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Volume IV Issue No. 2 September, 2007
Evolution of Citizen Charter led Rural e-Governance: A Livelihood Security Approach to
Information Systems Planning in Indian Context
Harekrishna Misra & B. N. Hiremath
Analysis and Development of A Concept Level Framework on Corporate Social Responsibility
Som Sekhar Bhattacharyya
Public Expenditure on Health and Health Outcomes: The Experience of the Indian States
Biswa Swarup Misra & Akshya K. Panda
Internationalization of Indian Pharmaceutical Industry : A study on the determinants of export stimulation
Srikant Panigrahy, P.Mishra & B.P.Patra
Competencies Necessary for Technology Transfer from Home to Host Country Companies: A Case Study
Kiran J. Desai & Harsha Desai
Measuring Critical Factors in Safety Management - A Survey Based Approach
M.N. Vinodkumar & M. Bhasi
Consumer Rights Protection and Regional Co-operation among SAARC Countries
Basant Kumar & Brajaraj Mohanty
Factors Blocking the Implementation of Retailing Technology
A. Veena & H.R. Venkatesha
Continuous and Sustainable Improvement through Supply Chain Performance Measurement
- A Case Study of an LCV Manufacturing Company
Ashwani K. Varma
Trade Protection Measures (TPM): Issues and Perspectives
Sridhar Panda & Rajiv Arora
Shaping the Moral Foundation for Globalization: Lessons from Indian and Western Philosophy
Bibhu Prasan Patra
Demand Estimation – Some Empirical Observations and their Implications
Management Case
Suhas Gopinath
Brajaraj Mohanty & Rajeev Roy
Rural Women’s Marketing Association (RWMA)
Debasis Pradhan
A Tale of Two Samitis
Niraj Kumar
Reliable Iterative Testing Environment (RITE) -a Case of Software Development Model
Sanjay Mohapatra
Gram Utthan - From Micro Credit to Micro Enterprise
S.P. Das & Alok Pattanayak
Book Review
Outsourcing : the Definitive View, Applications and Implications
Shiva Kumar Srinivasan
Total Relationship Management
Jaydeep Mukherjee

Xavier Institute of Management

Bhubaneswar - 751 013

Brajaraj Mohanty
Professor, Xavier Institute of Management

John C.Camillus, Donald R.Beall Professor of Strategic Management,
University of Pittsburgh, Pittsburgh,U.S.A.
S.K. Chakraborty, Founder- Convenor, Management Centre for Human Values,
Indian Institute of Management, Kolkata
Keith D’Souza, Director (Organizational Effectiveness), Pfizer Limited, Mumbai
J.M. Denton, Professor & Head of International Affairs, University of Stellenbosch
Business School, Bellville, South Africa
Ranjan Ghosh, Director, Goa Institute of Management, Ribandar, Goa
M.G. Jomon, Associate Professor, XLRI, Jamshedpur
Jerome Joseph, Professor, Indian Institute of Management, Ahmedabad
Oswald A. Mascarenhas, s.j., Kellstadt Professor of Marketing,
University of Detroit-Mercy, Detroit
Sasi Misra, Distinguished Fellow, Entrepreneurship Development Institute of India,
Amar KJR Nayak, Associate Professor, Xavier Institute of Management, Bhubaneswar
Gopal Krishna Nayak, Director, International Institute of Information Technology,
H.K. Pradhan, Professor, XLRI, Jamshedpur
V.Ranganathan, Professor, Indian Institute of Management, Bangalore
Latha Ravindran, Professor, Xavier Institute of Manavement, Bhubaneswar
Subhash Sharma, Dean, Indian Business Academy, Bangalore
W.S. William, Professor & Dean (Academic), Xavier Institute of Management, Bhubaneswar
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Volume IV Issue No. 2 September, 2007

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Xavier Institute of Management
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1. Evolution of Citizen Charter led Rural Harekrishna Misra & 01

e-Governance: A Livelihood Security B. N. Hiremath
Approach to Information Systems
Planning in Indian Context
2. Analysis and Development of A Concept Som Sekhar Bhattacharyya 25
Level Framework on Corporate Social
3. Public Expenditure on Health and Biswa Swarup Misra 43
Health Outcomes: The Experience of the & Akshya K. Panda
Indian States
4. Internationalization of Indian Srikant Panigrahy, 61
Pharmaceutical Industry : A study on P.Mishra & B.P.Patra
the determinants of export stimulation
5. Competencies Necessary for Technology Kiran J. Desai & Harsha Desai 85
Transfer from Home to Host Country
Companies: A Case Study
6. Measuring Critical Factors in Safety M.N. Vinodkumar & M. Bhasi 95
Management - A Survey Based
7. Consumer Rights Protection and Basant Kumar & 109
Regional Co-operation among SAARC Brajaraj Mohanty
8. Factors Blocking the Implementation of A. Veena & H.R. Venkatesha 121
Retailing Technology
9. Continuous and Sustainable Ashwani K. Varma 133
Improvement through Supply Chain
Performance Measurement - A Case
Study of an LCV Manufacturing
10. Trade Protection Measures (TPM): Sridhar Panda & Rajiv Arora 155
Issues and perspectives

11. Shaping the Moral Foundation for Bibhu Prasan Patra 167
Globalization: Lessons from Indian and
Western Philosophy
12. Demand Estimation – Some Empirical P.Mishra 179
Observations and their Implications

13. Suhas Gopinath Brajaraj Mohanty & 189
Rajeev Roy

14. Rural Women’s Marketing Association Debasis Pradhan 203

15. A Tale of Two Samitis Niraj Kumar 211
16. Reliable Iterative Testing Environment Sanjay Mohapatra 217
(RITE) -a Case of Software Development
17. Gram Utthan - From Micro Credit to S.P. Das & Alok Pattanayak 233
Micro Enterprise

18. Outsourcing : the Definitive View, Shiva Kumar Srinivasan 245
Applications and Implications

19. Total Relationship Management Jaydeep Mukherjee 249

Evolution of Citizen Charter led Rural
e-Governance: A Livelihood Security
Approach to Information Systems
Planning in Indian Context*
Harekrishna Misra1 & B N Hiremath2

Indian rural e-governance initiatives face many challenges. This is not because it involves the rural
infrastructure, but the complex process of involving the rural citizens. Rural citizens, who lack basic
livelihood opportunities, are laden with survival threats and for them, everything leading to livelihoods
prospects matter much. It is often argued that creation of “services on demand” and “stakeholder-
ownership oriented development” initiatives may lead to success. In order to make the interventions
successful, it is essential that the citizens themselves identify their issues, prioritize their needs, and
manage their infrastructure and services. In this paper we discuss issues related to stakeholder-ownership
oriented e-governance, design process and its effect on ICT planning for e-governance. We illustrate
through a case about the utility of participatory rural appraisal (PRA) as a tool to involve rural citizens
in planning and elicit their priorities for ICT options.

1.0 INTRODUCTION users do not have any control. Soft issues

Information and communication relate to understanding processes,
technology (ICT) projects require proper modeling and their automation.
identification of users’ needs. ICT is a Managing the soft issues and technology
bundle of hard and soft components, enabled processes depend on the users’
where hard components are technology capability. A synergic effect is possible
driven (system software, when the soft issues are supported by the
communications and power) and the right kind of infrastructure in the supply-

* Received June 23, 2007; Revised August 22, 2007. Authors gratefully acknowledge the assistance
provided by Gramin Vikas Trust, Dahod, in conducting PRA exercises and for providing logistic
support. Our special thanks are due to Mr. Arun S. Nathan and Mr. Kalpesh Soni of GVT for
their support.
1. Professor, Institute of Rural Management Anand, email:
2. Professor, Institute of Rural Management Anand, email:
2 Vilakshan, XIMB Journal of Management ; September, 2007

chain. These require a rigorous demand based services for these citizen
information system (IS) planning (Ward with focus on livelihoods opportunities.
and Peppard, 2002). Identifying the right Unless directed towards creating
types of services with users’ perspective “services on demand” and “stakeholder-
is important to make an ICT initiative ownership oriented development”
successful (Jokela, 2002). While there is initiatives, the projects taken up for
phenomenal growth in ICT-enabled intervention may not guarantee success.
processes, decrease in cost of computing, In order to make the interventions
increase in acceptability of e-business, e- successful, it is essential that the citizens
commerce and m-commerce activities; themselves identify their issues, prioritize
failures plague the projects. Despite their needs, and manage their
having a good method, many projects fail infrastructure and services. The support
due to its less usability. There is a of government, non governmental
growing concern over evaluating, organizations (NGOs), etc., should
managing, and measuring effectiveness monitor the infrastructure set up for the
of ICT infrastructure created (Lycett, purpose. However, these projects need
Macredie, Patel and Paul, 2003). to evolve through demand-driven
Indian rural e-governance initiatives are
more complex but face analogous Evolution precedes revolution and in
situations. This is not because it involves rural development/ governance
the rural infrastructure, but the complex initiatives, evolution is possible through
process of involving the rural citizens citizens’ participation. ICT based
who are expected to be the larger governance/development paradigms
beneficiaries. Rural citizens, who lack recognise citizens’ participation to be
basic livelihood opportunities, are laden more important and in Indian context it
is very relevant. (Prabhu, 2004;
with survival threats and for them,
Bhatnagar, 2004; Satyanarayana, 2004).
everything leading to livelihoods
prospects matter much. Alike e-business, In this paper we discuss the concept and
e-commerce applications, e-governance importance of user-led IS planning,
rural initiatives need to be citizen-centric. design process and its effect on ICT
It is important for the policy makers to planning. We consider rural citizens to
direct the ICT initiatives for addressing be the end-users. We illustrate the utility
not only the feasible business practices of participatory rural appraisal (PRA) as
(e-business, e-commerce etc.), service a tool to involve rural citizens in planning
oriented opportunities (e-governance, e- IS and elicit the prioritsed demands on
government etc.), but also integrate the ICT options. Various IS metrics are
Misra, Evolution of Citizen ... 3

accentuated to enumerate these ICT

options. Through a case, we discuss how Exhibit 1 UCD Framework
migration information centres (MICs)
could be planned through the PRA 1. Plan User centered

techniques which support the livelihood

perspectives of the citizens. We also 2. Specify the context of Use

narrate how these centres cater to their

livelihood security, purposeful IS plan
could be initiated an a simple ICT option 5. Evaluate against
User requirements
3. Specify User
could be adopted to help implement the
IS planned. Moreover, we also discuss
how this exercise could bring in the 4. Produce solutions
citizens’ perspectives and transform them User

to action. We conclude the paper with an Acceptance

analysis of the findings and provide an

indicative direction to further research.
2.0 CITIZEN-LED ICT INITIATIVES ICT initiatives for rural development
Rural ICT initiatives based on various can also therefore, be mapped with this
business and governance models, are still perspective. Normally, UCD (Jokela,
evolving (Bhatnagar, 2004; Misra and 2002) practices are described through
Gachhayat, 2004; Prabhu, 2004; ISO13407 as shown in Exhibit-1. The
Satyanarayana, 2004). These initiatives exhibit suggests that any ICT
are critically influenced by poor ICT and application should be user centered and
related infrastructure such as electricity, for effective utilization their
education, transport etc. It is therefore, perspectives need to be mapped. This
essential that any rural ICT initiative in is possible if users demand their
Indian context should primarily be led services and make useful contributions
by the rural citizen (the user) with the during design and development. It
active support of agencies involved. would ensure an effective solution to
3.0 CITIZEN-CENTERED DESIGN PROCESS the user expectations leading to its
effective use.
User-centered designs (UCD) is one
major area of current research and in this Citizens’ acceptance is a major concern
paper the rural citizens are defined to be for success of rural ICT initiatives. The
the end-users. UCD practices are aimed citizens neither have exposure nor ability
at understanding the users, their to evaluate any attribute described in
perception and incorporating them in the Exhibit-1. Presently the initiatives are
product/service delivery. conceptualized, put as pilots and then
4 Vilakshan, XIMB Journal of Management ; September, 2007

used without citizens’ active It is essential to understand citizens’

participation. Innovations are necessary needs to consider ICT options for income
for harnessing experiences gathered, and generation and other desired services.
then evolving initiatives to scale up. ICT The chosen ICT options should showcase
initiatives need careful consideration of the possibility of scaling up. Presently,
the factors responsible for successful Indian rural ICT interventions are
scaling-up and one of these is “User focused on e-governance, and e-
Acceptance” (Lamb and Kling, 2003). government perspectives (Satyanarayana,
2004; Bhatnagar, 2004) with a view to
The user acceptance model for
providing citizen centered services.
information technology (Venkatesh,
There are also other models with
Morrish, Davis and Davis, 2003) is
business perspectives like ITC e-Choupal
presented in Exhibit-2.
(Sivakumar, 2004), and composite kiosk
based services (Misra and Gachhayat,
Exhibit 2 Concept of User Acceptance
2004). However, moderate acceptance of
these models is due to lack of concerted
effort to map the citizen priorities
rendering these initiatives to remain
Individual Intention to Actual
reactions to use ICT use of supply-driven. Without a strategy to
convert these supply-driven projects to
demand-driven it is unlikely that such
projects would succeed during scaling-

Exhibit 3 ICT Projects for Rural Development

Citizen-Led Agency-
Projects Projects

Demand on Supply of
ICT Services ICT Services
Misra, Evolution of Citizen ... 5

Citizens’ acceptance determines the scope aiding the process - since automation
to transform the initiatives to be might lead to unemployment (Greenberg,
“demand driven” (Bhatnagar, 2004). 2005). Besides, deployment of ICT
Citizen-led IS planning has potential to infrastructure in rural areas is not
create a good demand for ICT services commensurate with the perceived
(Exhibit-3) as compared to agency-led benefits (Bhatnagar, 2004), thus
inititaives. Effectiveness of projects/ restricting their usability in the right
programmes is determined by context (I4D, 2005). Another set of
responsiveness, community-rootedness, challenges that Indian ICT initiatives face,
frontline acceptability, respectful trust, are organizing an affordable, scalable and
relationship, and usability. This will self-sustaining ICT infrastructure to
happen only if the projects are citizen- provide services for income generation,
led. e-government and conducting business
in a convergent manner. The challenge is
therefore, to revisit the development
Rural ICT initiatives, especially through process in the context of ICT
e-governance, e-government, and e- interventions and explore possibility of
business models, have hastened the citizens’ participation (Misra, Hiremath,
development process (Bhatnagar, 2004). and Mishra, 2006). The UN global e-
There is evidence that ICT can be applied government readiness survey 2005 (UN,
for enhancing opportunities for rural 2005) and National e-governance plan
livelihood, generating employment, (Kochhar and Dhanjal, 2005) recommend
provide business opportunities and active participation of rural citizens with
rendering ICT enabled services such as a view to improve the e-government
e-health, e-education etc. (Prabhu, 2004; services and their acceptance.
Misra and Gachhayat, 2004). However,
5.0 C I T I Z E N S ’ PA R T I C I PAT I O N F O R
these ICT initiatives are not free from
challenges. The digital-divide syndrome,
which was primarily perceived as a
problem rather than one of the symptoms There have been two distinctive
led to poor design of the ICT initiatives approaches to citizens’ participation in
across the world (Greenberg, 2005). In development projects; one is the classical
India, despite having ICT policies, the top-down approach where the
problem is still mounting and there is no development agency identifies projects
sign of a sustainable solution to the and invites the community to participate
complex problem of rural development and the other is for the citizens to identify
(I4D, 2005). The challenge to garner projects and invite a development agency
benefits of ICT as a tool for development to form an equal partnership with it to
process is not by its automaton, but by develop the project. ICT projects use
6 Vilakshan, XIMB Journal of Management ; September, 2007

these approaches sparingly. However, it approaches rest on core principles that

is felt that techniques like Participatory the activities should be people-centred,
Rural Appraisal (PRA) are dependable responsive and participatory, conducted
means of generating data for gaining an in partnership with both the public and
understanding of needs, preferences and the private sector including civil society/
priorities within rural communities non-governmental organizations,
(Suresh, 2002). They contribute to sustainable and dynamic.
improving thinking, analysis, and
The sustainable livelihoods approaches
decision-making processes related to the
draw on the changing views of poverty.
production, dissemination, and efficient
In particular, participatory approaches to
use of lessons learned from participatory
development have highlighted great
development experiences.
diversity in the goals to which people
What is ‘Sustainable Livelihood’? aspire and in the livelihood strategies
Livelihood security is yet another they adopt to achieve them. Poverty
important issue that is likely to influence analysis has highlighted the importance
the success of rural ICT projects. This of assets, including social capital, in
aspect is very critical for sustenance of determining well-being. The importance
rural citizens and needs some discussion. of the policy framework and governance,
Sustainable livelihood is a way of which have dominated much
thinking about the objectives, scope and development thinking since the early
priorities for development in order to 1980s, are also reflected in sustainable
enhance progress in poverty elimination. livelihoods, as is a core focus on the
It is a holistic approach that tries to community. Community-level
capture and provide a means of institutions and processes have been a
understanding the vital causes and prominent feature of approaches to
dimensions of poverty without natural resource management and are
narrowing the focus on just a few factors. strongly emphasised in sustainable
It also tries to delineate the causes and livelihoods approaches, though the stress
symptoms of poverty, allowing for more is on understanding and facilitating the
effective prioritization of action at an link through from the micro to the
operational level. macro, rather than working only at
community level.
The sustainable livelihoods approaches
aim to help people achieve stable A livelihood intervention is a conscious
livelihood improvements that they effort by an agency or an organisation to
themselves define. It recognises that promote and support livelihood
people have certain rights and opportunities, usually for a large number
responsibilities towards each other and of people. Livelihood intervention is
to society. Sustainable livelihoods more than income enhancement. It is
Misra, Evolution of Citizen ... 7

about increasing economic power of the several transition stages in the life of an
people. It is facilitating asset creation, individual or with the transition stages
capacity building, and access to in natural climatic seasons that determine
opportunities. It is building securities. In farming operations. Marriage is one of
short, livelihood interventions aim at the major social events and involves
reducing their vulnerabilities and considerable expenditure. Dowry is
promote livelihood security. customary among many social groups
Food and Livelihood Security while ‘bride-price’ is common among
some tribes. This is seriously eroding
Livelihood security has to be understood families’ ability to make productive
from the people’s perspective. This is investments in many cases and adversely
crucial, as people’s own perception of affecting attainment of livelihood security
their food and livelihood security in quite a few cases. How do we account
determines their decision-making for the importance given to dowry/
behaviour. People’s perception of their bride-price often at the cost of other
food/livelihood security provides a one- ‘productive investments’ in agriculture or
to-one correspondence with technology jeopardising their livelihood security? It
adoption, participation in community simply means the cultural and social
based organisations, health, educational aspects at times assume far more
programmes, etc. Therefore, food importance than their concerns for food.
security is a subjective concept; defined Thus, livelihood security is
by an individual farmer’s own perception multidimensional that encompasses food
as to whether he/she has been able to and nutritional security, financial
support the family’s food and fodder security, social, and cultural security, and
requirements for a year from all resources emotional security, among others.
he/she owns, controls and manages.
For most households, the food produced AND LIVELIHOOD SECURITY
on their land does not feed the family
for the entire year for many reasons. The Each village and household has its
magnitude of food shortage varies from problems, preferences, strength as well
family to family in a given year and from as priorities and PRA exercise captures
year to year for a given family. these in a participatory mode as
explained in previous section. Through
Social and Cultural Aspects of Livelihood
the PRA exercise, various common issues
related to village, household and
Other than food, households have to individuals are listed. These abstracted
provide for social and cultural versions are the metrics and they form
expenditure. Many of these expenditures as the basic input for measuring the
are either associated with celebrating deliverables of the IS planning process.
8 Vilakshan, XIMB Journal of Management ; September, 2007

The metrics are supported by low costs both in terms of time and
measurement criteria set by the citizen money to identify the citizens’ needs.
themselves to determine its critical
Development projects need relevant and
success. Metrics developed by the
good quality information. By definition,
village, household and individuals in a
development interventions are oriented
village are studied by agencies involved
to changing people’s lives. They attempt
in addressing the issues gathered
to target those who are marginalized and
through PRA. While exploring options,
vulnerable to disruptions. Projects are
the critical success factors are listed for
designed based on information about the
consideration. During PRA exercise a
people in question, their needs,
series of options are generated for
conditions, and concerns. When
interventions and providing services to
organizations base their actions on
citizens as well as augment infrastructure.
Besides, measurement criteria are also insufficient or faulty information, the
indicated by citizens. Agencies involved result is a misplaced intervention that has
in development process therefore, are little correspondence to the needs the
equipped with the required indicators for poor. Such projects may actually have a
interventions, and measuring the possible negative effect on poor as they undermine
outcomes. ICT enabled services at this traditional practices or cause local
stage are selected and provided. PRA communities to invest their scarce
exercise is a continuous process (Suresh, resources in unviable activities.
2002). The feedback is therefore, an Vulnerable populations may actually
important factor for evaluating the become more destitute as a result of such
interventions and this needs another poorly informed interventions.
possible PRA exercise. Until recently, top-down methods were
There are several constraints in dominant in which most essential
conventional methods of gathering decisions were made by “specialists” (as
needs. These constraints are high cost, opposed to community members) about
time consuming, questionable accuracy, what issues to be addressed and how the
and lack of stakeholder participation. information will be used. The local
Often quantitative information generated people’s role is generally limited to
does not explain real life situations and answering questions that are designed by
the local knowledge is not utilized in outsiders. Today, the methods have
information processing. PRA methods are become more participatory as local people
essentially a process of learning about play a greater and more active role in the
people’s conditions in an intensive, information gathering process.
iterative, and expeditious manner Responding to a questionnaire is one of
(Chambers, 1992). These techniques are the most limited forms of “passive”
adopted to achieve increased accuracy at participation. A more active type of
Misra, Evolution of Citizen ... 9

participation involves diagramming or service users identify their needs, rank

participating in more open ended options among competing possibilities,
discussions. Both of these types of and assemble these in the form of
interaction allow local people to express community plans for action and thinking
their own concerns rather than merely through solutions.
responding to outsiders’ questions. A still
Participatory approaches address some
higher level of participation is attained
of the lacunas of the past and assist in
when villagers set the agenda for the
eliciting people’s own analysis of their
study, define the questions, gather the
poverty and wellbeing provides a deeper
information, and are integrally involved
understanding of dimensions of poverty
in the analysis and use of the information.
other than mere income and consumption
If, the objective is getting the local people
indicators. They are useful in
to become more involved in decision
understanding complexity and
making, then the participatory aspect
multiplicity of peoples’ livelihood
becomes vitally important. The more that
strategies, barriers to their participation,
community members are active
social exclusion, and assessing social
participants the more likely that they will
capital of different groups differentiated
feel a stake in the process and, the more
by gender, age, caste, ethnicity and
they feel a stake in the process, the more
literacy. One of the key expressed goals
they will be motivated to take on greater
of such techniques was to make PRA
responsibilities in decision making and
accessible to the illiterate and others who
might be left out of traditional
Thus, people’s participation is vital information gathering processes. PRA
requirement in improving the quality of relies, to a great extent, on mapping,
rural service delivery. But where quality diagramming and public dialogue about
is perceived simply in terms of technical community problems and issues. An in-
feasibility, financial viability, risk depth and situation bound nature of
assessments and managerial complexity, participatory approaches can provide
ignoring direct and serious peoples’ insights for policy and practical actions
participation in the planning process, the with high benefits for poor people in
quality of rural service delivery becomes their own terms. The process of
doubtful. Competent decisions and participatory approach emphasizes the
accountable performance is required from linking of information from communities
a range of stakeholders, some of whom to broader policy dialogue with
have been systematically alienated in the community based organizations (CBOs),
past by conventional approaches to NGOs, local and national government
planning. The main concern of officers, academics, donors, among other
participatory approach is to facilitate rural stakeholders.
1 0 Vilakshan, XIMB Journal of Management ; September, 2007

PRA tools and techniques are extensively generated for interventions. This exercise
used by development practitioners and is termed to be evolutionary since the
action researchers. In this paper metrics are generated and prioritised by
however, we have made use of the citizens themselves.
participatory tools and techniques to As explained in exhibit 4, PRA based IS
make the IS planning process demand- planning exercise needs to be conducted
driven (thus evolving). This also has been through the active participation of
used for ranking the livelihood security citizens. Usually in Indian context,
options which helps in assessing the IS villages are taken up for PRA exercise
metrics. since villages provide common resources
7.0 CITIZENS’ INFORMATION SYSTEMS for livelihood, agriculture, irrigation,
PLANNING: THE CAUSAL FRAMEWORK education, communication, power,
transport etc to the rural citizen. Besides,
In this paper we consider PRA each household also owns its resources
methodology, with livelihoods security in the villages for sustenance. Each
perspective as discussed in previous household and village receives
section, a tool to initiate rural citizen infrastructure oriented benefits and
centered design process. A priortised services from the government. All these
citizen charter at village level is resources form the basis of support for
considered as a foundation to IS planning the village and household. IS planning
process and this evolves dynamically. exercise therefore, is aimed to elicit
Through the PRA exercise we expect responses from the citizens for
involvement of rural citizens in eliciting development of these resources,
their view points leading to a metrics providing access to information and
based measurement system which is an support services available for
important stage for ICT acquisition life augmentation of these services and
cycle (Pandian, 2003). The goal-question- prioritizing them.
metrics (GQM) methodology (Basili,
Caldiera, and Rombach, 1994) strongly Exhibit 4 PRA Based IS Planning Framework
fits into the deliverables of PRA exercise
since it quantifies appropriate PRA
deliverables through metrics and these Exercise IS Planning

metrics are related to the long term

aspirations of the rural citizens. A
framework is presented in Exhibit 4, and

which discusses the causal flow among

Measurement ICT
various stages of the development
process involving stakeholders and Intervening Agencies

eliciting various ICT options that can be

Misra, Evolution of Citizen ... 11

PRA Tools and Techniques for IS Metrics the village, support received from
elicitation agencies like government, NGOs and
PRA tools as discussed above are used CBOs. In most cases these supports are
for involving rural citizen to share not commensurate with their
information on common as well expectations leading to deprivation in
individual resources, their problems, earning a sustainable livelihood. Their
expectations, and limitations in earning expectations are captured through PRA
their livelihoods which is the most process which attempts to deliver certain
important issue before them. They meta-measurable indicators the citizens
depend mostly on resources available in consider to be important.

Exhibit 5 Citizen Metrics Elicitation through PRA Tools

Inputs PRA Process PRA Deliveries Remarks
Delivery Metrics

• Village Resources Focus Group • Community • Food Describes

Discussions Resource Security p r e s e n t
• Individual Resources
Map scenario of the
Time-Line • Education
• Agency Supporto community
Analysis • Village Security
• Governmento Resource
• Health plan and its
• NGOo Security impact
• CBOs • Infrastruc-
ture and

Venn Diagram Social Map • Social Describes

Security prioritization of
Problem Tree Mapping
the social
Livelihood • Emotional
problems and
Deprivation Security
s o c i a l
• Develop- stress.Organizing
ment Development
Metrics Options and

In exhibit 5, we have considered processes such as focus group

resources available to villages as inputs discussions, time-series analysis, Venn-
since these provide a guiding condition diagram and problem-tree analysis to
to the villagers to determine their elicit various attributes of the
livelihood options. Through PRA management of village resources, social
methods we have adopted various fabric of the village. Mostly these factors
1 2 Vilakshan, XIMB Journal of Management ; September, 2007

contribute to the livelihood security option (ICT metrics) (Pereira and Sousa,
metrics such as food, education, health 2005).
as well as related infrastructure. Through
Strategic IS-IT alignment models
this table we align livelihood metrics with
advocate a metrics based approach for
the deliverables of PRA methods. We
successful alignment among processes
then consider all these metrics as a vital
and IS; IS and IT (Henderson and
input to the IS metrics which can be used
Venkatraman, 1993; Luftman, 2003). ICT
in IS planning process.
interventions effectively contribute
IS are logical reflections of the physical towards managing transactions,
processes and their behaviour (Fenton organized process, and bringing an
and Pfleeger, 2002). It also advocates for overall improvement in information
an ownership. Behavioural analyses are dissemination (Bergero, Raymond and
important characteristics of any process Rivard, 2004; Pereira and Sousa, 2005).
and they are mostly measured through Therefore, it is imperative that prior to
agreed attributes. Understanding of the organizing ICT resources, information
attributes is initiated through certain systems with feasible demand driven
measurable terms which are identified as metrics are developed.
metrics. The metrics normally evolve
with the process and their maturity In exhibit 6, three metrics driven
brings in a measurable behaviour of the dimensions of alignment exercise are
process thus leading to measurable discussed. We consider livelihood metrics
metrics. IS practices with metrics provide as an important factor in the lives of rural
an interface between the physical process citizens which are very critical for their
and information communication existence. Any IS-IT alignment exercise
technology (ICT) orientated processes that ensures a support to their livelihood
(Kan, 2002). Options for ICT prospects would eventually attract their
interventions need to be carefully chosen attention leading to acceptance and
on the basis of their strength and effective use. In exhibit 6, we have
weakness. ICT as a technology is seen as considered the goal of rural citizens to
a process improvement tool and this is be “sustainable livelihood security”
possible through an IS-ICT alignment which is influenced by various security
exercise (Weill and Broadbent, 1998; metrics to include food, education,
Lamb and Kling, 2003). The alignment health, infrastructure, social and
exercise looks for the requirements of a emotional and their overall development.
process (process metrics), lists possible These largely contribute to their quality
deliveries through the systemic approach of life and livelihoods prospect which can
being made (IS metrics) and provides a be verified through PRA exercise. The
scope to leverage the strength of ICT metrics thus developed (exhibit-5) are
options through an analysis of each used in exhibit 6. The IS metrics consider
Misra, Evolution of Citizen ... 13

“transactions”, “processes” and transactions make their information

“information elicitation” to be major systems complex. Two of the major
attributes to its success. For example, attributes of a transaction are its “life-
food security is the most valuable metric cycle” and “mode”. These two attributes
for rural citizens. It leads to transactions provide an indication as to how effective
in “financial” and “labour” markets. The the transactions are and therefore, help
process is “income generation” since it in considering ICT options. Besides these
supports the food security. Information attributes, the interfaces between the
required to carry out the process are transaction owner (the rural citizen
opportunity, policy, market, agencies whose literacy level determines
involved and cost of access to such appreciation of the technology) and the
information. Thus in all ICT options need process(es) through which these
to support these IS metrics. Each factor transactions are carried out provide
of IS metrics is explained below with challenge to make a transaction
respect to ICT metrics. successful. Though there are enough ICT
tools to make this interface happen, it is
Transactions and Rural Citizen
difficult for the rural citizen to appreciate
In the context of feasible and dynamic if the transactions do not directly benefit
rural livelihood options, the rural citizens their livelihoods. It is therefore, essential
are subjected to transactions with various that the transactions are demanded by
markets such as labour, land, water, the citizens and served by the agencies
financial (institutional and non- as per agreed terms. These demands can
institutional), input and output, be effectively elicited through PRA
information etc. These dynamic sets of exercises.

Exhibit 6 Metrics Based IS-IT Alignment Strategy

Demand Driven Goal IS Metrics ICT Metrics

Citizen Metrics
Trans Process Infor Trans Process Infor
actions mation actions mation
Food Security • Finan- • Income • Oppor- • Modes • Qual- • Access
cial genera tunities • Time ity Cost
Sustainable Livelihood

tions • Policies • Loca- • Inter- • Agen-

• Labour • Market tion faces cies
• Agen- • Poli-

cies cies
• Cost • Mar-
• Cost
1 4 Vilakshan, XIMB Journal of Management ; September, 2007

Demand Driven Goal IS Metrics ICT Metrics

Citizen Metrics
Trans Process Infor Trans Process Infor
actions mation actions mation
Education • Finan- • Income • Oppor- • Modes • Qual- • Access
Security cial genera tunities • Time ity Cost
• Knowl- tions • Policies • Loca- • Inter- • Agen-
edge • Lit- • Market tion faces cies
Shar- eracy • Agen- • Poli-
ing cies cies
• Cost • Mar-
• Cost

Health Security • Finan- • Income • Oppor- • Modes • Qual- • Access

cial genera tunities • Time ity Cost
• Expert tions • Policies • Loca- • Inter- • Agen-
Ser- • Mor- • Market tion faces cies
vices tality • Agen- • Poli-
cies cies
• Cost • Mar-
• Cost
Infrastructure • Finan- • In- • Oppor- • Modes • Qual- • Agen-
and Services cial come tunities • Time ity cies
• Utility genera • Policies • Loca- • Inter- • Poli-
Ser- tions • Market tion faces cies
vices • Con- • Agen- • Mar-
ver- cies ket
gence • Cost • Cost

Social Security Subjective Assessment of IS Subjective Assessment of ICT

Metrics Obtained Metrics Obtained
Emotional Subjective Assessment of IS Subjective Assessment of ICT
Security Metrics Obtained Metrics Obtained
Development Evaluation of IS Metrics, Citizen Evaluation of
Metrics Options and its Prioritization ICT Metrics, Options and its
by Rural Prioritization by Service
Providers/ Agencies

Processes and Rural Citizen need to be in place (Ould, 1995; Weill and
In order for having effective transactions, Broadbent, 1998). These processes being
processes with certain measurable metrics citizen-centric, need to be well defined
Misra, Evolution of Citizen ... 15

with their deliveries. For example, options with a right context and making
income generation is a process and it available to the rural citizen in their
various options do exist before the rural own understandable terms are easier said
citizen. However, success of income than done. Here, ICT options can be
generation process should be evaluated evaluated depending on the
with possible metrics such as income infrastructure available such as
level, migration, expenditure on communication, data transfer, data
education, health, socio-cultural events, access, power, applications such as
etc. It is possible to generate these information portal and maintaining these
metrics through a PRA exercise as well sources on a sustainable basis.
since it recognizes the role of each 8.0 LIVEHOOD SECURITY MANAGEMENT
identified process through the goal THROUGH ICT: A CASE STUDY
setting exercise.
The natural, physical, and social assets
Information and Rural Citizen play a vital role in people’s livelihoods.
Rural citizens face myriad of problems Yet, there has been a steady erosion of
associated with poverty, deprivation and these assets. In rural areas, ecological
related socio-economic issues. One of the problems such as deforestation have
major attributes for such problems is played havoc in peoples’ livelihoods in
“lack of information”. Information on many ways. Climate change, soil erosion,
resources, support services related to water depletion, habitat loss, energy
livelihood goal and goal related citizen overuse and species extinctions are all
metrics (vide exhibit 5) is essential for the symptoms of economic process that
rural citizen. Accessing information with depletes resources. With increasing
minimized constraints is a problem that pressure on land, individual households
rural citizens encounter. ICT helps in have exploited their resources leading to
minimizing these constraints through unsustainable livelihoods. If the goal of
right sizing the information-processing development is to build sustainable
environment with a proper information livelihoods, the very people who
structure (Bergero, Raymond and depleted the resource base have to be
Rivard, 2004). PRA helps in recognizing involved in problem identification,
the demand for information and analysis, prioritization, planning,
therefore, provides a support for implementation, monitoring, and
preparation of information structure. For evaluation of development projects. This
example, income generating option for calls for the bottom-up participatory
supporting livelihood needs a complex approach.
and dynamic approach such as tracing Dahod district in Gujarat State is
various markets, locating demand, and inhabited predominantly by the tribal
reaching these sources. Collating these population. Agriculture is their main
1 6 Vilakshan, XIMB Journal of Management ; September, 2007

source of their livelihoods. Majority of citizen which are “food security” and
the farmers belong to the small and “health security for them as well as their
marginal category. The average land animals”. In exhibit 7 we discuss various
holding is 2.12 acres per household, measurements that citizen attached to
which is extremely low considering the each metric to understand the existence
food requirement of a household. Nearly of these facilities to verify these metrics.
all farmers grow a single crop of maize Further, all these measurements are
during Kharif season. The rains are examined with possible ICT options that
inadequate in two out of five years can be used for interventions so as to
leading to food insecurity. With measure the metrics identified. For
increasing population pressure on land example our observation that “food
and land degradation over time, it has security” is the first priority among the
not been able to provide food and rural citizens followed by “live stock
livelihood security to rural households. security” and the last in the scale is
Whatever food they produce, feeds the “health security”. Food security as per
family for 8-9 months of the year. the rural citizens is characterized through
measurements of “self-sufficiency on
We took a case study based on the
food”, “migration for supplementing
framework and explored various ICT
food”, “availability of work opportunity
options through the PRA exercise
locally” and “access to input and output
conducted by Gramin Vikash Trust
market”. These measurements indicate
(GVT), an NGO, in this district. During
the possible IS metrics and ICT metrics
this exercise it was evident that
as explained in exhibit 6 through
“sustainable livelihood security” is a
transactions, processes and information.
major concern for the rural citizens in the
These also explain that e-government
area. Based on the application of GQM
applications would carry great deal of
principles on the PRA exercise conducted
acceptance to enhance their livelihood
in the village provided an insight to the
which can facilitate “transactions”,
preferences of the citizen services. The
“processes” and “information”.
goal of most of the citizen in the village
is “sustainable livelihood security”. We Exhibit 7 illustrates our observation that
analyzed the goal and understood that “food security” is the first priority
citizen have their measurable preferences among the rural citizens followed by
to meet their goal. These are termed as “live stock security” and the last in the
the “metrics” and listed as “food scale is “health security”. Food security
security”, “health and sanitation facility”, as per the rural citizens is characterized
“education facility”, “financial security”, through measurements of “self-
“social security”, “cultural security”. sufficiency on food”, “migration for
Among these metrics we took two most supplementing food”, “availability of
important metrics as chosen by the work opportunity locally” and “access
Misra, Evolution of Citizen ... 17

to input and output market”. These “migration”. Migrants faced many

measurements indicate the possible IS hardships including humiliation and loss
metrics and ICT metrics as explained in of self esteem. Further investigations
exhibit 6 through transactions, processes with the people revealed that for majority
and information. of the poor who migrate in distress, there
It was understood during study that is very little assurance of employment for
scanty opportunities in the village, they are unskilled workers. They
inability of available village resources as undergo interim periods of
well as poor government support, most unemployment during their stay in the
of the villagers face very low “income urban areas, which deplete their meagre
generating opportunities” leading to savings.
Exhibit 7 Identification of PRA Based ICT Options

Goal Metrics Measurements Demand on ICT Options Remarks ICT


Food Self Income Generating Kiosk based Ia

Security sufficiency Opportunities services for
on food citizen
Migration for Demand for Information e- Ib
supplementing on employment Government
food opportunities applications

Availability Demand for Information e- Ic

of work on employment Government
opportunity opportunities from applications
locally government and other
Access to Opportunity on e-Business Id
input and marketing applications
output and services

Sustain- Health Public Health Providing opportunities e-Health IIIa

able Security Service in the village Services
Liveli- Traditional Rendering services to Nil IIIe
hood Se- Health other Villages
curity Service
Health Creating Opportunities e-Health IIIb
Education in the Village; Services
Maintaining Records
1 8 Vilakshan, XIMB Journal of Management ; September, 2007

Goal Metrics Measurements Demand on ICT Options Remarks ICT


Immunization Providing Information e-Health IIIc

Services on Immunization details Services
and history

Accessibility Providing Information e-Health IIId

to Health on Doctors, Interaction Services
Infrastructure with Doctors, Receiving
advice from Doctors

Livestock Clinical Maintaining Health e-Health IIa

Security Service Records Services
Self Least Demand Nil IIb
on fodder
Artificial Providing facilities in e-Health IIc
Insemination the village, access to Services
information on
Availability Providing facilities in e-Health IId
of Medicine the village, access to Services
information on
Dairy Providing facilities in Dairy IIe
Cooperative the village, access to Information
information on Kiosk
marketing inputs,

Suffix a, b, c, … denotes intra-group prioritization

The poor migrants are also perceived as documents of the work in which they
thieves in the urban areas and so are they were engaged. Migrants lack knowledge
are unnecessarily harassed by the police about travel routes, modes of travel,
and others. Frequently the migrants are timings and other details of
cheated at the worksite by contractors transportation increasing their cost in
where and suffer losses of wages due to terms of time, money, and effort. The
the lack of awareness of legal recourse, migrants do not have risk compensating
mechanisms of redress and lack of mechanisms like insurance and therefore
Misra, Evolution of Citizen ... 19

they are deprived of the benefits in case The Ground-Work for MIC: GVT then
of an accident. started a multi-pronged approach to
address the problems faced by
Therefore, a holistic approach is
migrants by organizing and increasing
necessary to address this critical issue of
their awareness of their rights. It
migration. It may not be feasible to stop
started enrolment of migrants,
the migration entirely because of its
prospective migrants with MIC at a
critical support to the socio-economic
nominal fee in order to meet the
structure of the rural citizens. It would
operation and maintenance expenses.
rather be feasible to look for the
The MIC provides employment to two
opportunities where ICT as an
“jankaars” , round the clock. GVT
infrastructure could facilitate migrants in
conducted exercises for skill
terms of establishing a mechanism to identification of migrants and
provide information and communication villagers; identification of contractors
services through e-governance networks. and possible locations where migrants
Village Jadha: Embracing Feasible ICT work and distributed identity cards to
option for Migrants the members. The basic philosophy
behind the formation of MIC was to
It is in this context that the study of GVT
reduce the costs of migration by
found the income through migration
providing communication services
constituting 65 percent of the household
through telephony, loans, information
income in Jadha village in Dahod district.
on jobs, increase the returns from
A group of 22 migrants came forward to migration by skill training, easier
support idea of GVT to form a transfer of funds; tackling non-
“mahamandal” (federation) to address payment cases, influence the
their problems. In consultation with the perceptions of government officials
people and mahamandal, GVT envisaged and urban communities about migrant
the formation of Migration Information workers. MIC therefore, acted as
Centre (MIC - locally known as Palayana support for establishing a social and
Suchana Kendras). GVT provided support economic safety network for these
for housing and operating the centre. migrants. Now, the MIC has added
Telephony - The Link: Jadha village is various government related services to
poorly connected by road and is situated its network and provides information
in hilly terrain. GVT therefore, had a on government supported schemes.
challenge to establish a telephone link for Results of MIC: The MIC in Jadha started
the MIC. The land line option was ruled in the year 2000 and its effect on the Jadha
out because of the topography and households is noteworthy. Some of the
wireless in local loop (WLL) was achievements appear in Table-8 through
procured for the purpose. Table-10.
2 0 Vilakshan, XIMB Journal of Management ; September, 2007

Exhibit 8 Total Participation and Revenue Generated through MIC

Participation in MIC As on 23/01/06

Total Household/ Population 392/3030

Total Registration 461
Total Identity Card Issued 509
Activities Unit Rate
Registration Fee Rs. 5.00 every two years
Identity Card Rs. 5.00
Message sending / delivery / message through Jankars Rs. 2.00
Telephone Call Rs. 2.00
Negotiation of Wage 5% of total increased value
Wage Realisation 10% of recovered amount
Exposure visit Rs. 250.00
Remittance 2% value remitted (2%)
Govt. links 2%
Insurance claim 5% of Value

Exhibit 9 Use of Telephony (as on 23/1/06)

Description Total till last month In the month of January 2006 Total
Incoming calls 963 23 986
Outgoing calls 651 20 671

Exhibit 10 Wage* Recovery from Contractors (Case solved as on 23/1/06)

Place of Work Amount Recovered No. of Migrants involved
Baroda Rs. 15,500 36
Ahmedabad Rs. 15,000 40
* It is noted that total amount of benefits due to wage negotiations to the migrants is Rs. 3,80,000
as on date

Opportunity Ahead the effects and its scope for replication.

This MIC was introduced and supported Today it has spread to nearby 10 villages
by GVT on a pilot basis to understand with high success rate.
Misra, Evolution of Citizen ... 21

This MIC was introduced and supported national e-governance plan extends. It
by GVT on a pilot basis to understand is evolving through demand generated
the effects and its scope for replication. by rural migrants.
Today it has spread to nearby 10
While a supply-driven service through
villages with high success rate. The
e-government can be made operational
success has been noticed by the
because of the obvious support structure
government of Gujarat and these MICs
provided by the government and
are now being transformed to cluster
various funding agencies, it is
resource centers (CRC). Various e-
imperative for the policy makers to
government applications such as “e-
extensively make use of participatory
Gram” are planned for providing
rural appraisal techniques to understand
support to the villagers through these
and prioritize the demands of rural
citizens to augment their own livelihood
9.0 CONCLUSION security through a rightly sized ICT
MICs have brought in many tangible
and socio-economic supports to the ICT is strongly believed to be a service
prospects of livelihood security to enabler tool in development process and
rural households. It is evolutionary it is advocated that ICT acts as a
since it is based on participation of medium to poverty alleviation
rural citizens; it is sustainable through (Greenberg, 2005). In Indian context the
a transaction cost sharing basis. These policies for poverty alleviation are
include reduction in migration costs; planned with a top-down strategy
better communication, networking, making it “supply driven”. As discussed
employment opportunities; providing in exhibit 3, supply driven projects do
emotional, social, cultural, food and not generate much demand unless the
financial security; resolving conflict planning process involves the citizen.
with contractors and bringing in Creating an atmosphere for eliciting the
overall livelihood security. This case requirements and prioritizing the needs
describes the benefit of a demand- of citizens is a complex phenomenon
driven model through which a critical because of the spatial, political, social,
issue like migration could be religious and cultural dynamics. It is
negotiated and a simple ICT option therefore, necessary to balance the
(WLL connectivity) could provide a system that encourages availability of
better opportunity to the migrants. It the supply driven services with active
also described how the support citizens’ participation. As illustrated in
structure could be related to the e- exhibit 11, the projects need to capture
government opportunities that priorities of the citizens through PRA
2 2 Vilakshan, XIMB Journal of Management ; September, 2007

exercises leading to a comprehensive IS nature and a detailed study is necessary

and ICT plan for the village. All the to fine-tune any such prioritization.
supplies need to meet the demands as Authors plan for further research in this
elicited through this exercise. However, area to substantiate the findings from
the demands elicited are illustrative in work done in this area.

Exhibit 11 An Assessment Model

Policy and

House Hold livelihoods Plan

Social and VILLAGE

resource in the
village Demand on village resource

National E- Village IS Plan

Gov. Plan

Village ICT Plan

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Analysis and Development of A Concept
Level Framework on Corporate Social
Som Sekhar Bhattacharyya1

Corporate Social Responsibility (CSR) has become a very popular field of enquiry in management
research and an equally celebrated piece of action in management practice over the last few decades. CSR
has won a favourable place in the hearts and minds of management researchers and practitioners. But at
a very fundamental level, the very term CSR has raised more dust than it has settled. There have been
various views on what the concept of CSR stands for. A clear understanding on definitional aspects on
CSR is yet to be achieved. For research on CSR to move forward, the chaotic situation on definitional
aspects of CSR should be settled in firm ground. In an attempt to do so, this study reviews the various
concepts on CSR and synthesizes these to arrive at a simple but holistic framework.

1.0 INTRODUCTION business has become a very dominant

institution in society (Dicken, 2003).Over
The institution of business resides in the
broader society and nature. Since times the years the interface between business
immemorial business (dominantly and society has been dynamic and
traders in ancient time) had economic evolving. The concept of Corporate Social
superiority over other institutions in Responsibility (CSR) captures the various
society. So this economically rich section thoughts and action on the equation
of society has always been expected to between business and society. The
take care of the poorer sections of society. journey of CSR, in modern day
There have been numerous examples of management started in the early 1950s
business and traders doing social good with the protagonist writings of Bowen
by involving in charity and philanthropy. (1953). The concept of Corporate Social
In the last few centuries because of Responsibility (CSR) has been extensively
technological and managerial progress, discussed from 1950s (Carroll ,1999).But

* Received July 3, 2007; Revised August 31, 2007

1. FPM Researcher, Management Development Institute, Gurgaon, email:
2 6 Vilakshan, XIMB Journal of Management ; September, 2007

since these early days, antagonistic seen as a CSR initiative by the researchers
writings on CSR by none other than (Leisinger, 2005). Thus, there has been
Leavitt(1958 )and the noble laureate rise in literature dwelling upon
Friedman(1970) have raised conceptual definitional debates on CSR (Mohr, 1996).
question on what is CSR.
Pinkston and Carrol (1996) had the
This paper in the first few sections opinion that since the belief and attitude
discusses the state of confusion in CSR differ across societies and further as the
terminology. In the subsequent sections relevance of issues in society change in
various concepts on CSR are with temporal dimension, a singular definition
multitude of thoughts are reviewed and on CSR could be difficult to arrive at
then synthesized to bring out the core (Shrivastava and Venkateswaran, 2000).
and essential themes on CSR. Finally, this Frankental (2001) had even argued that
paper comes up with a simple yet because of the intangible and vagueness
comprehensive conceptual framework on attached to CSR it is actually devoid of
CSR. any standard meaning. Thus, sometimes
the definition has been even antagonistic
to one another (Hill et al., 2003).This lack
The concept of CSR has been debated and of tangibility in CSR has posed difficulty
deliberated upon, right from the very in measurement of CSR actions (Munshi,
beginning of the concept itself (Carroll, 2004) as well specially in measurement
1999; Meehan et al., 2006). A look back of CSR financial performance (Ullmann,
at the last forty years of CSR literature 1985; Carby- Hall, 2005; Moir, 2001;
reveals a fierce contest on the issue of Munshi , 2004; Waddock ,2004; Hill et al.,
arriving at definition on CSR (Meehan et 2003; Valor, 2005; Mohr et al.,2001;
al., 2006; McWilliams et al ., 2006 ; Zenisenk, 1979; Bowman and Haire,1975;
Windsor, 2006 Leisinger,2005 ; Valor, Gavin and Maynard, 1975; Boel and
2005; Acutt et al., 2004; Munshi, 2004; Perry, 1985; McGuire et al.,1988) . One
Young 2004; Hill et al., 2003; Ka¨rna et al., popular way is to use financial
2003; Keay, 2002; Frankental, 2001; performance as a proxy for social
Shrivastava and Venkateswaran ,2000 ; performance (using social reports). But
Willums, 1998; Pinkston and Carrol, each of the measures developed by
1996). The uncertainity regarding what researchers has certain limitations. Each
CSR stands for transcends the academic of the measures developed introduces
boundary and is even present in the realm certain biases and hence causes
of management practice (Altman, 1998). inconsistencies, while others suffer from
Further, there is a clash between the lack of generalization characteristics
management practitioners and the (Aupperle et al., 1985; Graves and
academic world on CSR. What is CSR as Waddock, 1994; Miles, 1987; Wolfe and
viewed by firm managers might not be Aupperle, 1991; Wood, 1991). So there are
Bhattacharyya, Analysis and Development ... 27

no absolute, well accepted measures of studies or in the same study (Carroll,

CSR output (Munshi, 2004). Thus CSR 1998; Valor 2005). CSR has been equated
researchers and practitioners agree on the with terms like CC and sustainability
point that CSR is an extremely difficult (Young 2004), and often these terms have
concept to measure. been used interchangeably with each
other (Acutt et al., 2004). Thus CSR is one
Thus, one can very well conclude that the
of the many terms though it is the
definitional aspect on CSR still needs to
preeminent one.
be settled since due to the definitional
constraints theoretical progress has been So one can be certain that not only there
impeded (McWilliams et al., 2006). is no one definition of CSR but there is a
Besides, answers to definitional aspects presence of many sister terms to define
would also help in developing valid and explain the philosophy CSR attempts
measurement instruments on CSR. to portray. Further, authors use these
Accordingly, this study has become terms often interchangeably. The reality
relevant. is that all these terms attempt to deal
with the construct of business and society
in their own way, each being little
different from one another. The CSR
The lack of a singular universal definition concepts domain is like a battlefield with
on CSR is further complicated by the fact many sisters and similar terms posing
that the canvas of Business and society is against each other to grab the sacred
painted with various other terms! piece of land (hearts and minds of
(Waddock, 2004; Munshi, 2004). These researchers). In this study only the
terms like Corporate social responsibility preeminent term CSR will be reviewed
(CSR,CSR1) ,Corporate social not the other terms. This review is done
responsiveness (CSR2) , Corporate social in the next section.
performance (CSP) ,Corporate
community involvement (CCI) ,
Corporate community relations (CCR), Business responsibility towards the
Corporate citizenship (CC),Business society is an important theme in the
citizenship (BC) , Global Business context of business and society. In the
Citizenship (GBC) etc (Waddock, 2004; present day scenario the importance of
Munshi, 2004) have flooded business and corporate responsibility towards society
society literature.The number of terms in further increases as national
this relatively new field is amazing (Valor governments are playing an increasingly
2005). This has also created ambiguity in role towards community problems,
its own way. It has been seen that social ills and environmental challenges
sometimes the same authors use the term facing society (Cooper, 1998).Sethi and
with various meanings in different Steidlmeier, (1994) had viewed a pivotal
2 8 Vilakshan, XIMB Journal of Management ; September, 2007

role of CSR in the socio- economic paper “The Pyramid of Corporate Social
progress of society and they had also Responsibility” .He conceptualized CSR
expected that both business and civil as encompassing four responsibilities
society institutions agree on the social economic, legal, ethical, and
challenges to be addressed and cooperate philanthropic. The economic
to attain the same for a better world for responsibility expectation tells businesses
tomorrow. CSR comes at many levels. to be productive and thus be profitable.
Wood (1991) had analyzed CSR at three The legal responsibility of businesses
levels expects that firms perform the business
activities within the legal and regulatory
• Institutional social responsibility ( for
framework. The third responsibility of
profit organizations to earn profit as
business captures the notion of ethics. As
its primary duty)
viewed by Bowen, Carroll also
• Organizational social responsibility prescribed to run business within the set
(firms to take responsibility for social of socially allowed set of values and
and environmental wellbeing). norms(depending upon cultural and
• Individual social responsibility religious setting). The fourth and the last
(individual firm managers to act responsibility, philanthropic
morally). responsibility deals with the expectation
that businesses proactively address and
The level of analysis adapted in this solve the problems and challenges faced
study is primarily at the organizational by society (Carroll, 1979).The
social responsibility level, but shades of philanthropic responsibility can also be
other levels are also present as it is seen as a discretionary expectations of the
difficult to segregate the three levels society from business (Schwartz and
entirely because of the associated Carroll 2003).Another eminent business
interdependence amongst the three levels and society scholar Prakash Sethi (1979)
(Wood, 1991). around the same time had also
4. 1. CSR and Ethics conceptualized CSR along ethical , legal
and social responsiveness dimensions.
One of the earliest thoughts on business
Social responsiveness is the proxy to the
and society came from Bowen in 1953.
philanthropic or discretionary
Bowen had prescribed that managers of
responsibility of Carroll ( 1979). This
for profit organizations should frame
aspect will be discussed little later in this
such policies (and decisions), and
undertake such actions which are within
the boundary of the norms and values of According to the view of Andrews
the society (Bowen, 1953). One of the big (1971), one of the first strategy
impact conceptualization of CSR came in academicians, social responsibility is
1979 from A. B.Carroll in the seminal demonstrated by corporate action which
Bhattacharyya, Analysis and Development ... 29

