transnational corporations review

HIGHLIGHTS

TRANSNATIONAL CORPORATIONS REVIEW

HIGHLIGHTS - Albert Su, et al. "Made in China" Products - Roli Nigam and Zhan Su Cross-Cultural Management - Muhammad Mohiuddin, et al. Entrepreneurial Motivation - Somaye Gharibvand, et al. Leadership Style

No.2 JUNE 2013 VOLUME 5 ISSN 1925-2099 (Online) ISSN 1918-6444 (Print) PUBLISHED BY OTTAWA UNITED LEARNING ACADEMY DENFER TRANSNATIONAL DEVELOPMENT OTTAWA, CANADA

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Acknowledgements

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Transnational Corporations Review Volume 5, Number 2 June 2013 www.tnc-online.net [email protected]

TABLE OF CONTENTS

In This Issue ………………………………………….……………………………………….….………….….…......I Internationalization Challenges "Made with the world” vs. “Made for the world”: What would be the future of “Made in China” products? Albert Su, Marie-Hélène Regnière and Zhan Su………………………………………….…...….…...………1 DOI: 10.5148/tncr.2013.5201 Relocating Low-to-Medium Tech Manufacturing Activities to Developing Countries: Empirical Analysis of Taiwanese and South Korean Manufacturing Outsourcing to Bangladesh Md. Mamunur Rashid and Md. Samim Al-Azad.…………………………………………....….....................16 DOI: 10.5148/tncr.2013.5202 Cross-Cultural Management of an Indian Multinational in its Western Subsidiaries: An Exploratory Study Roli Nigam and Zhan Su………………………………………..…………………….…...........................30 DOI: 10.5148/tncr.2013.5203

Emerging Business Issue Technological innovation in the United Arab Emirates: process and challenges Mariam Omran Al Hallami, Constance Van Horne and Victor Zengyu Huang.........................................46 DOI: 10.5148/tncr.2013.5204 Regional Tourism Development in Southeast Asia Mohammad Nurul Huda Mazumder, Mast. Afrin Sultana and Abdullah Al-Mamun…..….........................60 DOI: 10.5148/tncr.2013.5205 Entrepreneurial Motivation and Social Enterprises: An Empirical Analysis on Founders of Social Ventures in Bangladesh Muhammad Mohiuddin, Rumana Parveen, Masud Ibn Rahman and Mohammad Nurul Huda Mazum..77 DOI: 10.5148/tncr.2013.5206

Cultural Specificities Leadership Style and Employee Job Satisfaction: Evidence from Malaysian Semiconductor Industry Somaye Gharibvand, Mohammad Nurul Huda Mazumder, Muhammad Mohiuddin and Zhan Su...…...93 DOI: 10.5148/tncr.2013.5207 Using Fuzzy Logic to Analyze Marketing Data: The Impact of Socio-psychological Variables on the National Identity of Jordanians Saeb Farhan Al Ganideh and Mohammad Aljanaideh……………………..…………………………..…104 DOI: 10.5148/tncr.2013.5208 Best Selected Papers from TNCR (2009-2012)…………….………………………………...…………………115 Call for Papers……………...………………………………………………………………………………..……...118


I-III

In this Issue The rise of emerging Asian countries, such as China, India, Malaysia, Bangladesh, etc., is radically changing global economic structure. Thanks to strong economic growth achieved by emerging Asian countries in recent years, experts have agreed unanimously that the rise of Asia is undeniable and inevitable, and is expected to continue in the future. The emergence of many countries, unprecedented in history, on the same continent at the same time creates an unprecedented situation. The rise of emerging Asian countries brings many changes to itself and to the world. World factory, world office, global industrial epicenter, world laboratory or even global financial center, are all terms currently used to designate these emerging nations. Far from its position a few years ago, these economies were able to quickly create a place on the international stage, each with its own characteristics and specialties in production and service. Their products are now competitive both in developed and developing markets, not only in labor and capital intensive sectors, but also in certain knowledge-intensive sectors. It is also noteworthy that the impacts of the Asian emerging economies are translated by economic upheaval as well as by political, social or even environmental changes. A study by the Earth Policy Institute (EPI) published in 2005 suggests that, if in 2031, the Chinese reach the level of consumption to that of Americans today, they will need on their own, two-third of the world production of food grain, fourfifth of the current global meat production and more than the entire western current consumption of steel and coal, in addition to more than 20 percent of the current global oil production and all the cars available currently. This example shows how the effects of this emergence are not confined to Asia, but the world as a whole. However, the emergence of Asian countries should not simply be reduced to the rise of an untouchable competitor, but rather demonstrates an incredible pool of opportunities for businesses worldwide. The Asian entries to the global economy should be considered both as fierce competitors as well as a strategic business partners. Asia includes the majority of countries whose population exceeds 100 million. The emerging Asian countries alone already account for more than 3 billion people, a figure that is expected to reach more than 4 billion people by 2025, according to the Population Reference Bureau. With the rapid increase in urbanization and decline in extreme poverty simultaneously, this incredible market is booming with an extremely strong growth potential, and offers multiple business opportunities. In recent years, Asian countries have become big importers, due to the lack of high value-added products made locally and prodigious consumption needs of an increasing number of affluent citizens. Asia is, however, an extraordinarily complex continent. The role of the state in many emerging Asian countries, as a protector, developer, financier, programmer, and even producer, represents considerable challenges for foreign companies desiring to exploit this market. In addition, the cultural characteristics with subcultures within the same country due to under-development and vast differences between rural and urban life are even more formidable challenges. Furthermore, in the face of on-going rapid transformations, sometimes brutal, Asian emerging countries create multiple risks, confusions, and uncertainties that are difficult to evaluate and understand. Moreover, the Asian market itself is now proving highly competitive due to the presence of a large number of Western multinationals and successful Asian multinational companies. Thus, it is not uncommon for companies, although successful in their domestic markets, to fail in the emerging Asian economies and sometimes even in their traditional markets to the new competitors from Asia. Thus, knowledge of the Asian environment appears to be not simply an asset,

I

In this Issue

but as a necessity for firms from the global market to reposition and re-orient their activities for the new reality. The Stephen-A.-Jarislowsky Chair in International Business at the Faculty of Administrative Sciences of Laval University is pleased to organize this special issue focused on emerging Asian economies. This issue consists of eight articles covering the Asian continent starting from East-Asia to West-Asia passing through South and South-East Asian economies. We have selected eight articles through a rigorous peer review process of the authors from Canada, China, South Korea, Taiwan, Malaysia, India, Bangladesh, Jordan and the United Arab Emirates (UAE). The selected articles shed light on China’s place in new international division of labor (NIDL), outsourcing factors and process of South-Korean and Taiwanese manufacturing companies to Bangladesh, research and development (R&D) processes and challenges in the UAE, cross-cultural management of Indian multinationals, service sector (tourism) development approach in Southeast Asia, consumers’ National identity (NATID) and marketing strategies of multinational companies in Jordan, collaborative human resource management in semi-conductor subsidiaries in Malaysia and motivation in social venture building in developing countries like Bangladesh. The first three articles address major challenges for the internationalization and development of emerging Asian economies. The second bloc of three articles discusses the emerging sectors in Asian countries. The last two articles cover cultural particularities of Asian emerging markets. The first article is on China’s place in the new international division of labor (NIDL). With an extensive analysis of China’s position in international trade, the authors Albert Su, Marie-Hélène Regnière, and Zhan Su explore the Chinese contributions of “Made in China” products and demonstrated that Chinese products are in fact the “Made with China” rather than “Made by China”. According to the authors, as the development of "Made in China" products has a lot of major impacts on the global economic order, only efforts for China to shift from "China Price" to "China value" or "Chinese Brand" could not guarantee the future success of "Made in China" on the international market. The future of "Made in China" seems to go rather with "Made with the World" than "Made for the World". The second article is on the outsourcing factors and process of South-Korean and Taiwanese low-to-midtech manufacturing companies to Bangladesh. In this article, the authors Mamunur Rashid and Samim AlAzad explore the reasons why companies from emerging countries outsource their manufacturing units to other developing countries like Bangladesh. They found that, apart from low cost advantage, the host countries’ pro-active policies, local capabilities in certain sectors, and special market entry for manufacturing goods play important roles in making the decision to outsource to Bangladesh. This article also shows a trend of intra-Asian production network in the making. The third article is on the adaptation process of an Indian multinational company in its developed country subsidiaries. With the ever increasing entry of emerging country multinationals to developed country markets, the authors Roli Nigam and Zhan Su present how the emerging country multinationals can overcome cultural differences and introduce effective managerial strategies in their subsidiaries. The fourth article is on the technological innovation process and its associated challenges in the UAE. The authors Mariam Omran Al Hallami, Constance Van Horne, and Victor Zengyu Huang explore an R&D process in this energy rich country and showed the short-comings of support from the public and private sectors and asserted that public policies and both public and private funding are required to enhance the effectiveness and efficacy of R&D in the UAE.

II

In this Issue

The fifth article is on tourism development in the Southeast Asian region. With an extensive analysis on the tourism sectors in this region, authors Mohammad Nurul Huda Mazumder, Mast. Afrin Sultana, and Abdullah Al-Mamun suggest an integrative tourism sector development strategy encompassing both private and public sectors. The sixth article is on the motivation of social entrepreneurs in Bangladesh. In the post-economic crisis era of today and success of many social ventures built by the world famous organizations like Grameen Bank micro-credit programs, BRAC, ASA and Proshika, have attracted attention from international stakeholders. The authors Muhammad Mohiuddin, RumanaParveen, MasudIbnRahman, and Mohammad Nurul Huda Mazumder explore the motivations of the founders of these social ventures to determine whether they corroborate with social entrepreneurs in developed countries. The study concluded that social entrepreneurs from developing countries share some commonalities with their peers in developed countries, and differ in mainly motivational factors. The seventh article is on leadership style and employee job satisfaction in semiconductor sectors in Malaysia, which are the fruits of relocation of high-tech semiconductor companies from developed countries. Based on a survey, the authors SomayeGharibvand, Mohammad Nurul Huda Mazumder, Muhammad Mohiuddin, and Zhan Su explore the relationship between employee job satisfaction and leadership styles and organizational culture. They have found that a participative managerial approach encompassing the foreign transnational corporations (TNCs), local subsidiary and collaboration with Malaysia’s government investment agency, MIDA, is needed for employee job satisfaction to keep local employees productive and effective in the face of the fierce global competition in the semiconductor industry. The last article is on consumer national identity and marketing strategies of foreign companies to the local market. The authors SaebFarhan Al Ganideh, and Mohammad Aljanaideh explore the influence of sociopsychological variables namely dogmatism, conservatism, and world-mindedness on Jordanian consumers’ national identity levels and the strategies foreign or local marketing managers need to effectively target these consumers. We hope that readers will enjoy the articles presented in this special issue and have an increased understanding of the enormous complexities and opportunities in an emerging region with vast socioeconomic, legal, cultural, and geographical differences.

Zhan Su, Ph.D., Director Muhammad Mohiuddin, Ph.D. (ABD) Researcher Stephen-A.-JarislowskyChair in International Business Laval University, Quebec, Canada

III


1-15

"Made for the World" vs "Made with the World": What would be the Future of "Made in China"? Albert Su*1, Marie-Hélène Regnière1, Zhan Su2

Abstract: The dramatic growth of "Made in China" products is primarily a consequence of political will of the Chinese authorities to take advantage of the new international division of labour for its development. Until now "Made in China" products should be more qualified with "Made with China" products than "Made by China" products, because in many cases, they are the result of a globally organized production, involving activities realized in different countries. As the development of "Made in China" products has a lot of major impacts on the global economic order, only efforts of China to shift from "China Price" to "China value" or "Chinese Brand" could not guarantee the future success of "Made in China" in the international market. The future of "Made in China" seems to go rather with "Made with the World" than "Made for the World". Keywords: "Made in China" products, new international division of labour, strategy of "climbing up the value chain", future challenges.

1. Introduction In November 2012 and in March 2013, the world has experienced the leadership transfer of political and administrative power in China. The new Chinese leadership promptly initiated a societal project named "China’s Dream". Although the content of this project is still very unclear, the Chinese economic ambition is undoubtedly a fundamental element of this project. It is true that China now holds a record in terms of economic growth. Since 1978, the year when this country adopted its economic reform and open door policy, the Chinese economy has grown extremely rapidly, in spite of numerous problems; new as well as old that comes on the way of its evolution. According to World Bank statistics, Chinese GDP increased at an average annual rate of 9.98%, rising from USD 148 billion in 1978 to USD 7318 billion in 2011. Similarly, its GDP per capita increased from USD 155 to over 5445 and its poverty has been reduced from 500 million people to less than 100 million. During this period, the structure of the Chinese economy gradually transformed. Once a closed and isolated economy, China is now among the interdependent world economies. In 1978, China’s total trade accounted for less than 1% of the world’s global trade. Today, China is the world’s largest merchandise

*1 University of International Business and Economics, China 2

Laval University, Canada

1

"Made for the world" vs "Made with the world": What would be the future of "Made in China"?

exporter and second largest merchandise importer, with a trade surplus of USD 231 billion in 2012 and, since 2006; China has been the most important foreign currency holder globally. The economic rise of China is particularly marked by the breakthrough of “Made in China” products. These products came in force into the international market, not only in labour and capital intensive sectors, but also more and more in some knowledge-intensive sectors. With an openness degree3 of more than 60%, China has become the main supplier of a large number of consumer goods in the international market: 90% of DVDs, 85% of toys, 85% of tractors, 85% of watches and clocks, 70% of photocopiers, 65% of sports facilities, 60% of bicycles, 58% of telephones, 55% of cameras, 55% of laptops, 50% of ventilators, 40% of screens, 40% of microwave ovens, 36% of televisions, 30% of air conditioners, 25% of washing machines, 20% of refrigerators, to name a few. In addition, China is also among the most important exporters of high technology products. The dramatic rise of "Made in China" products in the international market has prompted many reactions around the world: along with acclamations and admirations, it receives more concerns and even resentment from developed as well as developing countries. "World workshop", "world industrial center", "new economic superpower", "commercial invader", "environment destroyer", "job stealer", these terms have been used to address China whose emergence on the international scene seems undeniable and inevitable. China is often being referred to as “threat”, because of “Made in China” and its corollaries. This refers to outsourcing to China and, therefore, closure of enterprises in Western countries, as well as loss of market share for other developing countries. China is blamed for a number of problems suffered by some other countries: loss of employment, economic disorder, deflation - when China sells, and inflation when China buys. Over the last few years, within China, discussions about the real interests of "Made in China" products for China and especially on their future have also been very strong (Lu, 2003). As many doubts have been raised regarding the role of China as "blue collar of the World", the Chinese government has adopted, in recent years, a policy of "upgrading the value chain" aimed at the development of creativity and value added of "Made in China" products. By all indications, the new Chinese leadership team will maintain and accelerate this policy in the coming years. What are the myths and reality of "Made in China" products? What are their impacts on the economy of the world? What would be the factors that may determine the future of “made in China” products? These are some of the questions that will be addressed to in the following sections.

2. "Made in China": much more "Made with China" than "Made by China" products Since 1980s, the world has undergone profound economic, technological, political and social changes. "Globalization" and "internationalization" are terms that attempt to represent the salient features of this complex and contradictory evolution of the world. According to IMF, globalization may be explained as "the growing economic interdependence of countries around the world via volume and variety of cross 3

2

Openness degree: (imports + exports) / GDP

Albert Su, Marie-Hélène Regnière1, Zhan Su

border transactions in terms of goods and services, international free flow of capital, and a more rapid spread of technology." Nearly 240 years ago, two distinguished economists, Adam Smith and David Ricardo, had advocated trade and international division of labour between countries to create a “win-win” situation under certain conditions. Two world wars and polarization of the world during Cold War of the last century have considerably limited world trade. However, in recent years, two phenomena were observed in the context of globalization: firstly, internationalization of economic activity and mobility of factors of production in an increasingly borderless world, to the extent that some people no longer hesitated to announce the forthcoming demise of traditional sovereign state. Secondly, there had been intensification of economic growth of a number of countries, especially those classified as "emerging countries", which have been recognized as engines of global prosperity and have contributed to the rise of re-composition of the world production hierarchy (Ohmae, 1996). In fact, there has been a relevant change since 1980s in the world in the context of production conditions, competition and interdependence, characterized primarily by development of the new international division of labour. According to Anil K. Gupta et al. (2008), globalization represents a new configuration, which marks a break in previous steps of the international economy: "... yesterday’s globalization could be seen as cross-border trade in raw-materials or finished products. On the contrary, today’s globalization is characterized by geographical dispersion of the value chain activities of a company, with the objective of locating each activity (or sub-activity) in the most optimal manner. Therefore, a significant proportion of cross-border trade now exists, which comprises of intermediate goods and services – i.e., components and services located in the middle of the value chain" (see Figure 1). Berger (2006) notes that "in the world of fragmented production, the issues are what they have always been: profit, power, security and new opportunities. What has changed is that it is now possible to achieve these objectives by positioning at any point along the value chain. Twenty years back, integrated companies were dominated, while today, a manufacturer of components, a design company, a brand without a manufacturer, a manufacturer without a brand and many other combinations offer new ways to remain competitive". Figure 1. Globalization and the new international division of labour

Source: Gupta, A. and Ali (2008). The Quest for Global Dominance, Jossey-Bass, 2008.

3


Therefore, unlike the classic international division of labour, the new international division of labour is based on the concept of value chain (Porter, 1985). It happens not just between different industries, but also between different products in the same industry, between different stages of the value chain activities for the same product. In other words, in the current context of globalization, traditional definition of labour-intensive industry, capital-intensive industry and knowledge-intensive industry are no more the only references applicable for international division of labour. The latter is more and more organized according to the value added generated by different stages and activities (which are labour, capital or knowledge intensive) of the value chain for the same product. According to Stan Shih, founder of the company Acer, in most of the modern manufacturing industries, the value chain is comprised of several separated but interlinked activities, forming a "smile curve", with, at two ends, R&D / design and sales / services which are more difficult to achieve and generates a significant amount of added value, and in the middle, the production and assembly activities which involve abundant factors of production and thus produce less value (Dedrick, 1999). Therefore, in the context of globalization and the new international division of labour, the major challenge for a company or country is, above all, to position itself on this curve for activities that generate most value or for those that promote its learning in order to accomplish more rewarding activities. It is clear that such a division of labour requires reciprocity, fair play and winwin strategy as basic conditions for its good performance. The situation of "Made in China" products should therefore be examined in the light of this new reality. Firstly it should be noted that, although China has made a spectacular breakthrough in the international market during the past 35 years (see Table 1 and Figure 2), "Made in China" products are, in many cases, the results of a globally organized production, involving parts made in various countries. For example, consider 12 million laptops sold in 2005 by China to the United States: the majority of key parts (screens, software, sound cards, hard disks, etc.) are in fact imported from around the world. Table 1. China’s place in world merchandise exports 1948

1953

1963

1973

1983

1993

2003

2007

2011

Value (Billion USD) World

59

84

157

579

1838

3675

7375

13619

18256

Part (%)

4

World

100

100

100

100

100

100

100

100

100

Asia

14.0

13.4

12.5

14.9

19.1

26.1

26.2

27.9

29.8

China

0.9

1.2

1.3

1.0

1.2

2.5

5.9

8.9

10.4

Japan

0.4

1.5

3.5

6.4

8.0

9.9

6.4

5.2

4.5

India

2.2

1.3

1.0

0.5

0.5

0.6

0.8

1.1

1.7

Australia and New-Zealand

3.7

3.2

2.4

2.1

1.4

1.4

1.2

1.2

1.7

North America

28.1

24.8

19.9

17.3

16.8

18.0

15.8

13.6

12.5

United States

21.7

18.8

14.9

12.3

11.2

12.6

9.8

8.5

8.1

Canada

5.5

5.2

4.3

4.6

4.2

4.0

3.7

3.1

2.5

Mexico

0.9

0.7

0.6

0.4

1.4

1.4

2.2

2.0

1.9


Source: The WTO Database.

The real Chinese contribution in this case did not exceed 30% of the final value of product traded. Today, China is a leading manufacturer of mobile phones in the world. However, the manufacturing process of mobile phones in the world is completely disintegrated: they are often designed by Japanese and Korean firms, key parts are produced by multinationals such as TI and Philips, technical standards and software are provided by American companies like Qualcomm, the distribution by Bird; while only the assembly is generally accomplished in China. The same can be said for the new U.S. technological product, the iPhone; which is also labelled as "Made in China". Other than design and software, Apple is content to act as a conductor for integrating innovations from different countries: the screen of the iPhone is Japanese, flash memory is Korean and assembly is done in China4. Figure 2. Evolution of China’s imports and exports

Source: The Word Bank Database, 2013

Further analysis allows us to translate that majority of productions for exports are assembly operations and re-exports. In fact, since mid-1990s, more than 50% of Chinese exports were achieved in the form of "outward processing" on behalf of foreign companies: 50% in 1995, 55% in 2000, 53% in 2006 and 51% in 20105; while necessary purchases for the assembly exceeded 50% of imports from China6. If we use "smile curve" to understand the current position of "Made in China" products in the new international division of labour, we can find that "Made in China" products are mainly located at the assembly operations level to low value added, while developed countries have mastered the most rewarding steps, such as the design and distribution of products (see Figure 3). It is true that the place of "Made in China" products on the "smile curve" has improved steadily since 1979: the share of finished and semi-finished products rose from 46% to 93.6 % for all Chinese exports, 4

The Economist, December 30, 2008

5

China Yearbook, 2011.

6

http://www.marianne-en-ligne.fr/dossier/precedent/e-docs/00/00/00/92/document_article_dossier.md?cle_dossier=136

5


and for high technology products from less than 1% to 24%7. In fact, China officially became the largest exporter of high technology products in 2005 (see Table 2). Figure 3. Place of "Made in China" products on the "smile curve"

Source: Dedrick, Kraemer, & Tsai, 1999; p. 156. Table 2. China leads in the export of high technology products Top 10 exporters of high technology products – 1996 In billion USD 2011 1. United States: 138$

Top 10 exporters of high technology products – 2005 In billion USD 2011 1. China: 216$

Top 10 exporters of high technology products – 2011 In billion USD 2011 1. China: 457$

2. Japan: 101$

2. United States: 190$

2. Germany: 183$

3. Germany: 61$

3. Germany: 146$

3. United States: 145$

4. Singapore: 58$

4. Japan: 125$

4. Japan: 126$

5. United Kingdom: 55$

5. Singapore: 105$

5. Singapore: 126$

6. France: 42$

6. South Korea: 84$

6. South Korea: 122$

7. Netherlands: 30$


7. France: 105$

8. South Korea: 27$

8. France: 70$


9. Malaysia: 26$

9. Netherlands: 66$

9. Netherlands: 67$

10. Canada: 20$

10. Malaysia: 58$

10. Malaysia: 61$

Source: World Bank. 2012

Only in 2011, China recorded a trade surplus of USD 109.4 billion in trade of advanced technology products with the United States, which was responsible for 36.3 percent of total China-US trade surplus8. However, it must be noted that majority of these high-tech products exported by China are either the result of assembly or are products that are less knowledge-intensive in the technical segment of the value chain. Furthermore, it is primarily the production of foreign multinationals operating in China are reaping the advantage of this value chain. Globally, their share rose from 59% in 1996 to 81% in 2000, and it reached 7

China Yearbook, 2011. Economic Policy Institute, «The China Toll», http://www.epi.org/publication/bp345-china-growing-trade-deficit-cost/

8

6


91% for the export of Chinese electronic equipment (Zhang, 2008). Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 52.4 percent of China’s exports and 84.1 percent of its trade surplus in 20119. Figure 4. Contribution of foreign companies operating in China to the exports of the country 60%

Proportion of Chinese exports by type of enterprise

50 40 30 20 10

Foreign invested State owned

0

Source: Thomson Reuters DataStream

In fact, although it may seem contradictory, China is effectively not the master of most "Made in China" products. In this regard, it is important to make a distinction between the products developed, produced and distributed by the Chinese companies (made by China) and those either manufactured under the order from foreign companies or realized by the subsidiaries of foreign multinationals operating in China (made in China). In fact, the opening up of the Chinese economy since 1978 means a major ideological shift of China. Previously, with focus on itself, China decided to expand its trading partners and to create a business environment conducive to foreign capital, technology and managerial know-how. In the last few years, Chinese local governments are even competing to attract foreign investors by providing facilities and resources at amazingly competitive prices. Foreign direct investment has allowed China an access to global markets. The foreign direct investments have contributed significantly to the growth of Chinese exports. According to Chinese government statistics, 635000 enterprises with foreign capital were operating in China and 480 of the 500 largest companies of the world have made significant investments in this country in the last thirty years. These businesses now contribute about 33% of Chinese industrial production and more than 60% of China's exports (see Figure 4). In 2006, amongst the 500 largest companies involved in the international trade in China, 60.8% were foreign-owned firms; while amongst the 200 largest exporting firms in China, 62.5% were foreign-owned enterprises (Zhang, 2008). The development of “made in China” products was, in many respects, highly beneficial for China. For example, it helped reduce poverty and provided employment to the people. The export has long been a major engine of China's economic growth, same as investment and consumption. In fact, it is responsible for 20% of economic growth, contributes to 17% of the state’s tax revenue and also creates more than 100 9 http://www.epi.org/publication/bp345-china-growing-trade-deficit-cost/ 7


million jobs10. According to the Chinese authority, there are between 30 and 40 million jobs in China that are directly contributed by international subcontracting, while 50 to 60 million jobs are generated indirectly 11 . Moreover, the subcontractor work on behalf of companies from developed countries has allowed many Chinese companies to learn and develop technological and managerial knowledge. It should also be noted that active participation of China in the new international division of labour has greatly contributed to liberalization of the economy, progress of reform and changing mentality of the Chinese people (Zou et al., 2008). However, Chinese are not the only beneficiaries of "Made in China" products. On the contrary, they often retain only a small part of the value created. This is because 90% of "Made in China" products are for foreign brands. Thus, in order to buy an Airbus 380, China must export 800 million shirts and a Barbie doll, produced for USD 4 in China, is sold at an average of USD 22 in the United-States. In 2012, China exported mobile phones for USD 74 billion but it however retained only a small fraction of the total profit made12. Majority of the profit is attributed to designers, software developers and Western distributors such as Intel, AMD, Microsoft, etc. The case of the iPhone is even more significant in this regard. According to a study by Rassweiler, although most of the iPhone carries the label "Made in China", the impact of China in terms of manufacturing costs is still quite small compared to its overall value (see Table 3). Table 3. Apple iPhone 3G’s major components and cost drivers Manufacturer

Component

Cost US$ 24.00 US$ 19.25 US$ 16.00

Broadcom (US)

Flash Memory Display Module Touch Screen Application Processor SDRAM-Mobile DDR Baseband Camera Module RF Transceiver GPS Receiver Power IC RF Function Blueooth/FM/WLAN

Numonyx (US)

Memory MCP

US$ 3.65

Murata (Japan)

FEM

US$ 1.35

Dialog Semiconductor (Germany)

Power IC Application Processor Function

US$ 1.30

Cirrus Logic (US)

Audio Codec

US$ 1.15

Toshiba (Japan)

Samsung (Korea)

Infineon (Germany)

Rest of Bill of Materials

10

Guangming Daily, September 30, 2008, China.

11

Journal of International Affairs, July 24, 2007, China.

12

8

http://english.peopledaily.com.cn/90778/7981181.html

US$ 14.46 US$ 8.50 US$ 13.00 US$ 9.55 US$ 2.80 US$ 2.23 US$ 1.25 US$ 5.95

US$ 48.00

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Total Bill of Materials

US$ 172.46

Manufacturing Costs

US$ 6.50

Grand Total

US$ 178.96

Source: Rassweiler (2009)

Thus, China can be seen today as a major player for the sheer amount of its products on the international market. But it is far from being a superpower in terms of influence, since a large majority of its firms work as subcontractors under the command of foreign companies. In addition, China is still very weak in industries related to equipment where the value added is much larger. Moreover, China does not currently have the required level of technology to become a global manufacturing center. Therefore, it would be an exaggeration to already call it as the "world factory", like some other industrial empires in the world history (England, USA, and Japan). As such, the "Made in China" products should be more appropriately qualified as "Made with China" as opposed to "Made by China".

