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S.and M. Information Assurance Laboratory Auburn University Dr. (Computer Science)... Forbes Associate Professor and Range Nutritionist Ph. Berkeley & Istanbul University Dr. Wenying Feng Professor. Virginia University Ph."Drew" Jr. Xiaohong He Professor of International Business University of Quinnipiac BS. Turkey Yogita Bajpai M. MS.A.S. Peterborough. Syracuse. MA. Bart Lambrecht Director of Research in Accounting and Finance Professor of Finance Lancaster University Management School BA (Antwerp). Ph.Sc. Osman Balci. Professor.. (University of Texas-Dallas) Burcin Becerik-Gerber University of Southern Californi Ph. Management Computer Science and Software Engineering Director.A.John A. (WHU Koblenz) MBA/BBA (University of Saarbrücken) . Dr. Thomas Wischgoll Computer Science and Engineering. Professor Department of Computer Science Virginia Tech.Syracuse University. PhD..Animal Nutrition M.S. ON Canada K9J 7B8 Dr.D. Bogazici University. New York M. T. from University of California. Henry Hexmoor IEEE senior member since 2004 Ph.D. David A. Department of Computing & Information Systems Department of Mathematics Trent University.. and B. Wright State University. MPhil.D. Computer Science. Ohio B. Dayton.S. in Civil Engineering DDes from Harvard University M. PhD (Cambridge) Dr. Turkey Dr. Istanbul.S.. Texas A&M University University of Missouri.Animal Nutrition B.org Dr. Columbia Gazi University. Abdurrahman Arslanyilmaz Computer Science & Information Systems Department Youngstown State University Ph. M.D. Söhnke M.S. Jilin Institute of Technology.Zoology. Ph. Edinburgh University . University of Dublin. Bartram Department of Accounting and Finance Lancaster University Management School Ph.D.D. MA. FICCT U. Aberdeen University . Hamilton.S.D.S. University at Buffalo Department of Computer Science Southern Illinois University at Carbondale Dr.D. (University of Kaiserslautern) Dr. Email: yogita@computerresearch.

Fotini Labropulu Mathematics .D. Ph. University of Navarra Degree in Industrial Engineering.Dr. Director. MBA (Distinction). M.D Associate Professor and Research Department Division of Neuromuscular Medicine Davee Department of Neurology and Clinical Neurosciences Northwestern University Feinberg School of Medicine .Luther College University of Regina Ph. IESE. in Mathematics B. PhD. ETH Zurich Dr. University of Navarra Doctor of Philosophy (Management).D.D in Industrial Engineering and Management. (Honors) in Mathematics University of Windsor Dr.Cardiac Arrhythmia Univ of Penn School of Medicine Dr. Spain (Universidad de Navarra) CEIBS (China Europe International Business School). Etvs Lornd University Postdoctoral Training. Han-Xiang Deng MD. Carlos García Pont Associate Professor of Marketing IESE Business School. Moscoso Technology and Operations Management IESE Business School.. Massachussetts Institute of Technology (MIT) Master in Business Administration. University of Navarra Ph. Mihaly Mezei ASSOCIATE PROFESSOR Department of Structural and Chemical Biology Mount Sinai School of Medical Center Ph.. EP Laboratories. ETH Zurich M. Miguel Angel Ariño Professor of Decision Sciences IESE Business School Barcelona. M.D. Beijing. Lynn Lim Reader in Business and Marketing Roehampton University.Sc. London BCom. Universitat Politècnica de Catalunya Dr.D. Philadelphia VA Medical Center Cardiovascular Medicine . Shanghai and Shenzhen Ph.A.Sc.. in Chemical Engineering. FHEA Dr. New York University Dr. in Mathematics University of Barcelona BA in Mathematics (Licenciatura) University of Barcelona Philip G. Sanjay Dixit. PGDip.

.) M. India deanind@computerresearch. in Computer Science).com.org Vivek Dubey(HON.suyogdixit..Sc. India Email: authorind@computerresearch. dean@computerresearch.Sc. Suyog Dixit BE (HONS. R. FICCT Chief Author.) MS (Industrial Engineering). USA editorusa@computerresearch. India Website: www. FICCT SAP Certified Consultant Technical Dean. Ph.Dr.org Sangita Dixit M.com Email:suyog@suyogdixit.D. FICCT Dean and Publisher.org . MS (Mechanical Engineering) University of Wisconsin FICCT Editor-in-Chief.K.org Er.. Dixit (HON.

Financial Liberalisation Policy for Fostering Credit to the Private Sector in Nigeria for Economic Growth 56-65 8. v. Promoting an Emerging Tourism Destination 21-28 4. and Role Behavior for Unemployed Youth 132-139 17. A Study of the Integrity of Internet Financial Reporting: Empirical Evidence of Emerging Economy 148-158 19. Critical Service Encounters: The Employee’s Viewpoint (A Study on Restaurant Services in Dhaka City) 41-47 6. Impact of Brand Placement in Films. Oil Politics and the Crisis of Development in the Niger Delta 66-73 9.i. Are the Global Stock Markets Inter-linked? Evidence from the Literature 29-40 5. Life Interest. Brand Decisions and Brand Influence: A Comparison of Rural and Urban Consumers 159-171 .Clinical Trials: A Branding Opportunity? 97-103 13. Self Esteem. vi.A Viewer’s Perception 81-87 11. Eccentric Turnover Behavior among the Working Students of Pakistan 74-80 10. Regulating Bank Systemic Risk: New Principles in Macroprudential Management 88-96 12. Modelling Armed Robbery Crime Insurance Claims in Nigeria 11-20 3. The Role of Life Skills Training on Self-Efficacy. Knowledge Management: Promises and Premises 123-131 16. Strategies to Increase E-Government Take-Up: Looking Beneath Statistics 104114 14. iii. Venture Capital Financing In India: Path of Differential Diffusion Trajectory A Comparison with the USA 2-10 2. Reliability and Availability Based Hybrid Flow Shop Scheduling Using Fuzzy Logic 48-55 7. Assessing of the SME’s Financial Competitiveness 140-147 18. ii. Copyright Notice Editorial Board Members Chief Author and Dean Table of Contents From the Chief Editor’s Desk Research and Review Papers 1. The Innovation Process under the View 115-122 15. iv.

Sensitivity and Uncertainty Analysis: Applications to Small-land Scale Agriculture Systems in Nigeria 176-183 vii.20. ix. Auxiliary Memberships Process of Submission of Research Paper Preferred Author Guidelines Index . Management of the Modernization Projects from the Technical-Economic Systems 172-175 21. x. viii.

P a g e |1 Vol. R. we look after the complete spectrum as whole. in turns. Of course. The balanced communication among same and interdisciplinary research groups is major hurdle to aware with status of any research field. The Global Journals is proving as milestone of research publication. the research work of different streams may be considered as branches of big tree. Thus.0). This helps to promote research activity also. require international platform for rapid and proper communication among similar and interdisciplinary research groups. The research activities are increasing exponentially. Every branch is of great importance. We know. 10 Issue 1 (Ver 1. These great increments require rapid communication. January2010 Global Journal of Management and Business Research T he research activities among different disciplines of natural science are backbone of system. Sincere afford must be exposed worldwide. The deep and strong affords are the demands of today. Dr. We hope. and functions also as an international platform. Global Journals let play all the instruments simultaneously.org . the publication of research work must be reviewed to establish its authenticity. The Global Journal of Management and Business Research is to fulfill all such demands and requirements. affords of global Journals will sincerely help to build the world in new shape. In view of whole spectrum of Knowledge. Which. K. great scientific research have been worked out by philosopher seeking to verify quite erroneous theories about the nature of things. also to link up with others. Dixit Chief Author cheifauthor@globaljournals.

Global Journal of Management and Business Research

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 2

Venture Capital Financing In India: Path of
Differential Diffusion Trajectory A Comparison
with the USA
Dr. Chimun Kumar Nath Lecturer, Department of Commerce,Dibrugarh University.nathchimun@yahoo.com
Dr. A. SahaReader,Department of Commerce,Dibrugarh University.saha.a@mailcity.coma_sahadib@yahoo.co.in
Abstract-Purpose- To compare between the recent US ventures
capital financing (VCF) to that of Indian VCF. The paper also
attempts to extract perceptional differences between the FI’s
towards VCF operating in the country.
Design/methodology/approach- A comparison of VCF
between US operations and Indian operations in this context
has been pursued. 2 Indian states i.e. Karnataka and Assam
have been studied on various aspects of VCF, followed by
comparing the findings there from with that of US findings
between the periods ranging from 1990 to 2006.
Findings- It is observed that convergence of VCF maturity
in US and acceleration of growth of Indian VCF has been
attained during 1990s. Despite a discernible growth of VCF in
India since 2000 onwards, venture capital investments in
enterprises both in the early and the expansion stages has been
significantly less diffusive than that of the US.
Research Limitations/ Implications- the study has
considered 6 VCFs and 12 VCFs from Assam and Karnataka
respectively out of 56 VCF entities in India recognized by
SEBI.
Originality/Value- the paper signifies the operational
differences in US and India in the context of VCF. The input
from US study however, can be used to improve the modalities
of operation in India.
Paper Type- Review of literatures and field survey.

Keywords- venture capital, Venture Capital Financing
(VCF), equity investment, India, United States, Karnataka,
Assam
I
PROLOGUE

T

here are many definitions of venture capital. However,
the present researchers accept the simple definition that
states Venture capital as the risky capital collected through
different sources to invest alongside management in rapidly
growing industries. Venture capital is often referred to as a
prerequisite for productivity and employment growth. In
line with the American tradition, as an experienced
intermediary, the venture capitalist, understands venture
capital as offering financial means to young high-technology
enterprises in combination with management support for
these enterprises. Investments by a venture capital fund can
take the form of either equity participation, or a combination
of equity participation and debt obligation - often with
convertible debt instruments that become equity if a certain
level of risk is exceeded. In most cases, the venture
capitalist becomes part owner of the new venture. Some
investments are structured as debt to equity participation often reserved by covenant for a future buyout. Venture
capital investment criteria usually include a planned exit

event (an IPO or acquisition), normally within three to seven
years.
The role of venture capital in facilitating employment and
productivity growth has made venture capital a major target
of financial market policies by the government of India.
They attempted to ease the access to equity capital for
young high-technology enterprises by improving the
regulatory conditions the venture capitalists face in the
Indian markets and by granting different subsidies.
The US venture capital financing size can serve as a
benchmark for the discussion of the development in the
Indian size of VCF. In the US, venture capital is
predominantly invested in relatively young, high technology
enterprises. During the 1990s, pension funds were the main
capital provider to venture capital funds. These funds were
managed by independent venture capitalists that are often
specialized on particular stages of enterprises‘ development
and/or particular technologies.
The size of Indian venture capital financing, are relatively
smaller as compared to the US size. This follows from the
comparisons of investments in young enterprises and from
investments in particular high technology areas in India.
Until 1990, banks were the main sources of financing here.
Only at the beginning of the new millennium, the
importance of pension funds increased in most parts of the
world. In India, venture capitalists are often dependent on
their capital providers. Especially banks prefer to invest in
their own subsidiaries and not in an independent venture
capital fund.
Moreover, this paper also investigate whether FIs as a
venture equity investors acting in a particular national
market differ significantly with respect to investment
strategies using a collection of primary data of FIs of Assam
and Karnataka. This is important because many state
governments of India like Gujarat, Maharastra etc. have
introduced specific policies to stimulate venture capital
activity, which cannot be identified in aggregated data on
VCF activity in India.
The paper proceeds with a description of the Key facts of
the US venture capital market. In the next section, the
development, of Indian VC market along with two Indian
regional VC environments have been examined with respect
to the funds raised, investments, and impact of Human and
Social Capital in formation of VC and finally compared with
the US venture capital market. All these discussions are
ranging from 1990 to 2006. Last section summarizes the
findings.

P a g e |3 Vol. 10 Issue 1 (Ver 1.0), January2010

Global Journal of Management and Business Research

reversing the trend in both private equity investment
performance and partnership commitments.
In 1998, the venture capital industry in the United States
The venture capital market in the US is the oldest and most continued its seventh straight year of growth. It raised
developed of the world and is therefore chosen as the USD25bn in committed capital for investments by venture
benchmark for the analysis of the Indian market. In the firms, who invested over USD16bn into domestic growth
American tradition, which is used here, venture capital companies in all sectors, but primarily focused on
finance denotes the simultaneous offering of financial means information technology.
and management support for a certain area of young high- This potential can be seen in the growth of sales figures for
technology firmsi. Venture capital funded companies are an the US. From 1992 to 1998, venture-backed companies saw
integral part of the American economy. The dollars and their sales grow, on average, by 66.5 per cent per annum as
cents contribution of the venture capital industry goes well against five per cent for Fortune 500 firms. The export
beyond the objective economic contribution. It continually growth by venture-funded companies was 165 per cent. The
reinforces America‘s entrepreneurial spirit. In addition, in so top ten US sectors, measured by asset and sales growth,
doing, the venture capital industry becomes a catalyst for were technology-related.
change. Venture capitalists, many of whom are successful Thus, venture capital is valuable not just, because it makes
former
entrepreneurs
themselves,
shepherd
new risk capital available in the early stages of a project, but also
businesspersons and women to reach their full potential.
because a venture capitalist brings expertise that leads to
The late 1980s marked the transition of the primary source superior product development. The big focus of venture
of venture capital funds from wealthy individuals and capital worldwide is, of course, technology. So in 1999, of
families to endowment, pension, and other institutional USD30bn of venture capital invested in the US, technology
funds. The surge in capital in the 1980s had predictable firms received approximately 80 per cent. In addition to this
results. Returns on venture capital investments plunged. huge supply of venture funds from formally organized
Many investors went into the funds anticipating returns of venture capital firms, is an even larger pool of angel or
30 percent or higher. That was probably an unrealistic seed/start-up funds provided by private investors. In 1999,
expectation to begin with. The consensus today is that according to estimates, approximately USD90bn of angel
private equity investments generally should give the investor investment was available, thus making the total ‗at-risk'
an internal rate of return something to the order of 15 investment in high technology ventures in a single year
percent to 25 percent, depending upon the degree of risk a worth around USD120bn.
firm takes.
Pension funds have been the main capital providers to
However, by 1990, the average long-term return on venture venture capital funds (limited partnerships), while
capital funds fell below 8 percent, leading to yet another corporations, and financial and insurance have played a
downturn in venture funding. Disappointed families and minor role (Exhibit 1). Pension funds contributed between
institutions withdrew from venture investing in phases 35 and 60 per cent of the new funds raised between 1990
during the 1989-91 periods. The economic recovery and the and 1998. In 1999, however, only 23 per cent of the capital
IPO boom of 1991-94 had gone a long way towards was contributed by pension funds.
Exhibit 1: Sources of New Funds and its Allocation in the US*
II

THE US MARKET OF VENTURE
CAPITAL FINANCE

1990

1991

1992

1993

*Compiled from the original table source: European new
funds raised and exchange rates are from EVCA 1991–
2000,US new funds raised are from NVCA (2000), consumer

1994

1995

1996 1997

1998 1999

price indices are from International Financial Statistics CD
ROM IFS (2000).
The 1980 ‗Safe Harbor‘ Regulation further improved the
conditions for venture capital committed by pension funds

Global Journal of Management and Business Research
because it defined pension funds as limited partners, which
reduced the risk exposure of venture capitalists. These acts
had clearly a considerable impact for the upswing in venture
capital activity at the beginning of the 1980s. Especially
pension funds and their de-regulation seem to have played a
significant role in the development of the US venture capital
market.
This extraordinary boom during the 1990s is not the first
significant change that the American market for venture
capital has experienced since its humble beginnings in the
1930s. Two upswings of venture capital activity can be
identified in the time series. The first upswing took place in
the mid- 1960s, the second at the beginning of the 1980s.
Both upswings, however, in the US, new funds raised for
private equity grew at a lower rate than new funds raised for
venture capital are small compared to the increase in venture
capital activity at the end of the 1990s. The first two
upswings seemed to be influenced by public policies2.
The journal ‗Venture Economics‘ had identified two reasons
for the extraordinary boom in the investments in enterprises‘
early and expansion stages at the end of the 1990s (BVK
2001)3. Venture capital funds brought their passive investors
high returns, resulting in a considerable re-investment of
money; especially institutional investors reinvested large
amounts of their funds. Secondly, the development of stock
markets resulted in a restructuring of institutional investors‘
portfolios so as to invest more money in venture capital
funds.4 Thus, the US government also supports the creation
of venture capital companies.
California, Texas, Massachusetts, Washington, and
Pennsylvania topped the list of states by sales of venture
capital backed firms headquartered in the State by 2003.
Venture capital backed companies headquartered in
California were responsible for USD438 billion in sales in
2003. In Texas, venture backed sales reached nearly
USD190 billion in 2003 and exceeded USD100 billion in
Massachusetts. Other leading states measured by venture
capital backed firms sales were Washington, at slightly more
than USD100 billion, and Pennsylvania, at USD 94 billion
in 2003. (Exhibit 2)
Venture capital funded companies were directly responsible
for more than 10 million jobs and $1.8 trillion in sales in
2003. This corresponds to 9.4 percent of total U.S. private
sector employment and 9.6 percent of company sales. This
is impressive given that venture investment was less than
two percent of total equity investment for most of the past
34 years. Venture Capital Backed Firms Outperform Other
Companies Venture backed firms added some 600,000 net
jobs to the U.S. economy between 2000 and 2003.
Venture supported firms such as ebay, Google, and JetBlue
are just three examples of the many successful ventured
businesses that have hired hundreds of new employees over
these three years.

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 4
Exhibit 2: State Wise Classification of Turnovers by VC
Backed Firms in US

Source: Global Impact 2004, v.18, no.3
In the first quarter of 2007, venture capitalists invested
USD7.1 billion into 778 deals, the highest quarterly dollar
amount since the fourth quarter of 2001, according to the
MoneyTree Report by Price Waterhouse Coopers and the
National Venture Capital Association based on Thomson
Financial data. Deal volume actually declined in the quarter
compared with the fourth quarter of 2006, indicating venture
capitalists‘ willingness to put more dollars into each round.
The Life Sciences sector (Biotechnology and Medical
Devices together) had an extremely strong quarter, with
Biotechnology ranked as the number one industry for
investment, while Medical Devices was at an all-time high.
Later Stage investing also jumped in the quarter to the
highest dollar level since the fourth quarter of 2000. First
time financings remained relatively steady, increasing
slightly over last year. Medical Device investing
skyrocketed to an all-time high in the first quarter, with
USD1.08 billion going into 96 deals, a 60 percent increase
in dollars over last quarter 2006. Biotechnology was the
single largest industry sector with USD1.5 billion going into
102 deals, unseating software, which was traditionally the
largest sector. Life Sciences accounted for 36 percent of the
quarter‘s dollars, an all-time high.
III

THE INDIAN MARKET OF VENTURE
CAPITAL FINANCE

In the early 1980s, the idea that venture capital might be
established in India would seem to be fuzzy. India has
highly insulated economy, avowed pursuit of socialism,
quite conservative social and business perception, and a
risk-averse financial system provided little institutional
space for the development of venture capital. With the high
level of government involvement, it is not surprising that the

P a g e |5 Vol. 10 Issue 1 (Ver 1.0), January2010
first formal venture capital organizations began in the public
sector.
The 1980s were marked by an increasing disillusionment
with the trajectory of the economic system and a belief that
liberalization was needed. Prior to 1988, the Indian
government had no policy toward venture capital. In 1988,
the Indian government issued its first guidelines to legalize
venture capital operations, Ministry of Finance (19885).
These regulations were aimed at allowing state-controlled
banks to establish venture capital subsidiaries, though it was
also possible for other investors to create a venture capital
firm. There was only minimal interest, however, in the
private sector in establishing a venture capital firm, Ramesh
et al. (19956)
In the late 1990s, the Indian government became aware of
the potential benefits of a healthy venture capital sector.
Thus in 1999 a number of new regulations were introduced.
Some of the most significant of these related to liberalizing
the regulations regarding the ability of various financial
institutions to invest in venture capital. Perhaps the most
important of these went into effect in April 1999 and
allowed banks to invest up to 5% of their new funds
annually in venture capital. Until 2001, however, they had
not made any venture capital investments. This is not
surprising since bank managers are rewarded for risk-averse
behavior. Lending to a risky, fast-growing firm could be
unwise because the loan principal is at risk while the reward
is only interest.7 In such an environment, even if bankers
were good at evaluating fledgling firms, itself a dubious
proposition, extending loans would be unwise. This meant
that since banks control the bulk of discretionary financial
savings in the country, there is little internally generated
capital available for venture investing.
From 2000 onwards, the venture capital industry has made
an enormous contribution to the high-technology industry.
In turn, high technology has furthered national productivity.
The three percent annual growth rate in productivity since
1996 in the US, stems from investments in a range of
technology industries such as computers, software, and
communications equipment. It has helped user industries
like retailing, airlines, and manufacturing to be more
productive. By 2000 some new countries has emerged in the
field of VCF. India is a country where the VCF penetration
was although taken place lately, but by 2002, it has attained
the coveted list of top twenty countries based on investment
criteria (Exhibit 3)

Global Journal of Management and Business Research
Exhibit 3: The World View: Top 20 Countries in 2002 &
2001 - Based on Investment

Source: AVCA report, 2003
The Indian government has reiterated its commitment to the
Indian software-driven IT industry by creating a National
Venture Capital Fund for the Software and IT Industry
(NFSIT). NFSIT, set up in association with various financial
institutions and the industry, operates under the umbrella of
the Small Industries Development Bank of India (SIDBI).
The objective of the fund is to encourage entrepreneurship
in the areas of software, services, dot.com and other IT
related sectors in which India has inherent as well as
acquired competency. The fund is expected to be a key
component in addressing the rapidly growing demand for
venture capital in India. The fund will be looking at
supporting entrepreneurship in high growth sectors.
Many state governments have already set up venture capital
funds for the IT sector in partnership with local state
financial institutions and SIDBI. These include Andhra
Pradesh, Karnataka, Delhi, Kerala, and Tamil Nadu. With so
much of changes happening around venture capital
financing in India yet, the fruitful result of exploring the
advantages of such financing has not been equally
distributed among the states in India. It is a fact that certain
states like Maharashtra, Gujarat, Karnataka and Andhra
Pradesh are far more advanced in mobilizing the venture
capital funds rather than the rest of the country. Especially
state like Karnataka is on the launching pad; thanks to the
information technology advancement.
The picture of venture capital financing is gloomier in entire
North Eastern Region in general and Assam in Particular.
Although it has been recognized several times that any
business running in the North Eastern Region is
comparatively risky proposition due to its geographical
location, environment, the infrastructural bottlenecks, etc.
but there are hardly any venture capital environment being
developed around this place. There is an urgent need being
felt to uncover why the entrepreneurs in this part of India
possess an averse attitude towards venture capital financing
- whether they do not have innovative ideas (in the form of
new technology) or other factors governing the growth and
development of human and social capital or the investing
environment of the region is a deterrence.

Tamil Nadu and Karnataka8 Karnataka happens to be the state where it has been observed that. Even after having rich natural and other resources. In Karnataka.based economy. Apart from education and training. These financial institutions engaged in the business of conventional financing in Assam have been financing venture capital through their subsidiaries or through a separate fund created exclusively for the purpose in Karnataka and some other states in India. Predominantly having an agro. However. a detailed analysis as to why such problems exist in the state reveals low formation of Social Capital. Thus. At the same time. The . Assam has witnessed very poor development of venture capital growth. in Assam due to the information asymmetry. It was also observed that. There is a positive relationship between prior work experience and venture survival and success.0). as a compensating strategy that entrepreneurs can adopt. the Financial Institutions prefer to finance only those projects.Global Journal of Management and Business Research IV THE VCF ENVIRONMENT OF ASSAM AND KARNATAKA By considering the above factors. it has also been observed that the other top positioned states in terms of VCF penetration differ in characteristics as compared to Assam. This could be of any form like experienced entrepreneurs. In India. from their network contacts. The study was carried out by approaching 12 financial institutions offering venture capital in Karnataka and six financial institutions that are sponsors of venture capital but having the business of conventional financing in Assam. Interestingly. as well as absence of social network. One of them could be in terms of formation of Venture Capital Financing. it was proved once again in the state especially in IT. it is noteworthy to grasp some more information about the growth of Venture Capital in some of the advance states of India where VCF has taken place in large numbers. and IT enabled Venture Capital Financing. human capital derives from work environment (Carter et al. Because Venture Capital Financing is generally provided to a sunrise industry having no experience of any actual performance unless it is started and/or to those entrepreneurs who have for the first time ventured into the project. a research observation would be to look into the problem of Venture Capital growth in Assam. which ultimately develops the venture capital market positively. conventional type of business where a steady earning can be obtained. before the information technology (IT) revolution since 1995 onwards. network diversity enhances the chances of accessing a wide array of resources. is to have a wide range of contacts in their social networks. entrepreneurial generations. the study has attempted to gather the experiences of Karnataka in the direction of VCF development to suggest a comprehensive methodology of VCF development in Assam as because Assam is still an agrarian economy like pre 1995 Karnataka. At the same time in order to protect their risk involvement in financing a project to get the repayment on time. Febuary 2010 P a g e | 6 some existing successful enterprises. However. brain drainage. This creates a sense of lack of confidence among the Financial Institutions in the state towards the budding entrepreneurs. there was negligible diffusion of venture capital funding9. The differences between equity investors acting in a single state market are of special interest. However. the proper development of such capital is not there in the state at present. Data have been collected by way of canvassing a questionnaire amongst the respondents and analyses have been pursued based on the feedback therein. However. the likelihood that the contacts will deliver value or resources depends on the strength of the tie. It has been observed that the impact of Social and Human Capital on venture capital needs to be considered as a source of funding for young high-technology enterprises and in the Karnataka market the presence of social and human capital paves the way for formation of financial capital. especially those beyond the immediate work group. in case of Karnataka it was found that the Financial Institutions are least bothered to analyze the human capital while receiving a proposal as such because the Social Capital in the state is of high quality. It was observed from the study that the formation of Human Capital in the state of Assam in comparison to Karnataka is somewhat unorganized. So far. they tended to be more powerful (Blau et al 1982)10 In Karnataka market. it is seen that most of the IT based VC receivers are previously having working experience mostly in the Silicon Valley as highly paid executives. it seems that the financial institutions were keen in financing VC as the presence of social and human capital are there among the entrepreneurs. the entrepreneurial development in the state is not proper. which are backed by Vol. Such conceptual conflict also has some negative impact on the budding entrepreneurs as they were deprived of getting their venture financed. or the nature of the relationships between the network members. In case of Karnataka. since their likely heterogeneity is important when interpreting aggregated data on investments or on new funds raised. as well as expressive resources such as friendship. Assam has enough potentiality to form such Human Capital but due to the information asymmetry. Maharastra is the leading state in terms of Venture Capital movement followed by Gujarat. or stake of successful business houses in the proposed enterprise. At the same time. Thus. Karnataka has shifted their focus from Agriculture to IT and IT enabled services during the first generation of reforms and has started enjoying the benefits during the second-generation reforms starting from 1995 onwards. Such an attitude though provides a good support for the Financial Institutions to safeguard their business risk but it also left behind many negative impacts. It was observed from the study that the formation of financial capital in the state of Assam suffers due to some poor record of accomplishment of repayments in conventional type of loans. Research also showed that when networks contain people from a verity of work backgrounds.1997)11 and social capital derives from social environment. such environment is created not only from the efforts of people of the state but also by the government. Individuals draw instrumental resources like materials and physical resources. the brain drainage could be another problem patronizing the low formation of Human Capital in the state. mutual trust. because this heterogeneity may imply significant differences in the quality of capital offered. 10 Issue 1 (Ver 1.

the Indian venture capital industry is the result of an iterative learning process. technicians. 10 Issue 1 (Ver 1. In Assam. If it is . It has a Strategic location . exclusive SME financing etc. Natural Gas production. in Assam. Assam is one of the largest agro based sectors in the world in terms of Tea production. This is particularly true in India. Support by funding "Home grown technologies" are available though Government and other sources they still follow the pre-condition of having validated the technology but at least at the laboratory scale. At the same time. the state of Assam can provide certain opportunities also. the financial institutions are not interested to go for Venture Capital Financing. The VCF prospects in the state include equity support to Pharmaceutical industry. indigenous engineering process in Oil. V COMPARISON OF US AND INDIAN VCF MARKET India is a significant case study in VCF penetration for a number of reasons. Assam has one of the pools of scientists. Under the circumstances. there is an urgent need to develop a Financial Institution. primarily due to the fear of failure. An intervention from state government machineries is necessary for creation of social capital. A financially disciplined approach is necessary for Venture Capital Financing. in contrast to the United States. most of the Venture Capital Companies whether attached to large financial institutions such as IDBI or ICICI or to State and Central Governments are varying in supporting very early stage projects. and dividends. First. engineers. IT enabled industry. Assam has a potential R&D infrastructure and technical and marketing services for biotech sector. the mutual trust between the entrepreneurs and the financial Global Journal of Management and Business Research institutions must be created so that the Venture Capital Financing gets momentum. India had a history of state-directed institutional development that is similar. location. A combination of Equity and Debt financing support could be the ideal form of Venture Capital Financing in the state. and managers in certain specific areas in the country having IIT. RRL. There is no income tax on profits derived from export of goods. and it is still in its infancy. the concept of supporting entrepreneurs and innovators with Venture Capital funds has not yet developed. in certain ways. The information asymmetry presently exist in Assam should be reduced and the demonstration effect of Venture Capital Financing must be properly communicated to the entrepreneurs. The state/ Central government has created policy environment that provides freedom of entry. where it remains a small industry precariously dependent upon other institutions. At the same time if it is looked from the business potentiality and that too for growing up a considerable venture capital market. B-Schools etc. and external factors such as international lending agencies. The security of investment must be protected by way of mutual dependence between the demand and supply side. and full repatriation of capital. However. overseas investors. investment. The study reveals that there are many factors.0). choice of technology. In the United States and in India the development of venture capital has been a co evolutionary process. import and export. Tea. There is a well-balanced package of financial institutional incentives. and as such is dependent on many other institutions. In the United States. It is only when the human. Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100 per cent Export Oriented units & units in Export Processing Zones may makes the environment a Venture capital friendly one provided the entrepreneurs of the region should come up to capitalize it. An interesting finding by studying both the states is that bootstrapping and loan financing provide a foundation for gaining experience and legitimacy that position ventures to secure equity financing. Assam has a large and rapidly growing consumer market. January2010 governmental effort receives lesser success due to creation of a negative atmosphere in developing entrepreneurial skills among the youths. Demand for several consumer products is growing at over 12% per annum. Even though development funds have been available from various Financial Institutions and Development Banks.access to the vast domestic and South Asian market. with the exception that ideologically the Indian government was hostile to capitalism prior to 1991. an equity financing could turn out to be a daydream. which is missing in the state. which have an adverse impact on the venture capital financing in Assam. to such development in Japan and Korea.P a g e |7 Vol. particularly the government. The growth of Indian venture capital must be examined within the context of the larger political and economic system in Indiaii. venture capital is only a small component of the much larger national innovation system (NIS). the loan financing itself gives such a gloomy picture to the financial institutions as it was found that the majority of the repayment scenario for the conventional loans in the state is very poor. An R&D investment in this sector may bring many innovations that may lead to create many sunrise industries. which will work exclusively to promote Venture Capital Financing in the state. royalty. Role of NGOs cannot be ignored in creation of social capital. The AIDC in collaboration with other Financial Institutions can create such fund to facilitate the venture capital growth in the state. and successful Indian entrepreneurs in Silicon Valley. production. technical fee.estimated to be growing at 8% per annum. Agriculture University. they are largely to support proven technologies whether indigenously developed or imported. social and financial capital will meet together to have a conducive atmosphere for Venture Capital Financing growth in the state. Even today. which are at an R&D stage. It can also be inferred that since the human as well as social capital formulation in the state is very low. almost all the Financial institutions were doing equity financing and for that they consider only the presence of Human and Social capital. In Assam. Free. From the study it was observed that in Karnataka. if not in the Pilot Plant. Carbon based industries. constitute the market for branded consumer goods . As was true in other countries.

