new subscribers. In the following charts 1 data of wireless & wireline subscriber and tele density is shown. The growth in subscriber base resulted in an increase in the grossrevenue of telecom services from Rs. 171719 croresto Rs. 195442 croresduring the year, a growth of 13.82%. At the same time, the minutes ofusage (MOU) per subscriber per month for GSM and CDMA full mobilityservice registered a decline from 349 and 263 at the end of March 2011 to 346 and 229 at the end of March 2012, respectively. The averageoutgo per outgoing minute decreased from Rs.0.51 to Rs.0.49 (a fall of 3.08 %) for GSM full

mobility service and the average outgo per outgoingminute remainedat Rs.0.47 for CDMAfull mobility service during the period. The Average Revenue per User permonth (ARPU) which at the end ofMarch 2011 was Rs. 100/—in case ofGSMfull mobility service decreased toRs.97/—at the end of March 2012. Themonthly ARPU in respect of CDMA fullmobility service increased from Rs.66/-to Rs.75/- per month during the sameperiod.

Wireless Suscribers (in millions) Wireline Subscribers (in millions) Column2

165.11 40.35

1000 900 800 700 600 500 400 300 200 100 0

G 261.07 in AL 38.83 PR p to ES art co S or py, 391.76 W in p 37.56 r f R u in IT ll, t TE on or 584.32 N a sa 36.95 PE ny ve R ret an M ri y IS ev c 811.59 SI al on 34.73 O sy te N s nt of te of th m, th 919.17 e 32.17 is co pd py f, rig ht -h ol de r

Chart 1: Wireless and Wire Line Subscriber Base (in millions)

Mar-07 Mar-08

Mar-10 Mar-11 Mar-12

Mar-09

Source: TRAI Report of Year 2012

Chart 2: Growth of Teledensity

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100 50 0

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Growth of Teledensity

Jan/08

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Jan/11

Jan/12

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Chart 3: Revenue of Various Subscribers

The Indian telecommunications network is the third largest in the world and the second largest amongst the emergingeconomies of Asia. The telecommunication sector continued to register significant success during the years and has emerged as one of the key sectors responsible for India’s resurgent economic growth. However, the market fortelecomin India expanded at the rate of just 2% in the year 2011, representing the slowest growth rate in the past five years. By the year 2016, the market is expected to have a penetration rate of over 80%. 224 | Global Performance Challenges: Building and Sustaining Competitiveness

30123 32021 2010-2011 2011-2012


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3992 3624

15002 14507

15389 19322

29688 27934

41138 45859 8264 7196

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0

Source: TRAI Report of Year 2012

OBJECTIVES OF THE STUDY

The present study is proposed to carry out to study the integrity and level of competitiveness of the Indian Telecom Industry by knowing the shortcomings of the Indian Telecom Industry. The major objective is to study the efficiency level of major companies in telecom sector in terms of input and output. SCOPE OF THE STUDY

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The present study on Indian Telecommunication Industry is being conducted with the view to help not only the existing operators but also new entrants to capture the untapped market segment and flourish in the long run by earning normal profits, analyzing the nature, structure & level of competition and opportunities available in the industry.

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RESEARCH METHODOLOGY

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Exploratory Research Design has been used to describe research on a subject that has not yet been clearly defined. It helps to determine whether to proceed with the research idea and how to approach it. It is often flexible and dynamic and can be rooted in preexisting data or literature. The secondary data has been collected from various government reports: TRAI and DoT, books, industrial reports, journals, newspapers & magazines etc.To fulfill the objectives of the study, tools used are Data Envelopment Analysis (DEA) to evaluate the efficiency of a set of comparable economic entities such as firms, departments, individuals, processes etc. It emanated from the continued research interest in the problem of measuring the productive efficiency of an industry. An input oriented DEA model is used for this analysis assuming that company A Study on Competitiveness of Indian Telecommunication Industry | 225

management would aim at minimization of inputs subject to attaining the desired output levels due to demand side constraints. REVIEW OF LITERATURE Farahani Tayebeh and Manjappa D.H. (2008) attempted to develop an econometric model to determine cellular telephone pricing on the basis of market structure and regulation for the Indian domestic market. This exerts a downward pressure on costs because of the economies of scale. The results indicate that as price decreases, concentration also decreases. Concentration has a negative and significant effect on price by independent regulation. Due to reduction in price and non-price competition, the telecommunication service is more efficient than many other countries in the world.


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Mittal S.K., Momaya K. & Sushil (2009) studied Technological Competitiveness of Telecommunication Industry in India. This paper aims to understand the problems in the Indian telecom sector about the lagging technological competitiveness and to find whether the Indian telecom product development firms can leapfrog, though being latecomers. Sharma Seema, Momaya K. & Manohar K. (2010) assessed the performance of telecommunication industry in India by using Data Envelopment Analysis to measure the relative technical and scale efficiencies of companies. Further, using output oriented model, the efficiency analysis is extended to 23 circles areas. From the analysis performed on service providers the technically and scale efficient firms were identified. Technical and scale efficiency were assessed at circle level also.

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Thomas John (2011) studied the weaknesses of the telecom industry in India. The paper stated that 10% increase in telecom penetration leads to nearly 1% growth in GDP for poor countries. The Mobile Phone Industry supports a vast ecosystem of other industries and provides direct employment to 2.8 million people. But there are weakening signs in the telecom sector like 2G scam, falling ARPU (from 15.5 to 0.5) and falling profit margins. The reasons for these shortcomings are more than 12 telecom operators per licensed are in India which is more than the ideal number and price war.

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Hosein R., Mehrizi M. & Pakneiat M. (2008) attempted to compare SIS model with Diamond model on telecom sector of Iran. SIS model sheds light on the innovation process and competence building and focuses on system failures that are of special importance in the context of developing countries, while Diamond model has the advantage of bringing the production process and the influential role of government into focus, but each one has its own shortcomings for analyzing industrial development in developing countries and both of them fail to pay enough attention to foreign relations and international linkages. Momaya K., Ajitabh B. & Shee H. (2001) in their study evaluated the competitive performance of Japanese telecom industry in an Asian context. The strategies of Japanese firms to enhance their and their industry’s competitiveness are also examined. 226 | Global Performance Challenges: Building and Sustaining Competitiveness

Competitive analysis of the industry in India, Korea and Japan is done by using an adaptation of Asset-Process-Performance model. Then, an attempt is made to understand the role of corporate strategy in the remarkable success of the Japanese industry. The strategies of Korean and Indian firms are also compared briefly. Japan has very positive scores on factor conditions and demand conditions as well as related supporting industries. Superior performance on these may be attributed to better strategic management in Japanese firms. In contrast, many Indian firms have shifted their focus on services only, often giving up the good positions they had in equipment segments. It is very necessary to continuously strive for a better understanding of competitiveness dynamics and improvement efforts.


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Dr. Hanif A.M. (2009) in his study appraised allocative efficiency ofthe telecom sector in Pakistan through some of the macro economic and policy variables. Azim J.K. (2008) in his study aimed to give an in sight into structure of future telecom markets and provide a strategy for the present day telecom operators to operate efficiently in the rapidly transforming telecom world. Transaction Cost Economics has been applied to study issues related to vertical integration.

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Chun H.L. & Diana B.G.J. (2007) in their study measured and compared the operational efficiency of the tendominant mobile operators in Brazil, Russia, India and China (BRIC) between 2002 and 2006. Partial factor productivity and data envelopment analysis approach are used to measure the efficiency of carriers. The input-oriented DEA approach was applied to measure and compare theoperating efficiency of these mobile operators. Results of empirically implementing DEA approach indicate that the two dominant Brazilian mobile operators, Vivo and TIM, were fully efficient throughout the entire period of study.The fourth largest Brazilian mobile operator Oi, and the second dominant Chinese carrier, China Unicom showed remarkable improvement and achieved fully efficiency in the laterperiod of study. The technical efficiency of Russian mobile operators showed variability overthe period, but the Russian leading mobile operator, MTS, proved to be more efficient than itsrival Beeline. Overall, Indian mobile operators were the least efficient among BRICs operators in the period of study. Interestingly, the findings of this study verified that fulloperational efficiency can be achieved by operators with large revenues, such as ChinaUnicom, as well as by others with medium and small revenues, such as Vivo, TIM and Oi.This implies that the size of the operator is not always an indicator of full efficiency. Saxena V., Dr. Thakur T. & Dr. Singh (2009) in their paperapplied the data envelopment analysis (DEA) approach to measure the Productivity performance of India’s telecommunications sector by using DEA and Empirical results indicate that none of the telecoms with high valuations are highly efficient in terms of DEA, and that wireless operators are more efficient than full-service telecoms in terms of profitability and marketability. This paper demonstrates that DEA is a useful tool to measure efficiency because the DEA model does not require an explicit form of the production function and can separate pure technical efficiency from scale efficiency. By using DEA A Study on Competitiveness of Indian Telecommunication Industry | 227

under models of both constant and variable returns-to-scale, the paper suggests that firms can improve scale efficiency through acquisitions but might encounter poor pure technical efficiency resulting from integrating resources of two existing units in the short run. The results are expected to be utilized as benchmarking strategies for wireless and full-service telecommunications to be equipped with competitive advantages. DATA ANALYSIS


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DEA is a linear programming- based technique that can be used to evaluate the efficiency of a set of comparable economic entities. Here in this study the entities (Decision Making Units) studied are telecommunication firms. Each DMU selects the weights of input and output that maximizes its efficiency score. A DMU is considered to be efficient if it scores 1, while a score less than 1 implies that it is inefficient. Efficiency is usually constrained to the range (0, 1). The envelopment surface will differ depending on the scale assumptions that underpin the model. Two scale assumptions are generally employed: constant returns to scale (CRS), and variable returns to scale (VRS). VRS (variable returns to scale) model is used in the study which is developed by Banker, Charnes and Cooper. The VRS encompasses both increasing and decreasing returns to scale.

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CRS reflects the fact that output will change by the same proportion as inputs are changed (e.g. a doubling of all inputs will double output); VRS reflects the fact that production technology may exhibit increasing, constant and decreasing returns to scale. Increasing returns to scale hold when a small increase in the input results in considerable increase in the average productivity. Therefore a firm experiencing increasing returns can benefit from further expansion. Constant returns to scale means that an increase in input leaves the average productivity unchanged. This situation makes a firm scale efficient. Decreasing returns to scale means an increase in input leads to a decline in average productivity. The data of three years i.e. year 2010, 2011 and 2012 has been collected and results are analyzed. The following analysis is done through DEA online software.

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The following steps are performed in the software:

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Step 1 First of all Inputs and Outputs of Eight companies are selected. To study the relative efficiency of the wireless service providers in the telecom industry in India, capital employed is taken as the input variable and the number of subscribers and revenue are taken as output variables. Then the data is putted in the Table shown in the software. Step 2 VRS model is selected with an input oriented model. Input orientation is selected when inputs are minimized and output orientation states that outputs have to be maximized in relation to inputs. In this study an Input and Output oriented model is used assuming that company management would aim at minimization of inputs subject to attaining the desired output levels due to demand side constraints. 228 | Global Performance Challenges: Building and Sustaining Competitiveness

Step 3 Software is run to get the results. TERMINOLOGY USED DMUs: Decision-Making Units are the telecom companies with similar characteristics.

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Activity Level: Weights assigned to the DMUs.

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Reference Set Frequency: It show how many times an efficient unit, that is, reference unit, appears in an efficient unit’s reference set. The higher the frequency, the more likely the efficient unit is an example of good performance. Reference units are the 100% efficient units, against which each inefficient unit (below 100% efficiency) is compared. An efficient unit will have one or more peers in its reference set. All the peers are efficient units. Referencing units are the inefficient units which are compared with the reference units.


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FORMULA OF RELATIVE EFFICIENCY

Efficiency = weighted sum of outputs/ weighted sum of inputs DATA ANALYSIS Year 2010

Table 1: Inputs and Outputs in Year 2010 (Values in Crores)

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Bharti Airtel BSNL Reliance Communication Vodafone Tata Idea Cellular Aircel MTNL

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Company

Input Capital Employed 28796 89.76 65754 45320 12870 16713.3 286.05 6.34

Outputs No. of Subscribers 12.76 6.94 10.24 10.08 6.59 6.38 3.68 .50

Revenue 38390 32045 14792 26080 8737 11930 4648 5058

Efficiency Score 0.751168

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Result: After applying VRS model following result is obtained Table 2: Inefficient DMUs in Year 2010

Inefficient DMU Reliance Comm

0.452376

Vodafone

0.194452

Tata

0.252944

Idea

0.003627

Aircel

Activity Level 0.567010 0.432990 0.539519 0.460481 0.945652 0.054348 0.913043 0.086957 0.493789 0.506211

DMUs Used as Reference Bharti Airtel BSNL Bharti Airtel BSNL BSNL MTNL BSNL MTNL BSNL MTNL

A Study on Competitiveness of Indian Telecommunication Industry | 229

Table 3: Efficient DMUs in Year 2010 Efficient DMUs Bharti Airtel BSNL MTNL

Frequency of Reference 2 5 3


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Chart 4: Efficiency Score in Year 2010

DATA INTERPRETATION

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The result has been obtained after applying VRS model and it is found out that Bharti Airtel, MTNL and BSNL are efficient DMUs as their efficiency score is 1 and Reliance Communications Ltd., Vodafone Essar, Tata, Idea Cellular and Aircel are inefficient DMUs with 0.7511, 0.4523, 0.1944, 0.2529 and 0.0036 efficiency score respectively. From inefficient units, Aircel is the most inefficient one and Reliance Communications Ltd. is the least inefficient with 0.7511 inefficiency score. Reference Set Frequency of efficient units i.e. Bharti Airtel, BSNL and MTNL is 2, 5 and 3, the most efficient being BSNL. This shows that BSNL is five times better than all other companies. To become efficient these units have to increase their market share and investment to generate huge revenue and to come on efficient frontier. The subscriber base and revenue generated is highest of Bharti Airtel as its internet service access speed is the best from all companies. BSNL is also efficient as it operates all over India except Delhi but MTNL being operating in Delhi only is also efficient DMU.


Year 2011 Table 4: Inputs and Outputs in Year 2011(Values in Crores) Company




Revenue 41138 29688 15002 30123 11508 15389 8264 3992

result: After applying VRS model following result is obtained


Efficiency Score 0.616938

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Table 5: Inefficient DMUs in Year 2011 Inefficient DMU Reliance Comm

0.358491

Vodafone

0.267864

Tata

0.314716

Idea

0.008465

Aircel

Activity Level 0.623580 0.376420 0.606534 0.393466 0.968750 0.031250 0.973380 0.026620 0.571759 0.428241

DMUs Used as Reference Bharti Airtel BSNL Bharti Airtel BSNL BSNL MTNL BSNL MTNL BSNL MTNL

Table 6: Efficient DMUs in Year 2011

Efficient DMUs



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Bharti Airtel BSNL MTNL

A Study on Competitiveness of Indian Telecommunication Industry | 231

DATA INTERPRETATION


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From the VRS model, it is found out that Bharti Airtel, BSNL and MTNL are efficient DMUs as they are lying on efficient frontier and their efficiency score is 1. Rest all the telecom operators are inefficient ones in which Aircel is the most inefficient, with 0.0084 inefficiency level. Under VRS framework, all the telecom operators are exhibiting Increasing Returns to Scale except MTNL which is exhibiting Decreasing Returns to Scale because with the capital employed is decreasing from 6.34 to 5.21 and number of subscriber have just increased by 0.04 crores. The revenue generated by MTNL has decreased from 5058 to 3992 crores. Therefore its DRS can be attributed to low market share on one hand and low level of investment on the other hand. The companies showing IRS should scale up their operations to become the efficient ones. BSNL is the most efficient one after MTNL and Bharti Airtel as BSNL’s frequency of reference is 5 as compared to 3 and 2 of MTNL and Bharti Airtel. This shows BSNL is performing five times better than all other companies and is having consistent performance in the year 2011 as well. Each efficient DMU (reference unit) is compared to each inefficient DMU (referencing unit) and its activity level i.e. weights is assigned to them to compare their performance. Year 2012

Table 7: Inputs and Outputs in Year 2012 (Values in Crores)

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Company



Revenue 45859 27934 14507 32021 12621 19322 7196 3624

Inefficient DMUs Reliance Comm

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Efficiency score 0.581090

Table 8: Inefficient DMUs in Year 2012

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RESULT: After applying VRS model following result is obtained

0.404628

Vodafone

0.290925

Tata

0.200606

Idea Cellular

0.011089

Aircel

Activity Level .659008 .340992 .627570 .372430 .818770 .181230 .171705 .828295 .611650 .388350


DMUs used as reference Bharti Airtel BSNL Bharti Airtel BSNL BSNL MTNL Bharti Airtel BSNL BSNL MTNL

Table 9: Efficient DMUs in Year 2012 Efficient DMUs


Bharti Airtel BSNL MTNL


Efficiency 0.58109 0.404628

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0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0.200606

0.011089

Reliance Comm

Vodafone

Tata

Idea

Aircel

DATA INTERPRETATION

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From the VRS model, it is found out that Bharti Airtel, BSNL and MTNL are efficient DMUs as they are lying on efficient frontier and their efficiency score is 1. Rest all the telecom operators are inefficient ones in which Aircel is the most inefficient, with 0.0110 inefficiency level. Under VRS framework, Bharti Airtel, Vodafone, Reliance Communications and Idea Cellular are exhibiting Increasing Returns to Scale and BSNL, Tata and MTNL are exhibiting Constant Returns to Scale. Aircel is having Decreasing Returns to Scale because with increase in capital employed, revenue has decreased from 8264 crores to 7196 crores. Therefore its DRS can be attributed to low market share on one hand and high level of investment on the other hand. The companies showing IRS should scale up their operations to become the efficient ones. BSNL is the most efficient one after Bharti Airtel and MTNL and still remained consistent as its reference set frequency is 5 in the year 2012 as well. Each efficient DMU (reference unit) is compared to each inefficient DMU (referencing unit) and its activity level i.e. weights is assigned to them to compare their performance. FUTURE It is expected that the results of the present research would be useful for individuals and new entrants who mainly focus on or invest in telecom sector.This study could be further elaborated in other countries of the world and competitiveness could be studied A Study on Competitiveness of Indian Telecommunication Industry | 233

on same ground and further comparative analysis can be done. The time period can also be varied depending upon the results to be established. Further this study can be used to conduct the efficiency study of telecom companies in different circles of the country. REFERENCES

[9] [10] [11] [12] [13] [14]

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Chun-Hsiung Liao and Diana Beatriz Gonzalez Jimenez;“Comparing Operational Efficiency among Mobile Operators in Brazil, Russia, India and China”, SSRN, 2007. Dr.Harsh Dwivedi and Kavya Saini; “Indian Telecommunication Sector: A Paradigm Shift”, International Journal of Research in Commerce, IT & Management, Vol. No. 1, 2011. Dr. Mohammad Hanif Akhtar; “The Impact of macroeconomic Factors and Policy Issues on Telecom Sector Performance in Pakistan: An Econometric Analysis”, Pakistan Journal of Social Sciences, Vol. 29, No. 2, Dec 2009, pp. 163–174. EmanuelaTodeva & Robin John; Shaping the Competition and Building Competitive Advantage in the Global Telecommunication Industry: The Case of British Telecommunications Plc, EAM 9th International Conference 17–21 June 2001, Costa Rica. G. Preetha; Foreign Direct Investment in the Indian Telecommunication Sector-An Overview, International Journal of Multidisciplinary Research, Vol. 1. Issue 8, Dec 2011. John Thomas; Is the Sun Setting on the Telecom Sector in India?, SSRN, 2011. Kashif Azim Janjua; “Future Telecom Markets and Strategy to Cope with the Change”, SSRN. Kiran kumar Momaya, Banwet Ajitabh and HimanshuShee; “Japanese Corporate Strategies To Achieve International Competitiveness: A Case of the Telecom Industry” Asian Academy of Management Journal, Vol. 6, No. 2, July 2001. Lipi K. Chhaya; “Legislative and Regulatory Issues and Prospects in the Indian Telecom Sector”, The IUP Journal of Telecommunications, Vol. IV, No. 1, 2012. Mohammad Hosein Rezazadeh Mehrizi, Mohammad Pakneiat; Comparative Analysis of Sectoral Innovation System and Diamond Model (The Case of Telecom Sector of Iran), Journal of Technology Management & Innovation, Vol. 3 Issue 3, 2008. Sara Biancini; Universal Telecommunication Service: “An Empirical Analysis of the Indian Market”, SSRN, 2006. Seema Sharma, Kiran Kumar Momaya and K. Manohar; Assessing the Performance of Telecommunication Industry in India: A Data Envelopment Analysis, Journal of International Business and Economy, 2010. Sudhir Kumar Mittal, K. Momaya, Sushil; Technological Competitiveness of Telecommunication Industry in India: Glimpse of Reality, Opportunities and Challenges, Global Journal of Business Excellence, 2009, Vol. 2, No. 1, pp 22–33. Tayebeh Farahani and D.H. Manjappa; “Telecom Market Structure, Regulation and Pricing in India: An Empirical Study”,TheIcfai University Journal of Infrastructure, Vol. VI, No. 4, 2008. Weiwei Wu, Qiang Chen, Bo Yu and Hui He; “Effects of Management Innovation on Telecommunication Industry System”, WSEAS Transactions on Systems, Issue 5, Vol. 7, May 2008.

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last accessed on 3/3/2013

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[16] www.weforum.org/issues/global-competitiveness [17] http://www.trai.gov.in/last accessed on 25/2/2013

[18] http://en.wikipedia.org/wiki/Communications_in_India last accessed on 15/2/2013 [19] http://en.wikipedia.org/wiki/Porter_five_forces_analysis last accessed on 8/3/2013 [20] http://www.dnb.co.in/IndianTelecomIndustry/RegulatoryFramework.asplast accessed on 19/3/2013 [21] http://en.wikipedia.org/wiki/Data_envelopment_analysis last accessed on 4/4/2013


Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness 1

Vinod Kumar1 and Dr. Rajiv Kumar2


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Research Scholar, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar, Haryana 2 Assistant Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar, Haryana E-mail : [email protected], [email protected] ABSTRACT

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We are living in a world of Globalization that demands platform for networking and support to grow in a country having their own economic system. Therefore, Global deals demand organized exhibition industry at every place. The exhibition sector in India is facing huge challenges which are hampering its growth. As a result its true potential has not been realized and the sector is unable to contribute as much as it can. The developed economies have gained an edge over developing economies due to strong hand in exhibition Industry. The purpose of the study is to identify the current status of exhibition industry, its growth, challenges and major constraints of visitors that prevent consumers to attend exhibitions. The proposed study is qualitative in nature. It seems likely that exhibition attendance may be closely linked with the individual constraints of the visitors. Exhibition industry demands lots of expenditure and provide several opportunities to the entire business chain, however still there are exhibitions wherein consumer attendance is very poor due to the constraints they perceive which prevent them to attend exhibitions, thus removing those constraints will help exhibition industry to increase the visitor’s attendance and as a result generating more business opportunities for the entire business chain and further Indian economy as a whole. The major implications for managers is to focus upon right segmentation, technology support, CRM Software, Entertainment provisions, Electronic media support etc. to ensure the success of an exhibition.

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Keywords: Exhibition Industry, Tradeshows, Trade Fairs, Exhibitions, Visitors’ Attendance Constraints

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INTRODUCTION DEFINITIONS

Exhibition is a service circulation process in social reproduction for the smooth social mobility of goods. It is a social service activity that delivers and exchanges information through visual display under certain time and space conditions in accordance with the social needs so as to allow viewers to make purchases and sales, investment decisions, or to learn and soon (Xiaoming, 2012). Gaur & Saggere (2009) defines Exhibitions as presentation of goods and services at a common location for the purpose of either sale or display which may be commercial in nature or may be a non commercial display of rare arts, ancient artifacts or other skills.

Brieter & Milman (2006) describe Exhibitions and Trade shows are synonymously used with the basic meaning of exhibiting the products and services. CATEGORIZATION OF EXHIBITIONS


EXHIBITIONS–PLATFORM OF OPPORTUNITIES

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Browning & Adams (1988) expresses Exhibitions can be classified into three categories of which a trade show is the one category. The other two categories are consumer exhibitions and trade and consumer exhibitions. These three types of exhibitions are markedly different in terms of visitor profiles. Trade shows are open only to invited customers and suppliers, as well as to the news media. Finally, trade and consumer exhibitions shows are a hybrid of the previously mentioned two exhibition categories; this last category is open to business visitors during the first days of the exhibitions and open to the public during the final days of the exhibition. Purandeswari (2013) describes that Exhibition Industry can be a powerful and effective tool for improving the standard of living of people by creating a huge number of jobs and stimulating growth in a wide range of sectors. What’s required is a public private partnership to ensure that exhibitions cover the length and breadth of the country bringing benefits to maximum number of people. Singh (2013) mentions that Exhibition Industry in India, holds great opportunities for companies to generate business through quality networking. The only thing we require is right infrastructure, regulatory body and government support. Also, there is a lack of talent and hence, skill management is required in the exhibition industry in India.

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Rittichainuwat & Mair (2012) through his research paper in consumer travel exhibitions explains the importance of exhibitions and major factors that motivates visitors to attend these exhibitions. These factors are purchasing, ongoing information search, networking, educational activities and low entrance fees. However, many people may envision an exhibition as simply quiet place where new products are displayed.

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Previous studies in several journals suggest that the Exhibition Industry is not well organized and show organizer need to develop a strategic plan to meet the marketing objectives of the organizations prior to exhibitions to get most out of the trade shows and make it a success (Bello & Lohtia, 1993; Kijewski, Yoon & Young, 1993). Ling Yee (2006) argues that understanding desires or motivations of the customer is more important before their participation as it will help organizers to achieve customer satisfaction. This will encourage more customers to exhibitions and more the number of customers attending exhibition will actually lead to exhibition success. However, little or no research has been conducted in India especially in NCR to investigate the constraints or de-motivational factors which prevent customers from attending exhibitions, thereby acting as a barrier in the development of Exhibition Industry and 236 | Global Performance Challenges: Building and Sustaining Competitiveness

its success. The researcher is trying to make an attempt to understand these constraints and providing various strategies to Exhibition Industry to cope up with them to generate more sales revenue and achieve their organizational objectives. OBJECTIVES OF THE STUDY The main objective of the research is to determine Growth, Challenges and Constraints of Indian exhibition industry while building and sustaining competitiveness along with other objectives which are mentioned below: 1. To highlight the motivations, objectives and advantages of Indian Exhibition Industry through secondary data.


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2. To determine the growth, challenges, and constraints of Indian Exhibition Industry. 3. To determine the pre-requisites and facilities necessary for participants involved in Indian Exhibition Industry. 4. To provide necessary strategies to Indian Exhibition organizers to ensure successful participation and visitors’ attendance. SCOPE AND RELEVANCE OF THE STUDY: IMPORTANCE SCOPE OF THE STUDY

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The present study entitled Indian Exhibition Industry: “A study of constraints for visitors towards attending exhibitions in NCR” will only be concerned with Exhibition Industry and constraints for visitors in NCR only. The secondary data presented through the National and International perspective. Since there has been less literature from Indian authors, thus International papers are studied for reference which may have different opinion from Indian segment due to different demographics and psychographics. The study has covered the current status, challenges involved in Exhibition Industry, pre-requisites and facilities required to be more competitive and examine the influence of constraints on visitors’ attendance so that strategies can be developed to ensure success of the exhibition.