3. "Made for the world" vs. "Made with the world": major challenges for the future of "Made in China" products The rapid growth of "Made in China" products has greatly contributed to the development of world trade. However, it has created major upheavals in the world in terms of the structure and order of the global economy, the dynamics of international competition, the natural resource consumption, the environment, the employment and the product prices, etc. China is in great need of resources to support its growth and to develop of its production capacity. It has only 7% of the world's arable land, 6% of drinking water, 4% of forests, 2% of oil reserves and 12% of mineral reserves of the planet. From being an oil-exporting country till 1993, it has now become almost the largest importer of oil in the world (about 60% of its consumption is imported). Since 2000, China is responsible for a 40% increase in global oil demand, and in 2003, a 60% increase in global demand for non-ferrous metals. With about 15% of global manufacturing output, China consumed 20% of the global production of aluminum, 35% of the world’s steel production and as well as 45% of cement. It now appears that China is emerging as the main cause for the rise in commodity prices; this is not irrelevant because if China continues to grow at this rate, the whole world's resources will no longer suffice13. Until now, Coal is still the most important energy resource in China (75%). However, this type of energy, even though inexpensive, causes high pollute on. As such, the effects of Pollution are increasingly felt on China's future growth. The government's desire to develop the use of oil and gas, as substitute of Coal, collides with its operating costs. Furthermore, Chinese industrial development has been creating substantial waste. Chinese authorities recognize that, to produce the same product, China uses seven times more energy than Japan and five times more than Europe. Chinese steel companies consume 40% more energy resources which is 50% more than the electricity sector. Every 10000 Yuan of GDP costs China five times more water and three times more energy than developed countries. The result is that 13

Based on the study of Earth Policy, http://news.creaders.net/headline/newsPool/10A234213.html

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in addition to being the biggest emitter of CO2 in the world, China has 20 of the 30 most polluted cities in the world today (World Bank, 2008). The country also suffers from soil erosion and a real problem of global pollution: air pollution, water pollution, acid rain, etc. According to the Chinese government, in 2010, the direct economic loss caused by pollution accounted for 1.1 trillion Yuan or 2.5% of China's GDP. This is an increase of 2.15 times of the losses appeared in 2004.The costs associated with pollution have even grown faster than the growth of China's GDP in 2010 (13.7% versus 10.4% for GDP) 14. In terms of employment, the turmoil caused by the rise of "Made in China" products is very sharp throughout the world, both in developed as well as developing countries. Thus, the development of "Made in China" products is facing increasing resistance from the world, despite many advantages that these products maintain (for example, savings for consumers, improving the competitiveness of companies through partial relocation of activities to China, etc.). Over the past 15 years, China has emerged as the main target of anti-dumping and anti-subsidy disputes: 37 cases in 1994, 53 in 2001, 57 in 2005, 68 in 2006 and 62 in 2007. Between 1995 and 2011, China was facing 21.3% of all anti-dumping cases initiated by members of the WTO (World Trade Organization) countries, far ahead of other listed countries (see Table 4). It should be also noted that about two thirds of the cases were initiated by developing countries. Table 4. Major antidumping investigating and targeted countries from 1995 to 2011 AD investigations initiated Countries targeted by Rank Countries No.

%

AD investigations Countries No.

%

1

India

656

16.4

China

853

21.3

2

USA

458

11.4

South Korea

284

7.1

3

EU

437

10.9

USA

234

5.8

4

Argentina

291

7.3

Taiwan

211

5.3

5

Australia

235

5.9

Japan

165

4.1

6

Brazil

232

5.8

Indonesia

165

4.1

7

South Africa

216

5.4

Thailand

164

4.1

8

China

191

4.8

India

155

3.9

9

Canada

155

3.9

Russia

124

3.1

10

Turkey

148

3.7

Brazil

114

2.8

Note: Total number: 4,010 Source: Joon-heon Song and Kyoung-joo Lee (2013)

It is clear that after more than 30 years of rapid economic development China seems to possess many assets in order to keep its momentum in the international market. In fact, in many ways, China is today an atypical country because it holds, at the same time, absolute advantages in terms of cost, comparative 14

http://www.scmp.com/news/china/article/1201364/11-tr-yuan-economic-losses-pollution-2010-china-report-says

10


advantages in terms of productivity and also competitive advantages in several segments of the technology sector. A more comprehensive and effective industrial base to facilitate economic activities – a large pool of rural human capital, unskilled but willing to work with low wages, an important number of Chinese private companies in the industries, a significant presence of foreign firms and the existence of a large and relatively inexpensive infrastructure - are the factors that could support Chinese exports. According to some experts15, in 10 years, the global market share of Chinese products could reach to 25%. However, the real question is whether China really has interest in pursuing the same mode of development and whether China can do it smoothly. It is true that the rise of the "Made in China" products has contributed largely to the development of China, both economically and politically. However, the inclusion of China in the new international division of labour in recent years has faced staggering constraints. The resounding negative effects of "Made in China" products development strategy adopted by China since 1978 are now becoming, to some extent, a hindrance to the development of China and even that of many other countries. In this regard, the problems that China is facing today are economic, social, environmental, and, in reality, also political. In fact, the Chinese development model is based on a high consumption of inputs for production and low pricing of its outputs whether finished or semi-finished products. Therefore, China as the "world’s factory" today is not quite synonymous with real wealth of the country. The absolute advantage of China is still lying on its constantly renewed potential for cheap labour. The low price strategy followed by Chinese companies was to the detriment of the workers interests. Often, the lower wages and deteriorating working conditions make it possible to achieve such competitiveness, since the level of benefit of Chinese manufacturing firms is yet found to be extremely low (3-5% in most cases). According to official Chinese government statistics, between 1990 and 2010, the weight of the total payroll of Chinese workers in relation to GDP was reduced from 53% to 36%. In this respect, the high number of accidents that occurred in recent years in the Chinese mining sector is very illustrative to understand the situation: with only 35% of the world coal production, China has recorded 80% of fatal mining accidents in the world. In such a situation, it is clear that, although the Chinese growth appeared extraordinary in many respects, this model of development does not seem sustainable. Nevertheless, it is also undeniable that when an economy is in transition, such as China, and need strong growth, this trajectory of development process is not unusual. In fact, as long as the growth is there, all the problems and internal conflicts will remain a relative matter. However, the obsession for a strong growth in the international market at any cost is definitely harmful, with respect to the interests of everyone. As part of the implementation of "harmonious" development policy adopted at the 17th Congress of Chinese Communist Party in 2007, the Chinese government began a strategy of "climbing up the value chain" in the new international division of labour for the creation of "China value" (Caiet al., 2008). In line with this, China adopted a number of important laws such as employment contract act Law, the Law on the corporate tax system in China, the anti-monopoly Law, the Law on the promotion of job creation, etc. These measures aim to force exporters, Chinese as well as foreigners, to redefine their position in the 15

Economist, January 7th, 2010, England.

11


structure of the international division of labour and achieve more technological innovations. Particularly, China has increased its efforts to promote the development of “indigenous” innovations. In recent years, China has even become the champion in terms of annual growth of investment in R&D (see Figure 5). Measures have also been taken to encourage Chinese companies to explore and invest in foreign countries not only to control the supply and distribution of their products, but also to acquire well-known trademarks, technological know-how and new technologies to foster growth. Figure 5. Expenditure on R&D

* R&D Intensity is R&D expenditure as percentage of GDP Source: Data from The World Bank Database, http://databank.worldbank.org/data/views/reports/tableview.aspx

However, given the particularity of political and economic system of China, the investment in R&D does not guarantee by itself on China's success in pursuing the strategy of “climbing up the value chain”. A straight shift from the "China Price" (Engardioet al., 2004) to the "China value" or the "Chinese brand" does not guarantee the future success of "Made in China" products on the international market. To achieve the goal of being among the top 20 innovative countries of the world by 2020, China should restore its corporate government system, reform the education system, improve protection of intellectual property, develop entrepreneurial spirit oriented towards technology, facilitate transfer of knowledge and technology of advanced Western multinationals to the Chinese companies. To a greater extent, China should accelerate the development of a system of fair and efficient market and give more importance to expression and creativity of individuals. Also, if in 1978, China had no choice but to engage in the exploitation of its comparative advantages in terms of costs and resources to conquer the international market, the time has come for China to integrate the internationalization of resources for developing Chinese domestic market in terms of the reciprocity. In other words, the search for a "win-win" international division of labour with other countries of the world and the need for a greater economic, social and environmental efficiency are crucial conditions to fulfill if China wishes to continue its rise in

12


the world economy. Therefore, it can be concluded from the above arguments that the future of the "Made in China "should go by" Made with the world "rather than" Made for the world."

4. Conclusion As of today, China has established itself as an economy that matters for the global business and the importance of which cannot be ignored. Rapid development of China has created an unprecedented situation in the world and the development model of China defies virtually all models and theories existing in the scientific literature. The remarkable growth of "Made in China" products is mainly contributed by the consequence of the political will of the Chinese government and related stakeholders. What drives the government of China’s political willingness is that it will enable the economy to take advantage of the new dimension of international division of labour for its development. Based on the facts illustrated above, a contradiction evolves in regards to the usage of the term “Made in China”. This contradiction appears because a substantial amounts of parts and components that are not made in China, but are utilized to produce final product in China. Therefore, it can be envisaged that the "Made in China" products should be more qualified with "Made with China" products than the "Made by China" products. This is because, in many cases, the products produced in China are the result of a globally organized production network, involving activities that took place in different countries of the world. Since the development of "Made in China" products has a lot of major impacts, that are continued, on the global economic order, only efforts of China to shift from "China Price" to "China value" or to "Chinese Brand" are not enough to

guarantee the success of "Made in China" in international market. To a larger extent, the future of China’s growth is overwhelmingly depending on its interactions with the rest of the world. Therefore, it can well be said that the future of "Made in China" seems to go rather with "Made with the World" than "Made for the World" which would accelerate and foster the growth of Chinese economy in the years to come. In the growth path of Chinese development, there are existences of major challenges which created a number of ambiguities on the future of China’s growth. The pivotal ambiguities that are in question and tend to distort China’s growth are - the sources of China’s economic growth, concern on currency reform, its competence in drawing high levels of FDI, its ability to deal with large non-performing loans, ailing financial management of banking system, loss making SOEs, and large amount of government debts. The demographic and socio-economic changes also needed to be taken into consideration. Moreover, its political ability to handle changes during the reform processes, its commitments to WTO followed by their consequences, and existing income disparities between inner and coastal regions are also posing a threat for its continued growth. Its ability to maintain its economic growth ahead of major The issue of managing these ambiguities and major challenges will determine the future of "Made in China" and the future of the Chinese economy, and to which the new team of Chinese leaders will be facing.

13


References Berger, S., (2006). "Made in Monde", Seuil, France. Bergsten, F. C., (2008). "A Partnership of Equals: How Washington Should Respond to China's Economic Challenge", Foreign Affairs, July/August. Cai, J., (2008). "From China Price to China Value", China Mechanical Industry Press, China. Engardio, P. and al., (2004). "The China Price", Business Week, December 6, 2004. Gupta, A. and ali, (2008). "The Quest for Global Dominance", Jossey-Bass, USA. Huang, Y.-S., (2008). "Capitalism with Chinese Characteristics: Entrepreneurship and the State", Cambridge University Press, England. Lu, Z., (2003). "Will China become world factory?" Economic Management Publishing House, China. OCDE, (2007). "Reviews of Innovation Policy: China", Synthesis Report. Ohmae, K., (1996). "De l'État-Nation aux États-Régions", Dunod, France. PMCid:2143367. Porter, M., (1985). "Competitive Advantage: Creating and Sustaining Superior Performance", Free Press, USA. Joon-heon Song, Kyoung-joo Lee, (2013) "Bureaucratic politics, policy learning, and changes of antidumping policy and rules in Japan", Journal of International Trade Law and Policy, 12(1): 4 – 22. Su, Z., (2006). "L'Émergence de la Chine et les Défis pour les Entreprises Québécoises et Canadiennes", Option politique, July/August, Canada. Zou, D.-T., (2008). "China: 30 Years of Reform and Opening Up", Social Sciences Academic Press, China.

About the Authors Mr. Albert Su obtained his Bachelor of Business Administration (specialization in International Business and Finance) at the University Laval. He is currently completing his master's degree in International Business at the University of International Business and Economics in Beijing (China). Albert Su was a research assistant at the Chair Stephen-A.-Jarislowsky in International Business at the University Laval. He has participated in several research project sand presented the results of his research in several international academic conferences. He was coauthor of a scientific article in a peer review journal. He is currently conducting research on the development of Special Economic Zones in China and on the characteristics of Chinese State Capitalism. Ms. Marie-Hélène Regnière received her Bachelor of Business Administration (specialization in Finance)at Laval University. She is currently a graduate student in the Master’s program in International Business at the University of International Business and Economics in Beijing (China). Ms. Marie-Hélène Regnière is the recipient of several awards for academic excellence. She was a research assistant at the Chair Stephen-A.-Jarislowsky in International Business at Laval University between 2010and 2012.She participated in several research project sand was involved in the organization of two international academic conferences. Her research interests are currently focused on the management of international merger projects and on the characteristics of the Chinese development model.

14


Dr. Zhan Su is professor of Business Strategy and International Management at Laval University. He has been Director of Stephen-A.-Jarislowsky Chair in International Business since 2008. He received his Bachelor of Engineering in China in 1982 and his Doctorate in Business Administration at the University of Grenoble II in France in 1990. During these past years, he has carried out many research projects regarding a variety of subjects such as strategic management, country risk evaluation, cross-cultural management and doing business in Asian markets. Professor Su’s research has been published in numerous journals and books in Canda and abroad and has been presented in over 200 national and international conferences. Professor Su has also organized many training programs for executives and provided consultation for numerous organizations and firms worldwide. Professor Zhan Su received the “Leaders in Business Education Award” from Price Water House Coopers and the National Post of Canada in 2001.

Contact information Albert Su, Master’s Program in International Commerce, the University of International Business and Economics, 10, Huixin Dong Street, Chaoyang District, Beijing, People’s Republic of China. Tel.: 86 156 5270 7952; Email: [email protected]. Marie-Hélène Regnière, Master’s Program in International Commerce, the University of International Business and Economics, 10, Huixin Dong Street, Chaoyang District, Beijing. People’s Republic of China, Tel.: 86 136 4110 7960; Email: [email protected]. Dr. Zhan Su, Business School, Laval University, Quebec (Quebec), Canada G1V 0A6. Tel.: 1 418 656 2085; Email: [email protected].

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16-29

Relocating Low-to-Medium Tech Manufacturing Activities to Developing Countries: Empirical Analysis of Taiwanese and South Korean Manufacturing Outsourcing to Bangladesh Md. Mamunur Rashid1and Md. Samim Al-Azad2

Abstract: The aim of this study is to examine the objectives and factors influencing the offshore outsourcing decision of manufacturing firms from emerging countries to developing countries like Bangladesh. The theoretical framework is developed with three categories of factors namely reduce operating cost, improve company focus, and access to world class capability. This is an exploratory study based on survey method. The data collected through a survey questionnaires from a total of 227 Taiwanese (131) and Korean manufacturing firms (96) operating in Bangladesh. The findings are analyzed using a statistical software package (SPSS). The main tools used are factor analysis, correlation analysis and linear regression analysis. The findings reveal that some factors like capital investment, fixed cost, entering new (third) markets, and access to local capabilities, invention and innovation influence Taiwanese and Korean low and mid-tech manufacturing firm’s outsourcing decision to low labor cost country like Bangladesh with preferential access to the developed country markets for manufacturing goods. Keywords: Offshore outsourcing, manufacturing firms, exploratory approach, developing country

1. Introduction Development of technologies and worldwide reduction of trade barriers during the last decades have increased competition and the need to offer high-quality products and services for a reasonable price. Particularly, in order to be competitive in the world market, offshore outsourcing of manufacturing functions can be a valuable tool if handle in the right way (Ehie, 2001). With the opportunity of free market context, firms are going to expand their market in abroad and also set up their manufacturing plant to reduce production cost, to capture foreign expertise, to have access to new technological advancement, to provide higher quality of product to the customer and finally to get more profits from the business (McCarthy and Anagnostou, 2004; Saunders et al., 1997). At present, Taiwanese and Korean manufacturing firms are expanding and relocating their low and midtech manufacturing activities to the regional low cost countries with preferential access to the developed 1

Southern Taiwan University of Technology, Taiwan.Email: [email protected]. PhD Candidate in Information System, Graduate School of Business Administration, Seoul National University, South Korea, Email: [email protected].

2

16


Md. Mamunur Rashid and Md. Samim Al-Azad


markets. Taiwanese and Korean firms do out-sourcing, generally, of their manufacturing activities to India, Philippine, Bangladesh, Vietnam and others developing countries where labor cost is comparatively low. Reasons behind the offshore outsourcing to Bangladesh of Taiwanese and Korean firms are to capture a large market size; local as well as international markets thanks to the least developed country (LDC) manufacturing goods’ preferential access to the developed countries market. Export oriented sectors in Bangladesh has also tax free import of raw or intermediate products for reprocessing and re-assembling advantages. Moreover, the labor cost and relative expertise are cheapest among the comparable countries (Rahman, 2008; Kanungo, 2012) especially in garments, ceramic and leather sectors. Moreover, Bangladesh has the indigenous textile sector over the centuries and low cost expertise in this sector (Mohiuddin, 2008). Available low cost manpower, government pro-active policies and international trade rules under the WTO guidelines for the least developed countries (LDC) have attracted Taiwanese and South Korean manufacturing companies to relocate to Bangladesh. The main objective of this study is to enhance the understanding of manufacturing outsourcing procedures by examining the factors that affect offshore outsourcing decisions to low labor cost country like Bangladesh of Taiwanese and Korean manufacturing firms. The following research questions are related with this study as follows: a) what are the important factors and how importantly they influence a manufacturing firm’s offshore outsourcing decision to Bangladesh? And 2) how manufacturing firms from different countries like Taiwan and Korea perceive factors differently to take their offshore outsourcing decision to Bangladesh?

2. Literature review 2.1. Offshore outsourcing to Bangladesh Bangladesh is one of the prime destinations for outsourcing manufacturing firms thanks to its attractive liberalized policies and incentives offered by the government to the foreign investors in various forms. These policies are among the best in south Asia and attracted many firms to do offshore outsourcing to this country especially in garments manufacturing, leather and ceramic along with growing pharmaceutical industries. Doing business in Bangladesh is much easier than most of the developing countries (Rahman, 2008). The attractions of Bangladesh as an outsourcing destination to foreign firms as well as domestic investors are clear: a large and young population, eager to work hard to improve their lot and open to foreign business practices and cultures (Sultana et. al., 2013). The development of the foreignowned manufacturing sector has been spearheaded by Japanese, Korean, Chinese and Taiwanese firms which have increasingly expanding their investment in Bangladesh (Board of Investment, 2012). In view of offshore outsourcing, Bangladesh could be very well take advantage of these facts by attracting quality offshore outsourcing operators to the country (Uddin, 2005).

2.2. Offshore outsourcing and influencing factor The term ‘Offshore Outsourcing’ refers to “performing some or all of business functions by third party service providers which are located in another country (Mol et al., 2005)”. Theoretically, the transaction cost economics (TCE), the resource based view (RBV) and the dynamic capabilities view (DCV) offered in-sights how offshore outsourcing activities are undertaken (Mohiuddin and Su, 2013). The decision of performing the business activities ‘in house’ or ‘outsource to external service provider’ is determined by

17


Relocating Low-to-Medium Tech Manufacturing Activities to Developing Countries


two factors: the thrust for competitive advantage in the global economy and successful business focus on its core competencies (Ward, 2004; Harland et al., 2005; Mohiuddin, Z. Su, and A. Su, 2010). Firms determine their offshore outsourcing strategy on the basis of the shortcomings in resources or capabilities. Organization’s competence depends on its capability to combine resources, and organizational processes to meet the desired objectives (Mohiuddin and Su, 2010; Quinn and Hilmer, 1994). Different authors mention different factors for outsourcing decision. However, their main findings are reducing operating cost, improving company focus and accessing to world class capability (Islam and Sobhani, 2008; Sood, 2006; Bocij et al., 2006; Welch and Nayak, 1992 and Smith et al., 1998). Moreover, these three reasons are also considered as top influencing factors by the Outsourcing Institute Survey (2006). Reducing operating cost refers to decrease the focal firms operational cost by outsourcing the noncore business activities (Islam and Sobhani, 2008). Improve company focus refers to concentrate on core business function by outsourcing the less important business activities (Bocij et al., 2006). Access to world class capability refers to capture another country’s expertise and improve innovative capability and product quality as well (Welch and Nayak, 1992). Sood (2006) identifies some of the main reasons for outsourcing such as quality improvement, availability of specialist, flexibility, risk mitigation or risk sharing, using world-class resources, quality improvement and effective management. These are very similar to Smith et al. (1998) findings that are cost reduction, focus on core competencies, increase product range, and enhance the presence in the global market, environmental factors, ability to develop and implement global strategy. One the other hand, in the view of Islam and Sobhani (2008), factors of outsourcing decision are capital investment, overhead and fixed cost, space, focus on new product development, explore new market segment, availability of specialist, latest and high efficiency technology, established tools and support infrastructures, limited production capacity and space, lack of technical content experts and support infrastructure. Bocij et al. (2006) summarized the following reasons given by companies as why they use offshore outsourcing: cost savings, improved quality of service, access to specialist expertise, increased flexibility, lack of resources and strategic business decision. According to Burkholder (2005) the following reasons are considered for outsourcing such as access to world class capabilities, freeing up resources for other purposes, improved company focus, making capital funds available, reducing operating costs, reducing risk, resources not available internally and so on. Along with these drivers Welch & Nayak (1992) argues that business flexibility, reduce capital investment requirement, lower wage structure, accelerated new product development, and access to invention and innovation from supplier are some are most important factors of offshore outsourcing.

2.3. Selected factor In previous research, different researchers mentioned different factors; however, we have selected those factors which are mostly common in previous research and have greater influence on offshore outsourcing decision. In our opinion, these are more significant factors which generally influence a firm’s decision to relocate their business or operation to other place. These factors are mentioned below:

18


Table 1. List of selected antecedents of outsourcing Factors

Reference

Capital Investment

Islam and Sobhani, 2008; Burkholder, 2005.

Overhead and fixed cost

Sood, 2006; Mohiuddin and Su, 2010.

Explore new Market segment

Smith et al. (1998); Islam and Sobhani, 2008.

Quality improvement

Sood, 2006

Increase flexibility

Bocij et al., 2006; Welch & Nayak,1992

Access to invention and innovation

Welch & Nayak,1992

Availability of specialist

Sood, 2006

Latest and high efficiency technology

Islam and Sobhani,2008

3. Research design and hypotheses 3.1. Research framework This study uses a quantitative approach to examine the relationship between three constructs such as reduce operating cost, improve company focus, access to world class capability and offshore outsourcing decision. The research design provides a basis for answering the research questions. The research model of the study is shown as follow: Figure 1. Conceptual framework of outsourcing decision

3.2. Hypotheses development 3.2.1. Reducing operating cost

19


One of the main reasons for firms considering outsourcing decision is to reduce the overall operating cost. This variable is being measured by two sub-factors such as capital investment and overhead and fixed cost to understand how outsourcing would help in reducing operating cost in companies. H1: There exists a significant positive relationship between reduced operating cost and offshore outsourcing decision of manufacturing firms. Capital investment Capital investment is a measure of the extent on how offshore outsourcing would help firms in reducing capital investment such as equipment, building and land. By offshore outsourcing non-core operation function areas, certainly some portion of capital investment could be saved and the investment fund could be diverted to core business investment to bring in more revenues to the companies. The fund could also be used on researching and generating new market segment development (Islam & Sobhani, 2008; Kedia and Lahiri, 2007; Burkholder, 2005). H1.1: There exists a significant positive relationship between reducing capital investment and offshore outsourcing decision of manufacturing firms. Overhead and fixed cost In most companies, offshore outsourcing would help to reduce the number of employees whereby the core employees were shifted to focus on core functions. Thus, offshore outsourcing would also reduce fixed asset quantity such as machinery and reduced the concern on depreciation value. Utility cost could also be reduced with less consumption (Islam & Sobhani, 2008; Murray & Kotabe, 1999). H1.2: There exists a significant positive relationship between reducing overhead& fixed cost and offshore outsourcing decision of manufacturing firms. 3.2.2. Improve company focus This variable is a measure of the customers on how they considered offshore outsourcing would help to improve company focus in their companies. By shifting the resources to focus on core business and new product development, this would significantly produce a tremendous impact on companies in exploring new market segment and reap new customers to boost the revenues profitably. H2: There exists a significant positive relationship between improve company focus and offshore outsourcing decision of manufacturing firms. Explore new market segment In offshore outsourcing, sometimes firms go for producing a product in another country and also involve in finding a niche or gap in a market and filling it. If there is a gap for any particular product or service and if there are fewer takers, a company can just go ahead and fill that gap by bringing in that product or service into that market segment (Al-Azad, 2010; Smith et al., 1998; Poppo & Zenger, 1998). H2.1: There exists a significant positive relationship between explore new market segment and offshore outsourcing decision of manufacturing firms.

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Quality improvement Offshore outsourcing can improve the quality delivered by the service provider. The provider can access more advanced technologies and more motivated staff and better management systems in order to be able to achieve a better service coordination or control, or simply, is more strongly committed than the internal staff to make the alliance with the client work properly (Clark et al. 1995; Sood, 2006). H2.2: There exists a significant positive relationship between quality improvement and offshore outsourcing decision of manufacturing firms. Increase flexibility The immense change experienced by technology in recent years gives many firms a chance to obtain a considerable advantage from offshore outsourcing, as they will prevent becoming technologically obsolete without having to make large investments in technology. Business organizations can increase their flexibility through a continuous redesign of their contracts that will allow them to meet their information needs at any given time (Bocij et al., 2006; Jurison, 1995; Welch and Nayak, 1992). H2.3: There exists a significant positive relationship between increase flexibility and offshore outsourcing decision of manufacturing firms. 3.2.3. Access to world class capability In today’s competitive business world, firms’ most important intention is gaining access to world class capability. Customers would be measured on how offshore outsourcing would help them with the access of suppliers’ best in world class specialist, latest and high efficiency technology that could produce a higher yield rate and would they gain the access of better established tools and support infrastructure at the supplier site. H3: There exists a significant positive relationship between access to world class capability and offshore outsourcing decision of manufacturing firms. Access to invention and innovation In offshore outsourcing, gaining innovativeness means that firms should find a supplier that possess greater technology, skills and expertise than what the firm has in‐house (Hoecht & Trott, 2006; Welch & Nayak, 1992). Outsourcing also makes it possible, as focusing on priority, to restructure and free up employees in‐house that can help the firm to gain innovativeness internally and reach a competitive advantage with the internal skills and expertise (Welch & Nayak, 1992; Kroes & Ghosh, 2010). H3.1: There exists a significant positive relationship between access to invention and innovation and offshore outsourcing decision of manufacturing firms. Availability of specialist Most of the suppliers that are specialized in their core service functions, have the best in class specialist, sound technical and hands-on experiences engineers or specialists compared to outsourcer or focal firm that are not specialized in the non-core business area. Suppliers would be able to provide the content 21


expert resource that would support the requirement effectively and efficiently as deemed specialist (Islam & Sobhani, 2008; Sood, 2006). H3.2: There exists a significant positive relationship between availability of specialist and offshore outsourcing decision of manufacturing firms. Latest and high efficiency technology Service provider would usually have the latest and high efficiency technology considering that the providers are specific in the service business function area. This would give them the added advantage to compete with their rivals in winning the business from outsourcer. Having the latest technology equipment and high efficiency would inevitable produce better quality and yield outputs and at a higher capacity rate (Islam & Sobhani, 2008; Laugen et al., 2005). H3.3: There exists a significant positive relationship between latest and high efficiency technology and offshore outsourcing decision of manufacturing firms.

3.3. Data collection By using the online survey, we posted the online questionnaire link in the Google docs and also e-mailed this link to the executives of different manufacturing firms which are located in Bangladesh, through Taiwanese business forum named Taiwan Trade Center, Dhaka, Bangladesh and Korea-Bangladesh Chamber of Commerce and Industry. A total of 227 questionnaires were collected which consist of 131 respondents of Taiwanese manufacturing firms and 96 respondents of Korean manufacturing firms out of 300 questionnaires that were distributed which made up of 75.67% response rate. The data were collected from January, 2012 to June, 2012.

3.4. Goodness of data Reliability analysis was used to test the internal consistency and validity of the data gathered. Cronbach’s alpha was chosen to analyze the degree of internal consistency among the items in a variable. Alpha coefficient ranges in value from 0 to 1. The higher the score, the more reliable the generated scale is. Sekaran (2003) explained that reliability of a measure is established by testing for consistency and stability of data collected. All the variables, independents and dependent were tested to analyze its internal consistency. All of them showed an acceptable internal consistency, with Cronbach’s alpha (α) ranging above 0.6 levels.

4. Data analysis and result 4.1. Descriptive analysis In this section, we considered a total of 38 items for all variables; 9 items of reduce operating cost, 12 items of improve company focus, 13 items of access to world class capability and 4 items of offshore outsourcing decision. This survey used 7 point Likert scale ranges from strongly disagree (1) to strongly agree (7), where the higher scores represent stronger agreement from the Taiwanese and Korean investors who are doing business in Bangladesh.