The restrictions on venture capital extend beyond the framework of corporate law. Investors amenable to purchasing the equity in early stage companies. for example. the paper . or limited liability corporations (LP. Henceforth the important point to really concentrate here as to why the sudden diversification of opportunities occurred in India. as it requires court approval on a case by. The largest single source of funds for US venture capital funds since the 1980s has been public and private sector pension funds. are racking up stunning growth thanks to their low cost. and allied industries during 1990 until 2001. tax. information technology. the Indian markets differ with respect to governments‘ role in comparison to US. Indian regulations did not recognize limited life funds. smaller but strategic companies. Indian markets for venture capital differ considerably with respect to the industrial sector invested in enterprises‘ early and expansion stages. so in India. In Karnataka. Traditionally. After a lot of debate finally. while in the US banks have been getting less importance. there are large pension funds but they are prohibited from investing in either equity or venture capital vehicles. Therefore. almost 80 per cent of the venture capital investments went into communications and computer-related enterprises in 1999. high quality strategy. venture capital comprises management support and financial means for a subset of young high-technology enterprises provided by experienced intermediaries. One may blame it on India‘s happy growth story as the economy is clipping at 7 percent plus and could possibly gather more steam. pension funds have contributed considerable amounts of capital to VCF formation in the US. At the same time. Statutory guidelines also limited investments in individual firms based on the firm‘s and the fund‘s capital. prior to the late 1980s. and LLC. It is safe to say that little capital was available for any entrepreneurial initiatives. In India. some states of India like Karnataka have invested in enterprises‘ early stages having similar focused areas.0). while in US now a day. agriculture. especially in FMCG. Moreover. However. Assam has a potentiality of VCF investment in biotech. however. where a venture capital fund can invest in any industry it wishes.from IT to BPO to automotive to textiles to Pharmaceuticals – and on the other. In comparison to the United States. each fund had to be created as a separate trust or company. Some states in India use tax incentives for passive investors in order to ease the capital access for young high-technology enterprises. it was relatively easy to terminate a trust. Financial Institutions have invested large amounts of capital in venture capital in Karnataka and Maharastra. thus closing off this source of capital. India‘s corporate law did not provide for limited partnerships. the US market also witnessed shifting of priorities from IT to Vol. and pharmaceutical sectors. though India did have a vibrant stock market. In addition to identifying the differences and similarities between different states of India in terms of VCF. 10 Issue 1 (Ver 1. early stage investments accounted for mainly in IT and IT enabled sector. In the United States. while others use guarantees and co-investment programs in order to reduce the risk of young high-technology enterprises for VCF. The spread of growth of such capital is outside the information technology sector. while in Gujarat the early stage investments are predominantly in infrastructure development. agri-based. The two of the three biggest deals of 2003 in India had nothing to do with technology. One was CDC‘s $57 million investment in Punjab Tractors and the other was Warburg‘s $50 million deal with Radhakrishna Foodland. In the American tradition. which are traditionally IT. pharmaceuticals. but this meant that the entire firm was closed rather than a specific fund within the firm.Global Journal of Management and Business Research to be successful.case basis. while in country as if India pension funds have never been active as capital providers. It was also possible to bootstrap a firm and/or secure funds from friends and family—if one was well connected. On the other hand. all the results obtained here have to be interpreted with caution. the SEBI regulations did not have any sectoral investment restrictions except to prohibit investment in financial services firms and of late investment in real estate. The Indian markets for venture capital differ with respect to their sources of funds then US. pension funds play a significant role. outsourcing has become a major movement across sectors. In addition. while only 27 per cent of the Indian VCF investments were invested in these enterprises. VI SUMMARY The above section has analyzed the differences and similarities between the markets for Venture Capital in India and the United States. Febuary 2010 P a g e | 8 biotech by 2003 onwards. The result of these various regulations has been a channeling of venture capital investment toward late-stage financing. and currency laws. Impediments to the development of venture capital also exist in India‘s corporate. banks are the main contributors to entrepreneurial finance including venture capital. the rigid and numerous regulations made it nearly impossible for the existing financial institutions to invest in venture capital firms or in startups. Such developments in IT sector in Indian market have a downswing of VCF growth in certain states. no financial intermediaries comfortable with backing small technology-based firms existed prior to the mid-1980s. these states have shifted its gear to adopt various sectors to be incorporated in their priority list. the venture capitalists.e. in India only six industries have been approved for investment: software. An entrepreneur aiming to create a firm would have to draw upon familial capital or bootstrap their firm. limited liability partnerships. it will be necessary not only for it to grow. However. i. This process was administratively and legally time-consuming. Due to data limitations. In India. An interesting observation between the two countries is that there is a surge in risk capital by 2004 onwards. LLP. biotechnology. US venture capital investments are more concentrated on high technologies than Indian VCF investments. Terminating a fund was even more cumbersome. but also for its institutional context to evolve. In summation. In sharp contrast to the United States. backed like Karnataka and Andhra Pradesh. respectively) as available in USA.

so any interest rate would have to be usurious. Venture Capital Guidelines.0). and make more intensive use specific control mechanisms such as convertible securities and compensation systems. Moreover.54 10 Blau. act more like US venture capitalists. For example. N. Independent equity investors have a high degree of technological specialization compared to all other groups of dependent equity investors.. Control and ownership of enterprise is the inherent management practice with investors‘ limited access (with few exceptions) to it in the corporate sector in India. The Assam market. iii. Socioeconomic environment in India is not compatible to American methodology of VCF. 3 NVCA Report. (1995). 2005. in turn. however. U.J. which are. November 25.. stimulates the US economy. There is lack of local market for high technology products in India. Which appears to the researchers as not pragmatic in approach? The characteristics of the American methodology for VCF can be summed up as: i.nvca. Delhi: Oxford University Press. and Alba. iv. VCF investors acting in one national market can differ significantly with respect to their investment behavior. Venture Capital and New Technology Based Firms: An USGerman Comparison. Moreover.52 9 ibid. By reserving a specific percentage of federal R&D funds for small business. Moreover. 7 It is true that in the United States. or service. Business World. S. envisaging fast growth. a bank‘s core competencies are in evaluating and taking loans.R. The problem with loans to small startups is that the capital is at high risk.. ii. innovation system.11(86)-CCI(11) / 87 Department of Economic Affairs. It has been observed that in case of the VCF with government stake emphasize more on the overall development of the economy of the country/ region than emphasizing on ROI of the projects at the micro level. The reason is that each market has its own. ―Empowering nets of Participation‖. banks have never been an important source of venture capital.p. one cannot expect a dynamic venture capital market. Expectation of very high risks and return. Press Release No. ii. More specific to high technology driven. The Karnataka market for VCF has not only experienced a significant upswing in the last few years but also a fundamental structural change towards financing hightechnology enterprises. iii. important to determine the development stage of venture capital markets. January2010 has also discussed the differences between VCF investors acting in one national market by analyzing micro data on Karnataka and Assam. For the most part. by contrast. ―Karnata Boom‖. Karnataka‘s VCF investors differ considerably with respect to their investment strategies. in contrast to their dependent counterparts. 5 Ministry of Finance (1988).org first accessed on July 23. the following outcomes were emerged: i.D. often-quite special. new funds raised for private equity grew at a lower rate than new funds raised for venture capital 2 Pfirrmann.Global Journal of Management and Business Research P a g e |9 Vol. SBIR funds the critical start-up and development stages and it encourages the commercialization of the technology. 2003 available at www. The differences between the US market and the Indian market for VCF with respect to the investments in young high-technology enterprises although do not offer meaningful information on the development stage of the Indian venture capital markets but it provides many inputs for generating reforms in the Indian VCF market. Lerner (1997). product.p. 27. Williams. 363379. O. since the new firm is often losing money in its early days. and Reynolds. Pension fund is one of the major sources of VCF. even through their SBIC subsidiaries. 8 Mittal R. Discontinuance among new firms in retail: the influence of . independent equity investors are more willing than subsidiaries of banks to invest capital in high-risk enterprises. Strict preference for equity financing and risk sharing. The evidence of the Karnataka and the Assam market supports this view.D.e. A. 11 Carter. which. M. while the results of the Karnataka market support it only to some extent in comparison to US. iv. S. Special Annual edn. paying interest and principal would drain money from the firm during the period when it most requires the money for investment. Venture capital and the Indian financial sector. which determines the role of venture capital in an economy. R. P.. & Gupta. Focused on start up stage. SBIR protects the small business and enables it to compete on the same level as larger businesses. VII EPILOGUE From the above analysis. These equity investors.. Heidelberg: Physica-Verlag. 10 Issue 1 (Ver 1. VIII NOTES 1 In the US. Long-term horizons classified into specific defined phases. Office of the Comptroller of Capital Issues. The number of private equity investors that are not legally connected to another company (i. vi. Wupperfeld and J. when the innovation system is dominated by in-house research and development. 1982. vol 25.M. the figures presented on venture capital activity in India do not include other financial sources for hightechnology enterprises such as business angels. issue 3. v. 1997. has merely experienced a qualitative expansion. Administrative Science Quarterly.2004 4 SBIR (Small Business Innovation Research Programme) is a highly competitive programme that encourages small business to explore their technological potential and provides the incentive to profit from its commercialization. 6 Ramesh. independent equity investors) has increased significantly in India.

Heidelberg: Physica-Verlag. & Kenney M.. Venture Capital Guidelines. pp. U. and Alba. Office of the Comptroller of Capital Issues.nvca. 2004 Pfirrmann. 227–253 IX REFERENCES 1) Blau. No. Venture capital and the Indian financial sector. S. 2002. 30. Lerner (1997). M. Delhi: Oxford University Press. Williams. 7) Ramesh.. Journal of Business Venturing. 12. 363-379. 227–253 4) Mittal R. 2) Carter. World Development Vol. & Kenney M. 30. Business World. 1997. issue 3.D. P. Administrative Science Quarterly. & Gupta. O. strategy and gender.0). Vol. 12. and gender. Discontinuance among new firms in retail: the influence of initial resources. S.M. 2002. A. (1982). Venture Capital and New Technology Based Firms: An US-German Comparison. (1995). ―Karnata Boom‖.. 27. Journal of Business Venturing. pp.52 5) Ministry of Finance (1988). 12 Dossani R. 2.Global Journal of Management and Business Research initial resources.. Press Release No..2005.J. pp. 2. N. 3) Dossani R.R. strategy.org first accessed on July 23. 2003 available at www. Vol. ―Creating an environment for venture capital in India‖. World Development Vol. November 25. Wupperfeld and J. R. Febuary 2010 P a g e | 10 . 6) NVCA Report.. No.11 (86)-CCI (11) / 87 Department of Economic Affairs. vol 25.D.p. 10 Issue 1 (Ver 1. 125146. 125-146. Special Annual edn. ―Empowering nets of Participation‖. ―Creating an environment for venture capital in India‖.. and Reynolds.

xenophobia and distrust for strangers. 10 Issue 1 (Ver 1. which are unfortunately frequent in armed robbery insurance. I A INTRODUCTION n insurance contract (policy) binds an insurance company in the occurrence of contractually defined loss events to pay a specified amount (claim) to the insurance holder. they represent those trades which are particularly the target of criminals. The purpose of modeling claim sizes is to price premiums as accurately. firm. which usually carry capital punishment. Expert Model Mining System. Akoka. Nigeria Email: Dallaram2007@yahoo. Usually. Therefore. theft.P a g e |11 Vol. a study on armed robbery conducted in South Africa by Pretorius (2008) has shown that “ the experience of being robbed and violently assaulted left the victims with feelings of ontological insecurity. cooperation. In fact. create contingencies against which protection is desirable. Smyth and Jorgensen (2002) Heller.General Crime Insurance. Lognormal Model. Armed Robbery Claims Data.0). psychological damage and even loss of life. The data are compiled from the records of insurance companies. in Nigeria there is even passive synonymy between burglary and armed robbery. was a final source of frustration and disgust for many respondents”. Keywords. Furthermore. recommending lognormal model for the analysis of right skewed general crime insurance claims data. and calculation of premiums (Bohme. The manner in which short-term insurance claims were negotiated and the amount of money eventually paid. causes immense economic. and have always had publicity value. it is common to hear information that state government heavily protected/guarded convey being attacked by robbers. each form of insurance has its background of occurrences. In fact.The objective of modelling claims sizes of insurance policies was to be able to price premiums as accurately as possible. in this context the statistics published represent conditions at their worst. it is a commonplace that everyday-armed robbery crime in Lagos metropolitan city. This paper investigates the distribution of claims of Nigerian armed robbery insurance crime data. of mostly frequent. Nigeria is ranked number one in “burglary and armed robbery crimes” in Africa even though this position is of recent being challenged by South Africa. Certain crimes are the background for burglary. fear of crime and little confidence in the government and police to maintain law and order. and robbery insurance and because these crimes are spectacular. 2005). Nevertheless. Lagos. and even government valuable properties are subject to attached by burglars and robbers. Using expert model mining system. January2010 Global Journal of Management and Business Research Modelling Armed Robbery Crime Insurance Claims in Nigeria Dr Hamadu Dallah Department Actuarial Science and Insurance Faculty of Business Administration University of Lagos. moral hazard (insurance holders behave careless as they do not have to bear the losses). although the true extend is still difficult to quantify. much attention has been paid in the actuarial literature to alternative distributions for claim sizes and some authors have developed regression models (usually generalized linear models) for explaining claim sizes as a function of risk factors (see Haberman and Renshaw. Nowadays. The situation is not quite different in Nigeria where everybody. and. Deductible. Since claim amounts usually depend on the dimension of losses. They are taken from congested centre like Lagos where property values are concentrated and burglaries and armed robberies are. Stasinopoulos and Rigby (2007) have considered in their . In return. This constellation generates three interesting phenomena studied in the literature: adverse selection (bad risks are likely to demand coverage than good ones). In addition. In parametric modelling of loss distributions in actuarial studies. and to estimate the risk of extreme claim events. There is need for urgent investigation in the covered claims paid by insurance companies. Jorgensen and de Souza (1994).com Tel: +2348039094884 Abstract. the insurance holder pays a fixed sum (premium) to the insurance company. Finally. which result in sudden and unforeseen financial shocks to individuals or to groups of individuals. therefore. the estimated data-based lognormal risk premium amount could provide the required basic framework for policy premium underwriting in Nigerian general armed robbery crime insurance market. and consequently may be said to typify the experience of those who recognise the fact that they are peculiarly exposed to hazards against which protections are necessary. the 3parameter lognormal distribution demonstrated itself as the best candidate. an attractive candidate with tail weight intermediate between that of Gamma and Pareto distributions is the lognormal model. these information point to an alarming situation in case the complete crime records for Nigeria could be compiled it will be of considerable magnitude both in term of crimes and in loss of life and property. 1996). it has also provided a good estimate of the deductible amount in claims management. In this context. The result was quite revealing and in agreement with previous studies. insurance companies offer uncertain future payoffs for a certain premium at present. therefore.

Global Journal of Management and Business Research various studies.48785 157360. From the table 3. a subsidiary of Intercontinental Bank Plc.368 .2500 Variance 307219891181. This work deals with fitting the log-Normal distribution to loss data with an unknown constant deductible. This positive skewed nature of the data can be easily substantiated by the magnitude of the coefficient of skweness (4. it is assumed that the distribution function of the true loss amount is known. In this paper.20216 Minimum 106.0).40 Interquartile Range 139761.304 Std. Thus. it also brings out certain hidden features of data.7129 39095.9577 5% Trimmed Mean 133450. general and special risk businesses. EDA as opined by Hoaglan and Tukey (1977) will provide not only preliminary insights to the data. On the other hand. Several authors (Duval and Allen (1973). In each of these cases.4680 311544. including zero claims. Deviation 554274. is that caused by the presence of deductibles. multiple deductibles see Marlin (1984). which was incorporated in 1958 as a private limited liability insurance business in Nigeria.72 Maximum 4583716 Range 4583609. guide us on the future choice of the appropriate model. For case. The following table 3. The observations are from each policyholder over a period of four years: November 2000 until November 2004. which provided the record of each armed robbery crime claim that Table 3. Febuary 2010 P a g e | 12 have been filed with the insurer during the observation period. Smith and Head (1978)) have investigated the implication of deductibles on both the insurer and the insured. it is important to perform an exploratory data analysis (EDA) to our data. Error 234452. our data come from financial records of WAPIC insurance policies. Claims are paid only on losses whose severity exceeds the deductible amount.316. we consider only the claims file.368). In addition.803 . 452. but also.1 shows the summary of most important descriptive statistics of the armed robbery insurance claims data. Our study differs quite slightly of these since the zero claims were not compiled in our case study data. In addition. the first striking observation on the result is the dramatic difference between the mean claim (N 234. models for claim sizes. 10 Issue 1 (Ver 1.26 Skewness 4. II DATA DESCRIPTION Vol. which can go unnoticed by the investigator without performing in-depth EDA. WAPIC Insurance Plc is a composite full-line insurance company offering a range of products and services covering life and pension.172 Kurtosis 23.1 above.1: Summary of Some Important Descriptive Statistics Armed Robbery Claims Amount Mean 95% Confidence Interval Lower Bound for Mean Upper Bound Statistic Std. the situation can be easily confirmed from the Histogram and Box-and-Whisker plots displayed in Figure 3.71) amount and the median claim (N 43. one of the more perplexing problems encountered in the fitting of claim amount data to a theoretical probability distribution.1 and Figure 3.341 . III EXPLORATORY DATA ANALYSIS Before tackling the method of fitting the enabling stochastic model to the data. Schott (1979). and the payment amount made.2 respectively. we consider armed robbery policy exposure and claims experience data derived from general crime insurance portfolios of a major general insurance company in Nigeria.6004 Median 43316. Our data are from WAPIC Insurance.25) amounts which is of a ratio1 to 5.

2: Box-and-Whisker Plot of Armed Robbery Insurance Claim Figure3.00 3000000.4 0.000 4.000. 10 Issue 1 (Ver 1. These results coupled with the non-normality results of the Normal P-P Plot of robbery 1.6 0.0).8 1.4 respectively.2 0.000.0 0.8 0.00 42 1 0 -1 14 145 -2 98 158 69 -3 -2. the median lies outside the confidence intervals of the mean claim amount [N 157.000 0.000 0 1.0 Observed Cum Prob Figure 3.360. January2010 Q-Q and P-P plots of Figure 3.6 0.00 -1.000 3.80.P a g e |13 Vol.1: Distribution of Armed Robbery Insurance Claim Normal Q-Q Plot of robbery 3 194 2 Expected Normal 4000000.000. We consider in this study the 3-parameter lognormal as the choice model. N311.00 1000000.000 2.000.3: Q-Q Plot Normal Plot of Armed Robbery Insurance Claim Moreover.2 0.00 5000000.4: P-P Normal Probability Plot of Armed Robbery Insurance Claim Data .00 4000000.3 and 3.0 Expected Cum Prob 0.96]. Histogram 200 150 Frequency Global Journal of Management and Business Research 100 50 0 0.0 0.000.000 5.00 robbery Figure 3.000 Observed Value robbery Figure 3.000.00 41 111 103 2000000. 544. the versatile choice between with tail weight intermediate between that of gamma and Pareto distributions will be the lognormal or loglogistic distributions.4 0.47.00 2000000. With the coefficient of kurtosis of 23. are suggesting an appropriate choice of a right skewed and heavy tailed probability models.000.

 estimators ˆ and ˆ each having the favorable properties of converging to their respective parameters and having minimal asymptotic variance. stochastic distributions like the Log-logistic. the lognormal mean and variance are given as follows   E (Y )  e n ˆ  e 2 . Y2. 10 Issue 1 (Ver 1. Gamma and other competing distributions are also being included in the present study. such that Lˆ ( )  L( . Wingo.  . L( . are independent claim amount observations.Siminov Test The Kolmogorov-Smirnov (K-S) test is based on the empirical distribution function (ECDF). In fact. 1963.  .  ) achieves its maximum at a point ˆ (  )  Where  represents the threshold value and X is normal a random variable with mean  and standard deviation  . ˆ (  )  exp  because of the fact that.  ) becomes unbounded. In addition. Our focus in this paper is on the estimation of the mean of lognormal distribution. y  0    The density function is subsequently given by  ln y      d    f ( y)  F ( y)  . where 1 n 2  log( yi   )  log ˆ (  )  And n i 1 (5) 1 n  log( yi   )  n  i 1  Consequently. in this case. .0).  and  .  i 1 0 Let us denote the lognormal model as  ˆ  n 1  log yi And ˆ   n 1  log yi  ˆ 2  2 (4) (e  1) 2 Where n(i) is the number of points less than Yi and the Yi are ordered from smallest to largest value. As pointed out by Komori and Hirose (2001). Since log( y   ) obeys a normal distribution. so that dx   exp(z   ) . which. so that we can easily obtain the moments 0 0 E (Y k )   y k f ( y )dy   1  2   e    ln y   )  y k    dy y 2 1  z  k 2  k  k 2 2 e k 2  k 2  2 2 Variance  V (Y )  e 2 2   i 1 ˆ  ˆ 2  . ˆ ( 0 ) provided that  is fixed to  0 .  . Komori and Hirose (2001) have proposed an easy estimation by a new parameterization in the three-parameter lognormal model by proposing a new computing method for the primary relative maximum of the likelihood function. the ECDF is defined as (6) Therefore.. Several authors (Hill.Global Journal of Management and Business Research IV Vol. then the maximum likelihood estimators (MLE) of the location  and the scale  parameters are. 1984.. Lognormal Distribution 1 n The three-parameter lognormal distribution is one the most popular distributions in actuarial and management fields. METHODS A.  )  exp   2 2 2 ( y   )   Where. Let us set  =0 without loss of generality.   0 In addition. Given N ordered data points Y1. the likelihood function is expressed by n L(  . This step function increases by 1/N at the value of each ordered data point. ˆ (  ) ) achieves its maximum.  ) (2) i 1 Y    exp( X )   E (Y )    exp(    2 / 2) (3) In addition. YN. 1997) have treated the methods of finding the maximum estimates of 3-parameter lognormal model.  y n . ˆ (  ) . y0 dy y Hence making substitutions. find a good estimator to it. then we have the lognormal model define by the cumulative distribution function (cdf)  ln y    F ( y )   . the probability density function is expressed by  ln(( y   ) /  2  (1) 1 f ( y.. Let us assume y1  y 2  . Hirose. B.  .  . y   .. However. and the These yield the MLE of the mean. . if we want to obtain the maximum likelihood estimate. With a variable y and three parameters  . the other parameters then lead to inadmissible values.   0.  )   f ( y i . the threshold parameter  is unknown and must be estimated from the data with the two other location and scale parameters.ˆ ( 0 )  . Lˆ ( )   as   y n .. it suffices to find an  . However. Febuary 2010 P a g e | 14 Consider a data set yi (1  i  n) . L( .  .  . Kolmogorv.

1 and 5.Global Journal of Management and Business Research P a g e |15 Vol.6732 Lognormal(P)   1. being tested which must be a continuous distribution.1 and 5. is greater than the critical value obtained from a table.703 Log-Logistic (3P)   0. These findings support the theoretical choice of the model for the robbery claims data.03683 3 We can easily observe Tables 5.02941and 0. In fact.  F (Yi )  1i  N N N   V ANALYSIS RESULTS A.0).1: Summary of Parameters Estimates for the Best Three Fitted Distributions Lognormal (3P)   1. January2010 Considering the following hypothesis statement H0: The data follow a specified distribution Ha: The data do not follow the specified distribution There is no need for the K-S tables in the work since the software programs used gives both the K-S test and the critical probability values.9113   10.02936 1 Lognormal (2P) 0. see Appendices I and II): Table 5. The results include parameters estimates and goodness of fit the simulated distributions. Summary Results and Discussion (7 ) Where F is the theoretical cumulative distribution of the distribution. it ranks first and subsequently.88352   44571. The Kolmogorov-Smirnov test statistic ( D) is defined as i 1 i   D  max  F (Yi )  .3 demonstrated the adequacy and suitability of the fitted model but also raised a cautionary note on possible two possible outlying values which in future call for the use of robustness in insurance claims management.02936.0   106. Closely following is as expected the two-parameter lognormal distribution and the three-parameter log-logistic distributions with goodness of fit coefficients of 0. There are several variations of these tables in the literature that use somewhat different scaling for the K-S test statistic and critical regions. D. outperforming other competing distributions.02941 2 Log-Logistic (3P) 0.1 and 5.036 respectively.72 Table 5.2: Summary of Kolmogov Sminov Goodness of Fit for the Best Three Distributions Lognormal (3P) 0. by closely examining the distribution and P-P Probability plots in figures 5.2 gives the summary of results of the best three competing models.2 that. With Kolmogorov Siminov goodness of fit coefficient of 0. The following Table 5. (For the full results. .9128   10. On the other hand. a close look at the Q-Q plot displays in Figure 5. the threeparameter lognormal distribution is the best candidate for the data.2 the EDA results supports our analytical choice of the model. 10 Issue 1 (Ver 1. The hypothesis regarding the distributional form is rejected if the test statistic.704   5.

9 0.8 0.24 0.6E+6 3.1 0 0 0.6 0.0).4 0.4 0.48 0.96 0.2E+6 2.3 0.64 f(x) 0.88 0.Vol.4E+6 2E+6 1.16 0.2 0.8E+6 2.72 0.2: P-P Plot 3-Parameter Lognormal Model to Armed Robbery Insurance Data Q-Q Plot 4.4 0.56 0.8 P (Model) 0.7 0.32 0.6 0.2E+6 800000 400000 0 0 2E+6 4E+6 x Lognorm al (3P) Figure 5.8 1 P (Empirical) Lognormal (3P) Figure 5.08 0 0 2E+6 4E+6 x Histogram Lognormal (3P) Figure 5. 10 Issue 1 (Ver 1.3: Q-Q Plot 3-Parameter Lognormal Model to Armed Robbery Insurance Data .1: Distribution of Fitted 3-parameter Lognormal Model to the Armed Robbery Insurance Data P-P Plot 1 0. Febuary 2010 P a g e | 16 Global Journal of Management and Business Research Probability Density Function 0.2 0.6E+6 1.5 0.4E+6 4E+6 Quantile (Model) 3.