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RELEVANCE OF THE STUDY Despite the apparent success and popularity of Exhibition Industry, no clear evidence yet exists that exhibitions have positive implications for participants. After studying the available literature review, it has been observed that very little work has been done in NCR to study the Indian Exhibition Industry and constraints of visitors towards exhibitions in NCR and as a result it has been comparatively less explored and requires further extension of work in terms of understanding the influence of constraints on visitors’ attendance in exhibitions in NCR. This study will prove a helping hand for the government to decide whether to continue and sponsor the various exhibitions with Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness | 237


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same approach or it requires a change. The present study will suggest appropriate measures to exhibitors for participating in exhibitions and ensuring smooth execution of the event for future reference. This research would be of interest to the show organizers, middlemen, facilitating or supporting agencies, associations, the policymakers and governmental officials, stand fabricators, international ministries, consultants, economists and all those who are involved in the exhibition industry. Apart from that the researcher has personally worked in the exhibition industry for more than 5 years, so researcher has the ground knowledge of realties and in depth understanding of exhibition industry. The researcher feels that he will enjoy and can do justice with this topic in terms of providing valuable suggestions to participants regarding their target market opinion and future participation. Also the researcher has worked with all the players involved in the exhibition industry, thus he understands the nature of this industry and psychology of participants very well. This is a golden opportunity for the researcher to integrate his corporate experience with the academia and present thesis to serve various groups for their future growth and practical knowledge. REVIEW OF LITERATURE

A review of literature is helpful to gain background knowledge and to be aware of the current state of affairs about the topic to be researched and also enables the researcher to narrow down to identify the research gap.

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The review of literature about Indian exhibition Industry reveals the interest in assessing the exhibitions-its growth, challenges, importance, objectives, motivations and constraints in exhibition industry. Exhibitions are considered one of the major universal marketing tools to ensure business growth. There are various studies on different topics to understand how exhibitions are important to achieve the various objectives of the organization. Different scholars have given their different view points to understand the Exhibition Industry.

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THE GROWTH OF THE EXHIBITION INDUSTRY

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ET (2013, April 25) described According to Rakesh Kumar (President, Indian Exhibition Industry association) an estimated 94000 crore is generated through the 400 odd fairs held in India annually. With proper infrastructural support from the government, it can grow to over eight lakh crore by 2020. The Indian Exhibition Industry has the potential to grow to US $990 million but we require state of the art venues (Bhatia, 2013). IEIA (2012) in their seminar on Economic Impact of trade fairs mentioned that 1200 Crores are being spent annually by participants of Exhibition Industry, yet we see less number of visitors at times. Jin & Weber (2013) suggested that exhibition branding is essential to ensure good number of visitors’ attendance (Jin & Weber, 2013)


Xiaoming (2012) explained that Exhibition Industry cannot create huge economic and social benefits itself but also have a strong driving effect towards a variety of industries such as transportation, tourism, catering, accommodation and related industries, thus promoting the industry agglomeration. Kim & Chon (2009) presented an economic impact analysis of Korean Exhibition Industry through Input Output (IO) model and mentioned that exhibitions have multiplier effects. THE CHALLENGES OF THE EXHIBITION INDUSTRY


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Purandeswari (2013, April 25) described Exhibition Sector in India is facing huge challenges which are hampering its growth. According to an UFI study, total gross indoor exhibition space available in purpose built exhibition centres in India is 285457 sq.m as compared to 4419382 sq.m. space available in China. India has 14 purpose built facilities compared to china’s 97 and only 3 facilities have space exceeding 20000 sq.m. Globally, the exhibition industry has realized its potential only with complete government support. It would be naïve to think that this can be done any differently in India. Singh (2013, April 25) mentioned that the world is showing a keen interest in Indian economy especially in Exhibition Industry. As per Rajan Sharma (MD Inter Ads exhibitions Pvt. Ltd.) The biggest problem that Exhibition Industry is facing is acute shortage of availability of world class exhibition venues which demands government support to provide a right set of marketing mix to participants in Exhibition Industry.

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UFI, the global association of the exhibition industry (2007) during their stay in India in a series of meeting with Indian officials pointed out that as India continues to develop the purchasing potential of its vast domestic market, the need for developing its exhibition infrastructure becomes increasing essential for economic growth. Currently no exhibition center exceeds 70000 sq.m. of available indoor space. New Delhi and Mumbai alone represent 70% of nation’s dedicated exhibition capacity.

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FACTORS MOTIVATING VISITORS TO ATTEND EXHIBITIONS

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Correspondent, DNA (2013, April 11) in his article titled Exhibitions provide a platform for youths to hone pointed out about Laxmikant Sharma (Technical education minister) who said that Exhibitions provide a platform to youths for displaying their talents and such exhibitions should be held throughout the nation also so that youths over there can avail its benefits. Severt, Wang, Chen & Breiter (2007) assessed convention attendee motivations, performance evaluation and behavior intentions in a regional conference setting and revealed a five dimension conference motivation includes opportunities, networking, convenience, education and contract deals.

Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness | 239

Table-Literature on factors motivating exhibition attendance Research Method Study Context FGD, Interviews US textile ind. Survey, FA Trade show (n = ANOVA 593), (n=978)

Findings Attending job roles relates To visitor's rank & firm size

Breiter & Milman Important & Per. ..(2006) Analysis

FGD, t-test One way analysis of variance Pearson correlation

Major motivations of exhibition attendance Are networking, learning about new products & viewing the quality of the exhibits Non selling roles are identifying new prospects, servicing, enhancing corporate image, whereas selling roles are introducing new products, Selling and test marketing Visitors have similar goals for international exhibition attendance regardless of exhibition's geographical Location

Smith et al. ..(2003)

Whitfield & Webber (2011)

Selling & non Selling roles of trade Shows

Interview, survey, FA, cluster analysis two group multiple Stepwise discriminant Analysis Supplier Paired sample interaction, Seeing mean t test, products & principal Trends, gathering Component buying analysis Logistic information, regression Future attendance employee Intention education, Importance Importance and Performance Performance analysis exhibition analysis Logistic And satisfaction regression attributes and Repeat visitation

US trade show exhibit managers and senior marketing executives (n=274) Japanese trade show visitors at a Japanese domestic and an offshore US Building material Trade shows (n=190)


Kerin & Cron …(1987)

US exhibition visitors at 5 diff. exhibitions In USA (n = 566)

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Author Variables (Bello, 1992; Bello Job ranking & Lohtia, 1993) size

UK Visitors at a microscopy and Imaging exhibition (n=248)

Networking, number of exhibiting companies, finding out about new products and gaining Technical advice effect satisfaction and repeat Visitation

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OBJECTIVES OF PARTICIPANTS TO ATTEND EXHIBITIONS & ADVANTAGES OF EXHIBITIONS

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(Situma, 2012; Wienclaw, 2008; Ling-Yee, 2007) mentioned that Trade Shows could not be underestimated as important marketing tools that were able to reach a huge target market at one go, develops channel relationships & helps decision makers for future purchase. Also the researcher suggested to further research for constraints in Exhibition Industry. Evers & Knight (2008) identified Trade Shows as a vital context where networks are created and maintained for international advancement. Attendance at an exhibition helps visitors in number of ways like: Collecting information on new products, view particular products, observes companies, and makes contacts (Rosson & serinhaus et al.,1995); reduce cognitive dissonance after making a purchase (Godar & O’Connor, 2001); and collect information for future purchases (Munuera & Ruiz, 1999). Herbig, O’Hara & Palumbo (1997) mentioned Exhibition provide advantages such as product launch, publicity, promotion, CRM, marketing intelligence and research and 240 | Global Performance Challenges: Building and Sustaining Competitiveness

improvement of corporate morale. Trade Shows were regarding important marketing communication tool yet there are few studies that have examined the effectiveness of this medium. This might be due to difficulty of isolating the various factors involved in successful promotion, the great variety of types of exhibitions or well established attitudes on the part of exhibitors and non exhibitors (Blythe, 1999).


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Sharland & Balogh (1996) indicated that Trade Shows offer an excellent environment for non selling activities such as information exchange, relationship building, and channel partner assessment there its not just sales revenue that make sense for companies to participate. (Gopalakrishna, Lilien, Williams & Sequiera, 1995; Kerin and Cron, 1987) have explained Exhibitions Industry represent major sales promotion opportunities for B2B and B2C segment. Companies have lakhs or crores of rupees as a budget on exhibition participation, identifying prospects and converting them into final customers through personal selling, introducing new or modified products, testing new products, launching new products and servicing existing and potential customers (Waugh, 1995) Tanner & Chonko (1995) discussed about primary and secondary manufacturer’s objectives through his research paper which includes getting sales, leads, general marketing communication, sales from old customers, looking for new suppliers, sales meeting and training reps, checking out competition etc. Browning & Adams (1988) explained that Trade Shows are cost effective alternative to field sales work and offer several benefits like refined audience, low selling costs, high promotional impact and market proximity. Researcher reported that the exhibit performance is related to several aspects such as team, design, display location, Audience quantity and quality etc. PLANNING & MANAGING FOR SUCCESSFUL EXHIBITION PARTICIPATION: (PRE-REQUISITES)

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(Yoon, Lim & Park, 2012; Friedman, 2002) described that the Exhibitor should plan well for their booth or pavilion quality as these had positive effects on participating exhibitors’ outcomes and anticipated future behaviors. Chen & Mo (2012) outlined six dimensions of service quality: booth management, content, registration, access, booth layout and function and exhibition and booth attractiveness to increase visitors’ attendance. (Gottlieb, Brown & Drennan, 2011) suggested that improving trade show visitors’ perceived service quality positively affects visitor perceptions of trade show effectiveness. Furthermore, both trade show effectiveness and service quality directly influence future purchase intention. Herbig, O’Hara & Palumbo (1997) suggested presented Pre-show, show and post show activities for better understanding of exhibition industry. Tanner & chonko (1995) provided suggestions for managing shows which includes: Set strategic goals by involving sales and marketing personnel, make one incharge, Use integrated marketing communication, staff booth with integrated


team, provide training to manage the booth, recruit enough manpower and avoid empty booths. RESEARCH METHODOLOGY The present study is descriptive and qualitative in nature and based upon secondary data. Review and analysis of the published data is the main source of information. The data is collected from various magazines, newspapers, books, articles, dissertations and research papers from different journals. The observation method is used to collect, interpret the related information and providing strategies for further growth. RESEARCH GAP


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The study of existing literature suggested that Exhibition Industry in India is flourishing but there are lots of challenges available to the entire exhibition fraternity and government has to play a very crucial role here to support this industry. In previous exhibition research the attention was mainly focused on: 1. Importance of exhibitions. 2. Benefits of exhibitions.

3. Motivations towards exhibitions.

4. Satisfaction level of exhibition participants. 5. Perception about convention. 6. Exhibition centre facilities.

7. Factors that motivates consumers to attend exhibitions.

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8. Objectives of exhibitors.

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9. Operational dimensions of exhibitions.

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10. Marketing dimensions of exhibitions.

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11. Managing the booth etc.

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Thus, we have studied that a lot is happening and lots of money is being spent on this Industry for its growth and development of business chain. But still after lots of marketing and promotional activities, the exhibition organizers are at times not able to attract satisfactory number of visitors to attend exhibitions. Actually the organizers of the show are not fully aware about the constraints due to which these visitors are unable to attend exhibitions and understanding of these constraints will actual help the exhibition industry to plan well and provide customer value. Thus, this will help in achieving customer satisfaction and generate a good return on investment.


Therefore, the researcher is trying to make an attempt to understand these constraints and how they influence visitors’ attendance in exhibitions. The researcher has also observed that there is little or no research has been conducted in India especially in NCR to investigate the constraints or de-motivations for visitors towards exhibitions. Thus the problem statement entitled indian exhibition industry: “a study of growth, challenges and constraints while building and sustaining competitiveness” has been taken for present research. GROWTH, CHALLENGES AND CONSTRAINTS OF INDIAN EXHIBITIONS GROWTH OF INDIAN EXHIBITION INDUSTRY

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Developed countries have grown due to their focus and spending on building exhibition industry as international entry mode for further business opportunities. In India too, out of 365 days we have more than 700 exhibitions happening through out the year with an annual growth rate of 15%. This means everyday there are shows happening anywhere in the country. We already have an estimation about the current size of this industry which is approximately 94000 crore and its going to be about over 8 lakhs crore by 2020. In India, 1800 crore is being spent by event organizer annually but still participation has lots of challenges. Apart from this, this industry involve all the participant from the business chain viz. Supplier-----Manufacturer--------Middlemen----------Support Agencies-----------Competitors----------Government officials---------Customers etc. therefore there are enormous amount of opportunities available and the growth of business has to take place. This growth in business and networking opportunities will automatically ensure the growth of Indian exhibition industry. Thus, Government through Public private partnerships should make necessary provisions for the growth of this Industry.

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CHALLENGES OF INDIAN EXHIBITION INDUSTRY

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The researchers have observed the following challenges that require special attention:

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b. Less venues.

c. Less government organizers. d. Multiplicity of approvals required to conduct the exhibition. e. Security issues. f. Lack of professionalism among organizer. g. Non uniform policies of state. Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness | 243

h. Custom barriers for temporary imports. i.

Tariff and non tariff barriers imposed by government.

j.

Lack of knowledge to use exhibitions effectively.

k. High taxes such as entertainment tax, luxury tax, octroi tax. etc. l.

Logistics and supply chain management.

m. Environmental challenges. n. Improving volume or foot fall for the exhibition. o. Service constraints. G in AL PR p to ES art co S or py, W in p R fu rin IT ll, t TE on or N a sa PE ny ve R ret an M ri y IS ev c SI al on O sy te N s nt of te of th m, th e is co pd py f, rig ht -h ol de

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p. Shortage of time and a lot to be done by organizers during the show. CONSTRAINTS OF VISITORS TO ATTEND EXHIBITIONS

The researchers have observed the following constraints that require special attention and needs to be handled by show organizers: 1. Psychological Constraints:

a. Motivation problem with the visitor.

b. Attitude is not positive for exhibitions. c. Perception is poor.

d. Personality mismatch.

e. Learning outcome is not high.

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2. Relationship Constraints:

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a. Partner is not interested.

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b. Partner is not available.

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c. Partners do not have enough time.

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d. Partners budget is low. 3. Physical Constraints: a. Logistics support is not available by organizers. b. Budget issues are not resolved. c. Time constraints. d. Other opportunities are negatively influencing.


e. Traffic and parking constraints. f.

Bad Weather conditions.

g. Lack of entertainment provisions. PRE-REQUISITES AND FACILITIES NECESSARY FOR PARTICIPANTS: The Indian Exhibition Industry is pretty much disorganized and have lots of bottlenecks due to which the participants of the exhibition industry has to be well planned and organized with required facilities to achieve success. Therefore, the research has provided Pre-show requisites, during the show requisites and after the show requisites for participants to focus upon:


a. Invitations to prospective visitors.

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PRE-SHOW REQUISITES b. Advertisements in various medias.

c. Direct marketing tools has to be applied. d. PR activities.

e. Advertising objects to be distributed. f.

Gifts as sales promotion activity.

g. VIP (Free) Show tickets.

h. Booth design and layout. i.

Agreement with booth management agency.

DURING-SHOW REQUISITES & FACILITIES

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a. Team allocations for handling visitors.

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b. Technology support with electronic machines.

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c. Hospitality arrangements.

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d. Conference or seminar speech.

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e. CRM software to record MIS. f.

Cocktail party.

g. Dinner with special customers. POST-SHOW REQUISITES a. Logistics support to be outsourced. b. Follow up with customers to grow business. Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness | 245

RECOMMENDED STRATEGIES FOR EXHIBITION ORGANIZERS: THE BELOW MENTIONED STRATEGIES ARE PROVIDED BY RESEARCHER TO INCREASE THE SUCCESS OF EXHIBITIONS INCLUDES Electronic Media support.

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Print media support.

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Government support.

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Printing of exhibition directory for future reference.

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CRM Software to handle all data.

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Organized manpower.

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Free entry provisions.

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Logistics support.

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Free shuttle service for people from different areas.

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Parking tie ups at lesser cost.

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Hotel tie ups at lesser cost.

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Railway tie ups for movement.

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Compilors platform for comparisons and tickets selling like book my show.

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Vertical and Horizontal tie ups for Channel of distribution for ease.

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Mobile Apps for promotions if possible.

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SMS Facilities for registration and ticketing.

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Stage shows like dance performances, magical shows and exciting prizes.

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Other entertainment booths for kid’s enjoyment.

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Security tie ups.

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CCTV footage arrangements for psychological ease.

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Queing model utilization to minimize waiting time for on spot registration.

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Efficient complaint handling teams.

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Increase timings of exhibitions to serve more people.

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Strategic days, timings and venue selection as per your segment characteristics.

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Suggestion boxes for future improvement.

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Service failure to be connected with penalties always.

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Advance registrations provisions.

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Early bird offers.

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Sr. Citizen schemes.

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Organized and trained manpower for consistent deliveries.

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Entry fee to be returned through food vouchers.

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Strategic primary trade area calculations.

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Maximize sponsorship and pass the discounts to masses.

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Arrangement of concurrent shows, conferences and seminars for better coverage.


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DICUSSION ON FINDINGS INCLUDING MANAGERIAL IMPLICATIONS From the above analysis it can be said that exhibitions are considered a major platform and networking tool to enhance business opportunities among the supply chain participants. This is also considered a tool to sell, market your product, enhance your territory and enter into international markets. The number of exhibitions is getting increased worldwide because of these business and social benefits. However we cannot guarantee that all the exhibitions will result in a positive manner for all the participants, therefore the following strategies needs to be kept in mind by managers to increase its results: a. Finding One: There are people who want to attend exhibitions either in groups or in families but since there are fewer provisions made by few show organizers only therefore visitors tend to skip attending exhibitions.

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b. Managerial Implication: Segmentation and schemes–Managers should design different pricing schemes for different segments so that everyone is catered to attend the exhibition so there should be flexible pricing plans for corporate, families, individuals, schools etc.

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c. Finding Two: Being into service industry its of prime important to save the time and opportunity cost of your customer therefore line system should be avoided these day for on spot registrations or other formalities.

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d. Managerial Implication: Technological Integration–Managers should use all the technological applications for the masses to save on logistics as well as opportunity cost. Interactive websites, SMS campaign, online registrations, Interactive DVDs, Important Downloads, Emails etc. has to be designed to gain a better participation from all the participants within the supply chain as well as the visitors attending the exhibition. e. Finding Three: Today we are living in a world of delightful experiences whether its retailing or attending events, therefore entertainment on the go is mandatory to keep people motivating while achieving their objectives. Indian Exhibition Industry—A Study of Growth, Challenges & Constraints while Building and Sustaining Competitiveness | 247

f.

Managerial Implication: Entertainment provisions–Exhibition attendance objectives are different for each visitor and people are also considering exhibitions as a venue for entertainment as well while developing on their informational front. Therefore, the managers must make necessary entertainment provisions to increase the impression of exhibitions among masses.

LIMITATIONS AND FUTURE RESEARCH The following limitations are osbserved while preparing this review paper: Secondary data gathering and analysis is time consuming.

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People are not ready to share the primary data.

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Organization are not interested to spend enough budget.

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This research is only for NCR.

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The equipment and support required for the research demands cost.

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Human resource is limited.


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Exhibition industry is very vast in nature and there is a lot of scope to research on different topics in the same domain to improve the success of exhibitions, which includes: Examine the reasons customer attend exhibitions.

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Role of stand fabricators towards the success of exhibitions.

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Outsourcing opportunities in exhibition industry.

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Evaluate the process of exhibitions as well as customer satisfaction.

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Exhibitions: A SCM platform etc.

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CONCLUSION

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After considering all the aspects and dimensions related to Indian Exhibition Industry it can be said that there is mix of response regarding the Indian Exhibition Industry-Its growth, challenges, advantages, reasons to attend and constraints in exhibition industry. The researchers has made an attempt in examining various participants involved in exhibition industry and several dimension like relationship quality between exhibitors and organizers, difference between exhibitors and non exhibitors, constraints on preference and participation in exhibitions, factors motivate to attend exhibitors, economic impact of exhibitions, role of exhibitions through the study of different papers from different journals.


Based on above analysis, the researcher can say that there are few researches conducted to investigate the growth, challenges and constraints that prevent customers from attending exhibitions and that too are conducted outside India. Therefore, the researcher has focused on these issues especially challenges and constraints within India that affects Indian exhibitions and its success. These constraints are observed to be psychological constraints, relationship constraints and physical constraints. Understanding of these constraints and provided strategies will help show managers to improve visitor’s presence and ensure successful business event, thereby improving exhibition industry as a whole. REFERENCES Alles, A. (1989). Exhibitions: A key to effective marketing (2nd edn). Southampton, The camelot press, 1–2. Bello, D. C. (1992). Industrial buyer behavior at trade shows: Implications for selling effectiveness. Journal of Business Research, 25 (1), 59–81. Bello, D. C., & Barczak, G. J. (1990). Using industrial trade shows to improve new product development. Journal of Business and Industrial Marketing, 5, 43–56. Bello, D. C., & Lohtia, R. (1993). Improving trade show effectiveness by analyzing attendees. Industrial Marketing Management, 22 (4), 311–318. Berne, C., & Uceda-Garcia, M.E. (2008). Criteria involved in evaluation of trade show to visit. Industrial Marketing Management, 31 (7), 565–579. Bhatia, N. (2013, April 25). Indian exhibition industry–what the future holds. The Economic Times, p. 17. Blythe, J. (1999). Visitor and exhibitor expectations and outcomes at trade exhibitions. Marketing Intelligence and Planning, 17 (2). Blythe, J. (2002). Using trade fairs in key account management. Industrial Marketing Management, 31, 627-635. Blythe, J. (2010). Trade fair as communication: a new model. Journal of Business and Industrial Marketing, 25 (1), 57–62. Bonoma, T. V. (1983). Get more out of your trade shows. Harvard Business Review, 61, 71-83. Borghini, S., Golfetto, F., & Rinallo, D. (2006). Ongoing search among industrial buyers. Journal of Business Research, 59, 1151–1159. Brieter, D., & Milman, A. (2006). Attendees’ needs and service priorities in a large convention centre: Application of the importance performance theory. Tourism Management, 27, 1364–1330. Browning, J. M., & Adams, R. J. (1988). Trade shows: An effective promotional tool for the small industrial business. Journal of Small Business Management, 26 (4), 31–36. Butler, C., Bassiouni, Y., EI-Adly, M., & Widjaja, A. (2007). Revamping the value chain in exhibition facilities: the case of Dubai exhibition industry. Retrieved April 27, 2013, from http://www.emeraldinsight.com/0263-2772.htm. Chapman, E. Jr. (1987). Exhibit marketing. Singapore, McGraw-Hill Book Co., 253–254. Chen, Y.-F., & Mo, H.-e. (2012). Attendees’ perspective on the service quality of an exhibition organizer: A case study of tourism exhibition. Tourism Management Perspectives, 1, 28–33. Correspondent, DNA (2013, April 11). Exhibitions provide a platform for youths to hone skills (Electronic version). Daily News and Analysis. Dekimpte, M. G., Francois, P., Gopalkrishna, S., Lilien, G. L., & Bulte, C. V. (1997). Generalizing about trade exhibition effectiveness: a cross national comparison. Journal of Marketing, 61, 55–64. Doran, C. J. (2007). The role of personal values in fair trade consumption: An investigation of ethical consumption practices (Doctoral dissertation, Capella University, 2007). Retrieved April 27, 2013, from http://search.proquest.com/ dissertations. Evers, N., & Knight, J. (2008). Role of international trade shows in small firm internationalization: a network perspective. International Marketing Review, 25 (5), 544–562. Friedman, S. A. (2002). Ten steps to a successful trade show. Marketing Health Services, 22 (1), 31-32.

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Managing Cross Cultural Diversity a Big Challenge for Organizations Meenu Rani


ABSTRACT

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Asst. Profesor Commerce, M.K.M. College, Hodal, Affiliated to M.D. University, Rohtak E-mail: [email protected]

There are various factors involved in success of any organization and better human resource management is an integral part of organizational success.Managing diverse workforce is one of the complexities of both domestic and international companies.The diverse workforce is the reality of today’s business world due to globalization and glocalization.So the management of cultural differences has become more important for creating advantages and getting competitive edge.Dynamic companies look for the people who are different from the existing workforce because the diverse workforce may bring talents,new ideas,innovative viewpoints and interests. Diverse workforce refers to the co-existence of people from various socio-cultural backgrounds within the company.Diversity includes cultural factors such as race, gender, age, colour, physical ability, ethnicity etc. Managing diversity means enabling diverse workforce to perform its full potential in an equitable work environment where no one group has any advantages or disadvantages. However, it is not an easy task to deal with diverse workforce.The organization which fail to embrace diversity effectively and failed to eliminate discrimination and injustice will adversely affect both employees and customers.This paper is to discuss about the various issue regarding diversity at workforce.

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INTRODUCTION

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Keywords: Workforce Diversity, Cross-Cultural Challenges, Issues of Diverse Workforce, h.r.m Strategies

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The diverse workforce has become a reality today.The impact of cultural diversity varies with the type of environment and firm’s overall strategy. As more and more number of firmsmove from domestic, multidomestic, multinational strategies to operating as a truly global firm,the significance and impact of cultural diversity increase markedly. Management of cultural differences has become more important for creating advantages and getting competitive edge.Diverse work force refers to the co-existence of people from various socio-culturalbackgrounds within the company. Diversity includes cultural factors such as race, gender, age, colour, physical ability, ethnicity, etc. Diversity includes all groups ofpeople at all levels in the company. Diversity requires a type of organizational culture in whicheach employee can pursue his or her career aspirations without being inhibited by gender, race, nationality, religion, or other factors that are irrelevant to performance Managingdiversity means enabling diverse workforce to perform its full potential in an equitable workenvironment where no one group has an advantage or disadvantage.Dynamic companies look for people who are different from us

because the diverse workforce maybring different talents, interests, and viewpoints.The organizations which fail to embrace diversity effectively and do not take a holistic approach to eliminate discriminationand injustice will adversely affect both employees and customers. Organizations must concentrateon holistic strategies that address broader human resource issues, and value diverse employees.