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Table 2. Descriptive statistics of factors influencing outsourcing decision Taiwanese firms Factors

Korean firm’s

T-test

Mean

Std.

Mean

Std.

t

Sig.

Capital investment

6.039

1.117

6.077

1.217

-0.772

0.463

Overhead and fixed cost

6.179

1.096

5.958

1.177

-1.709

0.158

Explore new market segment

6.238

1.016

6.219

1.101

-0.703

0.426

Quality improvement

5.441

1.103

5.127

1.153

-2.401

0.017**


5.368

1.113

5.164

1.194

0.832

0.364


6.127

1.173

5.927

1.179

-0.984

0.325


5.078

1.221

4.454

1.217

-2.346

0.021**


5.486

1.162

5.634

1.113

-1.273

0.286

Offshore outsourcing decision

6.071

1.198

6.205

1.051

-0.741

0.459

From Table 2, it can be seen that capital investment, overhead and fixed cost, explore new market segment, increase flexibility, access to invention and innovation, latest and high efficiency technology, and offshore outsourcing decision have p value which are higher than 0.05, that means there is no significant difference perceived these factors between Taiwanese and Korean manufacturing firms. On the other hand, others variables have p value which are smaller than 0.05, that means there is significant difference perceived these factors between Taiwanese and Korean manufacturing firms.

4.2. Factor analysis Factor analysis was used for a large set of variables and looks for a way that the data may be reduced or summarized using a smaller set of factors. Variables will be retained in analysis when acquire these measures: Factor loading >=0.5; Eigenvalue >=; Cronbach’s alpha>=0.6. All factors dimensions have factor loadings higher than 0.5, Eigen value greater than 1 and Cronbach’s alpha higher than 0.6. So, it indicates that all factors have a high correlation and high reliability in data consistency. Table 3. Factor analysis of independent and dependent variables Factors

Eigenvalue

Cumulative%

Cronbach’s α

Capital investment

3.589

71.917

0.869

Overhead &fixed cost

2.861

63.481

0.815

Explore new market segment

2.972

61.635

0.713

Quality improvement

4.621

58.371

0.861


3.942

67.233

0.927


2.971

61.738

0.861


4.625

56.973

0.763


2.873

58.332

0.842

Offshore Outsourcing Decision

3.954

73.927

0.814

23




4.3. Correlation analysis By using Pearson correlation matrix, we can get more clear explanation about the relationship of the dimensions of the constructs. Table 4 shows that there are four dimensions which have a strong relationship with offshore outsourcing decision. These are overhead & fixed cost, quality improvement, access to invention and innovation and latest & high efficiency technology since their value of ‘r’ are higher than 0.7. The rest dimensions have moderate relationship with offshore outsourcing decision since their values of ‘r’ are between 0.3 and 0.7. Table 4. Correlation between dimensions and outsourcing Factors Capital investment

Pearson Correlation value 0.615**

Factors Increase flexibility

Pearson Correlation value 0.548**

Overhead& Fixed cost

0.749**


0.749**

Explore new market

0.587**


0.457**

Quality improvement

0.735**


0.739**

** Correlation is significant at the 0.01 level (2-tailed).

4.4. Regression analysis The Linear Regression Analysis was used to analyze the relationship between the dependent variable and the predictors or the independent variables. Regression model for offshore outsourcing decision construct and all independent variables can be defined in the quotation: Taiwanese firm, Y = 1.012 + 0.142CI + 0.359OF + 0.463EM - 0.025QI + 0.181IF + 0.158AI + 0.043AS + 0.347LE Y= 0.185CI + 0.352OF + 0.472EM - 0.032QI + 0.213IF + 0.175AI + 0.048AS + 0.329LE Korean firm, Y= 1.026 + 0.273CI + 0.413OF + 0.327EM + 0.154QI + 0.031IF + 0.251AI + 0.186AS - 0.056LE Y (KF) = 0.261CI + 0.419OF + 0.331EM + 0.162QI + 0.039IF + 0.259AI + 0.181AS - 0.073LE Where, CI=Capital investment, OF=Overhead and fixed cost, EM = Explore new market segment, QI = Quality improvement, IF= Increase flexibility, AI = Access to invention and innovation, AS = Availability of specialist, LE = Latest and high efficiency technology. In the case of Taiwanese manufacturing firm, considering the p-value of each dimension, we found that there are 6 dimensions have p-value less than 0.05, it means that this 6 dimensions can be counted for having statistically significant influence on offshore outsourcing decision which are CI: Capital Investment (t=2.068, p-value 0.032), OF: Overhead and Fixed Cost (t=4.266, p-value 0.000), EM: Explore new market segment (t=5.531, p-value 0.000), IF: Increase flexibility (t= 2.568, p-value 0.012), AI: Access to invention and innovation (t=2.189, p- value 0.031), LE: Latest and high efficiency technology

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(t=4.153, p-value 0.000). The only 2 dimensions quality improvement and availability of specialist are not significantly affecting offshore outsourcing decision. Table 5. Result of relationship between dependent variable and all independent variables of Taiwanese and Korean outsourcing manufacturing firms Variable B Constant(Bo) Capital investment (B1) Overhead and fixed cost(B2) Explore new market segment (B3) Quality improvement (B4) Increase flexibility (B5) Access to invention and innovation (B6)

Taiwanese manufacturing firms

Taiwanese manufacturing firms

Standardized coefficient (b)

Standardized t-statistic p-value coefficient (b) (significance) 0.682 0.497

1.012

t-statistic 0.892

p-value B (significance) 0.374 1.026

0.142

0.185

2.068

0.032

0.273

0.261

3.642

0.013

0.359

0.352

4.266

0.000

0.413

0.419

5.264

0.000

0.463

0.472

5.531

0.000

0.327

0.331

4.703

0.000

-0.025

-0.032

-0.592

0.406

0.154

0.162

2.457

0.028

0.181

0.213

2.568

0.012

0.031

0.039

0.283

0.778

0.158

0.175

2.189

0.031

0.251

0.259

3.421

0.016

0.043

0.048

0.517

0.604

0.186

0.181

2.563

0.022

0.347

0.329

4.153

0.000

-0.056

-0.073

-0.542

0.589

Availability of specialist (B7) Latest and high efficiency technology (B8) R Square

0.674

0.638

R

0.735

0.721

Adjusted R Square

0.628

0.618

F

49.741

0.000**

41.392

0.000**

However, in the case of Korean firms, some others variables have statistically significant influence on offshore outsourcing decision which are capital investment, overhead and fixed cost, explore new market segment, quality improvement, access to invention and innovation and availability of specialist. The only 2 dimensions increase flexibility and latest and high efficiency technology are not significantly affecting on offshore outsourcing decision. In case of Taiwanese manufacturing firms, the largest beta coefficient is Explore new market segment (B5) 0.472.This means that this variable makes the strongest unique contribution to explaining the independent variable. However, in case of Korean firms, overhead and fixed cost has largest beta (B2) 0.419 co-efficient. From the analysis of model fitness, Taiwanese and Korean firm’s R square are 0.674 and 0.638 respectively; it means that this model can be explained that 67.4% (TF) and 63.8% (KF) of the total variance of offshore outsourcing decision. In ANOVA analysis, Taiwanese firm’s model fit indicates F value 49.741 and significance level of 0.000. On the other hand, Korean firms’ model fit shows F value 41.392 and significance level of 0.000. So, the model in the case of both Taiwanese and Korean firms reaches statistical significance.

25


4.5. Research findings and discussion Based on the data that have been analyzed in the previous section, we found that some hypotheses are supported, and some are not. Table 6. Comparison of hypotheses testing result between Taiwanese and Korean manufacturing firms Findings Taiwanese Korean firm’s firm’s

No.

Hypotheses

H1

There exists a significant positive relationship between reduce operating cost and offshore outsourcing decision of manufacturing firms There exists a significant positive relationship between reduce capital investment and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between reduce overhead, fixed cost and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between improve company focus and offshore outsourcing decision of manufacturing firms.

Supported

Supported

Supported

Supported

Supported

Supported

Partially Supported

Supported

H2.1

There exists a significant positive relationship between explore new market segment and offshore outsourcing decision of manufacturing firms.

Supported

Supported

H2.2

There exists a significant positive relationship between quality improvement and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between increase flexibility and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between access to world class capability and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between access to invention and innovation and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between availability of specialist and offshore outsourcing decision of manufacturing firms. There exists a significant positive relationship between latest and high efficiency technology and offshore outsourcing decision of manufacturing firms.

Not Supported Supported

Supported

H1.1 H1.2 H2

H2.3 H3 H3.1 H3.2 H3.3

Partially Supported Supported Not Supported Supported

Not Supported Partially Supported Supported Supported Not Supported

Based on the data analyzes and hypotheses testing, we found that offshore outsourcing would be an interesting strategy in reducing operation cost, improve company focus and access to world class capability. We also found that based on the factor analysis of the variable, firms can consider offshore outsourcing decision to outsource certain core business function areas and to determine how offshore outsource could benefit the company in terms of lower operating cost, improve company focus, flexibility and efficiency in contributing to company revenues profitably.

5. Conclusion and future research suggestions Based on above mentioned discussion, several managerial implications could be made. It revealed that reduced capital investment requirement and lesser overhead and fixed cost significantly influence the Taiwanese and Korean manufacturing firms in their offshore outsourcing decision to Bangladesh. Managers of the Taiwanese and Korean low-to-mid-tech manufacturing firms intend to reducing the

26


operating cost or manufacturing cost while deciding to offshore outsource their manufacturing activities to developing countries. Executives of Taiwanese manufacturing firms emphasize less on quality of product and availability of specialist, but more on market access, increased flexibility, and access to local innovation. On the other hand, Executives of Korean manufacturing firms emphasize less on flexibility and high efficiency technology, but more on quality of product, market segment, access to local innovation and availability of local specialist. In order to improve the generalizability of the findings, future studies can englobe more source countries and firms in studies on offshore outsourcing decision to developing countries in order to better understand the situation and the particular needs of each industry. Given the changing nature of offshore outsourcing context and rapidly changing business environment, a longitudinal multi-country study can help us to understand the trend of outsourcing in post-economic crisis era of today. Based on the analyzing result of hypotheses, it is to confirm that several dimensions show significantly different effect on offshore outsourcing decision; therefore in future research this dimension should not be included in the research. Finally, the future researchers can also decide to expand this research project including more outsourcing destination countries such as Cambodia, India, Vietnam and Philippines. these future research directions might help us to better understand the trends and different attitudes toward offshore outsourcing from emerging countries to developing countries.

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Kedia, B. L. and Lahiri, S. (2007). International outsourcing of services: A partnership model, Journal of International Management, 13: 22-37. http://dx.doi.org/10.1016/j.intman.2006.09.006 Kroes, J. R. and Ghosh, S. (2010). Outsourcing congruence with competitive priorities: Impact on supply chain and firm performance, Journal of Operations Management, 28(2):124-143. http://dx.doi.org/10.1016/j.jom.2009.09.004 Laugen, B., Acur, N., Boer, H. and Frick, J. (2005). Best manufacturing practices: what do the best performing companies do? International Journal of Operations & Production Management, 25(2):131-150. http://dx.doi.org/10.1108/01443570510577001 McCarthy, L. P. and Anagnostou, A. (2004). The impact of outsourcing on the transaction cost and boundaries of manufacturing, International Journal of Production Economics, 88:61-71. http://dx.doi.org/10.1016/ S0925-5273(03)00183-X Mohiuddin, M. and Su, Z. (2013). Manufacturing Small and Medium Size Enterprise’s Offshore Outsourcing and Competitive Advantage: An Exploratory Study on Canadian Offshoring Manufacturing SMEs, Journal of Applied Business Research, 2013, 29(4): 1111-1130. Mohiuddin, M. and Su, Z. (2010). Firm level Performance of offshore outsourcing strategy of manufacturing enterprises: A Research Agenda, Competition Forum, 8(1): 13-27. The ASC’s (American Society for Competitiveness) annual research volume, USA. Mohiuddin, M., Su, Z. and Su, A. (2010). Towards Sustainable Offshore Outsourcing: A case study of Quebec manufacturing Firms Outsourcing to China, The Journal of CENTRUM cathedra, 3(1):84-95. http://dx.doi.org/10.7835/jcc-berj-2010-0040 Mohiuddin, M. (2008). Bangladesh as an Emerging Tiger in Apparel Market: Challenges and Strategies, Daffodil International University Journal of Business and Economics, 2008, 3(2): 245-266. Mol, M. J.,Van Tulder, R. J. M. and Beije, P. R. (2005). Antecedents and performance consequences of international outsourcing, International Business Review, 14:599-617. http://dx.doi.org/10.1016/j.ibusrev.2005.05.004 Murray, J. Y. and Kotabe, M. (1999). Sourcing Strategies of U.S. Service Companies: A Modified Transaction-Cost Analysis, Strategic Management Journal, 20(9):791–809. Poppo, L. and Zenger, T. (1998). Testing alternative theories of the firm: transaction cost, knowledge-based, and measurement explanations for make-or-buy decisions in information services, Strategic Management Journal, 19(9):853-877. http://dx.doi.org/10.1002/(SICI)1097-0266(199809)19:93.0.CO;2-B Quinn, J. B. and Hilmer, F. G. (1994). Strategic outsourcing, Sloan Management Review, 35(4): 43-55. Rahman, K. M. A. (2008). Globalization and the Climate of Foreign Direct Investment: A Case for Bangladesh, Journal of Money, Investment and Banking, ISSN 1450-288X (5). Report of Board of Investment. (2012). Board of Investment Bangladesh, http://boi.gov.bd Saunders, C., Gebelt, M. and Hu, Q. (1997). Achieving Success in Information Systems Outsourcing, California Management Review, 39(2):63-79. http://dx.doi.org/10.2307/41165887 Sekaran, U. (2003). Research Methods for Business: A Skill Building Approach, Fourth Edition, New York, John Wiley & Sons. Smith, M. A., Mitra, S. and Narasimhan, S. (1998). Information Systems Outsourcing, Journal of Management Information Systems, 15(2):61-93. Sood, R. (2006). IT, Software and Services: Outsourcing & Offshoring-The Strategic Plan with a Practical Viewpoint, AiAiYo Books LLC. Sultana, M. A., Rashid, M. M., Mohiuddin, M., & Mazumder, MNH, (2013). Cross-cultural Management and Organizational Performance: A Content Analysis Perspective, International Journal of Business and Management, 8(8):113-146. http://dx.doi.org/10.5539/ijbm.v8n8p133 The Outsourcing Institute. (2006). Executive Survey: The Outsourcing Institute's Annual Survey of Outsourcing End-user. www.outsourcing.com/content.asp?page=01b/articles/intelligence/oi top_ten_survey.html&nonav=true

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Md. Mamunur Rashid and Md. Samim Al-Azad Uddin, G. M. (2005). The Challenges and Prospects of Effective HR Outsourcing for Managerial Activities in the Corporate World of Bangladesh, AIUB, Journal of Business and Economics, 4:91-104. Ward, S. (2004). Outsourcing Research: What is your position, Business Information Review, SAGE Publication, 21:227-239. Welch, J. and Nayak, P. (1992). Strategic Sourcing: A Progressive Approach to Make or Buy Decision, Academy of Management executive, 6 (1):23-31.

About the Authors Md. Mamunur Rashid completed his MBA from Southern Taiwan University of Technology (STUT), Republic of China, (ROC), Taiwan. His research interests are on Knowledge transfer through offshore outsourcing, emerging to developing countries offshore outsourcing and cross-cultural management. He have presented his research findings in international conferences and published in peer reviewed journals including Global Journal of Strategies and Governance and the International Journal of Business and Management. Md. Samim Al-Azad is a PhD candidate of the Graduate School of Business at Seoul National University, South Korea. He worked as a Lecturer of Business School at Prime University, Bangladesh and MIS officer at BRAC dealing with projects funded by the UNDP and WHO. He has published in Journal of Global Business Administration and Global Journal of Strategies and Governance. His research interest areas are IT outsourcing, knowledge management, and electronic and mobile business.

Contact Information Md. Mamunur Rashid, Email: [email protected]. Md. Samim Al-Azad, Email: [email protected].

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30-45

Cross-Cultural Management of an Indian Multinational in its Western Subsidiaries: An Exploratory Study Roli Nigam1and Zhan Su2

Abstract: Multinationals from emerging countries are climbing up the global performance ladder successfully and at a very fast pace. In spite of this there has not been enough studies done on the subject especially empirical studies, as pointed out by several authors. Our paper fills the gap in the literature by presenting the cultural adaptation of an Indian multinational in its developed country subsidiaries through a case study. The study focused on the behavior of the Indian multinational at the home country and in the developed country subsidiaries. The strategies used by them and finally the performance perception as viewed by the top level managerial board. Keywords: Emerging countries, cultural management, India, subsidiaries, performance

1. Introduction Globalization plays a key role for multinationals to realize efficiencies and competitiveness. For multinationals, this process helps realizing efficiency by achieving specialization of individual units as well as providing significant interchange among units (Fan et al. 2012). The momentum development of globalization is more recently experiencing a new paradigm shift in the flow of multinationals from developing countries to other developing as well as developed countries (Nigam, Roli and Su, Zhan; 2010a). This shift has started a new era of MNCs research which UNCTAD (2004) referred as a ‘new geography of investments’. This is a topical issue which enticed the area of research for this study. Seth (2006) and Budhwar et al. (2008) highlighted the need for more research on emerging country multinationals (ECMs) and cross cultural comparative management. Although there is mounting research available on MNCs - mostly driven by developed country MNCs setting up subsidiaries in other developed countries (Moore, 2012; Fenton-O’Creevy et al., 2008) or in developing countries (NewenhamKahindi, 2011, Nigam et al., 2009; Gomez and Werner, 2004; Park et al., 1996), there is relatively less available research on comparatively niche industrialized nations (Thite et al., 2012), specifically, in the stream of research on cross-cultural management of ECMs and their subsidiaries. The advancement of MDCs is not only a mimic but reality. The ranks of emerging economies are on the rise (Meyer et al., 2011). ECMs have been slowly but surely climbing up the success ladder (Nigam and Su, 2010). Consequently, the review of existing literature shows that there is a serious lack of research on ECMs expansion to developed countries (Thite, 2012), which is urging the necessity of conducting an indepth research. To bridge this lack, our study aimed to focus on the internationalization of Indian 1

Dr. Roli Nigam, Email: [email protected]. Faculty of Administrative Sciences, Laval University, Quebec, Canada.

2

Faculty of Administrative Sciences, Laval University, Quebec, Canada.

30

Roli Nigam and Zhan Su

multinationals and their successful cultural adaptation in developed North America (Canada and United States). The standardization or adaptation of ECM practices has been acknowledged as an area of research that needs further investigation (Baliga and Santalainen, 2006; Zhang, 2003). The paper is organized as follows. The first section of this paper discusses the flow of multinationals in general with specific emphasis given to ECMs, research gaps, research interest, and study objectives. In the second section, review of literature is done to understand the significance and purpose of research. Followed by research framework based on identified management practices like power delegation, compensation, promotion and rewards, performance appraisal and training, development and career planning which are used as a process to explore the cultural adaptations of Indian multinational in its North American subsidiaries in the third section. Qualitative methodology using case studies is justified for this particular research. The next section is devoted to case study and its analysis. And finally, we conclude the study with our contributions and further avenues for research.

2. Literature review The rise of Asian multinationals is a more recent phenomena which has attracted less research (Sim and Pandian, 2003; Sim, 2006; Aulakh, 2007) and even more so in case of Indian multinationals (Bruton and Lau, 2008; Nigam and Su, 2011). It has been emphasized that the little existing research has not been able to provide enough explanations for the ECMs (Sim and Pandian, 2003). According to Fischer et al (2004), “the tensions between Indian and Western managerial values have been emphasized by the normative Indian literature that has developed distinctive managerial values and ethics from roots deep in Indian culture”. The internationalization of Indian multinationals provide scope, size and opportunities to expand, exploit advantages and grow, and presents challenges of working in a culturally different environment (Bjorkman and Lervik, 2007). Little research that is available from the point of view of ECMs has been done on selected subjects like the increasing importance of multinationals from developing countries (Nigam and Su, 2010; Aykut and Goldstein, 2007), on their choice of entry modes (Cui and Jiang, 2010), strategies used by them (Bonaglia et al, 2007; Buckley et al, 2007), internationalization paths (Chitoor and Ray, 2007), etc. However, we found that most studies are lacking in empirical evidence. Latest empirical research is required to keep updated with the latest happenings and roles, to understand the implementation and cultural adaptation (Bjorkman and Lervik, 2007) of ECMs in developed countries. Our research subject prompts us to explore why Indian multinationals go to developed countries and how they manage their cultural adaptation? We will look into the major cultural challenges perceived by Indian managers, the management strategies adopted by them, implementation of the HR practices and details regarding the subsidiary’s performance. The style of management is used by Indian multinationals in their USA and Canadian subsidiary. Is it the strategy of Acculturation (leading towards more standardized practices), Integration (a balance between the home and host country practices) or Laissez Faire (referring to more localized practices and hence, adaptation) (Nigam et al, 2009; Nahavandi and Malekzadeh, 1988). It would be interesting to see how Indian multinationals adapt in their developed country subsidiaries and their perception on performance. Based on the literature review and future avenues, we focus majorly on three attributes: firstly, related with the objective of the Indian MNC in going to developed country. Secondly, on the subsidiary’s cultural adaptation in its developed country subsidiary and lastly, related to performance perception.

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Cross-Cultural Management of an Indian Multinational in its Western Subsidiaries

The internationalization provides scope, size and opportunities to expand, exploit advantages and grow on one hand, while challenges of working in a culturally different environment on the other hand. Certain HR practices (discussed below) have an influence on the degree of standardization and/or localization on going abroad and are directly related to performance. The standardization or localization influences firms management strategy, i.e. which style of management is used by the firms in their developed country subsidiary. The cultural management strategies which form a part of our study are Acculturation, Integration and Laissez Faire. Acculturation: is said to be practiced when two autonomous cultures come together and as a result change is required in at least one of the cultures (Berry, 1980). Accordingly, one partner usually dominates the other and influences the direction of cultural change and management over the other partner. Acculturation also depends upon the approach of the parent company and the subsidiary, on the globalization pressures to foster uniformity, etc. (Takeda and Helms, 2010). Integration: results when partner companies blend their current cultures together. Soon after acquisition, managers need to decide how and to what extent the two companies should be integrated. However, integration is highly dependent on the willingness of the parent company for allowing the subsidiary a certain degree of independence (Nahavandi and Malekzadeh, 1988). This cultural strategy results in a certain degree of cultural change for both partners. Laissez Faire: results when the foreign subsidiary culture is left untouched by the acquiring multinational. In this case the culture of the foreign subsidiary prevails in the subsidiary office. It results when the subsidiary functions as a separate unit under the financial umbrella to the parent multinational. There will be minimum exchange of culture and practices between the parent and the subsidiary, and both continue to function independently of the other (Nahavandi and Malekzadeh, 1988). It may also take place when the acquiring multinational desires to reap the benefits of the subsidiary’s specialization without any issue of control. Furthermore, if a pre-existing firm has been acquired as a subsidiary, it is more likely for it to have localized practices because of pre-existing on site operations (Guest and Hoque 1996).

3. Operationalization of research design 3.1. Method: case studies & multinationals The HR practices chosen for our study are power delegation, compensation, promotion and rewards, performance appraisal, training, development and career. Power Delegation: The caste system signifies one of the major values of the Indian society which to a certain degree has been incorporated into the day to day management of the companies (Chatterjee, 2007). The caste system respected hierarchy, which means that people were divided into higher or lower groups depending on the caste that they were born into. Kumar and Shankaran (2007) insist that Indians have a hierarchical mindset, be it people, relations, ideas, etc. arranged in a hierarchical manner in their mind. The hierarchical nature present in the Indian culture indicates that authority is more centralized and the flow of decision making would be more top-down. This is further emphasized by Hofstede’s (1980) study on culture, where India scored high on power distance. This implied that India is a hierarchical society which respects power distance and the delegation of power and authority is valued. However, in a

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different culture this may not be the case, e.g. in some cultures decentralized power provides more motivation to employees. Recent research indicates the firms should include employees in decisionmaking and strategic planning to increase their motivation, confidence and performance (Kim, 2002).Power delegation was measured keeping two outcomes in mind: Firstly, how much power was delegated by the head-office to the subsidiary and secondly, how important was hierarchy within the headoffice and the subsidiary. We asked questions on centralization of power and decision making (Fey et al, 2000), like who was responsible for making decisions (e.g. hiring, firing, promotion, budget allocation, etc.) in the subsidiary. For measuring and evaluating the hierarchy in / between the two, we asked questions related to the importance of titles and status in their respective organizations. Questions related to the number of levels and measurements using a Likert scale associated to the importance of hierarchy were also asked. Compensation, Promotion and Rewards: Compensation is one of the important methods for motivating employees and may be directly attached to specific goals or organization objectives (Singh, 2004). It has been argued that money is one of the strong motivators (Bock et al, 2005) for Hong Kong employees (Chiu et al, 2002). In their study, Chiu et al (2002) concluded that the top motivators for Hong Kong employees were basic salary, merit pay, year-end bonus, profit sharing and annual leave. On the other hand, a study on employee motivation by Nelson (1996) found that money was not the primary motivator. He found that instant and personal recognition were among the top motivators. Same set of factors may not prove to be equally high motivators in two different cultures. Since India is a collectivist society (Hofstede, 1980), programs like maternity leave and career breaks are popular (Aycan, 2005). For the same reason lifetime employment is encouraged in the public sector along with certain benefits like medical facilities, accommodation and educational conveniences (Chatterjee, 2007).The collectivist and individualist cultures also give rise to different kinds of reward schemes. For example, special recognition for one employee may not be an effective idea in collectivist culture, but more on group recognition. On the other hand, in individualist culture, recognition and bonuses for good performance for individuals are popular (Aycan, 2005). Several questions related to compensation, promotion and rewards were asked to the managers. For example, related to the strategy of giving bonuses, share options, profit sharing, merit or seniority used for promoting employees, etc. at the head-office and at the subsidiary. Performance Appraisal: Performance appraisal has slowly become a significant part of HR activities. Its objective is to improve firm’s performance by providing developmental feedback to employees. Formal, objective and individual appraisal methods are more popular in individualist cultures like North America, which encourage goal achievement. On the other hand in collectivist cultures like India, use of informal, subjective appraisal is more popular (Stone et al, 2007). In India the performance appraisal is valid for only a certain level of employees (Chatterjee, 2007). This is supported by Mendonca and Kanungo (1990) when they observed that Indian managers are far behind when it comes to involving employees in the process. Also peer appraisals, which are considered as effective methods, were not popular in Indian companies (Baruch and Budhwar, 2006). In addition, a recent study in the Indian context (Rao, 2007), found that performance appraisal and individual goals were not regarded as significant procedures in India. The main focus is on rating rather than feedback and further development. In case of performance appraisal practices, questions were asked and their importance was measured on a five point Likert scale for both the organizations.

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Training, Development and Career Planning: Training and development (T&D) is considered very important by most organizations since they help to provide an edge over competition, by increasing the quality of their employees (Singh, 2004). Aycan (2005) argues that in collectivist cultures, T&D is aimed to increasing loyalty for the organization. Whereas in performance oriented developed countries, it is directed towards the employee’s or team’s performance. Aycan (2005) explains that in high power distance countries, the participants are chosen on the basis of favoritism rather than requirement. The employees who are in good relation with superiors are favored over others. Career planning is done by firms to assist employees in choosing their assignments in a manner that will allow them to get skills and experience that will prove to be beneficial. There is a standard defined career path for the employees in general while specific planning is limited in Indian organizations (Chatterjee, 2007). Overall, the career planning and management practices are seen as “less dynamic, rationalized and structured” in India in comparison with UK (Baruch and Budhwar, 2006). Questions on training, development and career planning were related to different kinds of training, emphasis on providing training to employees (Fey et al, 2000), their frequency, importance and its impact on career planning. Organizational Performance: The outcome of the foreign subsidiary’s culture is directly dependent on the analysis derived from the results of the independent and moderating variables discussed above. The focus of attention in HRM research in recent years has been more on linking HRM practices with business strategy and organizational performance (Paul and Anantharaman, 2003; Khatri, 2000). Recent studies by Tzafrir (2005) and Wright et al (2003) have also shown that HRM practices contribute to positively enhance the organizational performance of firms. Several other researchers have acknowledged the significant increase of human resources and HRM practices as ‘good things’ and having potential for an organizations continuous success (Godard and Delaney, 2000). Tzafrir (2005) supports the idea that firms exhibit higher organizational performance when the employees are provided with a constructive work environment. We wanted to know the impact of cultural management strategies adapted by the Indian multinationals on the performance of the subsidiaries. We chose subjective measures, which have been popularly used for organizational behavior studies. They are capable of providing a rich description, understanding and information of the effective organizational performance (Minbaeva, 2008). They allow diverse enterprises to be compared within one study (Allen et al, 2008).In case of foreign subsidiaries, the use of HRM in a strategic manner is one of the most important influential factors for organizational performance. It was observed that there is a strong association between many HR practices and performance measures (Huselid, 1995). We probe deeper by asking questions related to the satisfaction with the subsidiary’s performance, to perception of the employees, to market and customer reactions, to its notable accomplishments, etc. Besides performance, this will also demonstrate to us the satisfaction level (Kuvaas, 2006) of the parent company with the subsidiary’s performance.