doesn’t harm or hurt others regardless linked to social and ethical values but
of how profitable that activity can be for to exceed it (Aaronson 2003). Thus
the firm. This explanation by Andrews repeatedly the ethical dimension of CSR
highlights that those corporate activities has been championed and ethics has been
which are profitable but injures society seen as the backbone of CSR activities.
are not to be tolerated. Sandra Waddock,
So the normative school can be satisfied
(2004) viewed corporate responsibility as
if we say that any firm activity should
the extent and nature of firm (ir)
not break a legal framework or should
responsibility reflected by a firm’s
not harm any stakeholder intentionally.
strategies and operations.
The moment the firm management comes
Firms have responsibility towards its to know that by a business activity even
stakeholders for any of its actions (good one stakeholder is injured and harmed,
or bad). Waddock (2004) is of the view the firm management should stop the
that a firm cannot ignore its activity or modify the activity in such a
responsibilities. So if a firm in the name manner that the harm impact component
of even CSR harms any stakeholder it is addressed and mitigated. This ethical
will represent irresponsibility, not dimension of CSR has been a dominant
responsibility. On similar lines an dimension and fundamental feature of
exhaustive explanation of CSR was CSR.
provided by Frederick and his
colleagues in 1978. According to them, Another point which needs to be
a firm ought to be held responsible for mentioned here is that from early days
any of its action that affects communities in CSR researchers had agreed that CSR
and environment. CSR represents the activities to be within the boundary of
very essence of this. CSR implies that the legal requirements (which seems quite
negative impacts of business on people obvious) .Both Sethi’s (1979) and Carroll’s
and society should be acknowledged and (1979) conceptualizations on CSR had also
corrected. CSR calls for sacrificing indicated that any firm activity (including
profits, if the very nature of earning CSR activities) should comply to legal
profit injures other stakeholders requirements (law of the land). BSR also
(Frederick et al., 1978). The ethical way in its statement on CSR talks not only of
of conducting business is also echoed by legal compliance but also to promote such
the Prince of Wales Business Leaders practices, which exceeds beyond legal
Forum which describes CSR as business compliance (Aaronson 2003). Thus CSR
practices based on ethical values and is something, more than just complying
respect for society and environment with regulatory bindings (Ka¨rna et al.,
(Aaronson, 2003). Similarly Business for 2003). So ethics has an integral and
Social Responsibility (BSR) declares CSR foundational root in CSR, while legal
as doing business which is not only compliance is a necessary though not a
3 0 Vilakshan, XIMB Journal of Management ; September, 2007

sufficient condition for an activity to society. While Wood (1991) had pointed
become a CSR activity. out the fact that society has an
expectation that business firms have
Way back in mid 1970s Ackerman and
social performance (emphasis added) like
Bauer (1976) had seen CSR as firm
its existential economic performance. This
decisions and subsequent actions which
social expectation or social performance
the firm had thought as its socially
was further advocated upon by Buchholz
responsible activity. Similarly, Carroll
and Rosenthal( 2002).They described
(1979) and Sethi (1979) while
corporations as more than economic
conceptualizing CSR, had included the
institutions. They opined that it is the
aspect of discretionary or responsiveness.
stakeholders that firm should be
The discretionary nature of the CSR has
accountable to not just towards the
also been emphasized by Kotler and
shareholders alone. This notion of larger
Lee(2005).In other words Van
society was getting accommodated as
Marrewijk(2003) had seen CSR as
stakeholders in management literature
voluntary business practices for
(Freeman, 1984). Stakeholder’s were
addressing stakeholder concerns. Thus
defined by Freeman as “any group or
CSR is a voluntary, discretionary activity
(not an activity done to comply with legal individual who can affect or is affected
or regulatory demands forced upon the by the achievement of the organization’s
firm). This is an important feature of CSR objectives” (1984: p-46).This broad
initiatives. Thus CSR is what a firm definition generated a wide range of
assumes to project as CSR. Academic stakeholders. So stakeholders were seen
researchers should not necessarily contest as parties who can affect the firm or is
the CSR thematic claims made by firm affected by the firm activities (Evan and
managers. Freeman, 1988). On similar lines Hopkins
(2003) wrote of stakeholders of a firm as
4. 2.CSR dominant goal to benefit society
having concern, interest and power to
The foundation of CSR is built upon the influence a business organization.
legal and ethical building blocks. But the Clarkson (1995) added a temporal
direction in which the discretionary/ dimension to the stakeholder concept by
voluntary CSR activities are directed saying that the stake could be in past,
needs to be explored. Steiner (1972) had present or future of the firm. Thus the
viewed social responsibility of the stakeholder concept made certain
corporate as a ‘‘social contract’’ (emphasis segments of the society relevant
added) between the business and the (emphasis added) for a firm and CSR was
broader society. Steiner (1972) had directed to take care (emphasis added)
emphasized the notion of CSR as a of these stakeholders. In fact Hopkins
positive, social welfare of business (2003) grounded his definition of CSR on
seeking business attitude towards stakeholder care married to the concept
Bhattacharyya, Analysis and Development ... 31

of ethics. Stakeholder concept generates business accounts for the changing

a wide range of stakeholders and as the societal conditions(Carroll ,1979;Sethi,
expectation that a firm should to cater to 1979; Wood, 1991).Thus the focus of CSP
the demands and expectations of each of is on outcomes (social impacts) of the
the stakeholders’ leads to the genesis of social policies and initiatives the firm
a wide range of firm CSR activities undertakes(Wood, 1991).The output side
(Leisinger, 2005). of CSR activities is the CSR reporting
4. 3. CSR as practice dimension .Corporate social reporting
(CSR) is the process of communicating
CSR is not just all words but action. The the social and environmental effects of
great management guru Peter organizations to particular interest
Drucker(2001)and later Jones(2005) put groups and to society at large (Gray et
forward that firms’ should endeavour to al.,1987). As such, it involves extending
achieve a greater internalization of the accountability of business
negative externalities(created by that very organizations, beyond the traditional
firm) and also a greater generation of role of providing a financial account to
positive externalities for betterment of the owners of capital (shareholders). Such
the society. Buchholz and Rosenthal an extension is predicated upon the
(2002) also echoed this as they advised assumption that companies do have wider
profit making firms to put resources and responsibilities than simply to make
management effort to address the social money for their shareholders. Thus, CSR
ills that are prevalent, specially the ones reporting structure is a CSR activity
that the firms created because of their communication output mechanism
business activities. Thus CSR stands for keeping stakeholders in mind.
4. 4. CSR and Community Involvement
The notion of Corporate Social
Performance (CSP) captures the notion of CSR action is being increasingly
CSR activity (action) output .This was recognized as a collaboration between
another major concept in CSR literature. business firms and other social
CSP first integrates organizational CSR institutions (Burke, 1999; Osborn and
principles, processes, policies and Hagedoorn, 1997).This cooperative
attempts to measure the CSR programme arrangement has been viewed as
performance (good, bad satisfactory beneficial to both business firms as well
outcomes) (Wood, 1991).CSP called for as the society (Boatright , 2000; Pava and
business action at the macro-level and Krausz, 1997; Garone ,1999; Steiner and
micro- level concerns existing in society Steiner, 1991). Philanthropy was seen as
by issues identification, analysis and last a top-down (corporate to community)
but the most important, the responsive one-way relationship, whereas CSR is
action taken. CSP also entails how viewed as a socio- economic collaborative
3 2 Vilakshan, XIMB Journal of Management ; September, 2007

effort between the business firm and the engagement between business and
communities (Osborn and Hagedoorn, communities (Brugmann, and Prahalad,
1997).This feature of CSR is important 2007)).Similarly, Altman( 1998) had also
because the expectations and aspiration called for a business and stakeholder
of the communities are often different relationship where the interests of both
from that of the firms performing the the company and the local communities
CSR (Burke, 1999).This clash of are promoted. But these partnerships
expectation between the two also change with communities should not necessarily
over time. As the times are changing, be mainly driven with an economic
firms are not able to just adopt a top down agenda in mind (Fig, 2005).Thus CSR as
approach (corporate to community). a concept calls for means establishment
Firms have to adopt an approach in which of a long term (longitudinal) interaction,
the stakeholders’ views are heard and intense, meaningful, need based and
accommodated in the CSR initiatives trustworthy relationship (among equals)
(Burke, 1999); Burke(1999) termed this between the firm and the relevant
inclusive approach as Corporate stakeholders in the society.
Community Relationship (CCR). These
4. 5. The economic angle to CSR
types of CSR initiatives provide firms the
social license to operate in its business There is no doubt that firms are expected
interests with the local communities in a to be profitable first and then think of its
better manner. Thus if business firm social responsibilities. Drucker (2001)
engage in partnership with a stakeholder among others had proclaimed that if a
(like a local community, villagers, farmers business organization is not able to earn
women’s groups etc) and does work to profit (for stockholder) it can never take
nurture the relationship, this can be care of the society or any other
viewed as a community relations stakeholders. It is important to note that
intensive CSR initiative. The longer the CSR proponents never pressed the idea
duration of this type of CSR the better it that business has to undo its economic
is. responsibility and overdo its social
Waddock( 2004) had also talked about responsibility. Being socially responsible
Community Relations (CCR) or does not mean that a company abandon
Involvement (CCI) where firms are its primary economic mission (economic
expected to move from just one point responsibility in Carroll’s (1979)
fragmented interaction between business pyramid. Nor does it mean that socially
and the relevant stakeholders to a long responsible firms cannot be as profitable
term, trustworthy relationship based on as other less socially responsible firms.
partnerships/ collaboration with But at one level it does mean that
stakeholders. This has become a companies need to do a cost benefit
prevalent and preferred way of analysis for undertaking a CSR initiative.
Bhattacharyya, Analysis and Development ... 33

This kind of analysis can help both Profits, 3 P) (Henriques and Richardson,
business and society gain from the CSR 2004).
programme (Frederick et al., 1992),as
New terms like Corporate Social
there is no point for profit organizations
Opportunity (CS0) (Grayson and
to drain its valuable resources. Hodges, 2004) also reflect this
Increasingly, scholars have advocated philosophy. CSO describes those social
that CSR should make business sense and environmental projects which have
(Porter and Kramer, 2006 ; Crawford commercial viability. Grayson and
and Scaletta, 2005; Salzmann et al., 2005; Hodges( 2004) commented that only such
Porter and Kramer,2002 ; Meehan et al., social and environmental initiatives will
2006; Friedman ,1970 ; Kotler and Lee be sustainable in the long run. The
2005 Windsor, 2006; Altman ,1998; concepts like TBL, 3 P and CS0 bring in
Waddock, 2000; Ricks the important perspective of corporate
,2005;Perrini,2005; Stead, and Stead, benefit and business opportunities from
2000; Lewis, 2003; Bhattacharya et al, CSR initiatives. The sanctity of CSR has
2007). Bhattacharya, Craig Smith and been redefined. One can start the
Vogel commenting on the international discussion on this theme starting with
conference, held in September 2003 on the duo of M.E.Porter and Mark .R.
“Integrating Social Responsibility and Kramer, and their articles in Harvard
Marketing Strategy” wrote that a Business Review. The authors had
dominant theme emerging out was that advised business organizations to align
CSR has shifted from being in the outer the social goals and objectives and
ring of business activities to being a actions with the business economic goal,
inner ring (core) business activities so that long term business interests are
(Bhattacharya et al, 2004). Altman served (Porter and Kramer, 2002; Porter
(1998) had found that many business and Kramer, 2006). Porter and Kramer,
firms were discovering benefits to firm (2006) had also laid the blueprint for
guiding organizations in this direction
and its strategic business objectives
by describing how firm CSR initiatives
because of the firm CSR initiatives.
can improve the firm and industry level
Ellkington (1994; 1997) had championed competitive context and /or add value
the seminal concept of Triple Bottom Line to the firm business. So the convergence
(TBL). TBL represents the philosophy of social and environmental goals was
and action in which business emphasized. The case of the sanctity of
simultaneously creates the trio of CSR generating economic and other
economic, environmental and social benefits gets more support if one looks
value. Thus, this encompasses Win- Win at the interpretation of CSR from
–Win situation benefiting business, Business forums and consultancy firms.
society and environment (People, Planet, These institutions invariably talk about
3 4 Vilakshan, XIMB Journal of Management ; September, 2007

embedding business benefits in the CSR None less than Peter Drucker had
programmes. The elite league advised organizations to do related CSR.
consultancy firm PWC acknowledges Unrelated CSR activities undertaken by
that economic, environmental and social firms might be ineffective and inefficient
value can be generated and sustained (Drucker, 2001).Business firms solving
only when a firm aligns its products and any unrelated social problem can backfire
services with the stakeholder demands as the business doesn’t have the expertise
(PWC,2007).The global economic to solve these issues and thus the firm
institution, World Bank (which has the can waste shareholder resources and also
mandate to develop the developing not solve the social problem Leavitt
countries) views CSR as a tool for both (1958). Thus, it is beneficial for both
socioeconomic betterment of the society business and society that, business firms
as well as providing business with indulge in CSR themes related to its
benefits (World Bank Group, mainstream business. Here the concept
2007).World Business Council for of Strategic CSR makes its way. In simple
Sustainable Development(WBCSD) a parlance Strategic CSR is those types of
global level non business organization CSR initiatives which are good for
championing CSR has formulated a business as well as good for society
business agenda for sustainable (Lantos, 2001). Strategic CSR provide the
development in which the dimensions scope of bringing significant
or firm competitiveness and socioeconomic good to the society as well
profitability are embedded (Moir, 2001). as bring significant business benefits to
It talks about operational efficiency and the organization (Bruch, 2005; Werther
effectiveness, value creation, risk and Chandler, 2006; Porter and Kramer,
reduction, protection of resource base 2006). By championing Strategic CSR one
of raw materials, retention of talent and is not saying that there is no requirement
license to operate and innovation of philanthropy and charity in the
management as business gains from CSR society, philanthropy is noble and is
initiatives. This is a pragmatic way of required by society in its own way
looking at the subject of CSR as the firm (Fulda, 1999).
is the source of CSR .CSR hinges so much The concept of strategic CSR brings the
on the firm that researchers should have CSR initiatives very close to the main
belief and confidence that what a firm business. Strategic CSR is gathering
claims as CSR carries noble motives to momentum in practice (Lantos, 2001).
positively impact the society and a firm Thus, it can be difficult in the context of
has every right to get benefit (economic Strategic CSR to separate a CSR activity
as well as non economic) out of CSR from the core business activities
programmes. So again the discretionary (Fukukawa and Moon 2004;Porter and
nature of CSR is emphasized. Kramer,2006).
Bhattacharyya, Analysis and Development ... 35

This is the best thing to happen in the single one point definition of CSR (as one
entire history of firms (right from 1600s) could have gathered from the discussion
when the pure business activities are so far). CSR represents not one but many
solving social problems, but it still seems themes varying in both colour as well as
an utopian statement given the present shade. Scholars believed and proposed
state of affairs in the present world. But that firm CSR activities can be best
one can on the statue of CSR, emboss with conceptualized as a continuum (Johnson
golden words that business benefits can 2003; Miles and Covin ,2000; Van
be achieved from firm CSR activities. Marrewijk, 2003).These CSR continuums
capture the wide range of social
initiatives in one platform. H.H.Johnson
By the new millennium scholars felt that (2003) provided one CSR continuum
it was extremely difficult to present a which has been tabulated in table 1.
Table- 1 : Corporate Social Responsibility continuum (Johnson 2003)

Level Characteristics
Level-1 *Do not adhere to many rules and regulations.
Illegal/ *Exploits workforce.
Exploitative/ *Misrepresents accounts.
Irresponsible *False advertising.
*Pollutes Environment.
*Does nothing for the society.

Level-2 *Minimum compliance to local, state laws.Regarding work, environment.

Compliant *Few or no activities for society.

Level-3 *Little more than complying with minimum compliance to local, state
laws regarding work, environment.
Fragmented *Registration to ISO 9000.
*Participation in CSR is occasional, fragmented rather than strategic and
non integrated.(CSR is piecemeal, minimal& with mixed motives)CSR
may done with profit motive.

Level-4 *ISO 9000, ISO 14000, LCA & Recycling programs, Green certifications.*
Very good HRD programs,*Active continual relationship with
Community.*Varied community programs.

Level-5 *CSR is a moral initiative regardless of the financial consequences.*Belief

that companies are not solely to make profit but to take care of societies
Social Advocacy
also.*Innovative ways to do CSR.
3 6 Vilakshan, XIMB Journal of Management ; September, 2007

At one end of the continuum the bad proactively engage in social activities to
firms are placed which indulge in change the society for the better.Another
unethical and illegal activities (exhibiting continuum was synthesized from the
no CSR activities). In the middle are firms works of Miles and Covin, 2000; Karna
which comply to the laws and regulations et al., 2003; Day and Wensley, 1988 and
of the land and do fragmented social and Hunt, 2000. This CSR Continuum was
environmental activities here and there, conceptualized on the basis of
now and then. The higher level firms Competitive Advantage by the authors.
indulge in Strategic CSR as they Table -2 depicts this Continuum.

Table 2- The CSR Continuum

(from Miles and Covin, 2000;Karna et al.,2003; Day and Wensley ,1988 and Hunt ,2000).

CSRcontinuum Source of competitive Form of competitive

advantage advantage

Compliance CSR expenditures perceived as a Typically a cost-based

cost of doing business positional advantage,
attempting to create
superior efficiency in value
Strategic CSR expenditures perceivedas an Could take cost and/or
investment in the ûrm’sset of differentiated position to
distinctive competencies be either more efficient or
more effective in creating
value propositions for the
Forced CSR expenditures perceived as None
a”tax” being mandated by
NGOsor other external
stakeholdersthat will diminish
the firm’sability to create value
for otherrelevant stakeholders

According to this continuum, forced CSR generic strategies of cost leadership

a non proactive approach, brings no and/or product differentiation. It
competitive advantage to the firm. becomes apparent from the two
Compliance based CSR brings only cost continuums that it is strategic CSR that
based competitive advantage. Strategic firms should attempt to perform as
CSR brings the two types of competitive strategic CSR lies at higher levels in the
advantage. By doing Strategic CSR, continuum and represents a desired state
firms’ can pursue either of the two of affairs.
Bhattacharyya, Analysis and Development ... 37

6. CONCLUSIONS terms like CC, Corporate

Sustainability, GBC etc
This study evaluated various views on
CSR without even mentioning any single 2. Single point CSR definition is
definition at any point in this paper, to difficult. CSR measurement is also
stay neutral! The fear and the general difficult.
concern that the debate over what CSR
3. The concept of CSR can be better
stands for will not be settled in near
defined as a continuum rather than
future has been indeed a genuine one.
as a single state. This continuum is
This attempt was to evaluate the various
conceptualized based upon the
explanations and definition on CSR to
varying level of CSR (lower to higher
synthesize the key learnings and find out
level of CSR). The continuum can be
the basic themes (novelty) projected by
based upon the extent of interaction
each of the different explanations on
in the CSR activity (intensity of CSR)
CSR. This was done so that a final
with the stakeholder and the time
understanding on the most basic yet vital
period of CSR intervention
question on what CSR is doesn’t linger
(longitude of interaction) with the
in the minds of researchers for long. In
modern day, business as an institution is
growing as are the problems in society
and natural environment, so the prospect Many sister

Can be best explained

of CSR as a tool for a better future is terms exists
promising. Hence once the definitional

as a Continuum
aspects on CSR are better understood
further research on CSR can be
No single CSR
undertaken. Definition

This review story on CSR undertaken Measurement

right from the Pyramid of Corporate is Difficult
Social Responsibility to the Corporate
Social Responsibility continuums helped Figure -1, CSR the ambiguity
one to find out the answer to the question
asked at the beginning of this paper (on Figure -2 p rovides the conceptual
what does the term CSR stand for). The underpinnings and the ey features of the
answer to the questions posed has been concept of CSR which were explored and
depicted by two figures (figure 1 & 2). analyzed in this paper. For CSR initiative
Figure -1 portrays the gray areas which one has to remember that-
CSR has. These are - 1. A CSR activity if it is not legally
1. One has to accept that the concept of correct then that activity however
CSR has many other similar sister good it might be for a particular
3 8 Vilakshan, XIMB Journal of Management ; September, 2007

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Public Expenditure on Health and
Health Outcomes: The Experience of the
Indian States*

Biswa Swarup Misra1 & Akshya K. Panda 2

Public expenditure on health, working through its effect on the quality of human capital has great
potential in raising labour productivity and in shaping the growth trajectory of a nation. the scope for
increasing government expenditure on health is also much better in a growing economy. However,
given the competing claims on government expenditure, one may not find a linear relationship between
higher growth and increase public spending on health. Further, how effective would be this higher
public health expenditure in improving the health status of the population is a matter of empirical
enquiry. This paper employs a two step approach to study the relationship between SDP; public health
expenditure and health outcomes based on panel causality tests for twenty-three states of India for the
period 1991 to 2004. The empirical findings suggest that higher growth augurs well for public spending
on health and further, the rise in public spending on health contributes to improve the health status in
the states of India.

1.0 INTRODUCTION be on the priority list of expenditures in

Does growth matter in provision of public a growing economy. Even if additional
health services? It makes sense to health expenditure is incurred, it may not
hypothesise that to the extent it makes be well designed to have the optimum
room for additional expenditure on impact. Though one of the chief concerns
improving health facilities for the of modern day welfare state is providing
population, growth matters. healthcare for all, it has all along been a
Nonetheless, it may not be uncommon challenging task in India. Many choices
to find that expanding the reach and are involved to improve the situation.
scope of public health services may not These inter alia include preventive care,

* Received August 23, 2007 ; Revised August 30, 2007. The views expressed are personal views of
the authors and do not have any bearing with the institutions they work for.
1 Associate Professor, Xavier Institute of Management, Bhubaneswar. e- mail:
2 Director. Planning Commission of India, New Delhi. e-mail:
4 4 Vilakshan, XIMB Journal of Management ; September, 2007

curative care, alternative systems of that public spending on health in India

medicine and planning for healthcare may not be able to meet the growing
professionals. The emphasis in India has needs of the population not even in the
all along been on curative care. There can foreseeable future (Panda, 2006).
be no argument against it especially However, in the recent times there has
when people suffer from pain and agony been a surge in growth when the average
of sickness. It would be more GDP growth exceeded 8.5 per cent per
meaningful, however, to give more annum during the period 2004-05 and
emphasis on preventive care, especially 2006-07. High growth has made
in a resource constrained economy such government’s revenue position much
as India. Focus on preventive healthcare comfortable and has given the
could be useful for a number of reasons. elbowroom to meet the FRL
Preventive health care has the scope for commitments. Better growth prospects at
being cost-effective because of its far and least in the medium term combined with
wide reach, it prevents illness and fiscal correction in the economy raises the
thereby avoids loss of man-days and possibility of a rise in spending on public
expensive treatment. It would further, health in India. But to what extent the
save on valuable resources for more growth performance of the economy
quality care for the few. Not would influence public spending on
withstanding the tilt in favour of curative health is a matter of empirical
health care provisioning, the overall investigation. Studying the historical
public spending on health has also been relation between growth and public
quite low. A couple of factors were spending on health would act as a good
responsible for the low public spending pointer in this context. Further, to get an
on health. Broadly, it was a consequence idea of the effectiveness of the public
of fiscal profligacy coupled with spending it would be instructive to study
misplaced fiscal priorities in the 1980s and the impact of such expenditure on some
the 1990s. Subsequently, there have been basic health indicators. One obvious and
attempts to enforce fiscal discipline both oft used indictor is the Infant Mortality
at the level of the Central and State Rate (IMR). This paper attempts to
governments through the promulgation examine the growth dependency of
of the fiscal responsibility legislation public expenditure on health and whether
(FRL), in the year 2003, which prescribes the health expenditure is really effective
outer limits for government’s fiscal in making a dent on the health outcomes
deficit. In light of constraints posed by measured in terms of IMR at the level of
the FRL at one end and government’s states in India in the post reform period.
committed administrative expenditure at The rest of the paper is schematised along
the other, concerns have been expressed the following lines. Section II provides a
Misra, Public Expenditure on... 45

brief review of literature on the investment in human capital, it has the

relationship between economic growth, scope to act as an engine of growth
health care expenditure and health (Lucas, 1988). When it comes to assess
outcomes. Some stylized facts about the the effect of economic growth on health
behaviour of output, health expenditure status of the population, one of the ways
and IMR in the Indian States are is to see what is happening to health care
described in Section-III. The spending. Health expenditure is a
methodology used to study the relation function of total resources available
between output and health expenditure (income or wealth) in the system. When
and that between health expenditure and incomes are rising, there is scope for a
IMR is discussed in section IV followed rise in both private and public health
by a description of the data. The results expenditure. As we have discussed, a rise
from the empirical estimates are outlined in health expenditure makes possible
in section V. Concluding observations higher labour supply and productivity,
follow in section VI. eventually leading to higher income. Thus
2.0 REVIEW OF LITERATURE runs the virtuous cycle. Barro (1997) has
found that a 10 per cent increase in life
Health status of the population can make
expectancy leads to half a per cent
a difference to the growth prospects of a
increase in income growth for the
nation. This can be seen from a number
developed countries. In case of Britain,
of dimensions. First, a healthy
Fogel (1994) found that 30 per cent of
workforce ensures less absenteeism and
British economic growth over last 200
thus higher productivity. Second, there
years could be attributed to
are increased incentives to invest in
improvements in nutrition. Several other
human and physical capital as life
longituditional studies also support this
expectancy increases. Third, better health
conclusion (Almas Heshmati, 2001).
status has the potential to augment the
Thus, from a policy perspective, health
savings rates in the economy as workers
is as much an input to economic
have an incentive to save for retirement;
development as an outcome.
and lastly, better health status improves
labour force participation rate as serious There have been several attempts to
illness forces people to drop out of the study how growth impacts health
labour market. Health is also important outcome at the empirical plane. Some
from the perspective of ‘demographic prominent ones are Newhouse (1977),
transformation’. As health awareness Leu (1986), Parkin et al., (1987), Hitris and
improves, infant morality rate drops, Posnett (1992), Pritchett and Summers
motivating people for smaller families. (1996), Hansen and King (1996) and Barro
Seen from another angle, to the extent (1998). All the cited studies bring out the
health expenditure can be treated as an consistently strong effect that income has
4 6 Vilakshan, XIMB Journal of Management ; September, 2007

on health outcomes. Bhalotra (2006), into the model. Deaton and Paxson (2004)
however, observed a positive association observed that effect of income on health
of health and income but limited may not find full reflection when
evidence of an impact of aggregate mortality risk is concentrated (such as in
income (GDP) on health, from a study of pockets of poverty) and income
macro economic evidence from rich and distribution very much skewed. Apart
poor countries. Anand and Ravallion from this variation in evidence, there are
(1993) in a cross country analysis of differences in the evidence depending on
developing country data found no whether it is based on microeconomic
evidence of GDP having effect on health data on health and income or aggregated
outcomes, if poverty and public data. Deaton and Paxson (2001, 2004)
expenditure are held constant. Pritchett conclude that understanding the effect of
and Summers (1996) using panel data for income on mortality presents many
58 developing countries found a robust puzzles, between countries, and between
impact of aggregate income on health analyses at different levels of
with elasticity estimated to range aggregation.
between (-) 0.12 and (-) 0.3, depending The interest in health expenditure
on the estimates used and on whether or ultimatately lies in its potentiality to
not education is held constant. Bhalotra improve the health outcomes of a
(2006) found unconditional growth nation. A number of studies including
elasticity of ‘under 5’ mortality in India that of Poullier, Patricia, Kei and
at about (-) 0.7. Controlling for state Savedoff (2002) and Bokhari, Gai and
‘fixed effects’, raise the elasticity up to Gottret (2007) bring out the importance
(-) 1.0. But inclusion of ‘year effects’ of government spending on health in
reduced it to (-) 0.6. Malik (2006) determining health outcomes. Bokhari,
observed that health indicators do not Gai and Gottret (2007) find that for
have a significant effect on Gross National developing countries, while economic
Income. The estimates based on two- growth is an important contributor to
stage least squares reduced form health outcomes, government spending
equation shows no significant effect of on health is an equally important factor.
health indicators, such as life expectancy, Though government spending is
IMR and total fertility rates on growth important in general, it is very much
in income. As regards developed possible that the scope of health
countries, Deaton and Paxson (2004) find expenditure may expand in an economy
no effect of income on mortality in the without significant improvement in
UK and a small effect in the US. The health outcomes. This point of view is
effect is considerably diminished when substantiated by an analysis data on
time dummies and education are built health expenditure and health outcome
Misra, Public Expenditure on... 47

for 150 countries including both 3.0 STYLISED FACTS

developed and developing and Health care facilities in India have
underdeveloped countries by Poullier, always lagged behind demand for such
Patricia, Kei and Savedoff (2002) who services including the availability of
find that health spending does health care professionals in the country.
determine health outcomes but the Just before India’s Independence, Sir
relationship is not linear. Poullier, Joseph Bhore Committee (1946)
Patricia, Kei and Savedoff (2002) in their prescribed the norm of one doctor per
study find three broad patterns that 1500 population and one nurse per 500
explain the relationship between health population. Instead, the doctor-
spending and health outcome. First, population ratio was 1:1800 in as late
countries that to begin with spent less as the year 2001. Like the doctor-
on health care, higher spending have a population ratio, progress in the
significant impact on health status. provision of important health care
Second, public policy makes a infrastructure has also been tardy. This
difference in the effectiveness of health is brought out in Table 1. Further, the
spending in determining health deficiency in health care infrastructure
outcomes in the low spending countries. has been acute in the rural areas.
Third, among high spending countries, According to RHS Bulletin, June 2000
additional spending bears little (Ministry of Health and Family
relationship to improvements in health Welfare), there is huge gap in Specialist
adjusted life expectancy. doctors, Block extension educators,
In the light of the cross country Pharmacist, Lab.techinician, X-Ray
empirical findings, it would be of technicians etc. Roughly there has been
interest to examine how public health 25% deficit in the foreseen requirement
expenditure, growth and health in 1991 and availability in 2000 in rural
outcomes interact in case of India. As health personnel across categories. To
the aggregate picture often conceals cite an example, as against the
more than what it reveals, we try to requirement of 22348 specialist doctors,
explore the direction of causation, the the gap is still 18607. In some categories,
strength of the relationship between the gap is less glaring and in others it
economic growth, public health is more. Notwithstanding the
expenditure and health outcomes for deficiency in health care infrastructure,
India at the disaggregated state level. India has made significant strides in
What follows is a discussion on the health outcomes. This has been made
broad behaviour of output, public possible by the health care facilities
health expenditure and IMR in the post provided by the private sector and
reform period before we study the people’s willingness to pay for private
causality. medical facilities.
4 8 Vilakshan, XIMB Journal of Management ; September, 2007

Table- 1: Progress in Health Care Availability in India (1951-2004)

(per lakh population)

Health Infrastructure 1951 1981 1991 2000 2004 2005

Sc/PHC/CHC 0.20 8.45 6.73 16.08 15.57 15.56

Hospitals 2.57 3.47 2.77 4.27 3.50 2.52
Beds (Pvt. & Public) 32.65 83.87 66.87 85.75 84.24 82.93
Doctors 17.21 39.57 31.55 49.66 57.58 59.50
(Modern System)
Nursing Personnel 5.03 21.19 16.89 72.63 77.01 78.45
Health Outcome
Life Expectancy 36.7 54 57** 64.6 63.3 64
IMR 146 110 80 68 60* 58

Source: National Health Policy-2002

*As of 2003
** for male

This all India picture subsumes the details health expenditure as a proportion of SDP
and regional variations in the health was noticed for Sikkim in the year 1999
outcomes. Federating states of the Indian at 4.7 per cent and the lowest for Haryana
Union are in different places of the in the year 2004 at 0.4 per cent. Third, in
income spectrum and have varied general, spending on health care as a
achievement in social parameters. As proportion of SDP has been much higher
health is a state subject, much would for the northeastern states of Assam,
depend on the initiative of the state Arunachal Pradesh, Manipur, Meghalya,
concerned in putting health as a priority Nagaland, Tripura, Sikkim and Himachal
in its scheme of resource commitment. Pradesh as compared to the major states
As far as health expenditure in the Indian of India for most of the years. Higher
states is concerned, some broad observed spending in the north eastern
observations follow. First, on an average, could be to some extent because of their
health expenditure as proportion of SDP special status in the scheme of resource
has seen a sharp decline between the year transfer from the center to the states.
1991 and 2004 from 1.58 percent to only Fourth, the sharpest decline in the health
1.07 percent for all the twenty three expenditure between 1991 and 2004 is
states. The declining trend has been more seen for Manipur, Mizoram, Tripura and
acute in the post 2000 period. Second, in Nagaland. Fifth, despite the decline,
the period under study, the maximum these states along with other north
Misra, Public Expenditure on... 49

eastern states and Himachal Pradesh still towards improving the health status of
incur the maximum health care the population by increasing their health
expenditure compared to rest of the expenditure in the face of a slackening of
states. Share of health expenditure in the SDP growth. However during 2000-04,
SDP though conveys to some extent the growth in health expenditure declined
importance attached to health care for all states except for Uttar Pradesh as
services in the overall scheme of compared to that in 1996-2000. It is
expenditure budgeting, the growth in interesting to find that except for
health expenditure vis a vis that of the Mizoram, Nagaland and Orissa all other
SDP would indicate whether overall states also experienced a decline in their
resource availability anyway constrains growth of SDP during 2000-04 as
health care expenditure. Health compared to 1996-2000. In fact in both
expenditure grew at a higher pace in 1996- the sub periods of 1996-2000 and 2001-04
2000 as compared to that in 1991-95 for SDP has grown at a slower pace as
all states except for Assam, Mizoram, compared to the 1991-95 period. This
Nagaland, Karnataka, Rajasthan and behaviour of growth in health
Uttar Pradesh (Table-2). At the same time expenditure and SDP leads one to
except for Manipur, Meghalaya. Sikkim surmise that perhaps beyond a point
and Bihar in all the other states SDP grew states are constrained to increase their
at a lower pace in 1996-2000 as compared health spending in the face of a slowing
to 1991-95. This would give the down in the SDP growth. The more
impression that most of the states do not important question is how the health
want to comprise their commitment expenditure influences health outcomes?

Table-2: Growth in Health Expenditure and Output

1991-95 1996-00 2001-04 1991-04

Andhra 13.0 15.6 2.1 15.0 10.9 1.2 4.5 7.5 1.2 9.1 11.8 1.4
Arunachal 12.0 14.4 3.3 12.4 6.7 2.3 4.6 6.0 1.5 9.1 8.9 2.4
Assam 11.8 10.1 2.2 5.4 9.0 1.7 -0.6 7.2 1.3 5.4 8.8 1.7
Bihar 9.1 9.7 2.3 17.0 10.7 2.7 1.9 7.4 2.2 5.0 7.7 2.6
Gujarat 10.9 18.1 2.3 18.5 8.8 2.1 -0.3 13.7 2.0 7.4 11.0 2.2
Haryana 9.4 12.1 2.8 16.0 9.9 2.8 4.3 8.7 2.1 8.7 10.6 2.7
5 0 Vilakshan, XIMB Journal of Management ; September, 2007

1991-95 1996-00 2001-04 1991-04


Himachal 11.4 13.7 1.9 18.0 14.5 2.0 2.9 7.6 1.9 9.6 12.7 1.9
Karnataka 14.6 14.5 2.1 14.3 12.8 1.6 -0.4 7.0 1.4 7.9 11.8 1.7
Kerala 11.7 15.9 1.1 13.3 11.7 0.9 6.1 7.8 1.2 9.6 12.8 1.0
Madhya Pradesh 10.8 11.2 2.5 16.0 10.0 2.2 3.3 8.9 2.2 7.9 8.7 2.2
Maharastra 10.3 16.5 2.6 10.4 8.6 2.2 2.1 9.9 1.7 8.1 10.5 2.2
Manipur 9.0 11.8 2.7 15.9 11.8 2.4 -6.3 9.3 2.2 7.3 10.6 2.5
Meghalaya 8.2 10.2 2.9 14.7 10.8 2.9 2.8 6.9 1.7 8.3 10.3 2.8
Mizoram 11.7 13.8 3.2 11.5 7.5 2.6 11.2 10.4 1.8 9.9 11.5 2.7
Nagaland 9.5 14.4 6.2 1.0 3.1 5.7 -1.4 7.9 5.5 4.8 9.8 5.7
Orissa 10.0 14.5 1.9 15.5 9.0 1.5 2.0 9.6 1.4 7.4 9.9 1.6
Punjab 6.5 14.6 2.2 22.8 10.1 2.1 -3.0 4.3 1.1 10.1 9.8 1.9
Rajasthan 13.8 11.3 2.7 12.5 10.6 2.8 0.6 6.1 2.3 6.9 9.4 2.7
Sikkim 11.2 10.2 4.0 18.5 13.3 2.5 5.9 9.0 2.4 9.0 12.0 3.1
Tamil nadu 11.5 17.1 1.5 13.1 12.1 1.1 -0.3 5.2 1.0 7.0 11.9 1.2
Tripura 5.2 7.3 2.5 10.1 17.1 1.3 4.4 12.0 1.2 7.3 14.0 1.6
Uttar Pradesh 9.4 10.7 2.5 5.4 8.7 2.5 10.4 7.9 0.1 4.4 8.8 2.2
West Bengal 4.6 10.6 2.2 18.8 13.6 1.7 -1.2 9.0 1.4 8.8 11.9 1.8

Note: Growth rates are compound growth rates computed from a semi log specification.Bihar,
Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and Uttaranchal

PHE=Per capita Health expenditure

PSDP = Per capita SDP

POP=Population in the States

While growth might be having an other things is guided by the health

impact on health care expenditure, it status prevailing in the state. Scatter
is also possible that extent of health plot (Chart-1) of the health
care expenditures by a state amongst expenditure and health status proxied
Misra, Public Expenditure on... 51

though the IMR reveals a negative There are several techniques which can
association between them 3. This brings be used to test for a unit root in panel
out the importance of health data. Specifically, we are interested to
expenditure in the states. test for non-stationarity against the
alternative that the variable is trend
stationary. One of the first unit root tests
Scatter Plot of Health Expenditure and IMR
to be developed for panel data is that of
120 Levin and Lin, as originally circulated in
IMR per thousand live births

100 working paper form in 1992 and 1993.

Their work was finally published, with

Chu as a coauthor, in 2002. Levin, Lin and
20 Chu assume that the individual processes
0 are crosssectionally independent. Given
0.00 0.50 1.00 1.50 2.00
Health expenditure as percentage of SDP
this assumption, they derive conditions
and correction factors under which the
4.0 EMPIRICAL METHODOLOGY pooled OLS estimate of will have a
To decipher the relationship between standard normal distribution under the
output, health expenditure and IMR, we null hypothesis. In contrast to the LLC
employ panel FMOLS tests to study the test, Im-Pesaran-Shin (IPS) propose an
causality between output and health estimation framework which presumes
expenditure and also between health that all series are stationary under the
expenditure and SDP. The standard alternative hypothesis. IPS propose the
approach to test for causality amongst use of a group-mean Lagrange multiplier
economic variables is the granger statistic to test the null hypothesis. The
causality. As we have information both ADF regressions are computed for each
in the time series and the cross section unit, and a standardized statistics is
dimension, test of cointegration in a panel computed as the average of the LM tests
context becomes more useful. A study of for each equation. Adjustment factors
causality in a panel context would require (available in their paper) are used to
an examination of the data at hand for derive a test statistics that is distributed
stationarity in the first place, followed as standard normal under the null
by a test of cointegration in the panel hypothesis. IPS also propose the use of a
context. Further, in the event of panel group-mean t-bar statistic, where the t
cointegration, we discuss the appropriate statistics from each ADF test are
methods that can be employed to study averaged across the panel; again,
causality. adjustment factors are needed to

3. The scatter plot shows negative association between health expenditure and IMR. Decline in
IMR is indicative of improvement in health status.
5 2 Vilakshan, XIMB Journal of Management ; September, 2007

translate the distribution of t-bar into a and denominator terms over the
standard normal variate under the null individuals separately, while in the latter,
hypothesis. IPS demonstrate that their the numerator is divided by the
test has better finite sample performance denominator prior to the summation.
than that of LLC. The test is based on Consequently, in the case of the panel
the average of the augmented Dickey- statistics the autoregressive parameter is
Fuller (ADF) test statistics calculated restricted to be the same for all cross
independently for each member of the sections. If the null is rejected, the
panel with appropriate lags to adjust for variables in question are cointegrated for
autocorrelation. The adjusted test all panel members. In the group statistics,
statistics, [adjusted using the tables in Im, the autoregressive parameter is allowed
Pesaran and Shin (1995)] are distributed to vary over the cross section, as the
as N(0,1) under the null of a unit root statistics amounts to the average of
and large negative values lead to the individual statistics. If the null is rejected,
rejection of a unit root in favor of cointegration holds at least for one
stationarity. individual. Therefore, group tests offer
an additional source of heterogeneity
For cointegration analysis in a panel
among the panel members.
context, a standard approach is Pedroni’s
(1995, 1997) framework, which allows for In the event the variables are
heterogeneous cointegrating vectors. The cointegrated, to get appropriate
panel cointegration tests suggested by estimates of the cointegration
Pedroni (1999) extend the residual based relationship, efficient estimation
Engle and Granger (1987) cointegration techniques are employed. The
strategy. First, the cointegration equation appropriate estimation method is so
is estimated separately for each panel designed that the problems arising from
member. Second, the residuals are the endogeneity of the regressors and
examined with respect to the unit root serial correlation in the error term are
feature. If the null of no-cointegration is avoided. Due to the corrections, the
rejected, the long run equilibrium exists, estimators are asymptotically unbiased.
but the cointegration vector may be Especially, Fully Modified OLS (FMOLS)
different for each cross section. Also, is applied. In the model the asymptotic
deterministic components are allowed to distribution of the OLS estimator
be individual specific. To test for depends on the long run covariance
cointegration, the residuals are pooled matrix of the residual process. The
either along the within or the between estimates needed for the
dimension of the panel, giving rise to the transformations are based on OLS
panel and group mean statistics (Pedroni, residuals obtained in a preliminary step.
1999). In the former, the statistics are The panel FMOLS estimator is just the
constructed by summing both numerator average of individual parameters. The
Misra, Public Expenditure on... 53

group mean FMOLS test performs best is available for twenty three states,
when T is larger than N. information on IMR is available for only
sixteen states for this period. As such,
In a panel context, when we find
evidence of cointegration, a moot issue we have used the full information to
is determination of the direction of study the health expenditure and SDP
causality. The approach followed by relation, we narrow down the scope of
many authors in the panel context is to the study to sixteen states to capture the
test for cointegration between the relationship between health expenditure
variables under study. Once and IMR. We use three alternative tests
cointegration is found, a panel OLS is to study the unit root character of the
performed to obtain the residuals of the variables in a panel context. Pedroni’s
parametric relationship between the method has been applied to study
variables under study. cointegrating relationship between log
of per capita SDP (LPSDP) and log of
per capita health expenditure (LPHE)
and also between LPHE and IMR. Panel
k k FMOLS estimates are employed to
ΔYit = a1 j + ∑ α 2ij ΔXi , t − j + ∑ β 2ij ΔYi ,t − j + λ 2iecmit −1 + μ1it (2)
j =1 j =1
decipher the pattern of elasticity
amongst the two set of variable.
The lag of the residual so obtained Subsequently, wek look into the causality
constitutes the ECM term in the it = a1 j + ∑ α 1ij ΔXi , t − j + ∑ β 1ij ΔYi ,t − j + λ 1iecmit −1 + μ1it
ΔXbetween LPSDP and LPHE and between
j =1 j =1
estimation of (1) and (2). However, LPHE and IMR from the panel data
constructing the ECM term based on the perspective
residuals from an OLS may not be
appropriate as it is FMOLS and not OLS,
which is the appropriate estimation The results of the panel unit root tests
techniques when there is evidence of for each of our variables are shown in
panel cointegration amongst the Table-3. In no case the null hypothesis
variables under study. As such, we have that every State has a unit root for the
used residuals from the panel FMOLS series in log levels is rejected. However,
estimate to construct the ECM term in the series are stationary in their first
the test for Granger causality in the panel differences. Hence, the variables
context. considered are I(1). Once ascertained that
all the three variables are I(1), we turn
We consider per capita SDP, per capita to the question of possible co-integration
health expenditure and the IMR as the between them. Table-3 reveals the
variables of interest for this study. evidence regarding the co-integration
While information on SDP and health property between output and health
expenditure for the period 1991 to 2004 expenditure and also between health
5 4 Vilakshan, XIMB Journal of Management ; September, 2007

expenditure and IMR for the Indian the relation between SDP and health
States. The panel co-integration tests on expenditure is performed on twenty
three states.
Table-3: Panel Unit Root Tests


Levels First First Levels Levels First
↓ Difference Difference Difference

Im Pesaran and 2.20(0.98) -11.55(0.00) 1.49(0.93) -5.69(0.00) 3.70(0.99) -11.47(0.00)

Shin (IPS) W-stat
ADF- Fisher 29.65(0.97) 187.77(0.00) 23.44(0.99) 113.08(0.00) 12.76(0.99) 160.51(0.00)
Chi square
PP- Fisher Chi 47.84(0.39) 236.72(0.00) 30.52(0.96) 235.19(0.00) 15.91(0.99) 193.28(0.00)
Note: Figures in brackets indicate p- values.Panel unit root test assumes individual intercept and
trend in the SDP equation, only intercept on the HE equation and neither intercept nor trend in
the IMR equation.

However, given the lack of consistent confined to only sixteen states, which
information on IMR for a number of covers all the major states of India.
states, the cointegration relationship
between health expenditure and IMR is In general, the Pedroni (1999) tests turn
out to reject the null hypothesis of no co-
Table-4: Panel Cointegration Results integration between both set of variables
under consideration (Table-4). Having
Test Statistics LPSDP LPHE
and LPHE and IMR found evidence of panel cointegartion,
the FMOLS tests are performed which
Panel v-stat -0.1297 4.41613
suggests that elasticity of output to health
Panel rho-stat -2.5642 -2.15439 expenditure is much higher than elasticity
Panel pp-stat -4.19653 -2.50135 of health expenditure to output. This
Panel adf-stat -3.96719 -2.38723 brings out the importance of health
expenditure in pushing up the growth
Group rho-stat -0.8643 -0.45579
trajectory of the states4. Further, health
Group pp-stat -4.84143 -2.12386 expenditure has an impact in reducing
Group adf-stat -4.58496 -2.09265 IMR. However, it is intriguing to find
Panel v-stat -0.1297 4.41613
that health expenditure declines in the
face of rising IMR. Perhaps competing

4 The detailed FMOLS estimates are given in Annex-1 and Annex-2.

Misra, Public Expenditure on... 55

claims in the health expenditure budget we find evidence of health expenditure

partly explains this kind of behaviour of granger causes IMR both in the short run
health expenditure. The emphasis on and long run whereas IMR granger
curative rather than preventive health causes health expenditure only in the long
care expenditure might be responsible run.
for this odd behaviour of health
expenditure in Indian States. It may also
be that there are extended lags in This paper was an attempt to test the
response of health expenditure to changes efficacy of growth in improving health
in IMR, which the FMOLS estimates are facilities in the Indian States using panel
not able to capture. The residuals from econometric methods. We have adopted
the FMOLS estimates are gathered to a two step approach to test this. First,
construct the ECM term for doing the we have studied the causal nexus
next round of estimation to infer about between SDP and health expenditure and
the direction of causality. The panel found evidence of SDP granger causing
causality tests indicate that output health expenditure. Further, we find that
granger causes health expenditure both health expenditure granger causes IMR
in the short run as well as in the long run both in the short run and long run. These
(Table-5). However, health expenditure results indicate that by pursing a high
granger causes output only in the long growth strategy, the governments
run and the causation is rather weak. As acquire greater maneuverability in
far the causality between health spending on public health, which in turn
expenditure and the IMR is concerned, contributes to improving the health status
Table-5: Panel Causality Tests of the population. The increased
spending on health would take output to
Short Long Short further higher levels as health
Run Run run and expenditure granger causes output in the
Long run
long run. The results point at an optimistic
SDP →HE 14.22 138.80 71.91 scenario, in which growth, if sustained,
(0.00) (0.00) (0.00) creates scope for higher spending on
HE →SDP 0.005 2.90 1.62 public health and which in turn positively
(0.94) (0.08) (0.19) influences health outcome.
HE →IMR 2.82 2.67 3.27
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Misra, Public Expenditure on... 59

Parametric Relationship Between Health Care Expenditure and SDP
(FMOLS Estimates)

State Response of Health Response of SDP to changes

Expenditure to changes in SDP in Health Expenditure

Andhra Pradesh 0.782 1.217

Arunachal Pradesh 1.084 0.890
Assam 0.565 1.610
Bihar 0.507 0.927
Gujarat 0.594 1.269
Haryana 0.779 1.147
Himachal Pradesh 0.801 1.240
Karnataka 0.600 1.373
Kerala 0.782 1.243
Madhya Pradesh 0.879 1.043
Maharastra 0.731 1.188
Manipur 0.637 1.202
Meghalaya 0.779 1.150
Mizoram 0.876 1.113
Nagaland 0.537 1.607
Orissa 0.723 1.189
Punjab 1.078 0.833
Rajasthan 0.673 1.290
Sikkim 0.707 1.274
Tamil nadu 0.596 1.550
Tripura 0.571 1.805
Uttar Pradesh 0.508 1.723
West Bengal 0.791 1.185

Note: Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and
Uttaranchal respectively.
6 0 Vilakshan, XIMB Journal of Management ; September, 2007

Parametric Relationship Between Health Care Expenditure and IMR
(FMOLS Estimates)

State Response of IMR to changes Response of Health Expenditure

in Health Expenditure to changes in IMR

Andhra Pradesh -0.101 -5.881

Assam -0.215 -2.889
Bihar -0.276 -3.327
Gujarat -0.081 -3.247
Haryana -0.132 -4.371
Himachal Pradesh 1.133 0.497
Karnataka -0.221 -1.982
Kerala -0.314 -2.091
Madhya Pradesh -0.366 -2.533
Maharastra -0.337 -2.538
Orissa -0.327 -2.316
Punjab -0.085 -5.224
Rajasthan -0.219 -2.613
Tamil Nadu -0.294 -1.875
Uttar Pradesh -0.443 -2.039
West Bengal -0.310 -2.864

Note: Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and
Uttaranchal respectively.
Internationalization of Indian
Pharmaceutical Industry : A study on
the determinants of export stimulation*

Srikant Panigrahy1 , P.Mishra2 & B.P.Patra3

In this paper an attempt has been made to study various determinants that have stimulated the Indian
pharmaceutical (henceforth pharma) firms to move to overseas market. It is found that motives for Indian
pharma firms moving to overseas market was proactive (rather than reactive), and the most important
stimulation was for profit and growth opportunities overseas. Export stimuli of Indian pharma firms
were categorized conceptually into five meaningful groups (viz. overseas market pull motives, local
market push motives, product superiority, opportunity utilization and growth motives), with a new set
of underlying structure of relationships, following the classification of proactive and reactive motives.
The implications of the findings for managers, academicians and policy makers are discussed. This study
might yield valuable lessons to other firms for export decision making and policy makers for appropriate
export assistance.