Omobola. Jorgensen.651.. and Allen. „Transformatio9n and Insurance Growth in Nigeria‟ Accenture 7 April. Wingo. „Fitting Three-parameter Lognormal Models by Numerical Global Optimization-an Improved Algorithm‟. B. and de Souza. B. 24. it is important to have a critical look at the financial implication of the estimated lognormal data-based risk premium amounts of about N55. „The Three-parameter Lognormal Distribution and Bayesian Analysis of a 6) 7) 8) 9) 10) 11) 12) Point-source Epidemic‟. S. J. we investigated empirically the distribution of claim amounts paid by Nigerian general crime insurance company to their policies holders‟ victims of armed robbery. 143-157. P. M. and Head. 58. P. VII REFERENCES 1) Bohme. (1996). 619-635. Schott.704  (1. (1984). C. „Generalized Linear Models and Actuarial Science‟. 51. 32. Smyth. The lognormal model was considered not based only on theoretical ground. (2008). The Journal of Risk and Insurance. (1984). M. R. MA. B. the estimated fitted lognormal mean is given as follows ˆ  ˆ  exp( ˆ  ˆ 2 / 2)  5. which make a strong case for an estimated deductible of about N 1. Smith. „Fitting Tweedie‟s compound Poisson Model to Insurance Claims Data‟. which favor the lognormal distribution as an appropriate model when modeling claims data specifically. Journal of American Statistical Association. USA. (1997). with intermediate tail weight between the gamma and Pareto distributions. 13-25. 46. January2010 Thus.P a g e |17 Vol.4 yields an estimate risk premium of N 55. 4) Hill. (1963). Marlin. in future premium underwriting for both existing policy holders and new customers in Nigerian emerging market economy.651. Workshop on the Economics of Information Security (WEIS) 2005. M. „Maximum Likelihood Parameter Estimation in the Three-parameter Lognormal Distribution Using the Continuation Method‟. The Statistician. Scandinavian Actuarial Journal. B. „Fitting Tweedie‟s compound Poisson Model to Insurance Claims Data: Dispersion Modeling‟.140 in actuarial studies and practice. The present findings provided good empirical reasons to support previous theoretical and empirical results. The Journal of Risk and Insurance. R. A. (2002). 10 Issue 1 (Ver 1. 45. It is also important to note the slight difference between the usual two-parameter lognormal distribution popularly used in modelling returns stochastic volatility in empirical finance and the three-parameter lognormal model. „Fitting the Log-Normal Distribution to Loss Data Subject to Multiple Deductibles‟.4  55606931 With an estimated mean claim of N 276. The Journal of Risk and Insurance. H.6732  exp 10. and Jorgensen. 2. Computational Statistical Data Analysis. Cyber-Insurance Revisited. 72-84 Hirose. 407-436.(1994). ASTIN Bulletin. G. 495507. M. D. . this is given as Rˆ  N (ˆ  exp( ˆ  ˆ 2 / 2))  201 276651. Cambridge.606.606. Kennedy School of Government. 217-238. 139-152.2008. (1978). C. 45. Finally. 3) Haberman . 69-93. 40. „Annual Losses for Straight Deductible Coverage‟. Computational Statistical Data Analysis.0). E. „Guidelines for Insurers for Pricing Deductibles‟.931 VI CONCLUSION Motivated by the alarming rate of armed robbery crimes generally in Nigeria and Lagos state in particular. but also from preliminary EDA results. (1973). Using expert model mining procedure. T. „Least Cost Deductible Decisions‟. (1979). 687-701. L. The Risk Premium Estimate The basis of the estimate of the risk premium risk premium is the estimate of the total loss R. (2005). K. R.91132 / 2)   276. G. and Renshaw. The Journal of Risk and Insurance. the 3-parameter lognormal distribution demonstrated a superior level of adequacy and goodness of fit over other stochastic claims distribution models.931. 2) Duval. L.4 Global Journal of Management and Business Research 5) B.

Global Journal of Management and Business Research Vol.0 =-902.0 9 Fatigue Life (3P) =2.0559E+5 =2.06466 a=106.0 =-15229.0 =27234.6732 27 Normal =5.38085 =6.3157 =0.5837E+6 2 Cauchy =33439.2474E+5 =98.787 20 Johnson SB =2.72 b=4.5515E-6 =2.69501 =70701.3445E+5 22 Log-Logistic =0.72 8 Fatigue Life =3.72 14 Gen.72 24 Logistic =3.0 23 Log-Logistic (3P) =0.0 =3.212 12 Gamma =0.0 15 Gen.5427E+5 =2.2757E-6 6 Exponential =4.2653E-6 7 Exponential (2P) =4.3104E+6 13 Gamma (3P) =0.8391E+5 18 Inv.91368 =13843.0 16 Gumbel Max =4.0 =2.071 =40194.3445E+5 28 Pareto =0.0 17 Gumbel Min =4.3217E+5 =4.704 =-5.9222E+6 =-20527.16575 =106.3445E+5 25 Lognormal =1. Extreme Value k=0.91777 =43489.88352 =44571.50188 =5.16 10 Frechet =0. 10 Issue 1 (Ver 1.72 b=4.0 =96.9113 =10.14219 2=2. Febuary 2010 P a g e | 18 VIII APPENDIX Appendix I Fitting Results # Distribution Parameters 1 Beta 1=0.1867E+5 =97.8707E+5 .3445E+5 4 Chi-Squared (2P) =2.9128 =10.183 5 Error Function h=1.5141 =60735.0 11 Frechet (3P) =0.6352 =17808.72 b=4.5837E+6 30 Power Function =0.0 =37087.72 29 Pert m=106. Pareto k=0.1991 a=106.1617E+5 =106.3217E+5 =-15000.2672E-6 =106.17892 =1.703 26 Lognormal (3P) =1.0 =106.0).72 a=106. Gaussian =41949.0 21 Laplace =2.5837E+6 31 Rayleigh =1.65115 =87102. Gaussian (3P) =12663.3445E+5 19 Inv.0 3 Chi-Squared =2.

10 Issue 1 (Ver 1.0).72 b=4.5837E+6 35 Uniform a=-7. January2010 Global Journal of Management and Business Research 32 Rayleigh (2P) =4.2558E+5 b=1.P a g e |19 Vol.6351 =1.72 38 Erlang No fit 39 Erlang (3P) No fit 40 Johnson SU No fit .0 33 Student's t =2 34 Triangular m=106.6280E+5 =-127.72 a=106.1945E+6 36 Weibull =0.0622E+5 37 Weibull (3P) =0.54574 =1.1510E+5 =106.

10061 24 25 8 9 10 11 Fatigue Life (3P) Frechet Frechet 0. Gaussian Inv.37795 33 26 36 37 Weibull Weibull (3P) 0.Global Journal of Management and Business Research Vol.30158 14 10 17 21 22 Laplace Log-Logistic 0.72301 34 33 Student's t 0.02936 1 27 Normal 0.548 31 30 32 Rayleigh 0.19953 0.28305 0.30964 0.08703 7 6 Source: EasFit Expert Model Mining .14724 12 15 16 Gen. Gaussian (3P) Johnson SB 0.40507 28 18 19 20 Inv.61559 22 32 30 31 Power Function Rayleigh 0. 10 Issue 1 (Ver 1.15504 0.36462 0.02941 20 2 26 Lognormal (3P) 0.34066 0. Pareto Gumbel 0.08883 0.33622 19 28 29 Pareto Pert 0.14627 18 11 14 Gen.38074 13 27 17 Gumbel 0.21106 9 5 15 12 13 Gamma Gamma (3P) 0. Extreme Value 0. Febuary 2010 P a g e | 20 Appendix II Goodness of Fit – Summary # Distribution Kolmogorov Smirnov Statistic Rank 1 Beta 0.12118 0.35501 0.80099 16 36 4 5 Chi-Squared (2P) Error Function 0.71756 0.03683 3 24 25 Logistic Lognormal 0.79602 0.99996 37 34 35 Triangular Uniform 0.084 0.0).36437 0.50008 35 29 6 7 8 Exponential Exponential (2P) Fatigue Life 0.03965 23 4 23 Log-Logistic (3P) 0.13214 0.36295 0.35471 21 2 3 Cauchy Chi-Squared 0.58063 0.

University of Calabar. Nigeria 08034740556.). The Butler‘s model is linked to the business/marketing concept of product life cycle. Kenya. Tel: 234-0804740556. stagnation. promotional strategy. The global choice of destination according to Henderson (2007) is growing and certain of these destinations have similar characteristics.0).com Ezekial Ebitu Lecturer. Attraction can be manmade. Nigeria has just begun taking tourism seriously. Destination is commonly referred to as place in tourism parlance. When applied to tourism destinations.D in Marketing. Department of Marketing University of Calabar. He has a Ph. Department of Marketing University of Calabar PMB 1115. or cultural. He has published in both local and international journals. development.g. 10 Issue 1 (Ver 1. Dr Ezkial Ebitu H is a lecturer in Department of Marketing. WWTC. Butler‘s model gives us an elaborate understanding of what a destination goes through from the time the community decides to take tourism as a serious economic development tool. tourism enterprise planning. Nigeria 08039451333 Abstract. 2000. He is Member of National Institute of Marketing of Nigeria. It is theoretically underpinned on the product life cycle. Every destination has a cycle with unique stages and characteristics. etc. destination marketing organization. attracting. Kebbi. Osun. This gives rise to a situation where one can be replaced by another as the notion of destination choice set implies. in this case. This study attempts to highlight the relevance of promotional strategy to tourism development. One way of achieving these functions is through effective promotional strategies of destinations. Calabar. esubenjamin@yahoo. 1975). Key words. it suggests that destinations develop and change over time. and festivals. The attraction and the benefit it offers are sometimes the reasons for visiting a destination. and decline (post-stagnation). This claim is supported by statistical data from regional. He has a Ph. Globalization of the tourism market has made tourism business environment more complex. etc. Tourism destinations are places with tourists‘ attractions. The past nine years has witness a conscious effort by some of the States (e. His research interests include entrepreneurial development and marketing. His current research interests include destination marketing and tourism economy. and international studies (WTO.D in industrial Sociology. 1980) and Doxey Irredex ( Doxey. Destination Marketing Organizations (DMOs) have the responsibility of creating.Emerging tourism destination. A good example of an emerging tourism destination is Nigeria. Two common models on destination life cycle are Butler‘s Destination Area Cycle Model (Butler. Tel O8039451333. This is because tourists whether inbound or out bound are in search of places and attractions that will optimally satisfy their touristic desires. attractions. Bassey Benjamin Esu is a lecturer in the Department of Marketing. before stabilizing and subsequently declining (Esu. The major crux of the paper is the conceptualization of a model for the development of promotional strategies for emerging tourism destination.Emerging tourist destinations have unique characteristics. South Africa (SA). Cross River. email: esubenjamin @yahoo. Calabar. consolidation. which differentiate them from matured destinations or destination at their decline stage.com. PMB 1115. 2005). involvement. marketing. Butler Destination Area Cycle Model is made up of a number of linked stages: exploration.P a g e |21 Vol. January2010 Global Journal of Management and Business Research Promoting an Emerging Tourism Destination Bassey Benjamin Esu (corresponding author) Lecturer. and retaining valued customers. United States of America (USA). Examples of destinations that have entered the maturity stage are United Kingdom (UK). natural. University of Calabar. I INTRODUCTION T ourism and hospitality sector is the fasted growing sector of global economic. 2005). national. An emerging tourism destination is conceptualised as a geopolitical area where tourism has just been accepted as a major socio-economic development tool and where the community has expressed willingness to leverage the tourism potentials to enhance their socio-economic wellbeing. tourists to the destinations. . The product life cycle is a theory in which sales of a new product are seen to slowly grow and then experience rapid growth.

That is. II IMPORTANCE OF PROMOTION TO DESTINATION MARKETING Destination promotion has the potentials of producing the following benefits: i. it does appear that the traditional promotional tools are inadequate to generate appropriate consumer response especially in emerging tourism destination without a broad strategic approach. attract visitors to destinations in these areas (Pattinson. Persuade tourists to visit the destination and increase length of stay in destination vi.0). It is expected that this paper will give some impetus to the frame-work for the rebranding of Nigeria which has just been launched by the President. 1990). there may be little or no awareness of destination by the market. Communicate the physical and psychological benefits of products offered by the destination to the market iv. An emerging tourism destination is characterized on the supply side by acceptance of tourism by government and the community as being strategic to the economic importance of the state. Attempt shall also be made to capture some strategies commonly used by successful emerging destinations. we shall identify the importance of destination promotion. Build awareness and interest in the destination and the attractions or products ii. 1994). Febuary 2010 P a g e | 22 Figure 1 Hypothetical Evolution of a Tourist Area (Butler . lack of specific unique product to attract tourist. publicity. These activities undertaken by individuals or organizations want its voice to be head in the market place. low tourists receipts.Global Journal of Management and Business Research Vol. One of such .). destinations are promoted by the use of one or combination of promotional tools (advertising. the introduction of strategies to actualize these visions (product design and development). the euphoria that accompanies the idea of having an identity as a tourism destination.1980) Inferring from Butler‘s Model. Differentiate the destination and its offering from competing destinations iii. Promotion can assist the destination management in leveling out peaks and valleys resulting from seasonality of demand III RESPONSIBILITY FOR DESTINATION PROMOTION Destination promotional function is primarily the responsibility of the Destination Marketing Organization (DMO). On the demand side. DMOs are organizations that have been established to promote specific destinations to potential travelers (Gartrell. 10 Issue 1 (Ver 1. 2003). The peculiarities that characterise an emerging tourism destination account for the need to advocate for specific strategies for the promotion of emerging tourists‘ destinations. Build and maintain the overall image and reputation of the destination v. Following the understanding that ‗place‘ can be marketing. personal selling. Regional Tourist Boards may be regarded as marketed. Their role is to promote place. agencies. public relations and internet. tourism planners and marketers have made attempts to apply marketing principles to place or destination. In this paper. Destination marketing is a collective effort that requires various organizations and businesses in a geographically limited area to harmoniously work together to achieve a common goal (Gransjo. etc. some basic assumptions can be made about an emerging destination. Alhaji Musa Y‘adua. responsibility of Destination Marketing Organizations (DMOs) in destination promotion and propose a conceptual model for developing promotional strategies for emerging tourist destinations. sales promotion. Because of these peculiarities and the complexities in understanding tourists‘ behavior. Theoretically. low visitor arrival.

but in the minds of clients. ii. IV CONCEPTUAL MODEL FOR DEVELOPING PROMOTIONAL STRATEGIES OF EMERGING TOURISM DESTINATION Promotion refers to the communicative activity of marketing. Leading the overall tourism industry at a destination. v. The tasks at this stage is to determine the destination attributes the will build strong associations. A simple methodology proposed by Esu and Mdaze-Arrey (April 2009) in their paper on ―Branding of Cultural Festivals as Destination Attraction…‖ could be used to determine the destination attractions that will serve as a connect with the destination. Analysis Of Destination Drivers Destination drivers are those attributes of the destination that can be associated with the destination and that correspond with the values and actual needs of prospective tourists and have the likelihood of evoking an image that will stimulate tourist‘s interest to visit such a destination. Responsible for developing a unique image of the destination. and motivations. 1995). Mercedes=prestige. 1991). Promotional activities must be consistent with the needs of the tourists and integrated with the other elements of the marketing mix. It fills the perceptual and informational gaps that exist between suppliers of tourism (industry) and the tourists (market). A need is a state of disequilibrium that requires satisfaction. Push factors are the socio-psychological needs that will encourage a person to travel. 1979.‖ The destination‘s significant associations are personified to give the destination‘s brand personality. or arouse by the destination. The attributes that show significant relationship with market segment are those ones that are conceptualise as destination drivers. In real life we are aware of such generally shared associations. Formulation of destination communication objectives iii. 2008. The promotional strategies will serve as connect between the customers and the experience they are seeking. The destination must possess attributes that matches the tourist‘s needs before the tourist would respond positively to the promotional strategy. Promotion involves the creation and dissimulation of information that the tourist need to take a purchase and consumption decision. market and sell destinations (Tunnard and Haines. while the pull factors is one in which the person is motivated. Strategy formulation iv. The destination attributes usually form a destination‘s attractiveness (Babu & George. This is necessary because the attributes must agree with the tourist‘s value. Volvo=safety. needs. Kenya=safari. Motivation is the drive to satisfy the identified need.0). Since tourists have expectations. Selection of promotional tools v. The push factors are logical and temporary antecedents to pull factors. i. . Providing information to visitors. to communicate need satisfying attributes of product to facilitate sales and thus contribute to long-run profit performance (Engel. Specifically. There is copious literature on place or destination promotion. January2010 principles is ‗promotion‘. Co-ordinating private and public tourist industry constituency. Czech tourism. These two currents form the theoretical underpinning of tourism product consumption. Tourist demand is influence by tourist needs and motivations. Information is used to position. This idea is supported by the following assumptions: ―perception is more important than reality‖ and ―that success is not in the product. Czechtourism (2004) suggest that a Destination Marketing Organisation should produce one strong association with which tourists can connect the destination. The method begins with the generation of destination attribute. iii. They are non-profit organizations aim at generating tourist visitations for a given destination at a given period. 1981). etc.P a g e |23 Vol. DMOs perform the following responsibilities: i. 10 Issue 1 (Ver 1. it has become necessary that these requirements form the bases of the promotional strategies of tourism destination. selection of significant attributes using two statistical techniques: importance-performance analysis matrix and discriminant analysis to test significant associations with market segments. iv. One of such early works was that of Pattison (1990). Promotional strategy is a controlled integrated programme of communication methods and materials designed to present an organization and its products to prospective customers. Dann. The model has four components. The peculiarities of emerging tourism destination make it imperative for a special model that will cater for these complexities. Evaluation of the effectiveness of destination promotion Global Journal of Management and Business Research A. The development of effective promotional strategies demands more than just being aware of the tools of promotion. Analysis of destination drivers ii. 2004). Porsche =wild driver. Warshaw and Kinnear. The concepts of push and pull factors are often used to explain the concept of need and motivation (Crompton.

newspaper. persuades. 2004). According to Middleton (1988). outdoor advertising. cinema advertising. educates.0). A quote by Steuart Britt in Esu (2003) buttresses the importance of advertising to a tourism business. service. The second is how the message will be said and the third how it be heard by the consumer (it involves media selection and buying of space). VICE (visitor. Formulation Objectives Of Destination Communication Before the strategy is formulated. product or service means nothing unless the benefit of such a service can be communicated clearly to the target market. . Environment (protect and enhance the locals).Global Journal of Management and Business Research Vol. trade magazine. involve and satisfy visitors). But nobody else does. and the destination. consumer magazine. The issues in advertising are the development message. or idea by an identified sponsor (Alexander. the destination promotion objectives should be established. C. Industry (achieve a profitable and prosperous industry). communities and environment) is an acronym for an international model that specifies the stakeholders‘ expectation in a tourist destination. The strategy spells out what to say about the destination in order to achieve the destination promotion objectives. in home magazines. 10 Issue 1 (Ver 1. The destination communication is usually aim at achieving the following stakeholders‘ objectives: Visitor (welcome.‖ Advertising informs. D. the destination managers could then formulate activities that will attract the identified customer segments. or methods used by marketing managers to convey the desired message to the market in order to achieve any desired promotion objectives. i. Advertising Is any paid form of non-personal communication about an organization. tourist board brochures and guides. product. a knowledge of the VICE Model is necessary (Tourism Recreation research and Education Centre. activities. industry.door distribution. The quote says: ―Doing business without advertising is like winking at a girl in the dark. Strategy formulation entails the design and development of unique destination‘s associations and brand personality that jointly give the destination an image. Strategy Formulation After determining the destination drivers and the formulation of the destination promotion objectives it seeks to achieve. motivation. The message to be communicated links the tourist needs. It is generally known in marketing that a successful. thereby achieving destination promotional objectives. direct mail. The first one is the creative strategy (it involves finding effective. Febuary 2010 P a g e | 24 Figure 2: Conceptual framework for promotional strategy of emerging tourism destination Analysis of destination drivers Formulation of destination communication objectives Destination promotion strategy formulation Selection of promotion tools Evaluation of the effectiveness of destination promotion B. This idea is in view of the fact that integrated marketing communication expert‘s belief that every contact a customer makes with the brand or organization is ―saying something‖. radio. 1965). Communities (engage and benefit host communities). design of the message and the choice of media. and door –to. You know what you are doing. and reminds prospective or actual tourists about attraction and destination. memorable ways to operate on consumer‘s minds). There are five traditional promotional tools. directive and yellow pages. In this vein it is conceptualise that there are specific activities that can arouse the interest of tourist to visit the destination. commercial consumer guides. These activities form the bases of the promotion strategies of the destination. For a comprehensive articulation of the destination promotion objectives. the following media types are available to the tourist destination manager: TV. exhibitions. Selection Of Promotion Tools Promotion tools are devices.

press launches. distributors. Interactive/Internet Marketing This promo tool is driven by the growth in information technology. Tourism: Assess the level of interest by prospective tourist in visiting a country or destination because of a draw of natural and fabricated tourist attractions. Publicity Publicity refers to nonpersonal communications regarding an organization. passport schemes. improve volume of sales through incentives. Example of PR techniques includes press release. Sales promotion techniques used by tourism marketing include: price cuts/sales offers. Interactive media enable buyers and sellers to interact (Crevens and Piercy. gift. Evaluation Of Effectiveness Of Strategy Promotional The evaluation of the effectiveness of a promotional strategy is in two parts. and people. reward regular customers. The second part is the effectiveness of the promotional mix. our focus is on the former. secure dealer support and recommendation. 2008). The effect of a destination promotion is expected to impact on two areas: (1) The effect on the perception of tourists at the generating areas and (2) the effect at the receiving areas {on the number of visitor arrivals (visitor). 2006). At the tourist generating area. 2001). investment and immigration. or the ultimate consumer and can stimulate short-term sales. PR is implemented from corporate. service or idea (Belch & Belch. coupons. Belch & Belch (2001:21) define sales promotion as ―those marketing activities that provide extra value or incentives to the sales force. The special techniques used for publicity include news release. extra product. identifies the policies and procedures of an individual or organization with the public interest. E. TV. Merchandising is the sum total of effort to move goods and services at the point of sale. Public Relations Public Relations (PR) also has communication function. receptions. and executes a programme of action to earn public understanding and acceptance (Moore and canfield.P a g e |25 Vol. etc. improve dealer awareness of products. and environmental sustainability (environment)}. iii. The first is the impact of the message content on the destination promotion objectives. personality appearances and staged events. Cravens and Piercy (2006) asserts that early in the process of developing the promotion strategy. A combination of tools will provide a trade-off thereby leading to increase effectiveness and impact on overall destination objectives. Export Assess the public‘s image of products from each country and the extent to which consumers proactively seek or avoid products from the destination. and videotapes. community benefit (community). service. tourist receipts (industry).0). Advertising and PR take place away from the point of sales. (b) internal. It is in the form of a news story. Each promotional tool has its strengths and weaknesses.‖ The part of sales promotion that takes place at point of sales is called merchandising. export. Personal Selling Personal selling refers to person-to-person communication in which a seller attempts to assist and/or persuade prospective buyers to purchase the company‘s product. which evaluates public attitudes. and improve display in distribution outlets. The task at this stage is the selection of an optimal mix of tools that will carry the message about the destination. . achieve brochure display. The British Institute of Public Relations defines Public Relations as ―the deliberate planned and sustained effort to establish and maintain mutual understanding between an organization and the public‖. prize draws. product. Included in this group are the internet. Selling of tourism products and services falls into three types: (a) external point of sales (retail travel agency. Middleton (1988: 165) defines point of sale ―as any location at which a purchase transaction takes place‖. At the tactical level. Increase market share. additional services. and interactive televisions. ANBI is an analytical framework of brand index which is based on six destination attributes: tourism. radio and telephone calls). F. 2001). The marketing objectives attainable by sales promotion are: leveling of demand. feature articles. PR may be used to create and exploit opportunities to communicate selected messages to the general public or target groups. facility tour and participation in community activities. CDROM. rather than from marketing funds. v. A mix of tools is prescribe because of the synergy derive from the combination. January2010 Global Journal of Management and Business Research ii. Sales Promotion Another promotional technique is sales promotion. vi. photographs. iv. films. ticket/booking desks). parties/reception. or idea not directly paid for or run under identified sponsorship for making a sales (Belch & Belch. it is useful to set guidelines as to the expected contribution for each. editorial.in –house point of sales (reception desk in the hotel and attraction sites) and (c) Reservation system via customer‘s home (booking and responding via direct mail. culture and heritage. announcement about the organization and/or its product and services. while sales promotion takes place at the point of sales. In this paper. It is a management function. governance. extra commission. 1977). and business and travel incentives. the Anholt Nation Brands Index (ANBI) model could be used to assess the effect of the destination promotion campaign on the perception of prospective tourist (Mari. 10 Issue 1 (Ver 1.

The various options according to Tunnard and Haines ( 1995) are: (1) a handover to private sector after the information stage. A. promote destination through small businesses promote destination through ensuring a positive community attitude promote destination through events /festivals promote destination through destination marketing system Collective and collaborative destination marketing Promoting destination through film production Vol. . etc. Promote Destination Marketing System Through Destination Information is used to position markets and sell destinations. competence. Promote destination through governance According to ANHOLT Nation Brand Index. and video clips. music. that is amenable to text. art. Investment and Immigration: It measures the destination‘s power to attract people to live. such as democracy. work or study in it (perception of the economic and social situation). small businesses. E. The government should enshrine good and democratic principles in governance. The following strategies are commonly used by successful emerging tourism destinations.). People: Determines the perception tourist hold about a destination‘s population. friendliness. (1) tourist enterprises will operate profitably in the destination. ii. This is because overall experience is composed of numerous small encounters with a variety of tourism service providers. and (3) small businesses operating profitably will breed new services and broaden target market. poverty. C. 1997). Promote Destination Through Events /Festivals The role of small business in destination image is supported by Moutinho (1990). and human rights violation are some of the factors that can damage the image of a country and destination. justice. The promotion of quality and international best practices in service delivery in an emerging tourism destination has the potential of enhancing the destination‘s image and increase tourists traffic to the destination. iii. Promote Through Small Businesses D. According to him. Governance The public opinion regarding the level of national government competency and fairness. It is difficult to garner the unlimited goodwill of the local communities in The major role of staging event and festivals in a destination is to act as catalysts for attracting visitors. which can be leveraged for destination positioning. sport. 10 Issue 1 (Ver 1. which helps in target marketing and positioning (Getz. Promote Destination Through Ensuring A Positive Community Attitude Destination managers should ensure that the locals are positively committed to tourism development (Inbakaran and Jackson (2005). All these give the destination a competitive edge. DMS has made it unnecessary for tourist boards to be positioned in the main street of the capital city in order to secure visibility or need to be in the originating market place (Bennett. and private sector players. The destination managers should launch a campaign that will rebrand the country or destination to give it a positive image in the international community. thereby increasing the tourist spending and length of stay in the destination. etc. 2008). 1999). (2) tourists visiting the area will receive higher quality service. war. The trend in the organization and operation of DMS is the involvement of the private sector in the management. It creates a profile for the destination. iv. if there is an existing information call centre and wishes to continue operating it. Events and festival also acts as image-makers for the destination. These factors are regarded as brand ‗erodes‘. This in essence means getting destination marketing out of the government ministries and putting the responsibility into the hands of autonomous and independent tourist boards. DMS is a destination database (Tunnard and Haines (1995). The challenge confronting DMS is to ensure that they have a product database that is capable of strong multi-media data. education. The implication is that. According to Bennett (1999:53) ―any tourist destination which is not working on some form of DMS is losing the plot‖.0). Febuary 2010 P a g e | 26 promoting the destination without a cooperative marketing approach. like the large ones are part of the product offered by destinations. (2) a joint venture operation with the private sector and (3) a cooperative venture owned by partners such as associations. This is a common feature in most of the Less Developed Countries (LDC). vi. Corruption. conflict.Global Journal of Management and Business Research G. openness. and environment. sound. Culture and heritage: Measures the perception of the destination‘s heritage and tourists‘ appreciation of her cultural (including film. Damage to a country‘s image shows that its citizens do not have realistic view of their own country and cannot get together to do something positive. governance is one critical area of a destination‘s attractiveness (Mari. v. V SPECIFIC PROMOTIONAL STRATEGIES FOR EMERGING TOURIST DESTINATION i. One of such ways of creating and making information available to target markets is with destination marketing system (DMS). literature. B. vii. It includes individuals‘ beliefs about the destination as well as perceives commitment to global issues. This is in terms of reputation. This should be done through an inclusive approach that respects and involves the locals in all tourism promotional endeavors. photographical.