3.2. Results: case study of Indian pharmaceutical multinational “The pharmaceutical sector is one of India’s most important sectors in terms of projected revenue growth from exports and for meeting the needs of Indian population. The Indian pharmaceutical industry is one of the world’s largest and most developed, ranking 4th in volume terms and 13th in value terms” (Ministry of Commerce & Industry, 2008). Since 2011, it has become 3rd largest in terms of volume.

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PharmaZT is an integrated Pharmaceutical company with strategic focus on innovation and accelerated process of delivering products to customers. The Company through its global presence serves customers in over 60 countries. Starting year 2005, the focus was on the North American market and they acquired three FDA approved manufacturing facilities cum sales and marketing offices. They thus developed an elegant business model concentrating on different stages of value chain. There have been cases of intense opposition for some acquisitions where the MDC were acquired by ECMs. Mittal steel’s acquisition of Arcelor steel remains most popular example in this category. This went on to the extent that the Indian government had to diplomatically complain to the European Union (Asia Times, 2006). However, the market reaction in North America was not the same. The good reputation of the Indian multinationals preceded their actions. Employees at the facility were optimistic that this acquisition would represent growth and investment: “From our standpoint, we had heard that they had also acquired another facility in North America the year before. And there had been investment made in the facility.” (Sub ZTs) Strategic Objective for North American Presence: It was observed from empirical studies that acquiring subsidiaries in North America was a strategic objective of Indian multinational to gain faster entry into the regulated USA market, to enter the global pharmaceutical sector, spread its hold in all forms of pharmaceutical market and benefit from FDA approved manufacturing units. Had the multinational set up its own subsidiary, it would have taken a long time to get the FDA approval. The intention was to have presence in the entire value chain from raw materials, to intermediates, to manufacturing of final pharmaceutical products, to marketing of those products, to the allied services and the clinical services: “They view the opportunity to complement their existing portfolio of products and services with North American presence. More than that, it opens up new products and services that our services offer and they can offer to clients.”(Sub ZTs). The company’s success so far has been an outcome of its strategic focus on the pharmaceutical industry, moving up the value chain for products and services, investing in various growth platforms and promoting a culture of innovation for serving customers globally. However, after acquisition, several cultural challenges were faced in the integration process. Differences in Cultural Perceptions: There appeared several cultural challenges. The majority of manufacturing facility in USA would be up and operating by 6:00 in the morning, and shut down production by 2:00 in the afternoon. What the subsidiary had not previewed was that most of the Indian culture worked from 6:00 in the morning till 8:00 in the night: “We would hold meeting with all of our leaders sitting in the conference time starting at 8:00 am expecting that whoever the visitor was would come in at 8:00 because that is what the agenda was. And about 9:00 or 9:30 they (Indians) would come in and by that time we wouldn’t be there.” (Sub ZTr).This proved to be a real struggle for both. The US employees would leave according to their agendas and not wait for the Indian employees. This left both the subsidiary and the head-office employees frustrated. Another cultural issue that arose was related to the evening activities. This again highlighted a cultural shift and differences in understanding between the two cultures: “If we had a guest in our community, we would host them for maybe 1 night out of 3 or 2 nights out of 5.” (Sub ZTr). However, one of the things that came up and was learned through discussions was that frustration was being voiced by some of the Indian visiting employees. The Indian visitors could not understand why their western colleagues did not want to entertain them and go out in the evenings. The dissatisfaction showed by Indians was a stunner for the subsidiary employees as they felt that they were being accused of not being good host. They felt quite strange and opposed that their priorities were to be with their families. The Indian management culture

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may be said to be more flexible in terms of everyday management and operation. In comparison, the subsidiaries were found to be more formalized in their working style, restricted with their time and schedule setup. The flexibility of Indian head-office may be seen as an advantage for enhancing sustainability and durability as firms venturing outside their domestic boarders can make use of it to benefit from more strategic options (Luo and Rui, 2001). Power delegation (hierarchy): Respect, loyalty, affection and bonding are important social aspects of the Indian management culture (Chatterjee, 2007 and Kumar and Sankaran, 2007). Hierarchy has more importance in the head-office in comparison to the subsidiary. For e.g. a cultural challenge was experienced in the very starting of the business relation by one of the senior member from the subsidiary. During due-diligence and negotiation process the owners had introduced themselves on the first name basis and were relaxed while interacting. However, once the acquisition was completed and the delegates from both sides had their first real meeting, cultural confrontations were obvious to both sides: “I was pulled aside by someone and told that I was being clearly very disrespectful by referring to the owners by their 1st name. You should refer to them as Mr. _X_ or sir.” (Sub ZTr) This is an example of one very subtle cultural trip that came up on the interaction of two different cultures. Most epic and holy books in India also promote the respect for authority and seniority (Prabhupada, 2008). These values are ingrained in Indian society and they in turn promote the behavior towards centralized decision making. At the same time, the Indian expatriates who went to work in the American subsidiary was also experiencing the cultural shock as he felt that he was in a very different environment: “I must say that here hierarchy is not as much as in India. In India people give you a lot of respect, if you are a vice president then lots of respect. Not same here. Here you will feel very odd” (Sub ZTs1) The importance of hierarchy is also highly evident by the fact that there were 5 to 6 levels in the subsidiaries as compared to 13 to 15 levels in the head-office. Therefore, the distance between the employee and his manager in the subsidiary is not much. There is a difference in the way employees are treated. “A key difference that the former authors observed, however, was that the Indian firms’ practices were more personalized and ad hoc, subject to the whims of top management, while the practices of the Western firms were more likely to be impersonally institutionalized and stable” (Rao A.S, 2007). Accordingly, we found that in India boss always has the upper hand and their relation is more formal. Further, titles and status’s have less importance in the subsidiary than in the head-office. Consequently, employees are encouraged to make decisions without interference from their managers but only within the framework of their day to day roles. It was interesting to note that the American employees considered hierarchy as the ability to make financial decisions, rather than in terms of reverence and seniority as was seen in India. The issue of trust came out as important for the Indian multinational. This was demonstrated by their behavior when they paid attention to building relationship and trust. They sent just one person to the subsidiaries to oversee the operations and build relation and awareness. Further, there have been cases when the Indian multinational infused equity in case of financial difficulty. The multinational gave priority to build relationship with the subsidiary and gain confidence. Power delegation (decision making): the pharmaceutical multinational involve facilities that manufacture drugs which are injected in peoples bodies, and hence, independent decision-making is inherently risky.

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The facilities are regularly audited by FDA, regulatory agencies as well as by customers. In view of this, the employees are encouraged to make decisions but within well-defined parameters. Consequently, it is a regulated decision making market. It is recommended to made group decisions instead of individual. There is a business structure that has been put in place. The head-office enjoys the final decision making power over its subsidiary. The basic strategy comes from the head-office but the subsidiary is given a relatively free hand for taking its own decision within the framework of the overall strategy. In case the subsidiary has to go out of the framework, then they are required to discuss with the head-office. We realized that power delegation was important for the multinational and hence, the final decision making powers at higher levels were retained by the head-office. Kumar and Sankaran (2007) and Varma, Srinivasand and Stroh (2005) support the idea that Indian managers have a preference towards centralized decision making or paternalistic management styles. This may be treated as a cultural issue since for generations Indians have followed a hierarchical social system (Sahay and Walsham, 1997). Decisions in the subsidiary related to the number of people, promotion, hiring and firing of employees, evaluating work performance, salary levels, etc. are taken solely by the subsidiary itself. However, in case of some key areas, particularly in finance, hiring is taken care of by the head-office. The Indian head-officealso gets into action while recruiting senior level key personals in the subsidiary. Regular meetings take place between the subsidiary and the head-office for exchange of day to day happenings. Communication is good and things are discussed. In subsidiaries there is very much a structure for decision making. When the Indian multinational acquired this subsidiary, there was a lot of ambiguity and subsidiary made the mistake of thinking that they had the authority to make decisions regarding investments, head counts, paychecks and expenses. This led to a lot of frustration when those decisions were found out. The subsidiary had a tough time understanding this. It was becoming an impediment for making hiring decisions in a timely fashion since they were required to go back and forward with the head-office for getting approval. This hindrance was costing them as sometimes they would miss out on good candidates because of delays in decision making. Compensation, promotion and rewards: Although the basic pay is higher in the subsidiary according to the law in each country, the subsidiary is a little less motivational in terms of the concept of profit sharing, bonus, share options, incentive for good performance, rewards for achievement of group objectives, and other benefits given to employees. One expatriate involved with the acquisition of the subsidiary told us that a quarterly employee meeting was enforced very seriously by the Indian multinational. In these meetings the senior management acknowledges the performance of the company, employees who have completed their higher qualification or certifications or who have done something fantastic are all applauded publically. The Indian multinational started a new concept in the head-office and made it compulsory at the subsidiary too, and this was to have a coffee chat with the senior management. During this meeting, the employee and the senior management person will chat, interact and share their thoughts. An attempt to understand the concerns or issues of the employees and also to get their suggestions is the idea behind this. In regard to the question of status and titles, the subsidiary considered them from a more practical point of view. They are considered important as they proved to be nice motivators. For this reason, the job titles are constantly evaluated and accordingly weaved in to fit into the structure. For the same reason hierarchy was also considered important as it brought with it power to make decision. Although the concept of

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hierarchy came out as important, it was not for the same reasons as in India, where it is based more on respect. The significance of hierarchy in subsidiaries was on the authority to make business decisions. The concept of bonus was more important at the Indian head-office in comparison to the subsidiaries. Normally the Indian employees prefer and ensure maximum employee welfare and benefits at workplace (Business Today, 1995, Sparrow & Budhar, 1997). At Sub ZTr, about 10% of the top employees are eligible for bonus. Also, the subsidiary never had the profit sharing model or stock options, nor is planning to adopt at this time. One of the reasons we found for this was that the subsidiaries were mostly privately held by the Indian multinational. In the head-office for Indian employees, stock options are more popular. Although the subsidiary does not necessarily provide financial benefits, some other benefits are quite popular: extensive medical coverage benefits, encourages healthy lifestyle by offsetting programs for gym memberships, back to school programs, etc. There are not really any instances of family members getting involved and running the business or their relatives getting the job in either the head-office or the subsidiary. Both are run in an extremely professional manner. At both the places there is a near relative policy that discourages the recruitment of near relatives. One of the Indian expatriates acknowledged that: “Even if someone is recommended, they go through the whole selection process and finally the best candidate is chosen.” (Sub ZTc). At both the head-office and subsidiary, pay is merit based with little importance given to seniority or favoritism. Although relationships are important in India, they do not play a role in employees getting promotion or new employees getting selected in the company. Although there is an attempt to move over to similar practices, it is not so as things do vary from location to location. The subsidiaries have been acquired but the multinationals have to continue with some of the existing practices. This is not because of what they want to do but because of the market. It is important to understand that they are different markets. For example, in India the compensation levels are different; the cost of living, structure is different than in the North American part of the world. Further, in US people are more concerned with retaining their jobs, while in India, people are more concerned with improving their situation. Performance appraisal: The performance appraisal (PA) programs are considered to be important both at the head-office and the subsidiary, and employees at all levels participate in it. They are done annually and are based on criteria’s such as quality of work, relationship with others, attitude, etc. In all the subsidiaries’ it is done in a similar fashion. Stone et al (2007) noticed that “formal, objective and individual appraisal” methods are more popular in individualist cultures like North America, which encourage goal achievement. On the other hand in collectivist cultures like India, “use of informal, subjective appraisal” is more popular. However, we found that mostly formal methods are used in the subsidiary, while both formal and informal methods are used in the head-office. Employees are given feedback in formal face to face meetings at the subsidiary while at the head-office it is both formal and informal meetings. At both the places PA was aimed at having an impact at employees improved performance and employee’s own opinion was also taken into consideration. The unwritten PA was considered as a motivation for employees and a chance to communicate through the department. Also, pay related performance appraisal has been an effective technique (Baruch and Budhwar, 2006). We observed that a transition towards merit based pay rather than seniority based pay (Budhwar and Boyne, 2004; Pio, 2007) is taking place and this was very evident in all the subsidiaries. The Indian head-office employees and expatriates believed that the PA practices were very similar at both

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the offices. However, on a detailed questioning we found that although the practices were similar, their perception was still different, maybe because of cultural differences. The subsidiaries considered the whole system of PA as very significant. It helped them to move on with their future planning related with the employees and the business development. If an employee has a career goal for himself and wants to be promoted to a certain position then the subsidiary starts identifying the positions and needs for matching with the employees’ experience. According to Amba-Rao et al. (2000), Indian managers have long resisted the implementation of a formal performance appraisal system, and have been criticized for not involving employees in the appraisal process. However, this was proved wrong by our study since the performance appraisal process included the opinion of employees themselves too. After the acquisition, the PA system of the subsidiary was aligned with the corporate office. This was in terms of timing of performing the PA in corporate. After the acquisition, it is same in the subsidiary now. Although slight differences still remain, the head-office did not feel the need to change the point system as it achieved the same purpose, just through a different scale. Hence, the overall strategy remains more or less similar, although the intricate technicalities might differ.Favouritism or preferential treatment is discouraged at both the head-office and the subsidiary. Consequently, the companies are really unenthusiastic about employing family relations. Training, development and career planning: The importance given to training and development is extremely high at both the head-office and subsidiary since the company is in the pharmaceutical industry, a market based on research and development. Therefore, specific training programs related to the field of business are designed and information or training on the latest technology is considered very crucial. Regular trainings to both new and old employees are a necessity and are given at both the subsidiary and head-office. Since training is an extremely important function in the pharmaceutical industry, it is compulsory for all the employees to go through strenuous training programs before acting independently. For subsidiaries which are in the manufacturing field, there is continuous training for the employees. This implies that there is a lifelong learning process. On further probing we found that because of differences in the activities that are performed in the headoffice and subsidiaries, there were different kinds of training taking place at both the places. At the headoffice, most multinationals had a fully developed training center. There are internal as well as external faculties where employees are trained. The subsidiaries have a different set up as compared to the headoffice. The focus at the subsidiary has been primarily on technical and regulatory training that is normally required by the pharmaceutical law in USA and Canada. Mostly the R&D activities take place in India. Interesting enough, a budgeting process is followed in the companies for handling the training requirements. The financial resources are allocated according to the requirements and associated cost of each company and department. An estimated amount will be budgeted and reviewed accordingly. A very similar process of centralized budget is followed in the subsidiaries and the head-office. The budget is normally recommended by the departmental head, both for internal and external training. The recommendations for the budget for the whole year are based on the number of people, on their skills, and on the skill set required to perform the respective job functions in an effective manner. These criteria’s are taken into consideration and accordingly recommendations are made. We were informed that the main budget is finalized in discussions with the head-office. However, it is allocated according to the requirements and planning of the subsidiary. In manufacturing facilities, this was very much evident. The

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employees were being evaluated based on their quotidian performance. This means that training is not being used here for the purpose of just evaluating performance, for giving accolades or providing motivation but more for evaluating performance to maintain the standards required by the company. The multinational do not motivate their employees after training for acquiring competencies. They consider training itself to be a motivator by ensuring that it is meaningful and will aid the employee in the achievement of the company’s goals. Also the employees are motivated by the sense of satisfaction and the learning that they receive in the process of learning. Further, there is no tool to measure formally if the training has contributed towards employee development. Also, it makes an impact on an employee’s career planning by keeping him updated about the industry. This being an ever evolving sector with constant innovations and new technologies, it becomes important for the employees to remain updated. Overall, the career planning is largely ignored by the majority of firms (Business Today, 1995) and management practices are seen as “less dynamic, rationalized and structured” in India on comparison with a developed country (Baruch and Budhwar, 2006). We can say that this idea was somewhat supported by our study since receiving training or attending training programs were not linked with development of careers at either the head-office or the subsidiary. Foreign subsidiary performance perception: The performance is ultimately the most important outcome in any business. The individual performance is linked to the subsidiary’s performance, which in turn is linked to the overall performance of the multinational. The subsidiaries which had recently been acquired have not completely achieved their objectives. Nevertheless, the subsidiaries are on the path towards being profitable from the day they were acquired. Some are having impressive profitable numbers, while others are having moderate profit numbers. Although the objectives of the multinational are clear, the direction towards growth is clear; some external issues were pointed out during the interviews, which were hampering rapid performance of the subsidiaries: “Because of environmental requirements, and various situations, the performance is not in line with expectations.” (HO ZT) This clearly indicates towards the differences between the very strict environmental laws that are practiced in developed countries. It also brings out serious preparation, determination and the high standards that the Indian multinationals are ready to adapt in order to emerge as reputed global companies. One example in support would be that one of the subsidiaries has been awarded as the best manufacturer in their state this year. There has been lot of tangible growth and the required infrastructure has been set up. Also, a lot of intangible growth has taken place in terms of customer accounts, volume growth, etc. The company has invested a lot in R&D and it is expected that the subsidiary will prove to be profitable in the coming years. While this is a specific case of one subsidiary, similar situation is valid for other subsidiaries as well. On the financial side, there is a very clear strategy of the parent company and substantial amount of effort has been put in for achieving those objectives. However, other than that, the subsidiary doesn’t believe that there has been an effective communication strategy. Hence, they have not been able to progress in any way towards any other objective. For the future the subsidiary would like to see itself performing much better with more revenue. Though they agree that is not as easy as saying it, but they believe that more autonomy would actually help them in succeeding towards better performance. Overall, the Indian multinational is committed to leverage innovation and scale of operations at every step of the pharmaceutical value chain to deliver value to their stakeholders globally. It boasts of a creditable

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talent pool, which is a blend of PhDs, MDs and Masters, across various disciplines, and brings a wide range of experience from global pharmaceutical companies, biotech and academia. The companies are slowly but surely moving towards their vision to acquire and maintain global leadership position in their field of business, to continuously create new opportunities of business for growth, to be among the top 10 most admired companies to work for.

4. Discussion and conclusion It was acknowledged that integration is always a challenging thing. Significant difference in the institutional framework, work cultures and human behavior in different economies lead to difficulties in integration between the two cultures. The importance of cross cultural training to develop an understanding for employees, both at the Indian office and the subsidiaries was highlighted due to the misunderstandings. In order to overcome the cross cultural matters the Indian head-office sent expatriates to the subsidiaries with the purpose of becoming buffers and try to minimize these frustrations through communication. Subsidiaries also made attempts by getting professional training. They were able to get insights that were tremendously helpful to develop an understanding. The understanding is expected to develop by keeping open minds and open communication. Also, an effort is being made to integrate the practices in USA subsidiaries. Accordingly, the aim is to have common practices throughout USA and reduce ambiguity. A slight convergence towards standard practices was observed in subsidiaries along with a positive mindset for global practices leading to positive effect on companies’ performance. Comparatively, most Indian multinationals are relatively young company, and at this level of growth they are building very quickly the infrastructure to be able to define boundaries regarding the charge of authority. The subsidiary managers are developing a better understanding what their boundaries are, where they can make decisions and when they need to go to their corporate head-office. The company has invested heavily in software which will allow them to see in real time production, deviation, expenses, labor cost, or retirement, etc. going on in the subsidiary. The open ended intend is to get more knowledge and information on the subsidiary in real time. Controls are being introduced slowly with the intention of moving towards greater transparency. Although developing trust and strengthening the relationship is extremely important, the issue of control has not been forgotten. Based on our research, we conclude that the Indian multinational follows the strategy of Laissez Faire going on Integration in its developed North American subsidiaries. Firstly, the laissez faire strategy is evident in terms of employees, since the subsidiary is more localized in terms of presence of number of employees at the management level. Secondly, the multinational is more interested in reaping the benefits of developed country subsidiaries instead of attempting to change the existing policies and practices. Although the multinational has given the subsidiaries a relatively free hand, it nonetheless has kept the final strings and control in its own hands, which is very much evident by its control over the final financial budgets, strategies and defined frameworks for the subsidiary. Thirdly, we observe that the multinational is not trying to change the management culture in the subsidiaries but instead aiming at developing a better understanding between the head-office and the subsidiaries. The convergence and divergence views are becoming very ambiguous in the ever globalizing world. The Indian multinationals are being challenged by this notion of convergence. Over the years, India has been

41


highly influenced by various factors, and most recently by globalization which has had a dramatic influence for the corporate mindset as well as the HR practices. Indian managers and management system has been much influenced by the West by being educated there, receiving western education, getting work experience there or working in western business models within India (Budhwar et al, 2008). Added to this is the exposure from the Internet, access to global television, etc., is helping towards building similar mindsets throughout (Budhwar and Sparrow, 2002). This results in new management styles of the Indian businesses, especially in the private sectors. According to Woldu, Budhwar and Parkes (2006), most of the convergence of culture is occurring within India. The Indian multinationals are constantly modifying strategies as per the business environment. This allows them to build a strong organization and ensure that it meets the overall strategy objectives. For example, in a big and competitive industry like pharmaceuticals, consolidations are regularly going on. With these consolidations, pharmaceutical companies sometimes take a back seat about whether to develop all drugs that are there or to wait for the market to pick up, etc. Based on the ever changing business environment, there are a lot of challenges, which requires constant review of objectives and strategies. This paper advances the research in the field of ECMs by providing an empirical exploration on the cultural adaptation of Indian multinationals in their developed country subsidiaries through some chosen management practices and policies. The results indicate a tendency of the Indian multinational towards adaptation in the developed country subsidiary but at the same time to have the final controlling power. The findings also indicate an influence of globalization when compared to previous research. Finally we can conclude that the study has made contribution to the literature and provides guidelines for practitioners. Our empirical exploration will help in the advancement of the literature by contributing to the limited pool of studies in the field of ECMs. The practitioners can learn from the experiences of this multinational and develop an understanding for their future planning.

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About the Authors Dr. Roli Nigam completed her Ph.D. from Laval University, Canada. Her research interests lie in the field of emerging markets, culture and the flexibility of management strategies. She has presented her work at several reputed conferences worldwide, as well as published in reputed scientific journals. Faculté des sciences de l’administration(FSA), Université Laval, Québec City, Québec, Canada. Dr. Zhan Su is professor of Business Strategy and International Management at Laval University in Canada. He has been Director of Stephen-A.-Jarislowsky Chair in International Business since 2008. During these past years, he has carried out many research projects regarding a variety of subjects such as strategic management, country risk evaluation, cross-cultural management and doing business in Asian markets. Professor Su’s research has been published in numerous journals and books in Canada and abroad and has been presented in over 200 national and international conferences. Professor Su has also organized manyconferences and training programs for executives and provided consultation for numerous organizations and firms worldwide. Contact Information Dr. Roli Nigam, Email: [email protected]. Dr. Zhan Su, Email: [email protected].

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46-59

Technological Innovation in the United Arab Emirates: Process and Challenges Mariam Omran Al Hallami*, Constance Van Horne† and Victor Zengyu Huang‡

Abstract: The purpose of this paper is to enhance our understanding about the current state of R&D in the UAE and its challenges through an exploratory case study of a technological innovation. The innovation process of the Emirati entrepreneur is similar to processes in other parts of the world, but there is no access to government research centers or public research available. The findings suggest that support is needed to increase the efficiency and effectiveness of technological innovation processes in the UAE. Keywords: R&D, innovation, research processes, Abu Dhabi, UAE, innovation processes

1. Introduction In a globalized competitive market, becoming and remaining competitive is an enormous challenge, for regions, nations and enterprises. The key to tackle this is for firms to continually invest in research and development (R&D) and innovate. Innovation has the potential to generate unique, difficult to imitate organizational capabilities and competencies leading to competitive advantage (Hall, & Martin, 2005). While, enterprises are the principal agents of innovation today, they do not innovate and learn in isolation (United Nations, 2005). Therefore, it is important for countries to support firm-level innovation through policies and initiatives which will, encourage local firms to invest in R&D, which will in turn lead to an increase in national innovation efficiency and thus the country as a whole will become more competitive. However, there has been a visible gap between countries in terms of technological advancement. For example, whereas some regions, the West in particular, have been leaders in innovating and R&D, other regions are trying to catch up. R&D has both a direct and indirect impact on a country’s economic growth and is a vital ingredient to advancement in science and technology, inventions, sustainability and competitiveness (Hall, & Martin, 2005). A recent report identifies science, technology and innovation as essential to achieving the United Nation’s Millennium Development Goals (United Nations, 2005). These goals include universal education, environment sustainability and ending poverty. Hence, science, technology and innovation are

*

Mariam Omran Al Hallami, Sheikha Salama Bint Hamdan Foundation, P.O. Box: 62086, Abu Dhabi, UAE, Email: [email protected].

†

Constance Van Horne, College of Business, Zayed University, Abu Dhabi, UAE, Email: [email protected].

‡

Victor Zengyu Huang College of Business, Zayed University, Abu Dhabi, UAE, Email: [email protected].

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Mariam Omran Al Hallami, Constance Van Horne and Victor Zengyu Huang

not just topics on local agendas, but are part of a global mission to achieve the development required in this day and age and to become globally competitive. This research paper investigates an R&D and innovation process through an exploratory case study of a technological innovation from the United Arab Emirates, which for the region can be termed a radical innovation. Radical innovation is the application of significant new technologies or new combinations of technology to new market opportunities (Tushman & Nadler, 1986). While these innovations could impact economies and firms positively they are highly uncertain, costly and may threaten an organization well being through the high risk associated with the lengthy research process. Yet, they are often a means of survival, sustainability and growth of firms (Hall, & Martin, 2005). This paper aims to study an innovation in the United Arab Emirates with the objective to better understand the challenges faced by the private firm or entrepreneur in such attempts and gain insight into how these challenges could be avoided in the future for efficiency and development purposes. There are two main questions that this paper is motivated by: a) is there anything unique about the R&D and innovation process used by the Emirati entrepreneur? b) Could the process be more efficient? To begin answering the specific research questions this article will present a general review of the literature from several fields including research policy, innovation management, R&D management and will use data from international and national reports. The article is organized as follows. The first section will explore the role of R&D in developing economies of various regions and look at the current state of technological innovations used by entrepreneurs in the UAE. The second section will provide a review of different research processes that are in literature. The third section will provide an exploratory case study of the R&D processes of the Al Hallami Group, a UAE based private company owned and operated by an Emirati entrepreneur, which was used to develop a floating platform that is a combination of a yacht and a villa known as the floating villa (Floating villa website). The reason for choosing to study this case is because it’s first of its kind globally and a patented innovation that is in the process of commercialization. Additionally, because of the unique access to data the researchers had including patent applications and diagrams. Finally, the conclusion will provide insights drawn from the case study and provide some suggestions and future research directions. Studying the research processes of such an innovation will allow us to gain insights into these understudied innovation processes, help us understand the difficulties faced by entrepreneurs and managers of private corporations in such processes and what support could be provided to ease these challenges. Initial finding suggest that there is a need for external funding and access to resources such as R&D facilities and university based researchers. This study is intended to assist researchers, practitioners and policy makers in R&D decisions, improving research processes efficiency and enhancing innovation through understanding the current environment. With the results of the case study it will be possible to suggest ways to enhance R&D development processes by private firms in the MENA region.

2. R&D status in world regions Studying the state of R&D in different regions of the world will help better understand the role that R&D plays around the world and position the level of R&D in MENA and the Arab Nations in comparison with the rest of the world. This section will explore R&D in various leading regions in order for us to have a

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Technological Innovation in the United Arab Emirates: Process and Challenges

clear vision on global research environment and what can we learn from it. This will give us insight to where researchers stand and explain if there are regional reasons to facing challenges and obstacles in R&D.

2.1. The West (Europe and North America) The West is amongst the largest investors in R&D, where America has the largest share of global R&D expenditure at 37.6% and Europe at 32.7% (UNESCO, 2009). The largest investors and performers in R&D in North America and Europe are private business enterprises followed by governments (UNESCO, 2009). As an incentive and encouragement to the private sector to invest in research and development activities, a number of western countries offer tax incentives. The R&D tax incentives are a method to increase national R&D expenditure (Van Horne, 2009). The sectors with the largest R&D expenditure in the West are pharmaceutical and biotechnology, automobiles and parts, and technology (Scoreboard 2008). Microsoft, General Motors and Johnson & Johnson are amongst the top 25 companies investing in R&D with 9.6, 8.7, 8.2 million dollars going to research and development respectively. Clearly the role of private firms and enterprises in R&D is vital to the economy. Not only does it improve the Gross Domestic Profit, through improvements in productivity, but puts firms ahead of their competition and increases their revenue. It also creates new knowledge, products and opportunities (Tushman and Nadler, 1986). The West remains ahead in research, development and innovation. Trends in R&D expenditure clearly show the importance of such investments in sustaining a company’s performance even when the economy is suffering.