1.0 INTRODUCTION eight percent (ORGIMS, 2006). It plays

The Indian pharmaceutical industry is an important role for the nation as it
one of the most competitive and highly directly deals with health of the people.
fragmented industries in India that has The Indian Patents Act, 1970, along with
made significant progress and witnessed Drug Price Control Order and economic
consistent growth over the past three reforms, have made the pharma industry
decades (Agarwal, 2004). There are more self sufficient to meet the domestic
than 20,000 players, and no single demands (meets around 95% of local
company has a market share greater than demand) and also establish itself as a

* Received June 26, 2007, Revised September 1, 2007. The paper is based on the thesis of the first
author to be submitted to Xavier Institute of Management, Bhubaneswar under the guidance of
the second and third authors.
1. Scholar, Fellow Program in Management (FPM), Xavier Institute of Management, Bhubaneswar,
2. Professor, Xavier Institute of Management, Bhubaneswar, email:
3. Associate Professor, Xavier Institute of Management, Bhubaneswar, email:
6 2 Vilakshan, XIMB Journal of Management ; September, 2007

major player in exports obtaining a trade domestic CAGR of 12%(Pradhan 2006).

surplus during 1990’s and performing At present, export accounts for 46% of
consistently (Lalitha, 2002). At present total production of pharmaceuticals in
the industry market size has increased India. Currently, India exports to around
from Rs. 4 billion in 1970 to Rs. 370 billion 200 countries worldwide including highly
in 2004-05, growing at a Cumulative regulated countries like USA, UK and
Aggregated Growth Rate (CAGR) of Japan. Seeing the above figures, it is
13.7 percent (Cygnus, 2005). interesting to find out the main
determinants which have influenced
Internationalization has been an
Indian companies to move to overseas
important activity carried out by the
Indian pharma firms. It is defined as a
process in which the firms gradually Studies on Indian pharmaceutical
increase their international involvement. industry is very rich and have mainly
It can also be defined as the successive focused on origin and history of the
development in a firm’s international industry, R&D activities, access to
engagement in terms of geographical medicines, sustainability of organization.
spreading in markets, products and Studies have also been made on TRIPS
operation forms, and changes in effect on the industry with respect to
management philosophy and various streams like research and
organizational behaviour from beginning development, price of medicines, patient
of process to current situation (Albaum welfare, foreign direct investments, etc.
et al 2002). Firms go for However, there are relatively few studies
internationalization mainly through which have focused on export behaviour
exports/imports and FDI. Excluding the and performance of the industry
imports route, firms internationalize to (Pradhan 2003, Pradhan 2004, Agarwal
various international markets depending 2003, Chadha A 2005).
upon risk and control undertaken from Studies on export behaviour have been
exports, joint ventures, licensing, and in limelight for about four decades
foreign direct investments (Johanson starting from the pioneer work of Tookey
1990). Out of all the entry modes, exports (1964). Although exporting in an era of
have been the traditional method and still globalization has been well
the most popular route followed by many acknowledged in the academic literature,
of the pharma companies. After India theoretical developments in the area have
adopted process patents in 1972 (Indian not matched the development in practice
Patents Act, 1970), the exports of Indian (Dhanaraj C & Beamish W P 2003). For
pharmaceutical industry has risen from the past four decades, researchers have
Rs. 373.3 millions in 1973-74 (Agarwal A presented various descriptive models of
2003) to Rs.160 billion in 2004-05, growing export behaviour but still, there lacks the
at a CAGR of 21% compared with theoretical developments, and the very
Panigrahy, Internationalization of ... 63

reason has attracted a lot of interests on Literature review

this topic by the researchers. The reason
Studies on export behaviour have been
attributed for the failure of a specific
divided into two streams. The first
theoretical development may be the rapid stream deals with export behaviour theories
changes which occur in the external and for firms moving to overseas market. The
the internal environment for a firm, for second stream deals with identifying
example government regulation and determinants which have played an
policies, industry competitiveness, important role for firms moving to
changes in technology, etc. overseas markets that is, the determinants
The above studies on the export stimuli for export behaviour.
behaviour have contributed in many Export behaviour theories
ways to the field of exporting.
However most of the studies have Export behaviour of firms is defined as
been in the developed countries (Sousa the process undergone by a firm while
2004) and have taken all sectors in a selecting a particular destination and the
particular country into consideration, further process carried out to expand in
creating a question mark on the the foreign markets. Export behaviour
homogeneity of the data collected. theories attempt to explain why and how
the individual firm is engaged in export
The present study contributes to the activities and how the dynamic nature of
ongoing debate of export behaviour in such activities be conceptualized (Shoham
several ways. Firstly, it focuses on a et al 1995). Risk, uncertainty and
particular sector, the pharmaceutical imperfect knowledge are important
industry in a developing country, India. determinants in export behaviour and a
Secondly, it is studied in a changed firm goes though experimental phase
regulatory environment that is after gaining experience in each of the
implementation of TRIPS in 2005 in succeeding stages. Export marketing
India. Thirdly, it categorizes the researchers have often classified
stimulating determinants into groups exporting companies according to their
that could be conceptually meaningful level of internationalization (Bilkey and
and help in development of theoretical Tesar 1977, Cavusgil 1980, Czinkota and
framework to the ongoing discussion of Johnston 1981).
export stimulants. Fourth, it aims at
helping managers to know the important
determinants for export stimuli, and The nature of export stimulation has been
export decision making. It may also help shown to affect the internationalization
policy makers to frame appropriate of a firm (Welch and Wiedersheim Paul
policies for Indian pharma firms to move 1980). Research on export stimuli
to overseas markets. discipline started in early 1970’s and since
6 4 Vilakshan, XIMB Journal of Management ; September, 2007

then has grown in an accelerating phase promotion programs, or the bankruptcy

mainly due to rapid globalization of of a competitor. But this classification
world economies (Douglas and Craig provides little idea about evidence of
1992). It is one of the most well researched behavioural pattern which the firm
topic and many studies have been carried develops in its approach to export
out in a very short span of time markets and operations (Katsikeas 1996).
(Leonidou, 1998). Research on
The above issue is taken care by a second
determinants of export stimuli first
stream of export stimulus studies which
started in United States, and then into
helps to identify whether or not firms
other countries around the world.
take the initiative to seek, identify and
Majority of the work has been carried out
exploit export market opportunities. In
in United States and European countries
this regard, export marketing researchers
in comparison to developing countries
have made a distinction between
where these are relatively few
proactive and reactive exporters
(Leonidou, 1998).
(Czinkota and Ronkainen 2004, Piercy
A commonly used typology of export 1981, Katsikeas et al, 1993) to portray
stimuli is to regard them as emanating effect on export performance. Proactive
either internal or external from/to the stimuli are defined as those associated
firm (Brooks and Rosson 1982, Cavusgil with firm’s aggressive behaviour and
1980, Kaynak and Stevenson 1982, Welch deliberate search for export opportunities
and Wiedersheim-Paul 1980). Internal (pull factors). Reactive stimuli are those
stimuli are those derived from influences associated with firm’s reaction to
endogenous to the firm, for example, changing conditions and reflect a passive
economies of scale, or particular in-house attitude in seeking export opportunities
competencies (see Table 1). On the other (push factors). These two motivation
hand, external stimuli arise from the types reflect different types of attitude
environment in which the firm operates, and behaviour and are likely to influence
or may operate, e.g., government exports export performance.
Table 1: Proactive and Reactive Stimuli
Internal External
Proactive • Managerial urge • Foreign market opportunities
• Growth and profit overseas • Change agents
• Marketing advantages
• Economies of scale
• Unique product/ technology competence
Reactive • Risk diversification • Unsolicited orders
• Extend sales of a seasonal product • Small home market
• Excess capacity of resources • Stagnant or declining home market
Adapted from Albaum et al (2002)
Panigrahy, Internationalization of ... 65

Barker and Kaynak (1992) study motives for entering foreign markets. As
identified size of overseas market, search for promoting export competitiveness,
for stability through market the determinants which played a major
diversification, apparent profit potential, role were size of the firm; R&D effort,
unsolicited foreign orders and physical indirect tax incentives, and import of raw
proximity of a market as the major materials were found as major
motivators for a firm to move to overseas determinants. A list of studies conducted
markets. The study listed these by various researchers on the export
motivating factors for initiating overseas stimulants have been provided in
markets involvement in order of Annexure 1.
importance as larger market size, stability
From the literature review and
through diversification, profit potential,
discussions, it is observed that researchers
unsolicited orders, proximity of market,
have found mixed results on various
utilize excess capacity, offer by foreign
determinants influencing export
distributor, increase growth rate and
stimulation of the firm. The present study
smoothing out business cycles. Other
is therefore conducted to identify the
empirical studies over years have also
important determinants which have
pointed out factors such as saturated
stimulated the Indian pharma industry to
domestic markets, government incentives move to overseas markets and to identify
to export, tax incentives offered by whether the determinants cluster in
foreign governments to establish groups giving rise to a few latent factors.
manufacturing plants in their countries,
and competition in domestic market. 3.0 METHODOLOGY AND OPERATIONALI-
Agarwal (2004) had done an extensive
study on the international To address the above mentioned
competitiveness of knowledge-based objectives, the following methodology
industries taking Indian pharma industry has been followed. We have divided the
as a case study. The determinants for determinants into two groups. All the
firms’ decision to start exporting were determinants have been measured on
R&D capabilities of the firm, equity perception of managers about each
collaboration with foreign companies, determinant on a scale of one to seven,
technology collabouration with foreign one being less important and seven
companies, small domestic markets in the meaning most important.
product dealt by firm, tax incentives, Proactive motives
price control in domestic market,
a. Growth and profit opportunity
concessional import from exports, and
trade and FDI liberalization policies of
1990s. The study showed importance of Firms move to international markets for
R&D and fiscal incentives as major better growth and profits. Management
6 6 Vilakshan, XIMB Journal of Management ; September, 2007

may perceive international sales as a other firms. This knowledge may result
potential source of higher profit margins from particular insights based on firm
or of more added-on profits. There is international research, special contact, or
evidence that desire for short term profit simply beginning in right place in right
is important to many companies who are time (Czinkota and Ronkainen, 2004).
at initial stages of exporting (Shoham,
d. Managerial urge/ interest/ aspirations
and Albaum, 1995). Several studies show
positive correlation of profit and growth Favorable attitudes towards foreign
with a firm starting to engage in exports. activities are considered an essential
It is said that growth and profit motives prerequisite before firms get into or
are linked directly to a firm motivation, expand in international markets.
the higher the better. Managerial urge is said as a motive that
b. Technological advantage reflects the desire, drive and enthusiasm
of management toward international
Worldwide, the pharmaceutical industry marketing activities (Czinkota and
is known to be one of the most research Ronkainen, 2004). Decision-maker
intensive industries. Indian pharma characteristics, including cognitive and
companies are known to have an affective factors, explain in certain
advantage over other pharma companies instances the difference between
worldwide with respect to know- why managers in attitude and behaviour
(reverse engineering) technological toward foreign activity (Shoham, and
advantages. Due to strong chemistry skills Albaum, 1995).
of scientists present in India and lack of
e. Tax benefits
product patents, the pharma firms easily
reverse engineer the molecules discovered Tax benefit plays an important role of
world wide in a very short span of time stimulation to exports. For example, in
and able to launch in domestic markets United States, a tax mechanism called
and other less regulated markets. So we Foreign Sales Corporation(FSC) has been
think this determinant plays an important instituted to assist exporters which
role as an export stimulus for overseas provides firm with certain tax deferrals
markets. We conceptualize technological thus making international marketing
advantage as the advantage Indian activities more potentially more
pharma firms have in terms of technology. profitable(Czinkota and Ronkainen,
2004). In India, export profits, that is
c. Exclusive market information profits generated from exports are
It is another proactive stimulus. It exempted from income tax by Ministry
includes knowledge about foreign of Finance Tax (Aradhana 2003). So we
customers, market places or market think pharma firms to avail this tax
situations that is not widely shared by exemption would have started moving
Panigrahy, Internationalization of ... 67

to overseas markets, the more the better receive huge benefits by moving to
profits without tax. international markets. Indian pharma
products are also known for cheaper
f. Economies of scale and scope
prices with good quality. So possession
By moving to international markets, a of some competitive advantage acts as
company can achieve economies of scale stimuli for many firms to cater into
and scope by spreading over more units international markets.
and thereby reducing the fixed costs
h. Lower costs of labour, production
incurred in administration, facilities,
and energy
equipments, staff work and R&D. Indian
pharma companies’ drug prices are Lower costs of labour, production and
known to be one of the lowest prices in energy help firms price their products
the world. Although they account for lower when compared to other
13% of the volume market all over the international markets. This may give
world, they only have 1% sales turnover. the pharma firms a better cost
So due to less profit margins, economies leadership advantage (porter strategy)
of scale gives the firms’ more volume and help compete in terms of price of
turnover although margins are low and medicines globally. So this advantage
thereby achieving capital efficiencies. So may be one of the determinants for
this indicator may act as major stimuli for export stimulus.
most of the Indian pharma companies as
i. National export promotion
these depend more on volume generated
from unit sales due to low pricing of Policy measures favouring domestic
medicines. pharma companies for exports may be
one of the important stimuli for firms
g. Possession of special competitive
starting exports. These may be income
tax exemption, subsidies, replenishment
Unique products/ technology/ other import license, subsidized export credit
resources advantage are a major driving and export credit insurance, bonded
force for moving to international warehouses, support on knowledge of
markets. It is because a firm producing foreign markets as well as marketing
superior products is more likely to guidelines (Aradhana 2003), act as a
receive inquiries from foreign markets stimulus for firm to move to international
because of perceived competence of its market.
offerings and second due to the unique
product, the company incurs less sunk j. Unique product advantage
costs to develop for foreign markets due Unique products produced in terms of
to standardization of the product. intensive technology whether a new
Especially in pharmaceutical industry, if molecule, a new dosage form, few side
a firm has some patented products, it can effects or with right combination of drugs
6 8 Vilakshan, XIMB Journal of Management ; September, 2007

helps a firm get motivated to move to Reactive motives

overseas market in search of additional
a. Competitive pressures
growth and profits as well as leverage
this advantage. Also, due to cheaper Due to intense competition from
prices with good quality of drugs, multinationals and foreign companies, a
pharma firms may look for international firm may fear to lose domestic market
markets to explore. share with these companies who would
have benefited from effect of economies
k. Favourable currency movements
of scale from international marketing
Favourable exchange rates have been activities.
depicted as one of the major stimulus to
b. Overproduction
move to international markets.
Favourable exchange rates give firm This strategy was used too often by
better profits due to currency advantage companies during downturns of business
in purchase parity (Shoham and Albaum, cycles which provided an ideal outlet for
1995). inventories that were significantly above
desired levels. These sales were
l. R&D and technology collaboration
stimulated by short term price cuts and
R&D and technology collabouration with as soon as domestic market demand
foreign players helps a firm to know returned to previous levels, international
about new technologies and implement marketing activities were curtailed or
in the firm. This helps firm gain new withdrawn totally (Czinkota and
technologies to create better products Roakainen, 2004)
and have a competitive advantage. So this
c. Stagnant or declining home market
may act as one of the major stimulus for
pharma firm to move to international International expansion for some of
markets. firms becomes a feasible strategy if the
domestic market is saturated or
m. Firm mission and vision
declining. The reasons maybe like
Most of the studies have emphasized unused productive resources (like
the importance of mission and vision production and managerial slack) which
of company playing an important role act as a stimulus to move to
in moving to international markets. international markets. Production slack
Firm whose mission and vision has a is a stimulus for securing new market
global approach are found to move to opportunities and managerial slack
overseas market faster and establish provides those knowledge resources
themselves as global players rather required for collecting, interpreting
than being focused only on domestic and using market information (Shoham
market. and Albaum, 1995).
Panigrahy, Internationalization of ... 69

d. Proximity to customer and ports marginal pricing and sell at lower prices
on export markets, seeking only a
Physical and psychological closeness
contribution to their overall costs for
plays an important role in export activities
their home-based market.
of firm. These are simply an extension of
domestic activities without any particular h. Small domestic market
attention being paid to the fact that some
Due to small domestic market, firms move
of products are moving abroad.
to international markets in aspiration of
e. Unsolicited foreign orders more profits, economies of scale. Many of
the firms in countries have looked for
Unsolicited receipt of exports arising
international markets to carry business.
from either inquiry of product, price or
As the number of pharma firm in India is
distribution information is a very
around 20,000 the competition is intense.
common method and found in research
Many of the people in India are unable to
as one of the most important stimuli.
have access to medicines (still 35-40% of
These enquiries may result from
the population). This limits the profit for
advertising in trade journals which have
doing business in the domestic market. So
a worldwide circulation through
firms look for international markets for
exhibitions and by other means.
better growth and profits.
f. Price control in domestic markets
Identification of determinants,
India has a DPCO policy, which controls measurement and tools used
the prices of all essential drugs. This
We have identified 21 determinants from
prevents a firm for free market pricing
several studies which emerged as major
as all these essential medicines have a
export stimuli for overseas market. These
price cap and none of the firms can exceed
were measured, as stated earlier, on a
this price cap. Many of the pharma firms
seven-point likert scale, indicating the
to charge better margins may find the
degree of importance, 1 being least
overseas market as an opportunity to sell
important and 7 being most important.
their products
Perceptions of managers were asked on
g. Excess capacity of resources the importance of each stimulus affect on
reasons for internationalization of their
Firms may move to international markets
to use excess capacity of resources
available in the firm with respect to The unit of analysis under study was
managerial expertise, proprietary defined as the overall firm-level. All the
knowledge, financial resources, and indicators were measured in ordinal scale
productive capacity more profitably than of 1 to 7 in order to facilitate the use of
alternative domestic markets. In these statistical analyses (Katsikeas et al 1996).
circumstances, firms may well embark on Several steps were followed to take care
7 0 Vilakshan, XIMB Journal of Management ; September, 2007

of question wording, question sequence, in the study. Some of the reasons given
questionnaire appearance to make it for non participation were lack of time,
attractive and maintain better flow with concerned persons unavailability as
high clarity. Content validity (face always in overseas tours, and reluctant
validity), is established by asking experts to provide outsiders with data due to
opinion in the field to assess whether a sensitive issues (being pharma industry,
particular measure or question is the sensitive issues are more).
measuring what the researcher is
Personal interviews were carried out
interested in. The questionnaire was
using a structured questionnaire in most
circulated for a pilot study taking six
of the cities where cluster of pharma
respondents from the pharma sector
companies are located such as Mumbai,
dealing with international markets to
Hyderabad, Chennai, Bangalore and
ensure that questions were relevant and
Delhi. The reason for carrying personal
phrased in a meaningful fashion. The
interviews is because in most of the cases
whole process undertaken helped to
we find the top management people
discard the ambiguity from the
passing on the questionnaire to any of
questionnaire and frame the questions in
their associates to fill the questionnaire.
a meaningful manner, which assured
Also, during the process of data
content validity.
collection, emphasis was placed on
Data was collected using survey method identifying most appropriate individual
from Indian pharma companies engaged available in each case to elicit the
actively in exports. PROWESS database relevant information. Importantly, for all
was used to identify only indigenous the personal interviews, respondents
Indian pharma companies who have an were in managerial level and reported
export sales turnover averaging more both familiarity with their firm
than Rs.10 crores each year for the past exporting activities and involvement in
three years. The total number of pharma relevant export marketing policy
companies who met the criteria was 87. decision making. There were some firms
The objective of the study was addressed which could not be interviewed on the
within the context of indigenous Indian above locations as well as some pharma
pharma companies actively engaged in firms which were situated in other
exporting. All the firms were first locations. To these firms, the structured
contacted by telephone to know their questionnaire was mailed, forwarded
interest to participate in the study; of with a letter from the institution citing
these 9 firms were excluded, mainly the purpose of the study. Also, another
because of wrong address, ceased export draft was prepared citing the objective
operations, or closed down due to of the study and the definitions with
acquisition. Of the remainder, only 62 operationalization measures of each of
firms showed real interest in taking part the independent variables what they
Panigrahy, Internationalization of ... 71

denote in our present study. A note was number of employees, sales volume,
written to the firms that only managers export ratio and years of exporting. Such
with an experience of atleast four years information could be generated from
in handling international markets in their only 14 firms out of 27 firms that did not
organization was eligible to fill the participate in the study. Using t-test
questionnaire. Knowingly, the name of procedure under assumptions of both
the person, age, experience in the firm, equal and unequal sample variances, no
designation was added in the last page significant differences between groups
of the questionnaire to cross-check. This were found at 5% level on any of these
ensures the reliability of the information variables taking care of non-response
collected, as interviewees responded to bias in the study.
questions within their domain area
(Kotabe and Czinkota 1992). The draft, The evaluation of responses to the
forward letter from institute and the questionnaire was done by using
questionnaire were mailed through descriptive statistics through
institute printed envelopes with a self examination of average responses
addressed return envelope for better (mean), frequency and standard
response. Additionally to incentivise the deviation of the respondents for each of
respondents, a question was added in the the determinants.
last page asking the respondents whether Categorization of stimulating factors:
they needed a personal copy of the Exploratory Factor Analysis was used
results of this study carried out. Out of to analyze the structure of
the 60 responses, it was found that 45 interrelationships among the 21 export
interviewee wanted the results of the stimuli and identify groups of variables
study. This implied the importance of the that can be conceptually useful in
study being carried out. Interestingly it describing export stimulation
was found that most of the respondents (Leonidou 1998, Calof 1994). Although
who did not want a personal copy of the the total sample size is small (N=55),
results of the study were in the age group but we had no other choice as the
of 48-53. Maybe one of the reasons can population size came to be 87 Indian
be predicted as due to their long pharma firms actively engaged in
experience in handling international exports. Appropriate tests have been
markets, they might not find this study conducted to test the adequacy of the
useful. The data collection was spread sample size. Two measures, Bartlett’s
over a period of four months. test of sphericity and Kaiser-Meyer-
To evaluate possibility of non-response Olkin measures were used for the
bias in the data, a comparison was made measure of sampling adequacy.
between participating firms and non- Bartlett’s test of sphericity is used to
participating firms with respect to test whether the variables are
7 2 Vilakshan, XIMB Journal of Management ; September, 2007

correlated or uncorrelated in the mostly when the curve makes an elbow

population, in other words, whether towards less steep decline, the scree
the population correlation matrix is an test indicates to drop all further
identity matrix (Malhotra, 2004). It is components after the one starting the
based on the chi-square transformation elbow. Number of factors determined
of the determinants of the correlation by a scree plot generally would be one
matrix and large values of the test or a few more than that determined by
statistic show that the variables are eigenvalue criterion (Malhotra N K
correlated in the population. KMO 2004). SPSS 11 was used as a data
index compares whether the data are processing tool to analyze the data.
likely to factor well, based on
correlation and partial correlation. 4.0 ANALYSIS AND FINDINGS
Small values indicate that factor The findings related to export stimuli of
analysis may not be appropriate. A cut Indian pharma firms have been presented
off of value of 0.6 is used but many of vide Table 2. It is found that seven stimuli
the researchers use a more lenient 0.5 were held in relatively high regard by
cut off value (Hair et al 1998, Malhotra, the firms (cutoff X>5).
2004). Principal component analysis is
used over common factor analysis as we The most important determinant for
wanted to determine the minimum Indian pharma firms to move to
number of factors which will account overseas markets was found to be
for maximum variance in the data for attractive profit and growth
use in subsequent multivariate analysis. opportunities (x=6.07). This goes in
Varimax rotation procedure was used accordance with many other studies
over oblique rotation as our objective (Leonidou 1995a, Katsikeas 1996) which
was to minimize number of variables have also found the same determinant
with high loadings on a factor; thereby playing a major role for firms moving
enhancing interpretability of the factors to international markets. The other most
Number of factors was determined important determinants found were
using the scree plot and eigenvalues. managerial urge/ interest/ aspirations
Eigenvalues for a factor denotes the (x=5.62), firm mission and vision (5.42),
total variance attributed to that factor economies of scale (x=5.20), economies
and only factors with eigenvalue of scope (x=5.11), technological
greater than 1.0 are retained while the advantage (x=5.07), and lower costs of
other factors are not retained in the labour, production and energy (x=5.09).
model. Scree plot is a plot of the As per Albaum’s classification of
eigenvalues against the number of proactive and reactive stimuli, we find
factors in order of extraction. all the seven stimuli are proactive in
Depending upon the shape of the plot, nature.
Panigrahy, Internationalization of ... 73

Table 2: Descriptive statistics

Motive to start exports Mean(X) Std Dev. Frequency

1 2 3 4 5 6 7

Attractive profit and growth 6.07 0.81 0 0 0 2 10 25 18

opportunities overseas
Technological advantage 5.07 0.84 0 0 0 14 26 12 3
Exclusive information about 4.62 1.41 2 1 5 19 17 3 8
some foreign market
Managerial urge/ interest/ 5.62 1.15 1 0 3 1 14 27 9
Tax benefit 4.78 1.37 3 1 6 4 22 19 0
Economies of scale 5.20 1.33 0 2 4 6 20 20 3
Economies of scope 5.11 1.03 0 0 5 7 24 15 4
Speed to reach the market 4.67 1.29 1 0 10 13 16 11 4
Possession of special 4.93 1.07 0 0 5 13 23 9 5
competitive advantage
Lower costs of labour, 5.09 1.42 3 0 5 2 21 19 5
production and energy
National export promotion 4.96 1.45 3 2 3 4 20 20 3
Unique product advantage 5.00 1.07 0 0 3 15 23 7 7
Favorable currency 4.85 1.47 4 1 2 7 23 14 4
Competitive pressures 4.13 1.61 4 8 3 15 15 7 3
Overproduction 2.93 1.48 9 17 11 8 8 1 1
Saturated domestic markets 3.55 1.66 7 12 8 6 17 4 1
Proximity to customers 3.73 1.67 6 10 8 9 15 5 2
and ports
Unsolicited export orders 3.27 1.48 7 14 7 14 10 3 0
Price control in domestic 4.04 1.72 6 7 7 8 14 12 1
R&D and technology 4.47 1.55 1 5 12 7 13 13 4
Firm mission and vision 5.42 0.83 0 0 0 5 29 14 7
7 4 Vilakshan, XIMB Journal of Management ; September, 2007

Stimuli which were also rated highly by the cheapest manufacturer of medicines
the respondents in export decision globally is India and the sales turnover
making were possession of special is solely based on volumes of drug sold.
competitive advantage (x=4.93), speed to So, this maybe one of the reasons for firms
reach the market first (x=4.67), tax moving to overseas markets.
benefits (4.78), national export promotion
Our study found national export
(x=4.96), unique product advantage (x=5)
promotion policies as one of the high
and favourable currency movements
rated indicators for firms moving to
(x=4.5). All of these stimuli are proactive
international markets. This response
motives which shows that Indian pharma
contradicts the earlier studies (e.g.,
firms moving to international markets
Leonidou 1988) which have cited national
was a proactive approach.
export policies playing limited role in
Competitive pressures in domestic export initiation. Researchers (Pradhan
market, overproduction, saturated 2004, 2006, Lalitha 2002) have found
domestic markets, proximity to policies framed by government of India
customers and ports, unsolicited export have played a favourable role in making
orders were not found as the major the pharma industry a successful one and
stimuli to move to overseas markets. competitive. Indian Patents Act 1972 and
These are all reactive motives as classified liberalization policies taken in 1991 have
by Albaum. indeed been a boost for pharma firms to
R&D and technology collaboration be competitive domestically as well as in
(x=4.47) found a mixed response from the international markets. So our study goes
respondents for initiating exports. One in accordance with finding of the above
of the reasons may be attributed that not studies that national policies have played
all of the pharma firms have gone for an effective role in shaping the pharma
research and technological collaboration firms.
to overseas markets. Only a few players
Surprisingly, an unsolicited order from
like Ranbaxy, Dr. Reddys Lab, Glenmark,
customers overseas was not found to
Nicholas Piramal have moved to
be an important indicator for moving
international markets.
to overseas markets. This reactive
Drug price control in domestic markets motive of firms was found to be one of
(x=4.04) also found a mixed response for the important indicators (Bilkey 1978)
Indian pharma firms to move to overseas for stimuli of exports. The reason for
markets. Drug pricing policy of India puts such a finding may be cited as most of
a price cap on free pricing of drugs. The the respondents of the firms would
profits margins of firms are affected as have not been there in the firm while it
pricing of drugs are fixed by the had started taking decision to export.
government. It may be noted that one of Also literature supports that
Panigrahy, Internationalization of ... 75

as the export experience of the firm rises, aspirations also were found equally
the importance of unsolicited orders important stimulations to move to
diminishes (Johnston and Czinkota 1982). overseas markets. The study also finds
So this motive maybe not rated higher R&D and technology collaboration as a
by respondents. stimulant for pharma firms to move to
Proximity to customer ports also did overseas markets.
not find much importance in our study. Factor analysis results: A visual
This variable is based on “psychic examination of the correlation matrix
distance”. This concept indicates how was carried out to find those that are
firms find convenient to export in statistically significant. It was found
those countries which are from the correlation matrix that out of
psychologically close with domestic the 210 correlations (21 independent
country for having better performance variables), 112 were statistically
(Johanson and Valhne, 1990). This significant at 0.05 level showing a
could be one of the reasons why most percentage of 53.3 percent. Bartlet test
of the Indian pharma firms have been of sphericity was found to be
a late mover to overseas markets. significant at 0.001 level which shows
After liberalization in 1991, the psychic
that correlations exist among the
distance would not have played a
variables (or non zero correlations).
major role due to globalization and
The KMO test (measure of sampling
liberalization of the economies, where
adequacy) (Table 3) was found to be
barriers have reduced substantially.
0.732, exceeding the cut off value of
But some previous studies have cited
0.6, stating that the variables
psychic distance had played an
collectively meet the necessary
important role for pharma firms who
threshold of sampling adequacy as
had started exports in 1970s, as most
well as fundamental requirements for
of the exports in that period were to
countries like Russia, Nepal, and factor analysis to be carried out.
Table 3: KMO and Bartlett’s Test
To summarize, our analysis using
Kaiser-Meyer-Olkin .732
descriptive statistics finds Indian Measure of Sampling
pharma firms moving to overseas Adequacy.
markets was proactive approach rather Bartlett’s Test of Approx. 834.485
than reactive. The most important Sphericity Chi-
stimulant was found to be profit and Square
growth opportunities overseas. Firm df 210
mission and vision to become a global
Sig. .000
player and managerial interest/
7 6 Vilakshan, XIMB Journal of Management ; September, 2007

Exploratory principal component factor of the 21 export stimuli found five

analysis using varimax rotation (Table 4) possible factor-solutions can be retained
based on percentage of variance and
Table 4: Total Variance Explained,
eigenvalues more than one. The five
Extraction Method: Principal Component
factors together explained 73.859
percentage of the variance (Table 4) of
Extraction Sums of all the variables taken into consideration.
Squared Loadings
It was found there was no significant
Component Total % of Cumu- overlapping of items among factors.
(Eigen Variance lative % Factor 1, 2, 3 and 4 loaded a Cronbach
alpha of more than 0.7, while factor 5
1 6.610 31.475 31.475 loaded 0.495.
2 4.655 22.167 53.642
All the variables have been grouped
3 1.813 8.635 62.277 under five factors with a cutoff of +/-
4 1.353 6.442 68.719 0.5 or above. It was found all loadings of
5 1.079 5.140 73.859
the variables gelling together have
substantially fallen above the threshold.
Table 5: Rotated Component Matrix. Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 8
Variables Components Communality
Factor 1 Factor 2 Factor 3 Factor 4 Factor 5
PROFIT .620 .656
TECHADV .798 .762
EXCLINFO .866 .828
MGRURGE .748 .601
TAXBENEF .807 .740
ECOSCALE .760 .854
ECOSCOPE .633 .605
SPEEDMAR .636 .668
COMPADVA .762 .722
LOWLABOUR .813 .743
NATEXPO .871 .859
PRODADV .886 .834
Panigrahy, Internationalization of ... 77

Variables Components Communality

Factor 1 Factor 2 Factor 3 Factor 4 Factor 5

FAVCUREN .804 .793

COMPPRES .623 .774
OVERPROD .822 .718
SATDOMES .844 .808
PROXPORT .782 .791
UNSOLICI .678 .650
PRICECON .633 .777
RDCOLLAB .874 .779
MISSVISI -.601 .548
Cronbach’s alpha 0.9137 0.9077 0.8609 0.7723 0.495

Factor 1 has five significant loadings well with above indicators. Excluding
that are tax benefits, economies of mission and vision (communality
s c a l e , l o w e r c o s t s o f l a b o ur , loading of 0.548), all the above
production and energy, national determinants are reactive motives
export policy and favourable currency which may be looked as domestic
movements. These all are proactive market constraints for moving to
stimuli representing export benefit/ overseas market. These factors can be
opportunities and can be classified named as local market push motives.
under one category that is market pull Factor 3 has four significant loadings
motives. that is technology advantage, some
Factor 2 consists of seven significant kind of competitive advantage, product
loadings that are competitive pressures, advantage and R&D collabouration.
overproduction, saturated domestic These again represent proactive motive
markets, proximity to ports, unsolicited of the firm to move to overseas market.
export orders, price control and The technology advantage would be to
mission and vision of the firm. It is achieve better product differentiation,
interesting to find that mission and competitive advantages maybe with
vision of firm has a negative sign which respect to pricing, promotion,
may indicate when all above variables distribution, manufacturing facilities,
of the factor emphasis increases, the vertical integration of the organization,
mission and vision of firm to become a product advantage indicate uniqueness
global player reduces or doesn’t gel of product vis-à-vis competition, and
7 8 Vilakshan, XIMB Journal of Management ; September, 2007

R&D collaboration helps to achieve factor can be termed as opportunity

better products. These all can be utilization.
clubbed under one factor that is product Factor 5 consists of two significant
superiority. loadings that are economies of scope and
Factor 4 consists of three significant growth and profit opportunities. Both
loadings that is exclusive information are proactive stimuli for a firm to move
about the foreign market, managerial to overseas markets. It is found that firms
urge or inspiration and speed to reach look actively for overseas markets for
the market first. These are again proactive profits and growth opportunities and
stimuli. The factor explains whenever the economies of scope. The economies of
managers get exclusive information scope give the firm a better growth
about some opportunities in the overseas opportunity and profits. So this factor can
markets; they try to reach their first. This be named as growth motives.

Table 6: Export stimuli factors with variables classified as per proactive and reactive

Factors Proactive Reactive

Overseas market Tax benefitEconomies of

pull motives scaleLower costs of labour, produc-
tion and energy National export
promotion Favourable currency

Local market Competitive pressures Over pro-

push motives duction Saturated domestic mar-
kets Proximity to customer and
ports Unsolicited export orders
Price control in domestic market

Product superiority Technological advantageUnique

product advantageR&D and
technology collaboration

Opportunity Exclusive information about some

utilization marketManagerial urge/interest/

Growth Motives Attractive profit and growth

opportunitiesEconomies of scope
Panigrahy, Internationalization of ... 79

5.0 CONCLUSIONS AND SUGGESTIONS Managers of the firm should take steps to
cultivate this spirit among employees for
Our findings and discussions have led to
doing business overseas. This sort of
the following conclusions. It is found that
competency building is important as we
Indian pharma firms moving to overseas
found that most of the firms have moved
markets was a result of not one single
overseas for growth and enhancing
stimulating factor, but a number of
profits. This paper points the importance
proactive stimulants. Profit and growth
of looking at various stimulants that
opportunities in overseas markets,
promote exports. Technology and R&D
managerial urge/ interest/ aspirations,
collaboration in overseas markets is also
firm mission and vision, economies of
important if firms wish to expand globally.
scale and scope, technological advantage, This helps to acquire new technologies and
and lower costs of labour, production and cultivate an innovativeness spirit inside
energy specific to domestic conditions the firm. This was one of the major
were found as the most important findings from the study.
Drug pricing policy has acted as a
Export stimuli of Indian pharma firms proactive motive for Indian pharma firms
were categorized conceptually into looking abroad. The main reason was
five meaningful groups (viz. overseas that firms were unable to get higher
market pull motives, local market push profit margins as the prices of medicines
motives, product superiority, were fixed by the government. The policy
opportunity utilization and growth makers should look into this factor and
motives), with a new set of underlying frame appropriate policies to keep a
structure of relationships, following balance between access of medicines to
the classification of proactive and patients and pharma firms’ profit
reactive motives. The findings also margins. As pharma industry is highly
confirmed the Albaum classification of technological intensive, lot of investments
proactive and reactive stimuli. Firms goes towards research and development
can look upon the factors for export to produce new molecules ($800 million
making decisions by following the to produce a new drug as per Tufts
structure framed. Report, 2003). Liberal pricing policy as
Prior studies conducted in the field have well as incentives from government
found that proactive motives help the would help pharma firms to get funds to
firm achieve a better export performance invest in R&D activities for innovation
when compared to reactive motives. Our of new molecules.
findings can be compared with the export Understanding the firms’ motivation
figures which show that Indian pharma structure provides guidelines for the
industry has showed a positive trade design and implementation of effective
surplus over years from 1990s. marketing plans and national policy
8 0 Vilakshan, XIMB Journal of Management ; September, 2007

designs for export promotion. Most of Barker, A.T. and Kaynak, E. (1992) “An empirical
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Annexure 1

Proactive Stimuli

Determinant Authors who have considered such determinants

Attractive profit and growth Kaynak and Kothari, 1984; Leonidou, 1988; Pavord and
opportunities overseas Bogart, 1975, Albaum et al 2002, Diamantopolous et al
1990, Leonidou 1995a, Ramaseshan & Soutar 1996,
Leonidou and Leonidas 1998 Czinkota & Ronkainen 2004
Technological advantage Tesar & Tarleton (1982), Kothari (1989), Koh 1989,
Czinkota & Ronkainen 2004, Cavusgil & Nevin 1981
Exclusive information Weaver & Pak 1990, Czinkota & Ronkainen 2004
Managerial urge/ inspiration Cavusgil, 1984a; Katsikeas and Piercy, 1993; Kaynak and
Stevenson, 1982, Leonidou 1995a, Leonidou and
Leonidas 1998, Czinkota & Ronkainen 2004
Tax benefits Leonidou and Leonidas 1998, Baldauf, Cravens &
Wagner 2000, Czinkota & Ronkainen 2004

Economies of scale and scope Katsikeas and Piercy, 1993; Kaynak and Kothari, 1984;
Sullivan and Bauerschmidt, 1988, Sullivan and
Bauerschmidt (1990), Leonidou and Leonidas 1998,
Czinkota & Ronkainen 2004

National export promotion Albaum et al., 1989; Bilkey, 1978; Kaynak and Kothari,

Unique product advantage Cavusgil, 1984a; Cavusgil et al., 1979; Johnston and
Czinkota, 1982, Tesar & Tarleton (1982) Karafakioglu
(1986), Leonidou and Leonidas 1998, Czinkota &
Ronkainen 2004, Cavusgil & Nevin 1981

Possession of special competitive Tesar & Tarleton (1982), Kothari (1989), jaffee et al (1988),
advantage Leonidou and Leonidas 1998, Czinkota & Ronkainen
2004, Cavusgil & Nevin 1981

Firm mission and vision Leonidou 1995a

Lower costs of labour, production Zou S et al (2003)

and energy
8 4 Vilakshan, XIMB Journal of Management ; September, 2007

Reactive Stimuli

Determinant Authors who have considered such determinants

Competitive pressures Karafakioglu (1986) , Czinkota & Ronkainen 2004

Overproduction Czinkota and Johnston, 1983; Leonidou 1988; Pavord

and Bogart, 1975, Brooks & Rosson 1982, Joynt 1982,
Ogram 1982, Tesar & Tarleton (1982). Kaynak et al 1987
Sullivan and bauerschmidt (1990) , Czinkota &
Ronkainen 2004

Declining domestic scales Pavord & Bogart (1975), Kaynak et al 1987, Karafakioglu
(1986), Leonidou and Leonidas 1998, Czinkota &
Ronkainen 2004

Excess capacity Barker and Kaynak, 1992; Kothari (1989)Diamantopoulos

et al., 1990, Leonidou and Leonidas 1998, Czinkota &
Ronkainen 2004

Favorable currency movements Katsikeas and Piercy, 1993; Sullivan and Bauerschmidt,

Saturated domestic markets Pavord & Bogart (1975), Ramaseshan & Soutar 1996,
Leonidou and Leonidas 1998, Czinkota & Ronkainen

Proximity to customers and ports Baldauf, Cravens & Wagner 2000, Czinkota & Ronkainen
1995, Cavusgil & Nevin 1981

Unsolicited export orders Albaum, 1983; Kaynak and Erol, 1989; Piercy, 1981a,
Simpson & Kujawa (1974) Tesar & Tarleton (1982),
Ghauri and Kumar (1989)

Source : Collected from various research studies and compiled by the author
Competencies Necessary for Technology
Transfer from Home to Host Country
Companies: A Case Study*
Kiran J. Desai1 & Harsha Desai2

Effective technology transfer between two organizations is influenced not only by the needs of the
receiving organization, but also by its culture and a match between the cultures and management
processes of both organizations.

1.0 INTRODUCTION similarly suggested that foreign direct

investment by the multinational
Companies adopt advanced technologies
companies into their local partners allows
to simultaneously lower costs and
the host country partners and subsidiaries
improve quality of their products and to
to gain a competitive advantage.
deliver them to their customers rapidly
(Hottenstein, 1997). Process-structure 2.0 LITERATURE
complexity, product-line complexity, Balachandra (1996) has identified a new
organizational scope and its marketing paradigm for technology transfer
strategies also affect an organization’s process from a developed to a
propensity to seek technology (Gupta, developing country. When the transfer
Lonial and Mangold, 1991; Gupta and typically takes place between small
Lonial, 1998; Kotha and Orne, 1989). firms, there is little government
Moreover, small and medium size interference, the transfer takes place
companies are now seeking advanced rather informally, and the technology is
appropriate technologies to make them “obtained in the best possible manner.”
more competitive in the world markets Khosrow and Desai (1982) suggest that
(Grieve, 2004). Scott-Kennel (2004) has a successful technology transfer process

* Received January 2, 2007, Revised June 8, 2007; Both authors contributed equally to the paper.
1. Professor, McNeese State University, Lake Charles, Louisiana, USA
2. Professor, Loyola College in Maryland, Baltimore, Maryland 21210, USA,
8 6 Vilakshan, XIMB Journal of Management ; September, 2007

across borders involves at least five achieving this transfer must exist (Eldred
forces: a set of actors who initiate, and McGrath, 1997). These authors have
approve, accept, and adopt new suggested the following process for a
technology; several processes including successful and satisfactory technology
licensing, exchange controls and transfer: One, transfer must take place
repatriation issues; the mode of at the right time – the technology being
technology transfer including joint transferred (equipment, process,
ventures, licensing arrangements, and drawings) and its application must be in
direct establishment of subsidiary sync. For example, if the new technology
operations; the macro environmental is being used for product development,
challenges including government policy then the timing of the transfer must
for exports and ownership; and the synchronize with the new product
micro environment factors that include development where it will be used. The
financing of the venture, borrowing new product development team has to
rules and regulations, and foreign be ready to accept the technology in the
exchange requirements. Cobb and development process. Two, the
Barker (1992) have reported that higher supporting technologies must be available
the education level and job skills of the – typically technology transfer requires
parties involved more effective is the additional work to bring about the
technology transfer. Wie (2005) installation of that technology into an
reporting on transfer of technologies existing organization. For example, the
into Indonesia has suggested that question about how the power needs of
companies acquiring new technology the new technology will be met and how
must “assimilate, adapt and improve will the other infrastructure needs (land,
these imported technologies” for utilities, training requirements to operate
maximum benefit. the new technology) of the new
technology satisfied. And three, the
The managers in a typical company management of technology transfer
seeking technology transfer think that process – It is important to assure that
individuals responsible for this transfer the existing culture and management of
will intuitively think through the the receiving organization is capable of
challenges confronting transfer. absorbing the new technology. Griffith,
Unfortunately, this is not true. The Kiessling and Dabic (2005) describe
extant literature suggests that for an similar difficulties experienced by the
effective technology transfer to take multinational corporations as they
place between two organizations across attempted to transfer technologies to
borders, a process or methodology for their Croatian subsidiaries. The local
Desai, Rural Competencies ... 87

managers were unable to transfer a host country company. James (2006)

technology effectively because of their has emphasized that “concepts designed
lack of skills or unwillingness to accept for the rich countries may be
the new technologies. The managers inappropriate to the conditions prevailing
presumed that these technologies would in the majority of poor countries that
disrupt their current mode of operations. comprise the Third World.” This advice
The ‘way things are done around here’ is especially true of technology concepts,
may have been the culprit in ineffective including equipment, that are transferred
transfers. The technology transfer “as is” from the rich countries to the poor
process may face obstacles if the countries!
organization is secretive about its As we will see later in the case study,
business practices and one part of the this is exactly what transpired. A
organization is kept in the dark about the company’s current manufacturing
relevant goings on in the other parts of strategy defines a company’s inventory
the organization. If the incoming management practices as well as the skills
technology requires cooperation among of its workers. It also partially
the company’s subunits, it will be difficult circumscribes what the company is or is
to absorb the new technology. Ferdows not capable of or willing or not willing
(2006) discussing appropriate absorptive to do by way of making changes. The
capacities of host firms receiving new business-market considerations provide
technology from home firms comments a company’s long-term strategy defining
that often this transfer of technology is not only its current positioning in the
easier if the tacit knowledge of the home market vis-à-vis its competitors, but also
firm is somehow codified (drawings, its willingness to modify its technology
manuals, skills training); this codification and modify its present tangible and
becomes difficult and hence the transfer intangible resources and organizational
becomes difficult when the know-how capabilities so as to meet new market
changes frequently. Sacchetti (2004) has challenges (Barney, 1991). The business-
advocated that unless there is a market strategies also guide a company’s
consistent part of the population in the manufacturing strategy. Technology
developing country (like India) that is transfer considerations in this milieu
literate and the domestic development of affect both the manufacturing and
scientific and technical knowledge is business-market strategies. In turn these
fairly well advanced, it is difficult for a two strategic issues directly affect the
home country to successfully provide and scale and the scope of a company’s
then implement advanced technology to technology transfer activities.
8 8 Vilakshan, XIMB Journal of Management ; September, 2007

3.0 A CASE STUDY of stones with a given quality and in any

quantity. The business strategy also
In the following sections we apply our
envisioned that if the pre-shaped stones
technology transfer ideas to a gemstone
were on hand then the business should
business. The case involves a unique
be able to deliver the requirement within
technology, but the lessons of how best
to or not “to do technology transfer” three days. This strategy was thought
apply equally well to other industries and to increase the company’s market share
cases. The gemstone business case by providing better value to customers
describes the considerations of a transfer at lower prices that were driven by lower
of an automated gemstone manufacturing overall manufacturing cost.
factory from Europe to India. For this business-market strategy to
The Gemstone Business succeed the company realized that it
needed a new manufacturing strategy
In the worldwide precious and and a new method of processing. An
semiprecious stone industry, the current extensive worldwide search led to the
practice is for a buyer to approach a seller highly mechanized process used in
to look for what’s available in stock. This Europe; this process was also suitable for
practice encourages the seller to pursue synthetic stones. However, the newly
a manufacturing strategy of producing to found European equipment was very
stock – build to inventory - and sell from expensive in the Indian context. As luck
stock. Unfortunately, there is seldom an would have it, soon an opportunity arose
attempt made at the producer or the when a German company went bankrupt
trader level to forecast the demand; the and its equipment could be bought in an
industry is driven by “current fashions” auction.
making it very difficult to anticipate
consumer preferences for colour In order to transfer this equipment to
gemstones. India, with no engineers on the
company’s staff and little experience in
Recognizing this continuing difficulty of
dealing with an “integrated plant”,
responding with inventory to meet the
authors had to device a comprehensive
shifting customer preferences shaped by
technology transfer model. The
fashion, a company we worked with
equipment was purchased at 10 cents on
decided to explore possible changes in
the dollar. An engineering team spent
its manufacturing strategy.
six months in Germany; upgraded the
This company’s business strategy automation technology from electronic
envisioned that the buyer could simply to programmable logic controller (PLC);
walk into a shop and ask for certain size and received the necessary training on
Desai, Rural Competencies ... 89

the running and maintaining of the government has to give permission to

equipment. The plant was transferred export the machinery: the cutting and
to India with the German technicians’ faceting drum takes many months to be
help to their counterparts in India. repaired; an import license is needed to
Acquisition of this automated import the drum back to India; the
technology forced vertical integration - polishing drum has to be refurbished by
knowing and capability of replacing either importing the sleeve of coating or
cutting and diamond coating, polishing importing the chemicals to make the
surface, and programming and system coating; and finally, the polishing drums
analysis of PLC. The manufacturing and take at least two weeks to clear customs
business strategies were thus in India.
coordinated with the technology
Moreover, there is no maintenance
transfer processes.
infrastructure available in India for
Transfer of technology benefits for the similar machines. Frequent power
gemstone business failures are a part of life as are the
• Will ensure incompetitiveness in unavailability of locally made repair
producing large quantity of high parts for machinery. Since the business
quality standardized colour is quite competitive, its manufacturing
stones; processes need to remain a closely
guarded secret; under these conditions,
• Processes will become more capital
training provided by outside
intensive - only 25 people will be
individuals can compromise the
needed to work per 8 hour shift, to
produce between 8,000 to 15,000
stones in an automated factory, as Outcome and Conclusions
opposed to 850 workers in a manual The German plant was acquired at 10
factory; cents on the dollar. The company’s
• Automation will provide an avenue engineers spent six months in Germany
for measuring and recording data to upgrade to new PLC technology as
and quality; this was difficult in well as learning the basics of using the
manual processing. equipment. The plant was imported into
India and was installed. It took more
Challenges faced by the company
than a year to impart the skill and
Periodically, the company must send the knowledge to local engineers and
machinery abroad for a new diamond workers. German technicians were called
coating. To get this done, the Indian in for help for a short duration.
9 0 Vilakshan, XIMB Journal of Management ; September, 2007

4.0 TECHNOLOGY TRANSFER ADVICE AND the third column is the application we
ITS APPLICATION were involved in. The three columns
The table-1 is our attempt to summarize together give a quick overview of the
the advice technology transfer literature most up-to-date technology transfer
has to offer for small and medium size advice and its application.
companies. The first column shows the In the following, Host firm is the
various author(s) and a brief review of technology ‘receiving’ firm and the
their comments. The second column is Home firm is the technology ‘giving’
the actual advice the article offers, and firm.
Table 1 : Authors’ Comments, Article advice & Application to case
Article Advice Application to the Gemstone

Balachandra (1996)
Transfer takes place between The host firm has to find and The home firm was
small firms induce the technicians working bankrupt and unable to
in it to understand the provide help in the transfer
technology. of technology; eventually,
the host firm did send a
project team to the home
firm in Germany to master
the technology.

Khosrow and Desai (1982)

Home firm - Originator of Need to assure that drawings, The home firm was
Technology technical manuals and technical bankrupt and could not
help are available at the home adequately provide this
firm for technology transfer. assistance.

Host firm - Receiver of Need to understand the The host firm had a history
Technology infrastructure and technical of failures in high-tech
requirements that follow the manufacturing. The family
new technology. ownership of the company
had little formal / technical
education. And the host firm
had insufficient infrastruc-
ture to support the transfer
of technology.

Transfer of Technology Mode of transfer of technology The host firm had to transfer
Process must be determined prior to the technology without the
purchase of technology. Both benefit of the home firm’s
Desai, Rural Competencies ... 91

Article Advice Application to the Gemstone


the home and the host firms help – since the home
should know how this new country firm was no longer
technology will transfer! in business (the new
technology was being
obtained via an auction).

Macro environment The home and host firms need Indian government liberal-
to take advantage of new ized the importation of used
government policies. factory/machineries. This
was timely for the host
firm’s acquisition of the
new technology.

Micro environment Both the home and host firms The host firm successfully
need to take advantage of the obtained the license to
prevailing liberal rules for import the new machinery.
foreign exchange and custom

Cobb and Barker (1992)

Higher the education and The host firm needs to Lack of in-house technical
skills of the workers in the establish the required expertise created delays and
host firm, more effective the education and skills before dependency on outside
transfer. committing to the acquisition technician for timely
of the new technology. technology transfer.

Eldred and McGrath (1997)

Transfer must take place at the Both the home and host firms The host firm recognized a
right time; technology and its must scan for business potential threat from
application must be in sync. opportunity. China; finding a German
firm going into bankruptcy
was fortuitous, and the host
firm could acquire German

Griffith (2005)

Host firm's unwillingness to The host firm needs to Lack of in-house technical
accept new technology leads establish the education and expertise created delays and
to ineffective technology skills requirements before dependency from outside
transfer. committing to the acquisition technician for technology
9 2 Vilakshan, XIMB Journal of Management ; September, 2007

Article Advice Application to the Gemstone

of the technology; at the same transfer in a timely manner.
time the host firm needs to Separate plant was created
prepare the existing workforce with few trusted employees
to accept the new technology. to assure success.
Barney (1991)
The business-market To stay competitive in the The host firm anticipated
considerations and world markets, the host firm the threat from China and
willingness to modify needs to continuously look for the shortage of skilled
technology. newer technology to adapt to workers, hence it looked for
changing business-market an automated plant (also
conditions. improve the quality of its
products) and volume

Wie (2005)
The host firm must The host firm must plan for This advice was followed:
assimilate, adapt and assimilation, adaptation and an engineer from the host
improve the imported eventually improve the firm was trained in the new
technology. imported technology. technology.

Sacchetti (2004)
The host country has Predetermining the It was difficult for the host
population that is literate and availability of necessary skills firm to obtain the necessary
has a fairly developed and knowledge in the host technical assistance.
scientific and technical country.

Pantano (2005)
Continue to work on the In the medium to long run, the The host firm had planned
knowledge cycle of research, host firm needs to look for for this; no current
design, development and future expansion and improve information is available on
manufacture, adapting, on the acquired technology. its status.
adopting and improving
upon the available

Creating an empowered Looking at TQM, Six Sigma With the nature of

workforce - being able to program, and ISO 9K-2K, the ownership at the host firm
discuss and participate in host firm should encourage (family ownership) and its
decision making regardless the participation of rank and penchant for secrecy this
of the rank and title. file in the technology transfer openness will not take
process. place at the host firm.
Desai, Rural Competencies ... 93

Article Advice Application to the Gemstone


Bessant and Francis (2005)

Soft technology (manage- The host firm cannot import The host firm management
ment competencies), continu- ‘management style’; the new style needed to be changed
ous improvement, compe- management processes have to adapt the new technol-
tencies of recipient organiza- to be developed internally ogy; but due to family own-
tion within the host organization. ership of the business and
a strict requirement for
maintaining secrecy, it was
difficult to adapt the new

The most important lesson learned is that Carlile, P. (2004) “Transferring, translating, and
the technology transfer from the home transforming: An integrative framework for
to the host firm requires both of these managing knowledge across boundaries,”
companies to have sufficient Organization Science, Vol. 15, No. 5,
understanding of each others September–October, pp. 555–568.
management styles, skills and education Cobb, S. and Barker, T. (1992) “A model of cross-
levels and the sufficiency of the host cultural training in the transfer of
company’s infrastructure. To be able to technology,” Journal of Technology Transfer.
accept, adopt or adapt the new Vol. 17, No. 4, pp. 8-15..
technology both the home and the host
de Jager, B., Minnie, C., de Jager, J., and
companies must be aware of the nuances Welgemoed, M. (2004) “Enabling continuous
of each others’ cultures! improvement: a case study of
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Measuring Critical Factors in Safety
Management - A Survey Based Approach*
M.N. Vinodkumar1 & M. Bhasi2

In recent years there has been widespread acknowledgement of the significance of managerial and
organizational failures in the causation of accidents. The activities and processes involved in managing
safety have come under increasing scrutiny due to development of new approaches for safety management.
This paper identifies six critical safety management practices that are relevant in Indian scenario and a
valid and reliable instrument is developed to measure the level of these management practices in
industries. This diagnostic tool can be used to identify areas of weakness in safety management programmes
and remedial efforts can be designed to improve the safety level in an organization. The study was
conducted in eight chemical industrial units in Kerala, a southern state in India.