(2009). Destination Marketing for Convention and Visitor Bureaus.com/dest inationlifecycle. Motivation for pleasure vacation. ―Destination Networking: Coopettion in Peripheral Surroundings‖. It is based on a truth that the authors argued for seamless means of communicating an emerging destination to the generating areas. 4) Butler. 38(10) :911-936.2 (3): 182-192. VI CONCLUSION Emerging destinations have unique characteristics.com/2001/place marketing promoting-nation. 8) Dann. cultural. V. 1985. 2) Belch. (1994). Public relation: Principles. . (1980). Journal of Vacation Marketing. 13) Esu. 3) Bennett.com Global Journal of Management and Business Research 6) Cravens.P a g e |27 Vol. B.( 2001). 2008. [Online]. G.[Online]. (2006). 17) Gray. (1976). These strategies would create niche markets for the destinations. When Enough‘s Enough: The Natives are Restless in Old Niagara.S. R.destinationrecovery. 14) Gartrell. 22) Mari. V. W. Collaboration. E. VII REFERENCES 1) Alexander. Introduction to Marketing. 8:187219. 2nd edition. J. & Ritchie. B. Promoting destination through film production Emerging destinations could enjoy competitive advantage with film tourism. Journal of Vacation Marketing. Available at http:/alexmari. (2007). challenges ahead held at IIMK on 15th 17th. Place branding: Promoting a nation teaching marketing. & Jackson. F. H. Destination managers and marketers require this understanding in the marketing and promotion of such destinations. B. B.( 2003). D. Heritage Canada. B. J. Iowa: Kendell/Hunt Publishing Company. Tourist Motivation: An Appraisal‖. Condition facilitating interorganisational relations. Boston: McGraw-Hill. By this. A. 387396. 20) Henderson.A. 7thedition. B. Human Relations. S. 6 (l): 45-54. Burr-ridge: Irwin. 10) Edward. & Belch. &Kinnear. (1979). 2008. Since emerging destinations are theoretically in the first and second stages of the Butler‘s destination cycle model. R.7th edition. 1989. Hudson and Ritchie (2006) suggest that DMOs would be more successful if they were first proactive in promoting the film in their locations and then proactive in promoting the film location after release of the film in generating areas.& Piercy.czechtourism.0). D. 9) Doxey. Collaborative process refers to a process of shared decision making among all key stakeholders of a destination (Gray. Environment and Tourism . January2010 F. A paper presented in India at a conference.G. we mean that the physical. The set of promotional strategies suggested in this paper are derived from extensive review of literature about successful tourism destinations. (2005). (2005). (1997). It will also differentiate the emerging destinations distinctively from the mature destinations. & Canfield. 1989). Destination attractiveness of Kerala as an international tourist destination: Importance – performance analysis. 21) Hudson.( 2008). 10 Issue 1 (Ver 1. R. 18) Grangsjo. cases and problems. G. (1977). Warshaw. which differentiate them from destinations in the maturity stage. 1991. 33(5): 427-448. Advertising and Promotion: An Integrated Marketing Approach . Annals of Tourism Research. M. (1981). Marketing strategy (8th edition). R. 15) Getz. N. 16) Gray. and psychological components of the destination should form the bases of destination strategy formulation. Marketing definitions. L. G. M. J. Annals of Tourism Research. 11: 323-339. html 23) Moore. M. Available at http://www.html. O.T. Boston: Irwin 12) Esu. B. 44. (1999). W. The scientific community holds the concept of cause –effect relationship as sacrosanct.. R. L. New York: Cognizant Communication Corp. San Francisco: Josey Bass. 7) Crompton. (2006). Promotional strategy: Managing the marketing communication process .R. (1965). Y. F. & Mbaze-Arrey. P. Journal of Tourism and Travel Research. 2 (92: 26-27. 11) Engel. 19) Inbakaran. social. Tourism in India. ―Branding of Cultural Festival as Destination Attraction: A Case Study of Calabar Carnival‖ International Journal of Business Research. Promoting destination via film tourism: An empirical identification of supporting marketing initiative. 5) Czech Tourism. DMOs should adopt promotional strategies that are product-oriented.5th edition. Collective and collaborative destination marketing Promoting a destination requires a collective and collaborative effort of all stakeholders in the destination. B. International Journal of Physical Distribution and Logistics Management. Event Management and Event Tourism. ―Destination Marketing into the Next Century‖. May. S. & Babu. Promotional strategy of the Czech Republic in 2004 -2010. Blogspot. ―Marketing Regional Tourism : How Better to Target and Address Community Attitudes to Tourism‖. G. Avaialble:http://www.M. 16: 408424. London: Routlege. (1985). F. Chicago: American Marketing Association. A. Calabar: Jochrisam. (2001). Boston: McGraw-Hill/Irwin. M.

Destination Marketing System: a New role for Tourist Bboard marketing in the information age. (1995).pdf.state. & Haines.[Online ]. Progress and Priorities 2004/05.0). Place promotion by tourist bo/documentstore/d ard: The example of beautiful Berkshire. 1(4): 393-399 27) WTO. (2000). London: Routledge.tx. Available: http://www. Marketing Tourism. P. Year Book of Tourism Statistics. C. Febuary 2010 P a g e | 28 . G. In G. Goodall (eds). Journal of Recreation Marketing. Ashworth and B. (1990). 28) WTTC. Madrid: World Tourism Organization. 10 Issue 1 (Ver 1.us eveloping%20tourism%20 our%20community.travel.Global Journal of Management and Business Research 24) Moutinho. 26) Tunnard. In Tourism Recreation Research and education centre (2004). The World Travel and Council. Vol. Strategies for tourism destination developemt: An investigation of the role of small business. R. Annual Report. L.( 1990). Tourism planning toolkit for local Government. 25) Pattinson. (2005).

During the last 20 years. homes bias (Stulz. We find that not many studies have concentrated on the interaction of Indian markets with the foreign markets.) Professor. the financial world is reshaping itself. the technological improvements and the development of investment institutions. the technological innovations in communications. the price of risk tends to be different internationally. This makes people look for some highly rewarding investment avenues. and capital. January2010 Global Journal of Management and Business Research Are the Global Stock Markets Inter-linked? Evidence from the Literature Gagan Deep Sharma Senior Lecturer and Coordinator Department of Management Studies. Bodla (Dr. a number of new and old investment avenues are getting popular in recent times. financial integration would benefit the region through more efficient allocation of capital. masses are moving up the value chain. 1981. On the one hand. Saleem and Abdullah. These effects would help improve the capacity of the economies to absorb shocks and foster development. Among these factors are exchange rate risks. New market structures and practices are need of time due to financial liberalization and elimination of traditional regulatory barriers and advancement of technology. If there exists any capital controls or other barriers impede the movement of capital. Fatehgarh Sahib B. and the introduction of innovative financial products. pension funds and so on. We are marching towards a globally integrated financial world. scientific trading. Barriers to investment are essential factors that can prevent markets to integrate. Errunza and Losq. Moreover. Emerging equity markets are attracting the attention of global fund managers because these offer opportunity for . Companies. University School of Management. This paper reviews and summarizes the research on the subject of integration and dynamic linkages between stock markets in different parts of the world. Capital seekers around the world are looking beyond their home country's borders for financial resources.S. such as insurance companies.Financial integration. a higher degree of risk diversification. Equity markets are one of the most rapidly developing investment avenues. consumers and the investors.P a g e |29 Vol. legal and tax differences. The issue of financial integration has strong implications on financial stability. In this way. Interaction of financial markets is one of the most extensively discussed topics of financial literature. foreign ownership restrictions. Across the globe. Levine and Zervos (1996) pointed out that the perfect capital market integration needs the free flow of capital across international borders to equate the price of risk. On the other hand. This results in increased integration between the Stock markets throughout the world. ―cross‖ countries‘ borders in order to take advantage of arbitrage opportunities and to cover regional market imperfections (Grubel 1968). Majority of the studies suggested that market integration has increased significantly over the years. a lower probability of asymmetric shocks. dynamic linkages. and settlement systems. within an international context. Kurukshetra University. and most of the studies concerning Indian have concentrated at the inter-relationship of Indian stock market with those of the Developed nations. financial integration may also promote financial development and hence enhance economic growth. The suppliers of capital – institutional investors and/or individual savers – receive better returns on their investments. intensified financial linkages in a world of high capital mobility may also lead to the financial instability in one country being transmitted to neighbouring countries more rapidly. and a more robust market framework (Pauer (2005). 1985). These include cross border movement of funds. 10 Issue 1 (Ver 1. a broad movement towards an equity culture has taken root as traditional bank financing takes a back seat to the emergence of globally interconnected capital markets.Opening-up of the financial markets of the world for foreign capital has led to the increased financial integration among different countries. the world is living in a new era of globalized economies and capital markets. SAARC Nations I T INTRODUCTION he present global business environment is presenting unique set of opportunities and challenges to the business organizations. Globalizations also played a pivotal role in increasing theinterest in the study of dynamic inter-linkages among financial markets (Hasan. there is a scope to study the inter-linkages between Indian stock markets and those of the other SAARC nations. Various factors contributed in this dimension. As the fruits of economic integration of the world spread across the globe. As a result. Integration is generally opposed to segmentation depending on whether or not barriers to investment exist between countries.0). The main drivers of these stock market interdependencies are the progressive deregulation of financial markets. 2008). information availability. Kurukshetra Abstract. of late. Keywords. Therefore. BBSBE College.

Kaligosfiris. Hence. The study on hand. and iii. investors face different expected returns for the same asset (Adjouté. The results show a trend towards higher segmentation between the various stock exchanges. The interdependency between financial markets has been at the focus of interest since then. in contrast with the isolated markets that do not show any interdependence with the other countries (Glezakos. His study was based on empirical data sketching ex post rates of returns from investment in 11 major stock markets. IV LITERATURE ON INTEGRATION OF GLOBAL FINANCIAL MARKETS The relationships between international stock markets have become increasingly important since Grubel (1968) analyzes the benefits of international diversification. ii. Saleem. a high degree of integration between national markets minimizes the potential benefit from international diversification (Bessler and Yang. These include Agmon (1972) who establishes some degree of interdependency between the markets of the US. which means larger opportunities for international diversification. II OBJECTIVES OF THE STUDY The study aims at the following objectives – i. some studies point otherwise. UK. (Stulz.A. information availability. If financial markets are not integrated. 2004).. Belgium. Moreover. Errunza and Losq. Merika. the cost of capital decreases because the removal of investment barriers allows for risk sharing between domestic and foreign agents. France. Germany. there is a large body of financial literature which studies the existence of inter-linkages among international capital markets since such linkages have serious implications for Vol. 2003). With financial integration. to find out the areas of future research in the field of global financial market integration. 2003). The interrelationships between seven stock markets. On the same lines. Peiro et al. Italy. While some studies suggest that there exist the linkages between stock markets across the globe. (Baele et al. 1992). vis-àvis. legal and tax differences. part 2 outlines the objectives of the paper.S. over the period 1969–1976 has been investigated by Bertoneche (1979). all assets with identical risk exposure also command identical expected returns (Campbell and Hamao. III STOCK MARKET LINKAGES There is no precise definition of capital market integration in the current literature (Adler and Dumas. (1998) and Aggarwal and Park (1994) give significant conclusions with regard to the impact of US‘ markets over the other ones. and a reallocation of funds to the most productive investment opportunities takes place. part 5 covers the studies on Asian stock markets. In perfectly integrated markets. tries to reach a conclusion regarding the stock markets of which parts of the globe need to be studied for interlinkages. The paper is structured in five parts. Barriers to investment like exchange rate risk. foreign ownership restrictions. Danthine. (Bekaert.S. (2002) argue ―financial markets are integrated when the law of one price holds. market brings . 2007). they documented that news originating in the U. The literature used for the purpose of the study has been chosen based on frequency of being quoted. 2005). Eun and Shim (1989) find a substantial multi-lateral interaction among the nine largest stock markets in the world. since the prime factors in the development of financial markets are of domestic nature. Febuary 2010 P a g e | 30 portfolio diversification as well as macroeconomic policies of the countries concerned (Bose. part 6 presents the historical work done on the subject in the form of a comprehensive table. to understand the concept of stock market linkages. The benefits and costs of international portfolio diversification need to be considered by anyone holding a financial Portfolio (Hasan. part 3 brings forth the concept of stock market linkages. There is a fair need to review the literature available on the topic since conflicting signals emerge from the literature about the existence of linkages. Even in those years some studies were published that supported the existence of limited interdependency between markets.0). Stulz (1999) argues that as markets become more integrated. All assets with identical risk exposure also command identical expected returns in perfectly integrated markets (Campbell and Hamao. we use the frequently quoted studies as the inputs for our study. can prevent markets from integrating. Hassan and Naka (1996). Since then many researchers have studied these relationships within an international context. Part 1 gives the Introduction to the study. 10 Issue 1 (Ver 1. and Ripley (1973) who finds that there is interdependency but only between those countries that are open to foreign capital investments. the law of one price to financial assets with the same risk is being tested. This paper reviews and summarizes the research on the subject of integration and linkages between stock markets in different parts of the world. the United Kingdom and U. and part 7 concludes the paper. The majority of studies in that early period reach the conclusion that the degree of interdependency between markets is quite low.Global Journal of Management and Business Research portfolio diversification. Harvey. Adam et al. The complete elimination of barriers to financial integration allows firms to choose the most efficient sources and greater financial integration allows a better allocation of capital leading to the most productive investment opportunities to become available to investors. The studies conducted by Eun and Shim (1989). 1985). a number of studies have focused on the developed nations and the emerging economies. This is because of the fact that source of risk and their price may differ across markets (Kucukcolak. 2008). In particular. the Netherlands. Germany and Japan during 1961 until 1966. part 4 deals with the literature available on Global financial markets. 1992). 1981. to review the literature available on the subject of stock market linkages in order to judge the level of integration of global financial markets. 1997). 2008). and Abdullah. However. In addition. have not received similar amount of attention. 1983).

because the US-Japan-Germany stock market indices. equity prices do not lead Japanese equity prices as both U. The study observes that the international covariance and correlation matrices are unstable over time. Global Journal of Management and Business Research Kasa (1992) examines the common stochastic trends in the equity markets of the U. Malaysia. and 1987. Germany. The study observes that U. The relationship between equity markets in the United States. However.K. The work finds that U..S. 1980. As such. Canada. Japan. the study could not arrive on any conclusive evidence on international stock market efficiency. The study also finds that the correlation rises in periods of high volatility. The results of the study indicated that the six stock markets are highly integrated through the second moments of stock returns but not the first moments. Using daily return. Results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established OECD and the Asian markets. and Mexico has been studied by Atteberry and Swanson (1997). and five Asian-Pacific stock markets (Australia.0). examine the daily and overnight transmission of equity prices between the U. Results from the cointegration tests indicate the presence of a long-run relationship between the six Latin American indices (with and without the United States index). His study points towards a single common trend. The study identifies more causal relationships during periods of economic uncertainty than during periods of relative calm. on the other hand. Kwan. by applying the unit root tests. and Canada. France. and the leadership of the US and UK markets over the short and long run. The study concludes that there was a high degree of international market efficiency in the given period. One long-run cointegrating equilibrium relationship has been found among the four stock market indices. and Singapore) during the period from 1988 to 1994.S. Koch and Koch (1991) study the evolving of dynamic linkages among the daily rates of return of eight national stock indexes since 1972. 10 Issue 1 (Ver 1. The studies of Koch and Koch (1991).S. UK. Japan. these indices may yield international portfolio diversification in the long-run. The empirical results indicate that there is adequate evidence to refute the notion of informationally efficient stock markets.S. stock market led other stock markets in short-run in the pre and post October 1987 crash. Results from the unit root tests provide evidence of a stochastic trend in all indices. This implies a limited role of international diversification for investors with long holding periods. and German stock market indices using daily data for the 1984 to 1991 period. Japan. Liu and Roth (1999) examine linkages between the U. Choudhry (1997) investigates the empirical investigation of the long-run relationship between stock indices from six Latin American markets and the United States using weekly data from January 1989 to December 1993. January2010 the most influential responses from other national markets. . England.S. they found that New York is the most influential stock market and Tokyo is the most sensitive to international innovations. Pan. Germany. Hong Kong. He uses Monthly and quarterly data from January 1974 through August 1990 and applies Johansen (1988.S. Error-correction results indicate significant causality among the stated indices. Growing market interdependence was revealed within the same geographical region over time. However. Longin. although the stochastic properties and relative importance of this trend differs somewhat from the trend in stock prices.P a g e |31 Vol. and Solnik (1995). This implies that the potential benefits associated with diversification across equity markets within the North American system appear to be diminished during periods of economic uncertainty. (1998) examine the stock markets of New York. 1991) tests for common trends. cointegration tests. one permanent and one transitory.S. Frankfurt stands in the middle. and Japanese opening equity prices reflect overnight price changes in the other market. An explicit modelling of the conditional correlation indicates an increase of the international correlation between markets over the period under study. and Japan. Switzerland. and Frankfurt for the years 1990-1993. Richards (1995) finds evidence for the predictability of relative returns and the existence of a ‗winner-loser‘ effect across 16 national equity markets and concluded that national stock market indices include a common world component and two country-specific components. and the Netherlands. The study uses a dynamic simultaneous equations model to describe the contemporaneous and lead/lag relationships across national equity markets over three different years: 1972. but led all other markets in the long-run in all periods examined.. Tokyo. and error-correction models. It was found that these three markets (US. Longin and Solnik (1995) study the correlation of monthly excess returns for seven major countries over the period 1960-90. Similar study has been undertaken by Hassan and Naka (1996) who investigate the dynamic linkages among the U. Masih and Masih (2001) investigate the dynamic causal linkages amongst nine major international stock price indexes. UK and Japan) have consistently contributed over 75% of global stock market capitalization over the major part of the sample under consideration. By applying non-linear least squares. Peiro et al. point towards increase in the degree of international stock market correlation over a period. Richards (1995) points out that a major reason for the findings in Kasa (1992) is an inappropriately long lag length used in the estimation process. Kanas (1998) analyzes potential linkages between US stock markets and stock markets in UK. The research finds significant evidence in support of both short-run and longrun relationships among these four stock market indices. contrasting results can be found in Gerrits and Yuce (1999) which finds evidence that the US stock market is cointegrated with Germany. and Japan-UK-Germany indices are not cointegrated with each other. U. Sim and Cotsomitis (1995) studies the monthly time series of nine major stock market indices over the period January 1982 to February 1991 to examine for causal linkages. Aggarwal and Park (1994). Italy and the Netherlands and found that the US does not share long-run relationships with any of these countries.

but it was also influenced by market innovations from the UK. The study concludes that in the long run. the Turkish stock market is not co-integrated with its mature counterparts in the EU. An analysis excluding the US market revealed persistent linkages between these markets that can be traced to the indirect influences of the US market. . The results are robust to sensitivity tests based on translating indexes to US dollars (i. The US market was found to be highly influenced by its own historical innovations. The study uses daily data for the period of 2001-2005. The study indicates that the markets that are geographically and economically close and/or with large numbers of crossborder listings exert significant influence over each other. 1990) procedure and Granger-causality tests based on error-correction models and standard vector autoregression models. Baele and Vennet (2001). Baele and Vennet (2001) investigate the existence of market integration in Europe for the period 1990-2000. Yonghyup (2003) examines the recent trend of sector-level returns for four European countries. Extracting weekly stock returns from the markets of ten European countries and applying a GARCH process. Taiwan. Hong Kong. The study conducted Cointegration test using the Johansen (Journal of Economic Dynamics and Control.. Italy. Yonghyup (2003). this summary is mostly focused on the Developed world. Colombia. Germany. a common currency for all the markets) and to partitioning the sample into periods before and after the Asian and Russian financial crises of 1997 and 1998. The study finds that during 1988–96 the US market influences all other Australasian markets. However. The study pointed out that the US market is the only market that had a consistently strong impact on price movements in other major stock Vol. which appears to explain the dependencies in prices. Aggarwal. Furthermore.Global Journal of Management and Business Research Janakiramanan and Lamba (1998) examine the linkages between the stock markets in the Pacific-Basin region during 1988–96 using a vector autoregression model. using "return on assets" of a panel of listed firms of these countries for the period 1988–95. our findings suggest that the Athens stock market is strongly affected by the US and the German markets but the influence as the estimation of the impulse response function suggested is completed within a day. except Indonesia. and Korea using weekly MSCI stock market data covering the period 1974-1995. Japan. These papers are ranging from the year 1989 to 2001. The study covers the period of 2000-2006 using monthly data.e. as many as 18 deal with the Developed world. Results of the study suggest that the potential for diversifying risk by investing in different Latin American markets is limited. The crisis originated with the US when within a duration of five trading days in October 1987. with markets closing earlier in the day exerting greater influence over markets closing later in the day. The study finds that there is one cointegrating vector. Germany. This paper also presents a summary of research done on Stock market integration across the globe. The impulse response analyses further show that Australia responds to shocks from the US and the UK immediately during the first week and this response is completed with a period of four weeks. Lucey and Muckley (2003). Firth and Rui (2002) using data from 1995 to 2000. and Venezuela) has been studied by Chen. and Aggarwal. However. Switzerland. in contrast to the Greek market. their results suggested that the main driver of European market integration is the reduction of currency volatility within European countries. He found no correlation between Australia and the other markets. 1988) and Johansen and Juselius (Oxford Bulletin of Economics and Statistics. It also responds significantly to primarily domestic shocks. and the UK.0). and none of these markets exert a significant influence on the US market. The study finds out that the US global influence is noticeable on all major world financial markets. Hong Kong. respectively. V LITERATURE ON ASIAN MARKETS The stock market crash of 1987 holds special relevance in the study of integration of Asian stock markets with those of the Developed world. which is co-integrated. The evidence presented in this study also indicated that Frankfurt is the dominant market for equities in Europe. France and Greece. However. Brazil. the Grangercausality and forecast variance decomposition analyses reveal that Australia is significantly linked with the US and the UK. when integration is tested within a capitalasset pricing model framework. Mexico. and Germany. Initial findings suggested that sector returns have converged across countries over time. They supplement this technique by two other dynamic techniques that also measure the extent of time-varying integration from complementary perspectives. Febuary 2010 P a g e | 32 markets in the longer-run. The three methods agree that there has been an increased degree of integration among European equity markets especially during the 1997-98 periods. the country effect remains strong. The dynamic interdependence of the major stock markets in Latin America (Argentina. 12. Chile. Merika and Kaligosfiris (2007) examine the short and long run relationships between major world financial markets with particular attention to the Greek stock exchange. France. Glezakos. Lucey and Muckley (2003) examine the integration of European equity markets over the 19852002 period using a relatively new cointegrating technique that assesses how the level of integration in equity price levels changes over time. These include Bessler and Yang (2003). UK. 10 Issue 1 (Ver 1. Singapore. but is far from complete. Roca (1999) investigates the price linkages between the equity market of Australia and that of the US. 52. Bessler and Yang (2003) study the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs (DAG). A number of studies have investigated the stock market linkages in Europe. France. The results did show that the Japanese market was among the most highly exogenous and the Canadian and French markets among the least exogenous in the nine markets under study. Out of the 22 papers quoted in the summary. Kucukcolak (2008) measures the integration level of the Turkish equity market with the EU market indices of UK. The overall result support the view that European capital market integration is under way.

whether daily. at least partly. Singapore. The influence of the U. The crisis. Malaysia. Singapore. Japan. Doukas. The reason is that the stock markets studied were only recently sufficiently liberalized to permit some form of integration to emerge. The study concludes that financial integration is accompanied by economic integration.P a g e |33 Vol.0). This movement was triggered by high trade deficits and proposed takeovers related legislation. The most significant linkage and relationship were found during the crisis period. The evidence suggests that the ―cointegrating structure‖ that ties these stock markets together has substantially increased since October 1987. 10 Issue 1 (Ver 1. Results mostly indicated larger US influence in all periods but some evidence of increasing Japanese influence was also shown. where as for monthly returns. and Thailand for the period of July 1998 to December 2002. Singapore Hong Kong.S. Yoon and Viney (2001) examine dynamic interdependence. and the remaining countries are dominated by neither during the time period investigated. Phylaktis and Ravazzolo (2002). The study finds that reciprocal volatility transmission existed between Hong Kong and Korea. Click and Plummer (2003). Korea. Japan. Also. These results are to some extent similar to those produced by Sharma and Wongbangpo (2002). Bailey and Stulz (1990) investigate the US. Japan and the South China Growth Triangle (SCGT) region. which explains. the Philippines. It is worth mentioning here that the stock markets of most of the Nations had peaked up between April and September 1987. the high degree of financial integration. Bailey and Stulz (1990). only correlations between the US & Hong Kong. some are dominated by Japan. Taiwan and Thailand market indices from January 1977 to December 1985 using simple correlation analysis to detect interrelations among the markets. The results also indicate that the Asian equity markets are less integrated with Japan's equity market than they are with the U. Choudhry and Lin (2004). The results suggest that the level of integration has increased in the post-liberalization period in Singapore and Taiwan. Similar results have been shown in the study of Phylaktis and Ravazzolo (2002). Hong Kong. The results suggest that economic integration provides a channel for financial integration. and the Asian stock market movements during the post-October 1987 period. market. The research concludes that the markets under study are cointegrated whether analyzed using daily and Global Journal of Management and Business Research weekly data. Malaysia. weekly or monthly. using daily and weekly data. The study of 1992-1997 finds that there exists no cointegration among these markets except for that between Shanghai and Shenzhen. who examine monthly data from January 1986 to December 1996 for the stock markets of Indonesia. and Thailand. Singapore. which is not shared by the Philippine stock market. Taiwan and Thailand. after originating from the US spread to all major developed markets except Japan. VAR techniques were used for analyzing the data. Further tests were conducted to check the change in the influence of the Japanese and the US stock markets in the Far East Region before. Saidi and Johnson (1999) examined the debacle of the Asian-Pacific stock markets by utilizing the theory of cointegration to investigate which developing markets are moved by the markets of Japan and the United States. The study concluded that the degree of correlation between US and Asian equity returns depended upon the period specification. January2010 the prices on New York Stock Exchange fell by one-third. Philippines. The study showed that significant long-run relationship(s) and linkage exist between the Far East markets before. the study observes that Hong Kong played a significant role in volatility . Phylaktis (1999) follows the same methodology as has been mentioned earlier (in this paper) with reference to Masih and Masih (2001) and investigated stock market integration in the Pacific Basin countries after the deregulation of their domestic capital markets. not only was the 1987 stock market crash significant. The study observes that a single common stochastic trend among Asian and North American markets is a recent phenomenon. correlations between all Asian markets were significant with the exception of the Philippines and Thailand. Similarly. Choudhry and Lin (2004) investigate the change(s) in the long-run relationship(s) between the stock prices of eight Far East countries around the Asian financial crisis of 1997– 98. This observation is driven from the researchers conducted by Ghosh. and Thailand. Moreover. but the 1991 Gulf War also signalled a turning point in the degree of stock market integration among the countries studied. Sharma and Wongbangpo (2002) find a long-run cointegrating relationship among the stock markets of Indonesia. the Philippines. Kim. Malaysia. during and after the crisis. Korea. Ghosh. who examine real and financial links simultaneously at the regional and global level for a group of Pacific-Basin countries by analyzing the covariance of excess returns on national stock markets over the period 1980–1998. The stock returns of the US and Hong Kong markets are found to be contemporaneous. The empirical evidence suggested that some countries are dominated by the US. Huang. and unidirectional volatility transmission from Korea to Thailand. Malaysia. Sharma and Wongbangpo (2002). This conclusion is supported by the finding that with daily returns. Singapore. Siklos and Ng (2001) examine a number of common stochastic trends among stock prices in the US. and Japan & Taiwan were significant. Yang and Hu (2000) explore the causality and cointegration relationships among the stock markets of the United States. Click and Plummer (2003) examine the stock market integration of Indonesia. and Lang (1995) supports this argument. and after the crisis. They investigate the presence of a common stochastic trend between the U. Saidi and Johnson (1999). and market integration across selected stock markets during the Asian financial crisis periods 1997 and 1998.S. Also the Japanese market seems to be the most influencing during the period under investigation and the Japanese and US interest rates appear to drive the rates in the other countries. The study of Arshanapalli.S. stock market innovations was also found to be greater during the post-October period. He uses monthly data in all the cases except one wherein quarterly data was used. volatility transmission. No clear signals seem to emerge from the literature on integration of Asian Stock markets. during. In.