2.2. Asia Asia is the biggest competition to the West in technology, research and development. A recent statistic by UNESCO (2009) indicates that the world’s share of researchers is highest in Asia at 41.4%. Also, Asia’s share of R&D expenditures puts them right after America and before Europe, which indicates rigorous competition. The research density (distribution of researchers in relation to the size of the population) in Asia is larger than Europe at 32.7% and it increases as it was influenced by some of the emerging economies within the region. Japan in particular has the most impact to Asia’s R&D sector with Toyota Motors ranked first as the company with the highest R&D expenditures with a growth in their investment of 7.6%. Other top ranked companies in the list in Asia are Honda Motors and Nissan. In the midst of the economic crisis in 2009, Toyota passed General Motors as the world’s largest automaker (Marr, 2009). This suggests that investment in R&D can bring long-term rewards in productivity and innovation. As mentioned, the companies above are all private organizations. In Asia and the West R&D are largely directed by private organizations. According to UNESCO there is wide variation among countries in their share of business sector R&D investments, ranging from almost zero in the poorest countries, to over 80% in Malaysia (UNESCO, 2009). Finally, Japan had the highest R&D investment compared with its Asian

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counterparts, and in fact is responsible for 3.4% of worlds’ total R&D expenditure.

2.3. MENA region The MENA region occupies a strategic location as it lies between the North and South, and encompasses the Middle East and North Africa (Rached & Craissati, 2000). Given its additional geological and cultural richness, it a distinct region and its development is an important matter to the world. Despite the well-endowed natural resources the region is known for, it’s research environment is less developed. The spending on research and development in Arab countries as a whole represents just 0.14% of GNP, compared with 3% in developed countries (UNESCO 2009). Perhaps, due to a lack of abundant natural resources, Tunisia and Morocco have been high investors in R&D compared to Middle East countries. According to the UNESCO statistics on R&D, Tunisia in particular had a significant increase in investments in R&D in the past 10 years (UNESCO 2009). The larger contributors to these investments are business enterprises and governments. In this time frame the number of researchers in Morocco and Tunisia increased and their research intensity doubled (UNESCO 2009). The environment of research in the region however “demonstrates a lack of institutionalized or welldefined public, national and regional research strategies; inadequate national funding; weak research management; weak scientific and research capacity; and restrictions in terms of independent inquiry, and data access and collection” (Rached & Craissati 2000, p.7). However, the region is moving towards a technology and knowledge-based economy as it is trying to strength links between education, research and development (Tarbush, 2010). “Throughout the Gulf Cooperation Council countries, efforts are under way to attract partnerships and investment to R&D and innovation” (Tarbush, 2010). Almost every MENA country now boasts technology incubators with large numbers of firms pioneering. The establishments of these incubators should encourage R&D in the MENA region and will most likely form partnerships with the Western world (Tarbush, 2010).

2.4. UAE The UAE in particular has been vigorously seeking out partnerships mainly with the West and Asia in R&D and technology to achieve its mission of diversifying the economy and its income. The is leading to the creation of investment firms in technology including the Advanced Technology Company (ATIC) and the Mubadala Development Company (Tarbush, 2010). Abu Dhabi has initiated the development of research in sustainable energy technologies hoping to develop a leading role with its Masdar initiative (Tarbush 2010). The Masdar initiative is attracting global research minds and creating an environment of innovation, research and development. Dubai on the other hand aspires to become a world center for electronic R&D and innovation through the Dubai Silicon Oasis initiative. Mubadala is a state-owned investment vehicle of the Abu Dhabi government that seeks diversifying the state’s portfolio. Masdar is a subsidiary of Mubadala focusing entirely on sustainable and renewable energy and is attempting to create the world’s first carbon-free city (Mubadala website, 2010). Sheikh Nahyan Bin Mubarak, when he was Minister of Education and Scientific Research, indicated that funding of scientific research is weak in the UAE in an international level comparison. (WAM, 2010) Although

49


initiatives such as the National Research Foundation have been made, the lack of human capital is still apparent. However, there are private R&D initiatives by local companies and enterprises attempting to use R&D and innovation to enter and compete in the global market. Figure 1. Adapted from UNESCO Institute of Statistic, “A Global Perspective on R&D” (2009)

Figure 1 is a clear indication of the huge gap between leaders of R&D investments and the MENA region. With Europe, North America and Asia combined of nearly the world’s total R&D expenditure, the MENA region falls with only 1% of the world’s R&D expenditure. While these statistics do not paint a positive picture of the R&D environment in MENA and the UAE, the case study that follows the literature review of innovation processes will illustrate that innovation does occur and that there could be lessons to learn to spur additional R&D into radical innovations in the region. Furthermore, the case study will be a learning experience of an innovation process which occurred in the current research environment which should provide insight with further research to in turn support future projects.

2.5. Entrepreneurs in the UAE In a knowledge economy, technology and the birth of new firms from technology driven innovative ideas and services, need to be nurtured and encouraged. In a small market knowledge economy, such as the UAE, innovation and technology are regarded as key to increasing exports and achieving the goal of the UAE to become a knowledge-based economy. Using data from 2011, the UAE GEM Report (Van Horne et al., 2012) has found that almost all new business started in the UAE in 2011 operate in sectors with no or low technological levels, with only 2.3% being medium-tech or high-tech new ventures (Figure 2). When figures for just the local Emirati entrepreneurs are considered, 100% of new businesses are in no/low tech industries.

50


Figure 2. Level of technology sector early stage entrepreneurs (source Van Horne et al., 2012)

The results are similar with established entrepreneurs who have owned and operated a business for longer than three years and a half of years (Figure 3). At only 2.3% the UAE is much less than the average of the innovation driven economies surveyed in 2011 which was 7.7% and more than one fifth less the highest ranked country, Norway, where 14.3% of established business run by entrepreneurs are in industries regarded as medium to high technology sectors. Figure 3. Level of technology sector established entrepreneurs (source Van Horne et al., 2012) No/Low‐Tech 120.0% 100.0%

Med‐Tech or Hi‐Tech

99.4%

97.%

99.%

97.7%

80.0% 60.0% 40.0% 20.0%

3.%

.6%

1.%

2.3%

0.0% 2006

2007

2009

2011

3. Selected R&D-innovation processes in the literature To illustrate the R&D process described in the case study, it is essential that we be familiar with the ones in current literature. This section will add to our understanding of various research processes and help us compare the process in the case study and help to answer some of the following questions. Is there

51


anything unique about the process used by the Emirati entrepreneur? Could there be ways to improve the process to make it more efficient? If yes, where would this intervention be most effective? And finally, a more global question addressed in the discussion, could these insights be used and applied in different situations in the MENA region? In a competitive market, firms must not seek minimal levels of improvement and to do so they have to form a habit of an innovation process to increase their development (Davenport, 1993). Process innovation is an approach that combines the adoption of a process view of the business with the application of innovative key processes (Davenport, 1993). This section will study the current research processes and identify the different types that suite various innovation purposes. Understanding some of the current existing innovation processes is essential to understand the case study.

3.1. University based R&D One of the most familiar methods of research evident in the West are university based R&D and their collaboration with local industries. As seen with the R&D programs offered in Canada, the government leverages private R&D resources through grants to university based researchers. The roles of universities have been constantly shifting as it plays a fundamental part in societies as producers and transmitters of knowledge (D’Este & Patel, 2007). University-industry collaborations are essential mechanisms for generating technological spillovers (D’Este & Patel, 2007). These types of research collaborations contribute positively to address innovation market failures and assist in sustaining efficiency (D’Este & Patel, 2007). Western and European governments have introduces a range of incentives and policies to encourage involvement of universities in technology transfer. Figure 4. Innovation process of university-industry research centers (Van Horne, Poulin, Frayret, 2010)

3.2. Stage-gate The Stage-Gate system is a familiar innovation processes. The Stage-Gate model is a tool for managing the product innovation process by dividing the development process into stages separated by gates (Cooper & Kleinschmidt, 1990). This innovation processes develops a systematic process for moving a new product through the various steps from idea to launch or implementation (Cooper & Kleinschmidt, 1990). See Figure 5 for the stages. The Stage-Gate process screens ideas which originate in basic research and if the stage is approved, the gate allows it to pass through to the next stage. The first stage is the preliminary investigations and it determines the project’s merits and acts a review to the project. The second stage is a detailed investigation that defines the product and verifies its success before heavy spending. The third stage is the

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development of the prototype of the product and focuses on the technical and manufacturing aspect of it. The fourth stage involves verifying the entire project, the product and the production process. The final stage involves the full production and the market launch of the product (Cooper & Kleinschmidt, 1990). This process helps firms adopt a strong market orientation in product innovation. Figure 5. Adapted from Cooper & Kleinschmidt (1990) “Stage-Gate plan”.

3.3. Collaborative models Similarly to university and industry based R&D partnerships, the collaboration model between companies also known, as “research joint ventures” has been a popular model for leveraging research and development resources and complementary competencies. Joint ventures are semi-independent units in organizations that are composed of partnerships between companies and perform standard functions such as R&D (Hagedoorn, 2001). Joint R&D and joint development agreements play an essential role as a means for inter-firm collaborations. Research has shown that 99% of the R&D partnerships happen in companies from developed economies and 93% amongst these are partnerships made amongst companies from North America, Europe, Japan and South Korea (Hagedoorn, 2001). Thus, North America and particularly the USA, reflect a leading role that this region continues to play in R&D and production in major high-tech industries (Hagedoorn, 2001). In addition to having some of the highest rates of R&D investment, the sectors with most R&D partnerships were found in information technology and pharmaceuticals. A comparison of the different models covered in this section is available in Table 1. Table 1. Innovation process comparison Cooper & Kleinschmidt (1990)), Hagedoorn, J. (2001), Van Horne et al (2010) Phases

Stage-Gate

Collaborative model

University based R&D

Phase 1

Idea generation

Collaboration policy making and agreement

Policy making and grant process

Phase 2

Idea screening

Idea generation

Idea generation

53


Phase 3

Prototype development

Joint product research and development

Knowledge and technology development

Phase 4

Product testing

Product development and testing

Knowledge and technology transfer

Phase 5

Implementation

Product execution

Application

4. Methodology The first step in this research process was a literature review to look to R&D and innovation processes to build an understanding to the types of processes available. The literature review was iterative in nature, as it was important during the case study, in particular after the interview to go back to literature to better understand how a process is created to best illustrate the R&D process described in the interviews and documentation. The case study method was chosen to explore the research questions as they are the most appropriate method when current perspectives in a domain appear to be inadequate in accurately describing and explaining phenomena (Eisenhardt, 1989), which is the case when trying to understand the R&Dinnovation processes followed by private firms in the MENA region, and more specifically the UAE. Yin (2003) explains that there are five different applications of case study research: explain, describe, illustrate, explore and meta-evaluation. The purpose of this case study was to explore the phenomenon of an innovation process of a radical innovation from a private enterprise in the UAE. A single case study was used and chosen because it is an excellent example of the phenomenon and there were opportunities for unusual research access available to the authors (Eisenhardt and Graebner, 2007). The four main source of evidence that this research used were documents, archival records, interviews and artifacts. The researchers had a privileged access to internal company documents including technical files of the innovation and in depth descriptions. The patent application was used to establish a technical understanding of this innovation and as a form of archival records. Also, semi-directed interviewed were conducted and a follow-up interview was carried on to verify the process and analysis. This research process has been witnessed and the prototype of the developed product was toured. The findings of the case study and interview were also verified with the entrepreneur prior to finalizing the research processes. The entrepreneur therefore adjusted the process illustration for the phases and steps to be as accurate as possible.

5. Case study 5.1. The innovation The case study follows the innovation process of a round floating mobile platform, termed the “floating villa” by the Al Hallami Group. It is a newly introduced product to solve problems such as the lack of space and land in major cities and tourist attraction places. “The purpose of this innovation is to introduce a feasible solution to minimize environmental damages while making use of sea area. It is a mixture of an environmental friendly, strong, safe, stable, size variable and mobile construction that is a blend of both a yacht and a villa.” (Al Hallami, 2010) The floating villa is an independent structure that can sustain itself

54


separately with its own safe base and energy supply. It requires less manpower to build which decreases the use of raw materials. The stated purpose of this innovation is to avoid expensive and scarce land, especially those around coastal areas and it formulates a solution for over-populated coastal cities, such as Abu Dhabi, Vancouver, Miami, etc. The goal of the company was to be as environmentally friendly as possible to avoid pollution, the destruction of coastal habitats and to prevent the drastic increase in sea levels. The innovation introduces a new concept of treating water areas as lands whilst introducing a new method of using these areas without environmental harm.

5.2. The technology Round and Oval Floating mobile platforms and constructions are a new definition in the field of engineering and design. The newly designed Figure 6. The Floating Villa courtesy of Al Hallami Group base of the platform is round or oval with an inner cone shape, which provides an air and water barrier from underneath. It also gives additional surface area for lifting in comparison to the flat bases of older platforms (Patent Application No. PCT/IB2008/000438). With the overall round or oval shape of the new base, it can smooth and decrease wave resistance in comparison to the vertical, edgy, square or rectangular traditional platforms. The floating platforms are designed to be resource efficient, which includes cost, land, material and human. Source: www.thefloatingvilla.com

5.3. Interview results A semi-structured in-depth interview was conducted as part of the case study methodology. Through the answers to the questions posed, general discussions and several follow-up meetings, it was possible to illustrate the research process (Figure 7) of the innovation highlighted. The R&D process of the floating villa was similar in nature when compared to the processes witnessed through the literature review. As displayed in (Figure 5) the process used in this innovation is not linear but a process that requires going backward and forward in order for development to continue and there are four main phases which are common to the phases of the processes in literature. However, phase 4 of the case study had many unique characteristics. The process starts with (step 1) generating an idea that is generated from realizing a need or a problem that needs a solution. The next step (step 2) is conducting basic research and then going back to generating more ideas (step 1). Moving forward to (step 3) developing the prototype leads to further research and exploration (step 2). The last step (step 4) the commercial development is the unique aspect of this R&D processes. The step starts with the transition of the product from prototype development to commercial.

55


An important component of this step was the continuous update of the patent that happened when any new discovery or innovation was made. The development and research continued in this step, which initiate further developments to the prototype (step 3). Also, unlike other R&D processes, which have funding before development starts, this processes looked for funds in its late stage prior to launch. Going forward and backward is a result of innovation happening as the product is going into its various stages. The process is also driven by one main denominating factor, which is an experience and tacit knowledge of the entrepreneur. Figure 7. Al Hallami Group “Floating Villa” R&D process.

Experience and knowledge transfer Step 1: Idea Generation • Finding a need or problem • Generating possible solutions

Step 2: Research & Exploration • Basic research and development • External consultation • Using up to date technology • Virtual simulation • Solution generation

Step 3: Prototype Development • Developing miniature module • Developing prototype • Testing, experimenting and modification • Market exploration through exhibitions • Market and product research

Step 4: Commercial Development • Patenting and commercial protection • Looking for outside funding • Finding interested entities • Continue to update patent • Continue development

6. Discussion and conclusion The R&D-innovation process had some similarities in comparison with other research processes. It was similar to other processes by having phases and starting those phases with generating ideas and ending with executing a product. The differences however rest in the fact that this innovation process was a oneman process that was built mainly on experience and previous knowledge. Also, an important aspect of this innovation process was in the way each phase required returning to the previous phase in order to move on and continuous innovations were being made as more research and development happened. Could the process be improved and more efficient was an important question this paper aimed to understand. Mr. Al Hallami highlighted the importance of external support and the lack of support that made the research process less efficient. The external support that was requires were knowledge based “We had people that studied the engine, paint, and steal, materials and marine experts studying layout and safety. We cannot do everything on our own” (Al Hallami). The lack of financial support in the project’s first stages led to the use of external consultation at a great expense of the R&D budget, which resulted in delays since extra development needed extra funding. Thus the process could have been more efficient had external support, both financial and R&D, been available. Could the process be applied in different situations through MENA region? The unique aspect of this innovation required such a process to exist. This process was driven by an inventor entrepreneur with the ability to confront problems, create and invent solutions. Thus, this process requires certain knowledge and skills to be applicable in other circumstance. However, the process is a result and a method that can

56


guide any entrepreneur with an idea because it is an example under the current research environment in MENA region. Due to the innovation being taken by a private company the risk factor was very high as the company was 100% responsible, which is not very efficient. The risk however can be mitigated and private R&D funds leveraged with access to government funds. In the UAE there are government-backed organizations with funds to support such projects such as Khalifa Fund and the Mohammed Bin Rashid Establishment for SME Development are both organizations funding local initiatives of such. However, the funds by such organizations are more directed to service organizations at the moment and the very large amounts needed for radical technological innovation are not yet available. As a result of this paper R&D exploration in processes, two main suggestions are being made. There appears to be a need to increase support and government backed initiatives for large-scale R&D processes by creating government funded applied research centers, funding opportunities for collaborative research with universities and researchers and increase support for graduate engineering and technical education for local population. Secondly, creating R&D focused privately based venture capital funds could be encouraged perhaps through the development of an Islamic based venture capital framework where funds could be considered part of the Zakat§ every Muslim annually pays. These suggestions can be a beneficial factor in enhancing the research environment within the Arab region and developing and improving research processes efficiency. This case study would only be an exploration into the research and innovation processes of radical technological innovation in the MENA region. Further study is needed to enhance our knowledge of these important processes.

References Al Hallami, O. personal interview September 9, (2010). Abu Dhabi: United Arab Emirates. Cooper, R. G & Kleinschmidt, E. J (1990). Stage Gate Systems for New Product Success. Marketing Management, 1(4): 20-29. D’ Este, P. D & Patel, P. (2007). University–industry linkages in the UK: What are the factors underlying the variety of interactions with industry? Research Policy, 36(9): 1295-1313. Davenport, T (1993). Process innovation: reengineering work through information technology. Ernst & Young, USA. Eisenhardt, K., (1989). Building Theories from Case Study Research. The Academy of Management Review, 14(4): 532-550. Eisenhardt, K., Graebner, M., (2007). Theory Building From Cases: Opportunities and Challenges. Academy of Management Journal, 50(1): 25-32. http://dx.doi.org/10.5465/AMJ.2007.24160888 Emirates News Agency (2010). Scientific Research Budget In Government Universities is Low. WAM: Abu Dhabi. Hagedoorn, J. (2001). Inter-firm R&D partnerships an overview of major trends and patterns since 1960. Research Policy, 31(4): 477-492. http://dx.doi.org/10.1016/S0048‐7333(01)00120‐2 Hall, J. K, Martin, M. J. C (2005). Disruptive technologies, stakeholders and the innovation value-added chain: a framework for evaluating radical technology development. R&D Management, 35(3): 273-284.

§

The yearly act of giving charity and supporting the community based on the total wealth of the individual.

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Technological Innovation in the United Arab Emirates: Process and Challenges http://dx.doi.org/10.1111/j.1467‐9310.2005.00389.x Marr, K. (2009). Toyota Passes General Motors As World's Largest Carmaker, The Washington Post, http://www.washingtonpost.com/wp-dyn/content/article/2009/01/21/AR2009012101216.html (accessed September 15, 2010). Ministry of State for Science and Innovation (2009). R&D Scoreboard, http://www.innovation.gov.uk/rd_scoreboard/?p=1 (accessed August 15 2010). Mubadala (2010). http://mubadala.ae (accessed September 05 2010). Patent Application No. PCT/IB2008/000438. Rached, R. and Craissati, D. (2000). Research for Development in the Middle East and North Africa. International Development Research Center, Canada. Rice, M. P, Kelley, D, Peters, L. O and Connor, G. C. (2001). Radical Innovation: triggering initiation of opportunity recognition and evaluation. R&D Management, 33(4): 409-420. http://dx.doi.org/10.1111/1467‐9310.00228 Tarbush, S (2010). Strength in knowledge- MENA acceleration research, development and innovation. Global Arab Network. Retrieved on August 25, 2010. Toole, A. A and Czarnitzki, D. (2009). Exploring the Relationship Between Scientist Human Capital and Firm Performance: The Case of Biomedical Academic Entrepreneurs in the SBIR Program. Management Science, 55(1): 101-114. http://dx.doi.org/10.1287/mnsc.1080.0913 UNESCO (2009). A Global Perspective on Research and Development. UNESCO Institute for Statistics. United Nations (2005). The World Investment Report, Transnational Corporations and the Internationalization of R&D. United Nation Publication. Geneva. Van Horne, C., Huang, V., and Al Awad, M. (2012). UAE GEM Report 2011.Zayed University, UAE. Van Horne, C., Poulin, D., Frayret, J.-M., (2010). Measuring value in the innovation processes of academic-industry research centres. International Journal of Technology, Policy and Management, 10(1/2): 116–136. Van Horne. C. (2009). Innovation and value: Knowledge & technology transfer from centre of expertise to the forest products industry. PhD thesis, Université Laval, Quebec City, Canada. Yin, R., (2003). Case Study Research: Design and Methods. 3rd edition, Stage Publications, London.

About the Authors Mariam Al Hallami is the Manager of Research and Evaluation at the Sheikha Salama Bint Hamdan Foundation. Being the first philanthropy in the region with such position, Mariam is responsible for creating evaluation frameworks, indicators, and evidence to measure the impact and outcomes of the foundation projects. Before joining the foundation, she was pursuing her Masters of Art’s degree in Educational Leadership at the Institute of Education, University of London. With her interest in evidence-based policy, Mariam’s dissertation focused on exploring the use of evidence and research in informing education policy. She also holds a BSc in Business Studies- Finance with distinction from Zayed University, Abu Dhabi. Ms. Al Hallami has been a recipient of multiple awards including; the Emirates Foundation Sheikh Mohammed bin Zayed Higher Education Grant, the National Research Fund Young Emirati Innovator Prize, the Sheikha Fatima bint Mubarak Award for distinct students, and the Manchester Innovation Award amongst others. She is also a published author with a chapter on innovation in the Emirates in the publication entitled “The Dark Side of Technological Innovation”.

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Constance Van Horne is an Assistant Professor of Management at the College of Business at Zayed University, Abu Dhabi. She completed her PhD in strategy at the Université Laval in Quebec City, Canada. Her research focused on entrepreneurial professors and their research centers with the title: Innovation and value: Knowledge & technology transfer from centre of expertise to the forest products industry. Dr. Van Horne was the project lead for the 2011 GEM United Arab Emirates Report and has published several works on innovation, leadership and entrepreneurship in the context of the MENA Region. Since starting at Zayed University in September 2009 she quickly began her extensive activities supervising student groups and advising student projects and associations. Dr. Van Horne founded the men’s Business Association in September 2011 and the men’s Entrepreneurship Club in October 2012. Zeng-Yu “Victor” Huang is an Assistant Professor of Entrepreneurship at the College of Business, Zayed University, and adjunct Professor of Management at Khalifa University. He completed his PhD at the UCD Smurfit School of Business, University College Dublin, Ireland. Prior to his relocation to the Middle East, Victor taught in Europe, Asia, and the US. His research interests include: Entrepreneurship (Global Entrepreneurship Monitor UAE Report 2011; GEM MENA research consortium Member; Women entrepreneurship and social identity in the UAE; ZU-INSEAD Emirati Entrepreneurs Case Study collection; and recently Emirates Foundation Itijah 2012 Youth Entrepreneurship Challenge project, etc.); Cultural Psychology (Chair of GLOBE - Global Leadership and Organizational Behavior Effectiveness UAE Project; X-Culture International Business research project UAE); international business & management (Vice-President of Programs, Academy of International Business MENA Chapter; Steering Committee member, Academy of Management Middle East Initiative).

Contact Information Mariam Al Hallami, Manager of Research and Evaluation, Sheikha Salama Bint Hamdan Foundation, PO Box: 62086, Abu Dhabi, United Arab Emirates, Tel.: +971 2 4991928, Email: [email protected]

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60-76

Regional Tourism Development in Southeast Asia Mohammad Nurul Huda Mazumder,*1Mast Afrin Sultana2 and Abdullah Al-Mamun3

Abstract: The purpose of this paper is to address the role of tourism to the regional economic development of Southeast Asian economies. The assessment was accomplished by investigating the state of tourism development and by determining the drawbacks of tourism industry existed in Southeast Asia. This paper also explores strategies required to develop tourism collectively in order to achieve gains through establishing favourable environment and mobilizing endowed strategic resources. The assessment suggests the need to give attention on formulating transparent objective, implementation and integration of these objectives into national plans, participation of community people, tourism entrepreneurship and cooperation and integration of governments in developing tourism. Successfully overcoming the difficulties of regional tourism development, Southeast Asian tourism industry has the potential to reap benefit from the economies of scale. Keywords: Regional tourism, collaboration, policy, strategy, economies of scale, Southeast Asia

1. Introduction The significance of regional tourism to the Southeast Asian nations is on the rise in recent decades as a development tool at regional and local level. Therefore, as assessment of regional tourism is required in understanding more insights with respect to the significance of tourism to the regional economic development of Southeast Asian economies. The specific purposes of this paper are three-fold: to examine tourism with respect to Southeast Asian regional economic development, to consider decisive factors that might encourage and slow down its development, and to draw implications from the analysis in an attempt to support tourism policy initiators in the region in the direction of further progress and development of this intangible industry. To attain the above mentioned objectives, the relevant points are structured into the following three concerns. The first part devoted to reviewing the general figure, pattern and performance demonstrating the importance of tourism at Southeast Asian regional level. Part two attempts to identify and explore several critical issues related to tourism development as a means for regional and economic development in the Southeast Asian region. And in the last part, emphasis is given in dealing with policy aspects to regional tourism development in the Southeast Asian context. In addition, the challenges and prospects of tourism in Southeast Asia are also addressed in this paper.

* Faculty of Administrative Sciences, Laval University, Québec (QC) G1V 0A6, Tel: +1 418 656-2131 Ext. 7419, Email: [email protected]; [email protected] 2

Mast. Afrin Sultana, The Brain Technology Ltd., Bangladesh. Email: [email protected]

3

Faculty of Business and Entrepreneurship, Universiti Malaysia Kelantan (UMK) Karung Berkunci 36, 16100 Pengkalan Chepa, Kota Bharu, Kelantan, Malaysia. Tel.: +6 09-7717000. Email: [email protected]

60

Mohammad Nurul Huda Mazumder, Mast Afrin Sultana and Abdullah Al-Mamun

There are existences of distinct literatures that addressed the relationship between tourism and regional development (Dimitrovski et al., 2012); the significance of regional tourism development (Wang et al., 2012); the role of tourism as an instrument for regional economic development (Kauppila & Karjalainen, 2012; Hall et al., 2009; Müller & Jansson, 2007; Hall &Boyd, 2005; Blake & Gillham, 2001). However, despite Southeast Asian nations are giving continuous effort to develop cooperation of tourism (Wong et al., 2011a) the studies related to ASEAN tourism collaboration attained little attention from the researchers (Wong et al., 2011b). Most of the literature on ASEAN collaboration have emphasized on FTA in trading goods and services. As tourism yield valuable foreign exchange earnings to this region, a number of Southeast Asian economies, to a large extent, depend on income from tourism. Although significance of tourism is on the rise in Southeast Asia, there is a vibrant lack of research in the field of regional collaboration planning, policies and strategies. This paper, thus, attempted to fill the above research gap to progress our understanding on the dynamics of Southeast Asian tourism collaboration. This study bears significance, due to the fact that; Southeast Asian nations are vying for total-cooperation – socio-economic, geo-political collaboration – in order to attain sustainable economic development, in which tourism is an important component of consideration. The studies of Rogerson (2004) and Chang (1998) mentioned that the greater expansion and economic impact of tourism rely on how countries within the region cooperate and support each other rather than competing. Regional development through tourism will be obvious and occur where regional countries are prepared to collaborate, cooperate and support as partners. The proposition is that developing countries compete with each other in terms of attaining competitive advantage on the trade and development of traditional commodities; which is found to be absent in the case of tourism. This prediction contradicts with tourism because the current trends of tourism since tourism products and attributes are unique in nature among countries of the world. Therefore, there is a scope for the countries to extend their cooperation when seeking development4 through tourism. Considering the significance of Southeast Asian regional tourism development, it is imperative to formulate a distinctive regional tourism policy; strategic development scenarios have been taken into consideration when formulating policies to overcome delicate areas on a priority basis.