1.0 INTRODUCTION technical and human error focus of

Investigations of the major industrial accident prevention, to the activities or
disasters in last two decades have processes that are involved in ‘Safety
pointed out that the events leading to the Management’. Safety management can be
accidental outcome had their origins in regarded as a sub-system of the total
the organization and management of the organizational management, specially
system. Most of these industrial designed to cater to safety of employees
accidents are attributable to factors such in an organization. It is the documented
as poor management and training and and formalized version of the safety
other individual psychological management systems that exist as a
characteristics, than to unforeseeable documented system of policy, procedures
weaknesses in technical components and instructions etc. It is an overall
(Kennedy and Kirwan, 1998). For this system for ensuring that safety activities
reason, focus has moved away from a are properly planned, effectively

* Received July 21, 2006; Revised July 19, 2007

1. Reader, Cochin University of Science & Technology, Kochi, Kerala, email:
2. Reader, Cochin University of Science & Technology, Kochi, Kerala, email:
96 Vilakshan, XIMB Journal of Management ; September, 2007

implemented, and that follow up system 2.0 SAFETY MANAGEMENT PRACTICES

is arranged. The primary aim of safety
Earlier investigations into safety in
management is to intervene in the
industries (Cohen and Cleveland, 1983;
causation process that leads to accidents.
Cox and Cheyne, 2000; Glendon and
Safety management attained significance Litherland, 2001; Vredenburgh, 2002;
in India only after the Bhopal gas tragedy Zohar, 1980) have identified various
in 1984. Learning lessons from Bhopal factors that influence safety
disaster, most of the industrial performance in industries. The same set
organizations in India have made of factors were never observed in these
considerable investments in safety studies indicating that the factors are not
related infrastructure, equipment and universally stable and varies with
training. Enforcement rules and cultural background of the sample and
regulations have also been made more type of industry. Along with attitudinal,
stringent with a number of amendments motivational and behavioural factors, a
in the Acts and Rules. few management factors were also
reported to be important in these
Every Indian manufacturing
organization is supposed to prepare a
‘Safety Manual’ based on ‘The Factories Different safety management practices
Act, 1948’ and state ‘Factory Rules’ to are adopted in industries by
take care of the health and safety of its managements to promote health and
employees, covering the various safety of workers. In one of the first
manufacturing activities employed in the investigations of safety climate, Zohar
company. To what extent these are (1980) found that management’s
practised in reality depends on the commitment to safety is a major factor
commitment of the top management of affecting the success of an organization’s
the organization. Committed safety programmes. The safety
managements subsequently adopt commitment of the management must
various safety management practices to result in an observable activity on the
safeguard their employees from work part of the management and must be
related hazards whereas others try to demonstrated in their behaviour as well
manage safety of employees by as their words (Hofmann, Jacobs and
encouraging them to work safely. A Landy,1995). Employees’ perceptions will
scientific investigation into this only can reflect how employees believe that safety
reveal what is happening inside the is to be valued in the organization (Griffin
organization so that improvement and Neal, 2000). In high risk
methods can be suggested. environments like chemical industries,
Vinodkumar, Measuring Critical ... 97

management commitment has been about improvements, they can be

repeatedly highlighted (Cox and Flin consulted before making final decisions,
1998, Flin et al. 1996, Cox and Cheyne especially for those decisions that affect
2000). the employees (Vredenburgh, 2002). This
empowerment of workers provides them
In order for employees to be active
with authority, responsibility and
participants in a safety programme, they
accountability for required decisions and
must receive occupational safety training.
ensures that both employees and
Safety training provides the means for
management are involved in setting goals
making accidents more predictable. To
and objectives. It induces employees to
improve the level of safety and health for
do their best work as individuals and as
all employees, organizations should
a team, while relieving the manager to
institute a systematic, comprehensive
plan, lead and mentor (Cohen and
safety and health training programme for
Cleveland, 1983). Worker involvement
new employees, provide a mentor for
has been reported as a decisive factor in
these employees and use a buddy system
safety management by Lee (1998),
to help orient new employees in the
Rundmo (1994), Dedobbeleer and Beland
safety, health and quality systems
(1991), Shannon et al. (1996) and Cox and
(Vredenburgh, 2002). The studies of Lee
Cheyne (2000).
(1998), Ostrom et al.(1993), Tinmannsvik
(2003), Cohen et al. (1975), Smith et al. Regular communication about safety
(1975) and Zohar (1980) have found that issues between management, supervisors
those companies with lower accident and the workforce is an effective
rates were characterized by good safety management practice to improve safety
training for employees. in workplace. Cohen (1977),
Vredenburgh (2002), Cox and Cheyne
Employee participation is a behavioural-
(2000) and Mearns et al.(2003) included
oriented technique that involves
communication and feedback as a factor
individuals or groups in the upward
in their surveys using questionnaire
communication flow and decision-making
among various category of workers and
process within the organization. The
showed that safety performance is
amount of participation can range from
influenced by the level of communication
no participation, where the supervisor
in an organization.
makes all decisions, to full participation,
where everyone connected with, or Well documented safety rules and
affected by the decision, is involved. Since procedures and its enforcement by
employees close to the work are the best- supervisors and managers can improve
qualified persons to make suggestions safety behaviour of workers. Glendon
98 Vilakshan, XIMB Journal of Management ; September, 2007

and Litherland (2001) reported this as a 3.0 OBJECTIVES OF THIS STUDY

reliable factor after factor analyzing the
Research in safety all over the world has
data collected from construction
proved that quality of a product is closely
workers. Cox and Cheyne (2000) and
related safety of work environment.
Mearns et al. (2003) included safety rules
Hence, it has become necessary for the
and procedures as a factor in their
fast growing Indian companies,
offshore safety studies and showed that
especially high hazard chemical and
it has significant correlation with accident
process industries, that are competing
with reputed multinational companies to
The use of incentives, awards and implement effective safety management
recognition to motivate employees to practices to ensure safety of their
perform safely is an accepted feature of workforce. The level of these safety
both organization behaviour management practices implemented and
management and total quality their effectiveness along with the safety
management models (Accident outcomes need to be measured for
Prevention Manual for Business and possible improvements and corrections.
Industry, 12 ed., NSC, Illinois). They can Hence, the objectives of this study were
add interest to the hazard control to
programme of an organization and
1. identify the critical factors of
enhance self-protection action on the part
safety management relevant to
of the workforce (Cohen et al., 1979). A
Indian chemical and process
well-designed reward system should be
industry, and
characterized by high level of visibility
in the organization, offering recognition, 2. design and develop an instrument
which can help modify behaviour that is valid and reliable to measure
(Vredenburgh, 2002). the identified critical factors of safety
Recruiting new personnel, who are
predisposed to displaying safety 4.0 METHODOLOGY
conscious attitude in their work, is a
4.1 Identification of critical factors of
management practice adopted in many
safety management
developed countries. Turner (1991),
Eckhardt (1996) and Vredenburgh (2002) Based on survey of literature and
found that the consideration of safety discussion with safety managers in large
performance in the selection of chemical industrial units, the following
employees is a significant predictor of six critical safety management practices
injury rates. were identified:
Vinodkumar, Measuring Critical ... 99

• Management Commitment questionnaire, and also give objective

feedback and suggestions with regard to
• Safety Training
comprehensiveness and coverage,
• Worker Involvement in Safety redundancy level, consistency and
• Communication and Feedback number of items in each variable. After
considering each item in detail, necessary
• Safety Rules and Procedures and
changes were made by simplifying,
• Safety Promotion Policies rewording, removing and replacing some
Hiring practices (recruiting experienced of them. A pilot survey was conducted
safety conscious employees) that is found on a selected sample of 100 workers from
in many developed countries is not five industrial units to get the feedback
considered in this study since such a about the clarity of items. Subsequently,
policy is not adopted in industrial units some of the negatively worded items
in Kerala. were changed to positive wording for
4.2 Measuring critical safety
management practices The final questionnaire contained 35 items
(Table 1) and it was decided to give the
4.2.1 Instrument questions in English as well as the local
From a review of related literature and language Malayalam. The respondents
theory, a 44-item questionnaire covering were asked to give their preference on a
areas of management commitment, safety 5 point Likert scale (strongly disagree,
training, worker involvement, safety disagree, neither disagree nor agree,
communication and feedback, safety agree and strongly agree) in order to
rules and procedures and safety evaluate the subject’s agreement with
promotion policies was prepared. The each item. 28 items were phrased
items included were employees’ positively and 7 items negatively so that
perceptions of those safety management strong agreement in the former and
policies that are found to discriminate strong disagreement in the latter resulted
between high versus low accident-rate in a higher score in favour of safety for
organizations. The content of this draft that item. The questionnaire ready for
questionnaire was discussed with senior administration consisted of two parts.
safety professionals from industries and Ten demographic questions about the
senior professors in management to name of the company, department,
ensure validity. The experts were designation, qualification, age, sex,
requested to scrutinize the questionnaire, number of years of experience, accident
give their impressions regarding the history, number of accidents in 2002 while
100 Vilakshan, XIMB Journal of Management ; September, 2007

Table 1. No. of items in Critical Safety moderate and two low accident rates.
Management Practices After getting permission from the
respective managements, the
Critical safety No. of items
management practices questionnaire was distributed personally
to all workers present in the general shift
Management Commitment 9
Safety Training 6 and the morning shift. Completed
questionnaires were personally collected
Worker Involvement 5
in Safety
from the participants in the evening and
1806 completed forms were received. Out
Communication and 5
of this, 1566 were from workmen
category and 240 from supervisory level
Safety Rules and 5
first line officers. The number of
questionnaires distributed and returned
Safety Promotion 5 from the eight industrial units with
percentage response rate is shown in
Table 2.
working in this company which resulted
in at least 2 lost working days as per Table 2. Sample size and response rate.
Indian Factories Act 1948 and number of Org No. No. Response
working days lost due to above accidents given returned %
in 2002 constituted the first part. The 1 342 224 65
statements related to safety formed the 2 510 373 73
second part. Space was provided beside 3 368 243 66
each statement to mark the preference in
4 231 168 73
the 5-point Likert scale. To maintain
5 280 205 73
anonymity, identity of the respondent
was not requested in the questionnaire. 6 225 171 76
7 245 168 69
4.2.2 Sampling and Data Collection
8 335 255 76
Eight large chemical industrial units in
Total 2536 1806 71
Kerala were selected for questionnaire
administration. All factories had a The reason behind opting for a large
worker population of 400-800 with sample like this was that a smaller sample
separate safety departments. From the selection from various departments in
previous accident records submitted to each industrial unit was looked upon
the government, it was observed that two with apprehension by the workers since
of them had high accident rates, four the matter was related to statutory
Vinodkumar, Measuring Critical ... 101

requirements of safety of workers. They is subjective and logical, rather than

feared that if the data collected by the statistical. Content validity can be
researcher is given to the management ensured if the items representing the
for any reason, the top management will various constructs of an instrument are
be able to identify each respondent and substantiated by a comprehensive review
his answers that might have gone against of the relevant literature (Bohrnstedt,
the interests of the company, and may 1983).
finally result in victimization or
4.3.2 Face Validity
harassment of those employees. A first
attempt for a smaller sample selection in Generally, a measure is considered to
the first organization met with failure, have ‘face validity’ if the items are
as the workers were reluctant to fill the reasonably related to the perceived
questionnaire due to these reasons. The purpose of the measure (Kaplan and
actual reason was identified after Scauzzo, 1993). Face validity is the
discussions with the trade union leaders. subjective assessment of the
Hence, it was decided to give the correspondence between the individual
questionnaire to all eligible respondents items and the concept through rating by
present during day time. expert judges and can be established
through review of the instrument by
4.3 Validity, Reliability and
experts in the field (Hair et al., 1998). Face
Unidimensionality Analysis
validity is also a subjective and logical
Validity is defined as the extent to which measure, similar to content validity.
any measuring instrument measures what
4.3.3 Reliability Analysis
it is intended to measure (Carmines and
Zeller, 1990). The proposed instrument Reliability of an instrument is defined as
has been tested for validity, so that it the extent to which any measuring
could be used for meaningful analysis. instrument yields the same result on
The three aspects of validity, namely, repeated trials (Carmines and Zeller,
content validity, face validity and 1990). Out of many methods, the internal
convergent validity, have been tested. consistency method is considered to be
the most effective method especially in
4.3.1 Content Validity
field studies. The internal consistency is
Content validity of an instrument refers estimated using a reliability coefficient
to the degree to which it provides an called Cronbach’s alpha (a) with the help
adequate depiction of the conceptual of statistical programme SPSS 10. The
domain that it is designed to cover (Hair, Cronbach’s alpha value of above 0.6 or
Anderson, Tatham and Black, 1998). In above is considered significant in
the case of content validity, the evidence exploratory research (Hair et al., 1998).
102 Vilakshan, XIMB Journal of Management ; September, 2007

4.3.4 Convergent Validity H3 : There is significant negative

The evidence for ‘convergent validity’ is correlation between Worker Involvement
obtained when a measure correlates well in Safety and the accident data.
with other measures that are believed to H4 : There is significant negative
measure the same construct (Kaplan and correlation between Safety
Scauzzo, 1993). Using confirmatory factor Communication and Feedback and
analysis technique, the convergent the accident data.
validity of the questionnaire was checked
with the help of a coefficient called H 5: There is significant negative
Tucker-Lewis Index (TLI). Statistical correlation between Safety Rules and
programme AMOS-4 was used for this Procedures and the accident data.
purpose. A scale with TLI values of 0.90
H6 : There is significant negative
or above is an indication of strong
correlation between Safety Promotion
convergent validity (Bentler and Bonnet,
Policies and the accident data.
H7 : There is significant negative
4.3.5 Unidimensionality Analysis
correlation between Total Safety
Unidimensionality refers to the existence Management Score and the accident data.
of a single construct/trait underlying a
set of measures (Hair et al., 1998). The above hypotheses were tested by
Individual items in the model are calculating Pearson’s correlation
investigated using AMOS-4 to see how coefficients. Given two sites with
closely they represent the same relatively equal hazard risks, the one with
construct. A Comparative Fit Index (CFI) the better safety management score
of 0.90 or above for the model implies should have fewer accidents and lost
that there is strong evidence of working days. First, the means of the
unidimensionality (Byrne, 2001). summated scores of each of the six
4.4 Predictive Validity factors of safety management, self-
reported accidents and number of
To establish the predictive validity of the
working days lost for each of the eight
instrument, the following hypotheses
chemical companies were calculated
were formulated.
(Table 4). These means were then
H1 : There is significant negative correlated with the accident rates and lost
correlation between Management working days in the year 2002 in each of
Commitment and the accident data. these companies. It was found that the
H2 : There is significant negative reported accident frequency rates
correlation between Safety Training and submitted by the companies to the state
the accident data. government were not reliable due to
Vinodkumar, Measuring Critical ... 103

various reasons. Therefore, self-reported and analysis of the prescriptive,

accident rates and working days lost conceptual, practitioner and empirical
computed from the responses to a literature, so as to ensure the content
question asking the participants to give validity. Face validity was assured in the
the number of accidents and working initial stages of questionnaire
days lost in the year 2002 was used for development itself.
this purpose. The reliability of the scale developed
5.0 RESULTS AND DISCUSSION was tested by computing Cronbach’s
alpha (a) value for all the factors. This
The objective on the first part was to procedure resulted in removal of 6
identify critical safety management items from the instrument. Sufficient
practices that influence safety care and judgement were used to see
performance in industries. Even though that the content validity of each scale
safety management is gaining importance was not lost while removing items. The
in India, it is yet to completely break free results are presented in Table 3. It can
from the shackles of “Traditional Safety be seen from the table that all the
Management”. Because of this, main factors have Cronbach’s alpha value
source of information was international above 0.6, which testifies the reliability
studies and discussions with safety of the instrument.
Results of Confirmatory Factor Analysis
The present instrument has been (Table 3) show that Convergent validity
developed based on a detailed review calculated using Tucker-Lewis Index
Table 3. Results of Confirmatory Factor Analysis: Unidimensionality, Convergent
Validity and Reliability coefficients for safety management practices.

Sl. Safety Management Practices No.of Comparative Cronbach’s Tucker –

No items Fit Index Alpha Lewis
(CFI) α)
(α Index (TLI)

1 Management Commitment (MC) 8 0.963 0.8632 0.948

2 Safety Training (TR) 5 0.993 0.8173 0.986
3 Workers’ Involvement (WI) 4 0.953 0.6924 0.948
4 Communication (CO) 4 0.980 0.7043 0.940
5 Safety Rules & Procedures (SR) 4 0.998 0.8078 0.994
6 Safety Promotion Policies (SP) 4 0.940 0.6346 0.920
Overall fit - 0.914 - 0.903
104 Vilakshan, XIMB Journal of Management ; September, 2007

(TLI) of each of the constructs as well as Involvement in Safety, Communication

the overall instrument are greater than and Feedback and Safety Rules and
0.90, thereby demonstrating strong Procedures) and the Total Safety
convergent validity for the instrument. Management Score are significantly
negatively correlated to mean values of
Unidimensionality of the instrument
self-reported accidents and working days
developed was tested by computing
lost supporting the respective
Comparative Fit Index (CFI) for all the hypotheses. For Safety Training and
factors. Results (Table 3) for each of the Safety Promotion Policies, even though
constructs as well as the overall CFI are Pearson’s Correlation Coefficients are in
more than 0.90, thereby demonstrating the direction consistent with the
strong unidimensionality of the hypotheses, they failed to attain
instrument. significance. Hence, those two
Results of investigation of predictive hypotheses are partially supported.
validity of the measuring instrument are Worker Involvement in Safety is found
presented on Table 4. Pearson’s to have the highest negative correlation
Correlation Coefficient show that four out with self-reported accident rates and is
of six management practices in tune with the findings reported from
(Management Commitment, Worker advanced countries. When company

Table 4. Mean values of safety management practice scores, self - reported accidents
and days lost in 8 industrial units along with Pearson’s Correlation Coefficients.

Org. Accidents Days lost MC TR WI CO SR SP Total

1 0.0670 0.6295 27.49 19.05 13.06 13.22 14.05 12.87 99.75

2 0.0912 1.2091 26.23 17.44 12.35 12.45 13.56 13.39 95.42
3 0.0988 0.8601 26.79 18.29 13.08 13.11 13.40 12.79 97.47
4 0.0595 0.8333 25.29 15.46 12.97 12.42 12.56 12.08 90.77
5 0.1422 1.7598 23.16 15.86 11.72 11.36 11.32 10.80 84.22
6 0.0643 0.6433 23.63 15.86 12.35 11.91 12.23 9.99 85.98
7 0.0298 0.1429 31.89 21.18 15.65 15.71 15.96 14.44 114.84
8 0.0039 0.0588 31.09 19.66 14.64 15.00 15.42 13.91 109.72

Correlation with accidents -0.78* -0.59 -0.81* -0.80* -0.79* -0.55 -0.74*
Correlation with days lost -0.81* -0.70 -0.86** -0.85** -0.83* -0.56 -0.79*
* P< 0.05, ** P< 0.01
Vinodkumar, Measuring Critical ... 105

MC1 Safety is given high priority by the management

MC2 Safety Rules and procedures are strictly followed by the management
MC3 Corrective action is always taken when the management is told about unsafe
MC4 In my workplace managers/supervisors do not show interest in the safety of
MC5 Management considers safety to be equally important as production.
MC6 Members of the management do not attend safety meetings.
MC7 I feel that management is willing to compromise on safety for increasing
MC8 When near-miss accidents are reported, my management acts quickly to solve the
MC9 My company provide sufficient safety equipments for the workers..
TR1 My company gives comprehensive training to the employees in workplace health
and safety issues.
TR2 Newly recruits are trained adequately to learn safety rules and procedures.
TR3 Safety issues are given high priority in training programmes.
TR4 I am not adequately trained to respond to emergency situations in my workplace.
TR5 Management encourage the workers to attend safety training programmes.
TR6 Safety training given to me is adequate to enable me to assess hazards in workplace
WI1 Management always welcome opinion from employees before making final
decisions on safety related matters.
WI2 My company has safety committees consisting of representatives of managements
and employees.
WI3 Management promote employees’ involvement in safety related matters.
WI4 Management consults with employees regularly about work place health and
safety issues.
WI5 Employees do not sincerely participate in identifying safety problems.
CO1 My company doesn’t has a hazards reporting systems where employees can
communicate hazard information before incidents occur.
CO2 Management operates an open door policy on safety issues.
CO3 There is sufficient opportunity to discuss and deal with safety issues in meetings.
CO4 The targets and goals for safety performance in my organization are not clear to
the workers.
CO5 There is open communications about safety issues in this work place.
SP1 In my company safe conduct is considered as a positive factor for job promotions.
106 Vilakshan, XIMB Journal of Management ; September, 2007

SP2 In my company employees are rewarded for reporting safety hazards (thanked,
cash or other rewards, recognition in news letter etc)
SP3 In my company safety week celebration and other safety promotional activities
arranged by the management are very effective in creating safety awareness
among the workers.
SP4 There exists very healthy competition among the employees to find out and report
unsafe condition and acts.
SP5 Our supervisor becomes very unhappy and angry when employees find out and
report unsafe conditions and acts in our section.
SR1 The safety rules and procedures followed in my company are sufficient to prevent
incidents occurring.
SR2 The facilities in the Safety department are not adequate to meet the needs of my
SR3 My supervisors and managers always try to enforce safe working procedures.
SR4 Safety inspections are carried out regularly.
SR5 The safety procedures and practices in this organization are useful and effective.

management encourages worker practitioners can use this instrument to

involvement in safety related activities measure the level of safety management
and decision-making, the sense of in their organization and provide
belongingness and responsibility of information to the decision-makers for
workers increase resulting in better developing their management strategies
safety performance. to enhance their safety standards.
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Consumer Rights Protection and Regional
Co-operation among SAARC Countries*
Basant Kumar1 & Brajaraj Mohanty2

The issue of consumer rights protection has gained importance and received international recognition
after the United Nations promulgated the basic guidelines on consumer rights protection in 1985. Since
then, consumer protection legislations have been passed in many countries to ensure fair trade practices
and to prevent consumers from exploitation. However, among the SAARC countries, only in India and
Sri Lanka such legislations have shown some teeth in protecting consumers’ interests. In view of the
recent developments of consumer leaders being associated with the achievement of MDGs in the Asian
region, there is a need for addressing the issue of consumer protection in the SAARC forum.

1.0 INTRODUCTION Africa in the 1970s and 1980s and

The modern approach to consumer throughout the former Soviet Union in
movement can be traced to the formation the 1990s.
of the Consumer League of New York In the USA, for the first time in 1962, the
towards the turn of the 19th century consumer’s sovereignty and their rights
which provided the platform to fight for were constitutionally recognized in the
the protection of consumer rights and US by US President John F Kennedy who
sovereignty and gradually the consumer equated the consumer rights with
movement grew across the US. Following
national interest. He provided four
the establishment of the International
basic rights: right to safety, right to
Organization of Consumers Unions in
choose, right to information and right
1960, known today as Consumers
to be heard. After thirteen years,
International (CI), the movement
president Gerald Ford added the right
extended into Asia, Latin America, and
to education to the existing list. The

* Received August 10, 2007; An earlier version of this paper was presented at the Annual
Convention of AMDISA held in Dhaka during February 24 & 25, 2007. The Authors are
thankful for various suggestions made by the discussants during the convention.
1. Reader & Placement Officer, Department of Business Administration, Utkal University,
Bhubaneswar, email:
2. Professor, Xavier Institute of Management, Bhubaneswar, email:
110 Vilakshan, XIMB Journal of Management ; September, 2007

Consumers International (CI), the Against this backdrop, this paper aims
umbrella body for 250 organizations in (i) to discuss the trends in consumer
over 115 countries, expanded the movements and relevant legislations to
charter of consumers rights contained protect consumer interests in the SAARC
in US bill from five to eight. The other nations; and (ii) to assess the need for
three rights are right to basic needs, regional dialogue on consumer protection
right to representation and right to in SAARC forum.
healthy environment. On the basis of
this charter, the United Nations
adopted its guidelines for Consumer TIONS IN SAARC COUNTRIES
Protection in April 1985. Gradually, in Consumer protection legislation is an
the process of economic liberalization integral part of the consumer protection
and globalization, these landmark framework in any country. The Asia
guidelines have opened the eyes of Pacific region has seen a wide diversity
many national governments, consumer in consumer protection legislation.
associations, activists and social While in many countries, consumer
scientists resulting in formulation and protection law and redressal
introduction of progressive legislations mechanisms are still rudimentary, in
in their respective countries. some others significant and spectacular
Considerable progress has been made progress has been made. Among the
in the implementation of the guidelines seven members SAARC countries,
at the national level and in India, Sri Lanka, Pakistan, Nepal,
strengthening cooperation at the Maldives have enacted their respective
regional and international levels. consumer protection legislation.
There has been a surge in public Bangladesh and Bhutan are yet to enact
awareness of consumer issues. The any legislation. The emerging trends of
consumer movement is gaining consumer movements and legislations
momentum and public policy is being in these countries are presented in
strengthened. With the global IT Table-1.
revolution, the power has shifted from
2.1 India
sellers to buyers. The new consumer
power has given consumers ‘Consumerism’ began to dominate the
unprecedented strength to get Indian market towards the end of the
information. In competitive markets 20 th century following the economic
with high transparency with regard to reforms and various agreements that
price, quality and choices, consumers were signed under the World Trade
are getting the treatment as kings Organization. It meant the realization
(Rice, 1998; Cunniff, 1999; The of the rights of the consumer as
Tribune, 2003). envisaged in the Consumer Protection
Kumar, Consumer Rights Protection ... 111

Table 1 : Consumer Protection Act in SAARC Countries

Country Relevant Act Year Amended/Repealed/Remarks

India Consumer Protection Act 1986 Amended in 1991,1993,2003

Sri Lanka Consumer Affairs Authority Act 2003 Repealed Control of Prices Act 1950,
Consumer Protection Act 1979, & Fair
Trading Commission Act 1987
Nepal Consumer Protection Act 1999 Operational but ineffective due to
political instability and poor literacy
Pakistan Islambad Consumers Protection North Western Frontier Province
Act 1995 (NWFP) Consumer Consumer activists and NGOs are
Protection Act 1997Baluchistan crying for its implementation
Consumer Protection Act 2003
Sindh Consumer Protection
Act 2003Punjab Consumer
Protection Act 2003
Maldives Consumer Protection Act 1996 Operational with limited scope
Bangladesh Not yet enacted Obstacles are being created by
powerful lobby of vested interests for
enactment of specific legislation.
Persisted demand for legislation by
NGOs and consumer activists is on.
Bhutan Not yet enacted ———-

Source: Kumar and Mohanty, (2006), updated

Act 1986 (COPRA 1986) and ensuring India for a long time. These measures
right standards for the goods and dealt with only certain aspects of
services. One of the greatest consumer protection and were mainly
achievements of the Indian consumer punitive and preventive in nature. The
movement is the enactment of this consumer could not seek remedy or
dynamic law. This is a significant redressal against the offending trader,
acknowledgement of extreme of the manufacturer and service providers.
rampant consumer abuses including The enactment of Consumer Protection
particularly the public utilities like Act, 1986 by Parliament was a
telephone, transport, power etc. milestone in the history of consumer
Prior to the enactment of COPRA 1986, protection movement in India. This has
several statutory measures for been further strengthened by the latest
consumer protection have existed in additions to the lists of legislations
112 Vilakshan, XIMB Journal of Management ; September, 2007

such as Competition Act, 2002 and The most important feature of the Act
Right to Information Act, 2005. In the is the provision for setting up three-tier
mean time COPRA 1986 had been quasi-judicial machinery popularly
amended three times during 1991, 1993 known as “consumer courts” at national,
and 2002 to further guarantee safe state and district levels. The apex court,
consumerism. National Commission functions in Delhi.
Every State Government has a State
The special feature of this Act is to Commission. At present there are 35
provide speedy and inexpensive state Commissions. The third tier is in
redressal of the grievance of the each district and is called district forum.
consumer and to provide him specific Till date there are 605 district forums,
relief or award of compensation out of which 569 are reported to be
wherever appropriate. It recognizes six functioning. It can be seen from Table 2
of the eight rights of the consumer as that all these courts have handled nearly
provided in the UN charter, viz. the 2.8 million cases, of which about 2.5
right of choice, safety, information, million cases have been disposed of
redressal, public hearing and consumer ( The disposal of 88
education. The other two rights are per cent of the cases is a significant
dealt separately by other Acts. A achievement in the prevailing
separate Department of Consumer conditions.
Affairs was also created in the Central This Act has been regarded as the most
and State Governments to exclusively progressive, comprehensive and unique
focus on ensuring the rights of piece of legislation. The strengths of the
consumers as enshrined in the Act. A consumer after amendment of COPRA
consumer can file his complaint without 1986 can be best understood from some
assistance of any advocate and save of the latest landmark judgments of the
unnecessary litigation expenses. Consumer Courts. National Consumer

Table 2: Performance of Consumer Forums as on September 7, 2007

Agency Cases filed Cases disposed Cases % of
since inception of since Pending Disposal

National Commission (1) 48,931 39814 9117 81.37

State commission (35) 4,13,377 3,02,072 1,11,305 73.07
District Forums (570) 24,06,009 21,78,103 2,27,906 90.53
Total 28,68,317 25,19,989 3,48,328 87.86

Kumar, Consumer Rights Protection ... 113

Disputes Redressal Commission in 2003 it was only in 1975, in the face of scarcities
allowed for early hearing of a medical and queues before government shops that
negligence case, pending for adjudication the Government felt the need for a
over three years, in which a US citizen of regulation and established the National
Indian origin sought a whopping Rs.770 Prices Commission. One of the latest is
million compensation-highest in the the Consumer Affairs Authority Act No.
country’s medical history- for the death 09 of 2003, which brought together the
of his wife (Times of India, June 3, 2003). Fair Trading Commission, Department of
The multinational corporate giant Pepsi Internal Trade and Department of
was slapped a fine of Rs. 10 million by a Weights and Measures under one
District Court in Delhi in April 2006 for umbrella to facilitate more effective
the presence of a foreign object in a Pepsi addressing of consumer needs. This
bottle. Pepsi’s spokesman however said legislation repealed three basic laws
that bottles might have contained namely; (i) The Control of Prices Act No.
spurious products. Similarly at the same 29 of 1950 (ii) The Consumer Protection
time, another District Court punished Act No. 1 of 1979, and (iii) The Fair
Coca Cola with a fine of Rs. 1, 20,000 for Trading Commission Act No. 1 of 1987.
the presence of a dead insect floating in The new law is intended to promote
a sealed bottle (Indian Express, April 29, effective competition and protect
2006). consumers’ interests as well as regulate
internal trade and anti competitive
However, in spite of such examples, in
practices. The most important feature of
general the consumer interests are
the Act is the creation of a Consumer
affected by several weaknesses in our
Affairs Authority (CAA) and a
regulating mechanisms due to prolonged
Consumer Affairs Council (CAC), the
process, in some cases for more than five
latter functioning as a higher body with
years, inadequate time being given by
power to review the decisions of the
the judges who are retired judges and
adjournments of hearing dates by the
lawyer for his pecuniary interest. Among several organizations
Consumer movement in India has also safeguarding the consumers’ interests in
been accused of being elitist and mostly the country, CAA, Sri Lanka Standards
benefiting urban, not the rural Institution, Department of Weights and
consumers. Measures and Telecommunications
Regulatory Commission play very
2.2 Sri Lanka
important roles. But CAA is the only such
Sri Lanka’s legal system has protected organization which handles all types of
consumer rights through executive power consumer problems, be it goods or
and various acts. An early legislation goes services. The government presently has
back to the Food Control Act of 1939. But identified 54 product varieties to be
114 Vilakshan, XIMB Journal of Management ; September, 2007

under retail price marking by CAA. government on matters relating to

Essential consumer products such as LP consumer protection, prices, quality and
gas, milk powder, mosquito coils, match purity of consumer goods and services,
boxes and wheat flour are covered in this disseminating information and
category. Offenders of price violation are conducting studies. The Act also
subject to trial and fine up to Rs 1 million. regulates the powers given to Inspection
It is reported that recently CAA has Officers to inspect, investigate or search
conducted two hundred fifty successful any place where there are reasonable
raids and collected fines to the tune of grounds to believe that consumer goods
more than Rs.2 million or services which are not safe, efficacious
( or of the prescribed standard are being
produced, sold or supplied. The
The review of Sri Lankan News Papers
offenders, who influence the demand,
like ‘Daily News’ (
supply and price of any consumer goods
and ‘Sunday Observer’
or services by unscrupulous means are
( reveals that
punished with fine ranging from Rs 30,000
the consumers of Sri Lanka lack proper
to Rs 500,000 or imprisonment up to 14
education about their rights and they
years or both. The Compensation
very often are not provided with correct
Committee at district level investigates
information regarding products and
the complaints and awards compensation
services. In addition, there is a total
in deserving cases. Appeal against the
absence of consumer representation in
decision of the Compensation Committee
the process of decision-making. Some
lies with the Appellate Court (Nepal
critics allege that due to the corrupt legal
Reporter, March 22, 1998).
and political system and a lethargic public
service due justice can not be given in The political instability of Nepal coupled
many cases. with very high degree of corruption and
massive poverty with common people
2.3 Nepal
having no or little access to developmental
The Consumer Protection Act, 1998 of cake has caused the administration
Nepal came into force in 13 April 1999. It ineffective (www.
recognizes six basic consumer rights viz. 26, 2006). In this backdrop, the Consumer
right to be protected, right to be Protection machinery in Nepal has failed
informed, right to choose, right to be to deliver the results. In view of this
redress grievances, right to be heard and failure, recently, senior officials and
compensated and right to consumer experts have asked the government to
education. It has provided for the enact new laws including competition law
establishment of the Consumer Protection and to set up new institution to oversee
Council under the Chairmanship of consumer related issues (
Minister for Supplies to advise the March 15, 2006)
Kumar, Consumer Rights Protection ... 115

2.4 Pakistan imprisonments or both. But these laws

are not yet operational as the rules of
The law in Pakistan provides for partial
business for their full operationalization
accommodation of the consumers interest
have not been framed.
in the legislative scheme. However,
consumer concerns are marked by their Consumer protection movement in
abuses in the juridical debates. Pakistan has got a boost with the
Furthermore, no effective registration of Consumer Rights
implementation and enforcement Commission of Pakistan (CRCP) in 1998.
mechanisms of these laws are available. CRCP is an independent, non-profit, and
Besides, consumers are also largely non-governmental organization. It
unaware of their rights and possible legal largely works through local fund-raising
remedies. This is evident from the report and engaging volunteers. It is not
in print media in March, 2005 and 2006 supported by any industry or commercial
on the eve of World consumers’ Day sector. Its vision and strategies have
Celebration that many consumers in significant cross linkages with both
Pakistan remained disillusioned with the market practices and issues of
rights and privileges enjoyed by them governance. It is the first national
(, consumer organization in the country, which approaches the issue of consumer
protection in comprehensive and holistic
Consumer protection groups in Pakistan
won a small but significant victory in 1995
when the government enacted the CRCP has established Consumer
Islambad Consumers Protection Act, 1995 Complaint and Redress Forum (CCRF)
for the federal capital territory. During for handling consumer complaints. The
the last decade similar laws have been CCRF handles complaints according to
enacted in other provinces viz. NWFP the policy devised by CRCP and extends
Consumer Protection Act, 1997, legal advice to its members and citizens,
Baluchistan Consumer Protection Act, who have some grievance against the civic
2003, Sindh Consumer Protection agencies and market practices. During the
Ordinance, 2004 and Punjab Consumer past three or four years, CRCP along with
Protection Act, 2005. All these laws different regulatory bodies has been
recognize basic consumer rights, provide actively engaged in protecting and
for the establishment of consumer promoting consumer interests. These
protection courts and consumer regulatory bodies include, amongst
protection councils in the respective areas others, National Electric Power
of enforcement, and assert to protect Regulatory Authority (NEPRA), Pakistan
consumers from unfair trade practices Standards and Quality Control Authority
with penal provisions of fine or (PSQCA), Pakistan Tariff Commission
116 Vilakshan, XIMB Journal of Management ; September, 2007

(PTC), Pakistan Telecommunication between Rf 500 to Rf 1,00,000 on the first

Authority (PTA) and Monopoly Control instance and by an amount between Rf
Authority (MCA). 5000 to Rf.1,00, 000 where such offence
is repeated.
2.5 Maldives
2.6 Bangladesh
Maldives with a chain of about 1200 small
islands covering 300 sq km and having Consumer protection is virtually non-
population of little over a quarter million existent in Bangladesh. No specific law
has a strong central Government. It has has been enacted in the country. In effect,
traditionally been a subsistence economy there is no comprehensive law that can
with few resources and low per capita protect the interests of consumers. Laws
income (GDP per capita US$ 2,261). Most enacted during British rule in India and
of the GDP comes from fishing and thereafter in Pakistan are still in force.
tourism. The expanding tourism industry None of these are appropriate and
underpins economic growth and is the applicable in the context of present-day
Maldives main employer and source of consumers’ society. Some of these laws
revenue. The country’s economy is include Trade Mark Act, 1940;
dominated by annual imports of oil, Unadulterated Food Ordinance, 1959;
textiles and yarn, rice, cigarettes, cement, Standard of Weights and Measures
engines for boats, television, aircraft Ordinance, 1961; Drugs Control
parts, prefabricated buildings and Ordinance, 1982; and Breast Feeding an
vegetables worth more than US$ 500 Alternative to Child Food Ordinance,
million. Against this socio economic and 1984. The regulatory agencies of the
political background, the Consumer government designed for monitoring
Protection Act, 1996 has attempted to product standards and market ethics are
protect the basic rights of the consumer. ineffective or non-functional. Hence, the
This Act mainly focuses on checking of market is dominated by black money and
hoarding of goods, price manipulation smuggled goods by beleaguered
and misleading advertisements for sale manufactures or stealthy shopkeepers
of goods and provision of services. Since
it is a small and peaceful society under Due to the dearth of proper and effective
effective central ruling, there is hardly implementation of existing laws on
any exploitation of consumers. Hence, consumer rights, millions of people in the
except the administration, control and country are being exploited by a group
supervision of the Ministry of Trade and of unscrupulous and profit-monger
Industry, there is no other mechanism to businessmen. As a result, consumers are
redress the grievances of consumers. not able to free themselves from the
However, three is a penal provision in vicious circle of adulterated goods,
the Act to punish the offender with a fine incorrect weights and measures. A recent
Kumar, Consumer Rights Protection ... 117

survey conducted by the Consumers of a comprehensive consumer protection

Association of Bangladesh (CAB) has Act. Enactment of such law in the
revealed that more than 50 percent neighboring countries has also created
products in Bangladesh market, pressure on Bangladesh to have a similar
especially food items, are adulterated. So law.
it is very easy to guess what people are
2.7 Bhutan
consuming as food. Selling adulterated
food is a punishable offence, but the sad The awareness on consumer protection
truth is, those dishonest groups involved in Bhutan is not fully developed and
in this practice have never been brought there is no specific legislation for
to justice ( consumer protection. However,
2004/03/02). discussions, meetings, workshops and
seminars at higher level in the
The CAB being the lone such
government have been going on since
organization of any significance in the
June 1999 to frame simple rules and act
country has been the pioneer in consumer
to protect consumers’ rights and interests
movement and education in Bangladesh
from unfair and unscrupulous trade
since its inception in 1978. It has been
practices. But there has not been any
organizing meetings, seminar,
concrete outcome.
workshops, and conducting surveys to
further consumer movement and 3.0 CONSUMER MOVEMENT AND REGIOAL
pressure the government to come with a COOPERATION
comprehensive Act to protect the With globalization, there is increased
consumer interests. In view of the international trade. The trade among
persistent demand from CAB, the civil India, China, Pakistan and other
society members and the media, the neighboring countries have vastly
cabinet approved in principle the draft increased. This has made it essential to
law in September, 2004. But, since then, have common laws and multilateral
nothing has been heard about the fate of agreements in an environment of mutual
the proposed law. The main obstacle is a cooperation. A beginning has been made
powerful lobby of vested interests which by some governments and consumer
has been active against enactment of this organizations to evolve such co-
law ( operations. Consumer protection
The survey conducted by CAB during movement in Asian countries has further
2005 reveals that 53 per cent of the city’s been strengthened with the economic
consumers are aware of their rights as integration of countries in the region viz.
consumers ( Association of South East Asian Nations
The movement is picking up and the (ASEAN), Asia Pacific Economic
public opinion is growing for enactment Cooperation (APEC), South Pacific Forum
118 Vilakshan, XIMB Journal of Management ; September, 2007

(SPF) and South Asian Association for Millennium Development Goals (MDGs).
Regional Cooperation (SAARC). The consumer leaders from Asian
countries have recognized in the “Asian
Consumer organizations including
Conference on Millennium Development
governments around the world hold
Goals and the Consumer Movement”
marches and rallies, seminars and
held in Kuala Lumpur on August 23, 2005
workshops, and produce leaflets,
that the people of Asia who account for
publications, radio and television
63 per cent of the world population are
programmes to celebrate March 15 as the
among the most deprived of humanity
World Consumer Rights Day. This allows
on this earth (living on less than US$1 a
the consumer movements to educate the
day). Thus, they resolved many action
consumers, remind them about their
plans to address the MDGs which would
duties and responsibilities and influence ultimately further the consumer
the policy makers to adopt changes in the movements in the region. They would
legislations, if required. Following not be confined to the legal definition of
World Consumers’ Day 2002, the ‘consumer’ defined in many of the Asian
National Consumer Council (NCC), UK, Consumer Protection Statutes. They
with the help of CI and its regional offices, would serve the needs of all consumers,
is publishing the summary of case studies including those unable to consume and
of consumer involvement from around living below the poverty line as well as
the globe. The cases highlight successful consumers who are victimized by the
consumer campaigns with an ongoing inequality of bargaining power in the
public impact. They show the importance marketplace. They have vowed to call on
of effective consumer representation and the respective governments to provide
involvement, and the variety of methods them an enabling environment i.e right
for ensuring involvement to information, democratic, legal and
( For example, in India judicial space and support to work
the Consumer Education and Research towards the achievement of the MDGs
Society (CERS), Ahmedabad successfully (Asia Pacific Consumer, 2005).
lobbied and promoted consumer rights
The Asian consumer leaders have sought
over a period of 24 years. This work
for the cooperation of UNCTAD and
culminated in the Freedom of
Consumer International which jointly
Information Bill which was finally passed
organized the conference to integrate the
in 2002. Later the Act, which was not
MDGs and the theme “Pro-Poor, Pro-
operational, has been replaced by Right
Rural, Pro-Women” into its work
to Information Act, 2005 and the latter is
programme. They have also urged to
emphasize beneficial outcomes for all
Consumer movement world wide, now, consumers particularly in food, health,
has extended its wing to embrace the education, water, energy, housing,
Kumar, Consumer Rights Protection ... 119

transport, telecommunication, waste movements. India is the leading country

management, and intellectual property among SAARC nations where COPRA is
rights sectors. They have called on all enforced in right perspective. However,
consumer organizations in the region to it needs improvements in administrative
redesign their national and regional work framework to expedite and deliver
programme towards the theme and timely justice.
sought for better cooperation.
In this direction the SAARC assembly
4.0 FUTURE AHEAD should actively play a pioneering role for
continuous dialogue in association with
Globalization has brought a greater
the Consumers International and UN for
choice of products and brands in many
formulation and effective implementation
areas, and increased quality
of Consumer Protection policies and
consciousness among consumers. It has
legislations in its member countries. The
urged consumers to become more
movement will get its full force if SAARC
demanding. The good experience in India
also considers this issue as a prime theme
and Sri Lanka is likely to percolate to
for deliberation as an agenda in one of
other countries also. The countries like
its forthcoming Summits. SAARC forum
Pakistan which has Consumer Protection
since its birth in 1985, has already dealt
Acts for each province cannot neglect the
with important matters concerning drug
operation of these Acts any longer. Once
abuse and drug trafficking, girl child,
political stability prevails in Nepal, the
shelter, environment, disabled persons,
Consumer Protection Act may sharpen its
youth, poverty eradication, literacy,
teeth to protect consumer interests better.
participatory governance, biodiversity,
In Bangladesh, people mostly suffer from
contribution of youth to environment,
adulterated foods which are matters of
awareness of TB and HIV/AIDS and
serious concern. The consumer
tourism. These interventions are likely
organizations like CAB and UBINIG
to promote consumer rights. With the
supported by intelligentia and media
implementation of the Agreement on
have toughened their stands through
South Asian Free Trade Area with effect
mobilizing and leading a countrywide
from January 2006, a common agenda on
campaign to get the Consumer Protection
consumer protection by the SAARC will
Legislation adopted by the Parliament (
undoubtedly help in furthering the
Jatiya Sangsad) and it will see the light of
movement and setting up a regional
the day soon. The Sri Lanka Act, which
consumer protection platform.
is in place, needs to be more effective and
not merely confining to some raids on REFERENCES
the World Consumers Day. Bhutan may Consumer International, (2005), Asia Pacific
take advantage of the landmark Consumer: Millennium Development Goals,
developments in Indian consumer Vol. 41
120 Vilakshan, XIMB Journal of Management ; September, 2007

Consumer Protection Act, 1979, Srilanka, Rice Andrea Williams, (1998), The Consumer is
( King, (, Dec 17

Consumer Protection Act, 1986 (Amended), India Times of India, (2006), Pepsi fined for Rs. 1
lakh for ‘Condom’ in cola, New Delhi, April
Consumer Protection Act, 1995, Islamabad, 28
The Tribune, (2003), Consumer is the King,
Consumer Protection Act, 1996, Maldives, Saturday, March 22, India
Consumer Protection Act, 1998, Nepal,
Consumer Affairs Authority Act, 2003, Sri Lanka,
Cunniff John, (1999), The Consumer is King,
(, October 18

Indian Express (2006), After condom, it’s insects,

April 29
Kumar, B and Mohanty, B (2006), “Consumer
Protection Legislations in SAARC Countries:
The Emerging Trend”, Global Business &
Economic Anthology, Vol.1, December, PP 461-
Nepal Reporter, March 22, 1998
Factors Blocking the Implementation of
Retailing Technology*
Veena. A1 & H.R. Venkatesha2

Retailing has become a pivotal point of discussion due to its role in economy, employment and in
distribution of goods and services. Technology, capital, human and managerial resources can be used to
make retailing more efficient and consumer friendly. Organized retailing is an emerging sector in India.
Competition intensifies with organized retailing. In this environment, if one has to survive and grow in
the industry, it is necessary to increase the efficiency, reduce the cost of operation and increase the
customer delivered value. Technology gives competitive edge to retail organizations. Technology provides
retailers with more, better, and timely information about their operations. However, technology is not
limited to process information; it is also used to prevent theft, promotion, and to create a better shopping
atmosphere.In today’s real time retailing world, everyday of lag results in loss of sales, margin and
customers. Retailers have to update their technology. Automatic Identification and Data Capture (AIDC)
is one of the important technologies for retail management. The important technological tools that have
made difference to the retailing are Bar Coding, Radio Frequency Identification, Electronic Data
Interchange, and Point of sale System, Electronic Article Surveillance, Video Cameras, Silent Alarms
and Tunnel Scanning. The revolution in Information Technology has immensely contributed to the
effective management of supply chain. Bar Code is one of the important and simplest technologies
introduced in retailing. This article analyses the factors, which block the implementation of Bar code in
apparel retailing.

1. 0 INTRODUCTION unprecedented interest in organized

Today Retailing has become ‘dear’ to retailing. Multinational companies like
Indian corporate houses, multinational Wal-Mart and Metro are already in
companies, government, political parties, Indian market in different ways. Wal-
media, and of course to the consumers. Mart is procuring more than 0.5 billion
Indian corporate houses are showing dollars worth of goods from Indian

* Received December 26, 2006; Revised September 12, 2007

1. Assistant Professor, Department of MBA, PESIT, Bangalore; email:
2. Head of the Department and Professor, Dayananda Sagar College of Engineering, Banglaore,
122 Vilakshan, XIMB Journal of Management ; September, 2007

market for its world operations. Wal- market and the growing consciousness
Mart is also trying to enter Indian market of the consumer about the product
through its Indian partner, Bharati. quality and services. Reach of satellite
Metro a German retailer has started its T.V. channels is helping in creating more
wholesale operations in India, with its awareness about global products and
two outlets in Bangalore. The UPA global retailers to consumers. Many
Government and its partners have been Indian companies have diversified into
debating and taking sides on pros and retail sector. The Reliance, the Bharathi,
cons of FDI in retailing. Media being the Piramals, the Tatas, the Rahejas, ITC,
mirror of what is happening around us S.Kumar’s, RPG Enterprises, the Munjals
has been deliberating both in its news and and many others are taking retail as a
views versions on developments in priority sector. Many of them have
retailing. Rapid growth of organized already invested or about to invest in a
retailing is a clear indication of big way. Tatas, Reliance, Big Bazar, Food
consumers’ interest in retailing and its World, Shoppers Stop have already made
different formats. their mark in Indian retailing sector.
Multinational retailers are planning to
Retailing in the Indian economy, is the
enter Indian retail sector in different
second largest employer, next only to
ways. Wal Mart, Tesco, Metro are almost
Agriculture. According to Bhargav and
on their way. The share of organised
Anand (2005), India’s retail trade employs
retailing in India, at around 3 per cent, is
four crore people and is the main source
very low, compared to 80% in the USA,
of income for over 18 million non-
40% in Thailand and 20% in China, thus
agricultural small and family enterprises.
leaving the huge market potential still
In India, nearly 97 per cent of retailing is
untapped (Murali, 2006). With major
in unorganized sector. A.T.Kearney Inc.
players making the retail pitch, hopes are
places India in the 6th position on a global
that the modern retail sector will add
retail development index. The country
from ‘1 million to 2.5 million new jobs by
has the highest per capita outlets in the
world (5.5 outlets per 1000 population).
KSA technopak, a retail research and Competition intensifies with organized
consulting firm estimates that the average retailing. In this environment, if one has
per capita retail space in India is 2 sq.ft to survive and grow in the industry, it is
whereas it is 16 sq ft in US. It is estimated necessary to increase the efficiency and
that there are nearly 12 million retail reduce the cost of operation. Technology
outlets in India. Majority of these outlets gives competitive edge to retail
are very small and are in rural /semi organizations. The retail organizations
urban area. Organized retailing is a have to continuously upgrade or adapt
sunrise sector. Organized retailing in to the changing technological
India has a huge scope because of the vast environment. Technology has provided
Veena, Factors Blocking the ... 123

retailers with more, better, and more suppliers. Bar coding system helps to
timely information about their reduce storage and handling cost. This
operations. However, technology is not immensely helps in warehouse
limited to increasing information; it is management. At the point of sale, bar
also used to prevent theft, promote the coding facilitates automated billing,
store’s goods, better inventory which means faster customer checkouts.
management, quick billing service, easy 2.0 LITERATURE REVIEW
billing, speedy accounting procedures,
and create a better shopping atmosphere. The retail technology has undergone a
phenomenal development over a period
Technological innovations offer of time. New technologies like RFID
productivity and efficiency benefits to (Radio Frequency Identification), EDI
retailers. In this fierce competitive era, if (Electronic Data Interchange) and host of
retailers have to survive and grow they Information Technological developments
have to implement technology. When have added value to Retailing. RFID has
retailers like Wal-Mart are entering India, potential to increase the efficiency
their most important success model throughout the supply chain. Retailer is
would be technology based back and a crucial link in the chain of distribution
front-end operations. As estimated by of goods and services from producers to
KSA Technopak, majority of 12 million consumers. RFID tag carries information
outlets in India are very small. If these about the product. This information can
outlets have to survive, they have to be regularly updated so that any
undergo technological, structural and participant in the supply chain can find
functional changes. Technology adoption out, not only where product is but also
is absolutely essential for these retailers where and when it was manufactured,
to remain competitive. what type of product it is and the expiry
In the retail business modern technology date of the product. EDI (Electronic Data
has made it possible to use Bar codes. Interchange) is one of earliest uses of
Bar code (also known as Universal information technology for Supply Chain
Product Code) is a printed code that Management. EDI involves the electronic
exchange of business transactions over the
consists of a series of vertical bars, which
internet and other networks among
vary in thickness. Barcodes are capable
retailers and their customers and
of being ‘read’ and decoded by bar code
suppliers. EDI is a B2B tool.
scanners. Barcodes benefit retailers to
reduce inventory and other supply Even in India, lot of research and
related costs. Bar coding is not just an development is going into the retail
identification tool but also an efficiency technology. For example, Tesco opened
tool. Bar coding helps to detect shortages Hindustan service center, a software
or excess of goods supplied by different development and financial services
124 Vilakshan, XIMB Journal of Management ; September, 2007

office in Bangalore. With a staff of nearly Ogden and Ogden (2005) have defined
800, the Hindustan service center Retail Information System (RIS) as “ a
performs retail back office operations, method for systematically gathering and
such as pay roll, billing and answering analyzing, storing and utilizing valuable
technology related query (Hindu, 2005). retail information and data gathered in
Even Indian companies are investing the market research process”. Brown
heavily in developing retail related (1997) and Aguirregabaria (1999) have
technologies. For instance shown that, information technologies
(, Trent Ltd., that provide real time information on
Shoppers’ Stop, Madura Garments have specific products at the store, region, and
spent huge resources-in enterprise company level help retailers reduce
resource planning (ERP) packages to inventory levels by substituting
improve inventory management. The information for inventories. (Fisher and
Information Technology has immensely Raman 1996) It is found that, retailers
changed the potential of retail who have accurate and timely
technologies. It all started in a big way information on sales, order more
from 1980s. As per Achabal and Shelby frequently, in smaller quantities, and
(1987), advances in Information System demand faster order fulfilment. This
and communication technology are immensely reduces the cost to retailers.
significantly enhancing the prospects for
Apparel retailing is a major segment in
retail productivity improvements and
retailing industry. As per the study of
promise to change the face of retailing.
Smith and Weil (2005), apparel industry
Implementation of Technology is a very
data indicate that because of the close
complex issue. According to Raymond
links between the suppliers and retailers,
(1990), both individual and
organizational factors are important for there was a ratchet- up adoption of
the success of Technology in retail complimentary information technologies
organizations. As per the study of at global level. Due to small-scale
Thong and Yap (1995), on individual and operations, low investment, and
organizational factors within small resistance for change (both from
business in Singapore, the three consumers and retailers) technology
characteristics of Chief Executive adoption has not happened in a big way
Officers (attitude towards adoption of in Indian apparel retailing. Hence, we can
IT, IT knowledge and innovativeness) find large chunk of apparel retailers who
and three characteristics of have not even adopted simple Bar Code
organizations (business size, Technology in their shops.
competitiveness of environment, and Harris and Mills (1981) have shown that,
information intensity) were found very the labour cost associated with check out
significant. operations, product handling and price
Veena, Factors Blocking the ... 125

marking account for more than 50 per When used in conjunction with scanning
cent of store’s total expenses, use of hardware, bar code system can process
scanners have been a primary focus of enormous amount of data to reduce
efforts to increase productivity. The errors, increase speed, improve
information would allow firms better to inventory management and enhance
react to changes in consumer demand, communication. According to a recent
with a subsequent lowering of study (Holmes, 2001), there are
production and inventory carrying costs complementarities between the new
and improved product availability to the information technology and frequent
consumer. Systems based on UPC codes deliveries. This is consistent with the
also provide the manager with the ability recent move in the retail sector toward
to know instantaneously what is selling higher-frequency delivery schedules. The
and what is not, making it possible to same study also reveals that the new
better adjust assortment and inventories technology tends to increase store size.
to market demand. Achabal and Shelby This is consistent with recent increases
(1987) have shown that, UPC is making in store size and the success of the
check out faster, more error free and superstore model of retail organization.
lowering labour costs. That means better Since Bar Coding is interdepartmental
customer satisfaction at a lower cost to and inter disciplinary, all functions in the
the retailer. According to Crossley (1995), organization will be affected. Therefore,
“Bar coding is the basis for automating (Lebow, 1998) it is found that it is critical
many functions surrounding the to get the commitment of management
movement of merchandise, including during the earliest possible stages of the
shipping, receiving, ordering, inventory project. The best way to secure this
management, and point of sale data commitment is to identify operation
gathering”. Bar coding has become a key problems that the system will solve and
aspect of overall profitability, service and document the benefits the company will
success of the wide variety of companies receive. In a study on factors that affects
that have implemented it into their quick the implementation of barcode (CEST,
response system. Lebow (1998), in his 1995), the main barriers to technology
study, finds ‘considering how much uptake by small retailers include lack of
effort it takes to handwrite information relevant information about the key
then go back after the fact and manually benefits of retail technology. There are
key the data entry, it is obvious how also concerns about product
much faster the bar coding really is’. obsolescence. Some retailers believe that
According to Bartko (1996), bar code an the products available have little
automated process referred to as ‘key relevance to their business, or that
less data entry’ is one of the most popular equipment is too expensive to justify a
and cost effective methods of data entry. purchase.
126 Vilakshan, XIMB Journal of Management ; September, 2007

3.0 OBJECTIVES 1. To study the Bar Code

Food and Grocery and Apparel retailing implementation scenario in apparel
are two major segments in Indian retailing industry.
retailing. Branded apparel retailing has 2. To study the factors which block the
high potential for organized retailing. With implementation of Bar code in
phasing out of Multi Fibre Agreement, apparel retailing.
India is emerging as a world leader in
apparel and garment sector. Domestic
market is also important for any industry The study required both primary and
to grow and stabilize. As in other secondary data. The primary data are
segments of retailing, the share of collected with the help of a survey
organized retailing in apparel segment is conducted in Bangalore. Since the
also growing day by day. (AEPC Report), main objective of the study is to know
Garment is one of the sectors, which can the factors that block the
also absorb sizeable portion of such implementation of Bar Code in
unemployed. The industry presently Apparel Retailing, the respondents
employs approximately 5.5 million persons were apparel retailers. Initially,
directly and indirectly and 35-40 percent sample size of 150 had been planned,
of these are women. The growth rate in but responses were received finally
this industry during 2005-06 has been from 100 samples which were from
approximately 25 percent. However, to Malleshwaram 22, Jayanagar 26,
continue the growth the apparel sector Banashankari 19, M.G.Road 17, and
would need a capacity expansion Rajajinagar 16. Questionnaire was
involving Rs 1940 billion (US$ 43 billion)
administered on the owner or the
and a workforce support of 14 million
Manager of the shop. Among the
people over the next five years. Such
respondents, 21 were ladies wear
growth would need technology support
retailers, 03 were kid’s wear retailers,
and Bar code is one of the most important
39 Men’s wear retailers and 37 were
and elementary technology which would
retailers in all category of apparel
be used extensively in the sector.
products. Ownership profile of
The objectives of the study are mainly respondent retailers is skewed more
focused on factors blocking the towards sole traders (46), followed
implementation of Bar Code Technology by partnership (24), company show
in apparel retailing. This would helps room (20) and Joint family (10).
technology providers, government,
retailers and other stakeholders to Formulation of Questionnaire
address this issue. The main objectives The survey questionnaire had
of the study are: seventeen statements for non-
Veena, Factors Blocking the ... 127

implementation. The responses were their total variance explained by five

collected on a five point Likert Scale factors is 71% as in Table- 1. Results
ranging from 1 (Strongly Agree) to 5 of the exploratory factor analysis
(Strongly Disagree). Five point Likert revealed 12 significant items in five
scale being the simplest and easy to factors (see table – 2). Cronbach á
understand, is suitable for this values are as shown in table -3. The
category of respondents. Factor reliability test indicates that, á values
analysis was used as the statistical tool are highly significant (> 0.7) for two
for analysis. dimensions (factors) namely, No
5.0 RESULTS OF ANALYSIS Value addition and Not Operation
friendly and moderately significant
Out of the total respondents, 55 (>0.5) for one dimension namely ,
respondents have not implemented Bar acceptability.
Coding in their shops. The rest have
implemented the Bar coding. The analysis revealed the following
From the above, it can be concluded
Factor 1 : No Value addition
that the percentage of non
implementation of Technology by Factor 2 : Not Operation friendly
apparel retailers is about fifty-five
Factor 3 : Less Turnover
percent. Bar Coding technology is one
of the elementary technologies in Factor 4 : Acceptability
Retailing. When this is the scenario for Factor 5 : Rigidity
Bar Coding, it can be concluded that
implementation of high-end Factor 1: No Value addition
technologies like RFID in retailing The factor 1 stands for the common
RFID and Tunnel scanning may have to perception of the respondents about
wait for long time in India. the value addition. This dimension
The factors with factor loadings > 0.60 includes ‘doesn’t help to avoid theft’,
were considered as significant under ‘doesn’t facilitate to maintain error
each dimension. The Cronbach á free account’, ‘doesn’t add any value
values were calculated for logical in billing’, ‘doesn’t enhance the
group of factors with factor loadings customer satisfaction’, ‘doesn’t
> 0.60 in each component. The Eigen facilitate in fixing accountability’, and
values of selected factors were greater ‘doesn’t facilitate better inventory
than 1. The individual percentages of management’. This reveals that the
variances for the factors are 27.760, apparel retailers who have not
13.260, 12.245, 9.173, and 8.849 and implemented Bar Code in their shops
128 Vilakshan, XIMB Journal of Management ; September, 2007

Table - 1 : Total Variance Explained

Com Initial Eigenvalues Extraction Sums of Rotation Sums of

ponent Squared Loadings Squared Loadings

Total % of Cumu- Total % of Cumu- Total % of Cumu-

Variance lative % Variance lative % Variance lative %
1 5.435 31.970 31.970 5.435 31.970 31.970 4.719 27.760 27.760
2 2.464 14.496 46.467 2.464 14.496 46.467 2.254 13.260 41.020
3 1.654 9.731 56.198 1.654 9.731 56.198 2.082 12.245 53.264
4 1.390 8.174 64.372 1.390 8.174 64.372 1.559 9.173 62.437
5 1.175 6.914 71.286 1.175 6.914 71.286 1.504 8.849 71.286
6 .964 5.673 76.959
7 .877 5.160 82.119
8 .730 4.296 86.415
9 .588 3.458 89.873
10 .454 2.668 92.542
11 .380 2.236 94.778
12 .291 1.713 96.490
13 .227 1.337 97.827
14 .157 .921 98.748
15 .106 .623 99.371
16 .061 .361 99.732
17 .046 .268 100.000