Taiwan. Lamba (2005). . His findings show that Indian stock markets are influenced by developed equity market of US. Table 1 about here VII CONCLUSION In conclusion. Malaysia and Thailand. as well as other Asian markets.0). within an international context. The study conducted by Leong and Felmingham (2003) analyzes the interdependence of five East Asian stock price indices – Singapore Strait Times (SST). Narayan. Singapore. (2006) are very relevant in the context of linkages among Asian stock markets. Nath and Verma (2003) study the interdependence of India. Johansen and Juselius multivariate Cointegration analysis. the Indian market is also seen to belong to the group of Asian markets cointegrated within themselves and with the US market. UK and Japan while Pakistani and Sri Lankan equity markets were relatively independent from the influence of equity markets of developed markets. Moreover. the study found Karachi stock exchange to be integrated with France and Japan. Febuary 2010 P a g e | 34 November 2002. Lamba (2005) studied the long-term relationships among South Asian equity markets and the developed equity markets for the period 1997-2003.Global Journal of Management and Business Research transmission to the other Asian markets. VAR model confirms that shocks or impacts of innovations to a market are very short-lived (often as little as 2days). His research pointed out that the three South Asian equity markets are becoming more integrated with each other but at a relatively slow pace. stock prices in Sri Lanka to India and from stock prices in Pakistan to Sri Lanka. we can mention that the majority of the studies suggested that market integration has increased significantly over the years. the Indian stock market did not function in relative isolation from the rest of Asia and the US as stock returns in India were highly correlated with returns in major Asian markets and was led by returns in the US. They further find that the increase is due to the integration with the global market rather than regional counterparts. Germany. Taiwan and Singapore by employing bivariate and multivariate cointegration analysis for the period of January 1994 to Vol. As per the study. Saleem and Abdullah (2008) investigated the longterm relationship between Karachi stock exchange and equity markets of developed world for the period 2000 to 2006 by using multivariate Cointegration analysis. The study found that post-Asian crisis and up to mid2004. The study further observed that Taiwan is very independent from other markets. reflecting its small size and modest market capitalization. the Philippines. The studies of Leong and Felmingham (2003) and Jeon et al. Hasan. The studies with the Indian perspective have not been conducted in big numbers. The degree of integration found between the Indian and other markets in the Asian region is. Italy and Australia. However. Bodla and Turan (2006) have been cited quite often and are worth the mention here. Kawai (2005) concludes that the rise in Asian newly industrialized economies‘ investment contributes to the integration of the East Asian economies through FDI and FDI-driven trade. However pair wise Cointegration analysis shows that Karachi stock market is not cointegrated with equity market of US. however. Despite existing restrictions on capital flows. this study found a substantial increase in the degree of interdependence after the 1997 crisis. Indonesia. VI COMPREHENSIVE SUMMARY OF THE LITERATURE AVAILABLE We cover the comprehensive summary of the literature available worldwide on the subject of integration among financial markets. and Japan). Bose (2005) investigated the interlinkages between the Indian stock market and the stock markets in Asia and the US. The study observed that in the long run. Korea. not of a very high order. UK. The data also indicates market integration in that each market reacted to both local news and news originating in the other markets. Canada. Bose (2005). Smyth and Nandha (2004) examined the dynamic linkages between the stock markets of Bangladesh. In addition. India and Sri Lanka Granger-cause stock prices in Pakistan. However. The results obtained in this study also suggested that capital controls might have an impact on the interrelationships between stock markets in the region. In the short run there is unidirectional Granger causality running from stock prices in Pakistan to India. the Indian BSE Sensex return was also seen to exert some influence on stock returns in some important Asian markets. India. particularly adverse news. and Sri Lanka using a temporal Granger causality approach by binding the relationship among the stock price indices within a multivariate cointegration framework. they also examined the impulse response functions. (2006) observe the increase in the degree of financial integration in East Asia in recent times. 10 Issue 1 (Ver 1. Bangladesh is the most exogenous of the four markets. Impulse response analysis and variance decomposition analysis indicate that the Karachi stock market is in general independent as most of its shock is explained by its own innovations whereas US and UK markets are exerting some impact on Karachi. when used in the study indicated that markets are integrated and there exist a long-term relationship between these markets. Narayan. Yang and Lim (2002) concludes that only short-term (and no long term) co-movements exist among East Asian stock markets (Hong Kong. consequently leaving sufficient room for portfolio diversification and not posing any immediate threat for capital outflows in case of regional crisis. The study reveales that the degree of integration among these five Indices had increased and the opportunities for risk diversification had lessened in the 1990s. Japan. Table 1 presents as many as 37 studies conducted across different periods of time and covering Asian as well as other countries of the world. Jeon et al. Pakistan. The study finds no co-integration between the stock markets under study. Korea Composite (KC). Japanese Nikkei (JN). On the other hand. stock prices in Bangladesh. Smyth and Nandha (2004). Taiwan weighted (TW) and Hang Seng (HS) – on daily data from 1990 to 2000. the works of Nath and Verma (2003).

2003-06. Swanson (1997). Dynamics of Equity Market Integration in Europe. 3.P a g e |35 Vol. Volume 47. Journal of Finance. The structure of interdependence in international stock markets. Issue 1.. pp. 285-304. Slejpen O (eds. Taufiq (1997). 3) Aggarwal. and Etienne Losq (1985). Suchismita (2005). Journal of Banking and Finance. A. Reid and Michael G Plummer (2003). T. Frankfurt. pp. J. European countries and Japan. P. 2) Adler. Volume 16. and L. Bailey W and Stulz R M (1990). Journal of Portfolio Management. Management Review. January2010 There are. Vol. and Jian Yang (2003). Paper presented at European Financial Management Association 2004 Annual Meeting. Journal of Financial and Quantitative Analysis. Michael Firth. R. Vol 43.L. International Transmission of Stock Market Movements. Bekaert G. C. Errunza. and Yasushi Hamao (1992). Quite a few papers address the issue of capital markets integration in emerging economies in the Asia-Pacific basin. International Asset Pricing under Mild Segmentation: Theory and Test. pp. Michel. 925-984. B.. European Central Bank. W. 24. Click. wherein inter-relationship with the Developed rather than Developing nations has remained the cynosure of the studies.E. South Asian Association of Republic Countries (SAAC) holds potential for developing as a Trading Block. 57–73. pp. With the advent of regional trading blocks on the global scenario. The North American Journal of Economics and Finance. S. Journal of Banking & Finance. An empirical analysis of the interrelationships among equity markets under changing exchange rate systems. Bodla. 2005). Journal of Finance. pp. Bertoneche. there is considerable evidence that the stock market interdependencies exist and become increasingly important as the degree of economic interaction among countries gets higher. 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(2002). and Praphan Wongbangpo (2002).0). T. 923-934. and Lim. 267-287. Crisis. Institute of South East Asian Studies. and Fabiola Ravazzolo (2002). Capital market integration in the Pacific Basin region: An impulse response analysis. Issue 3. Pierre L.P a g e |37 Vol. Journal of International Money and Finance. 501 -511. Pacific Economic Review. 299-315. and Patrick Ng (2001). 879-903. 631654. Subhash C. Issue 4. (1999). 89110.D. Contagion. February 2002. Roca. pp 331. Comovements in national stock market returns: Evidence of predictability.. Phylaktis Kate (1999). Stulz. (1995). 10 Issue 1 (Ver 1. Sharma. and East Asian Stock Markets. Rene (1981). pp. Anthony J. pp. Volume 11. Journal of International Money and Finance. Global Journal of Management and Business Research . January2010 47) 48) 49) 50) 51) 52) 53) 54) markets. Vol 4.343. J. 6. pp. Long-term Trends and Cycles in ASEAN Stock Markets. Vol 18. On the Effects of Barriers to International Investment. Applied Financial Economics. Volume 36. Review of Financial Economics. Integration among Asia-Pacific and International Stock Markets: Common Stochastic Trends and Regime Shifts. Journal of Finance. Vol. Measuring financial and economic integration with equity prices in emerging markets. Yang. Working Paper Economics and Finance No 1. but not cointegration. Vol 9. J. pp. Richards. pp. pp. Short-term and long-term price linkages between the equity markets of Australia and its major trading partners. The European Journal of Finance. Volume 21. Phylaktis. Volume 36. Journal of Monetary Economics. E. pp. Kate. Siklos. Issue 6.

. one permanent and one transitory 8 Kwan. Βrazil. Correlation Matrices. Spain Cointegration Tests A Nation’s stock market indices include a common world component and two country-specific components. Chile. Germany. Singapore. France. Britain. Germany. Britain. Multivariate GARCH Increase in the international correlation between markets over the period under study. Germany. France. Switzerland. 1980. Μεxico. Canada. Singapore Hong Kong. Canada Cointegration Tests A single common trend 6 Aggarwal and Park 1994 7 Richards 1995 1970-1994 Αustralia. Switzerland. market brings the most influential responses from other national markets 3 Bailey and Stulz 1990 1977-1985 US. Hong. Britain. Mexico 1990-1993 USA. Ιtaly. Αustralia. Britain. Hong-Kong. Germany. Νorway.0). Frankfurt stands in the middle. market. Japan. France. Febuary 2010 P a g e | 38 Period under Study Markets under Study Tool(s) used Results 1 Bertoneche 1979 1969-1976 Germany. Larger opportunities for international diversification 2 Eun and Shim 1989 1980-1985 Australia. Hong-Kong..Κοng.S. Doukas. Asian equity markets are less integrated with Japan's equity market than they are with the U. England. and Lang 1995 10 Longin and Solnik 1995 1960-1990 Seven major countries International Covariance. Taiwan. Japan. Japan. Japan. USA Cointegration Tests The presence of a long-run relationship between the six Latin American indices 13 Atteberry and Swanson 1997 14 Peiro et al. 10 Issue 1 (Ver 1. Author (s) Year of Study Vol. Japan Vector error correction model (VECM) No conclusive evidence on international stock market efficiency 12 Choudhry 1997 1989-1993 Αrgentina. 1998 USA. USA. Netherlands. Korea. No. Canada. Sweden. weekly or monthly 4 Koch and Koch 1991 1972. Thailand Simple correlation analysis The degree of correlation between US and Asian equity returns depended upon the period specification. Holland. USA. Italy. Malaysia. Denmark. Canada. Switzerland. Sim and Cotsomitis 1995 1982-1991 Nine major stock exchanges Granger Causality There is adequate evidence to refute the notion of informationally efficient stock markets 9 Arshanapalli. Colombia. Philippines. Germany. Japan US markets has impact over the Japanese Market Asian stock markets and USA The “cointegrating structure” that ties the stock markets(under study) together has substantially increased since October 1987. 1987 Japan.S. whether daily. Japan. Belgium.Global Journal of Management and Business Research S. Austria.S. USA. Venezuela. USA VAR model Impulse responses News originating in the U. USA Dynamic System of Simultaneous Equations High degree of international market efficiency in the period under study 5 Kasa 1992 1974-1990 U. UK. Germany The potential benefits associated with diversification across equity markets within the North American system appear to be diminished during periods of economic uncertainty Non-linear least squares New York is the most influential stock market and Tokyo is the most sensitive to international innovations. The correlation rises in periods of high volatility 11 Hassan and Naka 1996 1984-1991 USA.

Saidi and Johnson 1999 17 Pan.P a g e |39 Vol. Grangercausality test Substantial increase in the degree of interdependence after the 1997 crisis. . Cointegration Tests. Japan. Japan. Firth and Rui 2002 1995-2000 Argentina. Singapore. Capital controls may have an impact on the interrelationships between stock markets in the region 25 Phylaktis and Ravazzolo 2002 1980-1998 USA. Hong Kong played a significant role in volatility transmission to the other Asian markets 22 Baele and Vennet 2001 1990-2000 Europe GARCH The main driver of European market integration is the reduction of currency volatility within European countries 23 Siklos and Ng 2001 USA. Singapore Bivariate and multivariate cointegration analysis No co-integration between the stock markets under study. and the remaining countries are dominated by neither during the time period investigated 1988-1994 Australia. Mexico. Japan. Hong Kong. and unidirectional volatility transmission from Korea to Thailand. at least partly. Τhailand VAR Models The markets that are geographically and economically close and/or with large numbers of cross-border listings exert significant influence over each other Asia Pacific. Hong Kong. Liu and Roth 1999 18 Roca 19 1988-1996 Global Journal of Management and Business Research Αustralia. Korea. Singapore. Malaysia. Japan. Yoon. Korea. Japan. The 1991 Gulf War also signalled a turning point in the degree of stock market integration among the countries studied 24 Yang and Lim 2002 1990-2000 Hong Kong. Hong Kong. South China Growth Triangle Cointegration Tests. January2010 15 Janakiramanan and Lamba 1998 16 Ghosh. and Viney 2001 1997-1998 Hong Kong. Kim. Korea. Singapore. The leadership of the US and UK markets over the short and long run 21 In. Malaysia. Singapore. Taiwan. Germany. Taiwan. Taiwan. New Ζeland. Brazil. Chile. Standard correlation tests. USA Cointegration Tests. Japan VAR Technique. Australia Cointegration Tests Significant interdependencies between the established OECD and the Asian markets. Colombia. Yang and Hu 2000 1992-1997 USA. Vector Auto Regressions (VAR) technique The potential for diversifying risk by investing in different Latin American markets is limited 27 Nath and Verma 2003 1994-2002 India. Philippines. Taiwan. Japan Cointegration Tests Some countries are dominated by the US. Britain. Granger Causality Test Different results for different tests Huang. Japan. Indonesia. Taiwan is very independent from other markets.0). Korea. 10 Issue 1 (Ver 1. some are dominated by Japan. GARCH Model The six stock markets are highly integrated through the second moments of stock returns but not the first moments 1999 1974-1995 USA. USA. Indonesia. S. Thailand Cointegration Tests Single common stochastic trend among Asian and North American markets is a recent phenomenon. USA. Venezuela Cointegration Tests. Granger Causality Test There exists no cointegration among these markets except for that between Shanghai and Shenzhen 20 Masih and Masih 2001 1992-1994 USA. Pacific-Basin Countries Multivariate Cointegration Model Economic integration provides a channel for financial integration. Korea. Thailand Multivariate VAREGARCH model Reciprocal volatility transmission existed between Hong Kong and Korea. Malaysia. The 1987 stock market crash was significant. Singapore. Thailand. Hong Kong. Singapore. the high degree of financial integration 26 Chen. Australia Cointegration Tests. which explains. Japan. UK. Hong-Kong.

UK. Germany. Pakistan. UK Integration Tests European capital market integration is under way. India and Sri Lanka Granger-cause stock prices in Pakistan. Canada. UK and Japan while Pakistani and Sri Lankan equity markets were relatively independent from the influence of equity markets of developed markets. In the short run there is unidirectional Granger causality running from stock prices in Pakistan to India. India. Malaysia. but is far from complete Leong and Felmingham 2003 1990-2000 Singapore. 10 Issue 1 (Ver 1. France. Korea. during.Global Journal of Management and Business Research 28 Bessler and Yang 2003 29 Aggarwal. Germany. Hong Kong Integration Tests The degree of integration among the Indices under study had increased and the opportunities for risk diversification had lessened in the 1990s 32 Narayan.0). Korea. Lucey and Muckley 2003 30 Yonghyup 31 Vol. Switzerland. Italy and Australia Significant long-run relationship(s) and linkage exist between the Far East markets before. stock prices in Bangladesh. Saleem and Abdullah 2008 2000-2006 Pakistan. eight Far East countries 34 Lamba 2005 1997-2003 USA. Japan. Italy. The three South Asian equity markets are becoming more integrated with each other but at a relatively slow pace Post-Asian crisis and up to mid-2004. Haldane-Hall Kalman Filter Methodolgy There has been an increased degree of integration among European equity markets especially during the 1997-98 period 2003 1988-1995 France. Germany. Japan. Hong Kong. Singapore. the Indian stock market did not function in relative isolation from the rest of Asia and the US as stock returns in India were highly correlated with returns in major Asian markets and was led by returns in the US. Germany. Thailand. UK. Sri Lanka Granger Causality In the long run. USA Error Correction Model and Directed Acyclic Graph The US market is the only market that had a consistently strong impact on price movements in other major stock markets in the longer-run 1985-2002 European Stock Exchanges Dynamic Integration Tests. Canada. UK. Italy. Australia Cointegration Tests Karachi stock market is cointegrated with equity market of France and Japan and not with US. Granger Causality 36 Kucukcolak 2008 2001-2005 UK. Multilateral Correlation Analysis. Japan. France. Stationary Tests. UK. USA. Japanese. Sri Lanka Multivariate Cointegration Framework 35 Bose 2005 1999-2004 Hong Kong. in contrast to the Greek market. Febuary 2010 P a g e | 40 Canada. USA. India. Taiwan. Greece. Smyth and Nandha 2004 Bangladesh. which is co-integrated 37 Hasan. as well as other Asian markets . Pakistan. India. Turkey Cointegration Tests In the long run. stock prices in Sri Lanka to India and from stock prices in Pakistan to Sri Lanka 33 Choudhry and Lin 2004 1997-1998 USA. Japan Cointegration Tests. Germany. Taiwan. and after the crisis Indian stock markets are influenced by developed equity market of US. the Turkish stock market is not co-integrated with its mature counterparts in the EU.

and Japanese food. 1994. Booms and Mohr 1999). The scope of the study is the frontline employees of different restaurant service industries of Dhaka City. negative word of mouth. Thai. Schlesinger and Heskett 1991. These are becoming increasingly popular. Indian and western foods. Some exclusive restaurants in Dhaka offer Korean. The most notable finding of this research is that employee response to customer need.). Although more firms are realizing the importance of service quality and customer satisfaction. the study attempted/considered the qualitative data into quantitative analyses. In service encounters such disagreements. flawless performance is not mean to imply rigid standardization. and the situation that by accounts is deteriorating rapidly. The factors also contribute enormously to the behavior of the customers as well. through structured. The different types of services in Dhaka City. But in Bangladesh none took place regarding the critical service encounter of the restaurant services. The cost of not achieving the flawless performance is the ‗cost of quality‘. Booms and Mohr 1999). Bitner et. Beside that restaurant service is one of the sectors which are totally unexplored. Situations arise in which the quality of the service may low and the problem is recognized both the customer and the employee but there may be disagreement on the causes of the problem and the appropriate solutions. Service quality researchers have suggested that ―the proof of service [quality] is in its flawless performance‖ (Berry and Parasuraman 1991. which includes the costs associated with redoing the service. 1999). But restaurant is great recreational sector for the urban people. so that they are able to design processes and educate their employees to achieve quality is service encounters. Crosby 1991. Customers consider that the most immediate evidence of service occurs in the service encounter or the ‗moment of truth ‘when the customer interacts with the firm. The restaurant industry should understand the encounter from multiple perspectives. lost customer. the kinds . a concept akin to the notion of ―zero defects‖ in manufacturing. oriental. these types of customers are the challenge for the restaurant services including the employees themselves. Bitner 1999).The purpose of the study is to evaluate critical service encounter or the critical decisive moment and the customer behavior in those cases. Sasser and Hart 1990. it is learnt from the employee that customers can be the source of their own dissatisfaction through inappropriate behavior. In conclusion. Bitner. but rather 100% satisfying performance from the customers point of view. open-ended questions and the results are content analyzed to examine employee’s perspective of critical service encounters. mainly to cater to the growing.al. 10 Issue 1 (Ver 1. The literature shows that previous research in the context of the restaurant. sure to diminish customer satisfaction. Booms and Teteault 1990) and employee‘s point as well (Bitner.0). The research was conducted over 50 sample units (employees of different restaurants) using the convenience sampling technique. The number of fast food restaurants is also growing in the cities. Thus. Others have noted that ―breakthrough‖ service managers pursue the goal of 100% defect-free service (Heskett. employee response to service delivery system failures. The complex and the heterogeneous services of the restaurants are largely dominated by the behavior of the employee in handling a critical situation. During the three decades after the liberation of the country in 1971. Finally. there has been a big spurt in building restaurants all over the country in the private sector to meet the demand of people (Banglapedia. or compensation for the poor service. faces numerous and significant challenges. Bangladesh catering to more than 12 million people. just as it has become essential in manufacturing (Heskett et al. p. hotel and airline industries identified categories of events and behaviors that underlie critical service encounters from the customer‘s point of view (Bitner. There are now hundreds of restaurants all over the metropolitan cities of Dhaka and Chittagong offering local. the shift to a quality focus is essential to the competitive survival of service business.15).el. Many of these restaurants offer good food at budget prices. I T INTRODUCTION he worldwide quality movement that has swept the manufacturing sector over the last decade is beginning to take shape in the service sector (Business Week 1991.P a g e |41 Vol. 2006). Data were collected using the critical incident technique (CIT). in the context of the restaurant service industries. and unprompted and unsolicited employee action are the critical factor for both the satisfactory and dissatisfactory service delivery in Bangladesh. Here. it is not always clear how to achieve this goal (Bitner at. ‗zero defects‘ in the service is the most expected goal to achieve a 100% flawless performance in service encounters. The primary purpose of this study is to examine the contact employee‘s perspective of critical service encounters and to understand. January2010 Global Journal of Management and Business Research Critical Service Encounters: The Employee‘s Viewpoint (A Study on Restaurant Services in Dhaka City) SSM Sadrul Huda Assistant Professor Business Administration East West University Afsana Akhtar Senior Lecturer BRAC University Segufta Dilshad Research Fellow Center for Policy Research and Social Responsibility Abstract. However. According to some.

Second. especially in new service development and in service modifications. According to the Bitner. it is used by the firm for making decisions. as the analysis approach suggested by the CIT method often results in useful information that is mere rigorously defined than many other qualitative approaches. with vivid examples to support their findings. Bitner and colleagues used the CIT method to examine self-service encounters where there is no employee involved in service delivery (Meuter et al.g. Booms. Tetreault(1990) that investigated sources of satisfaction and dissatisfaction in service encounters. Febuary 2010 P a g e | 42 and Dwyer 1981). Her analysis of more than 800 critical behaviors of service firms (critical incidents) led to the identification of 8 distinct categories of reasons why . As these studies suggest. As a result. It allows researchers to focus on a very specific phenomenon because it forces them to define the ―specific aim‖ of their study and helps identify important thematic details. Bitner et. because contact personnel have frequent contact with customers. Service researchers have found CIT to be a valuable tool. spontaneity) as sources of satisfaction and dissatisfaction in service encounters. Customer service professionals in that study consistently rated the importance of particular service skills and competencies. Based on the knowledge gained from the 1990 study Gremler and Bitner (1992) extended the generalizability of the 1990 study by investigating the service encounters across broad range of service industries. Other studies have found differences when comparing customer and employee evaluations of business situations using scenarios and roleplaying in product failure contexts (Folks and Kotsos 1986). Booms. Berry and Pararuraman 1988. In her study.0). contact personnel can be expected to look frequently for cues that tell them how their service is received by the customers. the more likely their behavioral adjustments are to improve customer satisfaction. 1999). 2000).. Schneider and Bowen (1985) and Schneider. Parkington and Buxton (1980) found high correlations (r = 0. Keaveney‘s (1995) study on service switching also illustrated the contribution that the use of the CIT method has made to service research. However. In a recent study. a complaint context (Resnik and Harmon 1983) and the context of retailer responses to customer problems (Dornoff Vol.Global Journal of Management and Business Research of events and behaviors that employees believe underlie customer satisfaction. Bitner‘s research on service encounters has focused primarily on customers‘ cognitive response and/or assessments of service encounters. (2001) have extended service encounter research by focusing on understanding affective consumers responses in service encounters by examining the emotional content in narratives of critical incidents. accurate employee understanding of customers enables both the employee and firm to adjust appropriately to customer needs. There are basically two ways that customer knowledge obtained by contact employees is to improve services: firstly. Zeithaml.al. in a study by Brown and Swartz (1989). adaptability. The Critical Incident Technique (CIT) has been used extensively in this context in recent years to explore service research issues and has been instrumental in advancing our understanding of these issues. Booms. the CIT method is flexible enough to allow service encounters to be extensively studied in a variety of ways. Although the CIT method appeared in the marketing literature as early as 1975 (Swan and Rao). Berry and Zeithaml 1990. service quality).67. II THE BACKGROUND OF THE STUDY: CONTACT EMPLOYEE VIEWPOINTS Frontline personnel are a critical source of information about customers. The concept of CIT usually employed in service research to (a) help current and future researchers employing the CIT method to examine their methodological decisions closely and (b) suggest guidelines for the proper application and reporting of the procedures involved when using this method. The more accurate their perceptions are. Their results are contradicted. Schneider and Bowen (1984) argued that the firms should use the information. examined from the perspective of the customer. and Mohr (1999).based means. such knowledge is used by the contact employee themselves to facilitate their interactions with customers and secondly. led to the identification ot three typed of employee behaviors (ultimately labeled recovery. The findings from this study suggest a different set of factors are sources of satisfaction and dissatisfaction when service is delivered through technology. Tetreault‘s (1990) study focusing on service encounters provides an example of the value of the CIT method to service research. Prior to their research. the major catalyst for use of the CIT method in service research appears to have been a Journal of Marketing study conducted by Bitmer. 10 Issue 1 (Ver 1. van Dolen et al. Keaveney employed the CIT method to understand reasons service customer switch providers. Bitmer. they often have better understanding of customer needs and problems than others do in the firm. In the same way.63 and r = 0. Researchers have theorized and found some evidence that open communication between the frontline personnel and managers is important for achieving service quality (Parasuraman. much of what scholars understood about such evaluations was limited to global assessments of satisfaction or abstract concepts (e. another study of 1300 customers and 900 customer service professionals conducted by Development Dimensions International found differences in perceptions between the two groups (Service Marketing Newsletter 1989). Their analysis of 700 critical service encounters in three industries. respectively) between employee and customer attitudes about overall service quality in a banking sector. Employees often modify their behavior from moment to moment based on the feedback they receive while serving customers. Similarly. To the extent that this is true. Langeard and Colleagues (1981) found that field managers at two banks tended to overestimate (compared with customer ratings) the importance of six board service delivery dimensions. however. Schneider (1980) argues that people who choose to work in service occupations generally have a strong desire to give good service. they serve a boundary-spanning role in the firm. which they gathered from their contact employees in their strategic planning.

Kasper. or issues) identified by the respondent. The verbatim stories generated can provide powerful and vivid insight into a phenomenon (Zeithaml and Binter 2003) and can create a strong memorable impression on management when shared throughout an organization. and Maxham 2000.g. the way they are managed. the CIT method is effective in studying phenomena for which it is hard to specify all variables as priori (de Ruyter. Since its introduction. January2010 customers switch providers. and Wetzels 1995). A. in the beginning. the COT method is particularly well suited for use on assessing perceptions of customers from different cultures (Stauss and Mang 1999). other causes fall outside the satisfactiondissatisfaction paradigm (i. Problems may also arise as a result of ambiguity associated with category labels and coding rules within a particular study (Weber 1985). First.The CIT method reflects the normal way service customers think (Stauss 1993) and does not force them into any given framework.. the CIT method can be used to generate an accurate and in-depth record of events (Grove and Fisk 1997). Overview Of The Critical Incident Technique CIT. but in service research. particularly ehen describing what behaviors to do and not do in order to satisfy customers (Zeithaml and Binter 2003). Second. involuntary switching.e.CIT is a naturally retrospective method. this method has been criticized on issues of reliability and validity (Chell 1998). given its frequent usage in a content analytic fashion. has the potential to be used as a companion research method in multi method studies (Kolbe and Burnett 1991). In so doing. and behavioral elements. core service failure. Strengths and Advantages of the CIT method The CIT method has been described by service researchers as offering a number of benefits. Critical incidents can be gathered in various ways. During an interview. Critical incidents can also be easily communicated to customer-contact personnel. the method has also received some criticism by scholars. the approach generally asks respondents to tell a story about an experience they have had.. service encounter failure. particularly in service contexts. (b) as an exploratory method to increase knowledge about a little-known phenomenon. his research teams observed events or ―critical incidents‖ and over time. Chell (1998) provided the following description of the CIT method: ―the CIT technique is a qualitative interview procedure which facilitates the investigation of significant occurrences (events. but they still switched).Finally.e. processes. recovery failure). For example. customers were satisfied. incidents. Williams. rather than indicate their perceptions to researcher-initiated questions. Consequently. CIT can be particularly effective when used in developing the conceptual structure (i. Tetreault 1990. respondents are simply asked to recall specific events. the CIT . content analyze. most research attempting to identify caused of service switching focused on issues related to dissatisfaction. Grove and Fisk 1997). C. the CIT method can provide a rich set of data (Gabbott and Hogg 1996). hypotheses) to be used and tested in subsequent research (Walker and Truly 1992). they can use their own terms and language (Stauss and Weinlich 1997). B. CIT can be adapted easily to research seeking to understand experiences encountered by informants (Burns. this type of research is inductive in nature (Edvardsson 1992). The CIT method therefore provides a rich source of data by allowing respondents to determine which incidents re the most relevant to them for the phenomenon being investigated. and Maxham 2000). de Ruyter Perkins. and pricing issues to be considered if service-switching behavior is to be understood.‖ Bitmer. and Wetzels (1995) characterized the CIT method as a ―culturally neural method‖ that incites consumers to share their perceptions on an issue.It can also provide an empirical starting point for generating new research evidence about the phenomenon of interest and. Although some caused are fairly predictable dissatisfaction-related issued (e. Thus Keaveney‘s application of the CIT method has opened the door for a much wider and more comprehensive switching behavior paradigm. Thus. Keaveney pointed out convenience. positively or negatively. Tetreault (1990) defined an incident as an observable human activity that is complete enough to allow inferences and prediction to be made about the person performing the act. indeed . or (c) when a through understanding is needed when describing or explaining a phenomenon (Bitmer. and the outcomes in terms of perceived effects. Prior to her CIT study. affective. Fourth. the data collected ate from the respondent‘s perspective and in his or her own words (Edvardsson 1992).The CIT method does not consist of a rigid set of principles to follow..P a g e |43 Vol. A critical incident is described as one that makes a significant contribution. either to an activity or phenomenon (Bitmer. a method that relies on a set of procedures to collect. Booms. Drawbacks and Limitations of the CIT Method Although the benefits of using the CIT method are considerable. 10 Issue 1 (Ver 1. but it can be thought of as having a rather flexible set of rules that can be modified to meet the requirements of the topic being studied (Burns. the CIT method has been used in a wide range of disciplines. Tetreault 1990). competition.0). Booms. this method is especially useful (a) when the topic being researched has been sparingly documented (Grove and Fisk 1997). the CIT is a research method that allows respondents as free a range of response as possible within an overall research framework Global Journal of Management and Business Research (Gabbot and Hogg 1996). reports provided by research subjects were used in place of direct observation. was introduced to the social sciences by Flanagan (1945) 50 years ago. Hopkinson and Hogarth-Scott 2001. Neuhaus 1996). Williams. Booms. Flanagan conducted a series of studies focused on differentiating effective and ineffective work behaviors. Third. taking into account cognitive.In their study. The objective is to gain understanding of the incident from the perspective of the individual. and classify observations of human behavior.