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Companies should completely reshape the working culture that make possible the integration ofa broad range of viewpoints that leads to a redefinition of how work gets done and how diversemarkets are approached and capitalized upon. All employees should be held accountable for theirbehaviors and human resources results. Companies must create a post bureaucratic organizationbased upon trust and respect in which diverse employees are valued and integrated into allaspects of the work. Companies should rethink and redefine missions, strategies, managementpractices, cultures, markets, and products to meet the needs of an increasingly diverse body ofemployees, customers and stakeholders. CONCEPT OF DIVERSITY

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Diversity is a subjective phenomenon, created by group members themselves.Who on the basis of their different social identities categorize others as similaror dissimilar: “A group is diverse if it is composed of individuals who differ on Characteristic on which they base their own social identity” define diversity as that whichDifferentiates one group of people from another along primary and secondary dimensions. Primary dimensions of diversity, those exerting primary influenceson our identities, are gender, ethnicity, race, sexual orientation, age and mentalor physical abilities and characteristics. The primary dimensions shape our basicself-image as well as our fundamental world views. Additionally, they have the most impact on groups in the workplace and society. Secondary dimensions ofdiversity are less visible, exert a more variable influence on personal identity andadd a more subtle richness to the primary dimensions of diversity. They includeeducational background, geographic location, religion, first language, familystatus, work style, work experience, military experience, organizational role andlevel, income and communication style. The secondary dimensions impact ourself-esteem and self-definition, culture, social class and language, beliefs and recreational interests.The analogy of an iceberg comes to mind in the face of these potentiallyendless dimensions; the obvious characteristics of race, ethnicity, gender, age anddisability relate to the small, visible portion of the iceberg, and are the basis ofmuch anti-discrimination legislation around the world. Other dimensions suchas religion, culture and political orientation are less obvious, and could be saidto constitute the secondary dimensions lying just below the surface, which maybe revealed with time. The tertiary dimensions are often the core of individual identity and lie deeper below the surface. It is the vast array of qualities that liebeneath the surface that provides the real essence of diversity to be tapped intoand these have not until recently been acknowledged. It should be noted thatonly some of the possible dimensions are shown in Table 1; the lists are in no wayexhaustive. Managing Cross Cultural Diversity A big Challenge for Organizations | 253

Table 1: Dimensions of Diversity Primary Dimensions  Race  Gender  Age  Ethnicity  Disability

Secondary Dimensions Religion Culture Sexual orientation Thinking style Geographic origin Family status Lifestyle Economic status Political orientation Work experience Education Language Nationality

      

Tertiary Dimensions Beliefs Assumptions Perceptions Attitudes Feelings Values Group norms

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            


Table 1 indicates that diversity has many dimensions. These may intertwineto produce unique syntheses of human profiles, made up of both differencesand similarities. The dimensions interact with and influence one another, andemerge or are displayed differently in different contexts, environments andcircumstances, making analysis and management complex. Race, for example may be more dominant than age in a certain social situation, but may be lessdominant than education in a work context. Thus the position and dominanceof each dimension are not static, but dynamic, making the concept of diversitymore complex. In addition to this, the secondary dimensions are more malleableand many of them will change over time. Diversity is not simple, not easy tograsp and not easy to manage. MAJOR CHALLENGES OF DIVERSITY MANAGEMENT

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There are challenges to managing a diverse work population.Managing diversity is more than simply acknowledging differences in people. It involves recognizing the value of differences, combating discrimination, and promotinginclusiveness. Managers may also be challenged with losses in personnel and work productivity due to prejudice and discrimination and complaints and legal actions against theorganization (Devoe, 1999).Negative attitudes and behaviors can be barriers to organizationaldiversity because they can harm working relationships and damage morale and work productivity. Negative attitudes and behaviors in the workplaceinclude prejudice, stereotyping, and discrimination, which should never be used by management for hiring, retention, and termination practices. A company with a diverse workforce can better serve and compete in diverse markets. Hiring a diverse workforce can be challenging but the greater challenge is to retain the diverse workforce.But it is a big challenge for any organization to provide space to everyone in organization according to their need. H.R.M has to manage many of the challenges like:


1. Communication becomes more difficult. Employees from different cultures fail tounderstand one another. Firms operating in different language areas find difficulty in communicating with the local employees as local employees speak different language. 2. Diversity increases ambiguity, complexity and confusion. 3. Diversity also causes problems when managers and employees over generalize organizational policies, strategies, practices and procedures. 4. Cultural diversity creates difficulties for an organization when it wants to reach on a single agreement.


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5. Cultural diversity increases the complexity and problems in developing overall organizational procedures. DIVERSITY MANAGEMENT

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Diversity management is a strategic approach to human resource management, supported bysome programs, activities and tools, directed towards integration and development of diversity, both physical and job-related, showed by members of organisation.Thomas Roosevelt Jr. was the first author studying diversity management. He definesdiversity management as the organisational commitment to recruit, retain, reward and promote aheterogeneous mix of employees, as Afro-American, women, and disabled people (1990).Afterwards the meaning of diversity management is changed. Some authors say thatdiversity management is a voluntary, because not imposed, and diversified approach to humanresource management, to create an inclusive working environment. In year 2014 a survey was conducted for diversity management and 1215 companies participated in the survey.And it issued a list of top 50 companies which were effectively managing diverse workforce. No.1 position was grabbed by Novartis Pharmaceuticals Corporation. A focused plan to improve human-capital results has propelled the company to the No. 1 spot. At No. 2 Sodexo.Sodexo is the only company to have been in the top two of the Diversity Inc Top 50 for five years in a row. It has become the model for other companies through its use of diversity dashboards and scorecards to accurately measure and improve initiatives. The company’s streamlined and valuable metrics enable its top leadership to move the needle and are used to show other organizations, including its clients, how to grow and assess diversity initiatives. At No. 3 is EY. EY has broadened its definition of diversity to factor in “age, culture, education, personality, skills, life experiences and many other attributed.” Diversity managementpromotes the participation of everyone to working activities, it supports the individualcharacteristics of each organisation member and it utilizes their characteristics as a strategiclever.Some others authors describe diversity management like an approach to manage everyemployee according to his/her characteristics and the uniqueness of his/her specific contributionand of his/her Managing Cross Cultural Diversity A big Challenge for Organizations | 255

background to valorise the organisation members, to help them working togetherefficiently and to increase their communication and relations.To speak of diversity management means to understandthat there are some differences among people and that these differences, if they are managedcorrectly, are a huge resource for organisations to obtain better outcomes (Kandola andFullerton, 1994).

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The current political, social and economical events induce managers, entrepreneurs, and politicians to put diversity management at the first point of their agenda. In fact, the diversitymanagement is very important in this moment in which we are present at key social events–the more and more frequent migratory phenomena and the presence of ethnic minority createpatchwork societies, multi-ethnic, multicultural and multi linguistic cultures and the increasing presence of women at workplace and economicaltrends,firms internationalisation,globalization of enterprises and markets, creation of international supply networks.The demographic setting of society is changing, the workforce setting, consequence ofsocial reality, is multi-ethnic and multicultural (McGuire, et al., 2002). In this reality traditionalapproaches and practices of human resource management and of recruitment, retention andmotivation of women and ethnic minorities must be revised (Tung, 1993). In the organizations the necessity of managing a multi-ethnic and multicultural workforce has increasing importance.The managing diversity or the diversity management must respect traditions, culture andeducational backgrounds of every member group. Not only. It is fundamental also to understand similarities and differences among the diversity groups in the organisation, first of all thedifferences of the top management which could affect the organisational culture.Another consequence of multi-ethnic society is the market diversification. The multi-ethnicsociety also creates a multi-ethnic market with diversified necessities. So the firms must thinkthat there is the requirement to diversify the advertising and marketing campaigns. This isanother context in which the diversity workforce is a great competitive advantage. In fact thediversity workforce can create quickly diversified advertising strategies to gratify the multi-ethnic market and to attract multi-ethnic and multicultural public’s attention. Moreoverthe diversity workforce can offer better ideas for products and services to a multicultural public.The diversity management isn’t only the management of diversity human resources oforganisation, but it is also the management of human resources of an organisation that work inits units in a foreign countries. In fact, the practices of diversity management can be divided intotwo wide categories: cross-national and intra-national diversity management (Tung, 1993). Thefirst one is the management of relations and communication among employees coming frommore cultures and more nations and employees of host country in order to support a productiveand efficient workgroup. The intra-national diversity management, on the other hand, focuses onthe integration of new members, as women, multi-ethnic, multicultural minorities, and disabledpersons, etc., into a traditional homogeneous workforce, made up of white men (Tung, 1993;Iles, 1995).


Despite cross-national and intra-national diversity management have different focuses, they couldhave the same acculturation processes, «processes by which group members from one culturalbackground adapt to the culture of a different group» (Rieger and Wong-Rieger, 1991). Themain approaches to acculturation processes are four (Rieger e Wong-Rieger, 1991; Cox e Beale, 1997): 1. Separation 2. Deculturation 3. Assimilation 4. Integration/pluralism


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Separation and deculturation are the approaches that less than others allow the integrationapproach. The separation is the less efficient way to interact with cultural diversity people and tointegrate them in the organisational culture. Thanks to separation every ethnic group despises theculture of the others ethnic group with which they work. If it follows the deculturation approachinstead, each ethnic group retains its distinct set of norms and behaviours, without attempt tointegrate or synthesize the two or more sets of value system.In the assimilation approach, the members of each ethnic group adapt their behaviouralpatterns and norms to those of the dominant group. Sometimes this approach can be alienating, because members could go completely away from their own cultural values, and it doesn’tintegrate the members of ethnic groups which are different from the dominant one.

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The integration/pluralism approach is the best approach of diversities integration. Thanks tointegration, the better elements from the various cultures of organisation members are combinedand integrated into the values of organisational culture. But it seeks to preserve cultural values ofevery organisation member. Sometimes some organisations change the organisational cultureintegrating values of each organisation member cultures. Cox names this approach pluralism (1991, 1997): the mutual appreciation for the contributions of each culture which match in theorganisations. In an international context also, the better elements are combined to maximize theorganisational performances. This is the approach strongly supported by coherent diversitymanagement in line with its features. CONCLUSION A diverse workforce is a reflection of a changing world and marketplace. The diverse work teams bring high value to organizationsand respecting individual differences will benefit the workplace by creatinga competitive edge and increasing work productivity. Diversity management benefits associates by creating a fair and safe environment where everyonehas access to the same opportunities and challenges. Management tools ina diverse workforce should be used to educate everyone about diversity and itsissues, Managing Cross Cultural Diversity A big Challenge for Organizations | 257

including laws and regulations. Most workplaces are made up of diversecultures.Diverse workforce is a reflection of a changing worldand marketplace. Diverse work teams bring high value toorganizations. Respecting individual differences will benefitthe workplace by creating a competitive edge and increasingwork productivity. Diversity management benefits associatesby creating a fair and safe environment where everyonehas access to opportunities and challenges. Managementtools in a diverse workforce should be used to educateeveryone about diversity and its issues, including lawsand regulations. Most workplaces are made up of diversecultures, so organizations need to learn how to adapt to besuccessful. REFERENCES

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Academy of Management Journal, 43, 2, 164–177.See a quote from Thomas (1996), pp. 109–210, earlier in the chapter referring to the jelly bean image with respect to diversity management Cox, T., and Blake, S. (1991), ‘Managing Cultural Diversity: Implications for organizational Competitiveness,’ Academy of Management Executive, 5, 3, 45–56. http://www.diversityinc.com/the-diversityinc-top-50-companies-for-diversity-2014/ Martin, G., and Woldring, K. (2001), ‘Ready for the Mantle? Australian Human Resource Managersas Stewards of Ethics,’ International Journal of Human Resource Management, 12, 2, 243–255. Maxwell, G.A., Blair, S., and McDougall, M. (2001), ‘Edging Towards Managing Diversity in Practice,’ Employee Relations, 23, 5, 468–482. Richard, O.C. (2000), ‘Racial Diversity, Business Strategy, and Firm Performance: A Resource-Based View,’ Rijamampianina, R., Carmichael, T., 2005. A Pragmatic and Holistic Approach to Managing Diversity. Problems and Perspectives in Management, 1. Tung, R. (1993), ‘Managing Cross-National and Intra-National Diversity,’ Human ResourceManagement, 32, 461–477. UNESCO world report 2009, 2010, 2011www.unesco.org/en/world-reports/cultural-diversity


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SESSION 4 COMPETITIVE MARKETING IN THE GLOBAL CONTEXT r

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Background Music: An Assessment of its Usefulness for E-Retailing 1,2

Rajiv Jain1 and Biswarup Chatterjee2

Assistant Professor, Department of Management, Maharaja Agrasen Institute of Management Studies, Rohini, Delhi

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ABSTRACT


Purpose: Online stores are trying to differentiate themselves based on visual and acoustic elements and are gaining much prominence in both developed nations and developing nations and has thus created higher demand for need to study the effect of background music effect to online shopping context. This paper presents how e-store background music-induced arousal would affect online consumer behaviour. Methodology: To do this study, the research was conducted through descriptive analysis and apart from that data was collected through interview. Findings: This paper has helped us to know how effectively music has given birth to a new breed of online shopping. Originality/Contribution: This paper contributed by identifying various practices adopted by successful online shopping stores. Keywords: Online Store, Visual, Acoustic Elements

INTRODUCTION

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With rapid scaling of the web and globalisation of market, the retail sector has become more competitive with dynamic business surroundings. Business and selling activities are littered with the invent of web technologies and also the web is revolutionizing commerce, marketing, retailing and advertising activities of product and services. There are many engaging attributes of web which are restricted not only to solely e-customers however additionally companies on time and cash saving, communicate, convenience, simple accessibility, choice from a wide vary of alternatives, and also the convenience of data for creating choices. Within the era of globalisation, companies are using web technologies to succeed in dead set valued customers and to supply some extent of contact throughout 365 days. Consumers don't seem to be shopping for product/services within the ancient sense any longer. Customers these days are viewing buying as experiential activity and would love to fancy the complete method of shopping. However due to changes in the marketing environment the technological revolution, information explosion, changing demographics of the consumers at large, evolution in the culture, the companies can no longer afford to stick to the old ways of doing the business. The expectations of consumers are moving a lot to the standard of the dealing and knowledge instead of mechanical duty of shopping for the product.


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E-commerce is often defined as the way of conducting business by companies and customers performing arts electronic transactions through the web. E-marketing is defined as the promotion of product or services through the web whereas; e-tailing is outlined as mercantilism product and services by exploitation the web. In general, the activities of e-tailing comprehend 3 main activities namely product search facility (often referred as a product analysis or information gathering facility), function on-line purchase operate and product delivery capability. Like general selling activities of a company, e-tailers have additionally stuck to identical 4P s of selling activities. They are: Product, Price, Promotion and Place. With regard to the right product, e-stores provide a larger spectrum of product giving like ancient retailers in categories starting from electronics to shoes. E-store is that the web version of stores that originated electronic storefronts on the web. It provides every kind of product and renders service to the e-customer at the clicking of a push button and makes cash by mercantilism product on to e customers. Once it comes to the right value, e-stores are operated with low profit margin as a result of of the lower value and higher sales volume. As for the right promotion, e-stores have unlimited marketing, advertising and mercantilism opportunities. Finally, with relevancy the correct place; the placement of e-stores isn't necessary within the web and e-customer will connect and buy product and services from the web at any time and place. E-stores are convenient and time saving; with wealthy, free info on the market, customers will simply compare costs and merchandise options across suppliers. By empowering customers, the web has additionally raised consumers’ expectations of shops. Indeed, they on the face of it expect from on-line looking the maximum amount as, or perhaps quite, what they expect from different alternate channels.

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Music acts as a robust emotional stimulant at intervals in retail surroundings. Music is a valuable primary component in making or enhancing the sensory experiences of shoppers. Music is a robust association into our emotions. Music has the power to speak directly with our hearts, minds and memory. What very matters in music is its mindful power reminiscences associated with the music. Music is flexible, it relax or excite. Music is charming. Music influences shoppers from the instant they step. It entertains, inspire and encourage. Music influences on potential sales by increasing keep time for each the active and passive shopper. The right music is thought to have the potential to increase sales opportunities, outline image and attract a lot of customers. A individualized music strategy supports a complete retail and build a robust reference to specific target markets by incorporating client demographics (such as age, gender combine and financial gain levels) and psychographics (such as preferences, lifestyles, material possession and attitudes). LITERATURE REVIEW Although number of research works has been done by researchers but only a few has been given, related to the paper. 262 | Global Performance Challenges: Building and Sustaining Competitiveness

According to Brown (1987), the costs of a retail format refer to consumers costs. Consumers not only incur non-monetary costs-time, effort and psychological costs but also monetary costs. Savings in non-monetary costs are especially emphasized by nonstore formats. Their appeal to consumers has been the ease and convenience of shopping, freed from location and other constraints. Rao (1999) suggested that e-commerce offers increased market activity for retailers in the form of growing market access and information and decreased operating and procurement costs. The consumers can gain better prices due to the competition and also can enrich their knowledge on goods and services.


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Zhang and von Dran (2000) have found that certain aesthetic elements of a web-site are considered as purchase motivators, while other aesthetic elements serve as hygienic factors (i.e., necessities) in purchase decisions from e-retailers. The colour and background images of webpage are also found to affect consumer choice. Ratchford et al. (2001) have told that through Internet, consumers can gather information about merchandise and they compare a product across suppliers at a low cost. They also can effectively analyze the offerings and easily locate a low price for a specified product. Zeithaml (2002) has defined that the success of e-tailing depends on the efficient web site design, effective shopping and prompt delivery. The othere-store services are delivery on real time, return and replacement process, period of filling out online orders form, speed of response time to e-customers queries.

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Kim and Lee (2002) have suggested that the design of e-store influences consumers access to e-store. In the e-store, website design, design of product and service comparison and information, time to complete online order form, easy of searching product and service, screen layout, screen complexity, page composition, information retrieval methods, information display, use of colour and background, assistance to the user and speed of accessing the e-store are notable factors attracting e-customers.

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Rabinovich (2004) and Cao and Zhao (2004) have identified the challenges of e-tailing industry as the response time of the web-server; moves to the amount of time the customer must wait until the order ships, and also includes the time the shipping process takes. Delone and Reif (2004) have found that at present customers are more likely to continue shopping online when they have a greater experience of online shopping. It is also found that young adults have a more positive attitude towards online buying. Bauer et al. (2006) have compared and identified that the online retail services are broken into two rather distinct phases: the client interaction phase taking place online and the fulfilment phase taking place offline. They also have suggested that web-site quality is a matter of delivering both hedonic and utilitarian elements. Background Music: An Assessment of its Usefulness for E-Retailing | 263

Online store atmospherics have been studied widely by Fiore and Kelly, 2007, Manganari et al. and 2009, Vrechopoulos, 2010. Furthermore, the way web designers establish atmospherics online is continually changing and evolving with leaps in web technology, such as CSS3 (Cascading Style Sheets), which improves upon web’s layout and visual capabilities. Establishing an online store is also getting easier, without the need for technical expertise increasing. One of the popular online commerce platforms, Shopify, offers a platform with payments, website hosting and website design as a complete service (Shopify, 2012). RESEARCH METHODOLOGY RESEARCH OBJECTIVE


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The sole objective of this paper lies with the finding of correlation among Background music and other psychographic variables. The basic objective was to explore an application and its usefulness which is still not available in the e-tailing arena. CONCEPTUAL FRAMEWORK

The idea of this study came to our mind when we have been to a hyper market in Delhi. The store was so fringed that we are facing problem even in for free movement into the store. After a jostle, the store management started to play soothing music and we have found that people who hustling and bustling towards the gondola have found a psychological relief, resulting in a calm shopping experience. We wanted to try this method to e-tailing scenario, although the physical and virtual shopping experience frames apart from each other, but we thought the idea may be useful one day, especially when the internet penetration rate is rapidly increasing and so the e-tailing.

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We have selected six items for the survey and tested its internal consistency. The cronbach value found was. 719 and it shows acceptable reliability among the factors.

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SAMPLE SIZE AND TECHNIQUE

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We have sent the questionnaire to 200 people via email and found 148 responses useful to go further with the study. Respondent profile includes mostly corporate executives who frequently tend to shop online. We have used convenience sampling for the study. RESEARCH HYPOTHESIS Ho: Music is not a key element to increase the time spent on the e-shopping site. H1: Music is a key element to increase the time spent on the e-shopping site. Ho: Music has no positive effect on change of perception. H1: Music has a positive effect on change of perception.


Ho: Music does not reduce the stress level caused by intense information search on e-shopping. H1: Music can reduce the stress level caused by intense information search on e-shopping. Ho: Music can not lead to a successful and satisfied shopping. H1: Music can lead to a successful and satisfied shopping. Ho: Playing background music cannot act as a distinguish factor among various e-shopping sites. H1: Playing background music can act as a distinguish factor among various e-shopping sites.

G in AL PR p to is a Key Element ES art cMusic opIncrease the Time to o S r Spent y W in , p f R u rin IT ll, t TTiming1 EN on or s a PE ny ave R ret an M Reduce y Music Can IS rie the co Stress Level S va IO l s nte N ys nt o te of Music Has a Positivef t he m, thi Effect on Change of s co pd Perception py f, rig ht -h Music Can Lead to a ol Successful and Satisfied de Shopping r

RELIABILITY STATISTICS

Cronbach's Alpha .719

No. of Items 8

1

.255*

.509**

.408**

.700**

.429**

.255* .509**

1 .282**

.282** .282**

.142 .713**

.261** .836**

.032 .451**

.408**

.142

.713**

1

.707**

.362**

.700**

.261**

.836**

.707**

1

.482**

.429**

.032

.451**

.362**

.482**

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Music is a key element to increase the time spent Timing 1 Music can reduce the stress level caused by intense information search Music has a positive effect on change of perception Music can lead to a successful and satisfied shopping Playing background music can act as a distinguish factor

Playing Background Music Can Act as a Distinguish Factor

CO-RELATION MATRIX: (PEARSON TEST DONE IN SPSS)

ANALYSIS & RESULTS From the Pearson test of correlation we have come to these following conclusions: 

Music is a key element to increase the time spent on the e-shopping site (positive relation).

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Music has a positive effect on change of perception (positive relation). Background Music: An Assessment of its Usefulness for E-Retailing | 265

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Music can reduce the stress level caused by intense information search on e-shopping (positive relation).

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Music can lead to a successful and satisfied shopping (positive relation).

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Playing background music can act as a distinguish factor among various e-shopping sites (Positive relation).

IMPLICATION OF THIS STUDY


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The centre idea of this studyis little bit imaginative. May be one day our imagination would drive e-tailing companies to implement our thought. The industry implication lies with the fact that 80% of the consumers buy a product not because of its economic gains but for its psychological gains. Soothing music does have a positive effect towards our mood. Obviously there are other factors to be considered like type of music, volume, relevance etc. But e-tailers must be finding it difficult to increase customer spent time on their website and here music can play a big role. LIMITATIONS & SCOPE

The limitations to this study includes: 

Time

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Sample size



Response bias

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Sampling technique

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Alpert, J.I. and Alpert, M.I., 1990. Music influences on mood and purchase intentions. Psychology and Marketing, 7, 109–133. Anand, P. and Holbrook, M.B., 1986. Chasing the Wundt curve: An adventure in consumer aesthetics. Advances in Consumer Research, 13, 655–657. Baker, J., Levy, M. and Grewal, D., 1992. An experimental approach to making retail store environmental decisions. Journal of Retailing, 68, 445–460. Bruner, G.C., II, 1990. Music, mood and marketing, Journal of Marketing, 54 (4), 94–102. Cahoon, R.L., 1969. Physiological arousal and time estimation. Perceptual and Motor Skills, 28, 259–268. Caldwell, C. and Hibbert, S.A., 2002. The influence of music tempo and musical preference on restaurant patrons’ behaviour. Psychology and Marketing, 19, 893–917. Dennis, S., 2001. Almost 50 percent of online purchases aborted. Computer user daily news [online], May 8. Available from: http://snipurl.com/dennis_S_2000. Eroglu, S.A., Machleit, K.A. and Chebat, J.C., 2005. The interaction of retail density and music tempo: Effects on shopper responses. Psychology and Marketing, 22 (7), 577–589.

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REFERENCES

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The scope of the study rely with scholars of marketing who can explore more psychographic relationships in the e-tailing arena based on this study. Also newer dimension of e-shopping experience should be explored.


IMC Strategies of Building Brand ‘NaMo’ B. Shafiulla

Faculty, IBS Business School, Bangalore

E-mail: [email protected] ABSTRACT

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Bharatiya Janata Party leader Narendra Modi's (NaMo) election juggernaut in the 2014 Lok Sabha polls is an example of how to prepare and successfully implement a marketing and branding campaign. Irrespective of your faith, ideology and voting decision, there has been no escaping Modi. His image and inyour-face messaging have overshadowed all other brands - even that of his own party. Modi’s team faced three main challenges when it set out to project him as the country’s next prime minister. One, the three-time Gujarat chief minister was a regional brand (well known in Gujarat) trying to go to national. Two, the 63year-old was seeking to connect with the youth considering that election 2014 had almost 150 million firsttime voters. Modi, who rarely choose to speak in English, was trying also to connect with the urban, middle class audience that is more politically conscious. Finally, and most importantly, carried the taint of the 2002 anti-Muslim riots in Gujarat. This study looks at the integrated marketing communication strategies and tactics behind the creation of Brand NaMo. Advertising agency Soho Square, part of the WPP Group, Handled television, radio and print campaigns with catchy slogans such as “Ab ki bar Modi sarkar” (This time Modi’s government). After the elections were announced, his marketing team bombarded voters with print, television and radio advertisement with the same themes. It reached through text messages and Modi’s recorded voice seeking votes for BJP. It also tapped into social media platform such as Facebook, YouTube and Twitter. Modi has about four million Twitter followers- to magnify the impact of the advertising and branding campaign. The major objectives of this paper are; to analyze various integrated marketing strategies used by BJP to change the perception and build brand NaMo and especially to analyze role of social media to build brand NaMo.

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Keywords: Bharatiya Janta Party, Narendra Modi, Integrated Marketing Communication, Social Media, Brand Campaign

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“In 2002 Narendra Modi means/known for Godhra-riots, now Modi stand for Good Governance and Development. Now there is change of brand perception.” —Dr. B. Shafiulla

“Narendra Modi isn't just a political party's prime ministerial candidate. NaMo is a brand that has been carefully built and painstakingly marketed.” —Devina Joshi INTRODUCTION With Politics being dominated by personalities and less by ideologies, winning elections boils down to the leader who has the strongest personal appeal. The politician becomes a brand, using his appeal for the party is just like a celebrity endorses soap. The late Indira

Gandhi began this trend. Her endorsement mattered more than the worth of the party candidate, whether in Lok Sabha or assembly elections. After her, perhaps the only other leader can rise expectations and sell dreams during elections is Narendra Modi.


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The evolution of Brand Modi is an interesting story. When he took over as Gujarat Chief Minister in October 2001, he was an unknown party bureaucrat without mass appeal. The torching of the Sabarmati Express train in Godhra on February 27, 2002 and riots changed his political fortune. A section of the media severely criticized him for riots, but this actually helped him to create the image of a strong and decisive leader who had protected a certain community. The BJP’s landslide victory in the 2002 assembly elections proved that the brand was here to stay. Without abandoning his constituency, Modi worked on a project that has wider appeal: economic development. Backed by allround high economic growth in Gujarat, Modi’s high profile Vibrant Gujarat campaign has made him a brand for rapid development and prosperity. He project himself as a development man, but retains the ‘Hindu Hero’ brand by not disowning or apologizing for the post-Godhra violence. Strangely through the BJP leadership it self has refused to acknowledge that brand Modi could work national wide. This it does by selectively calling him for brief campaigns in hostile constituencies in elections outside Gujarat. The BJP’s loss in such elections is then used as proof that brand Modi is confined to Gujarat. In reality brand Modi has buyers in all parts of the country. In some parts the appeal is that of Modi, the national security hero, and in others it is Modi, the development man.

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Pitching a specific leader as a driver of change and to mobilize voters’ support is hardly a new political strategy. After all, the Bharatiya Janata Party (BJP) had projected L.K. Advani and Atal Bihari Vajpayee its prime ministerial candidates in 1996 ( “Ab ki bar Atal Bihari” slogan in 1996). The Congress party’s projection of Indira Gandhi as the country’s tallest leader with its ‘Indira Lao desh bachao (Bring Indira, save country) tagline in the 1970s is another such example. But the personal rhetoric had been tied, and sometimes made subservient, to the political parties to which these leaders belonged. With his landslide win in the 2014 Lok Sabha elections, Narendra Modi has rewritten the rules of the game and redefined Indian politics. Brand Modi has not only captured popular imagination but also trumped brand BJP. How did it happen?

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David Aakar, American marketing guru and author of several books on branding, wrote in an April 2012 blog spot that every person has a brand that effects how the person is perceived and whether he or she liked and respected. This brand, he says actively managed with discipline and consistency overtime, or it can be allowed to drift. Modi and his marketing team showed oodles of both once he was anointed the BJP’s prime ministerial candidate on September 13, 2013. Modi’s transformation over the past year from a regional, right-wing politician to a decisive leader with a clear development agenda, the one best suited to take India forward is nothing short of extraordinary. Senior BJP leaders Piyush Goyal and Ajay 268 | Global Performance Challenges: Building and Sustaining Competitiveness


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Singh handled the overall media strategy, and a task force was constituted to handle Modi’s campaign in Varanasi. Advertising legends such as Ogilvy & Mather’s Piyush Pandey, McCann World Group’s Prasoon Joshi and Sam Balsara of Madison World lent their skills at various levels. Advertising agency Soho Square, part of the WPP Group, Handled television, radio and print campaigns with catchy slogans such as “Ab ki bar Modi sarkar” (This time Modi’s government).