Extraction Method: Principal Component Analysis.

perceive that the use of Bar code do The retailers perceive that the Bar
not add any value in security, accounts Coding neither enhances the operation
or in customer perception. efficiency nor enhances the image of the
Factor 2: Not Operation friendly
Factor 3: Less Turnover
The two significant items in this factor
are ‘Our present operation system For the third dimension, ‘Shop’s
doesn’t require Bar Coding’ and Turnover is not sufficient for Bar Code
‘Willn’t enhance the image of the shop’. implementation’ is only the significant
Veena, Factors Blocking the ... 129

Table - 2 : Rotated Component Matrix (a)

1 2 3 4 5
not sufficient turnover -.088 .105 .872 -.080 .017
operation .028 .911 .088 -.118 -.140
not enhancing the image .045 .826 .114 .248 .255
attraction of customers -.101 .057 -.166 .697 .112
inventory management .529 -.362 -.331 .014 .205
value in billing .720 .181 .295 .185 -.187
error in billing .583 .316 -.058 .071 -.365
reduce no of employees .552 -.130 .129 .227 .486
matching ambience .358 .385 .432 -.034 -.123
avoid theft .881 .007 -.031 -.185 .134
error free account .892 .226 -.102 -.074 .081
customer satisfaction .766 -.058 .253 .159 .177
fixing accountability .615 .185 .438 .213 .394
better inventory man .647 -.151 .539 -.044 -.065
flexibility in selling price .374 .429 .556 -.220 .187
rigidity in accounting -.057 -.063 .038 -.023 -.833
do not facilitate bar coding .172 -.023 .038 .860 -.036

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser
Normalization. a Rotation converged in 7 iterations.

item. For implementation of deal with. Big chunk of retailers feel the
Technologies turnover of the shop is a other way for implementation of Bar
significant deciding factor. Code Technology in their shop.
Factor 4: Acceptability Factor 5: Rigidity
The Acceptability factor includes ’Doesn’t This dimension includes the item ‘Bar
attract additional customers’ and ‘All my Coding leads to rigidity in accounting’.
products do not facilitate use of bar This item got a negative response, which
coding’ are the two significant items. If implies that the retailers who have not
any technology is to be acceptable to the implemented bar coding have a
retailers it has to result in increased sales perception that favours the
and it has to suit the products the retailers implementation of Bar Coding. They
130 Vilakshan, XIMB Journal of Management ; September, 2007

Table –3 : Factors that Blocks the implementation of Bar Code

Sl. Dimension Perception item Cronbach

No alpha
1 No Value addition a. Doesn’t help to avoid theft. 0.890
b. Doesn’t facilitate to maintain error free account
c. Doesn’t add any value in billing
d. Doesn’t enhance customer satisfaction
e. Doesn’t facilitate in fixing accountability
f. Doesn’t facilitate better inventory management
2 Not Operation a. Our present operation system doesn’t require 0.789
friendly Bar Coding
b. Will not enhance the image of the shop
3 Less Turnover a. Shop’s Turnover is not sufficient for Bar
Code implementation
4 Acceptability a. Doesn’t attract additional customers 0.552
b. All my products do not facilitates use
of bar coding
5 Rigidity a. Bar Coding leads to rigidity in accounting

opined that Bar coding doesn’t lead to the findings of this study, the retailers
rigidity in accounting. perceive that, bar code doesn’t add any
value and bar code is not operation
friendly. Again, the retailers perceive
The factors that block the that, the bar code doesn’t attract
implementation of Bar Code additional customers. Retailers also
Technology become relevant to address perceive that all products in their shop
the problem of Technology have to be bar code implementation
implementation in retail sector. Thong friendly. All these factors are related
and Yap (1995), in their study have to the perception of the retailers. This
highlighted that, attitude of the has to be addressed by educating the
individual who takes major decisions, retailers. Many of their apprehensions
technological awareness and are due to lack of their exposure to bar
innovativeness becomes important in code product and its benefits. Proper
implementation of technology. As per exposure and training on the usage and
Veena, Factors Blocking the ... 131

benefits of bar code would help to study covers the factors, which blocks
overcome these factors which blocks the the implementation of Bar code
implementation of bar code technology. Technology.
According to CEST, the main barriers
to technology uptake by retailers 8.0 CONCLUSION
include lack of relevant information Technological implementation is
about the key benefits of retail influenced by many factors like scale of
technology. According to acceptability operation, competitive level, type of
factor from our study, retailers have organizations managing retail stores,
mental blocks towards bar code customers’ technology acceptance level,
technology due to lack of information. and whether retail is organized or not.
This can be addressed by circulating In India, unorganized retailers play a
proper literature regarding bar code
major role in retailing as a vast majority
technology among retailers. Achabal
of retailers are unorganized. Indian
and Shelby (1987) have shown that Bar
retailers are highly dispersed and
Code (Universal Product Code) makes
divergent as their customers. Hence,
check out faster, more error free and
helps in lowering the labour cost which there cannot be any technology, which
leads to better customer satisfaction at matches the requirement of all retailers.
a lower cost to the retailer. On the A simple technology like Bar Code has
contrary our study finds that, Bar Code not been accepted in general. Retailers
doesn’t attract any additional have the perception that bar code
customers. This is mainly due to lack doesn’t add much value to their
of awareness about the benefits of Bar business. Proper education, training
code technology. This has to be and information would help to
addressed. Turnover is a factor which overcome the factors which block the
blocks the implementation which cannot implementation of Bar Code
be addressed; to that extent bar code Technology.
implementation would be limited.
Achabal, Dale D. and Mclnytyre, Shelby H.
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urban and rural. The study has not of Mark-ups and Inventories in Retailing
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research study into the views of small Management, June. 18-28.
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Technology, Autumn Integrated Retail Management, Biztantra,
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Continuous and Sustainable Improvement
through Supply Chain Performance
Measurement - A Case Study of an
LCV Manufacturing Company*

Ashwani K. Varma1

Supply chain performance measurement system is an entirely new category of applications in the area
of supply chain management. It provides performance monitoring of supply chain processes. To address
the issues of continuous and sustainable improvement, a comprehensive performance measurement
system is needed. At times of growing pressure in terms of e-commerce, just in time and flexible
manufacturing and deregulated logistics the traditional methods of performance measurement sometimes
are abound with limitations and do not deliver the goods properly. Therefore, it requires holistic methods
of measurement, though isolated attempts have already been made in the form benchmarking, balance
score card (BSC) and supply chain operating reference model (SCOR). However, such a system must
have the ability to define matrices, key performance indicators (KPIs) and exception conditions besides
updating such definitions when the environment changes.
The present paper is an attempt in such a direction. The primary data for the study has been collected
from an LCV manufacturing company

1.0 INTRODUCTION integrated firms to achieve a competitive

Firms never survive in isolation and have advantage in the market. Managers must
to rely on other firms to accomplish a extend their ‘line of sight’ to understand
complex chain of interdependent system-wide performance and the
activities from source-of-supply to the contribution of each firm (Lummus and
end-user. Therefore the success depends Vokurka, 1999). They subsequently need
on the combined capabilities of to develop measures for meeting end-

* Received June 8, 2007; Revised September 12, 2007

1. Lecturer, Government Bikram (PG) College of Commerce, Patiala;
134 Vilakshan, XIMB Journal of Management ; September, 2007

user requirements and aligning firm 2.1 Benchmarking

behaviour with supply chain objectives
An increasingly popular approach for
(Pohlen, 2003). Developing and establishing performance standards,
maintaining a Supply Chain Performance processes, measurements, and objectives
Measurement system represents one of is ‘benchmarking’. A benchmark is a
the most significant challenges faced in standard of performance. Benchmarking
SCM initiatives. The importance of helps organizations to identify standards
performance measurement in SCM cannot of performance and adopt them
be exaggerated. Timely and accurate successfully, which assists them to target
assessment of the whole system and its problem areas, set levels of performance,
various elements is very essential. An and identify solutions to improve results
effective performance measurement (Cook et al., 2001). It is the continuous
system (1) provides the basis to measuring of products, services,
understand the system, (2) influences processes, activities and practices against
behaviour throughout the system, and (3) the firm’s best-in-class companies,
provides information regarding the determining how the best-in-class achieve
results of system efforts to supply chain their performance levels, and using that
members and outside stakeholders. In information as the basis for establishing
effect, performance measurement is the a company’s performance targets,
glue that holds the complex value strategies, and action plans (Lawrence,
creating system together, directing Jenning and Reynolds 1989).
strategic formulation as well as playing
2.2 The Supply Chain Operating
a major role in monitoring the
Reference Model (SCOR)
implementation of that strategy
(Handfield and Nicholas, 2005). A good SCOR modeling is today the most
performance measurement system also is popular methodology to analyze the
actionable. It allows mangers not only to SCM performance of an organization.
identify but also to eliminate causes of The area of supply chain performance
supply chain operational problems so that measurement had been neglected for a
relationships with customers are not long time, whereas in supply chain
permanently harmed (Stank and Lackey, management, timely and accurate
1997). assessment of overall system and its
individual components is very
2.0 CURRENT SUPPLY CHAIN PERFOR- important. The SCOR model was
MANCE MEASUREMENT SYSTEMS developed in November 1996 by Supply
There is a variety of SCM performance Chain Council, organized by Pittiglio
measurement systems prevailing in the Rabin Todd and McGrath (PRTM) and
business world but some important AMR research. It focused on supply
systems are as follows: chain process improvement planning,
Verma, Continuous and Sustainable ... 135

implementation and measurement. • Delivery performance

Primarily, it defined common supply
• Order fulfillment performance
chain management processes and
benchmarked these processes against • Fill rate
available ‘best-practices’. It has been • Order fulfillment lead time
recognized by the 8000 member
companies of the SCC as an effective • Perfect order fulfillment
‘toolkit’ for companies wanting to • Inventory days of supply
upgrade their supply chains for strategic
• Warranty cost or returns processing
advantage. Thus, it has proved to be a
cross industry standard in SCM. The cost
following is the simple representation of • Asset returns
SCOR model:
• Supply chain response time
• Capture the “as-is “state of a process
• Production flexibility
and derive the desired “to-be”
future state (Business Process • Value added productivity
Engineering). • Cash-to-cash cycle time
• Quantify the operational These metrics are used in conjunction
performance of similar companies with performance attributes such as
and establish internal targets based supply chain reliability, supply chain
on “best-in-class” results responsiveness, supply chain flexibility,
(Benchmarking). supply chain cost and supply chain asset
• Characterize the management management.
practices and software solutions Level 2 (Configuration level) defines the
that result in “best-in-class” 26 core supply chain process categories
performance (Best Practices established by the supply chain council.
Level 3 (Process element level) provides
The SCOR model adopts the following information in planning and goal setting
four-level pyramid, which provides for supply chain process improvement.
guide for integrative process It also defines a company’s ability to
improvement. compete successfully in the chosen
Level 1 (Top level) gives definition of the markets and consists of:
five key supply chain process types (plan, • Process element definitions
source, make, deliver and return). At this
level a company makes basic strategic • Process element information inputs
decisions regarding its operations in the and outputs
following areas: • Process performance metrics
136 Vilakshan, XIMB Journal of Management ; September, 2007

• System capabilities level the BSC addresses four key

performance areas: (1) financial, (2)
• Systems/tools
customer, (3) business process, and (4)
Level 4 (Implementation level) focuses on learning and growth. Within each of
implementation of supply chain process these areas, key objectives are identified
improvement efforts. that are driven by the objectives and
The major benefit of this model is that it strategies of the next higher level in the
provides inter-organizational supply scorecard hierarchy; specific performance
chain partners a basis for integration. The measures associated with the objectives,
model is given as follows: performance targets, and initiatives to
achieve the targets are then developed
Figure 1: The SCOR SCM Model (Kaplan and Norton, 1996). The specific
measures necessary to manage supply
The SCOR Model identifies four
S Main processes chain performance will vary according to
P Plan Supply Chain
U customer type, product line, industry and
T other factors.
According to Lummus and Vourka et al.
(1999), since performance measures are
critical to the success of the supply chain,
2.3 Balance Scorecard
companies can no longer focus on
Balance Scorecard (BSC) is an optimizing their own operations and
‘instrument’ to measure the performance managers across an entire supply chain
of the overall supply chain to meet the must collaborate to improve performance
requirements of end customer. It not and obtain the greatest mutual benefit.
only operates at different levels but also Van Hoek (1998) is also of the view that
integrates the different levels to meet the effective supply chain management
objectives of the supply chain. This requires measures capable of capturing
approach, given by Kaplan and Norton inter-firm performance and integrating
incorporates both financial and operating the results to depict overall supply chain
performance measures to be used at all performance. Ellram and Liu (2002) say
levels of the supply chain. The BSC that supply chain performance measures
formally integrates overall objectives and must translate non-financial measures
the strategies undertaken to meet these into financial terms and shareholder
objectives with supply chain-wide value. Similarly, Kallio et al. feel that
performance measures. In other words SCM affects more than costs, and
objectives, strategies, and performance managers must be able to sell the value
measures at the supply chain level are created to senior executives, trading
linked to the organizational level. At each partners, and shareholders. Pohlen and
Verma, Continuous and Sustainable ... 137

Coleman (2005) have applied a general that shows the results of applying the
framework employing a dyadic economic methodology by taking into account
value added (EVA) and activity based intangible aspects such as coherence, trust
costing (ABC) to show how operations and visibility, equity to a collaborative
performance can be evaluated with a supply chain business process called
multi-firm supply chain perspective. The “Forecast Demand Visibility for Suppliers”.
framework can help operations managers
Supply Chain Performance Measurement
achieve supply chain objectives such as
in Swaraj Mazda limited
‘increased shareholder value’ and
‘improved customer service’ by Supply Chain Performance Measurement
providing a concrete roadmap. The focus in Swaraj Mazda limited (SML) is a
is on increasing shareholder value for combination of various above said
each firm in the supply chain by performance measures. It has been
establishing within company and cross- benchmarking with the industry
company links between actions and standards. The performance measures
profits. Juan Jose et al. (2007) present a include not only the financial measures
methodology for measuring collaborative but also the non-financial ones directing
supply chain business process towards maximum customer satisfaction.
performance, which aims to complement
the existing frameworks and overcome
their loopholes. They discuss the basics Swaraj Mazda limited (SML) is a light
of the methodology defining the main commercial vehicle (LCV) manufacturing
elements of performance to be developed. company located in Punjab with the size
Finally, a practical approach is introduced and operating information as follows :

a. Company production 40 vehicles a day

b. Models offered 10 models with 79 variants
c. Manufacturing sequence Based upon demand (Flexible manufacturing)
d. Number of zonal offices 10
e. Number of dealers 130
f. Order receipt and shipment Firm orders are received from the zonal offices once a week
and shipments are made on the same day based on the
factory stocks and shipment date schedule.
g. Demand variation Customer demand is assumed to be normally distributed.
h. Backordering Backordering is allowed but returns to the factory are not
i. Transport lead time 2-3 days (depending upon the location of zonal office/dealer.
138 Vilakshan, XIMB Journal of Management ; September, 2007

The abovesaid information has taken the offices. Then zonal offices send the
shape of supply chain in SML as shown vehicles to the dealers. Customers place
in (Figure 2). This supply chain starts the orders and get the delivery from the
with 1st tier suppliers consisting of dealers only and not from the zonal
foreign suppliers and local suppliers. offices or the company directly. The
Since SML imports various engine whole supply chain involves the flow of
components in complete-knocked-down goods, cash and information and some
condition (CKD), they constitute 1st tier time reverse logistics in the form of
suppliers. These components in raw returned defect and damaged vehicles.
material form or sub-assemblies reach the General Performance Evaluation
factory stores for assembly.
General Performance Evaluation of SML
has been made with reference to the
After manufacturing/assembly the
following performance Parameters:
finished vehicles reach the factory
stockyard for dispatches to zonal 1. Market share %

Figure 2: Supply Chain Model of SML

Physical Flow of Goods

Cash Flow

F Zonal
A Office D
Suppliers T A C
R Zonal E
Office S
O Office E R
Local A R
Supplier R Zonal K
D Office

Information Flow
Verma, Continuous and Sustainable ... 139

Table 1: General Key Performance Indicators of SML

Year % Mkt. ADP VP/Emp NP/Emp OP/Veh EPS(Rs) PBT/ ITR MH/Veh
Share (No) (PA) (Rs)ml (RS)ml TO%

1995 3.7 7.21 6.6 1.5 .018 7.2 .29 5.36 34.21
1996 3.9 7.89 7.7 1.03 .023 4.7 2.78 5.12 39.28
1997 4.1 8.51 6.9 1.12 .021 6.4 3.02 4.89 41.04
1998 4.5 9.59 5.0 1.29 .022 5.79 4.57 5.21 40.33
1999 5.2 13.37 4.9 .52 .021 2.44 2.26 5.16 40.56
2000 6.6 17.37 6.9 .64 .023 2.70 1.99 6.67 42.02
2001 8.0 21.2 8.7 1.08 .022 3.8 2.75 5.89 40.54
2002 13.1 27.34 10.5 1.73 .026 6.46 3.49 6.17 39.13
2003 13.5 34.74 11.06 1.98 .025 13.7 6.04 6.49 41.23
2004 14.8 42.29 12.91 2.01 .024 20.03 6.78 7.36 40.89
2005 16.7 41.07 12.54 2.13 .032 23.13 6.41 7.33 41.27
2006 18.1 42.1 13.14 2.19 .035 16 4.13 6.42 41.69

% Mkt. Share : Percentage Market share

ADP (No) : Average Daily Production
VP/Emp (PA) : Vehicle Production per Employee
NP/Emp (Rs) ml : Net Profits per Employee
OP/Veh (RS) ml : Operating Profit per Employee
EPS (Rs) : Earnings per Share in Rs
PBT/TO (%) : Percentage of Profit before Tax to Turnover
ITR : Inventory Turnover Ratio
MH/Veh : Man hours per vehicle

2. Average daily production (No. of 7. Percentage of Profit before Tax to

Vehicles) Turnover
3. Vehicle Production per Employee 8. Inventory Turnover Ratio
per annum
9. Man Hour per vehicle
4. Net Profit per Employee (Rs in
Table 1 depicts some general performance
parameters of SML over the years.
5. Operating profit per vehicle (Rs in
Performance and trends in various
general performance indicators have
6. Earnings per Share (Rs) been briefly described below:
140 Vilakshan, XIMB Journal of Management ; September, 2007

Fig. 3: Trends of Market Share Fig. 5: Trends of Vehicle production per empolyee

Fig. 4: Trends of Avg. daily Production Fig. 6: Trends of Net Profit per Employee

Market Share: LCV industry in India has service network across the country, the
eight active players. While two are market share of SML reached double
almost fully in the below 5 ton segment, figure i.e. 13.1% in 2002, 13.5% in 2003,
5 cater to the higher payload segment 14.8% in 2004, 16.7% in 2005 and 18.1%
and 1 spans all segments. Thus there is in 2006.
huge competition in LCV industry.
Average Daily Production: Average
Although the demand of light commercial
daily production as shown in Figure 4,
vehicles had reduced in the mid nineties
which was meagre 7.21vehicles in 1995,
due to volatility of fuel prices, low rate
7.89 in 1996, 8.51 in 1997 and 9.59 in 1998
of industrial growth, stagnant freight
and started galloping in 1999 by touching
rates, tapering of import/export activity
13.37. Introduction of new technology
and lack of infrastructural investment,
and models, collaboration with vendors
the company has been successful in
and infrastructural development further
keeping its market share rising. As
boosted the production to 17.37 in 2000,
shown in Figure 3 the market share
21.2 in 2001, 27.34 in 2002, 34.74 in 2003,
increased from 3.7% in the year 1995 to
42.29 in 2004, 41.07 in 2005, and 42.1 in
3.9% in 1996, 4.1% in 1997, 4.5% in 1998,
5.2% in 1999, 6.6% in 2000, and 8.0% in
2001. In the new millennium, the Vehicle Production per Employee:
company widened its dealers’ and Vehicle production per employee
Verma, Continuous and Sustainable ... 141

increased from 6.6 in the year 1995 to 7.7 profits of SML. Profit per vehicle was
in 1996. (The trends have been shown in Rs.0.018 million in the year 1995. It
the Figure 5). Then, because of sudden increased to Rs.0.023 million in 1996.
heavy rush of employees due to creation From the year 1996 to the year 2001 it
of more infrastructure, vehicle remained almost constant. From the
production per employee registered a year 2002 it again started picking up
decrease in the coming years. It was 6.9 due to more demand of products and
in 1997, 5.0 in 1998, 4.9 in 1999, and 6.9 in with the introduction of cost control
2000. Later on with the new industrial and inventory control measures. SML
policy and introduction of new variants, started using information technology,
it started picking up and increased to 8.7 CPFR and vendor managed inventory
in 2001, 10.5 in 2002, 11.06 in 2003, 12.91 resulting into higher profits. In the
in 2004, 12.54 in 2005, and 13.14 in 2006. year 2005 and 2006 it was remarkably
high with Rs.0.032 million and Rs.0.35
Net Profit per Employee: Figure 6
million. SML also obtained more export
depicts the trend of profits earned per
orders during this period.
employee. SML registered Rs 1.5
million net profits in 1995, 1.03 in 1996, Earning per Share: EPS has registered
1.12 in 1997 and 1.29 in 1998. However, fluctuations (see Figure 8) from the year
with additional import duty, modvat 1995 to the year 2001. It decreased from
allowance and devaluation of rupee in Rs.7.2 in 1995 to Rs.4.7 in 1996. It
the international market, and the increased slightly to Rs.6.4 in 1997 but
recruitment of more employees, profit again dropped to Rs.5.79 in 1998. Years
per employee reduced to Rs.0.52 1999, 2000, 2001 showed depression in
million in 1999 and Rs.0.64 million in EPS. Realizing a threat to its survival,
2000. After the year 2000, SML broad- the company adopted new business
based its product range and redressed strategies such as getting vehicles
for a wider market segment, thus profit financed to its customers, and
per employee recovered and reached manufacturing customized vehicles. As
Rs 1.08 million in 2001, Rs 1.73 million a result of the efforts, EPS rose to Rs.6.46
in 2002, Rs1.98 million in 2003, Rs 2.01 in 2002, Rs.13.7 in 2003, Rs.20.03 in 2004,
million in 2004, Rs 2.13 million in 2005 Rs.23.13 in 2005 and Rs.28.16 in 2006.
and Rs 2.19 million in 2006. Profit before Tax to Turnover: This ratio
Operating Profit per Vehicle: Trends was a meagre .29 in 1995 but in the next
of Operating profit per vehicle have three years it increased manifold to 4.57
been shown in Figure 7. Rise in in 1998. Next four years (As shown in
manufacturing costs and industrial Figure 9) saw this ratio declining due to
recession directly affects the operating the economic recession and high
142 Vilakshan, XIMB Journal of Management ; September, 2007

competition with other LCV increased from 4.89 in 1997 to 7.33 in

manufacturers. This necessitated the 2005. However, it reduced to 6.42 in 2006
introduction of strict control measures. due to the introduction of new variants
With this result, the ratio has seen the to compete in the national and
rise since 2002. The increase has been international market. This shows that
more than double the figure of 2001. in SML is keeping its inventory low with
2006, the ratio has again gone down to the use of latest inventory control
4.13 because the increase in sales is more measures such as CPFR, VMI and ABC
than the increase in profits. analysis.
Inventory Turnover ratio: Since a Man Hour per vehicle: Figure 11 shows
considerable amount of company’s the trends of this ratio. In order to
capital is tied up in the financing of raw compete in the market and the
materials, work in progress and finished introduction of new variants of vehicles,
goods, it is important to ensure that the the productivity of labour is slow during
level of stock is kept as low as possible. this phase. Moreover new skilled labour
There has been a considerable increase had to be recruited to meet the
in the ITR over the period 1997 to 2006 requirements. These factors forced to
as shown in Figure 10. The ratio has increase the man-hours resulting in the

Fig.7: Trends of Operating profit per Vehicle Fig. 9: Trends of % of PBT/ TO

Fig. 8: Trends of EPS at SML Fig. 10: Trends of ITR

Verma, Continuous and Sustainable ... 143

increase of this ratio. The ratio was only the input resources that gives rise to the
34.21 in 1995 and the next five years output performance level. The supply
witnessed the increase to 40.54 in 2001. chain performance makes use of the
Except in the year 2002, when the ratio comparisons made between ten years
was 39.13 it has been constant afterwards from the year 1997 to the year 2006 along
from the year 2003 to the year 2006. with company standard and the industry
Performance and trends in various
performance indicators are briefly
described below:
Performance for on-time Deliveries : The
company used a control chart for on-time
deliveries. The system of calculating
Upper control limit (UCL) and Lower
Fig. 11: Trends of Man Hour per Vehicle control limit (LCL) has been discussed
later. The graphic performance chart for
Productivity Performance Measures such control is shown in Figure - 12.
SML is following a management strategy
that helps the organization to optimize
M an h o u r p e r V e h i

O 51.00
their performance in those areas that re- n .99
Upper Control Limit (.98)
ally matter, achieve preferred LCV sta- i 3.97
tus and survive in extremely competitive m
e 2.95
market. This management philosophy is .94
Process Average (.928)
known as “Operational Excellence”, which e .92
means ‘consistently doing the right things l
i .90
1 3 5 7 9 11 13
Y e a Limit
well’. It requires new solutions that focus v
Lower Control (.88)

on key business issues, continuously mea- r .87

sure performance and drive the organi- .85
Years (1997-2006)
zation towards continuous improvement.
Figure 12: Graphic Performance Chart for
Some of the measures that are important
On-time Deliveries
in supply chain operational excellence are
given in Table 2. Freight cost as a % of distribution costs:
Freight cost ratios measure the logistical
Productivity Report
performance of the firm. SML has been
The productivity report in Table 2 continuously engaged in reducing the
attempts to put activity performance in a freight cost of the finished vehicles, be-
relative perspective. In other words, a cause freight paid is added to the cost of
ratio is formed of output performance to the vehicle to the customer. Figure 13
Table 2: Productivity Performance Measures
Productivity Measures 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Co.Std Ind.Avg
Freight cost as a % of distribution costs 4.25 4.01 4.23 4.36 4.01 4.26 4.67 3.49 3.61 3.89 3.75 3.75
Damage and loss claims as a % of freight costs 0.64 0.59 0.63 0.61 0.59 0.57 0.58 0.57 0.54 0.52 0.50% 0.50%
Freight costs as a % of sales 0.53 0.51 0.51 0.53 0.52 0.49 0.5 0.47 0.45 0.41 0.4 0.4
Inventory Turnover 4.89 5.21 5.16 6.67 5.89 6.17 6.49 7.36 7.33 6.42 6.5 6.5
Obsolete stock to sales 0.1 0.12 0.11 0.09 0.14 0.12 0.13 0.11 0.1 0.14 0.1 0.15
Order Processing
Orders processed per labour hour 24 19 23 27 28 26 27 31 29 30 35 40
% of orders processed within 24 hours 85% 89% 91% 94% 96% 95% 93% 96% 95% 94% 95% 94%
Order processing costs / total number of order processed 22.5 23.4 20.9 18.9 18.3 18.1 17.6 17.2 16.5 15.9 15 15
Factory stockyard/warehousing
% of stockyard utilized 74% 79% 81% 84% 82% 85% 87% 91% 93% 90% 90% 85%
Vehicles handled per labor hour 2 2.1 1.9 2.3 2.4 2.3 2.1 2.7 2.4 2.5 2.5 3
Customer service
Stock availability (% of orders filled from primary stock) 91% 92% 94% 95% 96% 97% 95% 94% 96% 95% 97% 95%
% of orders delivered within 24 hours of receipt 72% 75% 79% 76% 81% 79% 91% 82% 81% 80% 85% 90%
Back orders and split deliveries
144 Vilakshan, XIMB Journal of Management ; September, 2007

(a) Total number 184 167 145 186 193 189 145 137 158 164 160 200
(b) Percentage of total orders 3.50 3.80 4.10 3.97 4.23 3.52 2.98 2.14 3.12 2.15 2.50 2.50
Total Order cycle time
(a) Normal processing 7±2 6±2 7±2 7±2 7±2 6±2 6±2 7±2 7±2 7±2 7±2 7±2
(b) Back order split delivery processing (%) 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3
Order filled complete (Percentage) 100 100 100 100 100 100 100 100 100 100 100 100
Line item fill rate 95% 96% 94% 92% 91% 93% 95% 92% 95% 96% 95% 95%
*% of Customer returns 0.10 0.14 0.11 0.14 0.12 0.12 0.17 0.11 0.13 0.08 0.10 0.15
**% of available production time shutdown NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL
* Due to damage, dead stock, order processing errors and late deliveries
** Due to supply out-of- stock
Verma, Continuous and Sustainable ... 145

shows the trends of the ratio. From the to .54 in 2005. In 2006 again it decreased
year 1997 to the year 2003, the freight to .52 and is gradually inching towards
cost as a % of the distribution cost was the firm standard and the industry aver-
hovering above 4.00 %. But since 2004, age of .50. SML has also been successful
the outsourcing of distribution has in reducing this rate due to the strict to-
proved profitable. The ratio has come tal quality management (TQM) intro-
down to 3.41 in 2004, 3.61 in 2005 and duced in the organization. TQM is not
3.89 in 2006. This has been compatible to confined to one section of the supply
the company standard and industry av- chain rather it has been widely used
erage of 3.75. throughout the supply chain.

Damage and loss claims as a % of Freight costs as a % of sales: As shown

freight costs: Figure 14 shows the trends by the trends in Figure 15, freight costs
of damage and loss claims as a % of as a % of sales was .53 in 1997, .51 in
1998 and 1999, but decreased gradually
freight costs. Outsourcing of distribu-
to .49 in 2002. From the year 2004 to
tion has also resulted in decreased dam-
2006, it has been well under control and
age and loss claims against the firm. It
almost equivalent the firm and industry
has come down sharply from .64 in 1997
average of .4.

Fig. 13: Trends of Freight cost as a % of Fig. 15: Trends of Freight Cost as a % of
Distribution Cost Total sales

Fig. 14: Trends of Damage and Loss Claims as

Fig. 16: Trends of ITR
a % of Total Freight cost
146 Vilakshan, XIMB Journal of Management ; September, 2007

Inventory Turnover: Since a consider- ratio over the years as per trends shown
able amount of company’s capital is tied by Figure 18 It was only 24 in the year
up in the financing of raw materials, 1997and 19 in 1998, but it has improved
work in progress and finished goods, it to 30 orders in the year 2006. SML has
is important to ensure that the level of set the standard of 35 orders per labour
stock is kept as low as possible. There hour to benefit from more automation in
has been a considerable increase in the coming years. The industry average is
ITR over the period 1997 to 2006 as around 40 orders per labour hour.
shown in Figure 16. The ratio has in-
creased from 4.89 in 1997 to 7.33 in 2005. % of orders processed within 24 hours:
However, it reduced to 6.42 in 2006 due SML has the tradition of processing the
to the introduction of new variants to orders within 24 hours of receipt. But the
compete in the national and international processing depends upon the inventory
market. This shows that SML is keeping kept in stores. The company is maintain-
its inventory low with the use of latest ing an inventory of five days depending
inventory control measures such as on the lead time. With the introduction
CPFR, VMI and ABC analysis. of information sharing through CPFR
and VMI, it is trying to come closer to
Obsolete stock to sales: The components
JIT concept. As shown by the trends in
and the sub assemblies have very lesser
Figure 19 the ratio was only 85% in 1997,
chances of becoming obsolete, except
89% in 1998 and 91% in 1999. The intro-
when the technology changes. When ever
new variant is introduced it is generally duction of technology has increased it up
improvised to the old one. Due to this to 96% in 2001 and 2004. With this rea-
reason, SML has been keeping very low son, the company has set the target of
level of obsolete stock. As shown by the 95% as compared to an industry average
trends in Figure 17, the ratio has been of 94%.
around 0.1 in all the ten years from the Order processing costs/total number of
year 1997 to the year 2006 with marginal order processed: Leveraging the informa-
changes. Though the industry average is tion technology has reduced the order
0.15, SML is maintaining lesser than that. processing costs in SML. Figure 20 exhib-
Orders processed per labour hour: The its the trends of this ratio. It was 22.5 in
introduction of EDI and Internet has fa- 1997, when the orders were consolidated
cilitated the receipt of orders from the delivered manually once or twice a week.
zonal offices on daily basis. Earlier the But gradually, the use of Internet and EDI
orders were consolidated by zonal offices have reduced this to 17.6 in 2003, 17.2 in
after three days and transmitted through 2004, 16.5 in 2005 and 15.9 in 2006. SML
speed post. But now the orders are trans- is targeting it to 15 at par with the indus-
mitted instantly. This has increased this try average.
Verma, Continuous and Sustainable ... 147

% of stockyard utilized: On the down- Vehicles handled per labour hour: As

stream level side of SCM in SML, the shown by Figure 22, the ratio has in-
efficiency has been measured in terms creased close to the company standard
of % of FSY utilized (Figure 21). SML is of 2.5 and industry average of 3 vehicles
following a combination of push-pull handled per labour hour. Though the pro-
based production system. In this sys- duction of vehicles have increased mani-
tem the company does not keep inven- fold from 1997 to 2006, at the same time,
tory of finished vehicles, rather stock the number of persons employed has also
of semi-finished vehicles is kept. This increased in the same ratio.
system keeps the stockyard unutilized.
Even then the ratio has been closer to Stock availability (% of orders filled
the company standard and the indus- from primary stock): SML maintains an
try average of 93% and 90 % respec- inventory of 3-5 days of ‘A’ class items.
tively. SML has been successful in in- The lead time of ‘B’ and ‘C’ class items is
creasing this ratio from 74% in 1997 to less. This has proved to be profitable for
91% in 2006. An experimental track has the firm. As shown by the trends in Fig-
also been established for trial purposes ure 23, the ratio has always been more
in FSY. than 90%. Because the lower ratio leads

Fig.17: Trends of Obsolete Stock to sales Fig. 19: Trends of % of Orders processed
Within 24 hours

Fig.18: Trends of Orders Processed Fig. 20: Orders Processing Costs/ Total
Per Labour hour Orders Processed
148 Vilakshan, XIMB Journal of Management ; September, 2007

to back orders and lowering of the ratio p = Total number of on-time deliveries
means losing the business to competitors.
Total number of deliveries
In the vicinity of the firm, daily milk runs
of vehicles is maintained to bring the = 928/10x100 = 0.928
stock to the firm. The ratio has improved The standard deviation of the
a lot from 91% in 1997 to 96% in the year sampling distribution for a sample size
2001, 97% in 2002. In 2003 and 2004 de- of n = 100 is
creased, but in 2005 and 2006 it has again
recovered and matched with the indus- δp = √p(1-p)/n = √.928(1- .928)/100
try average.
= .0258
% of orders delivered within 24 hours
of receipt: Since SML keeps an inventory
of 3-5 days; therefore it tries to dispose
The upper and lower control limits (UCL,
off the orders received within 24 hours.
LCL) on this process for a z = 1.96 at 95
As per Figure 24 it was 72% in 1997. Soon
SML realized that that in order to % confidence are:
compete in the market and to stop back
UCLp = p + z (δp) = 0.928 + 1.96 (0.0258)
ordering, it was essential to execute the
orders within 24 hours. The inventory = 0.978 = 0.98
policy was changed and gradually it
LCLp = p – z (δp) = 0.928 – 1.96 (0.0258)
increased to 81% in 2001, 79% in 2002 and
91% in 2003. In order to increase this ratio = 0.877 = 0.88
SML had to keep excessive inventory,
which proved detrimental for the Back orders and split deliveries (Total
profitability of the company. In 2004, it number): it represents those orders
was repaired to 82% and 81% in 2005 and which were not accomplished out of
80% in 2006. current stock. The more the back orders,
the more are the chances of losing the
Total number of on-time deliveries
business to competitors. As shown in
Total number of deliveries Figure 25, the total number of back
= 928/10x100 = 0.928 orders and split deliveries were 184 in
1997, 167 in 1998 and 145 in 1999. The
Practically the company wants at least market recession and the introduction of
90% of the vehicles to be delivered within new variants again increased it to 186,
this time period. A data of last ten years 193 and 189 in the year 2000, 2001 and
deliveries have been collected. The 2002 respectively. Pull system of
process can be represented by a p-chart production and the JIT concept helped
as shown in Figure 23. The process SML to achieve 145, 137, 158 and 164 in
average (p) is found by the year 2003 to 2006. SML has set the
Verma, Continuous and Sustainable ... 149

Fig. 21: Trends of % of Stockyard Utilized Fig. 23: Trends of % of Orders filled From
Primary Stock

Fig. 22: Trends of Vehicles Handled Fig. 24: Trends of % of orders delivered
Per Labour hour within 24 hours of receipt

target of 160 with an industry average 2.15% in 2006. The tolerance limit is 2.5%
of 200 orders. as per company standards and the
Back orders and split deliveries industry average.
(Percentage of total orders): the orders Total Order cycle time Normal processing
received by the dealers and zonal offices and Back order split delivery processing
are first set off against their own stock. are based on the distribution of order
The balance of orders is sent to the cycle times at the 95th percentile.
factory stockyard for replenishment.
Order filled complete (Percentage): As
SML tries to fill the orders immediately
per trends shown by Figure 27, the
or within 24 hours of receipt of orders.
percentage of orders filled complete has
The percentage of such orders as per
always been 100%. Though the
Figure 26 was 3.50% in 1997, 3.80% in
percentage of orders filled during 24
1998 and 4.10% in 1999. in the year 2001,
hours of receipt may vary, but the
it again went up to 4.23%. Thereafter, the
completed orders is always cent percent.
strict inventory control and
Since lowering of this ratio means losing
manufacturing planning and control
the business to competitors, therefore
measures reduced this percentage to
SML will never afford lower this ratio.
150 Vilakshan, XIMB Journal of Management ; September, 2007

Fig.25: Trends of Back orders and Split Deliveries Fig. 27: Trends of % Order Fill Rate

Fig. 26: Trends of Back Orders and Split Fig. 28: Trends of Line Item Fill Rate
Deliveries as % of Total Orders

Line item fill rate: It is the most Customer returns: Customer returns in
important component of customer SML usually arise due to the color
service showing the number of combinations, seating arrangements,
customer orders filled within 24 hours enhancement of capacity and insignificant
due to the availability of line items. That component defects. Returns have always
is why SML is maintaining an inventory been very less due to manufacturing/
of 3-5 days of line items. As per Figure assembly defects due to strict quality
28, the rate was 95% in 1997 and 96% control systems. The ratio as shown in
in 1998. In the year 2000, and 2001, due Figure 29 was 0.10% in 1997, 0.11% in
to the introduction of new variants, the 1998. It went up in 2003 due to the
ratio dipped to 92% and 91% introduction of new variants, but again
respectively. However, later in the year it came down to 0.11% in 2004, 0.13% in
2005 and 2006 the ratio became equal 2005 and 0.08% in 2006. The company
to the company standard and the standard has been set at 0.10% against
industry average of 95%. On time the industry average of 0.15%.
deliveries to customers increase the % of available production time
total revenue because satisfied shutdown: Strict inventory control,
customers buy more products. manufacturing planning and control and
Verma, Continuous and Sustainable ... 151

Fig.29: Trends of % Customer Returns Fig. 30: Trends of % of Available Production

Time Shutdown

total quality management measures status of the firm. Inventory is considered

adhered by SML has kept this ratio as an investment because it is created for
NIL (Figure 30) from the year 1997 to the future use having opportunity value.
year 2006. Company has never faced any Managing the supply chain so as to reduce
production time shutdown due to the the aggregate inventory investment will
non- availability if raw material, labor reduce the total asset portion of the firm’s
unrest, or machine break-downs. balance sheet. An important measure is
return on assets (ROA), which is net
5. 0 STRATEGIC PROFIT MODEL income divided by total assets.
The most popular tool for measuring Consequently reducing aggregate
overall supply chain performance is the inventory investment will increase ROA.
Strategic Profit Model (similar to Du Inventory turnover is also reflected in
Pont’s Chart). The main advantage of this working capital, money used in financing
model is that it aggregates many other ongoing operations. Increased inventory
measures into one common measure of cost requires increased payments to
return on assets (ROA). The following suppliers. Increased inventory turnover
Figure 31 shows the Strategic Profit reduces the pressure on working capital
Model indicating the calculation of return by reducing inventories. It can be
on assets. ROA indicates how well each accomplished by improving order
part of the supply chain, and the entire placement, order fulfillment. Reducing
supplier lead times ahs the effect of
supply chain itself is using its resources.
reducing weeks of supply and increasing
This model indicates the relationships
inventory turnover. Matching of input
among various measures.
and output flows of material is easier
Rationale of using ROA as Performance because more reliable demand forecasts
Measurement Tool can be used.
Effective supply chain management has Production and material cost can be
fundamental impact on the financial reduced through effective supply chain
152 Vilakshan, XIMB Journal of Management ; September, 2007

Figure 31: Return on Assets Gross
Cost of
management. Costs of material are difference
goods sold between the sales and variable
Net profit Net profit
determined through the financial costs. Reducing production and material
arrangements with suppliers. And costs, and quality defect costs, increase
production costs are a result of the design theexpenses
contribution margin
Total and produce
and execution of the internal supply chain. greater profits.
In addition, the percent of defects, Fixed
internally and externally also affect the Analysis
and Interpretation of ROA:
cost of operations. Improvements in Based on the elements of Figure 31 the
these measures are reflected in the cost following (Table 3) are the results of ROA
of goods sold and ultimately in the net calculated
Inventoryfor the last twelve years.
income of the firm. They also affect The individual figures of Sales, Net
contribution margin, which is the Profits,
Accountsand TotalCurrent
Assets may be Asset
receivable assets turnover
Table 3: Trends of ROA Total
Other current Fixed
Year 95 96 97 98 99 2K 01 02 03 04 05 06
assets assets
ROA .0123 .0155 .0173 .0179 .0153 .0163 .0171 .0177 .0265 .0297 .0305 .0215
Verma, Continuous and Sustainable ... 153

increasing or decreasing over the period, regard to the rest of the supply chain.
but the ultimate effect is to be seen on However, one parameter for one part
the ROA. The trends given in Figure 32 of the supply chain is not good for the
indicate that ROA has increased from the entire supply chain. Therefore,
year 1995 till 1998. In the year 1999, ROA performance measurement should focus
decreased sharply due to additional on the entire supply chain. Keeping this
import duty, modvat allowance and in view, a comprehensive supply chain
performance evaluation method has
been adopted by SML

Cook J S, DeBree, K and Feroleto, A (2001). From
Raw Materials to Customers: Supply Chain
Management in the Service Industry”, SAM
Advanced Management Journal, 66(4): 14-21.

Ellram, L M and Liu, B (2002). “The Financial

Figure 32: Trends of ROA Impact of Supply Management”, Supply
Chain Management Review, 6(6): 30-37.
devaluation of rupee in the international
Handfield, Robert B and Nicholas, Ernest L
market. Then from the year 2000 to 2005
(2005). Introduction to Supply Chain
it has improved a lot and almost Management, India: Pearson Education,
doubled. Due to consistent efforts of the
Jose, Juan; Saiz, A and Raul, Rodriguez (2007).
management with strict inventory and
“A Performance Measurement Model for
production controls, TQM and
Measuring Collaborative Supply Chain
introduction of new variants in the
Process”, The Icfai Journal of Supply Chain
competitive market have contributed to Management, IV(1): 49-64.
the improved ROA. During 2006, a new
Kaplan, R S and Norton, D P (1996.) “The
variant of LCV has been introduced, SML
Balanced Scorecard- Measures that drive
had to import the technology and costly
Performance”, Harvard Business Review, 70(1):
components from Japan in CKD (complete
knocked down) condition. Therefore the
profits suffered in 2006, dipping the Lawrence, Jennings and Reynolds (1989).
ROA. eDistribution, Thomson South-western.

Lummus, R R and Vokurka, R J (1999).

“Managing the Demand Chain through
Previously each company would often Managing the Information Flow: Capturing
focus on measuring its performance in Moments of Information”, Production and
terms of its own objectives without Inventory Management Journal, 40 (1): 16-20.
154 Vilakshan, XIMB Journal of Management ; September, 2007

Lummus, R R, Vokurka, R J and Alber, K L Pperformance using Eva and ABC”, SAM
(1998). “Strategic Supply Chain Planning”, Advanced Management Journal, 21(2): 45-58.
Production and Inventory Management Journal, Stank and Lackey. (1997). “Strategy, Structure,
39(3): 49-58. and Performance: A Framework for
Logistics Performance”, The Logistics and
Pohlen, T. L. (2003) A Framework for evaluating
Transportation Review, 31(2): 285-297.
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Transportation Management, 14(2): 1-21. Van Hoek, R I (1998). “Measuring the
Immeasurable-Measuring and Improving
Pohlen, T L and Coleman, B.J (2005). “Evaluating Performance in the Supply Chain”, Supply
Internal Operations and Supply Chain Chain Management, 3(4): 187-192.
Trade Protection Measures (TPM):
Issues and perspectives*
Sridhar Panda1 & Rajiv Arora2

The liberalization, privatization and globalization (LPG) wave of early nineties and emergence of World
Trade Organization (WTO) in 1995 has changed the dynamics of conduct of international trade across
the globe. While tariffs are no doubt getting lowered, WTO’s cherished objective of ensuring free and fair
trade is adversely affected by unfair trade practices including application of non-tariff barriers (NTBs).
The resultant distortion in “Terms of Trade” is eroding the level playing field for various trading
partners. Today governments are mandated to intervene only to regulate the distorted market by the use
of legitimate Trade Protection Measures (TPMs) such as Anti-Dumping (AD) measures, countervailing
(CVD) measures and safeguard (SG) measures provided under the WTO framework. Amongst these
three TPMs, AD is most widely and frequently used as it is indeed a potent instrument to address
unfair trade practice of dumping. However, while use of TPM on the one hand is essential for domestic
protection, its over and frequent use on the other hand could provide a continued and over protection to
Domestic Industry, thereby adversely impacting the other stakeholders in the value chain. The frequent
use of AD is also generally counter productive as it erodes efficacy of the measure by encouraging the
adversely affected stakeholders to circumvent the applicability of such measures. In this paper, the
authors have examined the rationale and the overall economic impact of such TPMs, especially of Anti-
Dumping, to some extent with reference to India.

1.0 INTRODUCTION the multi-lateral rules enshrined in the

The emergence of World Trade GATT Treaty. The basic objective of
Organization (WTO) in 1995 heralded a promoting and facilitating free and
new era in the global trading system. multi-lateral trade therefore remained
The deficiencies of its predecessor, i.e., only a cherished goal. With the
General Agreement on Tariffs and emergence of WTO, the issues
Trade (GATT) led to non-adherence to concerning free and fair trade have been

* Received August 6, 2007; Revised September 1, 2007

1. Director (PGP & Academics), Fortune Institute of International Business, New Delhi;
2. Director (International Relations), Ministry of New and Renewable Energy, Government of
India, New Delhi, email:
156 Vilakshan, XIMB Journal of Management ; September, 2007

addressed in a much more The first AD legislation was adopted

institutionalised manner especially with by Canada in 1904 and subsequently by
the setting up of dispute settlement other countries viz., New Zealand
body (DSB). While no doubt free trade (1905), Australia (1906) and USA (1916).
is the most cherished goal, the fairness Canada initiated first Anti-Dumping
in conduct of trade on the other hand is case on steel being imported from US.
also essential for the gains of trade to According to Hufbaur (1999) in the
be equitably distributed. United States, however, the 1916 Anti-
Dumping Act was narrowly aimed at
predatory pricing by foreign exporters.
In 1921, the US adopted an amended
Dumping is defined as exports below the Act, which closely resembled Canada’s
normal value of sales in domestic market anti- dumping law. It was a civil statute
in ordinary course of trade. The to assess penalty duties to compensate
comparison of the export price and the for price differentials. In the same year,
normal value is carried out on an apple the UK also adopted its first
to apple basis, i.e., either at ex-factory antidumping legislation while Canada,
levels or at the consumer price level. New Zealand and Australia
Articles on antidumping in WTO substantially amended their Acts.
illustrate various methodologies on Notwithstanding these developments,
computation of normal value and Anti-Dumping remained a relatively
comparison of export price with normal infrequently used instrument. In the
value. immediate post-war period only South
Africa, Canada and Australia were
It may please be recalled that tariffs
using anti-dumping as an important
were slashed to unprecedented levels
trade instrument. The anti-dumping
after various rounds of negotiations
law was not regulated under
under the auspices of GATT in its first
international law until the adoption of
25 years of existence. However, with
GATT 1947.
the lowering of tariff wall, the
protectionist lobby in the developed In the Kennedy Round (1963-67),
world especially US and Canada regulation of anti-dumping rules was
became powerful since 1970s especially taken up in earnest and an international
after the oil shock. This led to code on antidumping procedures was
increasing use of administered adopted. This went into force in 1968
protection like countervailing duties and was named Agreement on the
(CVD), Anti-Dumping (AD) and implementation of Article VI of GATT
negotiations for voluntary export or in short ‘Antidumping Agreement’.
restrains (VERs) which were permitted This formed the basis for the first
within the GATT and WTO framework. European Community anti-dumping
Panda, Trade Protection ... 157

legislation adopted in 1968. However, countries that are not members of

the use of anti-dumping remained very WTO (such as Russia) have also
limited among the contracting parties. acquired their antidumping legislation.
The Uruguay Round more precisely
2.1 Countervailing and Safeguard
defined the rules and procedures of
anti- dumping measures. The new
Agreement introduced more detailed Besides Anti-Dumping, the other two
procedures for initiating and Trade Protection Measures which
conducting anti-dumping could be resorted to are anti-subsidy
investigations and reduced discretion and safeguard investigations. The
with respect to methods used to application of subsidies and
determine dumping and injury countervailing measures is regulated
margins, sun set clause, and particular by the SCM agreement under WTO.
standards for dispute Settlement Prakash (2005) argues that the aim of
Panels to apply in anti-dumping this agreement is not to restrain
disputes. It was expected that higher unduly the right of Governments to
standards of initiations of anti- grant subsidies but to prohibit or
dumping cases would restrain its use discourage them for using subsidy that
by member countries by making it have adverse effect on trade of other
more difficult to file complaints and to countries. The agreement includes two
prove dumping and injury, and by categories of subsidies, viz., prohibited
strengthening the dispute settlement and actionable. A category of non-
system according to Krishna (1997) actionable subsidies have since been
and Roitinger (2002). However, scrapped. According to WTO trade
contrary to the expectation, there was report titled “Exploring Links of
a dramatic increase in the use of anti- Subsidies, Trade and the WTO”(2006),
dumping activity by developing the prohibited subsidies include both
countries in the post Uruguay Round. export subsidies that are contingent on
Antidumping has now evolved into a export performance and subsidies that
global phenomenon with an increasing are contingent on use of domestic over
number of developing countries imported goods. It is on account of the
adopting these laws and making use above principles that countervailing
of them. Out of the total of 2675 cases, action on exports of products from
which were initiated in the 1990s, 1335 India has been initiated. Most of the
cases were filed in the post WTO export promotion schemes including
period of the late 1990s (Gupta,2003). Duty Entitlement Pass Book (DEPB),
Almost all WTO member countries Export Promotion Capital Goods
have now adopted or amended their (EPCG), Duty Free Replenishment
anti-dumping legislation. Some of the Certificate (DFRC) (now Duty free
158 Vilakshan, XIMB Journal of Management ; September, 2007

Import Authorization), tax holidays on decoupled income support) and targets

exports, and preferential export credit to reduce the amber subsidies, resulted
subsidies have attracted countervailing in subsidies being shifted from one box
measures. The effort of Government to the other. As the modalities are to
therefore has been to put in place a tax be established India along with other
neutralization system, which has the developing countries cannot take
direct nexus between exported counter actions against such unfair
products and inputs that go into it so practices of developed countries. The
that the Indian exports could be other Trade Protection Measure,
prevented from the application of which has also been used somewhat
countervailing measures. While the sparingly in India, is the safeguard
Indian exports have faced more than measure.
100 CVD investigations on its exports,
While the anti-dumping and
no anti-subsidy investigation has been
countervailing measures address unfair
initiated by India on imports into
practices of dumping and subsidization
India. However, the major gray area
respectively and are discriminatory
of subsidies has been the agriculture
measures imposed on company and
policy of developed countries such as
product specific basis, ‘safeguard’
the EU, US and Japan. These countries
measures are targeted against increased
had agreed in Uruguay round to
imports, which, may enter in the
reduce the subsidies in their agri-
domestic market of an importing
sector which was never respected. The
Member as a result of its commitment
recent ministerial conference at Hong
to liberalise and are applied on a non
Kong in 2005 addressed it again which
discriminatory basis on specified
resulted in some modest attempt.
products irrespective of their source of
According to Panda (2006) the
agricultural sector is being protected
in developed countries through Ordinarily, no prohibition or restriction
domestic support and export subsidies. can be maintained on importation and
Domestic support measures were no WTO Member can impose duties or
classified on the basis of the extent to other charges on imports of any product
which they ‘distort’ product markets, from the territory of other WTO
into amber box (e.g. input subsidies Members, in excess of those set forth
and price support), blue box (e.g. and provided in its Schedule of
deficiency payment – an incentive not Concessions. These obligations can,
to produce, as a supply side however, be suspended in whole or in
management measure) and green box part or the concessions can be
(e.g. rural infrastructure services, withdrawn or modified by way of a
environmental protection and safeguard measure, which may be
Panda, Trade Protection ... 159

imposed in the form of either safeguard the conduct of investigation. One aim of
duties levied over and above the the procedural requirements is to provide
commitment made in the Schedule of foreign suppliers and governments
Concessions or in the form of import whose interests may be adversely
quotas. affected by the proposed safeguard
actions with an adequate opportunity to
According to Prakash (2005) the
Agreement on Safeguard authorizes give evidence and to defend their
importing countries to restrict imports interests.
for temporary periods if, after The primary purpose of providing such
investigations carried out by temporary increased protection is to
competent authorities, it is established give the affected industry time to
that imports are taking place in such prepare itself for the increased
increased quantities (either absolute or competition that it will have to face after
in relation to domestic production) as the restrictions are removed. The
to cause serious injury to the domestic Agreement seeks to ensure that such
industry that produces like or directly restrictions are applied only for
competitive products. It further temporary periods by setting a
provides that such measures, which maximum period of eight years for the
could take the form of an increase in application of a measure in particular.
tariffs over bound rates or the
According to annual report by
imposition of -quantitative
Directorate General of Anti Dumping
restrictions, should normally be
and Allied duties (DGAD: 2004-2005),
applied on an MFN basis to imports
in India about 12 safeguard
from all sources.
investigations have been conducted, but
The investigations for the imposition which safeguard duties have been
of such measures can be initiated either imposed in 8 cases only. In 4 cases, the
by the government itself or on the safeguard duties were not imposed on
basis of a petition from the affected account of consideration of public
industry. In practice, however, the interest. It may be noted that since
investigations are generally initiated safeguard measures are applied under
on the basis of petitions from the unforeseen situation of flooding of
affected industry. imports and consequential serious injury
The Agreement lays down the criteria and are not per se redressal against an
which investigating authorities must unfair trade practice, their application
consider in determining whether requires reciprocity in concession to
increased imports are causing serious affecting trading partners and
injury to the domestic industry. It also restructuring of domestic industry as
sets out basic procedural requirements for per a time bound restructuring plan.
160 Vilakshan, XIMB Journal of Management ; September, 2007