2. Tourism and economic development Immediately After the Second World War, tourism was considered to be an alternative industry for foreign exchange earnings to developed countries. Later, it became a tool of economic development for developing countries. It was only after 1970s when tourism started gaining recognition as a panacea for the developing Southeast Asian countries to mitigate their macroeconomic disparities. According to Erbes (1973), developing countries are increasingly giving emphasis on the earnings from tourism as the sector becomes a cushion and contributes to lessen the burden of foreign currency disputes. To a large extent, this view has widely supported by the respective stakeholders of tourism. Though the outcome of this particular debate was a matter of concern, since then, Erbes’ point of view and research accrued attention of researchers (Mazumder et al., 2011; Sinclair, 1998; Jenkins, 1994; De Kadt, 1979; Archer, 1976; Armstrong et al., 1974; Archer et al., 1974; Archer & Owen, 1971) who emphasized on the extensive

4

The term “development” described in this paper translates an improvement of existing quality of life and opportunities by encouraging tourism.

61

Regional Tourism Development in Southeast Asia

implications of tourism (for instance, its advantages, contributions, as well as limitations of tourism’s development). In recent years, tourism appeared as a vital sector for majority of less developed countries (LDCs) to achieve economic development (Sinclair, 1998) because of its strategic importance. For these economies, tourism sector is considered to be a priority based sector as a result of its positive externalities that bring benefits for their delicate economies as these countries are facing the problem of meeting the scarcity of resources necessary for economic development (Mazumder et al., 2009). The necessity of these resources is critical for these economies as they are the key components for achieving economic growth while maintaining budget surplus. The lack of these scarce resources would force these countries to depend on few agricultural, traditional exports besides aid from external sources to expand their economic development. The apparent benefits that tourism contributes to these economies are, therefore, the reasons of why Southeast Asian nations’ governments are giving rigid support for the development of this sector. Economic benefits of tourism are typically appeared in a national economy at two levels; first at national or macro level and secondly at sub-national or micro level. When tourism is deemed to promote economic growth through foreign currency earnings, it contributes to a rise in state revenue at the first or micro level. At the second level or macro level, there will be an expansion in citizens’ well-being in the form of income and employment generation. In turn, this will eventually help in the distribution of income and balancing regional development. Hence, tourism has appeared to be the engine of growth and development for many developing countries, and Southeast Asian nations are not an exception. According to Bryden (1973), De Kadt (1979), Blackman (1991), and Bull (1995), tourism should positively affect economic growth and development for several reasons. First, tourism yields foreign exchange earnings used to import not only consumer goods but also capital and intermediate goods. Second, tourism facilitates the utilization of resources that are in line with the country’s factor endowment. Third, tourism creates employment opportunities in the economy. Fourth, tourism promotes improvements in the country’s infrastructure. Fifth, tourism serves as the conduit for transferring new technology and managerial skills into the economy. Finally, tourism has the potential for creating positive linkages with other sectors of the economy; particularly agriculture, manufacture, and other service industries. Considering all the above socio-economic attributes of tourism, it can be defined as an industry even though the sector does not exhibit unique production feature or fall into a particular sector. Before proceeding to the further issue, it is important to mention that, when there is a rapid increase in the demand for tourism, besides enhancing linkages with other sectors in the economy (Mazumder et al., 2009), it may develop some negative consequences in the form of economic, social, cultural and environmental costs. A well-managed tourism industry has the potential to minimize these consequences and maximize economic development. However, it is essential to note that tourism is more than an economic activity (Dieke, 2003). It not only allows substantial interaction of people but also demands variety of services. To facilitate tourists’, tourism sector requires facilities, and inputs. These requirements produce opportunities and challenges for the country offering tourism services in order to promote tourism. For these reasons, it is vital for the host country to effectively manage the growth of tourism sector. In addition, when managing this sector, it is essential to maintain precise strategic framework in order to confirm that the growth arising from tourism

62


is well-suited with the national objective while it encompasses the sectoral and national agenda. In this regard, policies that provide guidelines and the references which seek improvement of tourism sector are in need of periodical evaluation. It must be taken into consideration that tourism development produces burdens when local residents are unable to enter into the facilities and services built to serve tourists. Correspondingly, tourism development often receive criticism for worsening societies embedded problems which can be ranged from dismantling patterns of the society to destructing cultural and custom values the society (Dieke, 2003). In tandem, it also suppresses the neo-colonialist associations of exploitation and dependence from the environmental side while it creates inflationary pressure from the economic aspect (Dieke, 2003). When merits outweigh demerits of tourism development, it is considered acceptable whatever the positions of tourism development. To focus on more reasonable observations, this article aimed to investigate the tourism development issues related to explicit structure pertaining to international tourism covering the state of Southeast Asian tourism outlook. It also analyzes the key factors that are influencing tourism development in Southeast Asia. The analysis will render policy directions necessary to take into account before Southeast Asian tourism researchers and policy makers take major decision to the corresponding field.

3. The growth of regional tourism While world tourism has been growing at around 4% rate over the years since 1990, this growth has not been equally dispersed among the regions of the world. Tourists from North America and Europe have been contributing the significant portion of arrivals and tourists originating flows (Table 1). The rate of growth of recently industrialized countries of Southeast Asia has been increasing very fast as a result of economic development of those countries and diversification of world tourism destinations. Table1. International tourist arrivals by region, 1990-2010 Million arrivals

Market share (%)

Growth rate (%)

1990 14.8

2000 26.2

2005 34.8

2010 49.7

1990 3.40

2000 3.89

2005 4.36

2010 5.29

90/00 7.70

00/10 8.97

Ave. annual growth (%) 90-10 11.79

92.8

128.2

133.3

150.7

21.33

19.02

16.68

16.03

3.81

1.76

3.12

55.8

110.1

153.6

204.4

7.95

10.98

13.15

14.31

9.73

8.56

13.32

261.5

385.0

440.7

474.8

60.11

57.12

55.16

50.51

4.72

2.33

4.08

9.6

24.1

36.3

60.3

2.21

3.58

4.54

6.41

15.10

15.02

26.41

South-East Asia

21.2

36.1

48.5

69.9

4.87

5.36

6.07

7.44

7.03

9.36

11.49

World

435

674

799

940

100.0

100.0

100.0

100.0

4.81

4.60

7.02

Region Africa Americas Asia and the Pacific (except Southeast Asia) Europe Middle East

Sources: World tourism organization, tourism market trends – 1990-2001; and revised updates released in 2011.

At present, about 67% of all international travellers visit a country in either Europe or North America. In 1950, 97% of international tourists went to Europe or North America (in fact, to just fifteen countries). In 1999, more than seventy countries received over a million international tourist arrivals. By 1999, the top fifteen tourist-receiving countries experienced their share decrease to less than two-thirds and some 63


traditional top destinations have been replaced by newcomers from Asia and Central /Eastern Europe (Neto, 2003). By 2000, the share of Europe and North America had decreased to 76.12%. In the mid1970s, 8% of all international tourists visited East Asia and the Pacific. By the mid-1990s, the share of East Asia had risen to 15%. Globalization has also assisted in altering the dimension of tourism destinations while most of the benefits are accumulated by the Asia Pacific and Middle Eastern countries. In 1950 the top fifteen destinations of the world accounted for 97% of foreign visitor arrivals; in 1970 their share was 75%; in 1990 67%; in 2001 it had declined to 62%, and in 2011their share was about 55%. While top tourism destinations were losing their market, the share of Asia and the Pacific continued to increase over the years revealed from table 1. According to World Tourism Organization, the share of international tourists travelling to Asia and the Pacific raised from just 1% in 1950 to 22.1% in 2011. In a nutshell, the above trends of tourism can be explained by two trajectories. First, an overall rearrangement of world tourism activity appeared from which some regions are reaping the benefits of tourism development more than the others. These regions are experiencing comparatively higher geographical attention - both in terms of tourist arrivals and tourism receipts. The expansion of tourism to these regions also highlights the competition that exists and increased remarkably. The second explanation is that tourism in Southeast Asia has been experiencing a reasonably significant revival of tourism growth since 2000. Although this change in pattern does not necessarily mean that the region is at the optimum of controlling considerable share of total tourism market that might raise a number of questions. To be in the safe side, however, it would be interesting to investigate Southeast Asian tourism’s up to date situation before making further comments.

4. Southeast Asia’s international tourism: regional context Southeast Asia is comprised of ten countries and most of the countries are endowed with islands blessed with natural flora and fauna. Tourism development in Southeast Asia has reached to a prodigious level due to new and rapidly changing opportunities of tourism that attract tourists’ the most. Southeast Asian countries are endowed with improved tourist resources and attractions which are allowing these countries to present comparative advantage than others. These tourists’ resources and attractions consist of several items, for instance, attractive beaches with pristine blue water, sunny and warm weather, inimitable tropical and wildlife a mixer of exotic and distinctive cultures. Southeast Asian nations have political boundaries but strong links in geographical, cultural, historical, archaeological and social similarities. A recent study (Chang, 1998) revealed that regional borders of APEC economies are flexible which is the result of cultural links exist with this economies. These countries also possess historical ties and trading interests which helped Asia-Pacific economies extend economic activities over APEC boundaries. A ‘conventional [discriminatory] free trade area’, in contrast, would provoke political stress between nations which may diminish growth of developing economies of Asia which are in transition (Garnaut, 1996). Therefore, an aggregated tourism development would be helpful for further progress of this region. Several types of tourism attractions are available in the Southeast Asian region that are complementary in nature, for which, if these economies develop tourism in an aggregated manner, the region will be an ideal place for huge turnover of tourist arrivals. In summary, the scope and impact of international tourism in Southeast Asia has been explaining that Southeast Asian nations are benefiting most from the global redistribution of tourism pattern. Despite the

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impact of SARS, Tohoku earthquake, tsunami in this region, Asia and the Pacific has outstripped the Americas in terms of international tourist arrivals and receipts in the year 2011 and established itself as the most popular destination after Europe. If we look at sub-regions of Asia and the Pacific, the highest growth of 10% increase in international tourist arrivals is found for the Southeast Asian nations, translating that these nations are benefiting from strong intra-regional demand. Most of the Southeast Asian nations experienced a double-digit growth including Myanmar (26%), Thailand, Cambodia (20%), and Vietnam (19%), Singapore, Brunei Darussalam (13%), and Philippines (11%). The growth in the distribution of tourist arrivals by each of the Southeast Asian country during 2001-2011 is as follows (see Table 2). During the period in concern Malaysia received the highest number of visitor arrivals (203.2 million) followed by Thailand (145.5 million) and Singapore (93.8 million). Other countries share of visitor arrivals are Indonesia (62.7 million), Vietnam (35.8 million), Philippines (29.9 million), Cambodia (16.8 million), Lao PDR (13.5 million), Myanmar (2.5 million), and Brunei Darussalam (1.7 million). A pattern of tourism development can be observed from the above outline. Malaysia generated more than three times tourists’ arrivals than Indonesia which experienced fourth largest tourist arrivals. Thailand also received more than two times visitor arrivals than Indonesia which is the largest country in Southeast Asia. In 2004, Malaysia conceded the most visited destination (as mentioned in Table 2), which attained 31% of total tourists arrival, subsequently neighbouring countries of Malaysia, Thailand (23%) and Singapore (16%). Malaysia has always experienced largest number of visitor arrivals throughout 2001-2011 among the Southeast Asian nations. In 2011, out of 79 million visitors, ASEAN 5 (Indonesia, Malaysia, The Philippines, Singapore and Thailand) received 67.6 million tourist arrivals while BCLMV (Brunei Darussalam, Cambodia, Lao PDR, Myanmar, Viet Nam) 11.4 million tourist. But the rate of arrivals growth is larger in BCLMV groups (8.57%) than ASEAN 5 (7.98%) during 2010-2011. Table 2. Visitor arrivals by country of destination, 2001-2011 (in million) Destination

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Brunei

0.1

0.1

0.1

0.1

0.1

0.2

0.2

0.2

0.2

0.2

0.2

Cambodia

0.6

0.7

0.7

1.0

1.3

1.6

1.9

2.0

2.0

2.4

2.6

Indonesia

5.2

5.0

4.5

5.3

5.0

4.9

5.5

6.2

6.3

7.0

7.8

Laos

0.2

0.2

0.2

0.4

0.7

1.2

1.6

1.7

2.0

2.5

2.8

Malaysia

12.8

13.3

10.6

15.7

16.4

17.5

21.0

22.1

23.6

24.6

25.6

Myanmar

0.2

0.2

0.2

0.2

0.2

0.3

0.2

0.2

0.2

0.3

0.3

Philippines

1.8

1.9

1.9

2.3

2.6

2.8

3.1

3.1

3.0

3.5

3.9

Singapore

5.9

5.9

4.7

6.6

7.1

9.8

10.3

10.1

9.7

11.6

12.1

Thailand

10.1

10.9

10.1

11.7

11.6

13.8

14.5

14.6

14.1

15.9

18.2

Vietnam

1.6

1.8

1.7

2.0

2.4

3.6

4.2

4.2

3.7

5.1

5.5

ASEAN

38.5

40.0

34.7

45.3

47.4

55.7

62.5

64.4

64.8

73.1

79.0

ASEAN 5

35.8

37.0

31.8

41.6

42.7

48.8

54.4

56.1

56.7

62.6

67.6

BCLMV

2.7

3.0

2.9

3.7

4.7

6.9

8.1

8.3

8.1

10.5

11.4

Source: Euromonitor International from World Tourism Organisation (WTO)/national statistics.

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Table 3 represents the amount of tourism receipts obtained by Southeast Asian nations. The total tourism receipts of Southeast Asian nations were amounted to $73.5 billion in 2011. Out of this total, available tourism receipts earned by ASEAN 5 were $70.70 billion against BCLMV countries tourism receipts of $2.80 billion. The pattern of receipts is almost similar (as indicated in Table 2), with Thailand the leading earner (28.84%), followed by Singapore (27.34%), and Malaysia (25.58%). However, although Indonesia and Vietnam attracted considerable numbers of tourists, The Philippines, Cambodia, Lao PDR, Brunei Darussalam, and Myanmar has the potential to earn more from tourism. Table 3. International tourism receipt of Southeast Asian nations, 2001-2011(in billion $) Destination

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Brunei

0.10

0.10

0.10

0.20

0.20

0.20

0.20

0.20

0.30

0.30

0.30

Cambodia

0.40

0.50

0.40

0.60

0.80

1.00

1.10

1.20

1.20

1.30

1.40

Indonesia

5.30

5.30

4.00

4.80

4.50

4.40

5.30

7.40

5.60

7.00

7.70

Laos

0.10

0.10

0.10

0.10

0.10

0.20

0.20

0.30

0.30

0.40

0.40

Malaysia

6.90

7.10

5.90

8.20

8.80

10.40

14.10

15.30

15.80

18.30

18.80

Myanmar

0.10

0.10

0.10

0.10

0.10

0.00

0.10

0.10

0.10

0.10

0.10

Philippines

1.70

1.80

1.50

2.00

2.30

3.50

4.90

2.50

2.30

2.60

2.90

Singapore

4.60

4.40

3.80

5.30

6.20

7.50

9.10

10.70

9.40

14.20

20.10

Thailand

7.10

7.90

7.90

10.00

9.60

13.40

16.70

18.20

16.10

20.10

21.20

Vietnam

0.30

0.30

0.30

0.40

0.50

0.50

0.60

0.60

0.60

0.60

0.60

ASEAN

26.60

27.60

24.10

31.70

33.10

41.10

52.30

56.50

51.70

64.90

73.50

ASEAN 5

25.60

26.50

23.10

30.30

31.40

39.20

50.10

54.10

49.20

62.20

70.70

BCLMV

1.00

1.10

1.00

1.40

1.70

1.90

2.20

2.40

2.50

2.70

2.80

Source: Euromonitor International from World Tourism Organisation (WTO)/Eurostat/national statistics.

The contribution of tourism as percentage of GDP is found to be higher in most of the ASEAN 5 countries than BCLMV countries during the period of 2001-11 (Table 4). Important to note that the contribution of tourism receipts to GDP of Cambodia, one of the BCLMV countries, was found to be significantly higher compared to individual ASEAN 5 countries GDP contribution. It is imperative to note that the contribution of tourism to GDP of BCLMV countries was almost similar to ASEAN 5 countries during 2005-06. However, not much diversity exists in terms of tourism contribution to GDP between ASEAN 5 and BCLMV countries. Therefore, it can be concluded that regional disparities are minimally present between ASEAN 5 and BCLMV blocks. The importance of tourism earnings is appeared to be critical for both regions of ASEAN. Thus, countries of both blocks will be benefited immensely if there is an existence of strong co-operation between the countries. The correlation between tourists’ arrivals and tourism receipts are also found to be positively related to tourism contribution to GDP.

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Table 4. Contribution of tourism receipts to the GDP (%) of Southeast Asian nations, 2001-2011 Destination

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

1.8

1.7

1.5

2.5

2.1

1.7

1.6

1.4

2.8

2.4

1.83

Cambodia

10.0

11.6

8.5

11.3

12.7

13.7

12.8

11.5

11.5

11.6

10.94

Indonesia

3.3

2.7

1.7

1.9

1.6

1.2

1.2

1.4

1.0

1.0

0.91

Laos

5.9

5.6

5.0

4.2

3.7

5.7

4.8

5.7

5.4

6.0

4.88

Malaysia

7.4

7.0

5.4

6.6

6.1

6.4

7.3

6.6

7.8

7.4

6.53

Myanmar

1.5

1.5

0.9

0.8

0.0

0.5

0.3

0.3

0.2

0.17

Philippines

2.2

2.2

1.8

2.2

2.2

2.9

3.3

1.4

1.4

1.3

1.29

Singapore

5.2

4.9

4.0

4.7

4.9

5.2

5.1

5.6

5.0

6.1

7.57

Thailand

6.2

6.2

5.5

6.2

5.5

6.5

6.8

6.7

6.1

6.3

6.13

Vietnam

0.9

0.9

0.8

0.9

0.9

0.8

0.8

0.7

0.6

0.6

0.49

ASEAN

44.5

44.3

35.1

41.4

40.6

44.1

44.2

41.4

41.9

42.9

40.7

ASEAN 5

24.4

23.1

18.3

21.5

20.3

22.1

23.7

21.8

21.3

22.1

22.4

BCLMV

20.1

21.2

16.7

19.8

20.3

22.0

20.5

19.6

20.6

20.8

18.3

Brunei

1.0

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/ International Monetary Fund (IMF), International Financial Statistics (IFS)

5. Consolidation of the facts As tourism is contributing significantly over the years to the Southeast Asian countries economic development, therefore, it becomes intuitive to investigate Southeast Asian regional countries tourism industry. This investigation is important for at least two reasons. At first, for the last three decades or so, this region is experiencing remarkable regional economic cooperation among ASEAN nations. Second, tourism is considered as a tool of comprehensive thought in the regional development and strategic planning since the region possesses one of the major tourism destinations in the world. Ghimire (2001) postulated that Southeast Asian nations view tourism as an important industry in generating foreign exchange earnings, income, and employment. The facts and figures are presented in this paper confirm a number of conclusions. First, the statistics presented above illustrate the state, extent and pattern of international tourism in Southeast Asia. It also addresses the importance of tourism to the associated countries of Southeast Asia. It is clear from the scenario that Southeast Asia’s tourism is heavily driven by the augmented economic development of its associated countries. Secondly, the extent of tourism development in Southeast Asian region varies considerably among the member countries where some countries, to some extent, have achieved efficiency in tourism development and are dominating over the other late starters in the theoretical field of tourism development. A number of Southeast Asian countries (e.g. Thailand, Singapore, Malaysia and Indonesia) have been appeared as successful tourism destination where tourism products are comparatively well-established. On the other side, countries, such as The Philippines, Viet Nam, Cambodia, and Myanmar have enormous potential for developing their tourism industry although, up till now, tourism development to these countries is still at its infancy. Thirdly, the scenario illustrated above also highlights the approximate explanations of why tourism development in some countries of Southeast Asia attained substantial attention than others.

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One explanation of the rise of tourism development in Southeast Asian countries is importantly lies on the cultural proximity as well as economic cooperation that exist in most of its associated countries. As a number of countries were successful in attracting FDI, thus, the presence of these foreign firms became a source in booming the tourism industry. Britton (1982) pointed out that a country’s tourism industry would extend and gain more from tourism development if there is a presence of foreign enterprises. This also explains why some countries of Southeast Asia are, in tourism terms, given ample opportunities to foreign firms of tourism industry through different measures of incentives (i.e. tax exemption, tax holidays etc.). Therefore, the amount of FDI in the Southeast Asian tourism industry is increasing in recent years. This FDI inflow represents new dynamics to the tourism industry of this bloc which is posing some challenges for its development. To meet these challenges, there is a need to put emphasis on some policies; 1) to train qualified tourism workforce in the technical field, 2) to support innovation, 3) to venture capital, and 4) to design infrastructure in order to witness positive impact on competitiveness (Caballera, 2012). Some reviewers often argued that the problems that the Southeast Asian countries are facing in developing the tourism industry are linked to the structural differences remain in the overall pattern of tourism development. The lack of precise strategies for tourism development in some of its member countries against others is clearly reflecting the lack of integration and implementation due to hindered progress. As a result, tourism development has appeared as insufficient for some countries, for example Myanmar, Laos, while tourism development is defined to be reached at its excessive level in some of its associated countries (for example, Singapore). Although some of the member countries have taken initiative to reform the tourism sector, the full realization of this reform needs time to mobilize the resources in the face of resource constraints. The lack of institutional support and inadequate resources is, sometimes, engendering lack of profitability to the tourism enterprises in many cases. The structure of tourism industry also needs to be refined and linked to all the tourism stakeholders. The promotion of tourism to attract tourists is yet to be initiated in some countries. Considerable dependence on foreign staffs and the lack of skilled human resources are also appeared as drawback for the progress of tourism development. Leakages and lack of inter-sectoral linkages are also needed to be taken into consideration to progress further. Above all, tourism’s economic impacts are not fully realized at the community level of many Southeast Asian nations. Inadequate training is also a major setback in successful tourism development in the region.

6. Development issues and challenges The governments of Southeast Asian nations need to play the leading role in formulating precise policies and implementing them in a manner similar to the countries that developed tourism industry considering the industry as one of the key means to achieve economic development. The governments might adopt these policies on a priority basis by considering it as a political agenda. It is evident that the private sector has become the driver of development, investment, and management of tourism sector. This private sector is found to be initiating the lead in taking necessary initiatives for tourism development. Anyone might presume that perhaps a small number of South Asian nations have rendered cautious deliberation to the type of tourism that may benefit them the most. . It is necessary for these countries to identify the type of tourism they want. In addition, it is also vital to analyze to what degree their stated aims, purposes or

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objectives are the matter-of-fact for future tourism development. Otherwise, tourism development will remain a matter of concern and might not see the full fruit of what was aimed. Through this concise background knowledge, it is now possible to determine, at least, a number of issues related to Southeast Asia’s tourism development. Translating these issues bears importance, last but not least, because they are critical factors in order to maximize the contribution of tourism through which regional economic development is one possible way to realize well-off Southeast Asian nations.

6.1. Issues for the Southeast Asia’s tourism industry The issues related to the development of Southeast Asia’s tourism industry are discussed in the following section. First, there is a need to prepare a framework demonstrating the relative performance, role, and that extent that private local and foreign tourism enterprises are organized in formulating developmental aspects of tourism management decisions in the region. Particularly, the decisions that are crucial for the benefit of tourism industry are in the decision of operation, investment, management and marketing of tourism products. The vital issue, here, is that all concerned stakeholders of tourism industry need to understand the undertaken development decisions which should bring greater economic consequences to Southeast Asia. Therefore, it carries significance to stress that tourism stakeholders need to infer the implications resulting from their actions by taking into consideration the overall interest of tourism sector that must grow with long-run economic sustainability. Second, one of the main challenges for the Southeast Asian tourism industry, as mentioned before, is the lack of skilled human resources. Therefore, tourism industry should give more emphasis on developing human resources to ensure the quality products and services rendered to tourists. Specifically, local human resources as well as indigenous workforce should be given priority in upgrading the comprehensive skills necessary to better serve the tourism industry. At the same time, when emphasizing these objectives it is also important to ensure the proper utilization of local resources so that it will enhance productivity of local suppliers and broaden the inter-sectoral linkages among the enterprises of tourism industry. In this aspect, the repercussion effects of tourism receipts will obviously ensure that foreign exchanges will not leakage from the economy, rather; more income through multiplier effect would be generated. The Southeast Asian tourism industry is characterized by the presence of large number of SMEs which is the third major issue. SMEs are at the forefront of tourism development in the Southeast Asian context. SMEs provide crucial positive functions to tourism industry in the form of integrating remote business, developing linkages with other sectors of the economy and integrating personal services. Albeit SMEs are at the heart of Southeast Asian tourism, most of them are facing the problem of every day struggle. In addition, many SMEs are continuing their operation at the marginal point of survival. The lack of operating tourism businesses through capitalization of modern management principles is the reason of why SMEs unable to maximize their profit. In turn, this is meaning that these SMEs are incompetent to take advantage of economies of scale arising from uncompetitive opportunities delivered by nature of tourism demand. Further, limited resource base of these SMEs makes it difficult to attain these objectives.

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6.2. Issues for South Asian governments Formulating policies for the tourism industry is the usual and conventional role of Southeast Asian government. This traditional focuses need a change because of changing priorities or the materialization of niche consumer interests to facilitate international tourism. Therefore, the task of national governments is to be integrated by not limiting it only by formulating policies for the tourism sector but also providing deliberate facilities to the local enterprises as well as enforcing policies to develop infrastructure in order to assist tourism development. All of these efforts are to be taken for the benefit not just for tourism but for the whole economy. Financing tourism infrastructure through devising feasible and effective options is the last policy issue needed to be linked for greater interest of tourism. There are also some other aspects of policy needed to refocus covering length of stay and repeat visit intention of tourists to extending entrepreneurship development initiatives. Eventually, it is also inevitable to distinguish and devise the appropriate approaches so that the gains from tourism are spread more uniformly throughout the economy. Essentially, tourism is now considered as an export-oriented international economic activity. The view of Ong Keng Yong, the Secretary-General of ASEAN, is instructive this regard. He emphasized that “Tourism is an important sector of our economies…tourism provides employment, helps to improve the quality of lives and promotes friendship, to create networking and widening of the perspectives among nations. This sector is important not only in generating valuable foreign exchange revenues but also in assisting to showcase the diversity and richness of the various cultures and peoples in Southeast Asia.” This paper thus identifies and analyses some factors of those strategies that are consistent to achieve the long-term sustainable tourism development in the context of Southeast Asian economies. Due diligence is to be paid to these facts due to their importance in organizing, and shaping tourism industry in Southeast Asia in order to realize a coordinated and supportive tourism development policy in practice. First, When tourism industry develops, the nature of it becomes complex. Therefore, a framework of strategic management requires – the absence of which may jeopardize the objective of developing tourism industry. This strategic management process should be delineated to mitigate and minimize the adverse impacts to ensure that tourism development is supporting national policy objectives, thus, the aim of maximizing the benefits is realized. In addition, the tourism development should be backed by marked influx of foreign financial and personnel resources. But governments need to be conscientious regarding foreign injections. This is because too much foreign involvement may have an adverse impact on the host country government’s decision-making sovereignty. This may lead to intimidating the long-term sustainability and economic viability of the tourism sector. Correspondingly, it is hoped that the function of government organizations and policymakers may not create any trouble in advancing tourism sector so that the economic impacts of tourism are to be felt at all levels of the economy. Secondly, considering the anticipated future of international tourism in Southeast Asia, it is important for the corresponding government to ensure that the industry is not treated trivially than it warrant while it should not be delicately kept apart. In spite of the rising concern on the adverse impacts of developing tourism in a region, there is rising evidence that the positive developmental aspects of tourism have influenced strongly to Southeast Asian governments to promote this industry as part of their economic development strategy. Hence, merits of tourism have been included in the national economic development plans of most of the Southeast Asian nations.

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The previous two points creates the raise of third point of tourism development perspective, the scenario explicitly revealing that it should not be viewed separately from other aspects of the economy. It is inevitable that there is a need to create institutions at regional, sub-regional and national level for the planning purposes. The lack of political reconciliation, enough resources and proper allocation of these resources in the tourism industry will eventually make the formation of those institutions ineffective. Specifically, many difficulties that arise from developing tourism in the region are the result of unsuccessful mandated policies. The potential advancement of tourism in the region is largely depending on this issue. The forth issue is the need to empower the Southeast Asian tourism. There is multiplicity of ways to accomplish this issue: by generating awareness about the benefit of tourism, by permitting those to exploit the entrepreneurial opportunities offered by this sector. Gender inequality is another issue that has adverse effect on the spirit of state capitalism. The aim of the Southeast Asian tourism policy should reflect these deficiencies.