To create the father figure, Modi’s team invoked tales of childhood, in books and comics. Invariably and understandably, they were tales of heroism involving a precocious Bal Narendra (Modi as child). What else would you call a story about a child swimming across a crocodile-infested lake to plant a flag on a memorial? The child, when he came of age, walked away from his family to devote himself to public cause, lending what brand consultant Harish Bijoor called “bachelor blandness” to his story. OBJECTIVES OF THE STUDY 

To analyze various integrated marketing communication strategies used by BJP to change the perception and build brand NaMo i.e. Narendra Modi

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To analyze role of social media to build brand NaMo

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PERIOD OF STUDY

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This is a descriptive research. Major sources of data are secondary in nature. Secondary data has been collected through on line data sources and daily news papers. Period of study is nine months and conducted during the period of September 2013 to May 2014 FROM STATE TO NATIONAL POLITICS: GUJARAT TO INDIA Modi’s team faced three main challenges when it set out to project him as the country’s next prime minister. One, the three-time Gujarat chief minister was a regional brand (well known in Gujarat) trying to go to national. Two, the 63-year-old was seeking to connect with the youth considering that election 2014 had almost 150 million first-time voters. Modi, who rarely choose to speak in English, was trying also to connect with the IMC Strategies of Building Brand ‘NaMo’| 269

urban, middle class audience that is more politically conscious. Finally, and most importantly, carried the taint of the 2002 anti-Muslim riots in Gujarat.

Fig. 2: The Team Behind Modi’s Campaign

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The one event that, perhaps, helped Modi the most in making a mark on the national scene was the shifting in 2008 of Tata Motors’ factory for the Nano compact car from West Bengal to Gujarat. Farmers in West Bengal, baked by firebrand politician Mamata Banerjee, now the state’s chief minister, had been protesting land acquisition for the plant by Tata Motors. Modi provided the company land and other incentives overnight. In the process, he also established himself as a champion for industry and development.

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There is difference between a regional brand going national and a politician going national. Modi was known outside Gujarat even before he decided to move beyond the state, just as Nitish Kumar and J. Jayalalitha, chief ministers of Bihar and Tamil Nadu, respectively, are known. Modi did it in massive scale- he attended more than 5000 events and 437 political rallies across the length and breadth of the country. On February 6, 2013, more than six months before he was named as the BJP’s choice for the prime minister’s post, Modi addressed students at Delhi’s Shri Ram College of Commerce. He talked about Gujarat’s model of development. He spoke passionately about the need for speed in government decision-making and about the need to improve 270 | Global Performance Challenges: Building and Sustaining Competitiveness

skills of the youth to accelerate economic growth. This speech won him many young admirers. Modi, an excellent orator, has delivered scores of similar speeches since then. He highlighted slow economic growth, high inflation and lack of new jobs- issues which immediately resonate with young and urban voters–while blaming the Congress-led United Progressive Alliance (UPA) government for the problems. After the elections were announced, his marketing team bombarded voters with print, television and radio advertisement with the same themes. It reached through text messages and Modi’s recorded voice seeking votes for BJP. It also tapped into social media platform such as Facebook, YouTube and Twitter. Modi has about four million Twitter followers- to magnify the impact of the advertising and branding campaign.


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The impact of integrated marketing communication for campaigns has felt across different age groups, geographies and sections of society. Even young children age group of 2 to 5 years mentioning the word “NaMo” (Narendra Modi) and the slogan “Ab ki bar Modi sarkar”. The carefully crafted moniker also appeals to the traditional Hindus- the BJP’s main vote bank-because of its religious connotation, as the Sanskrit word ‘Namo’ is used as a salutation reserved for the Hindu gods. ROLE OF BUSINESS PERSONALITIES FOR BUILDING BRAND NAMO

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Modi’s efforts to connect with the youth and urban voters were helped in no small measures by his pro-business persona. Business leaders from industry doyen Ratan Tata to billionaire brothers Mukesh and Anil Ambani have praised Modi and his administration in Gujarat. This was covered in print media and television media. This allowed Modi to build his brand as progressive leader for development and good governance who has the ability to deliver economic results-the single biggest leitmotif of this campaign that has allowed it to cut through caste bias among others things. The congress party is not lacking in spending power or ability to get marketing brains to campaign for it, But the biggest push for Modi has come from the overt push and advocacy of corporate leaders.

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BIGGEST CHALLENGE TO BUILD BRAND NAMO

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The biggest challenge brand Modi faced was diverting public attention away from the 2002 communal riots in Gujarat that claimed the lives of more than 1,000 people, mostly Muslims. Initially, Modi’s supporters in BJP attempted to engage in public debate and highlight the clean chit given by courts to wash the stigma. Then they changed the strategy. They toned down the Hindutva rhetoric and focused instead on Modi’s more recent past and his development record in Gujarat. Marketing gurus cite the example of Cadbury, PepsiCo and Coca Cola that battled problems relating to brand taint. Cadbury had fought its way out of the controversy related to worms in its chocolates while the two beverages giants faced allegations of pesticides in their colas. The one of the best way for tainted brands to overcome a IMC Strategies of Building Brand ‘NaMo’| 271

challenge is to not talk too much, but to acknowledge it happened, and then move on. The more you talks about, the more the memory for that event gets activated among the target market, and they remember it more. The BJP and Modi did not talk about communal riots in Gujarat. Or if they did, they kept it to a minimum. WEAK CONGRESS PARTY GIVES ADVANTAGE TO BRAND NAMO


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The weakness of Congress leadership also helped boost brand NaMo. When the brands in the domain appear worse, the contending brand might shine by the comparison. In Modi’s case, he was helped by the tightlipped nature of the Congress leadership and their indifferent performance in the second stint. While most companies routinely apologize for the problems detected in their products, Modi stopped short of doing so. He did give an account of reflections on the event (the riots). He seemed to say that he was pained about the event but didn’t say sorry. It does not matter if he (Modi) is wrong. He will never publicly admit that. Not so long, the words that could have been used to describe Modi were authoritarian, megalomaniac and communal. The way the creators of bran Modi dealt with the third taint was not dealing with it. “What more was there to say (about the postGodhra riots)? There have been various panels instituted to probe into matter,” says BJP leader. Instead, they focused on building Modi’s image as self-made, strong, efficient, inspiring and incorruptible. Modi created an impression of being sincere, credible and committed leader. He convinced people that he could improve their lot. No media can help create that kind of consistency. BUILDING OF THE BRAND “NAMO” USING ONLINE SOCIAL MEDIA

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Narendra Modi neither a marketing guru nor has he formally studied the Keller’s Brand Equity Model; however he has successfully advanced on the brand pyramid starting from creating brand awareness to defining brand purpose to gathering brand response and to building brand advocates. In 2007, YouTube was the first social platform that Modi befriended. His journey on Twitter and Facebook social media commenced in the month of January 2009 and May 2009 respectively. On 14th April 2009, Narendra Modi started blogging and he also had a personal website by then. In 2010, Modi’s Twitter follower base increased to one lakh and by December 2011, he had over four lakh followers which finally crossed the one million milestone in October 2012. He’s named to be the first Indian politician to use Google Hangout and have an application on his name, ‘iModi’. As per FollowerWonk, as on December, 30, 2013 Modi has about 3,040,192 followers on Twitter and his social authority is 81 (on the scale of 1–100; where 1 is lowest and 100 is highest. On Facebook, Modi has 7,549,972 likes and 960,914 people talking about him. Modi’s content strategy changed as per his objectives. In the early days of creating a brand identity, he established his presence on various social platforms. His Facebook 272 | Global Performance Challenges: Building and Sustaining Competitiveness

posts were simultaneously sent to twitter; the content revolved around inspirational quotes (his favourite leader is Swami Vivekananda) from scripture and daily activities. In this stage, Modi certainly measured the number of posts and also the content. In the second stage of building the brand meaning, Modi focused on “performance” and I turn build his “Imagery”. He started talking about his achievements and the development in Gujarat; his fans and followers had started engaging by liking, sharing and commenting. While he garnered support, he also invited criticism by opposition parties, media and few citizens.


BRAND BUILDING THROUGH SOCIAL MEDIA

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In the third stage of building brand response, Modi’s focus on helping his audience build “judgment” and “feeling.” This was the stage where Modi build his credibility, and increased his consideration and amplified his superiority. Modi took an unusual move by mass following people on Twitter. As on January 01, 2012, he was following 174 people and as on December 30, 2012 he was following 885 people. Apart from following his colleagues in the BJP, international leaders, eminent celebrities, Modi also followed a few of his fans and well-wishers. A top public figure’s ‘following back’ spree indicate that he is as much a people’s person; this created an army of advocates. There was a notable change in the content strategy; in addition to sharing his credentials, he turned more vocal about the opposition and created strong statements to express his opinion. Beginning 2012 up to date, Modi has remained the most talked about politicians on the social media creating a Twitter trend every now and then. Those who were pro-Modi helped in elevating his image and those who were anti-Modi coin the term “Feku” for him.

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Several questions were raised on genuineness of his fan and followers; controversial stories around the manipulating online polls results to elevate his image were all over. Also, question was raised on how fan following on social media would translate in to a vote for the BJP. Sentiments on the social media clearly signaled appeal for the brand ‘NaMo’. IN September 2013, Modi was declared the BJP’s prime ministerial candidate for election 2014. It begins Modi’s final stage of building brand resonance with active campaign for election 2014. BJP brings about convergence of social media with ground-level mobilization. Although many claim that social media had little penetration among the “masses”, who actually come out and cast their ballot, even minor in votes could change fortunes. The party has now set up 12 tables from where volunteers, who are not carry members, can tweet minute-by-minute updates on election rallies. Since November 2-13, the party has extensively using SMSes, emails, Twitter and Facebook to garner support for various rallies. All this events are available Live on the YouTube. A survey earlier this year had claimed that social media could influence the outcome in 160 of the 543 Lok Sabha IMC Strategies of Building Brand ‘NaMo’| 273

constituencies, of which maximum 21 were from Maharashtra. A coincidental fact to support the claim, that social media could influence the outcome of election, is four of five state elections have been won by the BJP. As Lok Sabha elections 2014 wound done to historic close, the BJP-led NDA claimed a landslide victory, making huge gains across the country. As result for all 543 Lok Sabha seats were announced, the NDA looked set to win 336 seats. For, incredibly, BJP crosses the 272 mark (as they had a Mission 272 campaign) comfortably on its own without allies, winning 282 seats, a gain of 166 seats. This is the biggest victory since the 1984 election that Rajiv Gandhi won with 414 LS seats. It is also the first time ever in the 67 year history of independent India that a non –congress party has won a simple majority on its own.

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For Chandra Prakash, a city-based cyber enthusiast, May 16 turn out to be memorable for more reason than one. Not only did the BJP, led by Prakash’s favourite leader and prime minister- elect Narendra Modi, sweep the LS election also received a “thank you” letter from the BJP leader. The letter, digitally signed by Modi, said: “A big thank you for your for your wishes! You have been source of immense strength and constant support through the campaign. This victory is as much yours as it is the BJP’s and the NDA (National Democratic Alliance). The letter also asked him to fill a form at www.narendramodi.in/form and be involved in future projects. Prakash claims he is one of about 15000 to have received letters thanking them for their contribution to BJP’s campaign on micro-blogging site Tweeter. These people campaigned for Modi, without being associated with the party in any form. They sent millions of tweets, as well as retweeted many of Modi’s tweets, with the sole aim of “spreading Modi’s Vision. Led by former UK-based merger & acquisitions lawyer Manoj Ladwa, these were Modi’s Foot soldiers. Initially one the first tasks before Ladwa and his team was to identify on cyber space those who supported Modi’s views and encouraged them to express their views more frequently. It has created buzz marketing as messages spread across the nook and corner. Now Modi’s team is banking on the same set of people to effectively communicate the decisions of a government led by him at the center.

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Amlaben, 60, had no idea of who the local BJP candidate was. She had walked a kilometer only to vote for Narendra Modi. She had watched him on TV and heard his speeches, attended one rally in a nearby village and was bombarded with TV and radio jingles featuring him. Like he, millions of voters across the country have voted for Modi irrespective of who their local candidates were. The marketing of brand Modi during the election has been quite remarkable –a never seen before effort in Indian history, not just in the realm of product marketing, but any form of marketing. It has been him and just him. From traditional nukkad sabhas and street plays to branded rallies, high-tech 3D rallies to Bollywood-style anthems and jingles, illuminated hoardings and news paper 274 | Global Performance Challenges: Building and Sustaining Competitiveness

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advertisements, Team Modi left no stone unturned to reach every nook and corner of India. By the end of six-month campaign, the team had covered most of its six lakh villages, almost every urban and semi-urban household, every TV set, radio and mobile phone and the internet. According to Abraham Koshy, Professor IIM A “The trick worked. BJP wanted to make Modi the centre-piece of the election. He was an effective to an ineffective Manmohan Singh, a smarter alternative to Rahul Gandhi, a more reliable alternative to Kejriwal and strong to his own colleagues,” “ The voter had to decide whether to vote for him and not. The others in the fray were irrelevant.” The media bombardment was complemented by an equally effective direct marketing strategy. In the middle of March, as many as 650 raths built on one-tonne mini-trucks made 138,900 trips into the villages of Uttar Pradesh and Bihar, the most populous states. Every village chaupal and nukkad was targeted with a 32-minute message, tailored for a specific audience.

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While in urban areas, the projection of brand Modi was that of a pro-growth reformist leader, in the hinterland he was projected as the antidote to inflation, corruption and joblessness. Tales about Gujarat’s so-called economic miracle were told in local dialects. Sometimes Modi emerged in 3D form. The door–to-door part of the campaign was led by “Loha Sangrah Abhiyan (Iron collection campaign for Sardar Patel statue in Gujarat). There were TV and radio advertisements for this campaign. And there is campaign called “Ek Note, Kamal Par Vote” (one note, vote for BJP). Marketing effort for brand Modi targeted the hinterland and some 12 crore first-time voters (of the total 82 crore) with equal alacrity. The young and urban voters were spoken to in a language they understood best and by young, digitally savvy volunteers who leveraged IMC Strategies of Building Brand ‘NaMo’| 275

the world of TV, radio and social media. It was one of the most technology-aided campaigns in recent years. It was more tech-savvy than tech brands themselves.


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Twitter was abuzz with Modi supporters and trolls alike, and millions of voters received personalized direct messages from Modi’s official handle. Nearly 11 million tweets between January 1 and May 12 had a mention of Modi, says Raheel Khursheed, head of news, politics and government at Twitter India. The Modi brand-building effort at national level started in February 2013 when he met students of Shri Ram College of Commerce in Delhi and wooed them with his development talk. This was followed by a similar meeting with students of Pune’s Fergusson College. The brand building campaign had three layers_ one controlled by Modi himself through his team of volunteers, second by party leaders who organized meetings and interactions with small groups, the third by party workers and RSS pracharaks on the ground doing last-mile messaging. One of the close aides of Narendra Modi was Prashant Kishore, the brain behind the now admired Citizens for Accountable Governance, or CAG, India’s first USstyle political action committee (PAC) outfit that had several young professionals who quit their jobs to work for Modi. This non-for-profit group was at the centre of some very innovative work in Modi’s campaign, including interaction with college students, 3D holographic rallies and ‘Chai Pe Charcha’ (discussion over tea) events. In all, Modi covered 437 physical rallies, travelled over 3 lakh kilometer, and took part in 5500 video conferences, Chai Pe Charcha and 3D events, an unprecedented outreach effort. The beauty of the campaign, says Bijoor, was that Modi was the focus.”In any branding exercise, the brand must be a single entity”. So here, it had to be either BJP or Modi,”. BJP reportedly spent around Rs. 400 crore on the campaign designed by agencies Soho Square, TAG and Madison. CONCLUSION

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It is a truism that marketing cannot sell a bad product. Irrespective of the money you spend on marketing, if what you are selling fails to strike a chord in the minds of a large section of the electorate, all efforts to market Modi would be in vain. What does matter is ‘perception management’. If anyone knows the value of ‘personal branding’ in Indian politics today, it is the one man who needs the most: NaMo. He has hired the world’s most powerful lobbying and PR firms, known incidentally, for its respectable clientele of war mongers. In what must go down as a brilliant case study in the annals of ‘image management’ strategy, Modi has, in a short span of time, got the world to merge the identity of Gujarat with that of his own. Brand Gujarat and brand Modi are inseparableand the visit to Sri Ram College of Commerce was all about investing the ‘brand equity’ of brand Gujarat for longer term return of investment on the national stage. But brand positioning is not a simple art. As any PR executive will tell you, the whole process begins with what they call a ‘perception audit’ In Modi’s case, such an audit today would still throw up a giant bucketful of stuff that could dissolve into irrelevance even the most painstaking of brand building campaigns through integrated marketing communication. 276 | Global Performance Challenges: Building and Sustaining Competitiveness

REFERENCES

[7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20]

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Arvind J. Bosmia “From obscurity to popularity: How Narendra Modi built his brand” http://www.hindustantimes.com/Specials/Coverage/Gujarat-Assembly-Elections-2012/Chunk-HT-UIGujarat Assembly Elections 2012–12–04–14 Anant Rangaswami “Listen: Piyush Pandey on creating Modi’s winning election campaign” http://www.firstpost.com/politics/listen-piyush-pandey-on-creating-modis-winning-election-campaign1527653. html?utm source=refarticle 16/05/14 Anant Rangaswami “Who wrote ‘Abkibaar, Modi Sarkar’? Why it doesn’t matter” http://www.firstpost.com/india/who-wrote-ab-ki-baar-modi-sarkar-it-doesnt-matter-1535361. html?utm source=fpstory author 21/05/2014 Building of the brand ‘Narendra Modi’ using social media http://www.lifehacker.co.in/jugaad/Building-of-The-Brand-Narendra-Modi-using-SocialMedia/articleshow/28138520.cms 15/05/14 Devina Joshi & Masoom Gupte “The making of Brand Modi” http://www.business-standard.com/article/management/the-making-of-brand-modi-114051100589_1.html 27/05/2014 “Election results 2014: Modi magic in new states mesmerizes BJP bosses” http://timesofindia.indiatimes.com/home/lok-sabha-elections-2014/news/Election-results-2014-Modi-magicin-new-states-mesmerizes-BJP-bosses/articleshow/35227225.cms 15/04/2014 “Election results 2014: Historic win for NDA with 336 seats, 282 for BJP” http://www.firstpost.com/politics/election-results-2014-historic-win-for-nda-with-336-seats-285-for-bjp1526377.html?utm source=ref article 17/05/2014 Mayank Mishra “Modi’s cyber army: Foot soldiers preparing for long march ahead” http://www.business-standard.com/article/politics/modi-s-cyber-army-foot-soldiers-preparing-for-longmarch-ahead-1140522002181.html 04–04–2014 Ramanujam Sridhar “A brand called Narendra Modi” http://www.the hindu businessline.com/features/brandline/a-brand-called-narendra-modi/article2869537.ece 17/04/2014 Ravi Teja Sharma & Pritha Mitra Dasgupta “How team Narendra Modi used traditional nukkad sabhas to 3D rallies to reach out to every nook and corner of India”. http://articles.economictimes.india times.com/2014-05-17/news/499128971 team-modi-nukkad-brand-modi 27–05–2014 Shammi Pandey “Just the right image, This case study looks at the strategy and tactics behind the creation of brand Modi” http://business today.in today.in/story/case-study-strategy-tactics-behind-creation-of-brand-narendramodi/1/206321. html 19–04–2014

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Customer Satisfaction towards High-end Smartphones in India: A Study of Customer Satisfaction Using Importance-Performance Analysis Model Tahir Ahmad Wani1 and Shadma2 1,2


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Research Scholars, Jamia Millia Islamia University, New Delhi E-mail: [email protected], [email protected] ABSTRACT

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Smartphones are getting smarter each day. In view of the rapid development, multi-functionality, ubiquity, and connectivity of mobile devices, it offers a new and potentially powerful market for the smart phone users. The smarter a phone, the higher its price- that has been the mantra for global mobile phone manufacturers. Since their inception, smartphones were considered as high-end mobile phones but as time progressed, a highend series of smartphones was invented.These can be defined as smartphones with better computing capabilities and added features. The ownership of these multifunctional mobile devices is growing exponentially. However, there is no specific criterion that separates high-end smartphones from the low-end ones. Yet, price and features are considered as determinants that can form a line of separation. There is difficulty in defining the price benchmark, as in different countries and communities with different levels of income and living standards one cannot generalize a price level for all. India being a developing country, with mostly lower and middle class income families, the price determination poses a big challenge. So for this study, all the smartphone models priced over Rs.18,000 in the Indian market are categorized as high-end smartphones. The researchers settled on this criterion as firstly some of the low cost phone manufacturers are furnishing smartphones in this price range with features which match those of Rs.30-40K range models & secondly India being one of the fastest growing economy, it has been a booming market for smartphones over the last few years. Thus, the demand is ever increasing as levels of income and standards of living improve.

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This paper presents a rationale for and background to the study presented here which was designed to discover the customer satisfaction of individuals towards these high-end smart phones. Such a work will not only be important to the academicians but shall also provide valuable insights to companies who intend to provide high-end smart phones to the Indian consumers. The authors have used Importance-Performance analysis model to reflect consumer’s perceptions of the high-end smartphones they have purchased. In addition, the paper will try to demonstrate other factors that influence the behaviour of customers towards these smartphones. Keywords: Importance-Performance (IP) Analysis, Smartphones, Indian Consumers, Customersatisfaction

INTRODUCTION Smartphones can be defined as handsets facilitating cellular and data services, running on a specially tailored operating system having computing capability.Simply it is a mobile phone that can compute (Wajid & Wani, 2014). Smartphones are augmented versions of mobile phones. They have the vital quality of facilitating voice


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communication with further added enhancements. In the current scenario, smartphones have developed into such complex machines that they can do multi-tasking with ease. From making voice calls, sending messages, playing games, using social apps, clicking pictures, shooting videos, reading e-books, making and editing documents, receiving and sending emails, browsing internet, listening music, watching videos, using GPS navigational features to roam in cities, checking live cricket scores, everything is possible with a smartphone (Wajid & Wani, 2014). Smartphones have become an integral part of our daily lives because of their multi-tasking nature. One does not simply carry a smartphone in his/her pocket rather loads of applications and features that the smartphone has. For the consumers, mobile phone is not only a personal device used to stay connected with friends and family, but also an extension of their personality and individuality. Smartphones have been categorised as low-end, high-end and top-end phones. The lines of differentiation are very thin and sometimes overlap with each other. Apart from their features, price has been considered as a distinguishing factor of low-end smartphones from the high-end one. In the course of this study, we have considered only high-end smartphones and propose price as the criterion for identifying low-end and high-end smartphones. All mobile phones exceeding Rs.18,000 have been marked as high-end smartphones. The price levels may vary from country to country as the basis of differentiation owing to the varying levels of income and standards of living of the consumers. India being a developing country with most of its population either belonging to lower or middle class, Rs.18,000 was contemplated as a balanced line for disparity. Howbeit for understanding, many smartphone models in India are obtainable below this price and still tagged as high-end smartphones. For the sake of simplicity, we have considered the smartphones priced above Rs.18000 only, wherever we have confabulated about high-end smartphones. SMARTPHONES IN THE INDIAN CONTEXT

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India has been a growing market for smartphones since their genesis. According to the International Data Corporation (IDC), a global marketing research company, the Indian smartphone market grew by 229% year over year (YoY) in the third quarter of 2013.

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The figure delineates the comprehensive percentage of users’ shift from feature phones to smartphones in the last two years. Evidently, there has been a considerable increase every quarter and the same is forecasted to transpire for the following quarters too. International Data Corporation (IDC, 2013) anticipated that India would supersede USA to become the second largest smartphones market after the People's Republic of China. According to convergencecatalyst.com, 9 to 9.5 million smartphones were sold in India in 2011 and this figure crossed 20 million mark in 2012 reported by IDC Market Research Firm. In 2013, these statistics sustained to grow quarter by quarter. This information is witness to the fact that India with its huge population of working class will be enticing many companies to its market in the coming years. In this context, a paper like this will be of interest for the academicians, industrialists and equally Customer Satisfaction Towards High-end Smartphones in India: A Study of Customer Satisfaction | 279

beneficial for the consumers to assess their decisions valuably and understand the traits that could regulate their purchasing decisions. They will also get insights from where others pursue advice and information before purchasing a smartphone. This research will be helpfulfor companies to improve their products in the future and customers to enhance their buying decisions while procuring a high-end smartphone. Whilst this may not be an overarching analysis, it will inevitably constitute as a substratum for other such prospective work. LITERATURE REVIEW


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Bayraktar et al., (2012) mentioned that since the invention of mobile phones, there has been a miraculous development in both their product refinement and their rapid global adoption. Nowadays, customers are continuously facing the predicament: which phone to buy. After smart phones have been divulged, the alternative seemed to be denser, since the possibilities and offers that producers are providing are endless (Seongwon et al., 2011; Milutinovic et al., 2011). Over the past decade, the mobile phone industry has increasingly identified the meaning of customer satisfaction and experience. In speedily changing business environment today, customer satisfaction is a critical factor for mobile phone industry to sustain and enhance their profitability. Preliminary studies (Fornell, 1992; 1996) have found that customer satisfaction accords to company's profitability and customer loyalty and many authors profess that higher customer satisfaction can assist to highermarket share. Customer satisfaction is predominant to customer behaviour concept and it is recurrent to find customer satisfaction as one of the important goals in company politics (Fournier and Mick, 1999).

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Satisfaction is the consumer’s fulfilment response. It is a judgment that a product or service feature, or the product of service itself, provided (or is providing) a pleasurable level of consumption-related fulfilment, including levels of under- or over-fulfilment. (Oliver, 1997)The construct of customer satisfaction is a function of customer expectations (Schiffman and Kanuk, 2004). Customers will be satisfied if their expectations are met by the products or offerings and will feel dissatisfied if the products do not match their expectations. Thus to measure customer satisfaction one has to match the expectations of the customer with the performance of the products/ services. Customer satisfaction is substantiated to be a consequential determinant of repeat sales, positive word-of-mouth, and customer loyalty. Contented customers return and buy more, and they tell other people about their positive and negative experience. Several researchers have acknowledged the need for investigating the customers' satisfaction, experience, and loyalty in the past (Deng et al., 2010; Verkasalo, 2010; Lee, 2011; Bong-Won and Kun Chang, 2011). Customers engage in a constant process of evaluating the things they buy as they integrate these products into their daily activities (Fournier and Mick, 1999). 280 | Global Performance Challenges: Building and Sustaining Competitiveness


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Oliver (1981) defined customer satisfaction as “the summary psychological state resulting when the emotion surrounding disconfirmed expectations is coupled with the consumer’s prior feelings about the consumption experience”. Customer satisfaction or dissatisfaction is determined by the overall feelings, or attitude, a person has about a product after it has been purchased (Solomon, 2004). (Schiffman and Kanuk, 2004) The concept of customer satisfaction is a consequence of customer expectations. A customer whose experience falls below expectations (e.g. mobile application does not work fast enough) will be dissatisfied. Customers whose experiences match expectations will be satisfied customers. In addition, customers whose expectations overshoot will be very satisfied or delighted. Therefore, we can define customer satisfaction as the individual’s perception of the performance of the product or service in relation to his or her expectations. Customers will have substantially dissimilar expectations of a new expensive mobile phone and a five-year-old model. Promoting satisfied customers, and consequently future sales, requires that customers be sustained to believe that the brand meets their needs and offer surpassed value when they use it. Companies must deliver as much value as customers initially expected, and it must be sufficient to satisfy their needs (Hawkins et al., 2004). It is ordinarily more profitable to preserve existing customers than to substitute them with new ones. Perpetuating current customers requires that they be satisfied with their purchase and use of the product.