The restaurant employees were interviewed and asked to recall critical service encounters that caused satisfactions or dissatisfaction for customers of their restaurant. the employee reported incidents are summarized and ranked according to the percentage of incidents in the three major incidents groups: A. it should be noted that the proportions shown in the table reflects numbers of reported events. people are more likely to blame external. The research was conducted over 50 sample units (employees of different restaurants) using the convenience sampling technique. Exactly what did you or your fellow employee say or do? iv.The nature of the CIT data collection process requires respondents to provide a detailed description of what they consider to be critical incidents.7% 3 Group 3. Data were collected using the critical incident technique (CIT). By far the largest numbers of dissatisfactory incidents were categorized in Group 2 (Employee response to service delivery system). a systematic procedure for recording events and behavior that are observed to lead to success or failure on a specific task (Ronan and Latham 1974). the discussion focuses on the three major groups. 10 Issue 1 (Ver 1. in this case. What would you or your fellow employee have said and done? (for dissatisfying incident only) Distribution of Dissatisfactory Incidence Rank Order Group# Percentage 1 Group 2. respondents may not be accustomed to or willing to take the time to tell a complete story when describing a critical incident (Edvardsson and Roos 2001).6% 2 Group 1. Employee response to service delivery system failures ii.0). Employee response to customer need and request iii. From the contact employee‘s point of view. situational factors rather than to attribute the failure or their own shortcomings.0% 3 Group 3. What resulted that made you feel the interaction was satisfying (dissatisfying) from the customer‘s point of view? v.Response to failures 25.Global Journal of Management and Business Research method has been criticized as having a design that may be flawed by recall bias (Michel 2001). In many of the cases. The Employees Views of Satisfactory Versus Dissatisfactory Encounters Here the study examine the proportions of employee accounts in the three groups and the categories as shown in the table 1. Similarly. such as consistency factors or memory lapses (Singh and Wilkes 1996). From the contact employee‘s point of view. what kinds of events lead to satisfying service encounters for the customers? What causes these events to the remembered favorability? ii. a low response rate is likely (Johnston 1995). However. Febuary 2010 P a g e | 44 Finally. III OBJECTIVES OF THE STUDY The specific purpose of the study is guided by the following questions: i. Because the technique requires respondents to take tome and effort to describe situations in sufficient detail. Unprompted and unsolicited employee action B. However. Here.Response to requests 61. When did the incident happen? ii. What specific circumstances led up to this situation? iii. what kind of events lead to dissatisfying service encounters for the customers? What causes these events to be remembered with distaste? IV METHOD AND ANALYSIS Vol. in the context of the restaurant service industries.Unprompted action 9. These results are not unexpected given what theory suggests. the employees implied that they are unable to satisfy customers need due to constrained placed . The highest number of dissatisfactory incidents found in group 2 (see table 1). Classification of Employee Reported Incidents The critical incident classification system based on incidents gathered from customers consists of three major groups of employee behavior that account for all satisfactory and dissatisfactory incidents: i.3% 2 Group 1.Unprompted action 16.7% When employees were asked to report incidents resulting in customer dissatisfaction. they tend to describe problems with external causes such as the delivery system or inappropriate customer behaviors. The questions are as follows: i. the kinds of events and behaviors that employees believe underlie customer satisfaction. the descriptive analysis done just to identify the reasons of any service delivery failure or success of the restaurant industry. the study attempted/considered the qualitative data into quantitative analyses. with the next largest proportion falling into Group 1 (Employee response to customer need and request).6% Distribution of Satisfactory Incidence Rank Order Group# Percentage 1 Group 2.Response to requests 58.Response to failures 23. V RESULTS AND DISCUSSIONS A. Data Collection The scope of the study is the frontline employees of different restaurant service industries of Dhaka City. data are collected through structured. open-ended questions and the results are content analyzed to examine employee‘s perspective of critical service encounters and to understand. To facilitate understanding. this method may result in other undesirable biases. satisfying the customer. When situation go wrong. Using the CIT.

P a g e |45 Vol. because each one began as a failure but ended as a success because of the ability of the employee to recover. The next largest proportions of satisfactory incidents were categorized in group 1. The Employees Views of Customer Behavior for Satisfactory and Dissatisfactory Service Delivery Table 2 represents the data from the currents study for the purpose of identifying customer behavior in the critical moment.0% 58.3% Appropriate Employee Behavior 25.g. this is consistent with the bias toward not blaming oneself for failure.1% Employee Error 3. but they still remember them in association with a specific external cause (e.6% Distribution of Satisfactory Incidence Group 1: Rank 2 Employee response to service delivery system Success of a Core Service 8. occurred in response to customer needs and requests (group 2). Success in attributes in the case to the employees‘ own abilities and willingness to adjust. The largest proportion of satisfactory incidence.3% Inappropriate Employee Behavior 6.3% Fast Speed of Service 16. customer need.3% Inappropriate Environment 4.9% Failure of a core Service 5.0). More that half of the particularly satisfying customers encounters reported by employees resulted their ability to adjust the system to accommodate the customer needs and requests. Employees clearly remember their ability to recover in failure situations as a significant cause for ultimate customer satisfaction. Again.9% Incorrect Billing 6. service failure etc.. from the employees‘ point of view. 10 Issue 1 (Ver 1. The smallest number of dissatisfactory incidents were classified in group 3.3% 61. A primary contribution of this research effort is the empirical based finding that unsatisfactory service encounter may be due to inappropriate customer behavior-the notion . This is an interesting set of incidents.7% Group 2: Rank1 Employee response to customer need and request Customer error 36.7% 16.g.). lack of attention.5% Lack of Service 7. The smallest number of satisfaction incidents was categorized as unprompted and unsolicited action of the employees.7% 25.). Global Journal of Management and Business Research Table 1: Percentage Analysis of Cause of Successful and Unsuccessful Service Delivery Distribution of Dissatisfactory Incidence Group 1: Rank 2 Employee response to service delivery system failures Slow Speed of Service 10. Perhaps employees do not view their own behavior as a spontaneous.8% Excessive Service Charge 7.5% 9.3% 23.3% Group 3: Rank 3 Unprompted and unsolicited employee action Better Care to Customer 16. which reflects spontaneous negative employee behavior (e.6% Group 3: Rank 3 Unprompted and unsolicited employee action Lack of Care to Customer 6. January2010 on them by laws or their own organizational rules and procedures.7% C.0% Group 2: Rank1 Employee response to customer need and request Employee Performance 33. rudeness etc.

Global Journal of Management and Business Research
that the customers are wrong. The problem customer is
identified by exploring the sources of customer
dissatisfaction. The highest number of dissatisfactory
Table 2: Percentage Analysis of Customers Behavior for
Satisfactory and Unsatisfactory Service Delivery
Behavior found in the case of verbal abuse, mean the
customer verbally or physically abuses either the employee
or the other customers. It is needless to say, these types of
customers leads to stresses and strains for managers and
potentially had a bigger impact of the restaurant. A large

Dissatisfactory Service Delivery
Variables

Percentage

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 46
number of employees spread negative word of mouth. On
the other hand, the positive minded customers use to spread
positive word of mouth (WOM), positive words to
employee. Customers‘ positive behavior automatically
encourages them to provide better service.

Satisfactory Service Delivery
Variables

Percentage

Verbal Abuse

42.1%

Spread good WOM

33.3%

Spreading bad WOM

28.9%

Complemented Verbal

25.0%

Threat of any kind

7.9%

Behaved Cooperatively

16.7%

Disturbing customers

5.3%

Tips of any Kind

16.7%

Physical Abuse

5.3%

Complemented Physically

Uncooperative Behavior

5.3%

Breaking Rules

5.3%

8.3%

Source: Compiled by the Authors from Field Survey Data
VI

CONCLUSIONS

The behavior of the employee in the critical moment has a
direct impact on the firm or the restaurant. Present study has
specified to identify the critical factor for the satisfactory
and the dissatisfactory service delivery in case of restaurant
services in Dhaka City, Bangladesh. In particular, the
research explicitly recognized that critical factors and
measured those factors using descriptive analysis.
The most notable finding of this research is that employee
response to customer need, employee response to service
delivery system failures, and request and unprompted and
unsolicited employee action are the critical factor for both
the satisfactory and dissatisfactory service delivery in
Bangladesh. This implies that the employees should more
careful on the on the dissatisfactory incidence then the
customers would feel more satisfactory. But it is learnt from
the employee that customers can be the source of their own
dissatisfaction through inappropriate behavior. Thus, the
behavior for the unsatisfactory and satisfactory service
examined to identify the dissatisfactory incidence caused by

the problematic customer. In conclusion, these types of
customers are the challenge for the restaurant and for the
employee itself.
While the results of this research were based on the
descriptive statistics and thus it is acknowledge the need to
replicate this work. In conclusion, the findings can be
applied to different critical analysis of the restaurant service
experiments and hope that future researchers will expand
and improve upon this work.
VII

REFERENCES

1) Banglapedia, (2006), National Encyclopedia of
Bangladesh, Asiatic Society of
Bangladesh.,
Version 2.0.0
2) Berry, Leonard L. and A. Parasuraman (1991),
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3) Business Week (1991), Special Issue on Quality.
4) Bitner, Mary Jo, Bernard H. Booms and Mary
Stanfield Teteault (1990) ―The Service Encounter:
Diagnosing Favorable and Unfavorable Incidents‖,
Journal of Marketing 54 (January), 71-74

P a g e |47 Vol. 10 Issue 1 (Ver 1.0), January2010
5) Brown, Stephen W. and Teresa A. Swartz (1989),
―A Gap Analysis of Professional Service Quality‖
Journal of Marketing, 92-98
6) Crosby, Lawrence A. (1991), ―Expanding the Role
of CSM in Total Quality‖, International Journal of
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7) Dornoff, Ronald J. and F. Robert Dwyer (1981)
―Perceptual Differences in Marketing Transactions
Revisited: A Waning Sources of Customer
Frustration‖, The Journal of Consumer Affairs,
146-57
8) Folks, Valerie S. and Barbara Kotsos (1986),
―Buyers‘ ans Sellers‘ Explanations for Product
Failure: Who Done It?‖, Journal of Marketing, 7480.
9) Heskett, James L. Thomas O. Jones Gary W.
Loveman, W Earl Sasser, Jr., and Leonard A.
Schlesinger (1994) ―Putting the Service Profit
Chain to Work‖, Harvard Business Review (March/
April), 164-72
10) Langeard, Eric John E.G. Basteson and Christopher
H. Lovelock and Pierre Eiglier (1981), ― Service
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Zeithaml (1990) ―An Empirical Examination of
Relationships in an Extended Service Quality
Model‖, Report no. 90-122. Cambridge, MA:
Marketing Science Institutions.
12) Resnik, Alan J. and Robert R. Harmon (1983),
―Consumer complaints and Managerial Response:
A Holistic Approach‖, Journal of Marketing, 87-98
13) Ronan, William W. and Gary P. Latham (1974),
―The Reliability and Validity of the Critical
Incident Technique: A Closer Look‖, Studies in
Personnel Psychology, 53-64
14) Schlesinger, Leonard A. and James L. Heskett
(1991), ―The Service-Driven Company‖, Harvard
Business Review (September/November), 71-81
15) Schneider, Benjamin (1980), ―The Service
Organization: Climate is Crucial‖, Organizational
Dynamics (Autumn), 52-65
16) _________ and David E. Browen (1984), ―New
Service Design, Development and Implementation
and the Employee‖, in Developing New Services,
William R. George and Claudia Marshall, eds.
Chicago: American Marketing Association
17) _________ and ________ (1085), ―Employee and
Customer Perceptions of Service in
Banks:
Replication and Extension‖, Journal of Applied
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18) ___________, John J. Parkington and Virginia M.
Buxton (1980), ―Employee and Customer
Perceptions of Service in Banks‖, Administrative
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19) Service Marketing Newsletter (1989), ―Recent
Study Shows Gap Between Customers and Service
Employees on Customer Service Perceptions‖.

Global Journal of Management and Business Research
20) Zeithaml, Valarie A., Leonard L. Berry and A.
Pararuraman (1988), ―Communication and Control
Processess in the Delivery of Service Quality‖,
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Marketing: Integrating Customer Focus Across the
Firm‖, Tata McGraw Hill Publishing Company
Limited, New Delhi

Global Journal of Management and Business Research

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 48

Reliability and Availability Based Hybrid Flow
Shop Scheduling Using Fuzzy Logic
Sanjoy Kumar Paul and Abdullahil Azeem*
Department of Industrial and Production Engineering
Bangladesh University of Engineering and Technology
Dhaka – 1000, Bangladesh
*Tel: 880-2-9665611; Email: azeem@ipe.buet.ac.bd
Abstract- This paper addresses the Hybrid Flow Shop (HFS)
scheduling problems to minimize the over utilization of
machines. Job scheduling problems are one of the oldest and
real world optimization problems. It is multi objective and
complex in nature. Some criteria must be taken into
consideration when evaluating the quality of the proposed
schedule. Consideration of job and machine reliability is very
important during assignment of jobs in each stage to get
realistic hybrid flow shop schedule. In this paper, flow shop
problem considers the sequencing of a given number of jobs
through a series of machines with the aim to optimize a set of
objectives by satisfying a set of constraints. Fuzzy sets and logic
are used to tackle uncertainties, which are inherent in actual
flow shop scheduling problems. Fuzzy processing time, due
date, available raw material, and profit over time and cost over
time has been considered to determine the job priority. On the
other hand, machine priority is obtained by considering mean
time to failure, mean time to repair, mean time between
shutdowns and failure rate. MATLAB fuzzy toolbox is used to
calculate the priorities of jobs and machines at different stages.
Later on, grouping and sequencing of different jobs into
different machines are performed by developing an algorithm.

Keywords- Target utilization, Scheduling, Hybrid flow
shop, Fuzzy logic.
I

S

INTRODUCTION

cheduling is the process of organizing, choosing, and
timing resource usage to carry out all the activities
necessary to produce the desired outputs of activities and
resources. In flow shop there is more than one machine and
each job must be processed on each of the machines- the
number of operations for each job is equal with the number
of machines, the jth operation of each job being processed
on machine j. A Hybrid Flow Shop scheduling problem
consists of series of production stages, each of which has
several machines operating in parallel. Some stages may
have only one machine, but at least one stage must have
multiple machines. Each job is processed by one machine in
each stage and it must go through one or more stages. Flow
shop problem concerns the sequencing of a given number of
jobs through a series of machines in the exact same order on
all machines with the aim to satisfy a set of constraint as
much as possible and optimize a set of objectives.
Fuzzy logic (FL) has two different meanings. In a narrow
sense, fuzzy logic is a logical system, which is an extension
of multi-valued logic. However, in a wider sense fuzzy logic
is almost synonymous with the theory of fuzzy sets, a theory
that relates to classes of objects with un-sharp boundaries in

which membership is a matter of degree. In this perspective,
fuzzy logic in its narrow sense is a branch of FL. Even in its
more narrow definition, fuzzy logic differs in both concept
and substance from traditional multi-valued logical systems.
FL is a problem solving control system methodology that
lends itself to implementation in systems ranging from
simple, small-embedded micro controllers to large,
networked, multi- channel PC or workstation-based data
acquisition and control systems. It can be implemented in
hardware, software or a combination of both. FL provides a
simple way to arrive at a definite conclusion based upon
vague, ambiguous, imprecise, noisy or missing input
information. In this paper, triangular membership functions
are used for different input and output variables. Fuzzy logic
was used by different authors successfully with different
approaches. Grabot and Geneste (1994) proposed a way to
use fuzzy logic in order to build aggregated rules allowing
obtaining a compromise between the satisfactions of several
criteria. Allet (2003) dealt with a particular scheduling
problem inspired by a practical case coming from a Belgian
Pharmaceutical company. Hong and Wang (2000)
articulated that flexible flow shops can be thought of as
generalizations of simple flow shops. Cheng et al. (2001)
considered the three-machine permutation flow shopscheduling problem with release times where the objective
is to minimize the maximum completion time. A fuzzy
approach to operation selection was developed by Felix and
Abhary (1997). Ishibuchi et al. (1994) formulated a fuzzy
flow shop-scheduling problem where the due date of each
job is given as a fuzzy set. Petroni (2002) used fuzzy logic
based methodology to rank shop floor dispatching rules.
Fuzzy set theory can be useful in modeling and solving flow
shop scheduling problems with uncertain processing times
and illustrates a methodology for job sequencing problem,
which the opinions of experts greatly disagree in each
processing time (Tsujimura, 1993). Fuzzy set was
introduced by Zadeh (1965). McCahonE and Lee (1992)
used fuzzy logic for job scheduling in a flow shop.
Metaheuristic approaches to schedule in hybrid flow shop
with a cost related criterion used by Janiak et al. (2005).
Nowicki and Smutnicki (2006) dealt with flow shop
scheduling problem with the make span criterion. The
problem of selecting and scheduling the orders to be
processed by a manufacturing plant for immediate delivery
to the customer site were optimized by Gracia (2005).
Hybrid flow shop scheduling problems can be formally
described by Engin and Döyen (2004). Job is processed by

P a g e |49 Vol. 10 Issue 1 (Ver 1.0), January2010
one machine in each stage and it must go through one or
more stages. Machines in each stage can be identical,
uniform or unrelated (Linn and Zhang, 1999). Ng et al.
(2007) solved the three-machine flowshop scheduling
problem to minimise maximum lateness, where setup times
are considered separate from processing times. A new fuzzy
logic based decision support system for parallel machine
scheduling/rescheduling in the presence of uncertain
disruptions was presented by Petrovic and Duenas (2006).
Muhuri and Shukla (2008) considered fuzzy timing
constraints by modeling the real-time tasks with fuzzy
deadlines and fuzzy processing times with different
membership functions.
The above-proposed methods did not consider availability
and reliability of both jobs and machines at the same time.
Some proposed methods considered the criteria to prioritize
the jobs but did not consider machine reliability-based
utilization. If machine reliability is not considered during
scheduling, the schedule may not be realistic due to the
uncertain breakdown of the machine. To optimize the
considered multi-objectives addressing this uncertainty, a
fuzzy rule based system is developed. This system provides
the priority of each job by considering processing time, due
date, profit over time, cost over time and available raw
material as an appropriate fuzzy membership function.
Secondly, another fuzzy inference system (FIS) is developed
to provide machine priority based on reliability and
availability of each stage considering the information about
mean time to failure (MTTF), mean time to repair (MTTR),
mean time between shutdowns (MTBS) and failure rate
(FR). A maximum utilization target of each machine is
calculated using the reliability of each machine found from
the third FIS. Based on the priority calculation for each job
and machine for each stage, an algorithm is developed for
grouping, sequencing, and allocating the jobs to the
machines at every stage in such a way that minimizes the
total percentage of over utilization.
II

PROBLEM DEFINITION

In hybrid flow, shop there may be a numbers of stages of
processor and each stage has more than one identical
machine. The machines are identical in a sense that, for a
given stage the jobs need the same time to be processed on
each machine. But the reliability and availability
characteristics, i.e., mean time to failure (MTTF), mean time
to repair (MTTR), mean time between shutdowns (MTBS)
and failure rate (FR) are different for each machine in a
single stage. So even these machines in an individual stage
are identical in a sense of processing time, their different
values of mean time to failure (MTTF), mean time to repair
(MTTR), mean time between shutdowns (MTBS) and
failure rate (FR) result in prioritizing the machines.
Each of the selected jobs needs to be processed on every
stage. The priority of the jobs could be appraised by the
values of there processing time, due date, profit over time,
cost over time and available raw material. In each stage the
identical machine‘s priority is determined based on the
information of mean time to failure (MTTF), mean time to

Global Journal of Management and Business Research
repair (MTTR), mean time between shutdowns (MTBS) and
failure rate (FR). Figure 1 shows the typical flow shop
structure in a manufacturing facility. Here Mij indicates the
machine j in stage i. Therefore, jobs in the system are
passing through three different stages having seven
machines.

M
Jobs
In

11

M

M

M

21

31

12

M

M

M

22

32

Jobs
Out

13

Figure 1. Typical scenario of hybrid flow shop
Hence, this problem involves determining the mechanism of
priority determination of the jobs and machines in each
individual stage, and grouping, sequencing and allocating
the jobs in the machines at every stage in such a way that
total percentage of over-utilization will be minimum and top
priority jobs will be processed using the top priority
machines.
III

DETERMINATION OF JOB PRIORITY USING FIS

To incorporate multi-objective scheduling, fuzzy job priority
is calculated by developing a Fuzzy Inference System (FIS)
using MATLAB fuzzy logic toolbox. Five input variables,
e.g., processing time, due date, profit over time, cost over
time and available raw material have been used in this FIS
which results job priority as output of this FIS. These input
and output values should be expressed as a membership
function to develop the FIS. A membership function (MF) is
a curve that defines how each point in the input space is
mapped to a membership value between 0 and 1.

available raw material. need to be considered to find out the job priority in the other stages. profit over time. medium. the remaining four input variables.e. all input variables are considered triangular membership function and all variables are divided into three zones.e. medium. Like the first stage. high. Profit over Time Due Date Job stage 1 Cost over Time Job Priority at Stage 1 Available Raw material Figure 2. Figure 3 depicts the developed FIS model for job priority at other stages. which would be automatically available for the next stages. Profit over time. All the input variables are considered triangular membership function and all variables are divided into three zones. very low. five input variables are considered. medium and Processing Time high.Global Journal of Management and Business Research Vol. Due date. low. Cost over Time and Available Raw Material.. That is why. These input variables are processing time. and very high. i. very Low. It is divided into five possible zones.0). and very high. medium and high. Febuary 2010 P a g e | 50 A. will be converted into work-inprocess. Output membership function is also triangular shaped.. . low. due date and cost over time. The developed FIS model for job priority at this stage is shown in Figure 2.. processing time.e. FIS model for job priority at other stages Processing Time Profit over Time Job stage 2 and 3 Due Date Cost over Time Job Priority at Stage 2 and 3 An output variable of these stages is job priority (value between 0 and 1). i. Output membership function is also triangular shaped. It is divided into five possible zones. Job Priority at Other Stages After completing the first stage. high. one of the five input variables. i.. Job priority at the First Stage To find out the priority at the first stage. B.e. low. Figure 3. i. low. 10 Issue 1 (Ver 1. FIS model for job priority at the first stage An output variable of the first stage is job priority (value between 0 and 1).

Rj TPT MTTR Rj Rj (2) = Priority value of machine j at specific stage i.P a g e |51 Vol.0). The target utilization of machine j at particular stage i is calculated with the following equations: (1) Where. and the rest of the jobs are assigned until it satisfies the target utilization of the second highest priority machine. FIS model for machine priority For the priority of each machine at every stage. Reliability is a broader term that focuses on the ability of a product to perform its intended function. January2010 IV DETERMINATION OF MACHINE PRIORITY Global Journal of Management and Business Research Normalized priority (for machine j at stage i). . which has over utilized allocation. the top priority job is assigned to the highest priority machine until it satisfies the target utilization. grouping is performed in the other stage. the job having highest priority is sent to the next higher priority machine and the over utilization is calculated. and the rest of the jobs are assigned until it satisfies the target utilization of the third highest priority machine. These rules determine the output (priority) of following input variables. Then percentage of over utilization is calculated for that assignment (U2%) and the percentage of over utilization (U1%) is also calculated if it is assigned to the highest priority machine with previous assignment. machine priority is very important because the highly reliable and available machine should get the high priority during allocation of the top priority jobs. NR j  MTTF Machine Priority MTBS Machine Priority FR Figure 4. j = 1…n Target Utilization (for machine j at stage i). At fourth step. Reliability can be defined as the probability that an item will continue to perform its intended function without failure for a specified period under the stated conditions. So at the first step. 17 rules for job priority at stage 1. the fourth highest priority machine is selected and the rest of the jobs are assigned until it satisfies the target utilization of the fourth highest priority machine. The FIS for machine priority determination using the described membership functions is shown in Figure 4. 14 rules for job priority at other stages and 20 rules for machine priority are considered. At last. several rules have been developed in Fuzzy Interference System. For example. percentage of over utilization is calculated for that assignment and the percentage of over utilization is calculated if it is assigned to the second highest priority machine with previous assignment. if second assignment does not fulfill other than first assignment. a regrouping operation is performed starting from the lowest priority machine. fuzzy inference system is developed considering mean time to failure (MTTF). which minimizes the percentage of over utilization. the second highest priority machine is selected and the rest of the jobs are assigned until it satisfies the target utilization of the second highest priority machine. The job is assigned to the machine. Similarly. the third highest priority machine is selected and the rest of the jobs are assigned until it satisfies the target utilization of the third highest priority machine. To determine both the job and machine priorities. V GROUPING AND SEQUENCING ALGORITHM A. mean time between shutdowns (MTBS) and failure rate (FR) as input variables and machine priority as output variable. triangular membership function is chosen for each of the input variables as well as for the output variable. if the first three assignments are unable to satisfy the conditions. all machines having over utilization need to be checked from bottom to top. If it does not match the conditions in first assignment. The job is assigned to the machine. mean time to repair (MTTR). which minimizes over utilization. In this FIS. T j  NR j  TPT Where. The job needs to be assigned to the machine. Similarly. to determine the job priority at first stage. USING FIS In hybrid flow shop scheduling. At third step. = Total processing time At second step. which minimizes the percentage of over utilization. Among the group. if first assignment does not satisfy the condition. 10 Issue 1 (Ver 1. one rule is ―If (Processing Time is Low) then (Job Priority is High)‖. Grouping Main principle of this grouping algorithm is to perform the top priority job in the top priority machine.

Global Journal of Management and Business Research Vol. Febuary 2010 P a g e | 52 B. 10 Issue 1 (Ver 1. Sequencing Find the priority for each job and machine in every stage using FIS Calculate Target utilization for each machine in every stage Assign the top priority jobs to the highest priority machine Yes Satisfy target in machine 1? No Assign the jobs to the second highest priority machine Yes Satisfy target in machine 2? No Assign the jobs to the third highest priority machine Repeat the steps as before No Is it first assignment? Yes %U1>%U2 Regrouping the jobs by comparing the over utilization Re sequencing the jobs if possible Figure 5. Grouping and sequencing algorithm Yes No Assign that job to the highest priority machine .0).