Also addressal of public interest issue exports. Therefore, the policy objective
is extremely stringent unlike in the that follows from this is
other two Trade Protection Measures, straightforward: to convince the user
which are invoked on account of unfair countries to apply antidumping actions
trade practices. On account of these less frequently. Further, legal analysis
aspects the safeguard measures are supports that recent expansion of
difficult in terms of relief to domestic national definitions of dumping,
producers. This therefore place subsidization and injury are within the
enormous burden on the usage of Anti- limits of the GATT specification, so it is
Dumping measures. probably safe to assume that the unfair
trade cases and actions do not violate
the GATT.
On the other end of the spectrum are
The case for anti dumping laws was first the lawyers, trade administration
made authoritatively in 1923 by Jacob officials and politicians who are
Viner (1923), who argued that dumping supportive of mechanism of trade
did occur, that it was an economic threat remedy laws and have ensured their
and that national laws to counter continuance. They consider those trade
dumping were appropriate and remedy laws as safety valves for
desirable. However, a large number of recourse against unfairly traded
economists such as Finger (1993) and imports and thus a price to be paid for
Bhagwati (1988) have ‘questioned the public support for free and open trade
use of anti dumping laws by the system. According to them
countries. It has been argued that in antidumping laws have helped to
practice AD duties have been used to support the creation and continued
give undeserved protection to domestic operation of the world trading system.
producers and it ‘has become a threat It is not an accident that most of the
to the system of free trade and needs to frequent users of antidumping laws -
be abolished. The most appealing option the US, the EU, Canada and Australia
is to get rid of anti dumping laws and have been historically the supporters of
to put nothing in their place. They were open trade and the world trading
just ordinary protection in that they system. Their logic is simple: countries
served the national economic interest of that practice protectionism do not need
neither the victim nor the regulator antidumping laws; barriers that keep
country. The logic behind this is the out imports, by definition also keep out
usual logic of economic: a trade dumped imports. It is only those
restriction harms the overall economic countries that open their market that
interests of the country that applies it, find the need for some recourse against
just as it harms the country which unfairly traded imports. In addition,
Panda, Trade Protection ... 161

assurances that imports are fairly reported. According to Steele (1996)

traded support a domestic political AD measures are a political balancing
consensus in favour of open markets. of trade liberalization objectives under
Mastel (1998) is of the view that WTO and member nations concern for
countries like Mexico, South Africa, a level playing field for their domestic
Korea, India, etc. have increased use of industry. AD measures though legally
anti dumping laws coinciding with their mandated by WTO are not good
plans for liberalization of trade policy, economics. In a case of cut flower
strengthens this premise. industry in Colombia, the non
computation of net economic benefits
A computable general equilibrium
of impact have not highlighted the
model has been used in a study
gains in terms of employment by the
conducted in USA in 1995 to measure
imports which were a positive effect
economy wide effects of AD measures
and opposes attempts to levy
in USA in specific sectors/products viz.
frozen concentrated orange juice, lamb
meat, EPROMS, colour picture tubes, In a critical evaluation of antidumping
solid urea, brass sheet and strip and measures, a favourable treatment has
welded steel pipes and tubes. The been meted out to dominant producers
study also covers the trend analysis of and that there are reasons other than
AD/CVD measures since 1980 and dumping for imposition of AD
their effects on producers and measures. According to Banik (2001)
consumers and upstream and the AD measures are NTBs and it is
downstream linkages. The domestic the loopholes in the AD code which
market effects are examined with leads to such an use. The effects of
respect to price, output, revenue and dumping include cost to society and
employment, while imports are consumers, distortion in bilateral trade
analyzed with respect to price, volume relations, effect on exports, trade
and revenue. The effects like FDI diversion, and erosion of country’s
inflows to cope with AD measures, image and credibility. A log linear
emergence of aggressive competition, model evaluates negative effect on
trade diversion and limited price India’s exports due to AD measures.
increase were reported. There exists Banik further argued that irrational
inherent tension between the AD imposition of AD measures,
measures and competition policy. undermining of the spirit and rationale
Effects of AD measures viz. of AD measures from the initial set
misallocation of resources, objective, pressure by lobbies, and
subsidization in home market, export authority caving in to the demand of
of unemployment and predation in the lobbies. AD measures do not stand
circumstances of sales below cost is the tests of sound economic rationale
162 Vilakshan, XIMB Journal of Management ; September, 2007

models viz. Consumer welfare to the Anti-Dumping measures.

argument, strategic trade policy Lindsey and Ikenson (2006) argue
argument, or optimal tariff argument through concentrating on the rhetoric
while imposing an AD measure. It is and reality of US Anti-Dumping Law
concluded that even the political that lobbying for ensuring protection
economy argument does not pass the to domestic industry plays a vital role.
test of Predation. The methodological The flaws in the Anti-Dumping Laws
and institutional aspects of the AD also support the cost for protectionism.
measures also make the AD regime Erixon (2006) also underlines that the
protectionist and arbitrary. Aggarwal factors of political economy explain
(2003) is of the view that the much of the use of Anti-Dumping
competition policy is an appropriate measures. Although EU favours a
substitute to AD measures or use of reform of Anti-Dumping permissions
AD measures be restricted only in and WTO reform but it also continues
situations of Predation with injury test to be an user of Anti-Dumping
as stringent as antitrust laws measures especially against China. Li
Debroy (2006) mentions that free trade (2006) argues that the treatment of
is only a myth under WTO/GATT non-market economy during 2016 and
system. The author argues that Anti- lack of adequate legal capacity has led
Dumping agreement is an exemption to Anti-Dumping cases against China.
to free trade principles enshrined Similarly arguing an Indian case,
under WTO. The author further Chakraborty (2006) highlights the
elucidates specific aspects of the Anti- protectionist bias and loopholes in
Dumping articles, which bring in Anti-Dumping agreement and the in-
subjectivity and a bias leading to compatibility of Anti-Dumping
protectionist tendencies and thus practices viz-a-viz WTO by various
providing overprotection to the individual countries. The ambiguity in
domestic industry. Raju (2006) argues WTO articles has in fact led to
by highlighting problems with the mushrooming of disputes under WTO.
Anti-Dumping agreement that such Most of the aforementioned authors
Anti-Dumping duties ignore costs have stressed the need to dump the
suffered by consumers and protect Anti-Dumping measures and that a
domestic industry even though they substitute needs to be found out.
represent monopolies. It has further
been argued that in the years to come
Anti-Dumping initiations will not be
reduced as the political reasons in both India as a developing country has
developed and developing countries applied TPM whenever the trade has
will compel member countries to resort been distorted by unfair trade practices
Panda, Trade Protection ... 163

like dumping. As per DGAD’s annual initiated against Indian exports of

report 2005-06, between 1992 and 2005, which 95% are initiated by EU, US,
about 300 Anti-Dumping investigations South Africa and Canada. 60% of these
including reviews have been conducted cases have resulted in definitive
on imports into India of which only 5% measures.
of the cases have been closed without Thus, India has been both an active user
recommendation of any Anti-Dumping of Anti-Dumping measures and an
duty. About 60% of these investigations adversely affected victim of Anti-
have been on imports from China PR, Dumping and countervailing measures.
EU and Korea. As regards nature of However, there is no correlation in the
products, 50% have been chemicals and two phenomena, which could imply
petrochemicals, 10% on textile fibres, retaliation or trade war situation. Further
9% on steel products and raw materials the raw materials and intermediates have
and only 8% on consumer goods. Out mostly attracted Anti-Dumping
of the cases which have been appealed measures.
before various authorities including
Customs, Excise and Service Tax
Appellate Tribunal (CESTAT), High The basic objective, regarding conduct
Court and Supreme Court in about 50- of international trade under the WTO
60% of appeals, the judgments has been framework is to ensure free and fair
in favour of the designated authority. trade and not simply the free trade. No
Thus, one notices that the extent of free trade can be equitably
investigations have been more on raw beneficial to all stakeholders until and
materials and intermediates rather than unless trade is also conducted fairly.
on consumer goods. As per the DGAD’s The unfair conduct of trade needs to
statistics as mentioned above, between be regulated by interventionist
1995 and 2005, more than 120 Anti- mechanisms like TPM, and more so by
Dumping cases have been initiated Anti-Dumping in the Indian context. No
against India of which in more than 50% doubt some of the disciplines of WTO
investigations definitive measures have like evaluation of dumping margin
been imposed. EU, US and South Africa would require tightening so as to
happen to be the major action takers reduce ambiguity and to take care of
against India. India’s share in terms of the dynamic structure of relative
imposition of Anti-Dumping measures competitiveness. Dumping of Anti-
on its exports is about 3.6%. Most of Dumping and other Trade Protection
the cases have been initiated against measures is certainly not the solution
steel products, engineering goods, as it would then be an era of free but
chemicals and pharmaceuticals. About not fair trade with developing countries
45 anti-subsidy cases have been having no recourse to safety valves to
164 Vilakshan, XIMB Journal of Management ; September, 2007

vent out unfair trade pressures. The There is also a need to harmonize
application of Anti-Dumping duties is various Anti-Dumping practices in
subjected to various review determining the extent of dumping. The
mechanisms, with appeals at various strengthening of causal link
national levels and thereafter finally at determination through a rigorous
the Dispute Settlement Body (DSB). implementation of non-attribution
Therefore elaborate redressal analysis can further enhance credibility
mechanisms exist for taking care of of Anti-Dumping measures. The
abuse of Anti-Dumping measures. The argument that Anti-Dumping duties
fact that about 60% of the appeals have affect the export competitiveness is not
been upheld before various appellate/ justified since the taxes/duties on raw
judicial bodies and some of the findings materials that go into export
being modified only partially, it is a production are refunded back to
reasonably good indicator of a fair exporters. In a study titled “Economic
conduct of investigations by the Impact of Trade Protection Measures;
designated authority in India. No doubt A Systems Approach for Anti-Dumping
cost incurred in such transactions could Measures in India” Arora (2004) while
happen to be a non-tariff barrier and evaluating overall economic impact of
therefore over use and misuse of Anti- Anti-Dumping measures, has
Dumping can be detrimental to the free concluded that while there has been a
flow of trade in this context. However, positive volume and price effect with
no member country can afford to abuse enhanced profitability as far as
these priorities for long and escape domestic industry is concerned, there
criticism. The user/consumer industry has not been any adverse impact on
is a significant and a strong voice to export competitiveness of the user
check abuse of such a policy. Also a industry due to levy of Anti-Dumping
judicious and rule-bound application of duty. It is further concluded that even
lesser duty rule which prevents levy of though the application of Anti-
Anti-Dumping duties to the full extent Dumping measures may lead to both
of dumping margin can check over trade chilling and trade diversion
compensation to domestic producers effect, the high rate of Anti-Dumping
due to Anti-Dumping measures. The duty does not necessarily lead to higher
tightening of disciplines of Anti- sales realization by the domestic
Dumping could be through relooking industry as a high level of Anti-
into the threshold of 2% dumping Dumping duty is generally counter-
margin and 3% dumped imports which productive and invariably leads to
do not trigger AD action also termed circumvention of Anti-Dumping duties
as de minimis limits of dumping margin thus severely undermining the efficacy
and the volume of dumped imports. of Anti-Dumping measures. The study
Panda, Trade Protection ... 165

also brings out that repeated and Arora, Rajiv (2004), “Economic Imapact of Trade
renewed Anti-Dumping measures are Protection Measures: A system Approach for
often affected by circumvention of Antidumping Measures in India”, M Phil
Anti-Dumping measures. The need Dissertion, Punjab University, Unpublished.
therefore is to strengthen the Banik, Nilanjan (2001), ‘Anti Dumping Measures:
disciplines of Anti-Dumping measures A critical Evaluation’ India biz news and
by eliminating subjectivity in various research services limited.
articles which lead to abuse and misuse
Bhagwati, Jagdish (1988), Protectionism, MIT
of Anti-Dumping measures rather than
Press: London
dumping this agreement as advocated
by various authors. Further, the critics Chakraborty, Debashis (2006), ‘Time to Dump
themselves observe that the main certain Anti Dumping Provision: Looking
through the Dispute Settlement Mechanism
driver of usage of Anti-Dumping
Proceedings’, in Bibek Debroy and Debashis
measures is the political economy and
Chakraborty (eds.), uses and misuses of Anti
its usage in days ahead is not likely to
dumping: Provisions in World Trade, A cross
decline. International trade is a dynamic
country Perspective, academic Foundation,
process and as the cost structure of
New Delhi.
industries in developed and developing
countries would keep changing, the Debroy, Bibek (2006), “Introduction” in Bibek
technical disciplines of the Anti- Debroy and Debashis Chakraborty (eds.),
Dumping act would also require to be uses and misuses of Anti dumping:
Provisions in World Trade, A cross country
re-engineered and tightened keeping in
Perspective, academic Foundation, New
view such changes. It is therefore felt
that harmonization of Anti-Dumping
practices, tightening rules of origin to Directorate General of Antidumping and Allied
prevent circumvention, strict Duties (DGAD), Department of commerce,
implementation of non-attribution New Delhi, 2004-2005, Anti dumping cases
analysis and adherence to the rules of in India: Products & Profiles, Annual Reports,
the game with no intent of protectionist
bias could go a long way in checking Erixon (2006), ‘Political Economy of
overuse, misuse and abuse of the Trade Antidumping’, in Bibek Debroy and
Protection Measures primarily Anti- Debashis Chakraborty (eds.), uses and
Dumping measures. misuses of Anti dumping: Provisions in
World Trade, A cross country Perspective,
REFERENCES academic Foundation, New Delhi.

Aggarwal, A (2003), ‘Anti Dumping code: Issues Finger, J.M. (1993), Antidumping: How it works
for review in Post negotiations’, Working and who gets Trust, University of Michigan
paper, ICRIER, Delhi. Press: Ann Arber, Michigan.
166 Vilakshan, XIMB Journal of Management ; September, 2007

Haufbauer, G. C. (1999), ‘Antidumping a look dumping: Provisions in World Trade, A cross

at US experience – Lessons for Indonesia’, country Perspective, academic Foundation,
Institute of International Economics, New Delhi.
Washington, D.C.
Li, Yuefen (2006), ‘Why is China the world’s
Krishna Raj, (1997) ‘Anti-dumping in Law and number one Anti Dumping Target’, in Bibek
Practice’, World Bank Working Paper, 1823 Debroy and Debashis Chakraborty (eds.),
Lindsay, Brink and Ikenson, Deniel (2006), ‘The uses and misuses of Anti dumping:
Rhetoric and Reality of US Anti Dumping Provisions in World Trade, A cross country
Law’, in Bibek Debroy and Debashis Perspective, academic Foundation, New
Chakraborty (eds.), uses and misuses of Anti Delhi.

Shaping the Moral Foundation for

Globalization: Lessons from Indian and
Western Philosophy*

Bibhu Prasan Patra1

In this paper an attempt has been made to examine some of the unambiguous universal norms developed
by the Indian and western philosophers and the important role these may play in shaping the moral
foundation of global business practices. The growth and development of global business and its impact
on economic, social and cultural life need to be based on a moral foundation that not only ensures good
business but also contributes towards the development of a socially and economically just world. The
main contention of the paper is to show that a better living and good life in a global village would be
possible if multinational corporations hold on to these values. The value system of both the host and home
country has to be properly handled and the ethical prospective has to be properly reviewed in order to
maintain a moral standard which is rationally acceptable across the cultures. In order to resolve the
dilemma of culture specific value system the idea of transcultural ethical universalism has been developed
in this paper. Two models (i) Kant’s Deontological method (Western philosophy) and (ii) the concept of
Dharma (Indian philosophy) and the learning from the Upanishads have been used to resolve the
challenges of cultural relativism.

1.0 INTRODUCTION confined to one nation state. This new

global economic order is mainly
Globalization has been commonly
facilitated by “Global Business
understood as a process of free flow of
“(henceforth GB). GB is thought to be the
goods, services, technology and other
most effective way of creating wealth and
assets across national boundaries. The
enhancing economic growth. It is very
process of globalization is facilitated
closely connected to its sister concepts,
through the market system, which
globalization and global capitalism
determines quantity, quality and price by
(Dunning, 2003).
the participants of market. All of us take
part (knowingly or unknowingly) in the GB without doubt is the main driver of
market exchange system that is no more global economic order. But diversity of

* Received August 28, 2007; Revised September 5, 2007

1. Associate Professor, Xavier Institute of Management, Bhubaneswar,
168 Vilakshan, XIMB Journal of Management ; September, 2007

economic and political policy matters, (c) Domestic or home country

conflicts of values, and differences in stakeholders, such as, home country
normative standards have direct impact employees, shareholders, home
on commercial transactions and economic country customers and the domestic
interactions. The major challenges to the government.
organizational system of GB originate No doubt these stakeholders put various
from cultural diversities. All these pressures on the global firm. Finding out
problems are understandably there reasonable solutions to satisfy a range of
because there are significant differences stakeholders sometimes becomes very
in culture, economic equality and social difficult. So GB is tantamount to pressure
status among the nations and also within from a triangle of stakeholders. While
a particular nation. The problems are of safeguarding the interest of home
far greater dimension while designing country stakeholders imply obliging the
managerial strategies at the global level. cultural standards and values of the
What is necessary, therefore, is a two fold domestic soil, attending to the demands
of the host country stakeholders requires
the firm to oblige the cultural values and
First, a sensitive, informed investigation standards of the host country. And these
into the range of norms and values two obligations may not be fully
involved in commercial transaction as compatible with one another.
well as a comparative understanding of Appropriate solution depends on proper
cultural socio-historical and political understanding of how radically
fabrics of both host and home countries. divergent the cultures are and the legal
and moral codes of the two countries
Second, a judicious, imaginative involved. Understandably then, there is
comprehensive and operational a triangular tension that GB experiences
normative framework which can in its effort to survive and prosper in the
effectively deal with problematic issues global market place. And surely, this
of GB in the spirit of maintaining a tension cannot be eased merely by
reasonable balance that fulfills the adopting a descriptive or non-evaluative
demand of all the stakeholders like measure, which takes no note of the
seriousness of the normative dimension
(a) Commercial stakeholders, such as,
suppliers, competitors, distributors of GB.
and retailers; When different countries have different
(b) Host country stakeholders, such as, ethical standards relating to business
local employees and their practices, there are two types conflicts
organizations, pressure groups, host that commonly arise; i) The level of
country government and host development, i.e. the different stages of
country community; socio economic progress in host and the
Patra, Shaping the Moral ... 169

home country, and ii)the conflict of moral categorically govern GB under any
standards; because of cultural traditions, particular circumstances anywhere in the
employment policy the problem of world. My contention here is that cultural
bribery, gift etc. These issues require a and ethical relativism poses only an
critical culture-sensitive handling. For apparent conflict for GB. Admitting the
example; while very low wages may be fact that norms and outlook vary from
considered unethical in developed one place to another and all questions of
countries, developing nations may be said moral differences among cultures can be
to be acting ethically if they encourage solved by measuring them against a
investment and improve living standards yardstick of morality has great relevance
by accepting low wages. Besides, while for stability of GB.
child labour may be deemed unethical in
We will now look into both Western and
a developed country and it may even be
Indian philosophical traditions that reject
condemned by the United Nation’s
any form of relativism and give moral
Charter of Labour Laws, there may still
support to GB. In what follows we shall
be the ethical dilemma whether
examine the philosophical foundations
compulsory withdrawal of all child
that transcend the narrow issues of
labourers from a firm is to be strictly
cultural and ethical relativism and
ordered even if that inevitably leads to
facilitate smooth progress of the global
starvation in a developing nation. One
market. The efficiency requirements of the
major differentiating factor is the effect
global market ought to be supported by
of cultural differences on the acceptability
fairness that is based on universal moral
of business practices.
principle of what is just and proper.
The context-relativity of the above kind
may be mistaken for full-scale ethical
relativism, denying any kind of
uniformity of ethical values altogether Kant’s moral theory provides a moral
across humanity. A common problem for standard, which can be applied
GB is whether to adopt the motto “when universally across the border.
in Rome, do as the Romans do”, or to Respecting the other person is the most
standardize the system of values used in basic thing, and for which societal and
the home country throughout the national boundary is not a hindrance.
organization and impose them on the host Kant in his “Ground Work of Metaphysics
country operations. Between these two of Moral” expounded that “don’t treat
extremes, there may be a reasonable other individuals as means to an end”
middle path, which could lay down the i.e. all rational beings are members of
parameters that make global business the kingdom of ends. The basic freedom
practices good. One can always identify of the individual person has to be
a common set of core value, which would respected. Once you care for the human
170 Vilakshan, XIMB Journal of Management ; September, 2007

dignity and treat others as a member of He writes that ‘morality, and humanity
the kingdom of ends, the controversy as capable of it, is that which alone has
that arises between unequal economic dignity’. And again, ‘respect for a
development and cultural difference will person is properly only respect for the
be resolved. law ….’ ‘Nothing can possibly be
conceived in the world, or even out of
Kant unambiguously refer to some
principles which are of unconditional it, which can be called good without
worth in human life, such as, self- qualification, except the ‘Good Will’; that
legislation, (independence of all natural is, the disposition always to do what
desires), principle of autonomy, the practical reason enjoins or permits,
principle of being a universal legislator because it enjoins or permits it. ‘The
in a kingdom of ends (all ends combined cultivation of one’s will [moral attitude]
in a systematic whole). In the to fulfill every duty as such’ is the duty
Groundwork, he contends that the of moral perfection according to him.
supreme principle of morality is The supreme principle of morality, the
commitment to doing only what principle of autonomy, is the only
autonomous reason permits us to do. It intrinsically worthwhile value, for all
is self-evident that a rational being possible purposes of human endeavour.
necessarily has insight of what is morally Kant’s conception of treating humanity
permitted and accordingly set goals and as an end-in-itself also includes perfect
purposes, which are morally worthy. duties to oneself and duties of respect
Because human beings are rational to others. Here Kant holds that
beings and have the capacity to set an arrogance, defame, contempt and
end by choice and deliberation (which physical injury are prohibited, as
distinguished them from other animals). contrary to the dignity of others. He
His argument is that rational beings, says we are also obligated to
having autonomy of will, nurture their acknowledge ‘the dignity of humanity
natural perfection and are willing to in every other man’. One must creatively
perform fully rational action. He says pursue all permissible purposes
that this autonomy or the freedom of (including the economic or business
the will actually guide all actions and pursuit) as fully as possible. But one must
universally govern human conduct. That do this because one has a natural
is why he considered all rational beings inclination to do so. Moral perfection is
as ‘kingdom of end’ or ‘end in to do one’s duties (to be perfect) from
themselves’. The capacity for the the motive of duty (‘duty for duty’s
ingenious pursuit of purposes and the sake’). This absolute freedom from the
creative ability, give rise to actions that pressures of inclination is involved in
are unconditionally good (that is the autonomy, which gives man his inherent
only end-in-itself). dignity.
Patra, Shaping the Moral ... 171

It is rather irrelevant to talk of cultural John Rawls’ Theory of Justice represents

relativism so far as human dignity is the Kantian conception of morality. Rawls
concerned. Kant’s Categorical theory of justice focuses on social justice,
Imperative requires us to treat which he regards as a feature of a well-
humanity, whether in our person or ordered society. In such a society, each
that of any other, never merely as entity pursues its interests in accordance
means but as ends in themselves. We with moral maxim(rights and duties)
must not for instance coerce or deceive based on the rational free will and
others anywhere nor must we fail in distribute the benefits and burdens on
our duty of benevolence towards them. mutual cooperation. Rawls holds that
In the modern world what we lack is a institutions as part of a well-ordered
sincere effort to care for human society should choose the principles of
dignity. This in fact is creating confusion justice without knowing any facts about
in the present day human society and their stations in life, such as social status,
problems for GB. natural ability, intelligence, strength, race
and sex. His approach is that a rationally
Once we realize that all rational beings
self-interested person harmonizes
are free beings and have the capacity to
himself or herself with the society by
exercise their autonomy of will, it will give
recognizing the fact that behind a veil of
rise to a world order which is more
ignorance each individual is equal. The
cosmopolitan. This deep-rooted ethical
social order is ensured by offering to its
philosophy if cherished will contribute to
members an equal opportunity.
better living and good life in a boundary
According to him elimination of
less world. Of course while applying the
difference caused by accidents of birth
moral theory, one may face some practical
or social condition is the only way to
difficulties, because sometimes it is
achieve economic justice.
difficult to grasp complexities of the
situation and one’s finite ability to judge Donaldson and Dunfee’s (1999) idea of
the ethical context. But so far as core hypernorms is also rooted in Kant’s
human values and individual freedom is maxim. Hypernorms are second-order
concerned, context complexity will not be moral concepts because they represent
a hindrance. It only depends upon one’s norms sufficiently fundamental to serve
attitude to accord equal dignity to each as a source of evaluation and criticism of
human person, i.e., universalizability community-generated norms. Once we
(human beings must be treated with respect the hypernorms we will reject
dignity)and reversibility, (what you do not cultural relativism and pave the way for
wish to do to yourself do not do to others). a trans- cultural ethical universalism. This
Universal principles are formulated on the cosmopolitan, world view defends the
foundation of these basic values, which universal character of human ethical
are present everywhere in the world. experience. This amounts to recognizing
172 Vilakshan, XIMB Journal of Management ; September, 2007

the diverse communities and rejecting the fish to move about, so dharma makes
fact that one -size -fit-all, but at the same the movement of soul and matter
time evolving universal principles and possible.’
values that is common to all people and The characteristic of Dharma is that of a
based on the deepest sources of human regulatory principle. It is the guiding
ethical experience.2 principle of all action and tells us what
No doubt the foundation of these ought to be done. That is why
ethical standards normally lies in major dharmasastras (ethical treatises) take into
religious and philosophical precepts, account the conditions prevailing (i.e.
and human rationality. If corporations keeping in view the need and
and other business organizations requirement) in desa (space) and Kala
nurture proper respect for other (time). Adherence to dharma put
cultures, employees, shareholders, emphasis on one’s duty and it entails
customers, suppliers, natural that each one (which encompasses every
environment and the immediate thing and being) should be treated with
surrounding of their business firms respect irrespective of position and
(both in the home and the host place. Secondly dharma guides, every
country), that will enable them to aspect personal (personal hygiene, civil
accomplish their goals more efficiently. awareness, polite behavior, considerate
and gracious ways of dealings etc.) and
3.0 DHARMA (THE BINDING PRINCIPLE): public life (social, policatical, economic,
THE INDIAN TRADITION religious, and spiritual matters etc.).
The word ‘dharma’ comes from the root There are diverse communities, and
dhr meaning to ‘to support’ or ‘to customs that differ from places to place,
sustain’. It is the common principles and families to families (desa, jati, and
that show the way to people of the time kula), and the peculiarity too is taken
to move on the path of righteousness care of by concept of dharma. Every
(dharma). Dharma does not refer to activity of life is coordinated by
some rigid and stagnant principles but dharma.
is an active power that directs and In Indian philosophical system the
preserves the interests of the individual concept of Dharma (the cosmic moral
and the society irrespective of caste, principle) encompasses the religious and
creed, religion and socio-economic social understanding of the human
condition. ‘Just as the water helps the situation. It is the binding principle and

Different global fora (e.g. Human right, civil rights, employee right, child protection, and the
environment protection groups) are making significant contribution to improve quality of life
in the global society. Action of these fora for a have been giving authentication to consensus
morality and the concept of ethical universalism or universally accepted ethical norms.
Patra, Shaping the Moral ... 173

universally applicable to the different dharma constitute the bed rock of the
human activities (i.e. social, economic, socio-economic living. Prosperity or
political etc.). The question of moral welfare consists in giving importance to
rightness and wrongness or moral kama and artha, but these should be
worthiness of an action is embedded in achieved only by adopting the path of
the concept of dharma. Dharma is dharma.
considered to be the rule of law. It is Of all the purusarthas, dharma is
above everything. Dharma acts as decision considered to be of the greatest
procedure for determining the right importance because dharma is the sole
action in any particular situation. The means of attaining social and economic
connection between the metaphysical and justice. It is through dharma the objective
the material world view of Indian ethical of artha and kama should be fulfilled
thought is unique. (dharmadarthasaca kamasaca sa kim artho na
sevyate, The Mahabharata 5.122.32).So it
Let us elaborate this moral fibre for the
asserts that all business enterprises
sake of clarity. In Indian value system
should be unfailingly based on dharma.
there are four aims or goals of human
Dhrma gives direction to artha (creation
life, viz. artha (wealth), Kama (desire),
of wealth). So, when there is no clash
dharma (moral principle), moksa
between dharma and artha; it provides
(salvation).These four purusarthas, are the self-discipline essential for the
called caturvarga (the four principles of beneficial pursuit of artha (wealth). In
living). Canakyasutra it is stated that sukhasya
In the caturvarga classification the four are mulam dharmah; ‘dharma is the root of
equally important for leading meaningful happiness.’
life. Only the Carvaka school (the It is thus dharma that leads to the
materialist) considered kama (desire) as behaviour which supports harmony in
the only goal of life (kama evaikah society, facilitates its economic growth,
purusarthah), the artha being merely the and ensures good life in the society. Here
means of instrument for realizing kama. we can see the similarity between Kant’s
From this standpoint, treated as both principle of universalizability and
dharma and artha are merely treated as reversibility and the Mahabharata
the means and kama as the end. I would concept of whatever one desires for
like to mention here that those who oneself one should desire the same for
relinquish the world and decline to take others (yadyadatmani iccheta tatparasyapi
part in worldly transaction set moksa as cintayeta the 12.251.21).
their ultimate goal (the paramapurusartha); These maxims declare offences against
and do not pose any problem to the persons and property to be violations of
society (Manusmriti 2.224). The other dharma. Commonly it refers to the codes
three purusarthas artha, kama and of duties of social, political, economic
174 Vilakshan, XIMB Journal of Management ; September, 2007

institutions and individuals. Manu clearly dharma; dharma is considered to be

states various feature the dharma (duty) stronger than any other power since it
for better accomplishment of individual, is possible for a physically weak, but
social, political, and economic goals of righteous person to defeat a physically
life. Thus Manusmriti maintains: acarah strong person. In the Rg-Veda dharma
paramo dharmah: good conduct is the is akin with the concept of rta, the
excellent dharma – (Manusmriti 2.12). Moral Order. The reverence for dharma
by any individual or society ultimately
gets its reward by dharma protecting
In the Upanishads Indian thinkers that individual and society (dharma eva
have described the human race as hato hanti,dharmo raksati raksitah). When
Amritasya Putrah (children of there is a comparison between the Artha-
immortality) and the whole world is sastra and the Dharma-sastra, the latter
described as Vasudhiva Kutumbakam triumph over the former.
(the entire world is one family). The
Deliberately I have not discussed the
concept of Global society has existed
relation of dharma to moskha.The basic
in the Indian Philosophical tradition
purpose of this paper is to affirm the
from the very beginning. The whole
positive role dharma plays in regulating
of mankind was considered as the part
human conduct that ultimately helps the
of the divine (Atmabat Sarva Bhutesu)
individual and society to grow. GB will
and the Divine is all pervasive
certainly attain the greatest good for the
(Ishabasyam Idam Sarvam). There was
mankind if devoid of prejudice against
equal respect for life of both human
caste, creed, religion, country etc. If
and non-humans (i.e. lives of animals and
organizations accommodate this
plants, Atmabat Sarva Bhutesu).
philosophical thinking and practise such
Cherishing these values positively
universal value system, (See Table- 1 for
contribute towards a better form of
details), they will definitely do well in
both the home and in the host country.
Upanishidic vision envisages that It will also provide a philosophical
dharma is identical with satya (truth). backbone to some recent empirical studies
It is the basis of all good practices. In done by Hofstede (1980,1983,1991) and
Brhadaranayaka Upanishad it is clearly Trompenaars(1997) 3 on cultural
stated that there is nothing greater than dimensions .
Hofstede has specified four dimensions of culture, such as; i) Power Distance, ii) Masculinity-
Femininity, iii) Uncer-tainty Avoidance and iv) Individualism-collectivism to indicate cultural
difference among different countries of the worlds. Trompenaars and Hampden provide a
series of bipolar dimensions of culture i) Universalism versus) particularism, ii) Communitarism
versus individualism, iii)Neutral versus emotional, iv) Specific versus diffuse, v)Achievement
versus ascription.
Patra, Shaping the Moral ... 175

Table-1: Universal Human Values

Common Understanding Western Philosophy Indian Philosophy

Kant’s Ground work of Upanishads and Concept of Dharma
metaphysics of Morals (1785)

Dignity and Respect Dignity and Respect Dignity and Respect

Every human being must be The rational being is “the basis The Upanishads depict all men
treated with equal dignity and of all maxims of action”. “The and women as “children of
honor without any distinction rational being, is an end in immortality” (Amritasya
of nationality, race, cast, creed, itself, and must treated in Putrah).We should do good
sex, age, language, religious every maxim as an ends.” and to others, respect others
affiliation (faith), and political “must be treated never as a because ‘we are all one’ in
affiliation. There should be mere means”. helping others, we help
conscious effort to protect ourselves; and in hurting
human dignity by individuals them, we hurt none but
and political and economic ourselves.

Freedom Freedom Freedom

There should not be any Freedom of the will is not the In the Upanishads Freedom is
compulsion, no should act capacity of the will to make conceived as internal force that
under duress, no exploitation choices on the basis of exit in every individual This
should take place in the work subjective feelings, but is the immutable aspect is
place (particularly women and capacity to choose actions on manifested by the practice of
children), the basis of objective good work and satisfaction of.
principles of reason. One’s own conscience.

Reversibility Reversibility Reversibility

Do not do on to others which Every rational being whether There was equal respect for life
you do not wish to be done to yourself or another has strict of both human and non-humans
yourself. This should be the obligation towards him-self (i.e. lives of animals and plants,
binding, unconditional norm and others. “Do not do it to Atmabat Sarva Bhutesu).
Whatever one desires for
for all areas of life, (from others which you do not want
oneself one should desire the
personal, social to to do on to yourself”. same for others
professional life). (yadyadatmaniiccheta
tatparasyapi cintayeta the
Mahabharata 12.251.21).
176 Vilakshan, XIMB Journal of Management ; September, 2007

Justice Justice Justice

What is needed is a socially The moral value of an action The highest goal, the
and economically just is determined not by how summum bonum is not only
society. Unlimited, effective the action is in the well being, of human
unjustified use of resources achieving its object, but by the beings but of all the living
(human, natural, and principle of volition. creatures. Sarve bhabantu
financial) by few causes according to which it is sukhinah sarve santu
social disharmony in the performed. What Kant is niramayahSarve bhadrani
world. Conflicts should be telling us is knowledge of just pasyantu makaschit
resolved with non violent and unjust, and treat people dukhabhagabhavet.‘May
means and with the support with due respect to their all be at ease; may all be
of justice. This is applicable rights, wcich he calls the sinless; may all experience
in every human endeavor ‘positive right’ of an happiness; may none
personal or professional. individual. experience suffering.’
All economic and political
activity should operate
within a global order to
enhance peace and

Univesalizability Univesalizability Univesalizability

Human beings have a unique Act only according to that Indian thinkers have described
capacity called reasoning. maxim by which you can also the human race as Amritasya
We depend on each other and will that it would become a Putrah (children of
think of the welfare of all. universallaw. “Always act immortality) and the whole
All people have a right to life, according to that maxim world is described as
safety and free to develop whose universality as a law Vasudhiva Kutumbakam (the
their individuality insofar as you can at the same time entire world is one family,
they do not harm the rights will”, and is the “only Upanishads)
of others. No should cheat, condition under which a will
deceive, lie, torture, injure, can never come into conflict
kill any other human being with itself…”
because these can not be
accepted as universal
principle, violate human
right, destroy social fabric.
As Thomas Hobbes said:
“life will become nasty
brutish and short.”
Patra, Shaping the Moral ... 177

Truthfulness Truthfulness Truthfulness

All communication should The value of truth out ranks satyam bruyat priyam
be clear and transparent. the value of combination of bruyat na bruyat satyam
Everyone should speak the health, wealth, and apriyamPryyam ca
truth, and act truthfully. happiness, etc. nanrtambruyat esa dharmah
All of us depend on sanatanahOne should speak
authentic information to the truth, but with giving
make decisions that shapes offence, although one should
our lives. So, truthfulness never compromise truth for
should be cultivated in all being nice.
our relationships.

The table-1 represents the universal Dunning, John H. (ed). (2003), Making Globalization
human values that are common in both Good, Oxford University Press, New York.
Indian and western philosophy. Hofstede, G. (1980a) Culture’s consequences:
international differences in work-related values,
5.0 CONCLUSION sage, Beverly Hills, CA.
In the conclusion, I would like to suggest Hofstede, G., (1983) The cultural relativity
that the universal values like; dignity and of organizational practices and theories,
respect, freedom, justice truthfulness, Journal of International Business Studies,
universalizability and reversibility are the Fall, 75-90.
basic principles of human living. These Hofstede, G. (1991) Cultures and organizations:
principles determine the moral worth of software of the mind, McGraw-Hill,
any action. If these basic moral principles, London.

presented in both the Indian and western Kant, Immanuel (1785) Ground work of the
philosophy are perused seriously, this metaphysics of Morals, Translated with an
Introduction by Lewis white Beck, The
would provide a solid moral foundation
library of Liberal Arts. 1959.
to GB.
Lal, Deepak, (2006), Reviving the Invisible Hand,
REFERENCES Academic Foundation, New Delhi.

Bhattacharya, Haridas ed. (1953) The Cultural Lowe, Robin (1996) “Ethics in International
Heritage of India, Vol. I & II, (The Philosophies) Business” in Business Ethics and Business
Rama Krishna Mission Institute of culture, Behavior (ed). Keen Smith and Phil
Calcutta Johnson, Thomson Business Press,. pp.
Donaldson, Thomas, and Dunfee Thomas W.,
(1999) Ties that Binds, Harvard University Rawls John,(1971)A Theory of Justice, Harvard
Press, Baston, MA. University Press.
178 Vilakshan, XIMB Journal of Management ; September, 2007

Singh Karan, (1995) “Transition to the Mundukya), Sri Aurobindo Ashram Trust,
Global society: Towards a Dharma for Pondichery 1972.
the New Millennium” in the Indian
Journal of Public Administration, July- Sept. Stiglitz, Joseph E. (2002.)Globalization and its
pp. 613-613. Discontent, W.W.Norton, New York and
Sri Aurobindo, (1972), The Upanishads, Rendered
into simple and Rhythmic English Trompenaars, F. and Hampden-Turner, C.
(comprising six Upanishads, mainly the Isha, Response to Geert Hofstede, International Journal
Kena, Katha, Mundaka, Prashna and of Intercultural Relations, 1997, 21.1, 149-159.

Demand Estimation – Some Empirical

Observations and their Implications*

Demand and sales forecasting have gained importance in the recent time due to their relevance in
planning process. There is a variety of methods for forecasting demand or sales. Different methods have
different assumptions, limitations and implications. In the present paper two methods viz, explanatory
method and consumer anticipation survey using probability have been used. It is observed in the first
method that the use of only one strategic variable such as price sometimes does not result in good
estimate unless it is associated with other important determinants of demand in short run estimation. In
the second method, when cross section data are used in the consumer’s anticipation survey method, the
estimates may vary unless the number of options (or price levels), the sampling type and sample size
along with assignment of probability to different responses are given adequate importance and properly
articulated as they involve subjectivity. The two methods and observations are independent of one
another although they are related to demand estimation.

1.0 INTRODUCTION forecasting (Hardie et al,1998,

Hassens,1998, Chen,2000, Steffens,
Estimation and forecasting methods
have found importance in the recent 2001). It may not be out of place here
times in several fields including sales to mention that strategic corporate
and demand forecasting and other planning operates in an environment
business related variables since it is of uncertainty. Statistical and
believed that educated guesses are econometric methods for sales
more valuable than uneducated estimation and forecasting attempt to
guesses for decision making (Hanke, reduce some of these uncertainties by
2002). Researchers have studied and predicting and estimating the volume
experimented with various methods of that will be sold in the market. This
demand or sales estimation and information regarding which product

* Received July 24, 2007; Revised : September 10, 2007. The author sincerely thanks an anonymous
referee for his valuable comments on an earlier draft.
1 Professor of Economics, Xavier Institute of Management, Bhubaneswar,
180 Vilakshan, XIMB Journal of Management ; September, 2007

or services to be produced, to whom Ryan & David Simchi ,2000). They have
and to which market segments these tried to quantify this effect for simple,
are to be sold and when to be sold is a two-stage, supply chains consisting of
necessary input for planning various a single retailer and a single
functions in a firm. manufacturer. They have considered
To estimate or forecast company sales two types of demand processes, a
or demand, one needs to know the correlated demand process and a
impact of its product’s price, its demand process with a linear trend.
advertising expenses, personnel, selling Such studies put emphasis on the use
expenses and strategies along with other of specific variables in the models for
variables. Hassens (1998) has examined estimation and forecasts.
the problems of estimation of ‘ongoing Researchers have also put emphasis on
factory orders’ and monitoring ‘retail the use of moving average methods
demand’. There are views that, different and more sophisticated
data sources and models could be used autoregressive methods using time
to increase prediction accuracy of the series data for short run forecasts.
estimates or forecasts. Based on However, the most frequently used
assessment of the relative efficiency of approaches for forecasting sales and
different statistical or econometric demand are extrapolative methods
models, it is observed that extrapolative and probabilistic models. Besides
method with time series data could be these, explanatory method using the
most befitting for such exercises. demand and sales determinants have
Besides, marketing mix data for also gained importance in demand
improved retail demand tracking and sales estimation and forecasting
method and use of conjoint in the recent time. The determinants
measurement data to simulate a
of demand, mostly the strategic
product’s utility over time with
variables like price, advertising
inclusion of the information in the
expenditures, personal selling
demand model, have also been
expenses and income of the
consumers are used in the estimation
Similarly, some have advocated that an of demand and forecasting.In this
important phenomenon often observed context, it may be pointed out that one
in supply chain management, known as of the difficulties in using the
the bullwhip effect, implies that, demand explanatory method is data limitation.
variability increases as one moves up For example, while using cross section
the supply chain, i.e., as one moves data for demand estimation it will be
away from customer demand (Chen, easy to get the demand or sale
Mishra, Demand Estimation –Some ... 181

volume of a product and the prices 2. To identify issues involved in the

prevailing in different market consumer’s opinion survey method
segments, but it may not be possible with assignment of probability to
to have a breakup of the advertising responses for demand estimation
expenditure of the product for these using only cross section primary
markets. Therefore, there will be data.
limitation in using the explanatory
method for demand estimation since
data limitation will be encountered For the explanatory method, a multiple
with respect to some of the strategic regression has been used where as for
variables like advertising and the consumers’ opinion survey a two
personal selling expenses. Moreover, variable regression has been used. For
it is an accepted fact that in the short the first method, a demand function
run there will be hardly any using a set of three strategic variables,
variability in the prices in different namely, price of the product,
markets although there will be advertising expenses and personal
comparatively more variability in the selling expenses have been used and
demand depending on the influence demand estimation has been done
of some other variables like income using the said three variables. The
of the consumer and other
relative importance of the variables
demographic features.
used has been examined from the
In view of the above, an attempt has standardized coefficients and also from
been made, in this paper to evaluate the scatter plots. Estimates of Demand
two methods of demand estimation – using each variable in the equation and
(i) explanatory method using combination of variables have been
determinants of demand and (ii) examined and compared using the
probability method using consumer standard method through errors in the
anticipation survey and then discuss the estimates. This has been done by using
issues and implications. secondary data.
The specific objectives of the present For the second method, i.e. opinion
paper, therefore, are as follows: survey method, a live example of Ortel
1. To evaluate the explanatory method Communication Ltd Bhubaneswar
with special reference to the (Mishra, P, 2006) was considered and
selection and use of variables and primary data were collected from six
identify issues involved in cities/towns namely, Bhubaneswar,
estimation and implication of the Cuttack, Paradeep, Rourkela,
findings, and Sambalpur and Balasore with the help
182 Vilakshan, XIMB Journal of Management ; September, 2007

of a questionnaire. Fifty prospective 3.0 FINDINGS AND DISCUSSION

customers have been included in the The findings relate to the empirical
survey for each of the above observation using two methods of
mentioned places and using demand estimation (Case I and Case II).
probability method for consumers’ The first relates to the use of
anticipation demand has been explanatory method whereas the
estimated. Equations for the second relate to the use of consumer’s
conventional demand curves as well as anticipation survey.
marginal revenue curves have been
Case I
estimated and the revenue maximizing
price for the company has been The findings presented in Table 1,
suggested. Issues and implication of Graphs 1, 2 and 3 and output - 1 relate to
the method have also been discussed. estimation of demand using time series


ERROR (MSE) Dependent Variable : Units Sold (Proxy for Quantity Demanded : Qx)

Equations Constant Slope Coefficients of R2/Adj R2 MSE S.D of

Independent Variables Estimates

Price X1 Advertis- Selling

ing Expenses
Expenses X3

1. Qx = f(X1 X2 X3) – 117.5 -0.296 -0.296 -0.296 0.96 10587 102

(0.02) (0.02) (0.02)
2. Qx = f(X1) 2096.22 -0.0237 — — 0.0003 338021 581
3. Qx = f(X2) 154.801 — 0.0934 — 0.88 38591 196
4. Qx = f(X3) – 1292 — — 0.0929 0.88 41370 203
5. Qx = f(X1 X2 ) – 117.5 -0.0884 0.0937 — 0.86 37394 193
(0.60) (0.00)
6. Qx = f(X1X3) – 270.032 -0.396 — 0.0995 0.93 18750 136
(0.00) (0.00)
7. Qx = f( X2 X3) – 706.137 — 0.0514 0.0477 0.92 21060 145
(0.01) (0.02)

TE : Figures in the parenthesis refer to the significance levels of the slope coefficient
Mishra, Demand Estimation –Some ... 183

data for three independent variables viz;

price, advertising expenses and selling
expenses for twelve months of Electronic
Data Processing (EDP) Corporation, Inc.
USA(2001). Estimation has been done
taking the three variables at a time, one
each at a time and three different
combinations of the variables in order to
compare the results and identify the most
important one for estimating the
Graph 1 : Adv. Expolr
It may be mentioned that an
examination of the scatter plots is a
starting point of exploring a
relationship between two variables. An
examination of the scatter plots
between quantity sold, proxy for
demand, and price see Graph 1,2 and
3) suggests that price does not seem to
have a negative relationship with the
units sold. The points are scattered on
the graph without showing any pattern.
It may be observed that for lower prices
Graph 2 : Selling Expenses the units sold is less in some cases
whereas more in some others.
Moreover, at the same price the units
sold are also different Thus, the
association between price and units
sold cannot be used for estimation of
demand and forecasting of demand for
a future period. The insignificant
association is confirmed by the low
significance level of the slope coefficient
and the coefficient of determination
(R2) when price alone is considered to
be the explanatory variable. Although,
Graph 3 : Price a negative sign precedes the coefficient,
184 Vilakshan, XIMB Journal of Management ; September, 2007

it is not statistically significant. combinations of variables are used (i.e.

Moreover, the coefficient of addressing remedial measure for
determination is almost zero. This may multicollinearity and model
be wrong a priori. This warrants us to misspecification).The estimates,the
use other variables in the estimation. mean square errors and the standard
In the present exercise it is observed deviations for all the equations have
that the other two variables (advertising been computed (see Table 1). It is
expenditure and selling expenses) are observed that the mean square error is
having significant relationship with the the least when we are using the three
dependent variable i.e. units sold and variables in the equation rather than
the signs are also a priori correct. using only price or any other variables
However, when all the three variables or the combination of two out of the
are included in the model all of them three variables. This implies that the
are having correct signs, (interestingly demand function when all the three
including price) and are statistically variables are used is the most
significant but price becomes the least appropriate one.
important variable looking at the
Case II
standardized coefficients (see Output -
1). Obviously therefore, one will be Consumer’s opinion survey using
tempted to reason out to drop ‘price’ probability (consumer’s anticipation)
from the equation. But theoretically, it
Demand estimation of Ortel
is not advisable to drop a strategic
Communication Ltd has been done using
variable like price. Moreover, the
consumers’ anticipation survey. The
correlation matrix suggest that
company was founded in 1995. In a short
advertising expenses and selling
span of time it has emerged as one of the
expenses are highly collinear with a
few companies in the country to provide
correlation coefficient of 0.89.
the “Triple Play of Video, Data Voice”. So
Therefore, we have estimated the
far as the state of Orissa is concerned, it
equations taking price and each of the
is the only company giving these services
other two variables individually. The
to many cities. The company is
two variables excluding price have also
operational in the towns in Orissa viz;
been used in the equations. It is found
Bhubaneswar, Cuttack, Sambalpur,
that the coefficient of determination (R2)
Rourkela, Paradeep, Berhampur and
is relatively less but the coefficients of
Balasore and is providing cable net work
the variables are statistically significant
at less than 5 % in all the cases. This is
done in order to examine how much the The economy of Orissa has been growing
estimates are affected when different fast. In view of this fast growth, Ortel
Mishra, Demand Estimation –Some ... 185

Communication Ltd, Bhubaneswar register different options with respect

decided to look into business to price (See Table – 2) has been used
opportunities with special reference to the to quantify the consumer’s anticipation.
growth of demand for the cable The prospective consumers were asked
connections in the economy of Orissa. to tick the relevant box with respect to
Accordingly the company decided to their opinion on whether they would
estimate the demand of the services go for the services or not at the given
provided by it in different towns in prices. Probabilities were assigned to
Orissa with respect to the different price each of the responses. The expected
levels. number of buyers were determined by
multiplying the number of responses in
A sample survey was used to quantify each row with the respective
the consumer’s anticipation of buying probabilities and taking the sum of each
the service provided by the Ortel row. Thus, the table provides the
Communication, Ltd Bhubaneswar. expected number of buyers of the
Different price levels and space to service at different prices. The
conventional demand curve (DC) i.e.
Table No 2 : Please Specify Your Choice Px=f(Qx) along with the marginal
In The Following Table revenue curve (MR) were estimated
Price 0 0.2 0.4 0.6 0.8 1.0 Ex- using the data. The results have been
(a) (b) (c) (d) (e) (f) pect- summarized in Table No 3. The revenue
ed no.
of maximizing price has also been included
buy- in the table which was derived from the
ers MR Curve. This has given the company
to compare their market price and with
the use of the elasticity coefficients the
275 company may take a decision either to
250 increase or decrease their prices.
225 Table 3 shows that there are
200 differences in the slopes of the
estimated demand curves thus giving
rise to differences in the revenue
150 maximizing prices.
It is observed that the revenue
100 maximizing prices for Cuttack and
a = definitely no; b = not likely; Bhubaneswar are 167 and 174
c = perhaps (may be); d = quite likely; respectively. But the actual prices which
e = very likely; f = definitely yes; is charged in these two cities are more
186 Vilakshan, XIMB Journal of Management ; September, 2007

Table – 3 : Estimated Demand Equations & Revenue Maximisation Price

Places DC and MR Estimated Demand Revenue Maximizing

Bhubaneswar DC P = 348.619 – 3.569 X 174
MR MR = 348.619 – 7.138 X
Cuttack DC P = 335.308 – 3.550 X 167
MR MR = 335.308 – 7.100 X
Paradeep DC P = 282.054 – 2.896 X 141
MR MR = 282.054 – 5.792 X
Rourkela DC P = 327.347 – 3.210 X 163
MR MR = 327.347 – 6.420 X
Sambalpur DC P = 252.470 – 3.498 X 126
MR MR = 252.470 – 6.996 X
Balasore DC P = 341.364 – 3.635 X 170
MR MR = 341.364 – 7.270 X

which suggest that the company could 4.0 CONCLUDING OBSERVATIONS

increase revenue by lowering the prices
and thereby widening the customer base The exercises presented here relate to
in these two cities. But coming to the two methods of demand estimation
other towns in the state, it is observed using both time series short run data
that the company is intervening in these and cross section data. Using short run
markets and charging a lower price than analysis (time series) a researcher may
the revenue maximizing one. estimate or forecast demand by using
strategic variables. In the present
The issues which concern the researcher
analysis income of the consumers was
here relates to the number of options to
not included although it is a strategic
be given to the respondents relating to
the price and the assignment of variable. However, a caveat is in order
probabilities to different options. The here which concerns the explanatory and
slope of the demand curve will depend predictive efficiency of the model used.
on the probabilities to be assigned to the Theory of demand suggests (and it is a
responses on the basis of which the priori correct) that price is considered
revenue maximizing price is worked out to be the most important determinant
and the elasticities are calculated which of demand for normal goods, but prices
in turn may influence the decision do not change in the short-run in the
making. The assignment of probability market nor the income of the consumers
to the response category is determined particularly when time series data are
subjectively by the researcher. considered (may be weekly, fortnightly,
Mishra, Demand Estimation –Some ... 187

monthly or quarterly). Therefore, when for estimation and for the short term
price is used as the only determining forecasting which may be necessary for
factor for variation in demand and one managerial decision making such as fixing
tries to estimate, he may end up with targets for a monthly, quarterly or yearly
large errors and will significantly lose sale volume. Therefore, a demand
predictive efficiency of the model. function with the relevant determinants
Therefore, it is better to use the strategic may be used in place of a simple demand
variables including price in the model curve for demand estimation.