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For analysing customer satisfaction towards smartphones IP analysis model was used by the authors. Martilla and James first propounded Importance-Performance Analysis in 1977 as a means to measure client satisfaction with a product or service. Slack (1991) exhibited an Importance-Performance Analysis model that studied a relationship between importance and performance of attributes of the products. Blake, Shrader, and James (1978) classified IPA analysis model as an action grid analysis (AGA). Martilla and James (1977) proposed that target levels of performance for particular product attributes should be proportional to the importance of those attributes. According to them, the Importance of attributes can be contemplated as a reflection of the relative value of the various quality attributes to the end users. Duke and Persia (1996) used IPA model to analyse the performance of national escorted tours. Their findings confirmed that IPA model could provide deep down analysis on critical issues related to the customer satisfaction about the product attribute. IPA model has been used since its inception by many researchers to study the product attributes and their influence on customer satisfaction. IPA has been adequately utilized to evaluate a firm’s competitive position and the opportunities to improve and provides strategic plans to endure with contemporary market predicaments (Martilla and James, 1977; Hawes and Rao, 1985; Myers, 2001). The IPA approach endorses satisfaction as the function of two components: the importance of a product or service to a client and the Customer Satisfaction Towards High-end Smartphones in India: A Study of Customer Satisfaction | 281

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performance of a business in providing that service or product (Martilla and James, 1977). IPA analysis model not only scrutinize the performance of the products but the predominant attributes that contribute to the overall satisfaction of the users (Silva and Fernandes, 2010) and furnish inestimable insights to the companies to focus expedients to the attributes that are falling behind the ascertain stratum of expectations of the customers. This model has validated as a valuable asset to study customer satisfaction (Slack, 1994) which not only provides long lastingvaluable analysis but also is facile to regulate and elucidate. (Kitcharoen, 2004) IPA analysis model is extensively adopted paradigm to analyse customer satisfaction for managers and researchers universally (Matzler et al., 2003) and is a way to stimulate the burgeoning effective marketing programs as it expedite the interpretation of data and intensify efficacy in fabricating strategic decisions (Abaloet al., 2007; Silva & Fernandes,2010).


OBJECTIVES

1. To study the perceived importance of users towards various attributes/features of smartphones; 2. To study the perceived performance of smartphones on various identified attributes; 3. To compare the importance vs. performance of the attributes assigned. HYPOTHESIS

H1: There is no difference between importance allotted to attributes and their perceived performance. H2: Owners of smartphones are motivated by different consideration.

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RESEARCH DESIGN

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This research study was donebased on the traits of smartphones proposed by Wani (2013), Ali and Wani (2014). Twelve apparent attributes of smartphones were consideredviz; 1. Build Quality and durability, 2. Quality and performance of the camera, 3. Connectivity options,4. Processor speed and performance,5. Audio/Music quality 6. Availability and number of Apps. 7. Screen Size and resolution 8. Ease of Use 9. Battery Backup 10. Weight and thickness of the phone 11. Resale Value 12. After sales service. The questionnaire was formulated to check the users’ expectation and performance vis- à-vis these characteristics. SAMPLE DESIGN The distribution of respondents is given inTable-1, Table-2 & Table-3:


Table 1: Total Distribution Statistics N 70 70 70 57

Gender of Respondents Age of Respondents Qualification of Respondents Occupation of Respondents

Missing 0 0 0 13

Table 2: Gender, Age and Qualification Wise Distribution of Respondents N=70

Percent 77.1 22.9 Percent 2.9 78.6 15.7 2.9 100.0 Percent 25.7 65.7 5.7 2.9 100

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54 16 N=70 2 55 11 2 70 N=70 18 46 4 2 N=70


Gender

Male Female Age 10-19 Years 20-29 Years 30-39 Years 40-49 Years Total Qualification 10+2 Graduate Post Graduate Professional Diploma Total

Table 3: Occupation Wise Distribution of Respondents Occupation

Salaried Business Student Total Missing Total

DATA COLLECTION

N=70 31 4 22 57 13 70

Percent 44.3 5.7 31.4 81.4 18.6 100.0

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The data was collected through Primary sources from Delhi. Two Hundred questionnaires were mailed out. Eighty-five respondents completed the survey questionnaire. Fifteen were eliminated due to incomplete responses. Thus, 70 respondents were included in this study.

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SAMPLING TECHNIQUE Non-Probability Purposive sampling technique was used to study the response of 70 respondents. SCALE A questionnaire was developed by the authors for the study based on review of literature and discussion with users. The questionnaire contains questions concerning the demographics of the respondents, the various features present in smartphones, consumer expectations and performance of the phones etc. Customer Satisfaction Towards High-end Smartphones in India: A Study of Customer Satisfaction | 283

RELIABILITY Cronbach’s Alpha was found to be 0.942 for 34 Items used for data collection. DATA ANALYSIS Based on the responses to the survey the following results yielded. (See Graph-1): From the survey outcome, it can be evidently stated that Samsung along with Apple is the trendsetter of high-end smartphones and have made fortunes in this market segment; Micromax is at extremity while Nokia and Sony are runners up. Micromax has not yet merchandised many products for high-end customers. They are doing well in the low-end market.


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Notably, Samsung has captured this market with series of phones especially in the S Series and Notebook series. Nokia is predominantly emphasising on Windows based Lumia series while Sony has emerged to reassert its existence in the market with its Xperia series. The results alsoexhibitedthat respondents possess following models of high-end smartphones in the order of the numbers: iPhone 4 & 5, followed by Samsung S3, S4, Note 2 Lumia-820 and Xperia Z. Graph-1:Brand of Smartphone owned by the respondents Samsung Micromax HTC

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GRAPH-2:PLACE OF PURCHASE OF THE SMARTPHONE?

Franchise Stores 21%

Online Shoping 22%

Any Other 6%

Retailers 51%

(See Graph-2): Result unveils that most of the customers favour purchasing a smartphone directly from retailer. About 50% of customers purchased the high-end 284 | Global Performance Challenges: Building and Sustaining Competitiveness

smartphones from retailers trailed by online shopping sites and franchise stores. Perhaps the justification is that customers desire to have real life and first-hand experience of the phones prior to the actual purchase. Forthwith, online shopping sites and franchise owned stores provide lucrative discounts and other added accessories that tempts customers to avail these purchasing options. (See Graph–3): The above graph depicts that friends and family members have more impact over the respondents’ purchases than colleagues or peers on internet, reason possibly being the trust factor as friends and family are more trusted than others are. Graph-3: Before the purchase of the Smartphone, respondents discussed the attributes of the product mostly with

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0.4 0.2 0.0 Family

Friends

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Social groups on internet

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(See Graph–4): Nevertheless, internet has emerged as a single largest source of information sought by respondents before purchasing high-end smartphones. This is indicative of the larger trend whereby internet has replaced other traditional media like newspaper or TV for being the source of information. The cause is that information seeker can get free and valuable insights about the products from both the users and tech-analysts. One can find reviews about the phones from users who already purchased or intend to purchase them. It is prominent that customers find valuable information about the smartphones on the internet but when they actually buy the phones friends and family members play a crucial role in the finalisation process

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Graph-4:Sources of Information Before the purchase of the Smartphone

0.0 In Store promo Internet display. retailers/ reviews / technology Television websites. / Newspaper.

Word of mouth

(See Graph–5): Due to the rapid information flow, Customers makes instant decisions. Another reason being the pace at which new models are swamped in the market, customers do not want to squander in decision making while a new model is showcased in the market. The survey reveals that women take more time than men do while deciding on a smartphone. Customer Satisfaction Towards High-end Smartphones in India: A Study of Customer Satisfaction | 285

Graph-5: Time Taken By Respondents In Decsion Making You took time in decision making

You made an instant decision

(See Graph–6): Apple emerged as a leading brand in terms of “Value for money”, trailed bySony, Samsung, Blackberry and Nokia. Micromax again was the laggard.


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Graph-6: Value For Money Against The Brand Purchased 10 5 0 Samsung

Blackberry

HTC

Apple

LG

Nokia

Sony

Micromax

(See Table–4): The Table displayed that nearly 70% of the respondentsanticipatedthat buying a high-end smartphone improves their social status, gives them superiority over others, makes them feel special and exclusive or uplifts their self-esteem. Table 4: Descriptive Statistics N 70 70 70 70

Mean 3.49 3.21 3.13 3.26

Std. Deviation .959 1.089 .977 .958

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Improves Social status Gives Superiority over others Makes one feel special and exclusive Uplifts ones self-esteem

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(See Table-5) A significant difference at 0.05was found between male and female smartphone owners about the perception that having a high-end smartphonebestows superiority over others. Female inclined more towards such feelings over males.

Improves Social status Gives Superiority over others Makes one feel special and exclusive Uplifts ones self-esteem

Table 5: T-Test Gender Wise Gender M F M F M F M F

N 54 16 54 16 54 16 54 16

M 3.44 3.63 3.07 3.69 3.11 3.19 3.20 3.44


SD 1.022 .719 1.130 .793 1.022 .834 1.053 .512

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Sig.

-.659

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.512

-2.023

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.047

-.273

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.786

-.855

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.395

IPA MODEL See Fig. 2. Importance-Performance Matrix (Adapted from Martilla & James, 1977, pp. 78). The IPA model consists of ‘Performance’ on y-axis and ‘Importance’ on x-axis and the contrary elements involved in the service are then compared. Each quadrant proposes a different marketing strategy. Every quadrant amalgamates the importance and the Fig. 2: Importance Performance Quadrants QUADRANT-I Keep Up the Good Work High Importance High Performance QUADRANT-II Concentrate Here High Importance Low Performance


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PERFORMANCE QUADRANT-IV Possible Overkill Low Importance High Performance QUADRANT-III Low Priority Low Importance Low Performance

IMPORTANCE

Performance accredited by the consumers towards the given set of attributes of the products. The original point in the IPA matrix is the difference in value in terms of management and the respective mean of self-stated raw importance and attribute performance (Martilla & James, 1977; Guadagnolo, 1985; Bacon, 2003; Matzler et al., 2003; Zhang & Chow, 2004; Pike, 2004; Go & Zhang, 2008; Silva & Fernandes, 2010).

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As seen in the Fig. (1) the IPA model is divided into four quadrants and each quadrant serves as an indicator to the companies about their current and desired position regarding particular attributes in their products. The four quadrants can be summed up as (Martilla & James, 1977)

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QUADRANT I (KEEP UP THE GOOD WORK)

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It is a high importance, high performance quadrant whichindicates that a particular company/industry is doing well regarding the attributes of products that fall under this quadrant. It signifies opportunities for achieving competitive advantage and attributes that fall into this quadrant are the real pillars of a products success in the market and are marked as speciality of an organisation. QUADRANT-II (CONCENTRATE HERE) A high importance and low performance quadrant signifiesattributes that need immediate attention for development and improvement. These are current weaknesses to an organisation and can be deemed as strategic threat if the competitors product attributes are significantly improved, thus need to be worked on immediate basis.

Customer Satisfaction Towards High-end Smartphones in India: A Study of Customer Satisfaction | 287

QUADRANT-III (LOW PRIORITY) This quadrant indicates those attributes that are of Low Importanceand show subsequently Low Performance. These attributes in short run do not need a focused attention as the consumers do not actively seek them but an eye must be kept on them as in the end they might gain importance and become a dog’s bone to fight in the future market. QUADRANT-IV (POSSIBLE OVERKILL)


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A low importance, high performance quadrant that indicatesattributes that are being overworked by the organisations. In other words, it signifies those attributes which are least expected by a consumer but a company deploys much of its resources to refine such attributes in vain. So for the attributes that fall under this quadrant a company can shift focus from these to other underperforming attributes as the Quadrant IV attributes are not contributing to product success even if they are above par than the competitor’s one. Table 6

Attributes

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Descriptive Statistics of Perceived Performance Mean SD 7.84 2.055 7.80 1.900 7.76 1.929

8.31

1.664

7.49

1.984

8.20 7.89

1.885 1.814

7.76 7.90

1.765 1.905

7.53 7.86 7.93 7.39

1.991 1.867 1.914 1.988

7.03 7.64 7.97 7.17

1.903 1.904 1.494 2.092

6.56 7.69

2.447 2.177

6.14 7.01

2.254 2.075

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Build Quality and Durability Connectivity Options Quality and performance of the Camera Processor Speed and Performance Audio/Music Quality Availability and Number of Apps Battery Backup Screen Size and resolution Ease of Use Weight and thickness of the phone Resale Value After sales services

Descriptive Statistics of Perceived Importance Mean SD 8.20 1.691 7.87 1.710 8.09 1.991

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These twelve attributes fall under two quadrants after Importance-Performance analysis was performed. The same can be depicted as:

1. 2. 3. 4. 5. 6. 7. 8.

Quadrant-I Keep Up the Good Work Build Quality and durability Quality and performance of the camera Connectivity Options Processor speed and performance Audio/Music quality Availability and number of apps Screen size an resolution Ease of Use

Quadrant-III Low Priority 1. Battery Backup 2. Weight & thickness of the phone 3. Resale Value 4. After sales service


r G in AL PR p to ES art co S or py, W in p R fu rin IT ll, t TE on or N a sa PE ny ve R ret an M ri y IS ev c SI al on O sy te N s nt of te of th m, th e is co pd py f, rig ht -h ol de EX he

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CONCLUSION

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With eight out of twelve attributes falling in quadrant-I, one can say that manufacturers have done a tremendous job to proliferatecustomer satisfaction. Companies are matching the expectations of customers about attributes like; Build Quality and durability, Quality and performance of the camera, Connectivity Options, Processor speed, performance etc. Nevertheless, companies are lacking in attributes like battery backup and after sales services etc. Howbeit, it can be seen that these attributes are not sought actively by the users as others attributes are. While roughly reviewing 20 ads of different smartphones (2013-2014) and collating them with ads of 2012 and early 2013 the authors noticed a pattern that companies are no longer advertising slimness and battery backup as the core feature of their products (Smartphones). In 2012, the slimness and lightness of a phone were vital components for competition but now it switched to processors’ speed and other features. The transition in marketing strategy can be attributedto the determinant that consumers’ today expect phones to be generically slim and light weighted. The same can apply for aftersales services,

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The survey stipulates that smartphone providers operating in Indian markets have done reasonably well in high-end smartphone segment. They have accurately ascertained the vital modifications required and have been working towards the same. The survey results exhibits that Samsung and Apple have procured major share in the smartphones market, possibly because of their innovativeness as identified by Wani (2013). Further, it was seen that Apple, Sony and Samsung were contemplated as top three brands as regards to ‘Value for Money’ paid propositions. Survey also ascertained that customers pursue most of the pre-purchase information from the internet, guided by their family and friends and then go onto purchase from retailers. Moreover, it was found that having a high-end smartphone gives consumers an edge over other social members as it uplifts their self-esteem and social status. As for companies, the build quality and durability of Customer Satisfaction Towards High-end Smartphones in India: A Study of Customer Satisfaction | 289


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phones, speed, audio quality etc. corresponds to the expectation set by the customers. However, there was a revelation in the IP analysis graph. Battery backup, which Wajid and Wani (2014) found to be an important trait considered by consumers while purchasing a smartphone, was not a highly expected attribute in high-end smartphone division. It can be proposed that nowadays people have a framed perception about smartphones battery backup lasting up to 6-8 hours maximum. As the processor speed, strength and number of apps increase and the breadth of the phone decreases the battery backup is bound to drop. With this discernment towards smartphones, customers are indifferent towards brands with respect to battery backup.Hence, it becomes a least expected attribute. It may be noted that with increasing competition the less expected attributes may be transformed into highly sought ones. Companies like Samsung, Google and Apple are spending millions of dollars on R&D to seebreakthroughs to increase the battery backup. Graphene recently came into news as Samsung is working on it to make phones less power consuming. Battery backup, weight and thickness of phones or after-sales services may become features that companies may focus in near future and become a source of competition. REFERENCES [1] [2] [3] [4]

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Abalo, J., Varela, J. and Manzano, V. (2007), ‘Importance values for Importance-Performance Analysis: A formula for spreading out values derived from preference rankings’, Journal of Business Research, 60(2), 115-121. Bacon, D. (2003), ‘A Comparison of Approaches to Importance-Performance Analysis’, International Journal of Market Research, 45(1), 55-71. Bayraktar, E., Tatoglu, E., Turkyilmaz, A., Delen, D., &Zaim, S. (2012). Measuring the Efficiency of Customer Satisfaction and Loyalty for Mobile Phone. Expert Systems with Applications, 39(1), 99-106. Blake, B. F.; Schrader, L. F.; James, W. L. (1978). “New Tools for Marketing Research: The Action Grid.” Feedstuff, 50(19):38-39, 1978. Bong-Won, P., & Kun Chang, L. (2011). A Pilot Study to Analyze the Effects of User Experience and Deng, Z., Lu, Y., Kee Wei, K., & Zhang, J. (2010). Understanding Customer Satisfaction and Loyalty: An Empirical Study of Mobile Instant Messages in China. International Journal of Information Management, 30(4), 289–300. Developing Mobile Application for Learning Japanese Language–FONJAPGO. Management, 16(60), 27-34. Device Characteristics on the Customer Satisfaction of Smartphone Users. In K. Tai-hoon, A. Hojjat, R. J. Rosslin& B. Maricel (Eds.), Ubiquitous Computing and Multimedia Applications (pp. 421-427): Springer Berlin Heidelberg. Duke, C. R., & Persia, M. A. (1996). Performance-importance analysis of escorted tour evaluations. Journal of Travel and Tourism Marketing (The Haworth Press, Inc.), 5(3), 207–223. Fornell, C. (1992). A National Customer Satisfaction Barometer: The Swedish Experience. Journal of Marketing, 56(1), 6-21. Fornell, C., Johnson, M.D., Anderson, E.W., Cha, J., &Everitt, B. (1996). The American Customer Satisfaction Index: Nature, Purpose and Findings. Journal of Marketing 60(4), 7-18. Fournier, S., & Mick, D. G. (1999). Redescovering Satisfaction. Journal of Marketing, 63(4), 5-23. Go, F. and Zhang, W. (2008), ‘Applying importance-performance analysis to Beijing as an international meeting destination’, Journal of Travel Research, 35(1), 42-49. Guadagnolo, F. (1985). ‘The importance-performance analysis: An evaluation and marketing tool’, Journal of Park and Recreation Administration, 3 (2), 13-22. Hawes, J. and Rao, C. (1985), ‘Using Importance-Performance Analysis to Develop Health Care Marketing Strategies’, Journal of Health Care Marketing, 5(4), 19-25.


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[15] Hawkins, D. I., Best, R. J., & Coney, K. A. (2004). Consumer Behavior: Building Marketing Strategy (9th ed.). NY: McGraw-Hill/Irwin. [16] Kitcharoen, K. (2004), ‘The importance-performance analysis of service quality in administrative departments of private universities in Thailand’, ABAC Journal, 24(3), 20-46 [17] Lee, J. Y., Kim, W. H., & Kim, C. R. (2011). Measuring Service Quality and Customer Satisfaction in Online Trading Services on Smart Phones 2011 IEEE 3rd International Conference on Communication Software and Networks (ICCSN) (pp. 485 - 489). Xi'an: IEEE. [18] Martilla, J. and James, J. (1977), ‘Importance-Performance Analysis’, Journal of Marketing, 41(1), 77-79. [19] Matzler, K., Sauerwein, E. and Heischmidt, K. (2003), ‘Importance-performance analysis Revisited: the role of the factor structure of customer satisfaction’, The Service Industries Journal, 23(2), 112-12 [20] Matzler, K., Sauerwein, E. and Heischmidt, K. A. (2003) Importance-performance analysis revisited: The role of factor structure of customer satisfaction, The Service Industries Journal, Vol.23, 112-129. [21] Milutinovic, M., Barac, D., DespotovicZrakic, M., Markovic, A., &Radenkovic, B. (2011). [22] Myers, J. (2001) Measuring customer satisfactions: Hot buttons and other measurement issues. American Marketing Association, Chicago. [23] Oliver, R. (1997). Satisfaction: A Behavioural Perspective on the Consumer. Boston: McGraw-Hill [24] Oliver, R. L. (1981). Measurement and Evaluation of Satisfaction Processes in Retail Settings. Journal of Retailing, 57(3), 25–48. [25] Pike, S. (2004)., ‘The Use of Repertory Grid Analysis and Importance-Performance Analysis to Identify Determinant Attributes of Universities’, Journal of Marketing for Higher Education, 14(2), 1-18. [26] Schiffman, L. G., &Kanuk, L. L. (2004). Consumer Behavior (8th ed.). NJ: Pearson Education, Inc. [27] Schiffman, L. G., &Kanuk, L. L. (2004). Consumer Behavior (8th ed.). NJ: Pearson Education, Inc. [28] Seongwon, P., Kwangeak, K., & Bong Gyou, L. (2011). Developing English Learning Contents for Mobile Smart Devices. In P.J. James, Y.T. Laurence & L. Changhoon (Eds.), Future Information Technology (pp. 264-271): Springer Berlin Heidelberg. [29] Silva, F. and Fernandes, O. (2010). Using Importance-Performance Analysis in Evaluating of Higher Education: A Case Study. ICEMT 2010 International Conference on Education and Management Technology. IEEE. [30] Slack, N. (1991) “The Importance- Performance Matrix as a Determinant of Improvement Priority”, International Journal of Operations & Production Management, 14(1), pp. 59-75. [31] Slack, N. (1994), ‘The Importance-Performance Matrix as a Determinant of Improvement Priority’, International Journal of Operations & Production Management, 14(5), 59-75. [32] Solomon, M. R. (2004). Consumer Behavior: Buying, Having and Being (6th ed.). NJ: Pearson Education, Inc. [33] Syed Wajid Ali. And Tahir. A. Wani, (2014) Consumer behaviour of customers towards Smart Phones: An Indian Perspective National Conference on Management Challenges in new era-strategies for success, JamiaMilliaIslamia, Feb 2014 [34] Tahir. A.Wani. (2013), Pacey Adaption: The new mantra of Competitive Advantage: A study of Global Mobile Phone Manufacturing Companies”. International Journal of Applied Services Marketing Perspectives, Volume II, Number 4, OCT-DEC, 2013 [35] Verkasalo, H. (2010). Analysis of Smartphone User Behavior 2010 Ninth International Conference on Mobile Business and 2010 Ninth Global Mobility Roundtable (ICMB-GMR) (pp. 258 - 263). Athens: IEEE. [36] Zhang, H. Q. and Chow, I. (2004) Application of importance-performance model in tour guides’ performance: evidence from mainland Chinese outbound visitors in Hong Kong, Tourism Management, Vol. 25, 81-91.

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Role of Green Marketing on Eco-Friendly Products: Perception of Stakeholders Prof. Kulwant Singh Pathania1 and Inderjit Singh2 1


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Former Director, UGC-ASC and Presently Senior Professor, Faculty of Commerce and Management Studies, H.P. University Shimla 2 Ph.D. Research Scholar, Department of Commerce, H.P. University Shimla E-mai: [email protected], [email protected] ABSTRACT

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In the modern era of globalization, it has become a challenge to keep the customers as well as consumers in fold and even to keep our natural environment safe. It is one of the biggest problems to maintain the balance according to the need of the time. Green marketing refers to the satisfaction of consumer needs, wants, and desires in conjunction with the preservation and conservation of the natural environment. Green marketing is a phenomenon which has a great importance in the modern market and has been emerged as an important concept in India. It has equal importance in the other parts of the developing and developed world, and generally seen as an important strategy of facilitating sustainable development. Through an integration of the marketing, management, and operations literatures, an investigative framework is generated that identifies the various stakeholders potentially impacted through the environmentally friendly efforts of a firm. Specifically, the inter-connected nature of the core business disciplines of marketing, management (both strategy and human resources), and operations are examined as controllable functions within an organization from which strategies can be enacted to affect a firm’s stakeholders. The paper examines the present trends of green marketing in India and role of green marketing on stakeholders and eco-friendly products.This study aims to give information about the environmental awareness, green product features, green promotion activities and green price affect green purchasing behaviours of the consumers in positive way. The paper also describes the current Scenario of Indian market and explores the challenges and opportunities, businesses have with green marketing.

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Keywords: Green Marketing, Consumer Satisfaction, Green Product and Stakeholders

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Although environmental issues influence all human activities, few academic disciplines have integrated green issues into their literature. As society becomes more concerned with the natural environment, businesses have begun to modify their behaviour in an attempt to address society's “new” concerns. Some businesses have been quick to accept concepts like environmental management systems and waste minimization, and have integrated environmental issues into all organizational activities. One business area where environmental issues have received a great deal of discussion in the popular and professional press is “Green Marketing”. Green marketing is the marketing of products that are presumed to be the environmentally safe. Thus green marketing incorporates a broad range of activities, including product modification, changes to the production process, packaging changes, as well as modifying advertising. Green products balance


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environmental compatibility with performance, affordability, and convenience. They are typically durable, non-toxic, recyclable, and are often made from recycled materials. Green products have minimal packaging and should carry low environmental impact. Green marketing not only focuses on advertisements and promotion of products with environmental characteristics, but it pervades all the activities of designing, production, packaging and promoting greener products. Green marketing thrives on the underlying philosophy Reduce, Reuse and Recycle. Green or Environmental Marketing consists of all activities designed to generate and facilitate any exchanges intend satisfy human needs or wants, such that the satisfaction of these needs and wants occurs, with minimal detrimental impact on the natural environment. It ensures that the interests of the organization and all its consumers are protected, as voluntary exchange will not take place unless both the buyer and seller mutually benefit. The above definition also includes the protection of the natural environment, by attempting to minimize the detrimental impact this exchange has on the environment. This second point is important, for human consumption by its very nature is destructive to the natural environment. Thus green marketing should look at minimizing environmental harm, not necessarily eliminating it. CONCEPTUAL FALLACY

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Many people believe that green marketing is a way to promote or advertise a specific product using environmental terms, such as television advertisement, to announce a type of heaters as not to cause a shortage of oxygen but all that cannot be named more than eco-declaration, or green advertising, which forms one components of green marketing, or of the green marketing claims, therefore, green marketing includes a wider range of organizational activities, such as; product modification, changes to the production process, packaging changes and delivery changes, and more (Polonsky,2007). In their attempt to define green marketing, researches and practitioners have addressed several terms relate with this concept, Prakash (2002), pointed out that he employed the term green marketing in his survey “to refer to the strategies to promote products by employing environmental claims either about their attributes or about the systems, polices and processes of the firms that manufacture or sell them”. Other researchers have defined environmental marketing as “the holistic management process responsible for identifying, anticipating and satisfying the requirement of customers and society, in a profitable and sustainable way” (Karna et al, 2001). Green marketing has been an important academic research topic for at least three decades and has been defined in many different ways. According to The American Marketing Association, “Green or Environmental Marketing consists of all activities designed to generate and facilitate any exchanges intended to satisfy human needs or wants, such that the satisfaction of these needs and wants occurs with minimal detrimental impact on the natural environment. Thus we can say that Green Marketing involves: 

Manufacturing and providing products to the consumers which are of good quality and at the same time not harmful to them even in long run. Role of Green Marketing on Eco-Friendly Products: Perception of Stakeholders | 293

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Use the resources for development in such a manner which will enable the future generations to avail the resources to meet their needs leading to Sustainable Development.

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Framing and implementing policies which will not have any detrimental effect on the environment i.e., at present as well in future.