6.3. Intra-ASEAN co-operation for tourism development Smith (1989) mentioned that tourism regions are formed for, and simply for, with the objective to achieve some larger intentions, otherwise, they do not exist in themselves. This proclamation reflects the purposes and needs for tourism in economic development of the Southeast Asian region. These purposes include cooperative and integrated approach of developing, planning, managing, and promoting tourist destinations. In an attempt to define the role that tourism play, Pearce (1989) cited that regional tourism development reduces the economic and social imbalances that exist between different localities within a region. A region is formed when different localities, cities, or countries are linked together, thus, regional development can be considered as an integration process. The regions are formed with the aim of better outcome. Ohmae (1995) defined this formation as a ‘region state’ or a borderless area developed with the aim of economic benefit. Therefore, the major reason of regional co-operation is to create a new geographic and economic alliance. Southeast Asian nations are also benefiting from this regionalisation not only from the economic viewpoint but also from the geographic aspects. Tourism provides opportunities for some of the Southeast Asian nations to transcend their geographic limitations (such as Singapore) as other contiguous countries are endowed with adequate resources to necessary to deem the local demand of leisure. Regional cooperation will also help reduce risky competition between destination areas and empower tourism development to reach to a greater height. Similarly, some of the Southeast Asian nations have comparative advantage in well-organized tourism infrastructure (for example, Singapore) and resources (for example, Malaysia) from which other countries can be benefited. As cited by Secretary-General of ASEAN Ong Keng Yong in the tourism conference in Korea (2005)“Tourism, however, is a very tenuous industry. It is very sensitive to environment changes and challenges. The outbreak of communicable diseases, for example, SARS, as well as terrorism and natural disasters can easily hurt tourism very quickly” (ASEAN, 2005).This statement reveals that tourism is sensitive to international events. Emerging developing economies are delicate to the adverse international events i.e. recent financial crisis (Gauri & Qureshi, 2013), hence, the Southeast Asian nations do face a downturn in

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terms of international tourists’ arrivals and receipts albeit not that shocking. Among the other features of tourism, International tourism faces severe downturns with international events while intra-regional and domestic tourism are not that prone to international events. The positive growth of tourists’ receipts in Southeast Asian nations during these international events is the support of this fact. Hence, it can be pointed out that intra-regional tourism is less vulnerable than international tourism in the viewpoint of international events. In this aspect, intra-regional tourism is a cushion for developing economies of Southeast Asia although tourism is fragile to international events. It is evident that because of the strong growth of this intra-regional tourism among the Southeast Asian economies, the effects of international events, such as 9/11, Iraq invasion, tsunami, on the tourism industry in this region was less severe than other regions of the world. Intra-regional tourism also constitutes a significant portion of tourist arrivals within the Southeast Asian economies. For example, in 2004, intra-ASEAN visitor arrivals were 23 million (ASEAN NTO’s) which constituted 46% of total visitor arrivals. A significant number of tourists in most Southeast Asian economies are comprised by regional visitors. Among the first six members of ASEAN, the Philippines appeared to be the only member country receiving relatively lower arrivals of regional tourists. This characteristic is obviously the result of deficiency in infrastructures to facilitate tourists as well as the lack of precise security needed for tourism development. The potential significance of regional tourism for the Southeast Asian economies was acknowledged soon after the formation of ASEAN. In the charter of ASEAN, regional tourism collaboration was given a particular place in an attempt to establish regional peace and progress. Although trade and economic development were the main targeted areas of Southeast Asian regional cooperation, tourism has recognized as an important tool to foster these activities. Nevertheless, until 1990s regional tourism received only insignificant importance for the Southeast Asian economies (Ghimire, 2001). During 1990s, the share of regional tourism within Southeast Asian boarders was found to be somewhat low as most of the international tourists’ arrivals had their transit through Thailand and Singapore. However, the scenario had started reshaping since the beginning of 2000. The emergence of low-cost carrier is also playing an important role to this regional growth of tourists’ arrival. Given the evolving change, regional tourism has the potential, to a greater extent, for increased investment. This will certainly assist in generating income and employment for diverse segments of population. The importance should be given to intra-regional tourism development in that the economic benefits of regional tourism remain within the region. To ensure this, there is a need to undertake some initiatives as most of the initiatives to boost the regional tourism remain hypothetical. A repeated method of policy monitoring along with the critical evaluation of policy are to be devised in order to upgrade the current regional tourism strategies. This is analogous to the study of Ghimire (2001) in which the author mentioned that most of the activities remain either exhausted or stuck at the level of a declaration of good intentions and elaboration of policy strategies. The development of regional tourism in Southeast Asia through cooperation is advocated not only due to that fact of achieving self-sufficiency but also to advance exchange of ideas and international trade within this region that could be implemented by constituting a unique tourism organization. Unlike other economic sectors, Southeast Asian tourism industry experiences a significant lack of tourism experts. Therefore, it is proposed that a Southeast Asian Tourism Experts Association (STEA) need to be formed. It would operate as a “think tank organization”- being the centre-portal for experts of various skills mandatory for regional tourism development to work closely with each other for achieving greater

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economic benefit. Along with other activities, research programmes and consultancies would be a part of its activities. Industrial linkages should be integrated and financial leakages in the form of import leakages or employing foreign experts (particularly by multinationals) arising from tourism development is to be minimised for the greater interest of Southeast Asian regional economies. Governments, the private sector, other stakeholders should work together in formulating policies and strategies to enhance the economic impacts to be felt at all levels of the economies. The importance of collaboration among stakeholders is also supported by the literature of (Wong et al., 2011a, 2011b).

7. Conclusion The importance of tourism development in this region is not overstated in this paper because of the facts illustrated above. The issues and challenges presented in this literature reveals that tourism growth in the region is exclusively demand-led and endowed with a comparative advantaged tourism sector in all Southeast Asian countries. It is important to note that proper formulation and implementation of favourable policy of tourism development is required to enjoy the benefits of tourism. This is especially important for the countries where finished tourism products are yet at infant stage. The accessible economic resources should lead the policies of tourism development since they provide proper recognition of unique tourism products and operate their marketing. The available economic resources for tourism development will determine the scale of its integration into the local economy while they also account for the overall control of tourism sector. If any of the economic resources are insufficient, the success of tourism policies is uncertain. The following elements should be taken into consideration when formulating a unique Southeast Asian regional tourism policy: • • • • • • • • • • •

Integration and promotion of regional tourism cooperation. Considerations regarding regional tourism integration into national plans. Analysis of the objectives of the tourism development plan consistent with national policy. Well recognized and unambiguous but realistic tourism policy goals. Availability of proper and precise legal support for tourism. Tourism development by means of local and community participation. Enhancing the participation of women in the tourism sector. Prioritization and integration of intra-regional tourism developing firms within the region. Private-public sector partnerships in developing tourism. Expanding the investment opportunities and entrepreneurial initiatives of tourism sector. Formation of a destination image by means of promotional and marketing campaign.

In addition, it should be noted that the nurturing of tourism industry is critical for sustainable tourism development in this region as tourism industry is sensitive to external shocks, thus, requires quick response from all tourism stakeholders. Therefore, it needs intense attention due to changing realities occurring in the competitive international tourism market outlook. The pre-requisites for nurturing this industry are not only limited to cooperation required from all concerned bodies of the tourism industry, the industry is also in need of much integration among national governments, regional and international community through providing authentic support and political will. 73


This paper has penetrated into some insights of the tourism development but the task is not complete. Future research and investigation should be given to look at other relevant aspects of regional tourism to the broader context of international tourism. The suggestions that have been made in this paper are to clarify how some of tourism development difficulties can be successfully overcome. In order to achieve the most from regional tourism, some specific comments have been made concerning the need for Southeast Asian cooperation to get benefit from economies of scale. Otherwise, Southeast Asian regional tourism might face difficulties in its growth pace while maintaining to stay behind in an extremely vulnerable tourism industry.

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Mohammad Nurul Huda Mazumder, Mast Afrin Sultana and Abdullah Al-Mamun Garnaut, R. (1996). Open Regionalism and Trade Liberalization. An Asia-Pacific contribution to the World Trade System. Singapore: Institute of Southeast Asian Studies. Gauri, F. N. & Qureshi, R. (2013). Financial Crisis and the Developing Countries. Transnational Corporations Review, 5(1): 4-11. Ghimire, K. B. (2001). Regional Tourism and South-South Economic Cooperation. The Geographical Journal, 167(2): 99-110. http://dx.doi.org/10.1111/1475-4959.00010 Hall, C.M., & Boyd, S. (2005). Nature-based Tourism in Peripheral Areas. Development or Disaster? Channel View Publications, Clevedon. Hall, C. M., Müller, D. K., & Saarinen, J. (2009). Nordic Tourism. Issues and Cases. Channel View Publications, Bristol. Jenkins, C. L. (1994). Tourism in Developing Countries: the Privatisation Issue, in Seaton, A.V., Jenkins, C.L., Wood, R.C., Dieke, P.U.C., Bennett, M.M. and Smith, R. (Eds), Tourism: The State of the Art, John Wiley & Sons, Chichester, UK. pp 3-9. Kauppila, P., Karjalainen, T. P. (2012). A Process Model to Assess the Regional Economic Impacts of Fishing Tourism: A Case Study in Northern Finland. Fisheries Research, 127–128: 88-97. http://dx.doi.org/10.1016/j.fishres.2012.05.004 Mazumder, M.N.H, Ahmed, E. M. & Al-Amin, A.Q. (2009). Does Tourism Contribute Significantly to the Malaysian Economy? Multiplier Analysis Using I-O Techniques. International Journal of Business and Management, 4(7): 146-159. Mazumder, M.N.H, Ahmed, E. M., Murad, M.W. & Al-Amin, A.Q. (2011). Identifying Economically Potential Inbound Markets for Malaysian Tourism Industry. Journal of Vacation Marketing, 17(1): 31-50. http://dx.doi.org/10.1177/1356766710391133 Müller, D. K. & Jansson, B. (2007). Tourism in Peripheries: Perspectives from the Far North and South. CAB International,Wallington. Neto, F. (2003). Tourism Development: Moving Beyond Environmental Protection. ST/ESA/2003/DP/29. DESA Discussion Paper No. 29. [online document]. http://www.tanzaniagateway.org/docs/sustainable_tourism_development_moving_beyond_environmental_protec tion.pdf [7 May 2013] Ohmae, K. (1995). The End of the Nation State. The Rise of Regional Economies, New York: The Free Press. Rogerson, C. M. (2004). Regional Tourism in South Africa: A Case of 'Mass Tourism of the South'. GeoJournal, 60(3): 229-237. http://dx.doi.org/10.1023/B:GEJO.0000034730.05992.18 Scheyvens, R. (2002). Tourism for Development: Empowering Communities. Prentice Hall, Harlow, Essex, UK. Sinclair, M. T. (1998). Tourism and Economic Development. The Journal of Development Studies, 34(5): 1-51. http://dx.doi.org/10.1080/00220389808422535 Smith, S. (1989). Tourism Analysis. A handbook. Essex, England: Longman Scientific & Technical. UNWTO (2011). Tourism Highlights 2011 Edition. http://mkt.unwto.org/sites/all/files/docpdf/unwtohighlights11enlr.pdf UNWTO (2012). Tourism Highlights 2012 Edition. http://mkt.unwto.org/en/publication/unwto-tourism-highlights2012-edition. Wang, X., Huang, S., Zou, T., & Yan, H. (2012). Effects of the High Speed Rail Network on China's Regional Tourism Development. Tourism Management Perspectives, 1: 34-38. http://dx.doi.org/10.1016/j.tmp.2011.10.001 Wong, E. P.Y., Mistilis, N., & Dwyer, L. (2011a). A Model of ASEAN Collaboration in Tourism. Annals of Tourism Research, 38(3): 882-899. http://dx.doi.org/10.1016/j.annals.2010.12.008

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About the Authors Mohammad Nurul Huda Mazumder is currently Post-doc research fellow at Laval University, Canada. Before joining at Laval University, he was senior lecturer at Multimedia University, Malaysia. He has obtained PhD in Tourism Economics. He has published more than 25 international peer reviewed journal articles. His research papers appeared in the Journal of Vacation Marketing, Journal of Developing Areas, and Progress in Development Studies, etc. His research interests cover tourism economics, tourism management, microfinance, environmental economics, cultural management, multivariate data analysis, impact assessment. In additional, he has expertise in Consultancy and project, and grant writing. Mast Afrin Sultana is serving as the Director (Administration) of ‘The Brain Technologies Ltd.’, Dhaka, Bangladesh and an independent researcher on Organizational behaviour, Developing countries competitiveness and Cross-cultural management issues. Her research finding was published at “International Journal of Business and Management” and presented to the AEDAUL international conference, 2012, Laval University, Quebec, Canada. Email: [email protected]. Abdullah is serving as Senior Lecturer at Faculty of Business and Entrepreneurship, University Malaysia Kelantan, Malaysia. He received his MBA (Major in Finance) and Ph.D. in Development Economics from Multimedia University. He has published 27 articles in international journals including ASEAN Economic Bulletin, the Journal of Developing Areas, etc. His current research interests cover wide range of topics in Development Economics, including: Poverty, Social Capital, Empowerment, Economic Vulnerability, Micro-enterprise Development, Microcredit, Economic Impact of Climate Change, and Entrepreneurship.

Contact Information Dr. Mohammad Nurul Huda Mazumder, Email: [email protected]. Dr. Abdullah- Al- Mamun, Email: [email protected].

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Entrepreneurial Motivation and Social Enterprises: An Empirical Analysis on Founders of Social Ventures in Bangladesh Muhammad Mohiuddin, Rumana Parveen, Masud Ibn Rahman and Mohammad Nurul Huda Mazumder Abstract: Success of market based entrepreneurial projects embedded with a social mission contributed to growing interest to social entrepreneurship in existing entrepreneurship literature. The purpose of this study is to examine whether the widely accepted motivational factors influencing entrepreneurial process have similar influence on social entrepreneurs in Bangladesh. Based on the seminal work of Shane et al. (2003) on entrepreneurial motivation, a survey was conducted among the social entrepreneurs in Bangladesh and collected data was analyzed. A regression analysis shows that some of widely accepted factors have significant influence while others have less or non-significant influence on Bangladeshi social entrepreneurs. This empirical paper contributes to better understanding of behavioral aspect of social entrepreneurship in Bangladesh where a high number of world’s leading social ventures were formed and expanded world-wide. Keywords: Entrepreneurial process, social entrepreneur, motivational factors, behavioral aspect.

1. Introduction Social entrepreneurship is comparatively a new phenomenon (Zietlow, 2002) in the domain of entrepreneurship. Globalization, rising inequality and inability of the invisible hands of the market to solve the market volatility have also created room for socially conscious venture to intervene and save an important part of the humanity. As a growing field, social entrepreneurship is increasingly drawing attention among businesses, researchers, and policy makers. In a post-industrial era of today, economic agents are more socially conscious and are trying to build a balanced society for long term sustainability. There are many reasons which have influenced the popularity of social entrepreneurship in the last decade. The basic reason behind peoples’ interest in building and operating social enterprises is the inherent interests and appeal of doing something for improving the livelihood of humanity, not for the profit alone. The stories of social enterprises are revealing the reasons behind the building of social ventures and why people are attracted to the social enterprises’ model. Social entrepreneurs are entrepreneurs with social objective (Martin & Osberg, 2007) and social entrepreneurship can be defined as the entrepreneurial venture with an embedded social purpose (Austin et al., 2006). According to Zahra et al., (2009), social entrepreneurship “encompasses the activities and processes undertaken to discover, define, and exploit opportunities in order to enhance social wealth by creating new ventures or managing existing organizations in an innovative manner". Social ventures pursuit simultaneously economic, social and environmental goals (Haugh, 2007).People, like micro-credit guru Nobel laureate Muhammad Yunus, are increasingly showing their interests for the same reasons. There are some extraordinary visionary and

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Entrepreneurial Motivation and Social Enterprises

creative people who are capable of generating brilliant and innovative ideas to combat the odds of the society and successfully establishing enterprises that contribute to the dramatic improvement of lives of people. The process of social entrepreneurship depends on many factors like the entrepreneur’s personal traits, socio-economic conditions and institutional environment (Jiao, 2011). There are extensive literatures available that has focused on major role of social entrepreneurs; the value of which will have an impact on behavior (Jiao, 2011; Danna and Porche, 2008; Thompson and Doherty, 2006; Mair and Noboa, 2006). However, research on motivational factors of social entrepreneurs is missing in the academic literature. This paper is intended to focus on the phenomenon of social entrepreneurship from a behavioral perspective. It will focus on motivation of social entrepreneurs which led them to pursue social entrepreneurship in Bangladesh. There has been a fuzzy boundary of definition of social entrepreneurship though the term has been in use since three decades. Some use the term social entrepreneurship to describe any form of moneymaking enterprise with a social mission. Others use it to describe any type of nonprofit organization that is new to them. The most prevalent use of the term social entrepreneurship, however, focuses on the role of the risktaking individual who, against all odds, creates social change. In this view, social entrepreneurship is not so much about pattern-breaking change, but about pattern-breaking individuals. A social entrepreneur is an individual who conceives of, and relentlessly pursues, a new idea designed to solve societal problems on a very wide scale by changing the systems that created the problems (Ashoka, 2005). Microcredit pioneers Grameen Bank, BRAC, ASA, and PROSHIKA are some of the leading not-for-profit organizations who are leading social ventures in many emerging and developing countries all over the world (Mohiuddin, 2000). All of these four leading organizations are originated from Bangladesh and created by Bangladeshi born social entrepreneurs out of the scratch. They differ from other socially oriented venture in the developed countries which are very often offshoot of the large multinationals or foundations and were created due to the rising distrust of wider community towards the large multinationals and rich personalities. The motivation behind the creation of ‘Bill and Melinda Gates Foundations’ and other similar organizations differ from the motivations of social entrepreneurs like Nobel laureate Professor Yunus of Grameen bank. This research would investigate whether the widely accepted motivational factors have influence on entrepreneurial process of social entrepreneurs in Bangladesh. It would also identify the crucial factors of motivation that play a significant role for the success of Bangladeshi social entrepreneurs. Bangladesh is home to several organizations acclaimed world-wide for their social ventures.

2. Entrepreneurship, social entrepreneurship and human motivational factors 2.1. Entrepreneurship and social entrepreneurship According to French economist Jean-Baptiste Say (1834), an entrepreneur is the one who is capable of transforming existing economic resources from lower to higher productivity level. He has defined an entrepreneur as one who undertakes that is translating the concept of value creation. Hundred years later, Austro-American economist Joseph Schumpeter (1934) added a force of ‘innovation’ with the basic concept of value creation to identify an entrepreneur. Schumpeter’s definition of an entrepreneur

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Muhammad Mohiuddin, Rumana Parveen, Masud Ibn Rahman and Mohammad Nurul Huda Mazumder

envisaged that the entrepreneur must bear the entrepreneurial spirit in identifying the commercial opportunities and organizes them in venturing and implementing regardless of whether the object is a product, service, material, or business. He argued that the success of an entrepreneurship, when ventured, creates chain effects that encourage other entrepreneurs to perform. Such process of entrepreneurship and eventually promulgate the innovation in the form of creative destruction; a favorable situation that could make existing products and businesses obsolete. Schumpeter also asserted that the entrepreneur works like a source of change that helps shaping the larger economy. On the other side, Peter Drucker (1985) mentioned that entrepreneurs are executer of changes and not necessarily to be considered as agents of change. Regardless of whether they cast the entrepreneur as a breakthrough innovator or an early exploiter, it is universally accepted by the theorists that there is an association between entrepreneurship and opportunity irrespective of entrepreneurs’ role as early exploiter or cutting-edge innovator. It is also believed that entrepreneurs have incomparable skill to exploit niche opportunities. In addition to this quality of entrepreneurs, they also possess the drive and dedication needed to utilize those opportunities as well as an unwavering willingness to carry out the risks associated with the opportunities. Based on the theoretical framework of entrepreneurship discussed above, it is understandable that entrepreneurship is deemed as blend of several contexts. These contexts are; it is viewed as an opportunity and a cluster of individual characteristics essential to recognize and exploit opportunity, as well as the establishment of specific outcome. The theory of social entrepreneurship is grounded on the basis of similar three elements existed in the theory of entrepreneurship. Then, the ultimate question is that what is the difference or what is making social entrepreneurship different from other form of entrepreneurship. To understand this, we need to look at the notion of motivation where social entrepreneurship is driven by altruism and the general entrepreneurship is motivated by profit. To a large extent, the social entrepreneur and the general entrepreneur, both of them are substantially motivated as a result of the development of identified opportunities, persistent vision of attaining them and receiving significant supernatural incentive in respond to carrying out innovative ideas. It is the fact that entrepreneurs are seldom completely rewarded with for the capital, risk, effort, and time they render to venture their ideas whether the operation of their venture in market is held in the context of profit or notfor-profit. What makes the social entrepreneurship and entrepreneurship different from one another is the degree of value proposition inhibited into the notion. The value proposition of an entrepreneur is to organize a venture in order to serve markets capable of absorbing the production of goods and services which are aimed to generate profit and to secure some degree of personal financial benefit. The social entrepreneur, however, neither anticipates nor organizes to create substantial financial profit for his or her investors – mostly philanthropic and government organizations – or for himself or herself. Instead, the social entrepreneur aims for value in the form of large-scale, transformational benefit that accrues either to a significant segment of society or to the whole society. Unlike the entrepreneurial value proposition that assumes a market that can pay for the innovation, and may even provide substantial upside for investors, the social entrepreneur’s value proposition targets an underserved, neglected, or highly disadvantaged population that lacks the financial means or political clout to achieve the transformative benefit on its own. This does not mean that social entrepreneurs as a hard-and-fast rule shun profit making value propositions. Ventures created by social entrepreneurs can certainly generate income, and they can be organized as either notfor- profits or for-profits. What distinguishes social entrepreneurship is the primacy of social benefit; the relative priority given to social wealth creation

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versus economic wealth creation. In business entrepreneurship, social wealth is a by-product of the economic value created (Venkataraman, 1997); in social entrepreneurship, the main focus is on social value creation.

2.2. Motivation and entrepreneurship The origin of the word ‘motivation’ comes from the Latin word ‘movere’, meaning ‘to move’. From psychological perspective, this means an inner, intrinsic or environmental stimulus to action, forces or the factors that influence for initiation, sustaining (and/or restraining/abstaining from) behavior. Individuals act differently for the same reasons and motivations are diverse, multiple and dynamic according to each individuals believe, perceptions and entrepreneurial orientation. There are four different categories of studies on entrepreneurial motivations; studies that investigate ‘deep psychological attributes and needs’, material and immaterial risks and gains, opportunity and necessity entrepreneurship and multi-country level studies (Wadhwa et al., 2009). The model developed by Shane et al. (2003) to explore the influence of a set of motivations on entrepreneurial behavior is presented in Figure 1. The model assumes that cognitive and motivational factors are causing every human action; the former contains skills, intelligence, and ability (Locke, 2000a). Figure 1. Model of Entrepreneurial motivation and the entrepreneurship process Entrepreneurial Motivation 1. General • Need for achievement • Locus of control • Vision • Desire for independence • Passion • Drive 2. Task specific • Goal setting • Self- efficacy

Entrepreneurial opportunities Environmental conditions Cognitive Factors • Vision • Knowledge • Skill • Abilities

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Opportunity recognition

Idea developmen t

Execution • Resource assembly • Organizational design • Market making • Product development


In the proposed model of entrepreneurship, entrepreneurship is considered as a process. This entrepreneurship process emerges with recognizing the opportunity of entrepreneurship which is accompanied by advancing the desire of pursuing that opportunity. In the entrepreneurship process, entrepreneurs also assess the viability aspect of the opportunity, accumulate the human and financial resources, prepare organizational plan, develop the goods or services to fulfill the customer needs, and meet the quest of customers The researcher suggests that like other countries, a number of motivational factors, if not all, matters most when motivating the individuals to transform the entrepreneurial process from one phase of process to another in Bangladesh.. The part of the investigated process will determine the likely variation and relative magnitude of each motivational factor. To a large extent, motivations do not have influences on the later phases of the process compared to initial phase of the process. It is clearly demonstrated in the model that cognitive factors, including knowledge, skills and abilities, do matter in influencing the transitions besides motivational factors. The integration and combination of cognition and motivation are aspiring all action (Locke, 2000a). The literature in entrepreneurship focused on human capital (e.g., Bates, 1990; Schoonhoven, Eisenhardt, & Lyman, 1990) has showed the consequences of specific types of knowledge and skills at the begging and resource congregation parts of this process. This process is explaining a number of issues. The first issue is that the success of the entrepreneurs depends on entrepreneurs’ knowledge on the industry and technology required to accomplish the process. Although entrepreneurs are eligible to hire efficient workforce with specialized skills, it should be done with higher caution to make sure that the hired workforce has sufficient expertise and know-how in accomplishing their task in the right way. The second issue is about entrepreneurs should possess necessary skills. However, required skills may vary depending on circumstances. A significant number of factors are included in this category, such as leadership, team building, decision making, planning, problem solving, conflict management, team building, communication, and bargaining and selling power. Lastly, entrepreneur is required to demonstrate the intangible ability of intelligence. . Due diligence is necessary to confirm above abilities when venturing is on the operation. The possession of essential knowledge, skills, and abilities will help the entrepreneurs in developing effective vision. This vision should also consider including a precise strategy and successful implementation of the strategy for the success of the organization. Motivation is the factor that helps the entrepreneur in advancing to acquire such knowledge, skills, and abilities (KSAs), at a priority basis which will generate energy and drive necessary to execute the required actions. Latent entrepreneurial opportunities are an important factor for starting a start-up entrepreneurial venture. However, only those with entrepreneurial minds can first observe the sign of those invisible opportunities. Individuals who possess patented technology or expertise in a new technology or innovative ideas are very often more likely to engage in exploiting their intellectual capital by entrepreneurial means (Shane, 2001). Both entrepreneur and social entrepreneurs are strongly influenced by the opportunity they identify and they are very much dedicated to realize their vision and obtain psychic reward from the process of realizing their ideas (Martin & Osberg, 2007). According to Kirzner (1973; p.73), opportunities do not come from the local knowledge of entrepreneurs but from their alertness to opportunities which they leverage by developing products, goods, and services. These innovative products fill-up the existing gap in the marketplace which are not made-up by the existing offers. The classic for profit entrepreneurs seek profits by quickly identifying and exploiting market opportunities, the social entrepreneurs identify and pursue typically center on creating social wealth. Filling such holes in the fabric of social systems is a vital 81


entrepreneurial function (Fowler, 2000; Teegen et al., 2004). The prospect of a large market or expectations of large margin can also individual to enter into the entrepreneurial activities. Internal attributes need to be fitted with the environmental conditions such as the legal system, industry conditions and the availability of capital in the economy (Shane et al., 2003).Institutional factors such as professional network ties (Galaskiewicz & Bielefeld, 1998) , government regulations (Ruef et al., 1998) and cultural norms (Zinn et al., 1998) are important for socially oriented ventures. These variables build the profile of the environment where organizations operate. Understanding of this environment helps to analyze the motivations of social entrepreneurship. In entrepreneurial motivation research, the seminal work of Shane et al. (2003) was a crucial turning point and identified several human motivations that influence the entrepreneurial process (Wadhwa, 2009). The principal human motivations of entrepreneurship are need for achievement, risk taking, tolerance for ambiguity, locus of control, self-efficacy, independence, drive and egoistic passion. The need for achievement (nAch) was considered one of the most important motivation factors of entrepreneurship and was widely discussed in seminal works of McClelland (1961), Johnson (1990), Fineman (1977), Collins, Locke & Hanges (2000).McClelland discussed three types of manifest of needs; Need for achievement (n-Ach), Need for power (n-Pow and Need for affiliation (n-Aff). Among them, the n-Ach received the most attention in the entrepreneurship literature to such extent that the achievement motivation is considered synonymous to entrepreneurial motivation. According to McClland (1961), those individuals who are high in nAchare supposed to become more involved in entrepreneurial activities requiring the high level of personal responsibility for outcomes than those who are low in nAch. This concept concerns the issues such as competition, excellence, challenging goals and solving difficulties. The value chain of the ‘achievement’ start with the defining of the problem, looking for the solution, thinking of the means of solution, thinking of difficulties that get in the way of solving it, thinking of prospective peoples who might be helpful to solve it and the final outcomes if one could solve the problem or fail in this mission. Thus the individual who have the n-Ach, he or she will take personal responsibility for solving the problem. They will take calculated risk and are willing to work hard for achievement. People with nAch will pursue entrepreneurial activities more than other careers (McClelland, 1961). Based on a literature review, Johnson (1990) found that there is a relationship between nAch and entrepreneurial activity. Thus, entrepreneurial individuals are different from other members of society. According to Fineman (1977), both the projective and questionnaire measures of nAch can predict decisively the foundation of entrepreneurial ventures. Collins et al. (2000) found that the nAch is an interesting way of differentiating entrepreneurs from non-entrepreneurs but there is no major difference between entrepreneurs and managers. Entrepreneurs and social entrepreneurs start their ventures in an unexploited sector and bound to accept certain level of uncertainty (Liles, 1974; Venkataraman, 1997). However, these entrepreneurs nAch attributes influence them to take moderate risk so that they can lead to the success of their ventures (Atkinson, 1957). According to McClelland’s (1961), entrepreneurs with high achievement needs have moderate propensities to take risk. According to Zahra et. al., (2009), social entrepreneurs take the risks associated with conceiving, building, launching and sustaining new organizations and business models. According to Begley (1995), risk-taking propensity is the only difference between entrepreneurs and nonentrepreneurs. According to Wadhwaet. al., (2009), entrepreneurs have the same perception of those of