Output 1
Variables Entered/Removedb
Model Variables Entered Variables Removed Method1
a. All requested variables entered.
b. Dependent Variable : SOLD
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .985a .970 .958 123.92241
a. Predictors : (Constant), SELEX, PRICE, ADVEX
Model Sum of Squares df Mean Square F Sig.
1 Regression 3934437.5 3 1311479.183 85.401 .000a
Residual 122854.12 8 15356.765
Total 4057291.7 11
a. Predictors : (Constant), SELEX, PRICE, ADVEX
b. Dependent Variable : SOLD
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -117.531 333.526 -.352 .734
PRICE -.296 .102 -.200 -2.908 .020
ADVEX 3.598E-02 .014 .362 2.579 .033
SELEX 6.621E-02 .014 .668 4.607 .002
b. Dependent Variable : SOLD
188 Vilakshan, XIMB Journal of Management ; September, 2007

Secondly, when we use cross section company. Therefore, much caution has
data and estimate the consumer to be taken while assigning the
demand, particularly for new products, probabilities to the different options of
one may use the consumer’s anticipation the consumers/respondent. A brain
survey. It can also be used for storming between the researchers and
estimating the demand for a product the experts in the relevant field for
after product renovation/changes in the assignment of probability could help in
quality or any such changes in the such a situation to have a good judgment
product. The issue which needs to be in assigning probabilities which may
addressed is the number of options (or result in a reasonable estimate of the
price levels), the sampling type and demand curve. This will have
sample size and assignment of implications on the revenue maximizing
probability to different response price and price elasticities.
category. More number of options for
price levels will increase the degrees of
freedom while calculating the Chen, Frank, Ryan, K. Jennifer and Simchi, David
coefficients of the demand curve and the (2000), “The impact of exponential smoothing
representative sample will have more forecasts on the bullwhip effect”, Naval Research
generaligeability. However, the most Logistics, USA.
important aspect is the assignment of Douglas, E.J., (1992) Managerial Economics,
probabilities to the answer categories. Prentice Hall Inc., N.J.
For example, we have used probabilities
Hanke ,J.E. et al Business Forecasting, (2002),
of 0.2 difference for the successive
Prentice Hall, India, Private Ltd. Seventh
answer categories in our exercise
Edition, New Delhi
reported here (following a conventional
usage). But this is quite subjective. For Hardie, G.S., Bruce, Fader, Peter, S. and
example, one may argue that for an Winneiwski, Michael, (1998), “An empirical
option in the answer category like ‘very comparison of new product trial for forecasting
likely’ (i.e. the consumer is very likely models”, Journal of Forecasting, Vol-17, Issue
to buy the product at a particular price), - 3-4.
the probability could be 0.9 or o.85 Hassens, M. Dominique, (1998), “Order forecasts,
instead of 0.8 (as we have used in our retail sales and the marketing mix for consumer
exercise) and for an option like ‘not durables”, Journal of Forecasting, Vol-17,
likely’ the probability could be 0.1 and Issue - 3-4
not 0.2. A subjective assessment of the
Mishra,P., Business Demand Forecasts and
researcher is involved here to assign the
Demand Estimation, (2006) An Unpublished
probability. In such cases the expected
Project Report ,Xavier Institute of
number of persons willing to buy the
Management, Bhubaneswar
product at different prices will vary.
This will, in turn, affect the slope of the Paul, Steffens R. (2001), “An aggregate sales model
demand curve as well as the marginal for consumer durables incorporating a time
revenue curve which will affect the varying mean replacement age” Journal of
revenue maximizing price for the forecasting, Vol-20
Management Case

Suhas Gopinath*

Brajaraj Mohanty1 & Rajeev Roy2


On March 1, 2006, CBS News Agency Suhas wanted to be a veterinarian. A
made the headlines about the Indian chance visit in mid 1990’s, when he was
wonderkid, Suhas Gopinath. As its Chief 12, to an internet café, which opened
Foreign Correspondent Lara Logan next door to his house, changed his life.
reported, six years back, Suhas at the age His elder brother Shreyas took him there
of 14 had become the World’s youngest and he was fascinated at the internet.
Chief Executive. By 2006, he was the boss “He explained me how the internet
of a global software company that works and also opened my email id. The
spanned over 11 countries including the next day, I went to school to find that I
United States. It was a remarkable was the only one in the class to have an
achievement by any standard. In India, email id but I was not satisfied with just
a developing country saddled with the that….. Somehow I liked the touch of
largest number of the world’s poor, it the mouse and wanted to play with the
was nothing short of a miracle. key board. I used to sit in the cyber
Suhas was inspired by none other than centre all the time. I used to get Rs.30 as
Microsoft’s Bill Gates. He had set up his pocket money at that time and I used
IT Services Company, Global Inc., while the entire money in the cyber café. While
simultaneously studying in a school at an hour at cyber café would cost me
Bangalore in India. The Company in its Rs.120, I requested the cafe owner to
fourth year employed 600 persons – the allow me to work for him after my school
youngest of them was a 10- year old and hours and let me use internet for free.
an advisor on web design. Age was not Luckily, he agreed. For the next six
a barrier for employment in his company. months, I learnt how to make web-sites
The maximum age of an employee in the and was introduced to many
company was 32 and the average was technologies. I learnt HTML, ASP and
around 21. every possible software at the Cyber

* Received August 20, 2007; Revised September 12, 2007. The case is based on published materials,
website information and personal experience of the authors with Mr. Gopinath
1 Professor, Xavier Institute of Management Bhubaneswar. email:
2 Assistant Professor, Xavier Institute of Management Bhubaneswar. email:
190 Vilakshan, XIMB Journal of Management ; September, 2007

Café. I opted for self- learning instead interested to join Suhas. Two teenage
of going to an institute”, says Suhas. “I friends from Bangalore from his middle
had no knowledge of the Internet. But class neighbourhood were also willing to
when I was browsing the internet in a join him.
cyber café I stumbled on a source code However, his attempt to launch a private
of a web site. I was fascinated and
limited company ran into difficulty, as the
thought long and hard. I soon launched laws in India did not allow a kid of 14 to
my own website, start a company. Suhas decided to turn,” he adds. to US where such a law did not exist.
That had happened when he was not Thus, Global’s Inc was set up in California
even 14 years old. The site was launched and registered online in San Jose. Suhas
in May 14 2000 and two friends Clifford initially planned that his company should
Leslie and M.N. Vinay helped him in be named Globals Solutions but that
this effort. “I didn’t have the money to name was already taken. He opted for
launch the website. So I wrote to Globals with himself as its founder, CEO
Network Solutions Inc. in the US and and president. Two years later, it had
they readily agreed to host the site free offices in 11 countries and employed over
of cost.” Network Solutions also invited 600 people. In the year 2004 – 05 the
Suhas to its headquarters in San Jose, company notched up an earning of Indian
California. It was the first time he had Rs.2.5 crore.
boarded a plane and also the first time
that he had gone outside India. Suhas always thought that he should start
his company in Bangalore but was
In the US, Network Solutions even disappointed. In a meeting with President
asked him to maintain their website as Abdul Kalam he requested for relaxation
Chief Web Developer at $2000 per week of this age limit so that other young
with a chauffeur driven car and an entrepreneurs could easily set up their
apartment. It was quite attractive but companies. The President promised his
Suhas turned down the offer. He support.
wanted to start his own company rather
than be employed by a Fortune 500 Initially Suhas faced many obstacles. The
company. most important of them being from the
potential customers. When they learn that
Suhas spent hours at the local cyber café Suhas was barely 14, they cancelled their
figuring codes, reading books on Bill orders and refused to take him seriously.
Gates and Michael Dell and preparing to To overcome this difficulty he started
start an IT company. He had fortunately growing a moustache as soon as he began
and accidentally an encounter on an sprouting facial hair, but this also didn’t
internet discussion board with a US help much. Soon on the advice of the
university student in 2003 who was friends he shaved it off.
Mohanty, Suhas Gopinath ... 191

Word gradually spread around about the complex business. The portfolio of
ability of the Globals Inc. and as Suhas products and services comprise the
hired more and more people and opened following:
new offices, potential customer started
1. IT strategy.
coming back to Globals and for Suhas
there was no time to look back. 2. Procurement and partnership
3.0 ABOUT BUSINESS 3. Business Process Improvement
For Suhas IT was a pastime, which turned 4. Information Management
into an obsession. It was because of his 5. Contract Development
interest that he worked on it and later
6. Web Designing
other friends joined him. Initially it was
a team of four. At the beginning they 7. Web Development
went to the extent of offering their 8. Content Management System
services free of cost. As most of them
were studying and were interested in the 9. Internet Marketing
work, they did not mind. However 10. Media Streaming
gradually they realised that in order to
11. Custom Application Development/
sustain they had to charge the clients. At Custom Software Development
the same time their service charges were
quite competitive vis a vis others in the 12. Industry Solutions
business. 13. WAP
Globals Inc. offered cost effective In developing cost effective, innovative
solutions in web, software, mobile and world class solutions and products
multimedia. The company designed and Globals has made a name for itself and
developed B2B portals, B2C portals and carved out an enviable place for itself in
corporate websites. In the words of the industry. Its has as clients, a number
Suhas “ We aim to bring out robust of companies from small and medium
services within a mouse click and we sized to fortune 500 companies. Every
believe in teamwork. Projects are company is treated uniquely, taking into
undertaken by Globals to build the skills account its distinct needs. Its clients
of the team members. Most of the included the following well-known
members work from cyber cafes.” By companies:
2005 it had established offices in more
than 11 countries and served more than 1. Verisign Inc., USA
200 clients world wide. Globals also 2. Edunar UK
offered IT consultancy involving
3. Government of India
practical jargon free advice to clients to
cope with first changing and often 4., Germany
192 Vilakshan, XIMB Journal of Management ; September, 2007

5. convinced that he can bring in some

relevant skills to Globals.
6. Jain Group of Institutions, India
About the age of employees, Suhas says
7. Deepti Electronics and Electro –
“the upper limit is 25 years and we are
Optics Pvt. Ltd., India
basically looking for people in their teens
8. Childern Services Inc., USA or twenties. Enterprise is more important
9. Maso Automotives, India than high academic qualifications.” About
the age of Vice President of operations,
10. Greys Exim, India. V.N.D Manohar, Suhas says that he is the
Globals operated on a world wide basis oldest member of the team, but Manohar
with offices in 11 countries including says “ I may be older but Suhas is more
USA, India, Canada, Bahrain, Italy, UK, experienced. He is the boss.”
Germany, Spain and Australia and in During a conversation, Suhas says that
addition there were operations in he does not treat his colleagues as
Singapore, Norway, Switzerland, South employees. There in a friendly
Africa etc. environment just like in a family.
4.0 WORK CULTURE Suhas is also concerned that the
Globals is not only a young organisation employees who work with the company
but majority of its employees in India and get an excellent environment to work and
abroad are also young college going have adequate opportunities for sports,
students. Many of these are part timers leisure and relaxation. During a visit to
and the average age in Globals is 21 years. Bhubaneswar for an entrepreneurship
seminar, where he was talking to a young
Joining Globals Inc. is open to students audience, he explored the possibility of
in the age group of 17 – 22. In order to setting up a research and development
avoid employment of such young people centre in Bhubaneswar. He visited
being termed as ‘child labour’, Globals Nandankanan (a zoological park), Puri,
ensures that such people worked only on Chilka and several other places of interest
part time basis from their home where to find out that, in the event of a R & D
they are provided with internet centre coming up, his employees would
connections and PC. They are given get sufficient avenues in and around
instructions through a message board. Bhubaneswar to keep themselves
Their membership to the Globals network engaged.
is free of cost and based on their skill set
and not qualifications. Once a candidate
is selected he is put on to a project and Globals already has a management
becomes a member of the Globals family. structure in place. There is a Chief
Any candidate can apply online if he is Operating Officer, Chief Information
Mohanty, Suhas Gopinath ... 193

Officer, Chief Technology Officer, Germany. The names of the

other department heads and several management team members regional
regional heads in USA, Spain, Italy, heads and members of Board by
Australia, Bahrain, Canada and Directors are given below:

Management Team

Chief Executive Officer & President Suhas Gopinath

Chief Operating Officer & Senior Vice President, Finance Vinay M.N.
Chief Technology Officer and Vice President, Software Solutions Samuel S Carre
Senior Vice President, e-Commerce & Web Solutions Vantt Chris
Executive Vice President, Worldwide Human Resources Micheal Vaughan
Executive Vice President, Strategy and Marketing Amruta Desai

Regional Heads

Regional Head – Dulles, USA Paul Samberg

Regional Head – Madrid, Spain Alberto Sanchexz Plaza
Regional Head – Milan, Italy Giancarlo Ambrosini
Regional Head – South Australia, Australia Abhishek Devraj
Regional Head – Manama, Bahrain Titus Varghese
Regional Head – Quebec, Cannada Manjesh Muthapa
Regional Head, Cologne, Germany. Ehsan Rehman

Board of Directors
Chairman of the Board (CEO Deepti Marketing Services) Mr. M.R. Gopinath
Vice Chairman of the Baord (CEO, Globals Inc.) Mr. Suhas Gopinath
Executive Director (COO, Globals Inc.) Mr. Vinay M. N.
Non-Executive Director (Chairman, Jain Group of institutions). Mr. R Chenraj Jain
Non – Executive Director (CEO Deepti Electronics and Dr. Sheshadri M.R.
Electro-Optics Pvt. Ltd.)
Executive Director (Legal Counsel, Globals Inc.) Mr. Joshi D.N.
Non-Executive Director (NASA – Washington DC. Dr. Narayan Rao
194 Vilakshan, XIMB Journal of Management ; September, 2007

6.0 FINANCE AND COST completed in about six months in India

and at an approximately cost of Rs.25, 000.
Globals strategy was to have steady
growth, low cost pricing and a focus on In case of team programmers Suhas gave
small and medium enterprises. It also the component of cost estimate and
worked in products like school efforts required for the typical project as
information management system which follow:
has a great potential in the third world
Activity Percent of Percent of
countries. “While a competitor offers this
Component total cost total effort
products at the cost of Rs. 2 lakh we offer
it around Rs.15,000/- . We are aiming at Analysis of 20 15
smaller schools,” says Suhas. This is to and Design
some extent explained by the cost
Project 28 20
competitiveness of Globals.
One of the other cost aspects was related Development 52 65
to the setting up of the company. “I did & testing
not register my company in India as one
has to pay taxes and there are other When asked about the general orientation
hassles,” he said. “The rates we charge towards profit, the response was “ the
are very cheap. If you want to set up your company is not a money making machine.
own site we charge only 300 rupees.” Students below 22 can become
Infact for a client in Frankfurt, Globals
employees. The aim as of now is to get
designed a corporate website and
more and more students to join. They
charged only about this much.
work out of cyber cafes in India where
Speaking about the way that Globals they have to pay Indian Rs.15 (1/3 rd of a
keeps its cost down, Suhas mentioned US dollar per hour) which is cheap by
about the salary of talented programmers the world standards. When Suhas started
in the US versus India. In the US, the out, the rates at cyber cafes were much
programmers were paid a higher salary higher but since then rates have dropped
but the actual cost to the company was drastically.
much higher. In addition to the salary
there were statutory payments to each About the earnings of Globals’
employee. Besides infrastructure cost employees it was observed that the
such as hardware, software, utility and employees in India earn between Rs.
space cost got added to the overheads. 20,000 to 25,000 a month. (
On the whole, while a twelve man month approximately equal to US $ 550 to 650)
project which took approximately a year which is considered as a good wage in
for a programmer in US and costed about India but is about one third of what the
one lakh dollar, the same could be Globals employees get (approximately
Mohanty, Suhas Gopinath ... 195

US $1500) in the western countries. Suhas also had some experiences at his
Commenting on this the Head of college and with his classmates. It
Finances, Globals says “For us, money bothered him, to his embarrassment that
isn’t why we work for Globals. The his fellow students called him ‘Sir’, took
atmosphere and the fun are much more pictures of him on his cell phones and
important to us. There aren’t any asked for autographs.
hierarchies here.”
Suhas cannot forget one of his bad time
About growth and investment in the after launching of his first website
company, Suhas clarified “Now as my The web site
company grows, I invest all the profit was to provide Indians all over the
back into the future of my company. I world with a forum to post public
wish I could provide employment to all events, tips for eating out and other
the talent in our country,” says Suhas. No programmes which would be of
wonder many of his classmates are his interest to overseas Indians. The
employees. website became very popular.
7.0 UNUSUAL EXPERIENCES However, a hacker in Pakistan
attacked the website and replaced the
Being a Chief Executive at the age of
website logo with “Cool Pakistan”.
14, and still not 21, Suhas had his share
That was a terrible experience and
of weird experiences – sometimes
Suhas abandoned the project.
amusing and pleasant and at other
times painful. Suhas owns a car, bought out of his
earnings, but doesn’t have a license to
In 2004, at a seminar on “Education
drive it around the city as he is too young
System in India” at Indian Institute of
to get a license!
Science, Bangalore, he was stopped by
the security persons at the gate. “You As a CEO, he wraps up mega deals,
are a school boy, this event is for the but he couldn’t sign on the dotted line
CEOs.” He picked up his cell phone and as legally he was not an adult when
called the organisers, who rushed to the the Singapore based company, SingT,
entrance to usher him in. Everyone was a Business Process Outsourcing
amused. Suhas knew that it was company was offering a contract to set
nobody’s fault. The security personnel, up web sites with e-library
who has been instructed to allow only capabilities. This could have given an
the CEOs, could hardly know that this earning of $22000 but the contract fell
young man in jeans and T shirt, looking through because he could not sign the
like a college boy, was a CEO of a Global contract under the Indian law as he
company. was underaged.
196 Vilakshan, XIMB Journal of Management ; September, 2007

Suhas says that he likes his casual wear, Shaukat Aziz who had promised to
jeans and T- shirts, but most of the time allot land near Lahore. Suhas was also
he is forced to wear blazers. He also considering Karachi as an alternative
wanted to be himself – never wanted to location. If his dream of setting up a
be a star. office in Pakistan comes true it would
be one of the rare achievements which
many Indians would not dare to
The first experience with his website dream.
‘’ which was
hacked by a hacker in Pakistan and
made into ‘’ was Suhas’ father, M.R. Gopinath, a
quite disheartening to Suhas. He Scientist with the Defence Ministry,
abandoned the website but he didn’t was happy that his son had chosen
abandon the idea of opening an office what he liked and done well during
in Pakistan. the seven years. At the same time he
does not want Suhas to neglect his
Speaking about the Pakistan IT studies. “To us, it’s important that he
companies, he states “There are only gets a degree, education is the most
five to eight IT companies in Pakistan. important thing in India” the father
A lot of the packages for the says. His parents first thought that he
government and private sector are was spending hours just goofing off at
outsourced to the middle east. There cyber cafes and were worried about
is great potential in having a base in him. “We were very worried about him
Pakistan.” earlier. Things had changed in the last
While pursuing the idea of setting up three to four years, his luck has
a branch in Pakistan, there were changed. He still spends too much time
objections from the Commerce on work and little on studies,” says his
Ministry that no Indian company could mother.
set up office on Pakistan soil. The Kala Gopinath, the mother,
objection faded away when it was disapproved that he spent every rupee
explained that it was not an Indian in the internet café. She was worried
Company but a company set up in that Suhas had been a good student but
California. The branch office was to after discovering the internet he had
function under the control of Pakistan’s become an average student. In the
Industry Department and the Board examination he secured poor
employees were to be sourced from marks in mathematics. She lectured
Pakistan itself. There was a discussion him on the importance of doing well
with the Pakistan Prime Minister Shri in studies. His parents put pressure on
Mohanty, Suhas Gopinath ... 197

him to finish school and study 10. TIME MANAGEMENT

something practical to get a secure job.
In the second year of his engineering
Later of course the parents reconciled
programme at MS Ramaiah Engineering
when Suhas was doing well. But his
College in Bangalore, Suhas works for
mother was worried that her son ate
about 18 hours every day, partly for his
and slept too little. She put more of studies, and mostly as CEO of his
idlis and vegetables on his plate. “This multinational company. In an interview
can’t be healthy. Today he lay on the to Time Magazine he said, “Most of our
sofa until 4 a.m. working on his laptop. business comes from the US market.
Then at 8:00 he went into the Office”, When the day’s work in done here, by
she complained. around 6 pm, I get a couple of hours rest
The mother also insisted that Suhas shall and then video conference with clients
have his office only at a walking distance and staff in the US working till around 3
so that without using car he can come am”.
for lunch. Accordingly, his office is Knowing the importance of his job, the
located at a five minutes walking management of the college has waived
distance. Suhas enjoys the affectionate the attendance requirement for him.
insistence of his mother. Suhas uses this waiver to his full
His mother always wanted that Suhas advantage. While other kids skip lectures
takes his studies seriously, studies to watch movies, Suhas misses lectures
management and like his elder brother, to attend seminars and conferences.
becomes a Vice President in a company Unlike other students who believe
with a good salary. In this context partying and spending time in Cafes,
Suhas mentions, “Initially when my restaurants and multiplexes, he studies
mom used to scold me, I used to give for engineering and works for the growth
her Bill Gates’s example. He is my role of his company.
model.” “My ambition is to set up When asked about leisure and enjoyment
another Microsoft” he adds. Suhas says, “Whatever little time I get, I
Suhas was asked to deliver talks at spend it with my family. I cannot afford
several top management institutes in to watch movies or go for holidays….
India, including the Indian Institute of (of course) one should also make time to
Management, Ahmedabad. When his enjoy other things in life. With work you
mother tells him to study get too busy to repent.”
management, he replies, “why study When asked about how he manages his
there? I have been invited there as time and what is his inspiration, he
visiting faculty.” replied, “My role model is Microsoft
198 Vilakshan, XIMB Journal of Management ; September, 2007

Promoter–Chairman Bill Gates. I want Apart from Business for which he spends
my company to become another 18 hours a day, he spends some of his
Microsoft. Attending college and running spare times with his family and to some
a company at the same time is not easy. extent with his dog names Bushy. He
But I’ve learnt to divide and manage my has no time to go to a cinema hall to
time well,” says Gopinath. watch a movie or to watch cricket
Suhas feels happy about his company. He
seems to be quite attached to it. In 2005 Suhas employs about 600 persons around
when an investment firm from Huston the World and was the youngest Chief
offered 100 million dollars for a majority Executive of any Company. The Limca
stake in the company, Suhas refused. The Book of Records – the Indian Version of
reason was “Why should I sell my baby”. the Guinness Book of Records – lists him
In the initial years he had a hard time. as the “World’s Youngest Chief
Apart from the teething troubles in Executive”. He was, at the age of 14, the
setting up the company he was too young Chief Executive of Globals Inc., and no
to run it. Many clients were not keen one else had become Chief Executive of
about the company. But after seeing the any Company at that age.
quality of work they delivered, many of Suhas also got the recognition of being
them came back. one of the youngest certified web-
When asked about how he got some rest developers. After seven days of his
and leisure, his response was “When I putting up the webpage,
look around I see a lot of guys of my age “”, the US based
hanging out with their girlfriends. I do Network Solutions Inc., a company
not feel bad as I have a mission to make owned by Nasdaq-listed Verisign, which
my company another Microsoft,” develops internet services,
Gopinath said “Bill Gates is my role acknowledged his ability and certified
model.” him as one of the world’s youngest web
page developers.
Suhas could have a Chauffeured driven
car and live in a penthouse or buy a Suhas has been a model for the young
bunglow for his parents in a posh locality men and women, not only India but
of Bangalore, but he lives with his parents outside. Politicians and young
in a medium size house and drives a small professionals have celebrated him as an
car. He doesn’t wear designer clothes. achiever and as an inspiration. He also
Ordinary jeans and T-shirts were his had meetings with the Indian President,
favourites. Dr. APJ Abdul Kalam at New Delhi and
Mohanty, Suhas Gopinath ... 199

Pakistan’s Prime Minister, Mr. Shaukat virtual notice board. The system also
Aziz in Islamabad. The Indian President sent SMS alerts to the parents’ cell
Dr. Kalam and the HRD Minister, Arjun phones in case of continued absence or
Singh also felicitated him. poor performance of a student. This
software was installed in hundred
In 2004 Gloals Inc. also launched three
schools in Nigeria and nearly hundred
unique software products and the BBC
in European countries. It has also been
and Washington Post acknowledged him
accepted by the Kendriya Vidyalaya
as the ‘world’s youngest CEO’.
Sangathan in India for introduction in
In 2005, Suhas Gopinath was one of the all its 870 schools across the country and
finalists of the Infosys Education also in Mosco and Dubai. Suhas has a
World Young Achievers Award. In grand plan of selling the software to
2005, he was also the youngest among the private schools also in India where
the 175 recipients of the Karnataka there lie a great potential.
State Government’s Rajyotsava
Besides the Student Management
System, Suhas is taking initiatives to
In December, 2006, Suhas at the age of develop a GPS based low cost vehicle
20 was selected by the Times of India tracking system which would be tailor
of Time Group as one of the Youth Icons made for Indian automobiles and for
for the year 2006. The other Youth Icons Indian road conditions. He hopes to sell
for the year 2006 included Indian each unit of the tracking system for
Tennis player Sania Mirza, Bollywood Rs.5000 whereas the cheapest available
Actor Hrithik Roshan, Industrialist system now in Indian market costs
Sunil Bharti Mittal, etc. Suhas Gopinath around Rs.20,000 and upwards. This
is also a brand ambassador for the system is also likely to have a big
People for Ethical Treatment of Animals potential in the third world countries.
For Globals initial teething troubles were
Globals Inc. has been in a position to almost over. But Suhas felt that though
identify unfilled market niches. It initial interest and dedication had made
developed a software product for it successful and he had become the chief
school that allows teachers to easily executive officer, what mattered was the
enter grades and attendance, which ability to expand the company. The job
parents could access electronically and of managing the company had become
know whether their children are easier because he treated his employees
showing up to class. Attendance status as family members and friends than
and marks could also be seen on a acting like a boss.
200 Vilakshan, XIMB Journal of Management ; September, 2007

Suhas was planning to start management he was planning to go to Stanford

consultancy for the industry sector as well University and study artificial
and expand services to non-IT areas. intelligence.
The general thrust in the company was Globals HR strategy of recruiting skilled
placed on quality over quantity, mind local youngsters, who would be happy
over machine and unity over to work part time, is key to their
uniopinion. There was no question of expansion plans. Domestic expansion for
egoistic thought. Everyone worked Globals is guided by the concentration
with lot of enthusiasm. The work was of engineering and management
more streamlined and solutions were colleges. In places with a high
achieved within prescribed time concentration of such educational
boundary. institutes, it was felt easy to find local
students to join Globals as part time
Suhas always thought of having his
company as an Indian company and
looked forward to shift the It is also in the news that he wished to
headquarters in due course to India. move from service based company into
However on crossing the 18 year age a products based one for which the
mark, which entitled him to register Company needed funds. These funds
company in India, he has registered a were proposed to be utilized to open
company in Bangalore as Globals market offices and onsite centre in
ITES. Europe, which had largely remained
untapped by Indian IT companies.
Suhas has his own dreams for becoming
the Bill Gates in India and setting up a Keeping with its plan to expand in
company, which in due course would be Europe, Globals has already opened in
like Microsoft. At an age when other Frankfurt an R&D business
teenagers are whiling away time in games development sector. Frankfurt being
and other pastimes, Suhas was occupied the most important commercial centre
in drawing a road map for his young in Europe, is likely to become a good
company. hub for Globals in the European
markets. The company has some clients
Globals Inc. is small but Suhas looks
in Germany including the prestigious
forward to achieve a turnover of Rs.8
account of Mercedes Benz for whom
crore in the next five years. He looks
Globals is executing a web application
forward to have many more young
technical people and expand his business
into networking solutions and There is also a proposal and talks are in
embedded software. At a personal level progress in this regard with a London
Mohanty, Suhas Gopinath ... 201

based financial institution to sell 20 to barely get 65 percent. Even I try and not
25% stake in Globals Inc. to this financial bunk too many classes, but clients cannot
institution to fuel the expansion plans. be given lame excuses. When I have
If this happens, expansion could be exams, I tell them I am unwell….”
faster. And later the company can make In India Globals still faces some
public offerings through which funds can problems when it comes to
be raised and the London based Government projects. Sometimes
financial institution would then be paid people in Government argue that
off. Suhas is also actively exploring the projects can be given only to those
possibility of floating an IPO on the companies, which fulfil the pre-bid
Nasdaq. qualification norms and Globals more
Simultaneously, there were also other often doesn’t qualify. Suhas is reticent
reports that Suhas was considering a on the approach of Government
possible takeover of a Chinese firm to officials but says, “We too will be a
make an entry in the Chinese IT sector. CMM level 5 company soon.”
This could be a merger or an acquisition. On the general approach towards work
This would give Globals a foothold also Suhas makes a cryptic statement “
in Singapore and Korea. Irrespective of success or fame, we need
15. TOWARDS ENTREPRENEURSHIP to be down to earth and humble.”
Suhas Gopinath is a motivator for young REFERENCES
entrepreneurs. In course of his travelling Times News Network, August 30, 2005, Tuesday
and lecturing in India and abroad he says posted at 7:16 pm
“For the economies of third world
Teen Tradegies: Acne, Dating, $22,000 loss,
countries to grow, job seekers have to November 11, 2003.
transcend into job creators. Whenever I
Business Standard “Suhas Gopinath may sell
address the youth, I try to encourage
stake to London FI”, Tuesday, September 11,
them to take up entrepreneurship as an
adventure. There are a lot of hurdles but
the satisfaction of providing Sify Business, “20 year old Suhas wants to buy
Chinese Firm”, Friday, November, 10, 2006.
opportunities is huge”.
Balancing work and studies was not an fullstory.php?id = 14328392
easy job for Suhas. He admits that life
has been stressful for him. “As I got more storypage_c_online.php?leftnm = 11& 6 Key
interested in the company, my studies Fla…..9.11.2007
went for a toss. In my Class X exams I “Gopinath, world’s youngest CEO has big
scored 80 per cent, but in I PUC could plans”, Rediff News; Nov 10, 2006
202 Vilakshan, XIMB Journal of Management ; September, 2007

“I can’t afford to watch movies”, Times of India; “Indian company loses deal because 17-year-old
January 11, 2007 CEO is too young”, Daily Excelsior, India;
November 3, 2007
“Dares to dream, strives to realise it”, The Hindu;
January 13, 2007 “17-year-old CEO a problem”, Taipei Times,
Taiwan; November 7, 2003
“Teenager hopes his firm will become another
Microsoft”, Sydney Morning Herald, “He’s 17, single and a CEO !”,, USA;
Australia, November 10, 2003 November 10, 2003
“17-year-old tipped to become IT tycoon”, “Another Gates in the making! Founder at 14,
Independent Online, South Africa; CEO at 17, what next”, Indian Express, India;
November 15, 2003 November 6, 2003
Management case

Rural Women’s Marketing Association


Debasis Pradhan1

The Rural Women’s Marketing Association (RWMA), an association of 6,00,000 poor, self employed
women workers of Gujarat was registered as a trade union in 1972. Rural Women’s Haat (RWH) was
later formed as an apex organisation to help RWMA members in marketing their local produce. RWH
mainly worked with local producer groups through district level associations, as a marketing organization
to facilitate various forms of intervention to strengthen rural producer groups in nine districts of
Gujarat. Mrs Sujata Mahapatra, Director of RWMA had some important decisions to make regarding
the path ahead. She was considering the alternatives keeping in mind the physical, locational and
infrastructure constraints in the areas where a new system/model in marketing was to be instituted.
She was aware of the fact that consumers were variety seeking and hence they might not accept the
limited choice available at the village retail outlet. She was also thinking about the replicability of this
model of distribution in other areas.

1.0 R U R A L W O M E N ’ S M A R K E T I N G distribution channel for various products

ASSOCIATION (RWMA) manufactured by rural producers and
marketed by RWH.
Mrs. Sujata Mahapatra, Director, Rural
Women’s Marketing Association
(RWMA) is embroiled in a real decision-
making situation which was first of its The Rural Women’s Marketing
kind in her long career so far. She has to Association (RWMA), an association of
consider her future course of actions and 6,00,000 poor, self employed women
its repercussions. This has assumed more workers, was registered as a trade
importance in the wake of expansion union in 1972. RWMA has two main
plans and plans to scale up the operations goals, such as, to organize women for
of Rural Women’s Haat (RWH). Her full employment and make them self-
major concern has been to find a right reliant. In 1999, RWMA, with the full

* Received September 5, 2006 ; Revised March 7, 2007

1. Assistant Professor, XLRI ,Jamshedpur, e-mail:
204 Vilakshan, XIMB Journal of Management ; September, 2007

cooperation and support of the Rural producers whereas forward linkages

Development Committee of the refer to connections with the market
Government of Gujarat, established place). RWH identified these above-
Rural Women’s Haat (RWH) as an apex mentioned sectors as the ones in which
organization for marketing various local rural producers were experiencing
produce. Rural Women’s Haat (RWH) substantial difficulties in connecting with
mainly works with local producer local, national, and international
groups through district level marketplaces. While RWH has focused
associations, as a marketing organization on these four product categories in its
to facilitate various forms of first three years, there is potential to
intervention to strengthen rural expand to other product categories in
producer groups in nine districts of the future.
Gujarat. One member from each district In its first three years, RWH has
level group is an executive member of worked in nine districts with
RWH. All the members of RWMA are approximately 55,000 members in about
primary members of RWH . 3,500 groups. Its main objectives have
been: (1) to provide marketing facilities
and services to the district associations;
Currently, RWH is into the marketing (2) to provide managerial and technical
of cereals (wheat and bajra), salt, spices support services to the district
(chilli, cumin, mustard, sesame), potato associations; (3) to enable the rural
katri, isabgol, white gum, handloom producers to earn a regular minimum
(napkins, towels and bed sheets) and income of Rs. 3,000 per month and
handicraft items (cane basket and foot finally, (4) to facilitate the producers to
mats). Producers of these products become owner managers of their
constitute a large proportion of RWMA’s collective enterprises.
membership. Specifically, 65% of RWH has a three-tier structure. At
RWMA’s members are employed in the the village level, are the Self-Help
agriculture sector, 15% in handicrafts, Groups (SHGs) comprising of women
5% in salt, and 1% in gum. Together, producers. At the middle level are
these four sectors account for more than the district associations which
85% of RWH members. Moreover, RWH monitor the work of SHGs, train
focuses on these sectors as these have them and assist them when required.
been identified as the ones in which The apex body is RWH, whose core
backward and forward linkages are activity is to market the produce by
extremely critical. (Backward linkages procuring through the district
refer to connections with rural associations.
Pradhan, Rural Women’s Marketing ... 205

4.0 IN PURSUIT OF THE OBJECTIVES established to provide market as well as

technical and financial services to rural
To achieve these objectives, RWH offers
producer groups through district level
technical services, financial services, and
associations. It aims at helping the poor
marketing support to its village based
to reach markets and increase his
rural producer. Technical services are
bargaining strength through organizing
intended to improve the productivity and
a large base of members.
quality of production. Financial services
are intended to help producer groups “Moreover, RWH’s formation furthered
enter new markets by offering capital RWMA’s objective of self-reliance, by
loans at fair rates. Moreover, RWH buys linking rural producer groups directly to
product and holds stock until fair rates local markets through establishing
can be negotiated, which women backward and forward linkages” says
themselves are unable to do, as they do Mrs. Mahapatra. “By doing this, RWH
not have adequate cash supply. Lastly, has been able to educate rural producer
marketing services are intended to help groups about the markets for their goods
RWMA members understand the details and has also been able to provide
of their markets better. Specifically, feedback to the rural producer groups
RWH also offers information about about the viability of their products. With
prices, branding, promotion the this knowledge, the rural producer
RWMA women. groups expect to have the capacity to
manage the marketing of their products
RWH’s main goal is to provide marketing
independently” , She continues.
and other support services to rural
producer groups. Prior to the In this context, RWMA also wishes to
introduction of RWH, RWMA had a long explore the possibility of a reverse supply
history of working with the State chain, by which the rural producers
Government of Gujarat to implement themselves will be rural consumers also.
need-based programmes for rural With this in mind they aim to establish a
women below the poverty line. This work distribution system for the RWMA
with rural producer groups revealed that products in the rural villages of same nine
these groups were removed from the districts. RWMA is quite aware that this
market for their products and were requires firstly evaluation of the
forced to rely on traders or middlemen, potential of such an implementation in
who often exploited them by offering terms of demand for RWMA products,
prices, which were less than the market secondly, finding an appropriate
prices. To reduce these groups’ distribution system and finally,
dependence on middlemen, RWH was arranging the proper human resources.
206 Vilakshan, XIMB Journal of Management ; September, 2007

Mrs. Mahapatra admits that the major centres. The inventory rotation will be
problems experienced by the consumers done on the basis of 10-15 days credit
in both Vadodara and Sabarkantha given to the village retailer members. The
districts, irrespective of income respective margins for RWH, district
segments, is the lack of availability of association and the village based retailer
the products in the villages. From the are 12%, 5% and 15%. Retailers are given
consumer survey, it has been found that a lot of importance as they directly deal
approximately 50 percent of the with the consumers and can assess the
respondents have to go to Taluka shop demand.
to buy the products. Non-availability
was found to be the second most common
problem expressed by the consumers. Mrs. Mahapatra was seriously
contemplating that the best alternative
should give the best returns to the
The components of physical distribution members of RWMA and should also be
system are mainly transportation, compliant with the vision and objectives
warehousing and inventory of the organisation, while providing
management. RWH has got its fixed plans sustainability over a period of time and
for these three components. The physical strength to the organisation. The
distribution is to be directly from the alternatives must be considered
production centre to the demand centre keeping in mind the physical, locational
based on the orders placed by the and infrastructure constraints in the
distribution centres. The proposed areas where the system is to be
“Distribution Network” will be demand instituted. She was aware that
driven. RWH would handle the consumers were variety seeking and
transportation on the basis of orders wondered if the product portfolio was
received. The cost of transportation will too narrow to offer the customers such
be borne by the distribution centres. variety in the the choices. She was also
Warehousing will be done at the district thinking about the replicability of this
level, which will be treated as the model of distribution in other areas of
distribution centre. The rental costs for operation.
the warehousing can be met out of the
commission retained by the District
Office. The inventory maintenance is to The level of intervention can be seen at
be demand driven and replenishment of two levels, such as, village level and
stocks will be done on the basis of orders district level. As per the RWMA
received from village-based demand procedure for starting any new activity
Pradhan, Rural Women’s Marketing ... 207

a committee can be formed by the savings credit provided by District association

group coordinator, the additional staff decide success of RWH? What if the
members hired for the purpose of the District association is not in a position to
distribution network and the local extend the credit support and there is a
coordinator. The committee can then lot of potential for marketing of its
constitute Spear Head Teams, which will products? Is it worthwhile for RWH to
take up the distribution network in give a bank guarantee to village based
various RWMA villages. Training can be retailer for the loan, provided the retailer
given to the members involved in the is dealing exclusively with RWMA’s
distribution network for purposes of products? This will mostly give RWH a
inventory maintenance and strategies to stronghold in the villages with an
be adopted for marketing of their established distribution channels.
products, maintenance of accounting Without sufficient experience, can the
records etc. At the village level, two retailers make it sustainable with
kinds of members of RWMA can be changing choices and preferences of the
involved in the distribution network. customers?
These are primarily RWMA Self Help
Alternative 1 (B): The mode of selling
Group members and adolescent girls of
to be adopted by the village based retail
Kishori Mandals2. The requirements at
members could be either pheri (like a
the village level are mainly as follows :
hawker) from village to village, in groups
Alternative 1 (A): Provision of credit to or by setting up of retail establishments
SHG members is one of the major in villages. The first option can be
requirements for the establishment of a promoted in Sabarkantha where it is
retail business. The members can be given more socially acceptable for women to
loans for starting up the business if they be able to move out of houses and
contribute at least 50% of the total villages. This will save the cost of
investment on their own. This helps in establishing an outlet and also give a
ensuring the stake of the members in the wider market access. But Mrs. Mahapatra
effective running of the business. For this is having some reservations about this
purpose the District Association, if mode of selling. her concerns are : Can
willing, can provide assistance, or it can all the products of RWH be sold in this
be done through the savings of the way through pheri? Can this “pheri”
groups themselves. Will this provision of mode of selling be there to supplement

Groups of adolescent girls undergoing livelihood training programmes such as sewing,
embroidery etc.
208 Vilakshan, XIMB Journal of Management ; September, 2007

the established retail store? What will be case-to-case basis on the basis of
the replicability of this mode of selling individual interest and personal
in other areas? circumstances. Since they are mainly
located in urban areas in Vadodara and
Alternative 1 (C): In the Kishori Mandals,
Modasa, they basically sell spices and
mostly the members are school going
handloom products, which have got good
adolescent girls who get married in 2-3
demand in these areas. Will it be possible
years and move out of the villages. In
to monitor them and will this channel be
this case the shops would go over to their
efficient? Mrs. Mahapatra worries as the
families who would not necessarily be
women are mainly from the minority
RWMA members. Hence, preference
community and are constrained by social
should be given to those Kishoris, who
norms which prevent them from moving
have already finished schooling or the
out of their houses. They can sell only
ones who have been married into the
from their residence. Those with
village. There may be some problems in
adequate family support can also put up
the former case, where the Kishoris may
stalls in the marketplaces.
get married in some other village. But
this also must be considered that, with Alternative-2
this RWMA as an organisation will Here Mrs. Mahapatra looks at two phases
increase its reach with increasing for this alternative. While talking to the
membership. So is it a risk worth taking case writer, this comes out clearly. Both
and handing over the retail business to the phases comprise an initial stage of
the Kishoris? How will it benefit RWH pilot testing and subsequent expansion
in the long run? Again Mrs Mahapatra plans.
wonders if it will be sustainable.
Phase-1: In the first phase, RWH can
Alternative 1 (D): The other members initiate the marketing of products in 8-
that RWMA could involve in the retailing 10 villages on a pilot basis. Initially in the
chain are Shanta Bens’. These are the first phase, members can start the
widows of the victims of the Gujarat riots. distribution system with existing shops
RWMA is providing them support with in the villages belonging to RWMA
financial assistance from the Gujarat members who own retail establishments
Government. They are given livelihood at village level. The Spear Head Team
training in form of stitching and members also can be involved by giving
embroidery classes etc. Retailing of them samples of products when they go
RWMA products could be another such to various villages. RWMA Savings
activity in which they could be involved. Group members who are interested in
The Shanta Bens’ can be evaluated on a opening shops or direct marketing at
Pradhan, Rural Women’s Marketing ... 209

village level can also be involved on a potential for marketing of the products.
pilot basis. The criteria for selection of Will it be really a limitation? Can the
villages where the system will be initiated concept like satellite retailer, be applied
on a pilot basis can be based on retailer’s to the retailers of the RWMA villages?
positive response, the demand potential This limitation can be overcome either
of the village, distance from the Taluka, by direct marketing by RWMA
size of the village, existing number of members or by marketing through
retail establishments in the village and existing village based retailers in non -
more importantly, The RWMA’s image RWMA villages. The possibility of Pheri
in the village. On the basis of feedback mode of selling can also be explored
received regarding sales growth and here.
consumer response from the first phase Alternative-3
of implementation, the marketing
strategies can be modified. Mrs Institutional marketing
Mahapatra is worried about how to Banas Dairy, the milk union of
supply these retailers regularly. She is Banaskantha district wants to start retail
also worried that the pilot villages may outlets in its village level milk cooperative
not be similar to the other targeted societies. For this purpose it wishes to
villages which were to be covered under procure items of household consumption
the expansion plan? for selling through their establishments.
A marketing arrangement for RWMA
Phase-2: In the second phase of
products in Banaskantha can be explored
implementation, RWH can expand the
through this channel as the pilot project
distribution network by involving more
for RWH rural distribution network is
and more members at village level. The
not to be initiated in the Banaskantha
Gram Sabhas can be called in various
district initially. It may be worthwhile to
villages to encourage women to come
use the channels like Banas dairy but this
up and open retail establishments with
may not promote RWH as a separate
the permission of the village elders and
entity. Though it may lead to
this would also be an effective
dependency on an external channel
promotion channel for the products. For
member, this is compliant with the vision
the purpose of establishment of the and objectives of RWH. Mrs. Mahapatra
distribution network a critical mass of is also open to any new marketing
consumers is essential. This is however channel not included in the above three
possible only if a contiguous area is alternatives, provided that is in
covered. RWMA villages however are synchronization with the objectives of
scattered and this constaint limits the RWH.
210 Vilakshan, XIMB Journal of Management ; September, 2007

Though Mrs. Mahapatra is closely no gap in the structure”, feels Mrs.

looking at the alternatives, the issue of Mahapatra. She is also trying to make the
sustainability, richness of product retailing strategy right so that the
portfolio and replicability of this model distribution can end with perfection.
of distribution would eventually “Finally, a value proposition needs to be
determine her decision. “As RWH is provided both to the rural consumers and
competing in the market with numerous the producer as well as retailer members
players with varying ethos, the strategy to see this venture successful” hurriedly
should be concrete and there should be adds Mrs. Mahapatra.
Management case

A Tale of Two Samitis*

Niraj Kumar1

The paper presents a case study involving two village based institutions, namely Sarvodaya Vikash
Samiti (SVS) and Mahamaya Mahila Samiti (MMS). SVS, a grass-root NGO, is not only known among
the villagers but also commands respects in local media. MMS, one among seven self-help groups
(SHGs) promoted by SVS in the village Hirapur, of Khurda district of Orissa, is engaged in appliqué
based activities and said to be meeting it’s objectives. The case explains the process of institution
building, its various stages, and roles of various players in its building and functioning of this community
based institution. It also explains various roles of a community mobiliser (in this case SVS) in institution
building process, and various characteristics of the mobiliser which had affected the development and
sustainability of MMS. Characteristics of SVS and various efforts made by it have facilitated the
development of an only women based village institution and have helped its members to add in their
income. However, the case also brings some questions forth related to the sustainability of the institution
and also on the true objectives of the mobiliser.

1.0 PROLOGUE award as “Best SHG Organising Agency

Sarbodaya Vikash Samiti (SVS), an in Khurda” under the government
NGO, has been working in Khurda programme named ‘Mission Shakti’.
district of Orissa since 1995. It operated The major interventions of SVS are
in eight Gram Panchayats having 64 related to self help groups (SHG)
villages. The NGO has done very good
development and management, micro
work of community mobilization by
credit, support to self motivated micro
organizing people and is among one of
the known organizations in the district. enterprises, natural resource
SVS received an award from UN for management. Under Mission Shakti, SVS
world leaders in 2001. Also, from the has formed around 312 SHGs having 3865
Government of Orissa they received the members, and has helped in the

* Received June 28, 2007; Revised August 24, 2007; The case is the outcome of project work done
by Amaninder Kaur, Nikhar Ganesh, and Salil Mahajan (PGPRM students of batch 2005-07)
under the course "Community Mobilsation and Institution Building". Author acknowledges
their respective contributions.
1. Associate Professor, Xavier Institute of Management, Bhubaneswar, email:
212 Vilakshan, XIMB Journal of Management ; September, 2007

formation of a federation of women’s The scheduled caste and the general caste
SHGs named as ‘Aanchalika Mahila people reside at different areas separately
Mahasangha’. It has disbursed about 1.14 in the same village. The village had
crores of rupees under the micro-credit agriculture based economy, although not
scheme with the recovery rate of 80-90%. all, particularly those from the schedule
With the expectation of a major policy caste, had sufficient landholding. So they
change, when NGOs will be allowed to were also involved in manual labour and
undertake micro insurance business, SVS some other activities.
has tied up with Oriental Insurance
SVS started working in this village in
Company. The NGO has collaborated
1995. It worked on various issues related
with Emami India for the distribution of
to natural resource management and
its consumers’ products in rural Orissa
infrastructural development of the
with the help of women SHGs. SVS has
village. In the year 1998, it started
formed various women SHG groups
forming women SHGs based on various
which are working on different
demand based livelihood activities and
livelihood activities such as dairy,
terracotta, fisheries, appliqué, brass and convinced village women to take up
bell metal and flour mill. It has also those activities in groups. The financial
undertaken projects related to natural conditions of these villagers were also
resource management with special not very good. The women in village
emphasis on water resources, formation were not directly involved in any income
of Pani Panchayats, special task forces for generating activity and were mainly
disaster management and developing involved in household work. So, SVS
village contingency plans. Activities of mobilized these women and formed
SVS are funded by various international SHGs. Seven SHGs were formed by
organizations and local level partner (SVS) in the village. Out of seven SHGs,
organizations and have got very good five were functioning and two, which
coverage by local media. were composed of scheduled caste
women members, had become defunct.
They were not able to generate enough
The village Hirapur is located at a cash surplus from the livelihood activity
distance of about 24 kms from undertaken and hence they were not
Bhubaneswar, the state capital of able to pay back the loans extended by
Bhubaneswar. There are around 45 the banks. Out of these five operational
households and the village population is groups, three were into hand bag
200. Eighty per cent of the village making, one each in appliqué work and
population is composed of OBCs (other flour mill business. The number of
backward castes), and rest are SCs members in each SHG did not vary
(schedule castes) and of general catgory. much after they were formed and the
Kumar, A Tale of Two ... 213

NGO was guiding almost all the SHGs The SHG, named as Mahamaya Mahila
in their respective works. Samiti became functional in the year 1998.
Out of a total 10 members, eight members
were from other backward class and
After the initial discussions with women were below the poverty line, whereas
villagers, the head of SVS held a meeting two members were from general
with few selected members and informed category and were above poverty line.
them about the potential of appliqué craft SVS helped them streamlining their
works in the village. Although most of functioning. It explained them about
them most were not too convinced about various aspects of SHG management like,
the idea of appliqué craft, a few conducting meetings, loan financing,
reluctantly agreed as they realized that undertaking monthly monitoring, and
they did not have to lose any thing at also informed them about potential
least during the early phase of their business ideas. In a few weeks of time,
work. All the members, who agreed, SHG was able to decide about its norms
were explained about the concept of and rules for its functioning. Some of the
SHG, its objectives, formation, and important rules were:
functioning. - SHG was to have an election process
to select the president and the
Appliqué work is a handicraft, secretary. The women interested to
created by sewing of patches of become the president and secretary
coloured clothes onto a large were asked to contest the elections
canvas, also made of cloth. These in which all the members were to
are generally of pure bold colours raise their hand to show their
in floral and animal shapes preference.
emerging from a background of - Secretary was to be responsible of
contrasting colour. The work maintaining all accounts and
ranges from the items crafted in president of overall management
traditional forms, such as and day to day working of the
chanduas (canopies), chhatri group.
(umbrella), Tarasa, Jhalar (frill) - Registers related to members’
and Batua (pouch) that are used profile; saving details; internal and
in religious functions, to the more external loans; members’ demand,
popular umbrellas, bags, ladies’ collection, balance, overdue
hand bags, wall hangings, lamp registers; cash book; general ledger;
minutes of meetings; and loan and
shades, bed covers, pillow covers,
savings pass books were to be
letter holders etc.
214 Vilakshan, XIMB Journal of Management ; September, 2007

- All the members of the SHG were group was to decide about the exact
eligible to get loans. They were to amount payable to a member based
contribute Rs. 50 per month and this on her capability to repay back the
fund was to used for internal loan on time.
lending. They were allowed to have
None of the members or their family
loan through internal lending of
members had any experience of appliqué
around double the balance of an
works and the art was totally new to
individual account. Over and above
them and to their social culture. Both
this internal lending, these SHG
president (Mrs. Snehlata Rautrai) and
members could also borrow from
secretary (Mrs. Prabhati Pahari) were
micro finance institutions amounting
from general category, and had been at
to Rs. 20,000 to 25,000, at an interest
their respective positions since the
rate of 15-20% p.a. as a part of their
formation of the group. SVS, realizing the
SHG linkage scheme. For internal
potential of this livelihood option
lending, the loan amount was to be
arranged training in appliqué craft for
given to a particular member and
president and secretary of SHG. Both, in
fixed along with the rate of interest
turn, trained rest of the group members.
to be charged. Loans given by the
The group started working with the two
group could be for different
sewing machines belonging to secretary
purposes such as business, health,
and president. SVS on behalf of
agriculture, house construction etc.
Mahamaya Mahila Samiti purchased raw
- Meetings were to be held every materials from Pipli, a nearby town and
fortnight, the date and timings of also the centre of appliqué crafts, and
which were to be decided by the distributed among the members of the
secretary. In this meeting, various SHG. The members took their time to
group activities and performance prepare items and then gave it to the
such as total sales, money input and president. President sold those items to
outputs, profits for the month, loan the businessmen from Bhubaneswar after
status etc. were to be discussed. she negotiated the price of each item.
- Decision about sanctioning of the Members were then given their share
loan to particular member was to be taking out the cost price of the raw
decided in the meeting by secretary materials. Members shared their profits
in consultation with president and on an equitable basis, wherein the
other group members. This was to members got their share of profit on the
be done on the basis of member’s basis of their contribution i.e., appliqué
contribution to the group. Though they prepared. A single piece of appliqué
the amount of loan available to the art took around 3-4 woman-days to
members was twice the saving complete and fetched around Rs. 70-80
balance of the member, still the which they felt was very less vis-à-vis the
Kumar, A Tale of Two ... 215

time it took to prepare and when money per piece was fixed by the group
compared to other activities. Members consistent with trader’s price. On an
were of the opinion that this option average, SHG earned around Rs.3,500 -
would not be sustainable in the long run 4,000 per month (Rs. 350-400 per woman
as it required lot of funds to purchase member). In the initial stages, these
individual sewing machines. They also profits were considered as low but after
compared themselves with other fellow the schematic lending and with an
villagers attached with the SHG working increase in group’s fund, the scale of
on hand bag making, who were earning operations increased leading to a sharp
much higher profits. And so, they wanted increase in group profits. There was no
to get into hand bag making. loan in the either against SHG or against
SVS, the patron NGO, requested any of its members. The group had a total
members to continue as the activity working capital of sixty thousand rupees.
would attract major support from “Earlier we used to request our husbands
government and would be beneficial in for money; now we give them money
the long run. They were also reminded when they require” was the comment of
of the religious importance of the one of the members.
appliqué art. Designs on the crafts are Mahamaya Mahila Samiti was led by
generally the depiction of the religious members of the upper caste, with both
festival or of their local deities. The theme the president and the secretary belonging
and colours used in the crafts reflected to the elite forward caste and the other
their mythological beliefs. In response to members belonging to the OBC group.
the requirement of capital, SVS made Initially, there were inhibitions amongst
them aware of the availability of these two functionaries the President and
subsidized loans from government and the Secretary and they looked upon these
MFIs. The group agreed to continue with members as inferiors. However, with the
appliqué work.
passage of time, things changed and they
All the members in the group got started considering the other eight
stitching machine which they bought out members as part of their institution and
of a loan of Rs. 2100 from MFI, which reservations based on caste totally
they later paid back. Each member of the vanished.
group worked for around 5-6 hours per
day and profits were distributed on the
basis of their contribution as per the In 2003, after 5 years of smooth
pieces made by particular member. The functioning of Mahamaya Mahila Samiti,

2 Under Swarnajayanti Gram Swarozgar Yojana (SGSY), a central government sponsored project,
schematic loan is provided to SHG’s after monitoring their performance for 3-4 years. This loan
is highly subsidized subject to the condition that about 70% of the SHG members should be
Below Poverty Line.
216 Vilakshan, XIMB Journal of Management ; September, 2007

they received a schematic loan2 Rs 2 lakh Mahamaya Mahila Samiti prepared

under SGSY scheme and out of this various items in appliqué and sold them
around Rs. 80 thousand was the subsidy in the Bhubaneswar market through
component and rest Rs. 120 thousand middlemen. In the absence of a marketing
was the loan component. SVS assisted network, SHGs largely depended on
them in getting the sanctions of the loan middlemen, and in the process, their
of Rs. 200 thousand under SGSY and margins got eroded. The challenge,
then facilitated the construction of ‘SHG therefore, in front of them was to sell
house’ out of the subsidy amount of Rs. their crafts directly in the haats (urban
80 thousand. President and secretary retail outlets) so that they could get better
who had been managing the funds and prices, compared to middlemen’s prices.
day to day activities of the SHG Realising the problem, the SVS again
proudly shared their register showing came forward and helped the SHG to sell
that they had already repaid the product in the state level sales centre
amount with interest. (Ekamra Haat) in the state capital,
Bhubaneswar. The organization also
Members decided to use this subsidy became the part of networks supported
amount to construct a SHG house in the by agencies like ORMAS (a state run
village and they looked for community marketing agency) and CAPART (a
land for the purpose. Villagers objected Government of India agency), which
to this construction as they said that the provided opportunity to sell their
village land belonged to 200 residents products in different cities in the country
of village and the land could not be where exhibitions of handicrafts were
given to a group having only 10 organized by the government and non-
members. As this opposition against the government agencies. Smiling
SHG increased, the SVS intervened in photographs of president and secretary
the matter and explained the benefits at their stalls in various cities like New
of such infrastructure in the village to Delhi, Calcutta, Bhuabneswar, now
the objecting villagers, and also hanging in the village community house
convinced the members of SHG that and also in the album of NGO chief are
instead of calling it a SHG house, it the testimonies of accomplishments of
would be called as community house. Mahamaya Mahila Samiti (MMS) and
This ended the stalemate and every one Sarvodaya Vikas Samiti. Now, they
agreed to have the community hall in intend to take up the activity of hand bag
the village on the community land. making!
Management case

Reliable Iterative Testing Environment

(RITE) -a Case of Software Development

Sanjay Mohapatra1

During the last fifty years software development as a business has seen phenomenal growth. Different
models have been developed to streamline and codify the developmental process. There are different
models such as applicable to different situations. The processes can be different for products, services
and solutions. In the present case an innovative method of software development applicable to product
particularly with insight and offshore teams has been suggested. This method lays emphasis on iterative
testing environment to achieve high quality and time bounded software delivery by using a repeatable
packet of software components. The model is also dynamic in terms of accommodative, change request
without affecting the timeline for delivery. The case is based on the experience of a fortune 500 company
but the name is disguised. Using predetermined performance indicators it is found that the new model
shows better result.

1.0 THE COMPANY AND THE to-install and easy-to-maintain core

BACKGROUND applications that are capable of meeting
specific customer needs. The customer
3IS Software is a leader in providing
profile of the company includes regional
software products for use in remittance and money-centre banks, insurance
and payment processing industry and has companies and mutual funds, credit card
been in existence for last 25 years. It had and student loan processors, telecom,
revolutionized the image based payment utilities, government and non-profit
processing industry by providing simple- organizations.