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“Green Marketing” refers to holistic marketing concept wherein the production, marketing consumption an disposal of products and services happen in a manner that is less detrimental to the environment with growing awareness about the implications of global warming, non-biodegradable solid waste, harmful impact of pollutants etc. Both marketers and consumers are becoming increasingly sensitive to the need for switch in to green products and services. While the shift to “green” may appear to be expensive in the short term, it will definitely prove to be indispensable and advantageous, cost-wise too, in the long run. ABOUT GREEN PRODUCT OR ECO-FRIENDLY PRODUCT

The products those are manufactured through green technology and that caused no environmental hazards are called green products. Promotion of green technology and green products is necessary for conservation of natural resources and sustainable development. We can define green products by following measures: Products those are originally grown.



Products those are recyclable, reusable and biodegradable.

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Products with natural ingredients.

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Products containing recycled contents, non-toxic chemical.

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Products contents under approved chemical.

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Products that do not harm or pollute the environment.

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Products that will not be tested on animals.

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Products that have eco-friendly packaging i.e. reusable, refillable containers etc.

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WHY GREEN MARKETING? On our planet sources are limited and human needs (wants) unlimited. Recyclable or renewable goods are needed to fulfil the unlimited needs of a customer. As industries are having limited resources, they have to search for new and alternative ways to satisfy the consumer needs (wants). Thus green marketing is important for the firms to utilize the limited resources satisfying the consumer needs as well as achieving the organization’s selling objectives. Few reasons why firms are adopting Green Marketing:




Organizations perceive environmental marketing to be an opportunity that can be used to achieve its objectives.

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Organizations believe they have a moral obligation to be more socially responsible.

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Governmental bodies are forcing firms to become more responsible.

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Competitor’s environmental activities pressure firms to change their environmental marketing activities.

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Cost factors associated with waste disposal or reductions in materials

OBJECTIVES OF STUDY


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1. To study the concept and contemporary scenario of Green Marketing in India. 2. To analyse the extent of awareness of respondents towards green marketing and eco-friendly products. 3. To evaluate the perception of stakeholders using eco-friendly products. 4. To identify the problems experienced a different levels and advance suggestions to strengthen the green marketing. RESEARCH METHODOLOGY

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The study is based on primary as well as secondary data. The secondary data was collected from Books, Journals, Internet, Magazines, and Newspaper reports. Primary data was collected through questionnaires, personal interview and also by observation methods. In all 60 respondents of Shimla,the State Capital of Himachal Pradesh involved in green marketing at different places was taken as a sample selected on the basis of convenient sampling.. Questions were framed to study the status, perception and awareness level of stakeholders regarding eco-friendly products.While selecting the sample an utmost care has been taken to ensure that the respondents of different age, religion, educational background and family income, etc. are included. Consistent to the study objectives, different techniques like, percentage methods and averages have been used to analyze the data. In case of certain hypothesis, an advanced statistical technique such as Chi square test, Standard deviation and Skewness has also been used. Interpretation of data is based on rigorous exercises aiming at the achievement of study objectives. DATA ANALYSIS AND RESULTS AWARENESS OF GREEN MARKETING A general description of respondents profile is shown in Table 1. A majority (73.3%) of respondents are male, while the remaining of them is female. It is also abstracted from the above Table that 8.3 per cent respondents below the age of 20 years, 40 per cent in the age group of 20–30 years, 31.7 per cent in the age group of 30–40 years and 10 per Role of Green Marketing on Eco-Friendly Products: Perception of Stakeholders | 295

cent in the age group of 40–50 and above 50 years are conversant with green marketing. The respondents’ perception about Green Marketing on the basis of their occupation. The majority of the respondents who viewed the green marketing familiar, i.e., 40 percent are from service class. 18.3 per cent respondents from the income group less than Rs. 50000, 46.7 per cent from the income group of Rs. 50000–200000, 28.3 per cent from the income group of Rs. 200000–500000 and 6.7 per cent from income group are above Rs. 500000 aware of eco-friendly products. Majority of respondents from income group Rs. 50000–200000, i.e., 46.7 per cent. Table 1: Awareness of Respondents to wards Green Marketing Percent

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73.3 26.7 100

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Variables Frequency Gender wise: Male 44 Female 16 Total 60 Age wise: Below 20 years 5 20-30 years 24 30-40 years 19 40-50 years 6 Above 50 years 6 Total 60 Education Level: Undergraduate 11 Graduate 22 Postgraduate 21 Doctoral Degree 6 Total 60 Occupation wise: Service 24 Business 15 Professional 10 Household 11 Total 60 Income wise : Less than Rs. 50,000 11 Rs. 50,000–Rs. 200,000 28 Rs. 200,000–Rs. 500,000 17 Above Rs. 500,000 4 Total 60 Source: Various Questionnaires from Respondents

8.3 40.0 31.7 10.0 10.0 100 18.3 36.7 35.0 10.0 100.0 40.0 25.0 16.7 18.3 100.0 18.3 46.7 28.3 6.7 100.0

RATING GIVEN BY RESPONDENTS ABOUT THE CONCEPT OF ECO-FRIENDLY PRODUCT The term Green Marketing is the term used in industry which is used to describe business activities which attempt to reduce the negative effect of the products/services offered by the company to make it environmentally fit and friendly. Green Marketing begins with ‘green design’. Product design constitutes an active interface between 296 | Global Performance Challenges: Building and Sustaining Competitiveness

demand (consumers) and supply (manufactures). The product itself has to be made in such a way that it satisfies consumer and manufacture’s needs. For ecologically sustainable products to be successful, green branding attributes have to be efficiently communicated. Most buyer decisions are influenced by the labelling, (green labelling) that states all that makes the product green compliant. Green distribution is a very delicate operation. Customers must be guaranteed of the ‘Ecological nature’ of the product. The green environment is a constantly regulated environment and as such high level of compliance is necessary when carrying out distribution of green products. Table 2: Rating Given by Respondents about the Concept of Eco-Friendly Product Mean Score/Chi Square Value Mean = 3.85 Chi Square Value 25.8

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Rating Scale Frequency % of Respondent Strongly Agree 23 38.3 Agree 19 31.7 Neutral 6 10.0 Disagree 10 16.7 Strongly Disagree 2 3.3 Total 60 100 Source: Various Questionnaires from Respondents


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We assume that all the respondent are equally distributed, From Table–2 we get that Chi Square value = 25.8 is greater than Table value at degree of freedom 4 and at 5% significant level = 9.49. Therefore our hypothesis is rejected.Which means consumer is strongly agree with appreciation of eco-friendly product. Table–2 clearly depicts that respondents said strongly agree that they believe in the eco-friendly product. This can be inferred from the computed mean. Table 3: Extent of Awareness about Green Marketing and Eco-Friendly Products Variables

Nature of Responses A N DA

S.A

Total

_ x

S.D

SKW

ᵪ2

2 (3.3)

60 (100)

3.50

0.854

-1.184

68

2 (3.3)

60 (100)

3.81

0.911

-1.121

50.17

1 (1.7)

60 (100)

3.62

0.958

-0.345

27.33

1 (1.7)

60 (100)

3.93

0.936

-1.017

47.67

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Customers are 2 (3.3) 36 (60) 14 (23.3) 6 (10) becoming aware of green eco-friendly products. Web Based 13 (21.7) 32 (53.3) 11 (18.3) 2 (3.3) Marketing/Interne t is promoting green eco-friendly products. Consumers are 11 (18.3) 23 (38.3) 19 (31.7) 6 (10) now focusing on the environmental issues. Government and 16 (26.7) 31 (51.7) 7 (11.7) 5 (8.3) companies are taking necessary steps in this regard Source: Various Questionnaires from Respondents

SDA

Role of Green Marketing on Eco-Friendly Products: Perception of Stakeholders | 297

The Table–3 clearly shows that the role of Green Marketing in present scenario for eco-friendly products. The calculated values of ᵪ 2 (Chi Square) are more than the Table value at 5 percent level of significance for different attributes and the null hypothesis is rejected, which means consumer are strongly agree and agree on role of green marketing. It reveals that the opinions of the respondents are not equally distributed. The mean value is greater than 3 i.e., standard score of five point scale. The standard deviation and Skewness also support our findings. Table–3 clearly depicts that Respondents said strongly agree and agree that they believe in the concept of green marketing. This can be inferred from the computed mean. Thus, the above analysis leads to the conclusion that the majority of respondents are of the opinion that consumer awareness, web based marketing, environmental issues and Government companies plays important role in green marketing.


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OPINION OF STAKEHOLDERS ABOUT GREEN MARKETING

Based on marketing literature, stakeholders play one of the most influencing roles in any organization and market. They influence all aspect of green strategy also in areas such as purchase of green product, nature of the product, the packaging, advertisement, promotion and also Green awareness programs. When a particular company wants to ‘go green’ the stakeholders are at the fore front of their green marketing strategy. Table 4: Stakeholders Opinionabout Eco-Friendly Products Variables S.A

Nature of Responses N DA

SDA

Total

_ x

S.D

SKW

ᵪ2

11 (18.3) 31(51.7) 17 (28.3)

0 (0)

1 (1.7)

60 (100)

3.85

0.771

-o.625

31.47

6 (10)

6 (10)

4 (6.7)

60 (100)

3.33

1.020

-0.522

28

1 (1.7)

60 (100)

3.93

0.972

-0.551

31.17

2 (3.3)

60 (100)

3.62

1.091

-0.715

38.50

1 (1.7)

60 (100)

3.63

0.758

-0.712

61.17

1 (1.7)

60 (100)

4.05

0.790

-1.369

75.33

22 (36.7) 22 (36.7

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Good for the environment Healthy for the customers

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Have a better 21 (35) 18 (30) 18 (30) 2 (3.3) quality than conventional products. Have a better 11 (18.3) 30 (50) 6 (10) 11 (18.3) performance than conventional/regula r products. Have a reasonable 5 (8.3) 32 (53.3) 20 (33.3) 2 (3.3) price. Easily 15 (25) 37 (61.7) 5 (8.3) 2 (3.3) accessible/available in the market. Source: Various Questionnaires from Respondents

The Table–4 depicts that mean value of stakeholder’s perception about the ecofriendly is higher than the mean standard score, i.e., 3 in five point scale. The Standard deviation and Skewness shows that the perception of the respondents is changing 298 | Global Performance Challenges: Building and Sustaining Competitiveness

towards higher side of mean standard score. From Table–4 we get that Chi-square value is greater than Table value at degree of freedom, i.e., 4 and at 5% significant level=9.49, therefore our hypothesis is rejected, which means there is a significant difference in the perception of stakeholders about the eco-friendly products. PERCEPTION OF RESPONDENTS OVER THE USE OF ECO-FRIENDLY PRODUCTS Marketing literature suggests that there is a relationship between customer satisfaction and loyalty. Satisfaction leads to attitudinal loyalty. It could be seen as the intension to purchase. Satisfaction is an outcome that occurs without comparing expectations. Customer satisfaction could also be defined as an evaluative response to perceived outcome of a particular consumption experience. It is an overall judgment on satisfaction, based on the assumption that satisfaction is the outcome of service quality. Variables


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Table 5: Perception of Respondents over the Use of Eco-Friendly Products Nature of Responses A N DA 22 (36.7) 16 (26.7) 5 (8.3)

S.A 15 (25)

_x

S.D

SKW

ᵪ2

60 (100)

3.72

1.043

-0.604

22.83

1 (1.7)

60 (100)

3.77

0.909

-0.914

54.50

11 (18.3)

60 (100)

3.23

1.345

-0.486

11.33

2 (3.3)

60 (100)

3.43

0.945

-0.486

32.83

1 (1.7)

60 (100)

3.55

0.891

-0.453

38

2 (3.3)

60 (100)

3.65

1.039

-0.557

22.83

1 (1.7)

60 (100)

4.12

0.958

-0.838

41

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I listen and pay attention to the opinion of my family for ecofriendly products. I pay attention 10 (16.7) 34 (56.7) 9 (15) 6 (10) to advertisements of eco-friendly products. I can pay a high 10 (16.7) 21 (35) 13 (21.7) 5 (8.3) price for an ecofriendly product. I blindly trust 6 (10) 25 (41.7) 20 (33.3) 7 (11.7) green product claims I will 7 (11.7) 27 (45) 19 (31.7) 6 (10) recommend ecofriendly products to my family and group. Eco-friendly 13 (21.7) 23 (38.3) 16 (26.7) 6 (10) products come in eco-friendly packaging. The eco-friendly 27 (45) 16 (26.7) 15 (25) 1 (1.7) packaging is easily recyclable. Source: Various Questionnaires from Respondents

Total

SDA 2 (3.3)


From the Table–5 we get that Chi-square value is greater than table value at degree of freedom i.e. 4 and at 5% significant level=9.49. Therefore our hypothesis is rejected, which means satisfaction and awareness level of stakeholders are strongly agree and agree regarding the eco-friendly products. The Table–5 further indicates that mean value of the opinion relating to the satisfaction and awareness level of stakeholders about the eco-friendly products is higher than the mean standard score i.e. 3 in five point scale. The Standard deviation and Skewness shows that the opinion of the respondents is changing towards higher side of mean standard score.


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In a nutshell, it can be concluded that the satisfaction and awareness level of stakeholders regarding eco-friendly products play a significant role in environment. Studies have shown the significant influence of environmental knowledge and consciousness on consumer environmental attitude. Consequently, companies that communicate their ‘green product’ in their packaging, advertisement or manufacturing process, gain satisfied customers. CONCLUSION AND SUGGESTIONS

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Green marketing is a tool for protecting the environment for the future generation. It has a positive impact on environmental safety. Because of the growing concern of environmental protection, there is an emergence of a new market which is the green market. For companies to survive in this market, they need to go green in all aspect of their business. Consumers want to identify themselves with companies that are green compliant and are willing to pay a premium for a greener life style. As such, green marketing is not just an environmental protection tool but also, a marketing strategy.Consumers have expressed strong concerns about the concept of green marketing and eco-friendly products. People are aware of green environment because it is less detrimental to the environment and companies can look into implementation of this concept for betterment of business. So it creates an opportunity for developing green market. As consumers want eco-friendly product from those companies which has positioned themselves as green marketer or eco-friendly manufacturer. The right combination of eco-friendly products and services, sales, marketing and management expertise is needed to target and attract the consumers who are willing to buy ecofriendly products. Green marketer should identify such segment of consumers and accordingly design and market product at suitable price level. The research findings show that consumers have a strong positive attitude towards Green Marketing and eco-friendly product. Thus the growing awareness among the consumers all over the world regarding protection of the environment in which they live, people do want to bequeath a clean earth to their offspring. Various studies by environmentalists indicate that people are concerned about the environment and are changing their behaviour pattern so as to be less hostile towards it. Now we see that most of the consumers, both individual and industrial, are becoming more concerned about environment friendly products.

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These days consumers are more aware of environmental issues. The deterioration of the environment led to the adoption and the development of

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consciousness of consumers’ attitude towards environment issues and ecofriendly products in order to preserve the planet. They therefore deem it expedient to take measures towards protecting the environment which has become their personal attitude towards eco-friendly products. Consumers agree to that, “In future more and more consumers will prefer ecofriendly products”. Our findings indicated that consumers who already bought eco-friendly products and those who are satisfied by these previous purchases were willing to repeat purchases. Positive attitudes concerning willingness to pay an extra price for green products are also correlated with purchase intention.

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Consumers’ awareness towards green marketing and eco-friendly product are high. An eco-friendly product is supposed to reduce the impact of its consumption on the environment. Thanks to the use of making-processes, components and recycling techniques which are less harm for the natural environment than those of conventional products.


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

All the themes identified conclude with the ultimate goal of meeting the wants and needs of various stakeholders. In particular, meeting the needs and wants of consumers are critical for firms that are attempting to compete on the basis of green products. Without a greater understanding of stakeholder and consumer perceptions, firms are not likely to reap the financial rewards associated with green strategies. Thus, the resounding conclusion is that there is much left to be discussed and evaluated relative to the use of green marketing strategies to maximize the triple-bottom line performance demanded by stakeholders worldwide. REFERENCES

Baumann, H., Boons, F. &Bragd A. 2002. Mapping the green product development field: engineering, policy and business perspectives. Journal of Cleaner Production, Vol. 10 pp. 409-25. [2] Crane, A. 2000. Facing the Blacklash: Green Marketing and Strategic Reorientation in the 1990s. Journal of Strategic Marketing, 8(3): 277-296. [3] Davis, Joel J. 1992. Ethics and Green Marketing. Journal of Business Ethics, 11(2): 81-87. [4] J.A Ottman, et al., 2006. Avoiding Green Marketing Myopia. Environment, Vol. 48, June. [5] Jaime Rivera-Camino. 2007. Re-evaluating green marketing strategy: a stakeholder perspective. European Journal of Marketing, Vol. 41 Iss: 11/12, pp. 1328–1358. [6] Mathur, L.K., Mathur, I. 2000. An Analysis of the wealth effect of green marketing strategies. Journal of Business Research, 50(2), 193-200. [7] Mathur, L.K., Mathur, I. 2000. An Analysis of the wealth effect of green marketing strategies, Journal of Business Research, 50(2), 193-200. [8] Mathur, L.K., Mathur, I. 2000. An Analysis of the wealth effect of green marketing strategies, Journal of Business Research, 50(2), 193-200. [9] Pandey, P. &Batra, S.K. 2014. Green Marketing: A Study of Consumer’s Attitude towards Environment Friendly Product. Management Innovations, Feb. ICMI, pp. 535-548. [10] Pujari, D., Wright, G. &Peattie, K. 2003. “Green and competitive: influences on environmental new product development performance. Journal of Business Research, Vol. 56 No.8, pp. 657-71. [11] Shrikanth, R. et al. 2012. International Journal of Social Sciences & Interdisciplinary Research. Vol.1 No. 1, January 2012, ISSN 2277 3630. [12] www.greenmarketing.net/stratergic.html

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[1]


De-Branding: A Next Generation Strategy Tanmay Satpathy1 and Saikamal Paradi2

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Student, MBA, (TM), Symbiosis Institute of Telecom Management, (SITM), Symbiosis International University, (SIU), Pune, Maharashtra E-mail: [email protected], [email protected] ABSTRACT


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In this highly competitive market companies have to evolve continuously by adopting various innovative strategies. De-branding is one those strategies which help brands to strive in market by removing brand name from product or making brand name insignificant De-branding strategy helps the companies in various fields like: extending their brand, to differentiate the brand, to build brand equity, to target a new audience and to diversify their business. It also provides platform for companies to do personalization and make some innovative ads for emotional marketing According to some, why a company/brand needs to plaster its name all over the product where only the brand experience can speak all about it. Those who know and use a particular brand/company don’t need its name written on the product, they will definitely choose it above all others. De-branding has become one of the key trends in service, FMCG, fashion and finance industries, where companies thrive every minute for customer satisfaction. For instance, Gucci and Coutts are few such companies. This strategy can also be adopted by the companies which have a risk of their brand being over exposed and as a result customers will be losing interest on it. Also, de-branding could act as a medium for big firms wanting to distance their products and services from their corporate side. Example-Tesco

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How some of the big brands like Starbucks, Coca-Cola, Nutella and etcetera have implemented de-branding and what is the effect on the firm and how to implement de-branding successfully will be the primary topic of discussion in this paper.

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Keywords: De-branding, Strategy, Brand, Marketing

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INTRODUCTION TO DE-BRANDING

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De-branding is an emerging trend in marketing strategy in which a company removes the brand name from its product or makes its brand name insignificant on the product and thereby giving importance to its logo or an image. This strategy is applied to attract the customers or try to get emotionally attached with them. Companies are adopting de-branding strategy to extend their brand, to differentiate the brand in a crowded market, to build brand equity, to target a new audience, or to diversify their business. Some companies are doing it just to make the company appear open-minded and less corporate. Some other companies are trying to get emotionally attached and attract customers through de-branding. According to some, why a company/brand needs to plaster its name all over the product where only the brand experience can speak all about it. Those who know and use a particular brand/company

don’t need its name written on the product, they will definitely choose it above all others. Nike was probably one of the first brands to implement de-branding strategy, by removing its name and keeping only its Swoosh logo. De-branding should be done gradually over the years so that even after removing the brand name customers can easily recognize and accept the change. The major companies which have implemented de-branding are:- Coke, Tesco, Starbucks, Coutts bank, Mc Donald’s, Sony pictures, Nutella, Shell corporation, Mercedes, Nike etc. Among these companies, we’ll be discussing the most recent ones in details. They


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are:

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Coke—Share a coke campaign.

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Starbucks—Removal of name Starbucks coffee from logo.

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Nutella.

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Coutts Bank—RBS Coutts to Coutts.

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Sony pictures—Girl with dragon tattoo DVD.

And there are a few other companies which we’ll show only through pictures how have implemented de-branding over the years. DETAILED DISCUSSION OF DE-BRANDING BY VARIOUS COMPANIES DE-BRANDING OF STARBUCKS

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Introduction on Starbucks

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With more than 15,000 stores in 50 countries, Starbucks is the premier roaster and retailer of specialty coffee in the world. It started its journey in 1971 by opening its first store in Seattle’s pike place market. Howard Schultz, the chairman, president and chief executive officer of Starbucks, first walked into a Starbucks store in 1981 and from his first cup of Sumatra, Howard was drawn into Starbucks and joined as director of retail operations and marketinga year later. Starbucks serves hot and cold beverages starting from classic brewed coffee, chocolates beverages, Espresso, Frappuccino to blended beverages, full-leaf teas, pastries, and snacks. Evolution of Logo and De-branding On its 40th anniversary, Starbucks, one of the largest coffee shop giant in the world, launched a newer version of its logo and removed its name from it. On the previous logo of 1992 it has STARBUCKS COFFEE written on the logo. But on its latest logo, De-Branding: A Next Generation Strategy | 303


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STARBUCK completely removed the name “STARBUCKS COFFEE” from it. They De-branded themselves by removing the company name. In this discussion we’ll see why Starbucks De-branded itself .The post from the company on the day of the change on their website was:

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“Not me.”

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“Here we are today. Our new evolution liberates the Siren from the outer ring, making her the true, welcoming face of Starbucks . For people all over the globe, she is a signal of the world’s finest coffee–and much more. She stands unbound, sharing our stories, inviting all of us in to explore, to find something new and to connect with each other. And as always, she is urging all of us forward to the next thing. After all, who can resist her?

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Why Logo Change and De-branding? Starbucks didDe-brand itself in 2011 but why it removed its name from the logo is explained by Starbucks CEO. Howard Schultz, the chairman and CEO of Starbucks, explains on their website why Starbucks changed its logo:“In March of 2011 we’ll celebrate the 40th anniversary of our company. There is some symmetry I think in being able to do this at that time .This new evolution of logo does two things very important-it embraces and respects our heritage and at the same time it 304 | Global Performance Challenges: Building and Sustaining Competitiveness


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evolves us to a point where we feel it’s more suitable for the future. So it’s important perhaps to go back in history in 1987 we drop the brown, Starbucks became green and we embrace the siren and it became Starbucks coffee company. So, now here we are, the world has changed, Starbucks has changed. The new interpretation of the logo at its core is exact same essence of Starbucks experience and that is the love we have for our coffee,the relationship we have with our partners and the connection we build with our customers.What I think we have done is we have allowed her to come out of the circle in a way that I think is to give us free and flexibility to think beyond coffee but make no mistake we have been, we’ll continue to be and we’ll always be the world’s leading purveyor of the highest quality coffee.”

Impact of the De-branding on Customers

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On its de-branding,Starbucks did not get a satisfactory reaction from the customers. Most of the customers were dis-satisfied on this logo change (de-branding). They even showed their dissatisfaction on Facebook and blogs of Starbucks. Here are some of the commentsbased on the change of thelogo of Starbucks on its Facebook page:-

De-Branding: A Next Generation Strategy | 305


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Some liked the concept of change but most did not like the idea of dropping the company name orde-branding of it:-

On a survey compiled by ZURB, it was found that 72 percent of consumers actually “hate” the new logo. The agency polled 258 consumers over a period of 12 hours. Supporters of the old logo say it’s “iconic, recognizable and conveys more meaning” while those who have embraced the new one did so for its “simplicity, clarity and design elements

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Thomas P., interactive content Manager, Starbucks replies to all these comments by saying:

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“The comments on our Facebook page and blog posts were decidedly mixed – some of you don’t like the new look at all, some of you think you’ll love it once you get used to it. (Honestly, that was pretty much the reaction we were expecting.) . For those of you who aren’t sold on the new mark, all I ask is this: give it time. As you start to see it out in the world, I hope you’ll start to appreciate the simplicity and elegance of the new design. I like the new mark because I feel that we’ve unleashed the Siren, a mythological figure who represents the romance and creativity that inspired the founders of Starbucks 40 years ago. I hope that unleashing that energy–that mojo–will keep us (and you) inspired for the next 40 years.” From Starbucks ’ point of view, they have let the siren come out of the circle and in a way Starbucks is freed so thatthe siren can now unleash her power or energy that will keep Starbucks inspired for future. But if one sees from another angle,Starbucks also manages Tazo tea,Ethos water and Seattle’s best Coffee, which shows that Starbucks is 306 | Global Performance Challenges: Building and Sustaining Competitiveness


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not limited to coffee only. So it could also be seen as a fact that Starbucks does not want to limit itself just to coffee, but it is trying to bring all its businesses together.

DE-BRANDING OF COKE

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In 2011 Coca-Cola de-branded coke in a marketing campaign called “Share a Coke”, known to be one of its most successful campaigns,in Australia and then in UK. As a part of this campaign, they replaced the brand name on the bottles and cans with 150 ofthe country’s most popular names.Coca-Cola did not change the iconic red and white packing of coke butat the same time it was written on the bottle or can “share a coke with ALEX or DAN or LAURA”.The quote was written in two lines,the first line read as “Share a coke with” whose font size was very small and below that line the name of a personwas written, e.g., Dan, James, Sarah, Laura in a bigger font and thusmaking the nameas significant as the brand name.


According to Coca-Cola, they wanted people to surprise their friends, family and their loved ones by showing them a coke with their name on it.(Chris Deere, Brand activation head Coca-Cola,Britain) This campaign showed an increase of 7% in the consumption level of young people as Coca-Cola targeted 18-25 age groups.More than 18,300,000 media impressions were earn by this campaign.The traffic of the Facebook page of Coke saw a remarkable growth of 870% with page like increase by 39%. NUTELLA’S STRATEGY Nutella is the sole brand of Ferrero. It was created in 1940’s by Mr. Pietro Ferrero, a pastry maker and founder of the Ferrero Company.


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Nutella is the most loved hazelnut chocolate spread. It has made its presence as a most lovable food product in various countries, from USA to Europe, Australia to Canada. Nutella is made with its own unique style; hazelnuts from turkey, sugar from Brazil, vanilla flavor from France, palm oil from Malaysia and cocoa from Nigeria. Nutella is one of the brands which implemented name dropping strategy/debranding. It allowed fans to personalize Nutella jars or labels with their names. They did this with help of Facebook application as an interface in Nutella’s fans page. Initially, Nutella implemented advertising strategy through various mediums such as YouTube, Newspaper ads, television ads, and leaded fans to its Facebook application. Then it had simple 5 steps to customize Nutella jar or label. These customized labels are sent to fans addresses as mentioned in the application. This strategy was implemented in Belgium, where its Facebook fans increased enormously from 10,229 to 170243 with 100000 personalized labels and 2000 personalized jars.

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Nutella de-branded its own brand and allowed the names of its customers to replace its brand name. Nutella used same font with the first character as red and other characters as white for the names, where it followed the traditional name pattern. This made fans to love the hazelnut spread and also made to use the jar for multiple purpose.


De-branding strategy benefited Nutella in many ways: 1. It increased its fan base tremendously. 2. It made both online and offline worlds connected, i.e., by customizing labels/ jars it indirectly made many of the customers to buy Nutella. 3. Fans started loving and took Nutella emotionally close. 4. With Facebook as a medium and by implementing de-branding, Nutella succeeded prominently in social media marketing. It also achieved best social media campaign award Iab Mixx Awards 2013.