The schematic diagram of the considered hybrid flow shop problem is presented in Figure 6. It is modified in such a way that if the arrival time of the higher priority job is greater than the completion time of the less priority job at that stage of the same group. Stage 1 Stage 2 Stage 3 Profit over time A B C D 10 7 13 15 15 14 8 13 12 18 14 9 10 15 20 25 Total Processing time 45 50 53 Job M21 Due date Cost over time Available raw materials (stage 1) 5 7 3 4 60 50 70 80 700 500 800 950 Table 1. Typical scenario of hybrid flow shop All machines in every stage have identical processing time but priority is calculated based on mean time to failure (MTTF).75 2 3 80 110 800 1150 25 40 0.5 0.0). third and so on. sequencing may need to be modified in order to minimize the make span without hampering the main principle of grouping and sequencing. stage 2 and stage 3 Stage 1 2 3 Machine MTTR (min) MTTF (min) MTBS (day) FR (times/day) 1 2 3 1 75 125 100 50 1250 1000 900 1300 20 30 40 10 1 0.6 Table 2. Information about jobs at stage 1. Four jobs have been considered having 3 different processing times at 3 different stages. then second. mean time between shutdowns (MTBS) and failure rate (FR). Three machines are set at the first stage as well as second stage. But except the first stage. The mentioned grouping and sequencing algorithm is shown in Figure 5. Four different jobs have been considered in 3 separate stages for hybrid flow shop scheduling. i.7 2 90 1200 12 1. Available raw material for each job is determined from the inventory information of flow shop.2 1 60 1400 15 0. Information about the jobs and machines at each stage is shown in Table 1 and Table 2 respectively. Processing time (min) M11 M31 Jobs In M12 Jobs Out M22 M32 M13 M23 Stage 1: 3 machines Stage 2: 3 machines Stage 3: 2 machines Figure 6. Highest priority job on the group goes first. Information about machines at stage 1. 10 Issue 1 (Ver 1. January2010 Sequencing is needed when multiple jobs will be assigned in a single machine. due date and cost over time for each job are determined based on customer requirements. Sequencing is determined based on the priority of the jobs. whereas two machines are set at the third and final stage.6 1. mean time to repair (MTTR).e. which are assigned at that machine. then the less priority job will be performed first.5 1. CASE STUDY VI A Case study is presented here using hypothetical data to clarify the proposed process.Global Journal of Management and Business Research P a g e |53 Vol. Profit over time.. the higher priority job does not need to wait for the job which has less priority. stage 2 and stage 3 .

543 0.325 0. the target utilization for each machine is determined.609 D 0. which has the highest priority. Schedule of jobs in different machines at different stages . B 2 0.0). Priority of the all jobs in other stages is determined Job Accordingly.323 0. the machine.587 B 1 0.482 15. Based on this priority the top priority job at stage 1 is C. Then based on their normalized priority proportion.611 15. Table 5 shows the schedule of the machines.532 0. Priority values Stage 2 Stage 1 A Vol. sequencing of the concerned jobs is also obtained following table provides the ultimate grouping of the jobs to using the same algorithm.501 0.511 0.5720 1 2 Table 4.7517 27. following A and D.496 0. 10 Issue 1 (Ver 1.315 0.505 0. Febuary 2010 P a g e | 54 0.43 C 0. Machine Priority Normalized Priority Target Utilization 1 2 3 1 2 3 0. A 3 0. Table 3 shows the priority values of jobs at 3 different stages.409 A.5 B 0.411 0. For multiple jobs grouped to a single each job prioritized to be processed in each machine at each stage. These priority values and target utilizations of machines at different stages are depicted in Table 4.496 D.319 0.Global Journal of Management and Business Research Priority of jobs is calculated using Fuzzy Inference System (FIS).553 14.518 0.543 D 3 0. B 2 0.569 Stage 3 0.4280 25.366 0.626 and so on.547 0.469 0.501 C 2 0. A 3 Table 5. the machine. 3 Stage 1 2 Machine Priority Job 1 0.836 14.532 C.38 0. Priority values of different jobs at different stages Priorities of machines are also determined based on the reliability of the machines found from the fuzzy inference system.596 Table 3. and the lowest priority job is B. The machine.499 0. has ranked the second top Stage 1 2 0.511 C.3094 15. has ranked top priority machine at that stage.546 0.587 0. Priority values and target utilizations of different machines at different stages Using the developed algorithm explained in Figure 5.505 D 1 0.352 0.9388 18.575 0. which has second highest priority.

294-301. pp. Vol. 733-742. E. European Journal of Operational Research. 1. 3) Engin. Vol. pp. whereas job D and A should be processed respectively in machine 2. pp.. Vol. ―Local search algorithms for flow shop scheduling with fuzzy due-dates‖. A.. European Journal of Operational Research. R. 15) 16) 17) 18) International journal of Production Research. O. (1993). 239-242. pp. Computers and Industrial Engineering. S. and Duenas. and Abhary. Petrovic. D. B. No. H. 2. K. and Lee. S. VII CONCLUSIONS A multi-objectives hybrid flow shop scheduling problem has been considered in this research while uncertainty is added through fuzzy processing time. and Tanaka. ―A computational study with a new algorithm for the three-machine permutation flow-shop problem with release times‖.. 130. N. European Journal of Operations Research. machine 1 should process job C first and then job B. Chang.. P. Vol. (2008). H. International Journal of Operational Research .. 16. 10 Issue 1 (Ver 1. H. A. 338-353. J. G. pp. ―Metaheuristic approaches to the hybrid flow shop scheduling problem with a cost-related criterion‖. 227-237. (2001). ―Fuzzy job scheduling for a flow shop‖. to meet due dates.. pp. ―Realtime task scheduling with fuzzy uncertainty in processing times and deadlines‖. 1-13. Future Generation Computer Systems. ―Handling flexibility in a generalized job shop with a fuzzy approach‖. 407-424.. ―A fuzzy logic based methodology to rank shop floor dispatching rules‖. A and Rizzi. Vol.. pp. pp. C. 8. C. 5) Garcia. C.. International Journal of Production Economics. and Gen... Finally at stage 3.fuzzy Mean time to repair (MTTR). Some other variables (where need) can be added to make final schedule more realistic. and Döyen. ―Hybrid flow shop scheduling: a survey‖. (2005). Several variables are used to calculate job and machine priority. and Zhang. fuzzy mean time between maintenance (MTBM) and fuzzy mean time between failures (MTBF) and fuzzy failure rate (FR). 2273-2285. European Journal of Operations Research.. E. A. fuzzy due date. Vol.. Vol. I. Kozan. A. (2006). 10. The remaining machine 2 should process job A first and then job B. P. ―Production and delivery scheduling problem with time windows‖. pp. F. S.. job B should be processed in machine 2 and job D should be processed in machine 3. pp... 903-915. pp. Information Sciences. and then job A. Yamamoto. L. to minimize set up time. (1997).. No. S. Vol.. S. 4) Felix. 559-575. 8. Then a programming code is developed to make the final schedule where weight or priority of jobs and machines are the input and target is to minimize the over utilization. 1083-1095. 2. ―Fuzzy sets‖. International Journal of Production Economics. Y. ―Fuzzy flexible flow shops at two machine centers for continuous fuzzy domains‖. (1994). E.0).. (2004). M. ―The three-machine flowshop scheduling problem to minimise maximum lateness with separate setup times‖. pp... and Oguz. pp. 6) Grabot. S. and Cheng. T. Al-Anzi. K. Applied Soft Computing. fuzzy mean time between shutdowns (MTBS). and Geneste. Petroni. pp. The remaining machine 1 should process job C first. Vol. Vol.. 345-356. to maximize machine or labor utilization. ―Some aspects of scatter search in the flow-shop problem‖. No. Global Journal of Management and Business Research 7) 8) 9) 10) 11) 12) 13) 14) VIII REFERENCES 1) Allet. Lichtenstein M.P a g e |55 Vol. (1965). T. 76. 105. Vol. fuzzy cost over time and fuzzy available raw materials to determine the job priority and machine reliability and availability affected variables such as. (2000). 32. J. fuzzy profit over time. 147. pp. (1994). At stage 2. . and Wang. 312-333.. S. Misaki. and Smutnicki. 25. pp. 37. ―A fuzzy logic based production scheduling/ rescheduling in the presence of uncertain disruptions‖. 99-108. Fuzzy Inference System (FIS) is used to calculate the weight of jobs and machines at various stages. and Shukla. and Stephenson. 129. 48. Vol. S. L. Engineering Applications of Artificial Intelligence‖. 57-61. K. M. Linn. and Lozano. A. 654-666. to minimize work in process inventory level. Hong. ―An effective method for solving flow shop scheduling problems with fuzzy processing times‖ Computer and Industrial Engineering. job D should be processed in machine 1 and job C should be processed in machine 3.. Vol. C. 135-155. K. 53-66. Muhuri. Park. International Journal of Production Economics. (1999). Information and Control. T. Several objectives have been considered like to minimize lead time. pp. Vol. 2) Cheng. A. (2007). C. at stage 1. ―A fuzzy approach to operation selection. (2003). Steiner. No. C. T. W. 4. (2006). (2005). Allahverdi.. Vol. Vol. (2002). January2010 As obtained in the developed method. Ng. 20. (1992). 62. 169. fuzzy mean time to failure (MTTF). Zadeh. S. 33. Janiak. T. ―A new approach to solve hybrid flow shop scheduling problems by artificial immune system‖. Ishibuchi.. Tsujimura. 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Despite the rich resources and large internal market. Nigeria Email: tomolaobamuyi@yahoo.2 per cent. as Solanke (2007) argues. rather than production activities. investigate the impact of financial liberalisation policy on private sector development using some major indicators of economic performance. Canada. in 2007. or at least too small to positively impact on economic growth. 10 Issue 1 (Ver 1. and economic instability. the country is being regarded as a low-income country. and resilience would determine in substantial respects how far the lofty objectives of repositioning Nigeria‘s economy can be achieved. It shows that financial liberalisation has led to increased manufacturing capacity utilisation necessary for economic growth. if the government would sincerely provide the needed conducive environment and the private sector efficiently utilises banks’ credits for industrial development. and Africa biggest economy by 2050(Business Economy. its characteristics.0). and life expectancy of 47. industrial capacity utilisation of 45. Hence. or diverted to some unproductive ventures.Government Policies. as a response to the numerous challenges facing the nation. Relevant data relating to the influence of the policy on macro-economic performance and private sector development were obtained from primary and secondary sources. The argument is that Nigeria is not a poor country. Recently. This is because. mismanagement of resources. poor infrastructure. Private Sector. among the 20 leading countries in the world by 2020 (The Times of Nigeria 2008). the country had a real gross domestic product (GDP) growth rate of 6. 2008). especially in developing countries. . political and economic instability.Global Journal of Management and Business Research Vol. The objective of the vision 20-2020 is in line with various studies and projections by Goldman Sachs that Nigeria will be the 20th and 12th largest economy of the World by 2025 and 2050 respectively ahead of Italy. Economic Development I N INTRODUCTION igeria is one of the richest countries in Africa with a population of about 144. This study will assist policy makers in fine-tuning their liberalisation policy and the private sector to adopt a value re-orientation approach to enhance the performance of the economy. The attempt to strengthen the private sector by the government led to the implementation of financial liberalisation policy in 1986 as part of the Structural Adjustment Programme (SAP). called the National Economic Empowerment and Development Strategy (NEEDS) in 2004.77 per cent. the fundamental questions that need to be answered are: (i) Had the policy of financial liberalisation significantly influenced the performance of the Nigerian economy? What are the key constraints that have retarded the growth of the private sector? Based on the research questions. The vision 2020 is to be realised through the growth of the private sector. The country is endowed with human and natural resources 8th largest oil producer and 6th largest deposit of gas. but needs to be complimented by an increased flow of funds to the private sector for investment in the real sector of the economy. Over half of the population lives in absolute poverty. the specific objectives of the study are to: i.uk Abstract. credits to private sector were not found to have a positive impact on economic growth in Nigeria.7 million (World Bank 2007). The findings provided insights on the overall impact of financial liberalisation policy on the private sector. Flow of Funds. disposition. Febuary 2010 P a g e | 56 Financial Liberalisation Policy for Fostering Credit to the Private Sector in Nigeria for Economic Growth Tomola Marshal Obamuyi Department of Banking & Finance Adekunle Ajasin University Akungba Akoko. The policy implication is that the private sector in Nigeria could only be a positive force for growth. However. fraud.co. and high cost of funds were found to have constrained the contribution of the private sector to economic development. but a poorly managed country. However. Keywords. For instance. high level of corruption. All indicators of social and economic development pointed to a significant weakening in the country‘s performance. The country also adopted a medium-term strategy. The bane of Nigeria‘s poor development has been over dependent on the public sector. Korea. Economists refer to the coexistence of vast natural resources and extreme personal poverty in developing countries like Nigeria as the ‗resource curse‘ (Wikipedia 2007).2 per cent. the government approved vision 20-2020 for transforming the country into a modern economy. There is evidence that a small proportion of the population (estimated at 20 per cent) account for up to 80 per cent of the nation‘s wealth (Nigerian Banking Report 2008). the state of the private sector. The analyses were descriptive and quantitative in perspective. among others(Skyscraper City 2006).This paper assesses the impact of Nigeria’s financial liberalisation policy for fostering private sector development. This implies that credits to private sector were used for commerce (buying and selling).

the conditions for licensing of banks and other financial institutions were relaxed. The challenges before the new micro-finance institutions is how to provide financial assistance to over 65% of the economically active population uncatered for by the formal financial institutions. Dominance of few banks. Thus. Thus. By 2005. The policy of SAP involves a reduction in the role of the public sector in production activities through the processes of privatisation/commercialisation of public sector investment. the new micro credit institutions must not be allowed to serve as conduit pipes. internationally competitive. the institutions must tighten their lending standards. Thus. The purpose is to allow for the merger of community banks for them to grant both collaterised and uncollaterised loans to finance micro economic activities. In an attempt to make the banking sector sound. the banks used strategies such as mergers. increase the efficiency in service delivery. like the past government assisted credit schemes. and Banking sector credit to the domestic economy at 24 per cent of GDP.0). in doing this. This scenario. however. the tendency is for the SMEs to grow into large and conglomerate firms. However. the creation of accommodating reforms was acknowledged as an important pre-requisite for unleashing a private sector response towards economic growth. by 1993. especially for loans more than 12 months. with effect from January 1. 25 groups of banks emerged. Weak corporate confidence. undercapitalisation and the country economic crises. However. The hope for the consolidation was that. At the end of the consolidation exercise. The main areas of the financial liberalisation policy were banking credit to the economy. Government policy was predicated on the premises that industrialisation contributes directly to economic growth. stable. 2005. a total of 33 banks were liquidated (2 in 1994. mismanagement. reliable. floating of new shares and so on. The introduction of the Structural Adjustment Programme (SAP) in September 1986. The problem was compounded by absence of supportive enabling investment climate. brought a number of sectoral reforms to the economy. Over-dependence on public sector deposits and foreign exchange trading. the country started experiencing serious difficulties. mega banks would mobilise large amount of funds to provide loanable funds to the productive sector. As Soludo (2006) observes. and remain competitive. Insolvency and illiquidity. leading to proliferation of banks. while 14 banks that could not merge were set for liquidation. with the policy of financial liberalisation. licensing of banks. especially at this period when all the countries of the world are emphasising private sector development as a catalyst for economic growth. Most of the banks were liquidated because of fraud. the Central Bank of Nigeria (CBN) embarked on the financial policy of recapitalisation of banks. January2010 ii. The Central Bank of Nigeria (CBN) also introduced new micro-finance policy (MFP) on 15th December. dominated by the small and medium enterprises in Nigeria. 10 Issue 1 (Ver 1. out of the 89 existing commercial banks. the country lacks the technological capability and the infrastructural facilities to attract investments and sustain industrial growth. II FINANCIAL LIBERALISATION POLICY AND PRIVATE SECTOR DEVELOPMENT IN NIGERIA The government of Nigeria has been playing active role in promoting industries in the country since independence in 1960. is to make the private sector an ‗‗engine of growth. directed that the minimum paid up capital of banks be increased from N2 billion to N25 billion. employment generation and reduction of dependence on imports (Federal Ministry of Industry 2007). the financial liberalisation policy provides a mechanism intended to facilitate the flow of funds for private sector in order to foster enterprise development and substantially increase growth. The implication is that credit flows to the private sector declined. brought distress into the financial system. For instance. consolidation presents a new challenge. a clear Global Journal of Management and Business Research picture of the structural deficiencies in the financial sector that may ultimately constrain bank lending to the private sector had emerged. and the banks were forced into employing tighter control in their lending activities to the private sector. about 120 banks have been registered. acquisition. which requires a more serious effort by the banks to control costs. Therefore. Low depositor confidence. identify the constraints to increasing development of the private sector in Nigeria This paper is relevant and timely. The micro finance institutions are to specialise in financing the small and medium enterprises.P a g e |57 Vol. dependable. The micro finance programme is designed to be public and private sector –driven. the sector was characterised by structural and operational weaknesses such as: Low capital base. . The policy. including financial liberalisation policy. The paper has clearly shown that development through private sector is feasible with the commitments of all stakeholders in the economy. Poor asset quality. As stated by Mullin (2002).‘‘ Therefore. The climax was reached in 1985 when the external sector became virtually unmanageable. effective use of available resources. The aim of the policy. The policy also aims at making the financial services accessible to a large segment of the potentially productive Nigerian population who otherwise have little or no access to financial services. Similarly. interest rate administration. the best design of the new micro credit institutions should be public and private sector owned. by early 1981. compared to Africa average of 87 per cent. and to strengthen its ability to provide credit to the private sector. Between 1994 and 2000. 2004. Unfortunately. the public-private partnership (PPP) remains an important approach to designing and implementing economic development strategies. announced on July 6. 2006. To raise the funds. 2 in 1995. for political office holders who are only interested in embezzling the money. Thus. but privately managed for effective performance and sustainability. There was massive wastage of the revenue from the oil boom without any regard for serious economic planning for the productive sector. among others. and saving behaviour. 26 in 1998 and 3 in 2000).

This recognition dates back to Goldsmith (1955). The first respondent in a bank was chosen purposively. (ii) They must be business owners.0). 10 private sector entrepreneurial customers were purposively sampled from each of the branches of 5 selected banks (Spring Bank. The data were analysed through descriptive and quantitative techniques. The real gross domestic product (GDP) growth rate was regressed on credit to the private sector and other macroeconomic indicators.structured questionnaire was administered for 2 days on sample of 300 private sector operators from the 30 branches of the 5 selected banks in the 6 States. MCU. and Economic Growth Figure 1 demonstrates that an improved financial intermediation is expected to stimulate the level of credit to the private sector and increase the level of investment and income.Global Journal of Management and Business Research III CONCEPTUAL AND THEORETICAL FRAMEWORK Financial systems have long been recognised to play an important role in economic development. Cameron (1967). Osun and Oyo States.00 pm daily. the contribution of the private sector to a country‘s economic development will be optimal. because they are the commercial hearts of the country. Ondo. on the other hand. MLR. The ultimate effect is to reduce poverty. The South West States of Nigeria. Thus. In each State. Semi. McKinnon (1973) and Shaw (1973). comprising Ekiti. founders or part of a founding group. First Bank and United Bank for Africa). increase per capita income. and (iii) The business has a minimum of 5 years experience. if the financial liberalisation policy is well formulated and managed IV METHODOLOGY The approach adopted for the paper consists of conducting a survey among private sector operators in different sectors of the economy. and enhance manufacturing capacity utilisation. which demonstrated that the financial sector could be a catalyst of economic growth if it is developed and healthy. Skye Bank. Central Bank of Nigeria and document of Government of Nigeria. which were randomly selected from the 25 group of banks that emerged after the consolidation. Private Sector Development. The benefits accruable Vol. . were chosen for the study. The relationship is specified thus: GDP = f(CRP. 10 Issue 1 (Ver 1. Relevant data relating to the influence of financial policy on macro-economic performance and private sector development were obtained from primary and secondary sources. DGD) + + + GDP = β0 + β1CRP + β2MCU + β3MLR + β4 SGD + β5 DGD +  Where. The secondary data was obtained from the publications of institutions such as World Bank. SGD.00 am and closed at 3. Ogun. Interviewees needed to meet the following requirements for participation in the study: (i) They must operate current accounts with the banks. Union Bank. The interview commenced at 9. The goal of financial liberalisation is to provide a mechanism that facilitates the flow of funds for private sector development and generate increased savings and investment and efficient allocation of capital for economic growth. Lagos. on one hand. but the next respondents were systematically selected at an interval of ten minutes after the completion of the questionnaire with the preceding interviewee. Febuary 2010 P a g e | 58 from a healthy and developed financial system relate to savings mobilisation and efficient financial intermediation roles (Gibson and Tsakalotos 1994). Financial Liberalisation Policy Improved Financial Intermediation Savings and Investment Credit to Private sector Manufacturing Capacity utilisations Income Poverty Reduction Per Capita Growth Economic Growth Figure 1: Financial Liberalisation Policy. and by extension leads to economic growth.

This statement may be justified. This has the implication of restraining private sector investment. Data Analysis and Findings i. Descriptive Statistics of Performance of the Economy Very Fairly dissatisfied dissatisfied 1% 3% Global Journal of Management and Business Research Very satisfied 64% . manufacturing capacity utilisation (MCU). using Augmented Dickey-Fuller (ADF). when in actual fact no such relationship exists. especially when viewed against the performance of the economy since 1985. the stringent lending conditions.0). The aim was to establish whether bank performance actually improved during the period of financial liberalisation policy. conditions of lending. impact and quality of financial policy on the flow of funds to the private sector in terms of availability of finance. which results from the regression of two or more nonstationary time series data. with graphical illustration in Figure 5.P a g e |59 Vol. but negatively related to lending rate (MLR). V HYPOTHESIS Increased flow of funds to the private sector through financial liberalisation policy is a prime determinant of economic growth. 1979 and 1981). DGD = Deficit /GDP rate. About 80 per cent and 69 percent of the private business operators are dissatisfied with the lending conditions and high cost of funds of the banks respectively. and saving/GDP ratio (SGD). CRP = Growth of credit to private sector. the time series properties of all the variables were ascertained to avoid spurious regression. Prior to estimation. as shown in Table1.4). but the private sector is reluctant to borrow. R2. In other words. time series analysis was carried out to examine the data for stationarity or non-stationarity problems. A. and t = Error term. Cant say 4% Fairly satisfied 28% Figure 2: Availability of Finance Cant say 7% Very dissatisf ied 47% Very satisf ied 9% Fairly satisf ied 4% Figure 3: Conditions for Lending Cant say 7% f airly dissatisf ied 33% Very satisfied 16% Fairly satisfied 8% Very dissatisfied 49% Fairly dissatisfied 20% Figure 4: Bank Charges Although. and ultimately retards economic growth. most of the times. have made banks‘ finance unattractive to the private sector. MLR = Maximum lending rate of banks. SGD = Saving/GDP ratio. Granger and Newbold(1974) had concluded that regression results of non-stationary series may. and cost of funds (see Figures 2 . MCU = Manufacturing capacity utilisation rate. This means that the time series have to be detrended before any sensible regression analysis can be performed. including various astronomical charges.7 per cent) are either very. is that the banks are liquid and are ready to lend. The a priori expectation is that GDP growth rate is positively related to credit to private sector (CRP). January2010 GDP = Real gross domestic product growth rate. because of the high transaction costs and other lending conditions. The issue. or fairly. majority of SMEs (92. The study tried to know how the entrepreneurs evaluated the importance. which is an extension of Dickey-Fuller test (see Dickey and Fuller. satisfied with the liquidity position of their banks. therefore. which is identically and independently normally distributed with mean zero and constant variance. be ‗spurious‘ to the extent that a relationship would be accepted as existing between two variables as measured by their coefficient of determination. 10 Issue 1 (Ver 1.

7 38.4 17.5 2005 6.4 29.9 42.1 26.6 26.0 Source: Central Bank of Nigeria Statistical Bulleting and Annual Reports (Various issues) -0.0 -3.6 7. the ratio of savings to GDP fluctuates over the periods.8 30.9 37.0 20.8 24.0 1.0).5 19.4 17.2 20.1 2002 4.6 46.8 5.4 1987 -0.4 1994 1.8 56.0 7.3 20.6 16.7 40.5 36.8 5.8 20.0 8.9 43.3 1997 3.9 21.7 11. For instance.1 31.7 54.7 23.3 51.9 1986 3.0 19.2 1993 2.0 2004 6.9 38. This implies that financial .0 7.9 6.5 21.4 5. In addition.0 -8.6 38.3 3.0 -2.3 27.2006 Credit to private sector Capacity Utilisation Saving/GDP Ratio Figure 5 shows that most of the basic factors affecting private investment have not shown significant improvements over the years. 10 Issue 1 (Ver 1.0 -1.1 1998 2.0 12.2 36.4 23.8 2000 5.2 30.7 4.1 2006 5.2 30.0 3.7 29.0 -1.2 53.4 21.0 -3.0 16.7 42.4 34.5 30.9 36.2 17.8 2001 4.8 2003 9.7 20.0 34.4 27.6 70 60 Percentage 50 40 30 20 10 0 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 -10 -20 Year Figure 5: Performance of the Economy.8 19.0 -4.9 25.6 19.4 30.3 12.7 43.0 0.6 11.6 26.2 26.3 18.4 19.0 27.8 1999 2. Febuary 2010 P a g e | 60 Table 1: Performance of the Economy (1985 – 2006) Year GDP CRP MCU MLR SGD DGD 1985 9.6 37.0 11.0 5.0 1992 3.6 31. the contribution Gross Domestic Product Lending Rate Deficit/GDP Ratio of the financial liberalisation to real GDP growth could only be marginal.2 23.5 1989 7.0 8.8 17.6 28.0 -1.6 55.0 15.4 18.9 1995 2.8 12.3 32.3 11.9 1990 8.3 1988 10.8 54.3 18.2 49.0 10.4 40.5 1991 4.2 35.Global Journal of Management and Business Research Vol.8 12.0 1.5 59.1 1996 3.7 20.0 10. 1985.2 10.2 18.

The private sector.8 1993 15. From 1985–2006.176.2 9.400. The share of private sector credits in the total credits remained very low. with the current tendencies of the financial sector reflecting high preferences for mega enterprises.P a g e |61 Vol.810.1 169.056.7 3. Long-term finance is very Global Journal of Management and Business Research rare and only the most creditworthy have access to it (World Bank 2002). The poor performance of savings is believed to have resulted from the public loss of confidence in the banking system because of distress in the system.844.3 508.5 141. As Ajayi (2007) observed.5 1999 46. the anticipated flow of funds from the banking sector to the real sector.428.260.0 22.5 15. which was one of the thrusts of the government policy.519.624.368.981.2 1994 20.0 17.0 25. January2010 liberalisation did not improve the level of savings.164.462.672. especially between 1994 and 1998 and between 2001 and 2002. especially on SMEs. especially the small and medium enterprises (SMEs) are yet to feel the impact of financial liberalisation policy. Table 2: Ratio of Loans of Small Scale Enterprises to Commercial Bank’s Total Credit Year Commercial Banks Loans to Small Scale Enterprises (N‘ Million) Commercial Banks Total Credit (N‘ million ) Commercial Banks loans to Small Enterprises as percentage of total credit (%) 1992 20.628.0 32.0 1998 42.1 13.210.0).346.033. is yet to manifest on the economy. even after the policy.5 2004 54.2 1.7 2001 52.0 1997 40.081.0 48.899.6 per cent of the total credit to the economy went to the private sector.0 41.8 8.242.6 2002 82. a possible source of increased investment.824.3 2000 44.9 48. The bulk of the credit that was channeled to the private sector was mainly directed towards short-term investment.7 Source: CBN Statistical Bulletin volume 16 December 2005 .782.6 2005 50.3 240.5 1.5 92.374.4 2.6 2003 90.895.6 1.8 6. 10 Issue 1 (Ver 1.302.149.0 353.302.552.2 1995 32.7 272. only average of 27.4 954.242.1 7.4 796.542.0 22.9 1996 42. Table 2 shows the credit to SMEs as ratio of total credit to the economy.