* Received August 20, 2007; Revised September 10, 2007. This is based on the experience of a
company which prefers to remain anonymous. 3IS is used as the name of the company, but it is
not the real name.
1 Associate Professor in Xavier Institute of Management, Bhubaneswar; email:
218 Vilakshan, XIMB Journal of Management ; September, 2007

3IS has been a dominant player in Royce (1970) proposed waterfall

software products business (the other model in which software development
two software businesses are known as follows a sequential order of life cycle
software solutions and services). The stages. These life cycle stages are:
company has been in development of requirement specification, design,
such products particularly for very construction, integration, testing,
large organizations. In fact, as of March installation and maintenance.
2007, eighty-eight Fortune 500 However, this model is flawed as in
companies have been in its list of the real world of software
clients. development, there is a need for
flexibility to accommodate any change
From the beginning 3IS has not been in requirement and thus in following
quite satisfied with the various models the stages sequentially such
of software development practised by accommodation may not be possible.
other competing companies and also
with the models as available in the Royce (1970), Boehm (1970), Mills
published materials. A brief review at (1973) came up with a model called
the company from time to time has Iterative model, which can be used for
developing applications for customers
shown the relative strengths and
who are not clear about their
weaknesses of various models based
requirements. In this model, the project
on which the company has concluded
team goes back to earlier stage from
that direct applications of such models
the present stage repeatedly till the
will not adequately fulfil its software
design specifications match with
quality and efficiency goals. The
changes made in the requirements by
existing models and their deficiency as
customer. The model can be used for
analysed by the company have been
building large projects for which
briefly narrated in the following
domain competency is not adequate
section. both with the customer as well as with
2.0 MODELS OF SOFTWARE DEVELOPMENT the development team.
– A REVIEW Aydin (2005), Abraham (2003), Scrum
Software Engineering projects follow (1986), and Curt Sampson have
different lifecycle models. These models proposed agile methodology as a model
are waterfall model, iterative model, for software development. In this
spiral model, agile software development method the entire project team
model, prototype model, chaos model, necessary for completing the project
and rapid action development model. including customers is located in
These models can be used for developing bullpen and face to face communication
software products. is encouraged for discussion instead of
Mohapatra, Reliable Iterative Testing ... 219

depending on written documents. The related to stability and reliability of the

bullpen2 also includes testers, designers, final production cannot be tested in
managers and technical writers. This prototype as prototype may not be
method involves preference for face-to- scalable at all times. This again can be
face communication, and very little used for small to medium size
written documentation relative to other applications and is not feasible with large
methods. Therefore the method is production requirement.
criticized as lacking discipline. Also this
Spiral Model (Boehm, 1988; Belz, 1986
model is difficult to use in large projects
and Livary, 1987) combines prototype
and cannot be used where offshore
and waterfall model. This model is
development is preferred to take
favoured for large projects. In Spiral
advantage of highly skilled and low
model, requirements are gathered in
cost professionals. One of the well
details and a prototype is developed after
known agile methodologies is Extreme
preliminary design. Feedback is obtained
Programming (XP) (Kent Blanc, Ward
from customers on this prototype and if
Cunningham and Jeffries Ron, 1996 and
required a second prototype is
McBreen, P 2003; in whih software is
developed which is an improved version
developed in small packets and lot of
of the first prototype. In this approach,
importance is given to testing and
risk factors would include development
writing test cases even before coding. cost overruns, operating cost
This method has a lacuna that it can miscalculation, or any other factor that
be used only at customer site and for could, in the customer’s judgment, result
small applications and it cannot be off in a less-than-satisfactory final product.
shored. Hence this is used for mission critical
In Prototype model (Haag, S, et applications (for defence applications)
al.,2006; a prototype or working and will be overkill for software
model is developed first to check development.
design and feature aspects of the There are also other development models
application to be developed and to such as Chaos model (Raccoon, 1995), and
get user feedback so that risk and cost Rapid action development (RAD) model
associated with the final application (McConnell, 1996; and James,1980). In
is reduced. Prototyping is part of Chaos model, projects can be thought of
design process and after incorporating in pieces. Nobody writes tens of
feedback, the product is ready for thousands of lines of code in one sitting.
p r oduction. However, performance They write small pieces, one line at a
Most agile teams are located in a single open office sometimes referred to as a bullpen. At a
minimum, this includes programmers and their “customers” (customers define the product;
they may be product managers, business analysts, or the clients). The office may include testers,
interaction designers, technical writers , and managers.
220 Vilakshan, XIMB Journal of Management ; September, 2007

time, verifying that the small pieces requirements are gathered at onsite.
work. Then they build up from there. The requirements are then passed
The behaviour of a complex system onto offshore team to develop, test
emerges from the combined and then deliver them to the customer.
behaviour of the smaller building In the course of developing these
blocks. RAD projects are typically requirements, the customer changes
staffed with small integrated teams the requirements also and these
comprised of developers, end users, changed requirements need to be
and IT technical resources which are developed and delivered as per
combined with short, iterative negotiated schedule. The existing
development cycles optimizes speed, software development models are not
unity of vision and purpose, effective in a position to take care of such
informal communication and simple dynamic situation and often lead to
project management. An important, delay in time schedule and spending
fundamental principle of RAD is that more time while developing the
each iteration delivers a functional products than agreed upon earlier
version of the final system. These with the customer. Inadequacies
models are used for developing present in the existing models are
applications where requirements are shown in table 1.
fairly stable and the size of the
3IS develops software products in
application is small. Also handling
offshore-onsite business model. The
complex applications and change
organization structure for executing
requests during development life
projects in 3IS has project committee,
cycle becomes difficult in both these
product committee and product
development teams that are based at
These models represent software headquarter in USA. However, the
development models that have been project team is housed at offshore in
in practice for long time. However, Chennai, which uses low cost, highly
for software product development, skilled personnel to develop these
where the development team is products. To be successful in this
located at offshore locations, these offshore-onsite business model, it has
models do not help in addressing the been observed that the following points
issues faced by the offshore team. An become critical:
offshore-onsite model is used when
1. Excellent communication protocol
the company wants to leverage on
between offshore-onsite teams;
highly skilled workers available in
off-shore locations at low cost. The 2. Availability of domain knowledge at
customers are based at onsite and the offshore with the project team;
Table 1: Comparison of Software Development Models
Model Waterfall Interactive Prototype Spiral Agile Chaos RAD
Name/ Model
Description Each Revisiting Prototype is Prototype Bullpen Lines of RAD
of Model stage the earlier developed and waterfall method. codes are projects are
follows stage first, combined, written and staffed with
Stress on
the repeatedly, then tested small-
Acceptance Require- face to face
previous immediately. integrated
Rigorous from the ments are communi-
one teams of
review in customer is gathered and cation.
each state. taken on prototype
Customer end users,
prototype developed,
site only. and IT
before better
further preliminary
development. design.
ments are
carried out
may be made
in small
of require-
Assumption Require- Timelines are Requirements Projects are A small
of the model ments are flexible are frozen. combination application
process of small can be scaled
Requirements Performance
pieces. upto a large
Skill set need to be in terms of
required is captured response
available through time can be Each
with the interactions. similar with iteration
team final delivers a
development. functional
version of
the final
Mohapatra, Reliable Iterative Testing ... 221
Application Complexity Complex Scientific Mission No off Small sized Scientific
is low application application critical shoring application. and research
development. application. software
Risks Requirements Small
associated are not clear Small sized Defense application
with projects and not application. application
is low frozen
and testing
is the most

Strengths of Can work Can Design Robust Better test Less scope Customer
the model for accommodate aspects are product. plans for error requirements
development change well take during are well
Can take care Structured
and requirement care of. imple- taken care of
of complex testing
maintenance. mentation
Can be used Chances of application.
Good for when domain failure at the
small and competency is end are less.
and customer
medium not available
projects with project
in test
where risk is team.
222 Vilakshan, XIMB Journal of Management ; September, 2007

Defects are
are not clear.
captured at
Can be used early stage.
for complex

Weaknesses Testing late in Timelines are Performance High Expensive Cannot be Time
of the model the missed. in terms of development used in consuming.
development response cost. medium,
Difficult for among all Effort is quite
cycle. time cannot large sized
software Overkill for stakeholders high.
be predicted application
Narrow scope application. application. could be
when there is development.
for testing. difficult.
Minimal test a large user Large Cannot be
planning. base in need application used for
time. development change
Deadlines to
is not easy. requests.
take priority May not be
of over scalable all Change
quality. the time. requests
Cannot be
used for
is difficult as
Cannot of team
accommodate members at a
change time is
requests after difficult.
prototype is
Mohapatra, Reliable Iterative Testing ... 223
224 Vilakshan, XIMB Journal of Management ; September, 2007

3. Availability of expertise for carrying 3.0 THE RITE MODEL

out requirement analysis and design
RITE model against other software
with offshore project team; development models lays emphasis on
4. Continuous interaction with iterative testing. This means that
customers from offshore team (both “packets 4“ are tested even during
oral and written communication); requirement phase. As the the project
progresses in its life cycle phase, the
5. Availability of iterative testing skills
testing of packets continues till the
in the project team and at low cost;
products are delivered to the customer.
6. Ability to deal with small, medium Using this methodology, products are
and large customers using the same developed in packets. After building
development model; these packets, not only each packet is
tested thoroughly, but also these are
7. Ability to accommodate change
integrated and testing is carried out for
requests during development life
each new product. The entire product is
cycle without affecting timeline as
developed and delivered through an
negotiated with customers.
“integrated team” approach. The
To address these teething problems methodology has four phases. In phase
while developing products for 1, contract is signed with the customer,
software applications, 3IS software and based on contract an integrated
came up with a product development team is developed. Contract is quite
model called RITE model. This model significant in RITE model as the entire
has taken care of the issues faced by scope is determined at this stage. Even
existing models while being able to though change requests are
produce high quality of deliverables. accommodated later on, the contract
Also the organization in study (3IS helps 3IS to track extra effort required
Software) gets repeat business as well to develop these change requests. This
as good reference points 3 from its also helps in billing accurately to the
existing customers which means the customer. After contract is signed and
customers are satisfied with the purchase order is received, requirement
products supplied by 3IS Software. gathering and analysis of requirements

When the customer is willing to be cited as a satisfied customer in the marketing prospectus
prepared by the vendor organization, then the customer is known as reference point.
A packet consists of already developed functionalities that have been tested and ready to be
used. These packets are designed and developed in such a manner that these packets are
independent of each other. Similar requirements received from different customers are grouped
together and formed into these packets. This helps in reducing time required to develop these
requirements again.
Mohapatra, Reliable Iterative Testing ... 225

is carried out. In phase 2, detailed design Approach. The Integrated Team consists
specifications and test scripts are written of Project Committee, Product
based on requirement analysis. Phase 3 Committee, Product team (all these are
primarily takes care of packets based in USA) and Project team based in
development and testing. And finally Chennai. Project committee works with
installation, user training, user marketing team in pre sales activities; it
acceptance testing and transition to helps the marketing team to clarify any
support happen in phase 4. Each of these doubts that a prospect will raise during
phases is described here and a schematic the initial discussion period. Once a
diagram is given in figure 1. prospect is turned into customer, it is the
responsibility of product committee to
provide a detailed estimation, negotiate
The RITE methodology framework also with the customer and then enter into a
addresses how 3IS puts together a project detailed contract. The contract, apart
team to deliver a product. This concept from other things, will highlight scope,
is called the Integrated Project Team timeline of delivery and the total effort

Figure 1:* Phases in RITE model

Phase 1
Requirement Phase 2: Design
Definition (1)
Pre-Sales (1)
Project Plan (1)
Testing (2)

Acceptance D TEAM Design (2)
Test (4)

Go Live (4)
Develop (3)

Implement (4)
Testing (3)
Phase 3: Construction
Support Transition (4)

Phase 4:

* The figures in the brackets indicate the phase to which the life cycle belongs
226 Vilakshan, XIMB Journal of Management ; September, 2007

that would be spent while executing the

project. The offshore project team reports
to this committee. The project committee
reports to solution director who is overall
responsible for providing the products
to customer.
The product committee largely consists of
domain experts, who based on market
research, interaction with customers and
industry experts, would design different
‘packets’. The packets, as explained earlier,
will be independent of each other and
Figure 2 : Integrated Team Structure
would be integrated by offshore project
team. These integrated packets would be analysis. Based on analysis, gaps are found
delivered to the customer. The product between customer’s “As Is” system and
committee would also define what is desired “To Be” system. Based on this gap
known as road map for each product. The analysis, a solution is designed which is
road map for products consists of timeline to be delivered to the customer. The
for developing different features. These solution would be based on combinations
features would be part of the packets and of available products and customization
would be developed by the product team. requirement to take care of special needs
The product team directly reports to this of the customer. This special requirement
product committee. Both product or customization would be specific to the
committee and product teams are based customer and hence is not required to be
in USA. part of product road map. Timeline for
delivery of these productsProduct
are matched
Committee Committee
Project offshore team is based in Chennai with respect to the road map so that final
and has a primary responsibility of project delivery schedule can be adhered
integrating packets, iterative testing and to.
delivering the final integrated products
Project 2:
This phase dealsProduct
Team withTeam
to the customers. The team has expertise
activities. Once the gap analysis is done,
in testing and integration of packets. A
the complete solution is divided into
schematic organization structure is
packets; some of these packets would be
shown in Figure 2.
in the form of available products while
Phase 1: This phase deals with contract the customization packet has to be
and requirement analysis. The Project developed specific to the customer needs.
team starts with requirement analysis at Each packet is designed in such a manner
the customer site. Requirements are that they become stand alone components
gathered and business analysts make that can be integrated with each other.
Mohapatra, Reliable Iterative Testing ... 227

Detailed specifications are prepared in development. As a result it is necessary

line with the requirements analysis done that the team take initiatives to prevent
in phase 1. Test cases are prepared in the these issues well in advance. During
current phase with test scenarios so that phase 2, lot of emphasis is given on
all the functionalities required can be upfront activities such as design and test
tested. case preparation. Domain experts to
reduce rework effort by preventing
Each life cycle stage has deliverables and
defect injection at earlier stage review
output from one stage is fed into the next
design specifications and test cases.
stage. At the completion of all LC stages,
software is delivered to customer. So if Phase 3 : This phase deals with
one stage has a faulty output it will only construction activities. A project should
have a cascading effect on the next stage start with purchase order being awarded
and the faults will get compounded. to the vendor organization. A customer
These faults are issues, as they are called would typically provide a statement of
in software development projects, and authorization where he (customer) would
are injected into the software during the authorize the vendor organization to
course of project execution. The causes develop software as per his (customer’s)
for injecting these issues could be lack of requirement. The vendor would also be
complete understanding of the asked to provide estimation for the
customer’s requirements, and project. To arrive at the final estimation,
communication gap between the vendor would gather requirements from
development team and the end users. the customer and get details on
These deficiencies would lead to functionalities that need to be developed.
spending effort for reworking the For estimating total effort and schedule
application later on. Also the customer required to complete the project,
may not like the look and feel of the standard estimation techniques are
software that will be developed resulting available. Some of the techniques
in rework of the software. All these are available are Function Point Delphi,
termed as issues in software parlance and COCOMO and Simple Medium and
they need to be reworked by the Complex (SMC) classification technique.
development team as per customer’s However an organization, which has well
specifications and requirements. These defined, processes and has achieved
rework not only lead to extra amount of maturity in implementing processes will
time needed for completing the project have approved and documented
assignment which delays schedule of predefined estimation technique. Using
delivery of the application, it also results approved predefined estimation
in development team spending extra technique, a project should calculate
efforts than initially estimated and it effort and time period required for
means extra cost of software completing the project.
228 Vilakshan, XIMB Journal of Management ; September, 2007

Before entering into a contract with any a sample estimation method used at 3IS
customer, a detailed estimation is carried software where the requirements are
out. This estimation is then sent to the considered at micro level and then classified
customer for approval. Enclosed in table 2 as Low/Medium/High/Very High

Table 2 : Estimation Method

Req# Description L/M/H Hrs Comment

001.008 Same Day Effective Dating - L 5 add another screen to

Add Group Node same day effective dating

003.010 Virtual Cutoff Notification H 30 Change to Cust Prof - new

event type (4) profile XML
(3) cut-off administrator
(4)cut-off scheduler (3)cut-
off executor (3)Manual
profile export (1)cut-off
monitor, (3)EOC Report
(2)Trigger XSD (1)Profile
XSD (1)
015.013 Send Notification to Edge on H 30 the interval to retry must
Days Final Batch be configurableProfile
Option (3)Script to set
option (2)Profile Export
(3)Cut-off Scheduler (4)End
of Day (3)Toronto EOD
(3)Box Complete Stager (20)
018.058 Fixed Message To Mail Out L 5 Change to mail out
Instructions Page
018.059 Delphi Software Upgrade VH 60
018.067 Batch Maintenance L 5 batch maintenance
Module Header utlity(5)menufile (1)
019.071 Eliminate Blank Field For M 15 DDE/EDE (7)Key Verify
Envelope (3)Batch Edit (7)TFC Batch
Export (2)
018.020 Government Flip Checkbox L 5 Template Script update
019.054 Forced Match Report M 15 Force Match App (7)Force
Match report (5)Menu file (1)
99.001 TMS Data base update L 5
99.002 Import/Export updates L 5
Mohapatra, Reliable Iterative Testing ... 229

001.008 Same Day Effective Dating - L 5

Add Group Node
99.003 Eliminate system use of user H 30 approx 17 apps @ 2 days
fields each
Mitek 3.1 Car upgrade M 15
Scale L=1-10 hrs 6*5 30
M=11-20 hrs 3*15 45
H=21-40 hrs 3*30 90
VH=41-80 hrs 1*60 60
Total 3IS 225

Each life cycle stage in RITE model has reference while developing software
defined deliverables. These deliverables using RITE model. QSD is internal to
ensure that proper and effective organization and is used as induction
documentation is carried out without training material to new entrants at all
making these activities as overhead. levels. This ensures that employees at all
Quality System Documentation, an levels are familiar with deliverables
internal system that details all the expected out of them. Table 3 lists key
procedures and processes, is used as deliverables in RITE model.

Table 3: List of key deliverables in RITE methodology

Life Stages in RITE Required Deliverables

At contract/project initiation Statement of Work/Contract
Project start-up, ongoing revisions Project Plan and Iteration Plan
to the project plan
Client sign off on RD Requirements Definition
Following RD delivery Detail Design Document
Logical Day Test Plan at project initiation, Test Plan and Scripts
test scripts at Design
Upon completion of each iteration Test Results
Ongoing throughout the testing process Issues List
Upon client delivery Training Materials
Upon client delivery Customer/User Documentation
Upon transition to support Project Transition Documentation
Lessons Learnt Documentation
230 Vilakshan, XIMB Journal of Management ; September, 2007

The figure 3 depicts the relative amount each stage of packet development which
of time spent on each of the various is one of the unique features of this
process workflows during the project methodology. Thus each packet goes
phases. For example, analysis and design through repetitive testing process which
takes place primarily at the end of the is quite different than other software
requirements phase, throughout the development models (as discussed in
design phase, and decreases during the Introduction section). After testing is
construction phase (please see figure 3). completed, User Acceptance Test is
It is important that within the initial carried out at the customer site. On
phase of the project, the project team successful completion of testing, the
reviews, assesses, and incorporates the solution is then implemented at the
deliverables and activities that are customer location.
appropriate for that project into the 5.0 BENEFITS OF RITE METHODOLOGY
project plan.
Using RITE, 3IS Software has achieved
customer satisfaction as issues were
reduced and all functional requirements
were met. The end deliverables were
robust as the packets were tested in
every iteration of development. Even
though at the outset it might seem that
it would take more time to deliver the
product compared to other software
development models, still at the end,
rework is reduced as the team was able
to capture issues earlier through testing.
Figure 3 : Software Development Lifecycle This not only helps to foster a good
Framework relationship with the customer, but also
Phase 4: In this phase, deployment of the ensures that we receive good reference
products are carried out at the customer from our customers. The RITE model
site. Once all the packets are designed thus ensures that all the issues are
and developed, they are integrated with detected and fixed before each build so
each other. These packets include stand that the final delivery have less issues
alone components from different and are more robust and also ensures
products and the customized component that all the functional requirements
to meet special requirement for the including change requests of the
customer. On completion of each packet, customer are incorporated into the
it is tested with packets developed system, tested comprehensively and
earlier. As a result, testing happens at finally released as a robust system.
Mohapatra, Reliable Iterative Testing ... 231

Being compliant to RITE model has Table 4: Benefits obtained through RITE
also ensured that quality processes
Jan - Apr –
are compliant with SEI CMMI Mar ‘06 Jun ‘06
processes. Compliant to SEI CMMI
Process Compliance 2.3 3.38
model is an indicator that Index
organization processes are matured
Configuration Issues/ 3.32 2.2
and are performed consistently.
person hour
When the organization decided to go
for assessment for SEI CMMI, internal Thus, RITE model is different from
processes were assessed at level 3 known software models practised in
indicating that processes are stable. other development organizations. RITE
An indicator called process model is used for any size of the
compliance index (explanation beyond application development. The effort spent
the scope of this paper) which is used is optimized as there is no need to spend
to indicate the level of compliance to time on developing a prototype; while
CMMI processes significantly taking advantage of features of iterative
improved (by 50%) over a period of 3 model, this model (RITE) accommodates
months after adopting RITE model change requests. The difference is in
while meeting business goals. Other saving time as change request can be
benefits obtained from RITE model accommodated at later stages in this
were reduction in issues related to model while meeting all functional and
software configuration management. performance requirements of the
Number of issues related customer. Thus, while effort overrun is
configuration reduced by 30%. These minimized, solutions are delivered as per
two benefits are tabulated in Table 4. schedule. As a result the customer is able
to use the delivered solution for his
Table 4 also indicates process business processes while keeping the total
compliance benefits that were achieved cost of ownership (cost of buying
over a period of time. The benefits solution, hardware cost and cost for
indicate that apart from meeting maintenance of code) at the lowest level
business goal, we were also compliant which result in customer satisfaction.
to CMMi processes. In May ’06, 3IS Customer satisfaction ensures further
Software was assessed at SEI CMMi business growth potential for the vendor
level 3 at their Chennai location where organization as well as become a
RITE methodology is adopted for reference for prospects also.
development (please see table 4). These
results are available in company
internal documents and available for 3IS management has a concern that RITE
verification. methodology has not been used by other
232 Vilakshan, XIMB Journal of Management ; September, 2007

development organizations. The concept International Software Process Workshop.

is new and can be tried out in other Coto de Caza, Trabuco Canyon, USA 1985.
organisations that have off-shore onsite Boehm, B.; R. Turner (2004). Balancing Agility and
business model. It will also be interesting Discipline: A Guide for the Perplexed. Boston,
to see how this model is applicable for MA: Addison-Wesley. ISBN 0-321-18612-5.
solutions and services. Taking feedback Appendix A, pages 165-194
from all these practitioners, RITE can be Bohem B.W., and Belz F.C., “Applying Process
fine tuned. Programming to the Spiral Model,”
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Warsta, J. (2002). Agile Software Cohen, D., Lindvall, M., & Costa, P. (2004). An
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Analysis. VTT Publications 478. in Computers (pp. 1-66). New York: Elsevier
Abrahamsson, P., Warsta, J., Siponen, M.T., &
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Barry Boehm, (1970), “Build it twice”, Larman, Craig and Basili, Victor R. Iterative and
Incremental Development:A Brief History
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IEEE Computer, June 2003
Barry Boehm,1986, A Spiral Model of Software
Larman, Craig; Victor R. Basili (June 2003). “Iterative
Development and Enhancement, ACM
and Incremental Development: A Brief
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History” (pdf). Computer 36 (No. 6): pp 47-56.
August 1986
Barry W. Boehm, 1996, Anchoring the Software
Livary, J., “ A Hierarchical Spiral Model for the
Process IEEE Software, July 1996, pp.73-82.
Software Process,” Acm Software
Boehm, B, 1988,A Spiral Model Of Software Engineering Notes, Jan 1987, pp. 35-37.
Development And Enhancement IEEE
Raccoon (1995) The Chaos Model and the Chaos
Life Cycle, in ACM Software Engineering
Boehm, B., 1981, Software Engineering Notes, Volume 20, Number 1, Pages 55 to 66,
Economics Prentice-Hall. ISBN 0-13-822122- January 1995, ACM Press.
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Royce, Winston (1970), “Managing the Development
Boehm, B., 1985, A Spiral Model Of Software of Large Software Systems”, Proceedings of IEEE
Development And Enhancement, 2nd. WESCON 26(August): 1-9.
Management case

Gram Utthan
- From Micro Credit to Micro Enterprise*
S.P. Das 1 & Alok Pattanayak 2

Since its inception in the year 1990-91, Gram Utthan, which started as an NGO and extended its micro
finance support to SHGs and other members, went into setting up a packaging unit. Mr. Govind Dash,
the Secretary of Gram Utthan was happy that the organization has made substantial progress. Though
he was sure that the organization was moving on the right track and fulfilling the socio-economic need
of the communities for which it was set up, he was keen to do more and looked forward to advice from
competent professionals.

1.0 G R A M U T T H A N : T H E N E E D A N D profit. This had also created an interest

INCEPTION among rural women to form groups.
Self Help Groups (SHGs) are now-a-days Gram Utthan is a non-profit, non-political
involved, among other activities, in and non-governmental organization. It
money lending activity, both internally was established in the year 1990-91 by the
and externally. This has become a initiative of Mr. Govind Dash with a group
business for them, providing a regular of dedicated energetic professionals. It
source of additional income to them. has its registered office at village Pimpuri,
Possibly due to such reasons many of the Rajkanika block of Kendrapada district,
SHGs have started doing the money at about 150 kilometers away from the
lending business. They borrow money state capital in the northeastern direction.
from bank at 1% per month and lend it Initially, it started developmental
to group members and others at a much intervention in Pimpuri village of
higher rate. This rate goes up to even Kendrapada district with various activities
10% per month in some cases creating on rural technology, sanitation,
opportunities for the NGOs to earn high community health, non-formal education

* Received February 27, 2007 ; Revised September 14, 2007. The authors would like to thank an
anonymous referee for his comments on an earlier draft.
1 Associate Professor of Economics, Xavier Institute of Management, Bhubaneswar, email:
2 Project Officer, Center for Development of Small & Micro Enterprise (CDSME), Xavier Institute
of Management, Bhubaneswar, email:
234 Vilakshan, XIMB Journal of Management ; September, 2007

and formation of youth clubs, farmers The details of status of Gram Utthan and
clubs, SHGs, etc, but, in the year 1995 it its Micro Finance activities are given in
took a strategic decision to adopt micro Table -1
finance as its core programme. Today,
Table 1: The Status of Gram Utthan & its
after one and a half decade, it has become
Micro Finance activities as on 31st
one of the major developmental agencies
December 2006
recognized by national as well as
international development partners. At Status Item Units
present it covers six different districts of
No. of SHG formed 3503
Orissa namely, Kendrapada, Jajpur,
Bhadrak, Dhenkanal, Cuttack and No. of JLG 1533
Khurda. It covers a customer base of more No. of Members 53262
than sixty thousand in more than 25 No. of village covered 991
blocks of these districts and in more than No. of panchayats covered 238
1000 villages. It operates through 15 No of Blocks covered 25
different branch offices, which District covered 6
accumulates a loan outstanding of around No. of Branches 15
Rs.30 crore. Most of its customers are No. of staffs 157
women who have come together to form No. of Community Organizers (CO) 96
a group of 10-15 members each. Besides External Fund leveraged 305
these groups, it also gives loan to Joint (Rs. In Million)
Liability Group (JLG). JLG is a group of No. of Cumulative loan disbursed 59032
4-5 members who come together to avail No. of Active Borrowers 28513
loan and become jointly liable for each Amount of Loan Disbursed 411.7
other. (Rs in Million)
With the increase in the customer base, Amount of Loan Outstanding 226.96
(Rs in Million)
Gram Utthan has become more concerned
for its portfolio and the customers. Average Loan size per SHG 6847
members (in Rs)
Besides providing mere loans to them, it
Average Loan size per JLG 11403
has started thinking for the economic
members (in Rs)
upliftment of its customers. Then came into
Portfolio Outstanding per Co. 1.88
the picture the growth of Micro (Rs. In Million)
enterprises in a sustainable manner. With
No. of members per Co. 592
this objective it has started one packaging
No. of Borrowers per Co. 359
centre, which will act as a marketing
Portfolio Outstanding per 18.91
support for various products produced by
branch (Rs. In Million)
the SHG members. This project was
On time Repayment rate 98.5
lunched on January 20, 2006 with the
Portfolio at Risk (PAR) 1.72
name of Kalyani Packaging Centre (KPC).
Das, GRAM UTTHAN From Micro ... 235

The year 2006 was a turning point in the lakh. At the time of writing this case, the
history of Gram Utthan. It took a new figure has increased to R. 10 lakh. All the
turn from its main activity of micro investment is made by Gram Utthan as
finance to micro Enterprise by starting the promoting organization.
one Packaging Unit at Pimpuri in the
2.2 KPC Mission & Objectives
name of Kalyani Packaging Center
(known as KPC). The details of the The Mission of KPC has been succinctly
functioning of this unit are elaborated put as “empowering the poorest of the
further in following paragraphs. poor in the society by creating financial
self-sufficiency for them and preparing
them to face uncertain future through
2.1 Early Stage SHGs under KPC network.”
In the early stage Gram Utthan The objectives of KPC are similarly to
collaborated with Hindustan Lever achieve market penetration, employment
Limited (HLL), a leading FMCG to local rural women, higher profit
marketing company in India, to sell its margin, good quality products,
products. This collaboration created a reasonable price and effective marketing
base for KPC. HLL did a consumer of SHG products.
survey for 100 different households in the
2.3 KPC Managing Committee
operation area of Gram Utthan. Besides,
HLL gave the technical inputs and There is a managing committee for the
training to all the staff of Gram Utthan smooth operation of KPC. The committee
involved in this activity. But this model acts according to the operational policy
clicked only for two months. There arose of KPC. The members of the committee
conflicts between HLL and Gram Utthan include Manager KPC, Manager
on which products are to be sold. HLL (Finance), Manager (Accounts),
did not agree with Gram Utthan to sell Administrative coordinator and
products other than HLL products. This Programme associate. The administrative
restricted Gram Utthan to achieve the coordinator heads the Managing
desired objective. Then, it was the Committee. The committee is the final
thought of the organization’s secretary authority to take any decision in respect
to go for an alternate model for this. He of KPC.
chose SHG to be the best one as there 3.0 OPERATIONS OF KPC
were many SHGs involved in its micro
finance activity. After several rounds of 3.1 The Business of KPC
discussion among all the staffs and SHG KPC bought the products, packed these
members, the concept was and sold these through various channels.
operationalised on May 1, 2006. The The products were dal, atta, sugar, salt,
initial investment in KPC was Rs. 4.65 tea, dry pea, edible oil, chilli, incense
236 Vilakshan, XIMB Journal of Management ; September, 2007

sticks, cumin seed, mustard and phutan. support is provided by the promoting
The products were packed in sizes as organization, Gram Utthan to make it a
shown in table – 2. self-dependent business entity. Till that
day, a full time manager is being
Table – 2 : Products and Size of packs
appointed to look after the day-to-day
Products Type of Pack affairs of this unit.
Turmeric 50 gm, 100 gm & 200 gm
3.3. Present status of the processing unit

Tata tea 100 gm & 200 gm The processing unit is located at

Kothasahi about 1 Km away from
Dal 100 gm, 200 gm, 500 gm and
1 kg Rajkanika. At present there are 20
processing members representing 10
Sugar 200 gm, 500 gm and 1 kg
different groups from two clusters.
Salt 500 gm and 1 kg They are employed on daily wage
Jira 50 gm, 100 gm and 200 gm basis (@ Rs. 30 per day) with a
Ata 500 gm and 1 kg minimum 25 working days in a month.
The unit is run in a rented house, which
Mung dal 200 gm, 500 gm and 1 kg
is taken on lease for two years. There
Chilli 50 gm, 100 gm, 200 gm, 500
are three different sections for
gm and 2 kg
cleaning, weighing and packaging.
Sorisa 50 gm, 100 gm, 200 gm and Different processing members are
500 gm
allotted different works as per their
Phutana 50 gm, 100 gm and 200 gm skills. The whole process is being
monitored by one supervisor selected
These were airtight polyethylene from these processing members and he
packets, carrying the brand name directly reports to KPC Manager. At
(Kalyani) name, name of the product, net present the customer base for KPC
weight of the item, price and date of comprises of 5 wholesalers and 130
packing of the item. retailers.
3.2 Role of Clusters With regard to selection of members who
As per the present system, about 15-20 work in KPC, two members are
village level SHGs are required to form nominated from each group. The basic
one cluster. The cluster operates at Block criteria for group selection were travel
level and 10-15 clusters together form one time from their villages to the center,
federation at district level. This need of the group members and their
federation and its representatives skill level. The table - 3 explains the above
manage the entire KPC operation. information about the present processing
Adequate managerial and technical members working in KPC.
Das, GRAM UTTHAN From Micro ... 237

Table – 3 : Village-wise grouping of materials daily, which was converted

members working in KPC and distance into 400-500 packets. The daily turnover
of the village from the packaging unit of KPC is around Rs.8,000, out of which
items worth of Rs.3,000 were sold on
Village Distance Members credit which were collected after a week
(in km)
and before the delivery of the next stock.
Tarassa 7 6 This accumulated to around Rs.2-2.5 lakh
Bharigada 7 2 turnover per month for KPC. But, to
maintain the order-supply flow, stock of
Kanjighai 10 1
finished goods worth of Rs.40,000 is being
Ayatana 3 1
stored always in the storeroom of KPC.
Giria 3 7 The materials were bought from various
Pimpudi 2 1 sources as shown in Table – 4.
Sirisa 6 1 During the production process, the loss
Achutpur 8 1 percentage, which comes in terms of
damaged / rejected items, comes to be
Total No. of Members 30
around Rs.4,000. This was again sold in
Initially, HLL gave the training to these Table – 4 : Suppliers of various materials
KPC members on packaging, cleaning and
weighing. Initially those SHGs, who were Raw material Name of Suppliers
involved in some group enterprise Harad dal/ Ishari general store/
activity were selected. Later, these SHGs matar/ sugar mohd. Faruque/ Debi
were brought together to form clusters, Bhandar – Cuttack
which took a leading role in KPC Ata Madan Mohan supplier/
marketing. Bal Dev Jew flour mill –
3.4 Business statistics Haldi Roshan store – Cuttack
As stated earlier, KPC purchased its
Tea Raja Babu – Cuttack
materials and did the packing. Materials
Chilli A.K. Roy – Cuttack, own
of 30 quintals were procured once in a
SHG production –
week for Rs.60,000. These were delivered Jarimul
by the suppliers at KPC by a pick up van. Agarbati Own SHG production –
The whole stock after processing were Bharigada
sold in the market at Rs.65,000, giving a Polythene Nilachala printing –
profit of Rs.5,000. Bhubaneswar, local
About the work distribution in KPC the
Salt Prithvi Dairy – Jagatpur
following system was followed. One
Oil (Ruchi) Utkal traders – Cuttack
member cleaned around 10-12 Kg of raw
238 Vilakshan, XIMB Journal of Management ; September, 2007

the market at one-third of the actual price, 3.5 Machine / tools used
i.e. Rs.1,330, which is shown under other The Table – 5 briefs about various
income for KPC. It also got some income machines and Tools used in the
from other sources by selling the empty processing unit, along with their
bags in which raw materials were stored. specification details and price.

Table – 5 : Machines/Tools used in the Processing Unit

Name of the machine Specification Price in Rs.

Weighing machine • Sansui – 6V / 2 Q capacity (20 gm accuracy) 11000
• 30 kg (2 piece) 8000
• 7 kg (1 piece) 7000
Seal machine • 12" plain (3 piece) 1200
• 8" plain (2 piece) 850
• 10" spice Aluminum (1 piece) 1400
Sticker gun 450
Printing machine medium (3 line), 3 mm 3000
Plastic tray 40 piece 450/ piece
Processing accessory • 6 piece tray 130/ tray
• Palettes (15 piece) 200/ piece
1 generator 2 kilowatt – Honda 30000

3.6 Records maintained activity. KPC borrows money from

The following records/ books are Gram Utthan in the beginning of the
maintained at KPC to have updated month by giving its Business plan
information about its business. Yet, there proposal. At the end of the month,
is no record for keeping track of the KPC returns the money earned out of
orders received and delivered. its business transaction after deducting
all the expenses and payments. The
major expenses for KPC is towards the
4.1 Cash Flow Analysis transportation cost, which comes
The inflow of cash to KPC is done by around Rs.50 per quintal. The Labor
its promoting organization Gram cost comes to about Rs.5 per quintal.
Utthan through its Micro Finance The next major cost is towards the cost

Daily activity registerSales Stock register – raw material / Generator logbookSalary

registerCredit registerLoan finished goodsCashbookVehicle registerPass book –
ledger (HO) logbook transaction with HO
Das, GRAM UTTHAN From Micro ... 239

of grinding the raw material to 5.0 PERFORMANCE ASSESSMENT OF KPC

produce powders. As of now, KPC is 5.1 Salient Achievements
not having its own grinding unit.
Hence, they are doing it in an outside To assess the performance of the
unit by giving a price of Rs.4 per kg. processing unit of KPC, the performance
The high administrative cost is still a reports of KPC were collected from the
constraint for KPC to retain maximum organization, and summarized in table -
profit margin for its members. The 7 below.
various expenses incurred by KPC,
5.2 Value Addition
along with revenue in a single
processing day is elaborated in the In the process of making good quality
Table - 6. Basically, all the expenses products and adding value to it to attract
have been divided into following four more customers, the following major
categories. steps were followed by the processing
unit, KPC.
Administrative Loss / damage
• The processing unit used various
Wage payment Marketing
modern tools and machines for
Table – 6 : Revenue & Major heads of packaging, weighing and filtering the
expenditure for KPC products. This ensured the packets
to be stored for a longer period
Heads of Amount (in Rs.) without being damaged.
expenditure Fixed Variable
• Utmost care was taken during the
One Day’s Revenue 8000 process of filtering of waste and
Wage 500 damaged material before going for
Machine 5 the packaging of final product.
This ensured the quality of the
Electricity 6
Packaging 300
• The waste material thus collected out
House rent 104
of this process was again
Printing 5 reprocessed to make other by-
Salary 700 products like making fodder for
Asset maintenance 2 cattle, which gave additional revenue
for the unit.
Wastage 100
Fuel 350
• All the processing staff were trained
on packaging and filtering, thus
Marketing cost 35
minimizing the waste materials and
Incidentals 100 maximizing the cost of production.
240 Vilakshan, XIMB Journal of Management ; September, 2007

5.3 Other Quantitative Indicators Table – 8 : Average monthly contribution

of members to family income Name of
The following parameters have been used
the Village Average monthly
in quantifying the success of the KPC.
contribution of the members to family
a) Incremental income accrued to the Before KPC After KPC
Tarassa 400 700
b) Benefit to consumer through lower Bharigada 500 750
Kanjighai 400 600
c) Quality of product as reflected by Ayatana 600 750
increase in consumer base
Giria 300 600
d) Better recoverythrough ensuring Pimpudi 600 750
higher income to women members
Sirisa 300 700
The details on these quantitative
Achitpur 300 600
indicators are explained below:
Average 425 681.25
Incremental income received by KPC Income
members significantly contributed towards the
A comparative study on income level increment in family income with more
of members associated with KPC was than 60 % increment in their average
done to find out their monthly income income.
before they were associated with KPC Price comparison chart
and after that. The data is given in the
A comparative analysis of various
table - 8.
products sold by KPC in the market in
The table contains the monthly comparison to those products sold by
individual income figure of KPC other major competitors in the same
members from the 8 villages, as market was attempted. Here, the data
contributed to their overall family from one competitor, who comes in the
income. Before KPC, these women second position in terms of price and
members were involved in some or the quality in comparison to that of the
other activities to earn their own KPC products, have been considered
income. This income source was also not which has been reflected in the
certain and depended on the availability following table – 9.
of work opportunities. But, after joining The above table gives the data on 11
KPC the members got secured earning different products largely sold in the
towards their labour charge every market by KPC. Then, the price of these
month from KPC. This additional income products was compared with that of the
Das, GRAM UTTHAN From Micro ... 241

Table – 9 : Comparative Price List operates with its 5 Hubs located in 5

List of Items Market KPC different market places. The selection of
price price Hub is based on the following criteria.
Turmeric powder 62 58 KPC is being provided with one jeep by
Tata tea 132 120 the promoting organization, Gram
Dal 36 33 Utthan, for the marketing of their
Sugar 25 19.75 products. Daily a stock of rupees 8000 is
Salt 9 4.80 being marketed with this jeep. But, due
Jira 110 96 to heavy fuel consumption and expenses
Ata 1520 1510 towards driver salary, it is not becoming
Mung dal 50 44.50 economically viable for KPC. Besides this,
Chilli 90 85 KPC hires one auto rickshaw @ rupees
Sorisa 30 27
300 per day, which covers 30 kms and
two markets, doing a business of around
Phutana 45 38
rupees 30000 a day.
second most competitors in the market The table – 10 tells about the presence of
for that particular product. In all the cases these Hubs with distance from KPC,
it was found that KPC price was cheaper number of agents working for that Hub
than that of its competitor. and their respective market shares.
Marketing strategy for increasing Stock of Rs.20-30 Larger Market
Customer Base thousand customer location
The marketing of KPC products is mainly
Good Regular Storage Transaction
done through their Hubs. Hub is a retail sales facility capacity
strategically located shop to which KPC
supplies most of its stock. It is basically a The table summarizes the customer base
wholesale shop situated in and around a of KPC in 5 different locations, where the
main market of an area. At present KPC marketing Hubs are located. It was

Table – 10: Hubs and their distance from KPC

Sl. Name of Distance from Number Market share (%)
No the Hub KPC (in KM) of Agents
1 Patamundai 33 6 20
2 Madanpur 40 4 22.5
3 Chandbali 8 8 20
4 Matto 28 6 25
5 Adhajodi 38 5 12.5
242 Vilakshan, XIMB Journal of Management ; September, 2007

clearly indicative from the above table Table – 11 : Marketing Channels and
that, irrespective of the distance from the percentage of Shares
main processing unit, the market share Channel Share percentage
of KPC products increased from 0 to 20
Hub 25
% on an average within a span of one
Retail sale 55
Order sale 10
In order to increase the customer base, Direct marketing 5
KPC used 9 different marketing channels. Seasonal 2
Out of this, more than 50% of business Festive / fair sales 1
was done through retail sales. The second Counter sales 1
highest business came from all the hubs. Mobile selling unit – Van 0.5
These two together gave around 80% of Other sales 0.5
business. The rest 20% were gathered
marketing channels ensure the marketing
from 7 other channels; out of which again
of the products of the members.
order sales and direct marketing
contributed 15%. The table – 11 explains Recovery status
the details of it. The status of monthly recovery in 8 major
It was tried to analyse various marketing villages was collected, where the
channels used by KPC to market their members of the Micro Finance activity
products. All together these 9 marketing are also the members of KPC, from where
channels explained in the above table these members received incremental
contribute towards marketing of KPC income on a regular basis, because of the
products in the market. These diversified entrepreneurial activity and among

Table – 12 : Recovery Status of KPC

Village Total no. of Total no. of Recovery % Recovery %
members taken members taken before KPC after KPC
loan before KPC loan after KPC

Tarassa 130 157 96.6 97.3

Bharigada 116 135 94.6 97.6
Kanjighai 15 28 99.2 100
Ayatana 56 79 93.7 97.5
Giria 34 68 92.8 93.6
Pimpudi 31 46 98.6 100
Sirisa 13 31 94.5 100
Achitpur 56 83 93.4 97.4
Das, GRAM UTTHAN From Micro ... 243

whom the profit of the business is shared. highlights the interaction and the
The better recovery rate also justifies feedback received from the Hub owner.
their increment in monthly income. The
Table 13: Visit to the oldest Hub at
table – 12 below gives information on the
Chandbali market
overall recovery status of the villages
before and after the KPC came into Owner – Ramakant Parida
effective, taking into account all the live Activity – grocery shop
accounts in those villages. Experience in business – 18 years
Before KPC: His daily business was less than
An attempt was made to find out the Rs. 1000/- with a profit of Rs.100/-
effect of KPC on the recovery rate for After KPC: His daily business is more than
the loans taken by the KPC members Rs. 2500/- with a profit of Rs. 300/-
from Gram Utthan, the original MFI. Benefits
Interestingly it was found that for all • Increase in Profit margin
the KPC members from these 8 villages • Expansion of Customer base
improved their recovery status with • Available of Quality products
the organization. In other wards, with • Free from packaging problem
the additional income they received • Less hassles from weight and measures
from KPC, the members were able to department
repay their loan more on time. The • Lease rent from the House
above table highlights two major
things. The second and third column Table 14: Visit to the new Hub at Porolo
explains about the customer base in the Nahulia Chowk, Rajkanika
village. The last two columns explains Owner – Samar Behura
overall recovery rate of all the loanee Activity – variety store
members from these villages. In both Experience – 3 years
the cases, the figure is in increasing Before KPC: He was an employee getting
mode. his salary irregularly and was staying away
of home
5.4 Qualitative Indicators
After KPC: His daily business is more than
Besides the above quantitative indicators Rs. 1000/- with a profit of Rs. 250/-
a few qualitative aspects of success have Benefits
also been used in the present study. • Regular Cash flow
These are explained below. • Giving time to his family
• Gets Quality products for his own
To assess the product quality and its consumption
impact on customer retention strategy, • Less hassles from weight and measures
the authors visited two different Hubs department
of KPC and interacted with the Hub • Income from the contract of Gram Utthan
owner. The table – 13 & table - 14 Mess
244 Vilakshan, XIMB Journal of Management ; September, 2007

6.0 ISSUES & CONCERNS • Registration under VAT

While KPC was doing well in the • Obtaining Food license
perception of management, Mr.Govind • Legal entity to conduct the business
Dash felt that there were several issues (under SSI or DIC)
and problems to be sorted out. Some of
Unless these were done, KPC could face
these are presented below:
legal hurdles.
A. Motivation for KPC members
C. The road ahead
Due to some important issues like traveling
KPC was still at its infant stage and there
long distance from villages and insufficient
was a long way to go for its sustenance.
time for family works, most of the
It was planning to increase its customer
members of clusters were not willing to
base and capture more markets in terms
be KPC members. But, seeing the more
of business. But, they urgently needed
business opportunity and demand in the
few things to upgrade their business
market, KPC is trying a number of
volume and hence the profit.
methods, as sorted below, to attract more
members in its processing unit.. • Set up of their own grinding unit
which will minimize their grinding
• Insurance coverage for the member
and her family, which includes death
claim, partial disability claim and • Power connection to the processing
medical claim. For this KPC is tied unit that will minimize the fuel
up with Royal Sundaram. consumption expenses by the
• Staying arrangement for members
who come from long distances. • Replacement of the Jeep with a pick
up van to supply finished goods,
• Exposure visits to other units and areas
which will minimize the fuel
• Training on Various skill consumption substantially.
• Training on skill upgradation to sales
The effectiveness of these methods is yet executives and processing members
to be ascertained.
• Bringing the cluster federation into
B. Limitations for KPC existence to take charge of KPC
KPC is still to be a registered entity. Also But all these meant that Gram Uthan will
the legal status of the promoting go more and more into direct
organization does not allow it to run this manufacturing/process, instead of
business. Hence the following three engaging itself in the original task of
things are equally important for KPC to encouraging members to be
continue with its business. entrepreneurs.
Book Review

Nicholas C Burkholder, (2006) Outsourcing:

The Definitive View, Applications and Implications; Hoboken,
NJ; John Wiley & Sons, pp.274*

Reviewer : Shiva Kumar Srinivasan1

Theoretical accounts of outsourcing enterprise system in the United States.

generally begin with the implicit As President Eisenhower put it
assumption that there is a fundamental categorically: ‘the federal government
difference between the ‘core’ and will not start or carry out any commercial
‘peripheral’ activities of a firm. Firms are activity to provide a service or a product
therefore advised to concentrate on the for its own use if such product or service
former and outsource the latter. The case can be procured from private enterprise
study on outsourcing with which this through ordinary business channels
book begins however is not of the private (p.8).’
sector, but the U.S. federal government.
Traditionally, a number of blue collar jobs The conceptual origins of outsourcing
have always been outsourced by the however can be traced to the work of
federal government albeit without the Scottish economist, Adam Smith.
invoking the term ‘outsourcing.’ Federal Outsourcing, argues Burkholder, is just
agencies continue to outsource work pushing the division of labour to its
quietly and in small batches in order to logical conclusion in order to harness the
take advantage of government-wide comparative advantages enjoyed by
acquisition contracts (GWACs). globally distributed vendors. The process
According to a survey carried out by the of outsourcing however is clouded by
General Services Administration (1998), numerous controversies and
the reasons cited for outsourcing by both misconceptions because we have
federal and private sector managers are forgotten this simple fact. Outsourcing of
more or less the same. In other words, peripheral and sometimes even core
outsourcing has always been there in processes makes it possible to not only
some form or the other in both the public get a handle on costs, but enables the
and private sectors and is very much in production of goods and services at
keeping with the ethos of the free predetermined prices provided a firm

* Received July 16, 2007

1. Associate Professor, XLRI, Jamshedpur, email:
246 Vilakshan, XIMB Journal of Management ; September, 2007

understands the modalities involved in of burdens which arise from ‘industry-

deploying technology effectively. specific considerations’ including the fact
Burkholder sets out the basic modalities that it is a ‘quasiresidential’ unit
of outsourcing in this book before requiring support systems (like catering
making the argument that ‘outsourcing and laundry) on a daily basis. The
is really sourcing.’ But, interestingly, hospital must also be able to cope with
Burkholder does not advocate changes in medical technology,
outsourcing under all circumstances since diagnostic systems, pharmaceutical
it ‘doesn’t always work (p.30).’ The breakthroughs, regulatory structures,
success, if any, of an outsourcing venture insurance and payment modalities, ethical
depends on whether a firm is clear about and ontological questions on what
its mission, objectives, and strategy. constitutes life, illness, recovery, and so
Furthermore, the firm should remember on (p.61). Burkholder’s wager is
to approach all ‘resourcing decisions therefore theoretically very interesting:
holistically (p. 38).’ The quality of the if a hospital can stand in effectively for
relationship and the expertise demanded what economists identify as a ‘firm,’ then
from the venture can make or mar an it will either substantiate the general
outsourcing contract and must therefore argument in favour of outsourcing most
be approached with due caution. The firm non-core processes (and at least a few core
must also understand which of the top clinical processes) or serve as a powerful
ten drivers of outsourcing discussed here counterexample. In either case, the
are relevant to the business and/or the complexity of a hospital’s mission makes
circumstances in which it finds itself. In it necessary to ask whether it is possible
other words the choice between vertical to define the circumstances in which
integration and outsourcing is by no doctors can focus on the core problem of
means easy or pregiven. human illness and the implicit model of
health that this presupposes and
A good test case for outsourcing, argues
outsource everything else. What would
Burkholder, is to use a hospital ‘as the
such a hospital be like? What would be
basic unit of analysis’ since health care is
the implications of such a structure on
characterized by a high degree of vertical
patient outcomes? Would they be
integration for a complex set of reasons
favourable or unfavourable?
(p.61). The most important of these is that
hospitals are judged by ‘patient In other words, if it turns out that
outcomes’ rather than efficiency per se outsourcing is not a good idea in
(p.74). So unlike the hypothetical firm hospitals, this will not necessarily have
that is preoccupied with the possibility any major implications on the strategic
of cost savings, the hospital is an dimensions of outsourcing in a theory of
organization that has an additional set the firm. But, should it turn out that
Burkholder, The Definitive View ... 247

outsourcing has a positive impact on expectations pertaining to outsourcing,

patient outcomes after all then the and the inability to anticipate what the
possibility of outsourcing can be defined other party will do. Concours therefore
as structurally inherent to a theory of the decided to translate a set of best practices
firm. As a reality check, Burkholder into the Sourcing Management Model to
examines both a core clinical process like help a firm manage life after offshoring.
radiology and a non-clinical process like The model is of use to both companies
catering in order to generate learnings that have started to outsource and those
on how outsourcing can be linked to a which want to try it for the first time. It
theory of the firm. His conclusion is that can be applied to not only outsourcing,
vertical integration is not necessarily the ‘but to many kinds of labor sourcing.’ It
‘optimal’ solution, but appears to be so seeks to ‘ensure that the strategic intents
because it represents the default and outcomes of both parties in the
assumptions about how hospitals handle outsourcing relationships are achieved’
the ‘make-or-buy’ decision in order to and ‘that the results expected are the
increase positive ‘patient outcomes.’ If results realized (pp. 89-90).’ If, in
hospital administrators want an optimal addition to having such a model, a firm
solution, they will have to be willing to can develop the competencies needed to
suspend these default assumptions about manage relationships with vendors then
vertical integration and attempt instead it ‘can leverage the power of
‘a careful evaluation of the cost and specialization, globalization, and
capability dynamics of each functional virtualization’ to derive competitive
area…in order to facilitate effective advantage (p. 90). The different
decision making about the vertical components of the model are described
integration versus outsourcing decisions in detail - they include ‘strategy,
undertaken by hospitals today (p. 83).’
governance, supply management,
There are of course no guarantees that a program management, operations
decision to outsource will be successful management, and demand management’
and, interestingly enough, firms fail (p.90). The model as a whole seeks to
because they focus on the contract itself ‘integrate’ these components, but will
rather than on managing relationships work effectively only if it is implemented
with vendor(s). According to the findings in totality rather than in parts. As a part
of The Concours Group, a research firm of the outsourcing strategy, the firm must
based in Houston, the principal mistakes have ‘a clear exit strategy,’ participate in
that firms make include the following: ‘detailed scenario planning,’ and have ‘a
uncertainty on matters pertaining to clear set of core values (92-93).’
decision rights, lack of trust between the Outsourcing of governance however
firm and the vendor, lack of clarity on continues to be a problem; it is, quite
248 Vilakshan, XIMB Journal of Management ; September, 2007

simply, ‘the Achilles’ heel of outsourcing an interesting ‘glossary of outsourcing

activity (p.93).’ This is because the terms terms’ and a list of ‘outsourcing
‘governance’ and ‘management’ are companies and services.’ Burkholder’s
routinely conflated. Governance, advice to firms is that outsourcing is here
according to Burkholder, ‘is the to stay, but the inevitability of it as a
framework of decision rights that socio-economic trend does not guarantee
encourages desired behaviors in both the success for firms that try to outsource.
outsourcer and the client company’ Those who are serious about coming to
whereas management ‘deals with making terms with the changes that outsourcing
decisions and executing a set of processes represents should focus more on
or activities’ (p.94). When outsourcing objectives and less on strategy, develop
fails, more often than not, it is better performance metrics, adopt a
governance modalities that are at fault. holistic model for all forms of sourcing,
It is therefore important to work out get HR to accept responsibility when
these modalities and have a formal human capital is outsourced, and, finally,
‘decision rights matrix’ in place (p.99). In make sure that resourcing decisions are
other words, ‘sourcing is a relationship, made on a platform of performance
not a piece of paper or a commodity to (p.247). Outsourcing, as Scott Gerschwer,
be purchased.’ It is therefore important one of the experts featured in this volume
to treat the vendor as a partner who is points out, is ‘merely smart business’ and
the subject of a relationship rather than it is only a matter of time before this
an object to be managed. Only then can honourable tradition becomes routine
the vendor ‘deliver results that exceed business. In Gerschwer’s formulation, it
the contract expectations and add was none less than George Washington
considerably to the intellectual capital himself who set the precedent for
available’ to the outsourcing firm (p.129).
outsourcing in America when he
The book concludes with a collection of delegated the training of his troops to
brief articles by experts on the economic the French general, the Marquis de
and strategic dimensions of outsourcing Lafayette, during the revolutionary war
along with specific instances. There is also (p.149).
Book Review

Mosad Zineldin, (2006) trm: Total Relationship Management, Overseas

Press India Private Limited, New Delhi, pp 296, Price Rs 325/-, soft *

Reviewer : Jaydeep Mukherjee1

Marketers have to find buyers for their need fulfilment and long term orientation
offer (product or service). There are or in short - relationship.
fundamentally two broad options, either
Industrial revolution and the advent of
to acquire new customers or retain the
mass production separated the producer
existing ones. Customer relationship
from the marketer. It was more cost
management was there in the
effective to produce large quantities of
preindustrial revolution period, when
standardized products, making those
the marketer was the producer of the
products affordable to larger consumer
goods and services. The