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Later Nutella started implementing de-branding in various countries. In Netherland, it allowed fans to customize the labels and instead of one they mailed the fans two labelssaying “our fans love extra”. Since they made the label for only 630 gms jars, people had to buy another 630gms jar to use the second label, which reflected to the sales of bigger jars also in more number. Nutella didn’t just stopwith mailing the labels to fans, it later asked them to post pictures in itsFacebook fans page and the company’s page and also replied to their comments and greeted the fans. RBS COUTTS DE-BRANDING

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On January 2008 Coutts international businesses and subsidiaries were branded as RBS Coutts and a new brand for a private bank was created which brought together the unique attribute of size and strength of RBS group and experience of Coutts group together. But in 2011 it dropped RBS name from its international business and from its logo, making it simply “Coutts”.By making the name only Coutts it unified itsBritish and overseas operations under a single brand name. It was believed by Michael Morley, chief executive of Coutts, that having different brands in the UK and overseas was confusing for clients those who were increasingly global in their approach.

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Ian Ewart, global head of products, services and marketing in 2011, saysthat dropping the RBS moniker has made it clear who the business is aimed at.And he believes RBS is one of the biggest banks in the world,and a fantasticorganization of 160,000 employees behind him. He also believes when Mini is not called BMW Mini then why Call Coutts as RBS Coutts,which only creates confusion. One of the reasons of this de-branding ofCoutts is to reach customers in Eastern Europe, middle east and some parts of Asia with this old royal name so as to make its overseas business 60% (the rest 40% business being in UK). According to Ian Ewart for people to say yes and do business, first the company has to portray its brand in an understandable way, geographic wise.


As a result of this strategy, the company has pulled out its branches from many countries and now only working in those countries where it can achieve 3% market share. Coutts sold some of the business to Royal Bank of Canada as part of this strategy, to not have clients everywhere and focus to achieve at least 3% market share in the places they provide services by providing high standard rather than trying to spread themselves too thinly.


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The new Coutts brand and logo was taken around the world by Ewart and the head of marketing strategy, Sarah Wyse, who explained to the staff about the new values of the bank: “connected, cosmopolitan and human”.Coutts focused themselves on intelligence,expertise and tried to make their values such that it could be understood in business. Wyse claims that the removal of RBS from the logo, and the new way of thinking about the business is helping both Coutts and RBS to work more closely together. He says when they had two brands there was a difference in thinking and working in both Coutts and RBS Coutts but as they are aligned they can work together collaboratively. Previous logo: De-branded logo:

SONY PICTURES: GIRL WITH DRAGON TATTOO

The girl with dragon tattoo is one of the famous releases of Sony pictures.

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Sony implemented de-branding strategy in an all-new way on the original DVD of The Girl with Dragon Tattoo. Sony DVDs generally have a label of the movie onthem, but in this case the DVDs didn’t have a label. The name of the movie was written with a marker resembling a pirated / burned disc.

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This is marketing plan of Sony where it represented the theme of the movie in which one of the lead actress Rooney Mara played a role as hacker. But this created confusion in the buyers. Companies like amazon and Redbox have placed disclaimers and notices on their website. Amazon:” It has come to our attention that there has been some confusion on DVD disc art as it appears to look like a bootlegged copy. Please note that the disc art is in fact the final approved disc art provided to us by film makers” Redbox: “The handwritten look on the disc of the movie is legitimate and is intended to look like a burned DVD”


Sony De-branded by representing the name of the movie like a handwritten name with a marker. By doing this, Sony gained its presence in the market but it also created confusion where the sellers needed to notify that it was an original DVD from Sony.


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As per analysis of Market week this disc did not match the “Slick marketing and photographic design” that rest of merchandise featured.

Source: www.washingtonpost.com

Improper strategy of de-branding may also result negatively, as in this case. The debranding created confusion where it led to the event of few costumers returning back the DVDs assuming them as pirated. SOME OTHER DE-BRANDING EXAMPLES Shell Corporation

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Shell corporation continuously evolved its logo and finally in 1999 it de-branded itself keeping only the logo. It might be the case where shell wanted to show the world that they no longer need a name, because people can recognize them easily by looking at the logo only.


Nike


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some researchers sayNike is one of the first brands to de-brand itself by removing Nike name and only keeping the “swoosh” symbol. By doing this Nike tried to look less corporate and showed its brand value. Now they are also changing the color of swoosh on different merchandise to look cooler.

Mercedes Benz

This picture shows how Mercedes removed its brand name over the years.

McDonald’s

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One of the very good examples of de-branding is McDonald’s. it continuously rebranded itself and tried to give importance to “M” and in 2003 it changed the shape of the “M” and wrote “I’m lovin’ it” slogan below it. It removed the McDonald’s name which was written in between the “M” symbol. In 2006 it only showed the yellow colored “M” symbol in their website and in outlets.

REASONS FOR DE-BRANDING FROM THE DETAILED STUDY From the detailed study on the companies which have done De-branding, we have found some important reasons why they might have done it. Few of those points are listed down and will be discussed in detailed: 312 | Global Performance Challenges: Building and Sustaining Competitiveness

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Product Development/Brand extension.

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Less corporate.

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Status symbol.

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Emotional attachment.

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Adoption to emerging Market changes.

PRODUCT DEVELOPMENT/BRAND EXTENSION


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In product development company wants to bring out some new products in the market. Sometimes there is one image which is linked with the company in customers’ mind, so they can’t think of that company providing other products or services. Let’s take the example of Starbucks which is now catering not only coffee but also tea, some other kind of drinks too. So attaching the name Starbucks coffee might be unjustified while they serve Tea also. MAKING A BRAND LESS CORPORATE

Now a days so many companies are trying make their brand to appear less corporate and more forward thinking. They want to be customer centric trying to find out how to know customers well and try to do something different to attract them. Example can be Sony pictures removing their brand name from the CDs of ‘Girl with dragon Tattoo’, but this strategy failed. Some large companies want to distance their corporate side from their products and services as people have a different perception on the company which might not be fitting for certain products/services. Example-Tesco.

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STATUS SYMBOL

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This is one of the most interesting finding in De-branding research. For some company they feel that there is no need to plaster the brand name all over the product .They just put their logo to show their status. Their brand experience itself speaks all about them and defines them. Examples can be- Mercedes Benz, Shell Corporation, McDonalds, and Nike etc. EMOTIONAL ATTACHMENT In this current scenario market place is highly competitive and ever changing. So companies are searching for innovative ideas to get emotionally attached to their customer for their retention. This type of De-branding can be implemented for a short interval of time and once the campaign is successful, the company again can use their brand name on those products. Or sometimes companies do this for a particular group of customers or customize the product on request from customers, like putting their names on the products. Example- Coca-Cola (Share a coke campaign), Nutella. De-Branding: A Next Generation Strategy | 313

ADOPTION TO EMERGING MARKET CHANGES Today so many industries change rapidly with market and customers follow the current trend. So to sustain in Market, acompany has adopt accordingly. For example-Fashion industry is now employing de-branding strategy to make their brand more desirable. Currently GUCCI is planning to launch some de-branded products into market. Finance industry is another industry where also some companies have started doing this. Example-Coutts SOME KEY POINTS WHICH A COMPANY SHOULD WATCH OUT BEFORE DOING DE-BRANDING


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Before adopting de-branding, a company has to check for some key points and analyze any probable risks associated with it.Here are some important points for companies to analyze in detail before going for de-branding: Does the company have a prominent logo so that even if it removes its name still people will recognize it?

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Does this activity affect the distinctiveness of the brand in a negative way?

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Is the company losing any of its loyal customers by trying to attract a new segment of customers or by adopting the change?

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Is the company hurting the emotion of the customers by moving for debranding?

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Could this strategy lead to any loss of market share of the firm?

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Will the product be really visible to customers after de-branding?

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Could it have a bad effect on the brand equity?

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CONCLUSION

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From this study we found out that de-branding is a versatile strategy which can be employed in various innovative ways. No specified framework is defined for this. Some of these above mentioned companies have adopted de-branding purposefully but others have done it as they were trying some different strategy. In this research paper we studied in detail some significant de-branding cases and tried to find some relations and key features which will be helpful for any company who plans to go for de-branding. In today’s highly competitive market de-branding can help a company to strive the change, to extend the brand, to diversify and most importantly to get emotionally attached to customers. But de-branding is in its early stage and companies need to be educated about this strategy. Once de-branding strategy gains attentions of marketers, there is no doubt that it will be the key strategy for next generation.


REFERENCES www.starbucks.com/ https://www.facebook.com/Starbucks?v=wall http://www.bladecreativebranding.com/blog/index.php/2013/08/23/share-a-coke-coca-cola-debrands-toexpand-share/ [4] www.shell.com/ [5] http://www.washingtonpost.com/blogs/celebritology/post/girl-with-the-dragon-tattoo-dvd-design-hasproven-confusing-to-some/2012/03/21/gIQAVi9ESS_blog.html [6] http://www.marketingweek.co.uk/trends/coutts-dropping-the-rbs-branding/4001043.article [7] http://www.marketingweek.co.uk [8] http://www.hongkiat.com/blog/logo-evolution/ [9] www.nike.com/ [10] www.mcdonalds.com

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[1] [2] [3]


The Atari Fiasco Vishaws Gupta1 and Ashutosh Kumar2 1

Assistant Professor, LPU, Punjab Professor, Amity Business School, AUH, Haryana

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ABSTRACT


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Atari Institute of Management, Bareilly was started with a dream to provide world class management education to Uttar Pradesh. The institute was governed and lead by an IIT-D and IIM-A guy Prof TarunGahoi. The Institute has touched the sky heights in few years. It has earned name and fame in entire India. The cadre of management of India has accepted and acclaimed the efforts put by the management of AIM. The policies and strategies adopted by the management of the institute weregood but at a small scale. The myopic view of the management was no longer fruitful to the institute. In the span of 10 years of its existence, the institute has fallen down from the sky heights to the closing stage. The following case highlights the decisions taken by Atari Institute of Management from the business ethics point of views and narrates a story of an entrepreneur who has successfully started his journey but unable to guide it to reach to the final destination. Issues

Business Ethics, Marketing Myopia, Management flaws

Keywords: Entrepreneurship, Ethics, Environment, AICTE, Bureaucracy, Autocracy, Poor Management, Management Education, Quality Education, Course Curriculum, Brand Life Cycle

“Hold fast to your dreams, for without dreams life is like a bird that cannot fly”

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THE ATARI FIASCO

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INTRODUCTION

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—Prof. S. Manikutty (IIM-A)

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Atari Institute of Management (AIM) was started 15 years back as a unique endeavor promoted by the management professionals (primarily alumni and faculty of IIMs & IITs). It was started by the proud alumnus of IIT Delhi (1976–81 batch) and IIM Ahmedabad (1981–83 Batch). After 16 years in the senior positions with the leading corporates, for the last around 15 years he is associated with his dream project of establishing and shaping up a world-class management institute, envisioned to be a model of no compromise, in an out of way place like Bareilly in his home state of Uttar Pradesh. AIM has been accorded “A++” Rating (Financial Express survey 2009), 1st Rank in Uttar Pradesh (Business Today survey 2002) and 50th Rank in India (Outlook survey 2005) amongst the Best B-Schools. AIM is also the first management institute in Uttar Pradesh affiliated to the Common Admission Test conducted by IIMs. Its ten batches of students have passed out so far, who are doing well with the organizations in India and abroad.


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Prof. Gahoi spent his childhood working in small shops and pulling a cart. But he did well in school and that trajectory took him to IIT, Delhi and then to IIM, Ahmedabad, where he paid his way through with a loan from the State Bank of India. “When I was in the corporate world, I wanted to recruit people from Uttar Pradesh but compared to other students, they fell behind. To bring them to the level of competence, I decided to start AIM,” says Gahoi who also helped begin the Amity Business School in Noida, considered one of the best private B-Schools in India. In his own words Prof. TarunGahoi says “I am a proud alumnus of IIT Delhi (1976–81 batch) and IIM Ahmedabad (1981–83 batch). I have been the President of IIT Delhi Alumni Association and Secretary of IIM Ahmedabad Alumni Association. After 16 years in the senior positions with the leading corporates, the last of which with American multinational DuPont, since the year 1999. I am associated with my dream project of establishing and shaping up a top quality management institute, envisioned to be a model of no compromise, in an out of way place like Bareilly in my home state of Uttar Pradesh.” He also explains “I sincerely believe that there are three aspects which are of utmost importance for an individual to enable him/her chart path forward for career and life–a dream (destination in life), fire in the belly (passionate commitment) and strict adherence to certain core values (creating unique identity of a person).” BRAND LIFE CYCLE: THE BEGINNING

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15 years back in 1999, a bunch of alumni of IITs and IIMs, met with the then chief minister of Uttar Pradesh in order to discuss about the poor development of Uttar Pradesh in respect of infrastructure, literacy, higher education and safe drinking water and much more. The chief minister has promised to provide full support if any one of alumni of IITs or IIMs from Uttar Pradesh do something for the welfare of society within Uttar Pradesh. Buoyant with the decision, one of the alumni of IITD and IIMA, Prof. (Dr.) TarunGahoi has thought to convert his childhood dream into reality. He has resigned from a very prestigious position from an MNC DuPont and began his entrepreneurial role and established a management institution in the name of Atari Institute of Management’ in Bareilly, few miles away from his birth place at Abu Shahjanpur in Uttar Pradesh on a very auspicious day of July 01, 2000. The great initiative was fully accepted, supported and well acclaimed by different corporates. The His-Highness Maharaja Ravi Singh, the current head of Bareilly royal dynasty has happily accepted the chairmanship of the board of governors for the Institute. With a promise to provide world-class education in the field of management and the most advance facilities to the students, the very first batch of PGDM (2000–2002)was begun with just 4 students and 4 core faculty members including Prof TarunGahoi. The course curriculum was designed on IIMs format. The teaching methodology too was taken from IITs and IIMs. The facilities provided for the students are almost at par what have been offered to top 10 management institute of India.

The Atari Fiasco | 317

BRAND LIFE CYCLE: THE GROWTH PHASE The journey, started with mere 5 students was well acclaimed and accepted by the society. Backed by eminent professors from IIMS and IIT and CEOs of various industries the students were placed at a very high position at a salary at par with IIM students in the major companies of India. Some of the companies have been shown in exhibit I.


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Each year the number of students got multifold. The placement got better and better each year, has given the institute a distinct image all over in and around Uttar Pradesh. The student started to pour in from all over India for admissions. The continuous relationship with IITs and IIMs have turned into a precious milestone and turned as the apparent point of differentiation from the other institute of management in entire Uttar Pradesh. The institute also has developed a good network of its alumni which was the great source of word of mouth communications for the institute. The institute turned to hi-tech savvy; it has created the personalized group for students of each year. The students always get in touch with the institute as well as with previous groups of students. Thus it made a formidable strong network of alumni. The numbers of faculty members too were increased in the proportion of 10:1 of students and faculty. The selection of a faculty was a 3 step process. First screening of the profile of a faculty by director himself and then the prospective faculty had to give a demo session of his or her choice to the students and the other faculty members of the students. On the basis of feedback given by students and the faculty members the director used to take interview of the faculty member and used to make a final decision on the selection of that person.

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Meanwhile the institute has developed a big library and a wide variety of books, journals, movies were collected. Library was occupied with more than 10,000 books on various themes. The institute also has purchased a piece of land of almost 100 acre for its dream project to build its own building.

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BRAND LIFE CYCLE: THE MATURITY STAGE

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From the year of 2006 the institute has started to touch the sky heights. The students were increased to 80+ and in the year of 2008–2010 the strength of the students has reached to maximum level of 150. Even the number of faculty members was the maximum. The institute was the limelight all the time in the news of Bareilly. This continuous development of the institute started to face some challenges also in form of pressure from politics, tax department, and different bureaucratic and from other competitors. The officials started to have a tight vigil on the earnings and expenditures of the institutes. Anything happens wrong in the institute started to become a headlines in the next day’s newspaper.


The administration of the institute thought that the students of a particular batchwere responsible for all those allegations and they have started to take some strict actions against some of the students who were allegedly supposed to involve in all those incidents. Few students were rusticatedfrom the institute and few have to submit the apology in written. The placement processes were stopped and a list of conditions was put in front of the students to fulfill them before the commencement of placement process again. Some of the conditions were, to organize a rally by the students in entire Bareilly to spread a message the institute is doing all its practices in honest way and to organize a press conference also for the same purpose.


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Still there were hardly any positive development was noticed. The rage against the institute has started to creep in mind of each and every student. There was a lot of negative word of mouth publicity spread over entire Bareilly. People started to talk against the institute very often. Actually the center of business for AIM was the Bareilly. More than 90% of the students (former and current) belong to Bareilly only. Therefore the brand equity of AIM started to decline and the new admissions started to diminish. BRAND LIFE CYCLE: THE DECLINE PHASE

From the year of 2009 the strength of students first time reduced from the previous batch. The institute has clarified that they did not want more than 80 students in next batch. The institute has not changed its rules and policies at all. The same scenario was repeated again with this batch too. Students were involved more in other institute’s activities rather than study oriented projects or job. The negative trend continued and in the next batch of 2010–2012 only 39 students have been enrolled. Out of them, 5 have left the institute in very first year. While in next year 2011 only 3 students were enrolled who have been said to withdraw from institute, because the management of institute has decided not to carry forward the PGDM beyond 2010–2012 Batch.

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QUALITY EDUCATION

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The USP of AIM was the quality education. Either it is the course curriculum or the resource person, AIM has provided the best quality to the students. The course curriculum was based on IIM-A pattern. The main features of the curriculum were the extensive coverage of contents for each course. Total fifty one courses were offered for the two years PGDM program. Each academic year was subdivided into three terms. Each term was consisting of mid-term followed by end-term examinations. There was dual specialization for the students. The courses offered for the specialization were Marketing, Finance, Human Resources and Operations.Each student had to take nine elective courses. Some new courses which were never taught in any management institute were exposed to the students of AIM like Ethics and Values in Management, Environment Management and Development and Disaster Management.For the purpose aMoU was signed with CEE, Ahmedabad and with the Development Alternative Center Orcha, M.P. The waterman of India, Mr. Rajender Singh has The Atari Fiasco | 319

provided his full support to all the batches of AIM in form of his inputs on water management. For the purpose each batch of students has visited Bheekampura in Rajasthan, native place of Mr. Rajender Singh to have an insight of his world famous water harvesting revolution.The institute also has provided various educational excursions to industry at local and national level.Several world eminent speakers from all over world have been invited to interact with the students time to time which has provided well suitable platform for the students as the interface with different dignitaries from various industries.The resource persons hired and called for the delivery of contents were of high class eminent personalities. Some of the resource persons are given in the Exhibit IV. ACTIVITIES


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For the prolific development of the students, the institute has developed 8 clubs and 19 different committees (Exhibit V). Each faculty member and the student have to join at least one club and one committee. Each term (in every 3 months), there was one activity scheduled for each club, two examinations (mid-term and term end), one program from cultural committee, one sports day, one e-newsletter called ‘Atari Outreach’, one industrial visit was must. Along with it, the annual programs were, the convocation, Umang (a societal exercise for the deaf and dumb children), different conferences, visits were organized frequently. Some guest lecture used to be organized time to time for the visiting guests.

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The issue was that the organization of each of the above programs and activities were managed by only students and concerned faculty members. Therefore the working hours of the faculty and other staff were used to very high. Faculty members hardly get time to do their own research work in the management field. In the last 10 years of history of AIM, no faculty member of AIM was able to publish his or her own research paper in any journal due to time crunch. This was again one of the reasons for the dissatisfaction of the employees of AIM.

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RULES REGULATIONS AND HR POLICIES

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Aim was also famous for its rules and regulations. The 100% attendance was record of AIM. No cell phone, uniform, strict time management backed by strict punishment in form of monetary penalty and written apology letter for each fault. There was no leave allowed for the students in any circumstances. For a detained student the remedial classes and re-examinations were decided.Similar rules were applied for the staff members and the faculty members too. Very few leaves and no time limit for working hours for either staff or faculty members were noticed. Sometime the staff and the faculty members have to work for 24 hours continuously. While the average working hours for the faculty members was 11–12 hours while for the staff members it was almost 14–15 hours.


But as far as the emoluments point of view, the AIM was providing one of the best remunerations to all its faculty members. In spite of all these, environment of the institute was not very friendly to the employees. The employees were not happy too. Most of them used to start to think to resign within few days of joining. The attrition rate was too high at AIM (shown in II and III), which was one of the key reasons for its downfall. HR policies were very rigid, some of them already discussed above. All the decisions were taken only by the director himself. No employee was allowed to leave the job before one year. He/ she have to sign a contract letter and if he/she leaves the job before 3 years has to deposit Rs one lakh. No faculty was allowed to leave the job in between the term too he has to submit the resignation in one month advance.


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But the director has expelled several faculty members without any specific cause with immediate effect. There was no sense of security towards job among the faculty members. He used to talk to the faculty member in very rude manner even in front of the students. He has never respected the seniority of any faculty members. This was one of the reasons for the exodus for most of the top class faculty members from the institute. SOME CRUCIAL DECISIONS: LAND DEAL

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The Management wanted a new, spacious campus for the institute. To build a campus, six years back the management had purchased 236 bighas (around 94.4 acres) of private extremely high salinity wasteland at Atari Nagar, Village Aria, Tehsil Baheri in Bareilly district, 46 Km away from the city on which nothing could grow, nothing could be constructed and there was no water in/around the land. During the last six years, this land has been painstakingly transformed by the management and it now has 3 kms long six feet high boundary wall with barbed wire fencing, 15 lakes having around 6 crore liters of water with migratory birds visiting, two bridges, over 6000 trees grown up to 15 feet, 60 solar lights, three huge lawns of around 2.5 acres each, six smaller lawns, a temple on the natural mound surrounded by 1500 plants, eight rooms including two guest rooms with attached bathrooms, five classrooms for a proposed village school and vegetables grown organically

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The land was a vast stretch of salt and granite with a hillock. No chance of any trees growing there, for sure. As for water, the area was steeped in salt. “In my 20 years of service I had not come across such saline land,” says Pradeep Chaudhry, conservator of forests of the Arid Forest Research Institute (AFRI), Bareilly, “The tanks had been dug up. I saw yellowish water at the bottom. It was an unpleasant sight. I put a drop of that on my tongue and it tasted like concentrated hydrochloric acid.” Today, the same land has twelve lakes gurgling with water. Twelve thousand trees are planned. Species that can survive harsh conditions have been short-listed. AIM’s new campus will be constructed with old, forgotten techniques that used lime, sand and coal tar to withstand salt ingression. The Atari Fiasco | 321

At the new site Prof. Gahoi plans to establish, besides the management school, an engineering and science college, a commerce and arts college, a 10-plus-two school, a prayer and meditation center as well as residential complexes. “One year from now my students will be learning at this site,” declares Gahoi. The entire project will be completed in 10 years, he says. Gahoi called in India’s waterman Rajender Singh, to spin some magic. Singh, leader of the Tarun Bharat Sangh, is famous for transforming parched lands into wet zones through rainwater harvesting. “When I visited the site, I realized how anyone could be intimidated seeing white layers of salt on the surface,” says Singh.


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But he surveyed the land and pronounced there was hope. Salinity was maximum on the surface, he explained. “I tasted the water on rocks below the surface and found that at some places it did not taste so salty. Therefore I decided to dig deep (12–15 ft).” This monsoon the lakes are overflowing with rainwater, enough to last till the next year’s monsoon. “It took less than an hour for the lakes to get filled,” recalls Gahoi. “It’s such a different feeling now. When we came to the site last year, we felt like running away unable to bear the terrible heat,” recalls site architect, Rajesh Sharma. “Now it’s become a picnic spot,” adds a delighted Gahoi. The excitement is infectious and you quickly taste the water. And bingo! There is no trace of salinity. Gahoi has spent close to Rs 20 lakh on the lakes but Singh says for neighboring villages to replicate such structures the cost will be lower. “The design will be different. The ones for the institute have been planned keeping aesthetics in mind.” A green blueprint has been drawn up. “I would have advised against any plantation on the land had it not been for an educational institute,” says DrRanjanaArya, senior scientist and head, non-wood forest product at AFRI. She explains that the soil depth is only between 25 cm and 40 cm. For forestry a soil depth of 60 cm is required.

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The deal was done in INR 6 million almost in the year of 2004. Since then a whooping amount (On an average INR 5 million each year till date) have been spent to develop the site into a suitable place to construct the full-fledged campus consisting of AtariGurukul University, Entrepreneurship Incubation Park, Centre for Scientific Temper, Education for Empowerment Project and AtariGurukul School. But still today the dream of Prof. TarunGahoi has not come into its real shape. Due to different political and social conspiracy and due to bureaucracy the management of Atari is still unable to build any formidable structure on the site. There is stay from the High Court of Uttar Pradesh on the further development of site. The ‘No Bribe Policy’ of Prof. Gahoi has made all the bureaucratic and politician against him. Prof. Gahoi has garnered fully fledged support from all over India but still the case was pending in the court. He has asked his students to give support in form of dharnas and rallies in Bareilly against the working of government. Students have marched several rallys in entire Bareilly and Prof Gahoialong with 55 students have set on Dharna also at JantarMantar New Delhi in April 2011 and the state govt. has given the clearance for land with some conditions. 322 | Global Performance Challenges: Building and Sustaining Competitiveness

SOME CRUCIAL DECISIONS: AICTE AUTHORIZATION AND MOU WITH SINGHANIA UNIVERSITY The institute was running without AICTE approval till 2009. The eight batche have been passed without AICTE approval and got commendable placement. But during SIP process of ninth batch, the institute had to face a severe crisis for not providing AICTE approved management education. A complaint was lodged against the institute by some students of that batch and several articles have been published against the institute in local newspapers. CBI inquiry was announced against the family of Prof Gahoi against some allegedly tax fraudulent case. Prof Gahoi has also faces several life-threats from different goons of the city.


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Finally with lots of efforts the institute was able to get the AICTE approval in July 2009. But the approval was given for only two years initially with condition that this approval will be taken back if within next two years the Institute fails to shift to its own building from the present rented one. But as we have saw in the land deal case the institute was unable to build its own building and the AICTE approval was taken back from June 2011. After this, the institute has signed a MoU with Singhania University of JhunjhnuRajasthan to provide the degree of MBA to the next batch. But the conditions were developed in such a way that the management has to scrap the contract within next 2 months. SOME CRUCIAL DECISIONS: POOR PLACEMENTS, NO TO NEW ADMISSIONS AND WITHDRAWING HOSTEL FACILITIES

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The management was failed to provide proper placement to the students. In 2009–11 batchesHardly 8–10% students were placed at an average annual package of more than 2 lakh. The management has debarred almost 50% of the students out of placement. The management has blamed only students for this poor placement performance. The same story was repeated with 10th batch also.

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The institute has started fresh admission for itstwelfth batch of (2011–2013) only 3 students have taken admissions till July 2011. Since the result for RMAT was announced in August last week, lots of new students have come to institute for admissions but the institute has decided not to take more admissions. They were happy with just 3 students. But after a gap of 3 months of the admissions of those 3 students, the management has asked all of them to withdraw from the institute and they have to return the entire fee including the admission fee too. The institute in September 2011 has decided to scrap the hostel facilities provided to the students. As per the policy of retrenchment the management has decided to withdraw the facility of hostel and also has decided to keep only 3 faculty members to teach remaining 35 students of the last batch of institute. The Atari Fiasco | 323

SOME CRUCIAL DECISIONS: NEW INITIATIVES–CRUX After 2010–2012, when there was no admission, the institute started to face some financial crunch. To get rid of, the institute has thought of using its beautiful resort kind of place for yet another rewarding purpose-to conduct exclusive Management Development Programs (MDPs) in the form of Competency Retreats for Upgrading Excellence (CRUX) for the middle and senior managers, by providing them an opportunity for enjoyable learning, to combine business networking with leisure and to give them a pleasant break. For the purpose several imminent speakers were selected and Rs 60,000 fee was kept for one week program. Almost 15,000 registered letters were sent to various managers and CEOs of different corporates. But the institute got no response. More than 25 Lakh rupees were wasted in the entire exercise.