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non-entrepreneurs on four scales: independence, financial success, self-realization and innovation and the difference are on roles and recognition. Another human motivational factor for entrepreneurship is the self-efficacy. The self-efficacy (SE) is the level to which prospective entrepreneurs perceive themselves as having the capability to successfully perform the multiple roles and tasks of entrepreneurship (Chen, Greene, and Crick, 1998; De Noble, Jung, and Ehrlich, 1999) to attain a certain level of achievement on a given project (Bandura, 1997). Self– efficacy is an important predictor of an individual’s performance on a given project and makes difference of performance between the individuals with similar capability. According to Sarasvathy, Simon, and Lave (1998), entrepreneurial individuals found opportunities in information package which the bankers thought risky. Thus, the measurement of risk-taking propensity may be confounded with high selfefficacy. Those individuals who have high self-efficacy tend to project challenging goals and persist toward the achievement of their projected goals even under difficult and stressful circumstances and recover quickly from the failure (Bandura, 1997). These individuals are more satisfied from their work (Bradley and Roberts, 2004) and make their firms more profitable, generate more revenue and employment growth (Baum and Locke, 2004; Baum, Locke, and Smith, 2001) than those comparatively lower in entrepreneurial self-efficacy. Tolerance for ambiguity is an entrepreneur’s willingness to paint a compelling vision and precede that creates order out of chaos one step at a time. It’s the entrepreneurs’ willingness to be open to new information and make corrections in the mid-way of the project, if necessary. The ability to do both of these at the same time, under great uncertainty, is a tolerance for ambiguity that makes an entrepreneur different from the rest of the crowd. According to Schere (1982), tolerance for ambiguity is an important trait for entrepreneurs as the later enter into the innovative new venture under unpredictable circumstances. Entrepreneurs undertake their ventures often face circumstances in which the outcome of their activities have unknown difficulties. This situation is referred to as “Knightian uncertainty” or “ambiguity” (Rigotti, Ryan & Vaithianathan, 2008). According to Budner (1982), tolerance for ambiguity is the propensity to view circumstances without clear outcomes as attractive rather than threatening. Entrepreneurs undertake their venture in an uncertain business environment that requires higher level of tolerance for ambiguity and they are much more vulnerable than the non-founder business managers or others. Researchers such as Begley and Boyd (1987), Schere, (1982) and Miller and Drodge, (1986) showed that firm founders scored significantly higher in tolerance for ambiguity than did managers, defined as non-founders working in business. Sexton and Bowman (1986) found from their literature review that tolerance-for-ambiguity is a distinctive psychological characteristic that differs entrepreneurs from managers. Locus of control is another important human motivation for entrepreneurship. Locus of control is a psychological term means how an individual sees the world/happenings around him or her. There are two kind of locus of control; internal locus of control and external locus of control. The Internal locus of control of an individual refers to his or her perception that he or she has the role on the happenings around him and those happenings are the consequence of their actions. However, the external locus of control refers to the individual’s perception that he or she has no control on the happenings around him or her (Rotter, 1966). Locus control was studied in context of various countries in order to distinguish entrepreneurs from non-entrepreneurs as well as the successful entrepreneurs from the unsuccessful entrepreneurs (Cromie and Johns 1983; Gilad, 1982). The psychological characteristic, “internal locus of

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control”, is widely believed to have a predictive power of being more entrepreneurial (Kaufmann & Walsh 1995). Gilad (1982) theorizes that people with internal locus of control have greater amounts of perceptual alertness. That means they are more alert on the happenings around them, can absorb more latent information and can distill them to use what they need to reap the opportunities from the environment. Based on studies of Sapp and Harrod (1993), Gilad (1982), Kaufman &Walsh 1995), there is a positive correlation between possession of internal locus of control and entrepreneurs. According to McClelland and Rotter (1966), Individuals with internal locus of control are more entrepreneurial and they like to see the results of their actions. Research on ‘internal locus of control’ shows that entrepreneurs with this attribute is different from the non-entrepreneurs but similar to the managers (Rotter,1966). The result remains constant in case of female and black entrepreneurs (Shapero, 1977; Bowen &Hisrich, 1986; Durand, 1975). Autonomy or independence is considered one of the important motivational factors of entrepreneurship. Many previous studies described desire for independence is the most frequent pull factor of starting-up a new venture (Douglas & Fitzsimmons, 2005; Hisrich, 1985; Shane et al. 1991; Kolvereid 1996; Carter et al. 2003; Van Gelderen and Jansen 2006). Independence allows to individuals to decide on themselves instead of following the orders from others such as superiors. It entails, at the same time, the responsibility of the outcome. Authors like Van Gelderen and Jansen (2006) valued the independence or autonomy for its own sake and it is an intrinsic motive. They assert that autonomy is a primary motive for a large majority of small start-up entrepreneurs. In fact, entrepreneurs ‘like to be responsible, to decide on strategy, to decide on working methods and to regulate their own time’ (Van Gelderen and Jansen 2006).Individuals who desire higher level of independence engage in activities (i.e independent entrepreneurial activities) where they can enjoy more freedom (Lee & Wong, 2004). Thirty five percent of start-up entrepreneurs from the OECD countries choose self-employment in order to gain independence; while ‘being independent’ is the primary motive for only around 20% of start-up entrepreneurs in developing countries (Hessels, Suddle and Mooibroek, 2008). Desire independence for becoming entrepreneurs is also valid for women entrepreneurs, (Hisrich, 1985). Many studies (Hornaday & Aboud, 1973; Alridge, 1997) found that entrepreneurs have higher in personality measurement of independence than the non-entrepreneurs. However, the study of Fa Tong, Kin Tong and Chen Loy (2011) on Malaysian university graduates found that there is no strong relationship between entrepreneurial intention and independence. ‘Drive’ can be defined as the willingness to invest effort in thinking and bringing ideas into reality and is considered another motivational factor to become entrepreneur. Shane, Locke, and Collins (2003) have studied this issue in their seminal work on entrepreneurial motivation. They have mentioned that there are some relations between ‘drive’ and need for achievement (nAch). However, they have used the term ‘drive’ in a broader perspective than the need for achievement (nAch). They referred to ‘Drive’ as the willingness to make efforts, tangible and intangible, to bring ideas to reality. They have further explained the construct ‘drive’ in terms of ‘ambition, goals, energy and stamina, and persistence’ (Locke & Latham, 1990). Ambitions affect the level of desire of entrepreneurs to create something great, eventful and meaningful and have influence on others. Higher level of goal setting will drive entrepreneurs to hard work and better performance; the higher level of persistence will make them more agile in face of challenges of materializing their ambition.

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Another human motivational factor researchers (Shane et. al., 2003) mentioned in their seminal work is the egoist passion [to create an organization and to turn it profitable]. That means entrepreneurs love their entrepreneurial process passionately and egoistically and work relentlessly towards success of their ventures. True entrepreneurs invest their best energy and passion for the success of entrepreneurial project they believe in and they love the process of building an organization and making it profitable (Shane et al., 2003). Dej (2008; p.90) defined egoistic passion as acting in one’s own interests and passion in following own goals and sacrificing other things in order to follow own priorities. Baum, Locke and Smith (2001) and Shane et al. (2003) showed that passion had a significant effect on entrepreneurial venture’s growth. Entrepreneurs pursue multiple goals including a set of personal objectives when they venture into an entrepreneurial activity (Kahneman and Tversky, 1979; Baker et al., 2005). Classic entrepreneurs are widely motivated by the profits (Schumpeter, 1934) and performance is generally measured by financial indicators (Austin et al., 2006). Social entrepreneurs pursue economic and social goals simultaneously in their social enterprises (Dorado, 2006; Thompson and Doherty, 2006). According to Santos (2009), what distinguishes social entrepreneurship from classic entrepreneurship is a predominant focus on value creation as opposed to a predominant focus on value appropriation. Organizations with predominant focus on value creation would typically set the price of its product or service at the point that would maximize the utility for its users and clients (subject to the organization’s sustainability). In contrast, organizations with predominantly focus on value appropriation will set the price of its products or services at the point that maximizes its profit potential (Santos, 2009). Different value system of the classic entrepreneurship and social entrepreneurship might have differences in motivational factors of its founders.

3. Methodology The target population of the study was the social-entrepreneurs or their successors in Bangladesh. The researchers used both quantitative and qualitative approaches to analyze the data. Structured questionnaire was used for taking interviews of respondents. Also, the researchers collected information from secondary sources including books, journals, online articles, and periodicals. The questionnaire was composed of 45 items designed to address specific motivational factors believed to discriminate between an entrepreneurial and a non-entrepreneurial orientation. Items were adapted from the Jackson Personality Inventory (20) and the Rotter’s I-E scale (33).Respondents were asked to indicate the extent to which they agreed or disagreed with each item by choosing one of five responses: (A) strongly agree, (B) agree, (C) neither agree nor disagree, (D) disagree, (E) strongly disagree. A total number of 30 samples were chosen purposively and the survey was done in July 2010.The data then were analyzed by using SPSS 15.0. Statistical techniques like mean, standard deviation, chi-square test and Cronbach's alpha scores were applied to find whether the responses are in an acceptable range with minimal variance.

4. Analysis and findings Data analysis was done on a number of steps. For factor analysis and chi-square test, the effect of underlying variables is transformed to a generalized value by data transformation. For descriptive data analyses the usual procedure is used. Then for each factor of motivation, significant and important relations are observed through a series of statistical techniques. All the tables including estimates are given in the Appendix.

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4.1. Data reliability To check the internal consistency of the variables, that is, to know how closely related a set of items within a group, Cronbach’s Alpha statistics was observed. A "high" value of alpha is often used as evidence that the items measure an underlying (or latent) construct. For a total number of 36 items (variables), the alpha coefficient was estimated to be 0.725, suggesting that the items have relatively high internal consistency.

4.2. Descriptive analysis The results showed that most of the entrepreneurs had higher education with a very small standard deviation. This was not clear whether they are highly educated from the beginning of their work because this sort of longitudinal study is not available in Bangladesh. Also there exists huge deviation among the duration of their companies/organizations (s. d. 24.16years) which indicates that the common tendency of the young entrepreneurs to come forward to social entrepreneurship in present days. Table 1. Descriptive statistics of the entrepreneurial motivation factors Variables

Mean 54.39

S.D. 17.172

4.22

.736

26.78

24.164

I enjoy competitive situation

1.96

1.331

It is important for me to perform better on risk

1.17

.388

I prefer task involving personal responsibility

1.18

.395

Like to undertake task which has only sure outcomes

2.74

.964

Am satisfied with jobs that require innovativeness

1.26

.619

I always try to exceed my previous performance

1.43

.843

I can take risk with my money, such as investing in stocks

2.59

1.532

I like to try new foods, places and experiences

2.05

1.327

I enjoy gambling

4.27

.985

I enjoy adventurous job

1.95

1.397

I don’t engage myself in any risk job

3.18

1.563

I always avoid unpredictable situation where personal risk is involved

2.73

1.352

I am confident to start own business

1.87

.757

To start own firm, I would take advantage of my education

1.59

.666

I have the skill and capabilities to succeed as an entrepreneur

1.52

.730

I prefer working with friend rather than experts

2.91

1.345

I always seek approval of others while making a decision

2.22

1.278

I know I can be successful if I try hard

1.04

.209

I appreciate new ideas from other people and new ways of doing things

1.39

.722

I feel comfortable with those people whose views and opinion match with me

1.74

1.176

Uncertain situation create stress for me

2.83

1.072

I think to become successful my effort is more important than my luck

2.04

1.261

I'd rather be my own boss than have a secure job

2.17

.937

Age of the respondent Education of the respondent Time of establishment

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I do not like fixed rules, schedules , salary and command of other person

2.52

1.344

I have many creative ideas and want to make them work

1.35

.714

I enjoy working long hours

1.78

.795

I think working hour and rest hour should be equal

3.70

1.428

I avoid those works which requires excessive time and efforts.

2.83

1.072

I enjoy arranged annual picnics and seminars

1.52

.593

I do believe in "think big start small"

1.48

.665

I am flexible in painting my ambitions

2.17

.834

I become crazy sometime in failure

2.61

1.033

I try to learn from mistake

1.52

.730

I am non-judgmental with others in sharing business ideas

2.35

1.071

I feel shy sometime discovering my mistakes by others

3.57

.843

I can wait long to achieve my goal rather than compromising it

1.96

.767

From Table 1 we can conclude that most of the entrepreneurs agreed or strongly agreed with the statements which mean the motivational factors in study positively portrayed their personality. Only in cases of opinion regarding gambling, equity of working hours and ego/passion, the respondents were not attributing with those factors. The respondents had wide variation on Risk taking, Self-efficacy, Need for freedom and independence and Energy level. It is theretofore concluded that most of the factors have strong influence on the execution of ideas. The respondents were more uniform on their opinion on Risk taking, Self-Efficacy, Cognitive Factors, Ego/passion and Drive (Table 1 Column 3).

4.3. Factor analysis Using the method of principal components, the researchers determined the minimum number of factors which account for maximum variance in the data. The Eigen values represent the total variance explained by each factor. There are a total number of 4 factors that explain 68% variation in the data. The factors were identified on the basis of Eigen values greater than 1 (Table 2). Table 2. Factor analysis: total variance explained Component 1 2 3 4 5 6 7 8 9 10

Total 2.317 1.959 1.395 1.133 .978 .928 .480 .345 .280 .184

Initial Eigen values % of Variance Cumulative % 23.169 23.169 19.593 42.762 13.949 56.711 11.332 68.043 9.784 77.828 9.280 87.108 4.802 91.910 3.445 95.355 2.802 98.157 1.843 100.000

Extraction Sums of Squared Loadings Total % of Variance Cumulative % 2.317 23.169 23.169 1.959 19.593 42.762 1.395 13.949 56.711 1.133 11.332 68.043

Extraction method: principal component analysis.

Later the component matrix explains the relationship of the component with all those factors. From the

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correlation matrix (Table 3), it is clear that Need for Achievement, Need for Freedom, Tolerance of ambiguity, Innovativeness, High Energy level, Risk taking and Internal locus of control are identified as important motivational factors while self-efficacy, Drive and Ego are not so important factors. Among the influential factors Need for Achievement, High Energy level and Internal locus of control are more important with higher correlation values (.741, .708 and .727 respectively). Table 3. Factor analysis: component matrix (a) Factors

Component 1 .741 .111 -.285 .640 .605 .448 .437 -.461 -.201 .561

Need for achievement Risk Taking Self-Efficacy Tolerance and ambiguity Need for freedom and independence Energy level Drive Ego/Passion Internal locus of control Innovativeness

2 .520 -.466 .594 .263 .435 .032 -.473 .518 -.339 .747

3 .326 .616 .346 -.401 .308 .708 .018 .043 -.056 -.165

4 .279 .051 .463 .406 -.110 -.037 .164 -.201 .727 .067

Extraction method: principal component Analysis. 4 components extracted.

4.4. Association of the factors and other related variables The association of the considered factors with variables like Education, employment status of the respondent and business that is inherited by family was studied by observing chi-square test. These variables were chosen because they are the cognitive factors that influence the entrepreneurial process. Table 4 shows the relationship between the motivation factors and the considered variables. Table 4. Association of 10 factors with education, employment status and business inherited by family Education Factors Value of Chi-square 6.389

P-value

9.277

.051*

Self-Efficacy

Need for Achievement

Entrepreneurship is inherited by family business Value of P-value Chi-square 1.612 .045*

5.625

.029*

2.217

.096

2.782

.024

*

7.027

.034

*

15.362

.004*

Tolerance for ambiguity

13.220

.105

2.897

.575

11.811

.019*

Internal locus of control

19.271

.004*

3.614

.306

1.312

.726

Need for freedom and independent Innovativeness

15.65

.480

4.543

.337

4.532

.339

7.862

.027*

.858

.051*

11.812

.003*

Energy level

7.437

.490

4.308

.366

1.136

.889

Drive

2.820

.588

.454

.797

3.385

.084

Ego/Passion

3.805

.703

.976

.807

3.131

.372

Risk taking

88

.381

Whether employed before being an entrepreneur Value of P-value Chi-square 3.681 .298


The (*) indicates highly significant association between the factors with the level of significance 0.05.

The association test also supports our previous findings that factor like Risk Taking, Self-Efficacy, Internal locus of control and Innovativeness are important factors which are very much related to the successful entrepreneurs in Bangladesh.

5. Conclusion Entrepreneurial motivation in Bangladesh is mostly driven by the factors like Risk Taking, Self-Efficacy, Internal locus of control and Innovativeness. Although most of the factors have some sort of influence on the entrepreneurial motivation, some factors like Risk Taking, Self-Efficacy, Internal locus of control and Innovativeness are found very significant in this country. There also exists significant association with the cognitive factors and entrepreneurial motivation factors. Although most of the entrepreneurial motivation factors are present in Bangladeshi entrepreneurs, there exists significant variation among the age, education, personality and thinking etc. Risk factor, personal responsibility, innovativeness, hardworking, creativity, vision, determination etc. are the common characteristics of a successful entrepreneur in Bangladesh. The present study was conducted with limited entrepreneurial motivational factors. There can have additional motivations which significantly or exclusively influence social entrepreneurship. So there is scope for more exploratory research to locate, test and analyze such motivational factors. The future studies need to enlarge both the sample size and contextual socio-economico-political entrepreneurial motivational factors for an in-depth study on behavioral aspects of Bangladeshi social entrepreneurs and generalizable results in similar developing culturally conservative countries.

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Contact Information Muhammad Mohiuddin, DESA, PhD (ABD). Sessional Lecturer of International Management, FSA ULAVAL, Laval University. Office: PAP 2310, FSA, Ulaval. Laval University, GIV OA7, Quebec, Canada Tel.: 418-656-2131 ext. 7064. Email: [email protected].

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Leadership Style and Employee Job Satisfaction: Evidence from Malaysian Semiconductor Industry Somaye Gharibvand1, Mohammad Nurul Huda Mazumder2, Muhammad Mohiuddin3 and Zhan Su4

Abstract: This paper discusses the results of the first comprehensive study of semiconductor industry in Malaysia. It primarily consists of the operations set up by transnational corporations in high technology centres of Penang and Kuala Lumpur. The goal of this study was to determine the most effective leadership style to increase employee job satisfaction and to offer recommendations to improve the industry. We examined the relationship between three independent variables, two moderating factors, and employee job satisfaction as the dependent variable. In establishing a research framework, we formed hypotheses, collected extensive data, developed statistical models, and used multiple regression technique to analyze the field data. It is concluded that collaboration among the transnational semiconductor corporations, Malaysia’s government investment agency MIDA, and the Malaysian semiconductor firms have succeeded in creating a semiconductor workforce that is productive and enjoys a reasonably high level of job satisfaction. Keywords: Leadership styles, transnational corporations, organizational culture, participative leadership, gender of managers, workplace, employee job satisfaction

1. Introduction The semiconductor industry is a highly competitive global business and Malaysia’s semiconductor industry is an integral part of the worldwide industry. The majority of semiconductor firms operating in Malaysia are defined as multinational or transnational firms because they have operations in multiple countries. Transnational corporations (TNCs) have significantly raised their investment in developing countries since 1970s (Deng, et al., 2009). Therefore, the economic activities financed by the TNCs have major impact on social development in various countries, which generally encouraged global integration and globalization. As a result, Malaysian semiconductor industry needs to compete effectively on a national scale versus other countries. Furthermore, the TNCs and local semiconductor firms operating in Malaysia must compete effectively with competitors inside and outside Malaysia. A dynamic interplay 1

Faculty of Management, Multimedia University, Jalan Multimedia, Cyberjaya 63100, Selangor, Malaysia. Email: [email protected] 2

Faculty of Administrative Sciences, Laval University, Quebec, Canada

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4


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exists between the competitive advantages of countries and the TNCs that operate within their borders (Dunning, 1990). Dunning argued that a better understanding of the nature of this interaction and its impact on globalization of markets and manufacturing would improve the knowledge about foreign valueadded activity such as providing funding to expand production capacity. The most successful economic development in the last several decades has occurred in East Asian countries (Bienefeld, 2009). The reason is that the Southeast Asia countries were early adopters of collaboration with international markets. In addition, the governments in those countries proactively established favour able policies that supported the rapid development of technology and infrastructure. Malaysia is an example of the 21st century trends such as faster globalization, increased interdependence of nations, rapid introduction and transfer of technologies, and innovative product development by multinational firms. The TNCs and foreign-owned firms are attracted to Malaysia access to regional and international export markets. Additionally, the TNCs benefit from abundant technical workforce, ample space to expand operations, manufacturing infrastructure, and cost-effective Malaysian labor pool. Semiconductor and related technology sectors are important sources of income for Malaysian workforce and contribute significantly to Malaysian Gross Domestic Product (GDP) and competitive advantage. There is a dynamic interaction and mutual enrichment between the competitive advantage of Malaysia as a country and the business expansion of semiconductor TNCs that operate in Malaysia. The role of managers and leadership styles in semiconductor sector is critical to maintain and grow Malaysia’s hightechnology jobs and income. After several years of steady growth of Foreign Direct Investment (FDI) in developing countries, the persistent global financial crisis that started in 2009 caused a significant drop in FDI according to United Nations Conference on Trade and Development (UNCTAD, 2010). Despite the global economic slowdown, the Malaysian Investment Development Authority (MIDA) has taken several initiatives including joint funding with transnational firms to further enhance Malaysia’s position as one of the world’s leaders in semiconductor design and manufacture. There are currently 62 companies in the local industry, which includes 28 semiconductor product firms, seven semiconductor wafer manufacturers, and 27 in integrated circuit (IC) design. Eleven of these companies are Malaysian-owned. The MIDA is expanding beyond the current computer and notebook supply chain into other devices like Blu-Ray players, high-definition TVs and e-book readers with moves into semiconductor support and high brightness light-emitting diode (LED) semiconductors. The electrical & electronics (E&E) industry is a leading sector in Malaysia's manufacturing sector, contributing significantly to the country's manufacturing output (26.94 per cent), exports (48.7 per cent) and employment (32.5 per cent). Electronic Components sub-sector is dominated by semiconductor players especially the MNCs or TNCs that mainly offer assembly and test services. Semiconductor products constituted export value of US$34.4 billion in 2011 (MIDA, 2013). The scope of this study involves the effectiveness of Malaysian semiconductor managers to increase the job satisfaction of employees in the technology centres of Penang and Kuala Lumpur (KL). The work culture and manager’s role are investigated to gain insights into the impact on job satisfaction of employees. The locations of Penang and KL are selected due to high concentration of semiconductor companies. The aim is to determine whether location can impact the leadership style and job satisfaction.

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2. Literature review The concepts of leadership, effective leadership, and leadership styles have been studied and debated by managers and academicians in many countries including in Malaysia for a long time in different types of organizations and industries. It has been shown that employee job satisfaction has a direct relationship to their productivity. Leadership style is the way a leader provides direction to his/her team to execute their tasks, the manner in which the leader motivates and trains the subordinates, and how the leader generally communicates and relates to his/her people. Leadership style varies depending on human resource management because administrators usually design many types of training programs to develop basic skills and apply them in order to overcome immediate job problems and increase daily job performance (Ismail et al., 2013). German social psychologists started some pioneering studies of leadership styles and their effect on organizations (Lewin, Lippit and Whit, 1939). They identified three styles of leadership as authoritarian, participative, and delegative. The concept of leadership has been used as both an independent and a dependent variable in several research studies. Malaysian culture and leadership have been studied extensively (Mansor and Kennedy, 2000). This study confirmed the influence of cultural factors on Malaysia's management styles. A study examined whether the relationship between the leader’s behaviour and the employee’s job satisfaction is influenced by the nature of the task that employees performed (Desa, 2002). The relationship between leadership style and leadership effectiveness was studied (Cheng, 2008). A Dutch social psychologist researched cross-cultural organizations and developed an index called Power Difference Index (PDI) for the 53 countries that took the survey (Hofstede, 2005). A study analyzed data on the leadership styles of entrepreneurs (Ansari, Aafaqi and Jayasingam, 2000). A study assessed the characteristics of leadership in knowledge-based organizations (Jayasingam, Ansari and Jantan, 2010). Other researchers studied the relationship between the culture and the employee preferences (Hamzah, Saufi and Wafa, 2002, Sultana, et al., 2013). Malaysians generally think that they can work well as a team (Jayasingam, Ansari and Jantan, 2010). A study examined the leadership styles in different workplaces and arrived at similar conclusions (Ababneh, 2009). One study concluded that the gender of the manager does not really matter (Appelbaum, Audet and Miller, 2003). Another study concluded that management styles of female accountants were somewhat different than their male counter parts. The conclusion was that both male and female managers can share experiences and learn from each other’s best practices in growing their skills (Burke and Collins, 2001). The University of Malaysia Sarawak conducted a study with the objective to evaluate the relationship between the leadership styles of the organizational leaders and the organizational commitment of their subordinates (Lo, Ramayah and Min, 2009). In other study, the transactional and transformational leadership styles were compared and the superior role of transformational leadership style was discussed (Bass, 1990). A study evaluated the association between job satisfaction and organizational commitment (Poon, Rahid and Othman, 2006). Some researchers studied the validity of transformational and transactional leadership styles in public universities of Malaysia (Lo, et al., 2009). A research in North Carolina, USA, studied the relationship between the leadership behaviour of County Extension Directors and job satisfaction of their employees (Stumpf, 2003). A study examined the relationship between transformational leadership, transactional leadership and employee attitudes (Rahman, et al., 2009).

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3. Methodology Based on the research objectives, two hypotheses will be tested in this study against their null hypothesis. This study will test hypotheses concerning the impact of two moderating variables of gender of high-tech managers and workplace on the independent and dependent variables. The study will also test hypotheses about the relationship between three independent variables of current leadership styles, organizational culture, participative leadership styles and the dependent variable of employee job satisfaction in the semiconductor high-tech industry. H1a: There is a relationship between employee job satisfaction and current leadership styles, organizational culture, participative leadership styles; H1b: There is no relationship between employee job satisfaction and current leadership styles, organizational culture, participative leadership styles. H2a: There is an effect of gender and workplace as a moderating variable on the relationship between leadership and employee job satisfaction; H2b: There is no effect of gender and workplace as a moderating variable on the relationship between leadership and employee job satisfaction. The research framework for this study is presented below. Figure 1. Theoretical model of the study Gender of hightech managers

Workplace cities

Current leadership styles in high-tech industry

Organizational culture in high-tech industry

Employee job satisfaction in high-tech industry

Participative leadership style in high-tech industry

4. Data collection The main focus of this paper is to assess the goodness of measure (validity and reliability) of three independent variables (current leadership style, organizational culture, participative leadership style) and

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two moderating factors (gender of managers and workplace cities) and a dependent variable (employee job satisfaction). Data was collected through survey questionnaires from individual employees of the semiconductor industry using stratified sampling method. The target population for the study was the high-tech semiconductor employees from Penang and KL regions. We distributed 300 survey questionnaires and received 180 valid responses.

5. Results and discussion This section is developed to represent the study results. The respondent’s answers illustrated that a total of 117 participants were male supervisors, which represent 65% of respondents. There were 63 respondents from female supervisor, which represent 35% of participants. Based on the respondent’s answers, the table illustrates that a total of 89 participants, which represent 49.4% of respondents, were from the KL region. There were 91 respondents from Penang region represented 50.6% of participants. Most of the respondents agreed that current leadership could effect on the employee job satisfaction. Overall, most respondents were satisfied with the current leadership. Most of the respondents agreed that participative leadership had an influence on employee job satisfaction. All variables for the results were estimated by five point scale. The mean or averages of central tendency are as follows. It was found that the mean for current leadership was 3.4259, 3.4438 for participative leadership, 3.4347 for organizational culture, and 3.4951 for employee job satisfaction. Most of the mean of the variables were more than 3. This meant that most of the respondents felt that the employee job satisfaction would increase to a level according to the variables. The minimum of 1 indicates that the respondents did not satisfy with the effect of the variables on employee job satisfaction and the maximum of 5 illustrates that the respondents strongly satisfy that the variables bring more of that. For fulfilling the normality of tests- p-value should be more than 0.05 according to the test of normality for this study, p-value is less than Alpha so it means that this test is not normal. So for test of correlation, Spearman test has to be used, which is non-parametric for determining the strength of relationship between variables. According to the output of Spearman’s correlation between current leadership and employee job satisfaction, there is a high positive relationship exists between them because the value of Spearman’s correlation is 0.745 and its p-value is 0.000, which is less than 0.05 (p-value = 0.000