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All the above decisions taken by the management of AIM time to time have not given any positive result to the institute. The land deal and the development of entire saline land into the fertile one, stay of High court on the construction in the land and the expenditure done by management in collecting the support from all over nations by sending time to time registered post, decreasing number of students, finally no new admissions, No response to the alternative initiative CRUX has all eaten a mammoth share of the reserves of AIM. The institute was in major financial crunch. The conditions were so horrible that the institute has worked with just 3 faculty members for last batch. All the activities/expenditure was stopped. No salary hike for the faculty members given. The loans were taken from various sources to run the daily expenses. Even the management was unable to organize the convocation for the pass out and current batch. The management has asked a separate fee from both the batch to organize the convocation. No student was ready to deposit the fee for convocation. Therefore both the convocation was cancelled and the diplomas were given from the office personally to each of the students.

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The institute finally, has decided to stop the PGDM program from 2012 onwards. No class of any PGDM was held. There was no response for the new FDP and MDP proposed by institute too. The lease of the building too has lapsed in April 2011 which was extended to one more year. Finally in 2012 the management has vacated the building and has shiftedinto its own building which was still in developing stage. The dream of a former IITD and IIMA to become a successful entrepreneur and to provide the world class management education to Uttar Pradesh was no longer a reality. The name and fame of the institute was lost due to poor decisions taken by management time to time and due to some lackluster government rules and regulations.


BRAND REJUVENATION In 2014, the management has finally decided to restart its journey under the Marwar Education Foundation, a registered charitable non-profit society. They have named their campus as AtariGurukul Ashram and willstart almost 7 different types of institute at their campus site Atari Institute of management, Arts & Commerce, Professional Education & Research, Entrepreneurship Incubation Park, Atari-Spandan Academy for Ethics, Values & CSR, Atari Institute of Law & Jurisprudence, Atari Institute of Information Technology besides of AtariGurukul University, AtariGurukul School, Atari Science Park (Planetarium, Science Museum and Science Park), and GyanJagriti Foundation (Education for Empowerment Project). It was decided that each institute will start its functioning step by step.

EXHIBITS


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It is unfortunate for Indian higher education system that a well innovative move to develop a world-class institution for higher study had to face so many doldrums throughout its entire voyage. In spite of lot of ifs and buts, unnecessary pressure from political arena and rigid bureaucracy, the cadre of management of Atari Group has once again emerged from the blues. They had never given in and they know still there are miles to go to fulfill their dreams without compromising on ethics and values. Exhibit I: List of Companies, the Students of AIM got Placement in Last Decade

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Fateh Granites Finance India Finolex Ford Motor India GE Capital Gestetner (India) Give Foundation Grasim Industries Guljag Industries HDFC Bank Hexacom India Holtec Consulting HSBC Bank ICICI Bank ICICI Prudential Life IDBI Bank India Today Group Indiabulls Securities Indian Direct Equity Advisors

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20 : 20 Media ABN Amro Bank Adani Group of Companies Adcom Systems Aditya Cement Agilent Technologies Ambuja Realty American BPO Company American Device India ANG Resources Ltd. APW President ATARI (an NGO) Aurangabad Electricals Bajaj-Allianz Insurance BALCO BASIX Bell Ceramics Bhilwara Group Birla Sunlife Insurance

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National Innovation Foundation Neda Telecom Next Generation Power Nirlep Cookware Oberoi Hotels & Resorts OCL India PDCOR Pragati Software Propmart Technologies Uttar Pradesh Patrika Uttar Pradesh Spinning Uttar Pradesh Udyog Group RAJREDCO Rathi Global Finance Sanghi Transports Saurashtra Cement SBI Life Insurance Sharuskie Marketing

Table (Contd.)…


…Table (Contd.)

Indian Express Indian Roadways Corpn Indigo Marketing Ltd. Infosys International Center for Women & Child  Intrim Business Associated  IRC Ltd.  Jaywant Impex  Jindal Steel  Johari Digital  Kanoria Petrochemical  Kantilal Securities  Kirloskar Brothers  Knowledgecrop  Kotak Mahindra  LibSys Technologies  Lipi Data Systems  Machino Media

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Consultants Shree Cement Shore Products Ltd. Shriram Fertilisers & Chemicals  Shyam Telelink  SRL Ranbaxy  Standard Chartered Bank  Sysman Computers  Taj Hotels  TARAhaat  Tata AIG  Tata Indicom  TERI  Tex Zippers  Thomas Cook  Total Management Services  Transport Corporation of India Ltd.


Organisations  Centurion Bank  Ceon Solutions  Chambal Fertilisers  Chemicals & Minerals Industries  Cipla  a Dainik Bhaskar  Deepalaya (an NGO)  Desai Brothers Limited  Educomp Datamatics  Eli Lilly India  Emerio Corporation  Enertech  Eureka Forbes  Evalueserve  Escorts

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 Cadila Pharmaceutical  Care India  Centre for Excellence in

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Exhibit II: Number of Students and its Graph



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Exhibit III: Number of Faculty Members and its Graph

Exhibit IV: List of some of the visiting faculty members and CEOs of various industries 1. Dr. Zoltan J. Acs, Doris and Robert McCurdy Professor of Entrepreneurship & Innovation, Robert G. Merrick School of Business, University of Baltimore, USA, (Formerly Chief Economic Advisor, U.S. Administration) 2. Mr. Ashwini K. Aggarwal, Country Marketing Manager, Hewlett-Packard (India) Ltd., Gurgaon

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3. Swami Agnivesh, Chairman, United Nations Trust Fund on Contemporary Forms of Slavery, New Delhi

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4. Mr. Alok Agrawal, Executive Director, Polar Industries Limited, Noida (U. P.)

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5. Mr. Arvind Agrawal,IIMA alumnus & CEO, Vedika Software, Singapore

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6. Dr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission of India, New Delhi 7. Prof. Michael Aldwell, Lincoln University, New Zealand 8. Dr. K.K. Anand, Managing Director, Anand Consultancy Services Pvt. Ltd., Mumbai (Formerly Professor, IIM Ahmedabad) 9. Mr. Yogesh Andlay, IIT Delhi Alumnus & Managing Director, Nucleus Software Engineers Ltd., Noida


10. Prof. PyareLalGahoi, Director, N L Dalmia Institute of Management & Research, Mumbai 11. Mr. VenkatAzhalavan, IIMA alumnus & General Manager, Fikree Pipe, Dubai (UAE) 12. Dr. Arjun Badlani, Director, Indus Quality Foundation, New Delhi 13. Mr. PradipBaijal, Chairman, Telecom Regulatory Authority of India, New Delhi 14. Mr. Rahul Bajaj, Chairman of Bajaj Auto Limited & Member of Parliament (Rajya Sabha) 15. Mr. Justice Rajesh Balia, Judge, Uttar Pradesh High Court, Bareilly


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16. Mr. Sunil Bedekar, Advocate, Supreme Court of India, New Delhi

17. Dr. (Mrs.) KiranBedi, First woman IPS officer and Ramon Magsaysay Awardee, New Delhi 18. Prof. JitendraBehari, School of Environmental Sciences, Jawaharlal Nehru University, Delhi 19. Mr. Basant Raj Bhandari, Formerly Principal Advisor, International Trade Centre, WTO, Geneva 20. Mr. K.N. Bhandari, Chairman & Managing Director, The New India Assurance Co. Ltd., Mumbai 21. Mr. Maneesh Bhandari, IIT Kharagpur alumnus & Executive Chairman, SENA Systems, USA

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22. Dr. Shishir C. Bhaduri, Chief Innovation Manager, Grassroots Innovation Augmentation Network (GIAN), Jaipur

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23. MahaMandaleshwar Swami (Dr.) Veda Bharati, Head, Swami Ram Ashram, Rishikesh

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24. Air Commodore J.L. Bhargava (Retd.), Advisor, IIS Infotech Limited, New Delhi Exhibit V: List of Various Clubs and Committees 

Entrepreneurship Club

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Hindi Club

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Finance Club

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Marketing Club


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Communication and GK Club

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IT Club

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Law Club

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Academics Committee

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Alumni Committee

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Cultural Committee

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Disciplinary Committee

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Events Committee

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Exams Committee

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House Keeping Maintenance Committee

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In House Publications Committee

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Industrial Interaction Committee

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IT Maintenance Committee

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Library Committee

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Mess Committee

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Placement Committee (Final)

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Placement Committee (Summer)

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Press Committee

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Safety, Health and Environment Committee

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Sports Committee

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Local Industrial Project Committee

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Major Research Project Committee

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HR Club

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

REFERENCES [1] [2] [3] [4] [5] [6]

http://esamskriti.com/essays/transformation_of_Atari_Campus_Site1.pdf http://www.1stholistic.com/reading/prose/A2007/power-of-vision-and-might.htm http://www.Atari.org http://www.esamskriti.com/essay-chapters/Transformation-of-Wasteland-into-Greenbelt-in-Bareilly-1.aspx http://www.thebetterindia.com/8030/Atari-institute-of-management-the-story-of-breathing-life-into-abarren-land / http://www.youtube.com/watch?v=9hx7e3-bJXM


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SESSION 5 HUMAN RESOURCE MANAGEMENT AND ORGANISATIONAL BEHAVIOUR r

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Workplace Spirituality and Decision Making Style of Managers: An Empirical Study of Middle Level Managers in India Sunil Budhiraja1, Meenakshi Malhotra2 and Ekta Narula3 1


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Assistant Professor, Lovely Professional University, Jalandhar and Research Scholar, UBS, (Panjab University), Chandigarh 2 Professor, UBS, Panjab University Chandigarh 3 Assistant Professor, Government College, Chandigarh and Research Scholar, UBS, (Panjab University), Chandigarh E-mail: [email protected], [email protected] ABSTRACT

Purpose: The purpose of this paper is to identify, explore the sources of workplace spirituality and discuss the relationship workplace spirituality and decision making style of middle level managers of various manufacturing companies across Punjab (India). Design/Methodology/approach: Primary data was collected through personal interviews and a questionnaire was administered to 600 employees. A total of 380 responses were complete in all respect and were finally used for the study. The respondents constitute of line manager and middle level managers. Simple random sampling was used to select the respondents from the selected organizations.

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Findings/ Outcome: It was established in the study that the respondents experience highest level of spirituality via individual level sources in comparison to the group level and organizational level sources of spirituality at workplace. In the second phase of the study it is confirmed that deliberate decision making style is more preferred over intuitive decision making. Lastly an attempt was made to establish an association between the sources of spirituality and preferred decision making style of selected managers. Significant association was disclosed between sources of spirituality and preferred decision making style.

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Originality/value: The focus of present study is to understand the sources of spirituality at work and their relationship with decision making of managers. The research should help the manufacturing companies and should contribute to the existing literature available in spirituality and decision making style. Structural Equation Modelling has been used to establish relationship between the sources of spirituality and decision making style. The research is original and will help the researchers and organizations to understand the importance of spirituality at work and its contribution in decision making. Keywords: Spirituality at Work, Decision Making Style, Manufacturing Organizations, India

INTRODUCTION AND REVIEW OF LITERATURE In the stressful life people are looking for peace of mind and are generally struck into a dilemma and search for the peace of mind and sacred thoughts outside. But there is a group of people who look for this spirituality at their workplace. And our study is aiming at those managers and to understand how managers are searching for this and what is the level and contributors of the spirituality that managers are striving for.

Workplace spirituality is a concept which has now been researched over a few decades. Although a lot of authors have tried to conceptualize it, but there still exist some ambiguity and lack of consensus on the exact definition and its role in individual and organizational behaviour. A lot of authors are still continuing their research in this area and uncovering the misconceptions and disbelief that organizations have about it.


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Spirituality, as defined by Mitroff and Denton (1999a), is “the basic feeling of being connected with one’s complete self, others and the entire universe” Mitroff and Denton (1999b) described individual spirituality as a concept that was beyond religious denominations, embracing everyone, universal and timeless, awe inspiring in the presence of the transcendent. Zohar & Marshall (2001) has explained the term “Spirituality Quotient” and has associated Spirituality Quotient with meaning, values, creative vision and most importantly the power to transform" (Zohar & Marshall, 2000, p. 15). Dehler & Welsh (1994) have defined Spirituality at Work as the degree to which individual spirituality is expressed in the behaviours, policies, values and principles of an organisation. Parsian and Dunning (2009) defined spirituality as "finding meaning in life, selfactualisation, and connections with the inner-self, other people and the universal whole". Moses L. Pava (2007) has explained spirituality as the planned experience (the inner feeling) of blending integrity and integration through 1-acceptance (of the past), 2-commitment (to the future), 3-reasonable choice, 4-mindful action, and 5-continuous dialog (both internal and external).

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There are more than seventy definitions of spirituality at work, and still, there is no widely accepted definition of spirituality (Markow and Klenke, 2005). There are indeed many possible ways to define such a complex and diverse term as spirituality at work. For example, spirituality has been defined as our inner consciousness (Guillory, 2000), a specific form of work feeling that energizes action (Dehler and Welsh, 1994), “a process of self enlightenment” (Barnett, Krell, and Sendry, 1999, p. 563), “a worldview plus a path” (Cavanagh et. al., 2001, p. 6), “access to the sacred force that impels life” (Nash and McLennan, 2001, p. 17), and “the unique inner search for the fullest personal development through participation into transcendent mystery” (Delbecq, 1999, p.345). In these definitions, spirituality is mostly described as an idiosyncratic, multifaceted, elusive concept; difficult to be captured in a common definition. In most of the definitions, spirituality is mostly described as an unconventional, complex, subtle concept; difficult to be captured in a common definition. Spirituality is sometimes treated as a very personal endeavour in which the organization merely enables the expression of spirituality, while at other times the organization is described as having its own spiritual values in a way that parallels organizational culture or mission. The literature to date on spirituality has offered a wide variety of definitions for the term spirituality. Generally, spirituality refers to the concern with or connection to a transcendent being and often includes an individual’s search for an ultimate purpose in life. 334 | Global Performance Challenges: Building and Sustaining Competitiveness

We can thus summarize that spirituality at workplace is about individuals and organizations seeing work as a spiritual path, as an opportunity to grow and to contribute to society in a meaningful way. Harris, H. (2000) has explained growing interest in spirituality at work. Workers and managers alike are increasingly looking for spiritual growth and becoming engaged in a search for spirituality. In their study of spirituality in the workplace, Mitroff and Denton (1999) in a systematic survey, found spirituality to be universal and timeless, encompassing many dimensions like interconnectedness, sacredness, inner peace-just to name a few.


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There are several studies which talks about the dimensions of spirituality and its various attributes. Bennet and Bennet (2007) came up with the following thirteen dimensions of spirituality: Aliveness, Caring, Compassion, Eagerness, Empathy, Expectancy, Harmony, Joy, Love, Respect, Sensitivity, Tolerance and Willingness. McCormick (1994) laid out these 5 themes of spirituality that assumed significant relevance in the context of the global marketplace and multicultural workplaceCompassion, Right livelihood, Selfless service, Work as a meditation and respecting pluralism. According to Mahoney and Graci (1999), spirituality seemed to include the following attributes: charity (a sense of giving, service), community (a sense of connection, relationship), compassion, forgiveness (and peace), hope, learning opportunities, meaning (purpose), and morality (a sensitivity to right and wrong). Poole (2009) has asked to keep in mind that definitions of 'spirituality' vary, and tend to include purpose, values, meaning-making, being good or ethical, connectedness, transcendence, selfactualization and other-worldly.

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In their study of spirituality in the workplace, Mitroff and Denton (1999) in a systematic survey, found spirituality to be universal and timeless, encompassing many dimensions like interconnectedness, sacredness, inner peace-just to name a few. Ellison (1983) produced a Spiritual Well-Being Scale (SWBS) made up of two dimensions, Existential Well-Being (EWB) and Religious Well-Being (RWB).

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Giacalone and Jurkiewicz (2003b){29} have defined spirituality at work as an organisational culture that created complete and happy employees by fostering employees’ experience of the transcendence and a sense connectedness to others. Organisation-wide spirituality at work is the extent to which an employee perceives a good relationship with their organisation, and perceives that their own values and goals align with their organisation’s (Ashmos & Duchon 2000). Furthermore, studies have found that individual spirituality may be a moderating influence on the relationship between stress; and wellbeing and ill-being (e.g., Elam 2000; Hong 2008; Youngmee & Seidlitz 2002). Mitroff and Denton (1999) describe individual spirituality as finding the sacredness in the ordinariness of everyday life, Workplace Spirituality and Decision Making Style of Managers: An Empirical Study of Middle Level Managers in India | 335

feeling interconnected with everything, having inner peace and calm, having an infinite source of faith and willpower (Mitroff & Denton 1999). Organisation-wide spirituality at work entails the extent to which an employee perceives of themselves as having a good relationship with their organisation, and how well they consider that their own values and goals align with their organisations. Ashmos & Duchon (2000) being one of the major contributors has categorized the spirituality at work in three parts as follow: a. Individual Level contributors include elements like job contents and personal liking towards the work. The statements like “I feel energized at work” and “My work work gives personal meaning” have been used by the author.


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b. Group level contributors include components like connectedness with co-workers, support of colleagues and sense of community. c. Organization Level contributors include variables like alignment with organization values and feeling connected to organization's goals, mission and vision. H01: THERE ARE THREE CONTRIBUTORS OF SPIRITUALITY AT WORKPLACE (I.E. INDIVIDUAL LEVEL, GROUP LEVEL AND ORGANIZATION LEVEL CONTRIBUTORS) AND ALL THE THREE CONTRIBUTORS OF SPIRITUALITY AT WORK PERSUADE EQUALLY TO THE OVERALL WORKPLACE SPIRITUALITY. DECISION MAKING STYLE

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Decision making is a fundamental activity for managers. According to Robbins (1997) decision making perceives to be “the essence of the manager’s job” and “a critical element of organizational life”. Decision making has long been recognised as an area of interest in the social sciences, although traditionally the emphasis has been on the quantitative aspects of decisions and decision processes (e.g. Edwards and Tversky, 1967; Miller and Starr, 1967).

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Jung (1970) argued that the dimensions of decision making style are independent and can be derived from the four basic Personality Types: sensation-intuition (ST), sensation-feeling (SF), intuition-thinking (NT), and intuition-feeling (NF). Each style was thought to have strengths and weaknesses, with no one style being inherently superior. No decision style was inherently superior for all decision tasks. Each had distinctive strengths. Mitroff and Kilmann report similar results, suggesting that most people have a preferred style and apply it to all decision tasks they face. None of these studies has linked decision style to behavior, providing a basic goal for this research. Henderson, J. (1980) conducted an experiment in which experienced decision makers from hospitals and firms were asked to assess several capital expansion projects. 336 | Global Performance Challenges: Building and Sustaining Competitiveness

The impact of style, setting (hospital or firm), and the control factors (environment, information source, and risk) were related to a decision to adopt. Cognitive style was found to be an important factor in the decision to adopt and the assessment of risk. ST (sensation-thinking) styles saw the highest risk and were reluctant to adopt the projects, while SF (sensation-feeling) styles were risk tolerant and more likely to adopt the same projects. The results supported the views of cognitive theorists, who argue that decision style is an important determinant of behaviour.


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On the other side Davis and Davis (2003) argued that managers tend to decide intuitively. Sinclair and Ashkanasy (2002) believed that time pressure is a factor of intuitive decision-making style. In addition, Martin, Bandali, and Lamoureux (2005) found that decision maker would use heuristics decision-making style in high time pressure than intuitive decision-making style. The research finding is aligned with the study of Judge and Robbins (2006); they argued that decision makers use intuitive decision making style when time is restricted and pressurized. Many kinds of variables can be defined in different research findings such as information, uncertainty and risk factors; likewise the determination of relationship between intuitive decision making styles and these three factors. Klein (1998) developed Recognition Primed Decision (RPD) model. The model describes two traditional theories in decision making, including analytical and intuitive decision making. Analytical approach is based on some criteria and needs to compare among the criteria in order to choose the optimal and best solutions. Intuitive approach is relied on decision makers’ experience and expertise to recognize problems.

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Scott and Bruce (1995) developed five styles of decision making style. The decision making style encompasses rational, intuitive, spontaneous, dependent and avoidant. The rational style is assessing the long-term effects of decisions and strong fact-based orientation by deliberate, analytical, and logical. The intuitive style is feeling-oriented, internal ordering of information and fact decision. The spontaneous style is an immediacy of strong sense through the decision making process as quickly as possible. The dependent style is characterized by the use of support from others to make decision and the avoidant style is characterized by delay and denial.

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Mason and Mitroff (1981) proposed the jungian typology to classify decision style. In their adaptation, individuals differ along two basic dimensions defined by types of information acquisition and modes of data processing. The information acquisition dimension is bounded on one end by the sensation-oriented individual and the other by the intuitive individual. The sensing person prefers detailed structural problems, and has the patience for routine, precise work. In contrast, intuitive individuals perceive problems as a whole, rarely focusing on individual elements in isolation. They dislike routine and precise work, tend to rely on hunches, and prefer new unstructured problems.

Workplace Spirituality and Decision Making Style of Managers: An Empirical Study of Middle Level Managers in India | 337

Oblak and Lipuscek (2003) stated that managerial decision making can be separated into routine, analytic and intuitive decision making. Routine decision making is performed normatively and with certain rules. Analytic decision making takes place on the grounds and is based on knowledge to study the matter in complex circumstances. Intuitive decision making is used directly or when all other possibilities of decision making have failed. From the aspect of managerial levels, a high share of intuitive decision making comes from higher management that is personnel selection such as capable and talented managers. At the implemental level, the share of intuitive decision making is smaller and it involves the use of routine decision making to carry out controlled activities.


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It is uncertain that we will find two different sets of managers who possess a different decision making style. Intuition decision making can be defined as an ability of an individual to recognize the patterns at lightning speed and the process often happen unconsciously (Matzler et al., 2007). Many managers wake up in the night with an intuitive sense of a particular course of action that they should take at their workplace. Individuals are likely to rely on intuitive thought processes when they face extreme time pressures (De Dreu, 2003; Edland & Svenson, 1993; Kaplan, Wanshula, & Zanna, 1993; Kruglanski & Freund, 1983; Maule, Hockey, & Bdzola, 2000; Suri & Monroe, 2003). Therefore, intuition may play a significant role in the decisions of firefighters (Klein, 1998). In deliberate decision making, consciously thinking is most important determinant. Manager becomes aware of a problem, posits a goal, carefully weighs alternative means, and chooses among them according to his estimates of their respective merit, with reference to the state of affairs he prefers. Cognitive perception is another major influence on decision making. Managers by using this style of decision making can certainly prioritize and rank the alternative and evaluate their decisions.

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In recent years more attention has been paid to the behavioural aspects of decision making and, in particular, to the view that it is a skill which can be taught. At this junction we can say that there is no one decision or "right" solution but a "never-ending series of attacks" on the issues at hand through serial analyses and evaluation. Hence, it is urged for this paper to identify the preferred decision-making style between intuitive decision-making style and deliberate decision-making style which shall include situation factors like information, time, risk and uncertainty. H02: THERE EXIST NO PREFERRED DECISION MAKING STYLE OF MANAGERS SPIRITUALITY AT WORK AND DECISION MAKING The review of literature suggests that manages make decision primarily on the basic of their personality traits, value system and cognitive complexity. Before considering how the field of decision making benefit from the discussion of spirituality in the workplace, 338 | Global Performance Challenges: Building and Sustaining Competitiveness

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it is worth examining why there has been little work integrating the two fields. Such an examination may shed light on unique challenges in this field, and give insight on how to precede in future research. There are numerous studies which have provided a direct association between the spirituality at work and employee job outcomes. A recent study by Karakas (2010) has explored potential benefits and caveats of bringing spirituality into the workplace; providing recommendations and suggestions for practitioners to incorporate spirituality positively in organizations. Another study by Milliman et al. (2003) authenticates that spirituality at work influences a lot of employee work attitudes which may include work satisfaction, work commitment, intention to quit and job involvement. International Academy of Business Disciplines and the Academy of Management have created special interest groups on spirituality and leadership and in 2005 there were reportedly 30 MBA programs offering courses in spirituality in the workplace for future leaders (Marques et al., 2005). Yet despite widespread interest in the topic, very few articles exploring the intersection of spirituality and leadership have specifically addressed decision making. Longenecker, McKinney and Moore’s (2004) study of 1,234 business leaders in the US found evidence of a significant religious factor in ethical decision-making. Religionbased decision-making could be associated with what is currently identified as intuitive decision-making. According to Burke and Miller (1999), intuitive decision making is a subconscious process of making decisions based on experience and accumulated judgment. They describe five different aspects of intuition; subconscious mental programming, values or ethics-based decisions, experience-based decisions, affectinitiated decisions and cognitive-based decisions. It has been proved that during challenging decision-making situations, the leaders felt a general need to draw from their spirituality to find the ‘right way’ of managing the situation. Shakun (2001) claims that ‘right’ decisions are not only bounded by cognition, but also by affection and conation. Conation refers to the connection of knowledge and affect to behaviour and is associated with the question of ‘why?’ something has happened. With the above discussion we can say that there is a significant gap between the researches which associate spirituality at work and decision making style. H03: THERE IS NO ASSOCIATION BETWEEN SPIRITUALITY AT WORK AND DECISION MAKING STYLE OF THE MANAGERS. RESEARCH OBJECTIVES 1. To identify the level of spirituality at various levels (Individual Level, Group level and Organizational Level) amongst managers in Punjab. Workplace Spirituality and Decision Making Style of Managers: An Empirical Study of Middle Level Managers in India | 339

2. To identify and analyse the most preferred decision making style of managers. 3. To explore the relationship between the spirituality at work and decision making style of the managers (if any). INSTRUMENTS FOR MEASURING SPIRITUALITY AT WORK Two of the most quoted studies in Spirituality {Mitroff and Denton (1999b) and Ashmos and Duchon (2000)} has talked about three dimensions of spirituality at work which includes individual spirituality, work unit spirituality and organization-wide spirituality.


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The individual level describes how much an employee understands their own “divine” power and how it can help them to obtain a satisfying internal and external life by finding individual meaning and purpose through their work (Ashmos & Duchon, 2000, pp. 135–136), and the extent to which an employee enjoys and is energised by work (Milliman et al., 2003). The work unit dimension entails how much employees have a sense of connection and community with their colleagues and the extent to which those colleagues are caring and encouraging (Ashmos & Duchon, 2000) and are linked by a common purpose (Milliman et al., 2003). 21 Statement instrument has been used for the purpose of collecting data with respect to spirituality at work. All the statement were positive and a four point scale was used in order to get the responses (1–Strongly agree; 2-Agree; 3–Disagree; 4–Strongly Disagree). The reliability quotient of the instrument has been measured and the value of cronbach alpha is.73 which is highly acceptable. INSTRUMENT FOR DECISION MAKING

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We choose PID because it is one of the most recent self-report questionnaires devised to measure decision style, and in its construction the author took into account some of the previous instruments of the same kind (in particular, the Rational-Experiential Inventory; Epstein et al., 1996. PID assumes individual inclinations toward intuitive decision making, which is based on affective reactions toward the decision option, and deliberate decision making, based on beliefs, evaluations, and reasons.

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Some of the statements were customized so as to achieve the best fit and greater reliability of the respondents. All the statement were positive and a four point scale was used in order to get the responses (1–Strongly agree; 2-Agree; 3–Disagree; 4–Strongly Disagree). The reliability quotient of the instrument has been measured and the value of cronbach alpha is.78 which is highly acceptable. The scale exhibits strong reliability (0.78

Global Performance Challenges

Global Performance Challenges

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