0). Table 3: Unit Root Test Order of integration 1(0) 1(0) 1(2) 1(0) 1(0) 1(0) Source: Data Analysis. 0 0 . 0 . The implication of the information depicted in Figure 6 is that financial liberalisation policy has not generated enough funds for the development of private sector-led economy.7 per cent in 2005. 0 00 0 . 0 400 000.2 . 0 . as reported in Tables 4 and 5. 0 200 0. except the DGD that demonstrated the problem of unit root (random walk).0 . Because of this.0 00 1. there is the need to check whether the linear combination of the residual is stationary or not. there was a decline from 48. Regression Results of the Performance of the Economy. SGD) are stationary at level. 0 0 .0 .6 . especially SMEs. This led to finding the cointegration using both the trace statistic and max-eigenvalue.8 0. CRP.0 1.0 2.4 0.20 05 20 04 20 03 20 02 20 01 20 00 19 99 Vol. Commercial banks were reluctant to give loans to the private sector. 1985 – 2006 In order to induce stationarity. MCU.000 0 0 0 8 000. until a stationarity of the series was achieved.0 1. the data were transformed by taking the first differences of all the variables that appeared to have unit root problem.000 0 0 .0 0 1.000 0 0 .000 0 0 0 .000 0 0 . MLR.0 1. 2008 Result of the stationarity test (Table 3) indicated that all the variables (GDP. not because the sector is not viable.000 0 . 10 Issue 1 (Ver 1. This means that government objective of using private sector as a catalyst of development may not be easily achieved Series GDP CRP DGD MCU MLR SGD Commercial Banks Total Credit ii. .2005 Commercial Banks Loans to Small Scale Enterprises As shown in Table 2 and Figure 6. but due to the perceived risky nature and lack of government guarantee schemes.0 19 92 Amount(Naira) Global Journal of Management and Business Research Year Figure 6: Amount of Loans to Small Scale Enterprises by Commercial Banks 1992 . but became stationary at the second difference. lending to the SMEs has been declining.8 per cent in 1992 to 2. Thus. 0 600 00. despite the introduction of financial liberalisation policy. This involves an assessment of the degree of integration of the relevant variables and a check on whether or not they cointegrate. Febuary 2010 P a g e | 62 19 98 19 97 19 96 19 95 19 94 19 93 0 0.

manufacturing capacity utilisation and other performance indicators on economic growth.781316 0. January2010 Hypothesised No of CE(s) None * At most 1 * At most 2 * At most 3 At most 4 At most 5 Global Journal of Management and Business Research Table 4: Cointegration Test (Trace Statistic) Eigenvalue Trace Statistic 0.72836 At most 4 0.9844 DGD -0.945819 DLOG(MLR) -0. C 3.259899) indicating that the equilibrium property of the model is ensured.58480 27.038164 -0.429320 0.71106 50.986697 0.145549 -4.259899 -2.81608 1.530700 F 5. The error correction model was used to verify the long run linearity of the model (Table 6).005900 0.21 29.199898 DLOG(DGD) 0.37 33.597545 5 percent Critical Value 94.0).076770 183.986697 86.151906 3.P a g e |63 Vol.46 27.078358 -0. it means that there is long run equilibrium among the variables.521174 0.07 3.900372 0.52 47. during the periods of financial liberalisation in Nigeria. R2 0.876187 ECM(-1) -0.491906 DLOG(MCU) 2.07 20.684002 23.76 * Trace test indicates 3 cointegrating equations at the 5 per cent level Table 5: Cointegration Test (Max-Eigen Statistic) Hypothesised No of CE(s) Eigenvalue Max-Eigen Statistic None * 0.97 14.54444 12.900372 46.521174 14.68 15.428762 0.139093 0.427077 DLOG(CRP) -0.471960 -0.1068 96.019842 0.684002 0. measured by the gross domestic product.429320 11.21854 At most 5 0.0008* MCU 0. The regression analysis in Table 7 showed the effect of credit to private sector.597545 * Max-Eigenvalue test indicates 2 cointegrating equations at the 5 per cent level 5 percent Critical Value 39. Table 6: Error Correction Results Variable Coefficient t-statistic C -0.121171 -0.642438 Adj.04036 At most 3 0.41 3.0061918 0. it was found that this coefficient agrees with theory since it came up with negative value (-0.169096 0.133181 0.078814 From the error correction model result.76 The result of the trace statistics shows that there is the probability that at most two cointegrating vector cannot be rejected and this is corroborated by the result of max-eigen statistic.001035 0.12626 At most 2 0.027247 0.749494 *Significant at 5 per cent level .585291 DLOG(SGD) -1.3447 CRP -0.4460 R2 0.39579 At most 1* 0.973743 0. From this.15 68.235768 -1.6738 SGD -0.0084* MLR -0. Table 7: Regression Results of the Performance of the Economy. 10 Issue 1 (Ver 1. 1985 – 2006 Dependent Variable: GDP Independent Variables Coefficient t-statistic Sign.076770 1. Level.

in the real sector of the economy for investment in productive activities. For instance. the aspirations of a private sector-led economy will not be realised. especially small and medium enterprises. is too negligible to contribute positively to economic growth. political and economic instability. Thus. It was the attempt to reduce the level of corruption in Nigeria that the government introduced the Independent Corrupt Practices and Other Related Offences Commission (ICPC) and the Economic and Financial Crime Commission (EFCC). to reverse the trend. Similarly. While this counter-intuitive result calls for further investigation. the coefficient of credit to the private sector (CRP). the objective of high growth in the private sector may be frustrated by the wave of organised crimes and robbery attacks on banks. especially electricity. This will make the private sector to be responsive and contribute to economic growth. The World Bank has estimated that because of corruption in Nigeria. in which many police officers and customers were killed. However. the study provides insights into . the private sector must be monitored to avoid diversion of funds to unproductive ventures. The share of private sector credits in the total credits remained very low.0). Utomi in Solanke(2007) noted that the private sector corruption in Nigeria was now beginning to compete with public sector corruption. Constraints to the Growth of Private Sector in Nigeria This study sought the opinions of the private sector operators and asked them to identify the most problematic factors constraining private sector development in Nigeria. since higher economic growth is achievable with increased capacity utilisation induced by the financial liberalisation. They placed high priority on poor infrastructure. was reported by more than 1 in 3 businesses as contributing to high cost of doing business and high mortality rate of SMEs in the country. This implies that the expectation of increased flow of funds to the private sector through financial liberalisation policy in order to achieve higher economic growth could not be justified. averaging 27. This emphasised the issue of moral hazards in most of the private sector lending in Nigeria. measured by gross domestic product (GDP) during the period of financial liberalisation.6% from 1985. contrary to economic theory of positive relationship. The result also suggests that the amount of credit to the private sector. which implies that an increase in MCU will lead to increase in gross domestic product (GDP). as a proportion of the total credit to the economy. 45 40 Percentage 35 30 25 20 15 10 5 0 Poor Inf rasruct ure Polit ical and economic uncert aint aint y Low ef f ect ive demand Regulat ory inconsist ency High cost of f unds Corrupt ion Constraints Figure 7: Constraints to Private Sector Development in Nigeria Inadequate infrastructure. there have been frequent attacks on many banks by armed robbers. it may implies that credits to private sector are used mainly for commerce (buying and selling). These factors have the tendency of lowering investment and productivity in the private sector. Therefore. or diverted to some unproductive ventures. This problem has been compounded by high level of corruption and the festering economic and political crises in the country. high level of corruption. has made many firms to fold up prematurely in the country. Febuary 2010 P a g e | 64 needs to encourage banks to increase their lending to the private sector. As Soludo (2008) observes. without security. 80 per cent of energy revenues benefit only one per cent of the population (Wikipedia 2007). rather than production activities. which has reduced competitiveness of the Nigeria private sector. The high level of corruption and economic instability ranked as second and third most important constraints on the activity of private sector. Surprisingly. The high level of corruption.Global Journal of Management and Business Research Table 7 shows that two of the variables (manufacturing capacity utilisation and credit to private sector) significantly influenced economic growth.2006. which would have increased economic growth. the private sector. Specifically. VI CONCLUSION AND POLICY IMPLICATIONS The paper has contributed to the growing discourse on the need for the government to fine-tune her financial liberalisation policy to encourage the flow of funds to the private sector. considered critical for economic development. as reported by almost 1 in 5 businesses. the coefficient of manufacturing capacity utilisation (MCU) is positively and statistically significant. did not feel the impact of financial liberalisation policy iii. it was found that the contribution of the financial liberalisation policy to economic growth was only marginal. and high cost of finance as affecting the growth of the private sector (Figure 7). Based on the data analysis. the government Vol. the high cost of funds ranked fourth as affecting business performance. especially SMEs. Finally. This result is consistent with economic theory. statistically significant. was negatively signed. 10 Issue 1 (Ver 1. although. In recent times.

New York: Oxford University Press. to ensure successful outcome of the policy for private sector development. Abramovitz.P a g e |65 Vol. 2008.com/. ―China to be World‘s Biggest Economy by 2025. Private Sector: There is need to adopt value re-orientation approach by the private sector towards banks‘ borrowing and encourage investment in the real sector of the economy to enhance its performance. 2(111-120) 10) Federal Ministry of Industry (2007).‘‘ Biometrical. 2008.asp?fil e=/2008/3/4business/20080304151851&sec=busine ss-29k>. Tsakalotos(1994).C. 30(3).‖<http. ―Nigeria Data Profile. Accessed on March 5.org/wiki/Economy of_Nigeria>.h tml>. the study has policy implications for the government and private sector as follows: The Government {at all levels}: Government must provide enabling environment for the other key players in the financial industry.punching. 07: <http://www. 20) The Times of Nigeria (2008). C. but needs to be complimented by an increased flow of funds to the private sector for investment in the real sector of the economy.‘‘ Review of Economic Development Literature and Practice. Princeton.―New Goldman Sachs Research: Nigeria to be among the 20th Largest Economies Worldwide. Lagos: Afrinvest(West Africa) Limited 15) Shaw E.com/stories/200802070613. (2007).thestar.W.gov/ng/downloads/reforms/ds00 1-assessmentoftheprivatesectorinnigeriaworldbank. and Newbold. Nigerian Banking Sector: Macro-Economic Play on Africa‘s Largest Emerging Market. O. 31st December 5) Dickey. 25 October. P.‖ Vanguard Newspaper.skyscrapercity.‗‗Likelihood Ratio Test for Auto Regressive Time Series with a Unit Root. Accessed on March 4. there must be an integrated approach that guarantees private sector‘s access to finance. especially in developing countries.bsjournal.my/news/story. T. Ed. ‗‗Spurious Regressions in Econometrics. 4) Central Bank of Nigeria (2005). 17) Soludo. C. H.‖ February. ―Security Lapses Threaten Vision 2020. ‗‗Public-Private Partnerships and Local Economic Development: Leveraging Private Investment.: The Brookings Institution.C. Accessed on March 4. 18) Soludo.org. 9) Granger. (2008). 2008. 578-628 8) Goldsmith.‖ <http://www.‖ http://www. March. Annual Report and Statement of Accounts. 49: 1057-1072 7) Gibson. and E. NJ: Princeton University Press. W.Accessed on March 4. Money and Capital in Economic Development. (2007).(1967).pdf >.Testing for Serial Correlation in Least Square Regression. C. 16) Skyscraper City (2006).‖ The Journal of Development Studies.A. Thursday.Accessed on March 7. Financial Deepening in Economic Development. W. Washington. ―Industrial Policy of Nigeria: Target.‖ <http://www. New York: Oxford University Press. R. R. W. D. Guidelines and Institutional Framework. . 2008. 12) Mills.(2006).‖ <http://www.html>.com.biz.‘‘ Journal of Econometrics. and Fuller. The high level of corruption. Specifically. 3) Cameron.‘‘ paper presented at the Global Banking Conference on Nigerian Banking Reforms. Policies.tips. 11) Mckinnon. (1990). ―The Scope and Limits of Financial Liberalisation in Developing Countries: A Critical Survey. C.―Economy of Nigeria‖<http://en. small. D.aspx?theartic=Art 20080228216462>. 2008. must be tackled by the relevant government anti-corruption agencies.A.A.(1974). Therefore. ―FEC Approves Final framework for the Implementation of Vision 2020.www. 21) Wikipedia(2007). 22) World Bank (2002). (1973). It shows that financial liberalisation has led to increased manufacturing capacity utilisation necessary for economic growth. 2008.com/Articl. Incentive. January2010 Global Journal of Management and Business Research the impacts of financial liberalisation policy on private sector development in Nigeria.php?t=346465-38k>.L.(2002). 10 Issue 1 (Ver 1. especially small and medium enterprises.0). P. A. Accessed on March 5. Banking in the Early Stages of Industrialisation: A Study in Comparative Economic History. S. 58:20-35 6) Dickey. 2008. D.‖ World Development Indicators Database. ―An Assessment of the Private Sector in Nigeria: Pilot Investment Climate Assessment. ―Financial Structure and Economic Growth in Advanced Countries. M.. 2008. VII REFERENCES 1) Ajayi.(1973). 19) Solanke. April.A.com/showt hread. 2) Business Economy (2008).Accessed on March 5. Cambridge University Press 13) Mullin. ―Financial Sector Reform yet to Impact on SME‘s. and Fuller.(1955). ‗‗Beyond Banking Sector Consolidation in Nigeria. 16 14) Nigerian Banking Report (2008). and large-scale industrial enterprises through the reduction of regulatory impediments and injects capital into infrastructure for industrial development. This involves facilitating the growth of micro. 23) World Bank (2007).\opinion\commentvision2020. Time Series Techniques for Economists.allafrica. London.(1979). Accessed on March 7.wikipedia.‘‘ Econometrical. ―Vision 2020: Need for a Purposive Approach. medium.(1981).‖ in Capital Formation and Economic Growth. C. which has negatively affected business environment in Nigeria.za/node/1211-14k>.‖ <http://www.usaid. R.

The third part examines the oil industry and the state of economy. It may also be traced to the non-performance of the contented disposition of the political leaders who ordinarily should have been the voice of the masses. Policy I I INTRODUCTION n the last two decades. the region continues to witness unimaginable mass poverty and low level of human development. According to CBN report. Thus. It also highlights the oil industry and the politics that have impinged the development in the region. there has been an unimaginable mass poverty and negligible development in the region. of the technology needed for development as well as the development by the people of the capacity to manage their own affairs. Oil Politics. unemployment. University of Lagos Akoka. This situation may be attributed to the nature of revenue allocation formula. as the major recipient of the oil revenue. every effort to develop the region through policy reforms and socioeconomic and political measures has yielded little or no result. In spite of the abundant oil wealth. In fact. Samuel C. Obasanjo and Mabogunje (1991) define development as a process concerned with the people‘s capacity in a defined area over a defined period to manage and induce positive change. plan. The Gulf war in 1991 is a good example. little substantive progress has been made in addressing development issues in the region. it is about producing. It is therefore an irony of fate that the area. social inequalities. which produces the bulk of the oil. the country has witnessed not only economic crisis but also political instabilities.Global Journal of Management and Business Research Vol. As a result. Today. It is not just about consuming. as the allocation of the resources and second. 10 Issue 1 (Ver 1. Relating this to the Niger Delta. Nations go to war because of oil.Economy. . Thus. II ANALYTIC FRAMEWORK Different scholars give different definitions to the term development. youths of the area through association of various ethnic militia groups have become restive in their bid for greater control of their natural resources. Keywords. understand and monitor change and reduce or eliminate unwanted or unwarranted change. In spite of this. In other words. the youths through various ethnic militia groups have become restive in their bid for greater control of their natural endowment. The fourth part evaluates the oil politics and the crisis of development while the last part is the suggestions and conclusion. Today. The absence of any meaningful development has necessitated the glamour for the control of resources that endowed to the region. the insensitivity of government and oil companies have created more tensions and crises threatening not only the industry but also the national security. Email: Samugoh@yahoo. Ugoh Department of Political Science.Oil has become a dominant element in power capability profile of any nation. the Niger Delta region of Nigeria has been enmeshed in crisis arising from total neglect and lack of infrastructural development.0). which has been dysfunctional. The paper therefore examines the developmental issues in the oil producing communities against the background of government setting up an internal security task force to deal with the youths. In Nigeria. development entails so many things.com Abstract. According to them. development is about people in that they constitute a repository of energy for development and it is the careful release of this energy that constitutes development.5 million barrels of crude oil is produced daily from the region. and other anti-social behaviors that are the direct result of failed leadership. The paper is divided into five parts. etc. The first is the introduction while the second part deals with the analytic framework. Efforts by the federal government and the oil companies to improve the quality of human lives and provide infrastructural development were too little to ameliorate the problems. the paper examines the rate of development in the oil producing Niger Delta area whether it is commensurate with the environmental damage as a result of oil exploration. It is estimated that about 2. the crisis is between the federal government and the oil producing communities in the Niger Delta region. the rape that is still visited on the oil communities because of their outcry against neglect and marginalization by federal government is an epitome of contradictions to development. bunkering. pipeline vandalization. that is to predict. The paper is therefore motivated by the contradictory roles played by Nigerian state. Febuary 2010 P a g e | 66 Oil Politics and the Crisis of Development in the Niger Delta Dr. the restiveness has manifested in activities like kidnapping. environmental degradation. Yaba Lagos. But it is concerned with the creation by the people themselves. is the least developed in the country. the production contributes almost 95 percent of Nigeria‘s foreign exchange earnings and 90 percent of its revenue (CBN: Annual Report 2003). The paper concludes that the federal government and oil companies must change their hostile approaches and work towards infrastructural development of the region. As expected. first. As a result.

). tools etc. when it is about organizations. The improvement and expansion of the mental horizon of the population arising from functional education and ii. When it is about people. such as. the full realization of the human potential and maximum use of the nation‘s resources for the benefit of all. other key objectives of the development plans include: reduction in the level of unemployment. Soyombo. he opined that it is quite certain that a society in a state of learned helplessness cannot meaningfully embark on genuine national development without first achieving successful emancipation. he concludes that at all levels of development the three essential developmental concerns are. January2010 Some scholars argue that development is a qualitative and quantitative improvement in the life of the people. reduction in the incidence of poverty. Relating this to the Niger Delta.) and physical capital (machine. equitable distribution of income. Dr. committed to improving people‘s well being and responsive to the needs of its citizens. and the democratization of the development process.. whether it is about people. Accordingly. for people to lead a long and healthy life. It implies that while development meets the need of the present it does not compromise the ability of the future generation to meet their own needs. or nations.e.0). when it is about societies. the goal is national development. He opined that if the federal government has lived up to its responsibility and sufficiently focused on the awful neglect of the Niger Delta. equality of opportunity for all citizens. He argues that rapid improvement of the standard of living of the average Nigerian has always been a major objective of country‘s national development plans. competent to guarantee law and order and to deliver public services able to create an enabling policy environment for productive activities and equitable in its conduct. so that fulfillment of any condition does not necessarily mean that growth and development has taken place. improvement in the quality of life of the people. Wilnesky and Lebeaux (1995) therefore. even distribution of income. Peter Odili really comes to mind. He stated that it depends on the extent to which government is perceived and accepted as legitimate. programmes that function to maintain or improve the economic conditions. Similarly. Eze (2005:1) refers development to the goal that must precede development actions. economic. He noted that development transcends as well as encompasses growth and embraces such aspect of the quality of life as social justice. the statement of the former Governor of Rivers State. etc. political. or inter-personal competence of some part or all of a population. Development according to Adedeji cited in Onimode and Synge (1995) means a process of bringing about fundamental and sustainable changes in society. while explaining national development define it as qualitative and quantitative improvement in the living conditions of the people of a State in line with national objectives as indicated in the national development plans. This realization was echoed by leaders like late Indira Gandhi that we need development policies. Afonja and Pearce (1986) believe development is aimed at fulfilling four conditions of stabilities. 10 Issue 1 (Ver 1. explain development as something formally organized and socially sponsored institutions. destinations and action plans. the goal of development must first of all be clearly set out in the form of directions. However. greater access to and ownership of houses and access to basic necessities of life. He further laid emphasis on good governance. qualitative health services. However. which includes the stability of normative patterns. It is when these objectives are achieved that one can talk of national development. and finally by the realization or otherwise of development itself. more employment opportunities. He argued that in developing nations. They argued that these four conditions are given because of the fact that traditional societies resist innovations. and practices to all aspects of life and living. Accordingly. level of commitment of the acting units. He argues that continued sustainable development could only be possible or assured when it is agreed and indeed concrete steps are taken to raise the level of literacy in any society. . The sustenance of positive and highly functional values. this ability to meet the need is determined by the human capital (through education. the acceptance of a common definition of the situation and integration of the system itself to the large system of which it is part. health. the concern is organizational development. It concerns itself with discrepancy between economic indicators and quality of life that led to the development of the ―Human Development Index‖ as alternative indicators of development (Soyombo 2005: 210). Nyerere (1971) comes close to this view. technological advance. education and electricity. Global Journal of Management and Business Research Kundan (1997) cited in Akintoye and Awosika describes sustainable development as a construct.P a g e |67 Vol. to acquire knowledge and to have access to resources needed for a decent standard of living. and. techno-scientific and every conceivable sphere of human endeavor. potable water. (2005) for one. To him. which benefit all strata of the population and not just a favoured minority. In each of these. its difficult environment and the needs of its people would have been transformed into sustainable development. i. customs. development entails normative and organizational changes in the society resulting in: i. To him. the goal is human development. organizations. Sanda (1985: 1-3) puts development as the transitional process sustaining a multifaceted improvement in human condition resulting from structural and functional changes in the social. the tendency has always been to conceive of development in terms of socio-economic alone and that there is need to look beyond mere economic indices and put emphasis on human development. agencies. National development goes beyond growth in economic indicators such as the Gross Domestic Product (GDP) and Per Capita Income. followed by implementation of the action plans. which envisions development as meeting the needs of the present generation without compromising the needs of the future generation.

inadequate and repressive. As a member of OPEC and as the world‘s seventh largest producer of petroleum.85 2002 28.60 per barrel. The average production of petroleum from 1975 to 1980 was about 2. which operate the joint stock ventures. Since the Nigerian state lacks autonomy. The neo-liberal scholars see development beyond the economic indices. In 1971. the price of oil rose to $40. The gradual increase in the selling price may not be unconnected with the high demand . p.Global Journal of Management and Business Research In Africa however. October 1992. the Shell/BP.0). Nigeria became a strategic and important international actor. it simply expropriates. Vol. xxiii. However. (along with other foreign companies is undertaken by) Agip/Phillips.1 Oil Selling Price in Nigeria: A comparative figures. Vol.legal instruments. Every society is expected to improve the conditions of its people especially their quality of life.44 2001 25.1 below provides the detail of oil selling prices during the selected years 1981. Our discourse therefore when situated within the theoretical realm of distributive justice provides analytical framework in understanding the situation in the Niger Delta. Febuary 2010 P a g e | 68 With oil. Nigeria has benefited enormously from oil. The reason for the drop in price was the pressure from the developed countries on OPEC due to recession in the world economy. using coercive instruments to sustain its dominance. p. the development of oil industry transformed the entire economy of the country as the nation earned considerable foreign exchange. The denial of social rights explained the pervasive poverty and underdevelopment in the area. which earned $23. good healthcare. No. acute environmental degradation and gross underdevelopment in the oil – producing areas. shelter. YEAR SELLING PRICE IN US$ 1981 40. III THE OIL INDUSTRY AND THE STATE OF NIGERIAN ECONOMY Oil was discovered in southeastern part of Nigeria in the 1950s. the selling rate in the years 1981 and 1982 recorded the highest per barrel when compared to the 1991 and 1992. conflicts in Africa arises as a result of a global economic system that keeps the continent locked in vicious circle of poverty and domination. aggravating local conflict over power and wealth. “EU Adopts Energy Efficiency Policy to Counter High oil Prices” New Age. 1991. This leads to penury. February 23. During the late 1960s and 1970s. The Nigerian economy expanded at an estimated annual rate of 8.1984:2164). It should be concerned with the provision of the basic needs such as food. Table 1. the present study argues that the basic problem in the Niger Delta region is lack of development. frustrations. the selling price recorded the lowest of US $ 18.02 per barrel in 1983 (Europa. 1992. Drawing from this theoretical argument of what development is all about. Texaco and Chevron. In the fiscal year 1981-82. it became Africa‘s leading Petroleum producing country (Europa. the people‘s economic future has led to an intensification of the struggle for survival at the individual and group levels. (1997). the quantum of foreign aid was reduced and a large number of jobs created (Europa. a body which regulates oil price and production among oil producing nations. the price of oil rose to US $ 25. The consequence is the social-conflict profile of the country. 1988:2016).00 per barrel before falling to $30. This seems to hold true in the Niger Delta. January 1993. It is therefore imperative that the government should design a more comprehensive development package that will be peopleoriented in the region. No.90 Source: i) OPEC Bulletin. Thus. The Nigerian government has major shares in these companies. As a result. 2001 and 2002.405 million by 1980 when the price was $32. 9. In the first quarter of 1991. identity.0 percent between 1971 and 1977. pp. which can impact on the life of the people. Table 1. social and economic rights.2 million barrels per day (b/d).85 and $28. conflict occurs because of protests against injustice such as environmental damages and displeasure with successive government policies over programmes of oil companies perceived to be unjust. 2005. 25. 32. water. Later in 1973. education. Safrap. 1982. and by 1958. ii) OPEC Bulletin. Today. 41 and 45.90 in 2001 and 2002 respectively. access to oil wealth to boost living standard. As the table shows. iii) Yomi Onakoya. According to Anyadike. Any concerted effort to achieve this is called development.00 per barrel.02 1991 18.60 1992 25. 10 Issue 1 (Ver 1. in the area. for all the people. the lives of confrontation are often drawn over issues of exclusions. 1986:1976). The Niger Delta agitation is premised on right denial especially. 1. Rights can be categorized into political. The reason was attributed to the Gulf war and the Middle-east crisis. Vol. oil exploration and exploitation is by the British company. and denial of basic needs to particular area of communities by those who maintain the forces of coercion. xxiv.44 per barrel in 1992 and further increased to US $25. The ―theory on rights‖ asserts that basic rights should be enjoyed in a state and protected through legal and extra.1984:2164). but the totality of changes that occur on the social system within a given period of time. Mobil. etc. Nigeria joined the Organization of Petroleum Exporting Countries (OPEC).00 1982 30. it began to be exported (Europa.

the country recorded a deficit of over 12. which further increased to 15. Since the oil is found in the coastal areas of the country and the adjoining offshore areas. Given the abundance of crude oil in this area. These are the issues taken for granted in the region.class struggle over which part of the states would maximize the benefits from oil rents. In fact.5 billion Naira while the inflation rate was 53.91 billion in 1982 to over $ 20 billion in 1985 and by 2003. what the country has is ethnic based leaders. It gives the federal government control of all minerals and gas ―in. the Petroleum Act of 1969 and Land Use Decree of 1978 permit the multinationals to explore for and expropriate natural resources in a manner that impoverish and under-develop the host communities while enriching the ruling class and their collaborators (Setelu. Still. The youths have taken to crime and their female counterparts into prostitution as profession. the states are clearly entitled to these rents but the oil communities have also asserted their rights to what may be regarded as rents on communal lands. It is on record that the Niger Delta has one of the highest prevalent rate of the disease in Nigeria (NACA. the process of states creation and the growing profile of oil have made the issue of revenue distribution to be a sore point in inter.oil communities over the control of oil rents is another factor which undermined development in the region. The people of the area are poor and social infrastructure equally unavailable in their towns and villages. environmental degradation. The contradiction between oil communities and non. The truth of the matter is that the nation‘s leadership is not linked to collective purpose. As MOSOP remarked. which serve the interest of oil companies and the federal government. 277-278). An illustration of the relationship is the fact that certain nations under transformative leadership have risen above the natural limitations of their environment to achieve sustainable development. Today. it has been observed that over 30 percent of the country‘s earning was spent each year on debt servicing and in 1992 alone a total of $5. The extent to which resources are adequately and judiciously mobilized for development is mainly attributed to leadership just as the level of development also influences leadership qualities. safe drinking water. The general perception particularly among the oil communities is that the laws are the fundamental causes of under development of the areas. health facilities. the Nigerian rentier State is perceived as an ―unconscionable usurper and landlords‖ and the oil companies as exploitative illegal tenants. it was $36. The acts. January2010 of oil from Asian countries especially China and protracted industrial action by Venezuelan oil workers (CBN: Annual Report 2003: 70). 1990: 29. or upon the land and territorial waters of Nigeria (Suberu1999:28). 2001:143-144). 2005. there is no meaningful development. This has resulted in deficit budgets. poverty Global Journal of Management and Business Research level becomes the highest in the oil communities where the wealth of this country is produced. the total deficit exceeded 17. Japan has developed in spite of the fact that 50 percent of its area is mountainous and lies in one of the highest earthquake active regions of the world. under. The apparent justification for the federal government‘s action is the Petroleum Act.0). It extracts oil resources through the enabling laws and decrees thereby depriving the oil communities from claims over royalties. In contrast.1 percent during the period (Africa Guardian. poor governance. Also. Punch 2004). Under the Land Use Decree. and political activities. which grows by the day. IV OIL POLITICS AND THE CRISIS OF DEVELOPMENT IN THE NIGER DELTA Niger Delta‘s struggle for economic survival first hit the boiling point in 1965. etc. Nigeria has not produced a national leader.33 billion. As .655 million was spent over it. education. self-centeredness and political instability (Bammeke. roads. Ibid: 28). however. social/communal conflicts. For example. Nigeria which is greatly endowed with natural resources have failed to achieve a level of development commensurate with her level of endowment because of poor leadership characterized by short-sightedness. refers to ownership of mineral wealth and not ownership of land which remains vested in the states. It means the federal government has no direct claims to land in the state. As such. At the centre of the Niger Delta crisis has been the region is long standing history of marginalization or exclusion from the mainstream of Nigeria‘s social.P a g e |69 Vol. The reason is attributed to inter.6 billion Naira. the external debt has remained an albatross on Nigeria‘s neck. ownership of land in any state of the federation is vested in the state Governor in trust for the people of the state. the external debt had increased from $12. It was the first military coup of January 15. In fiscal year 1990-1991. 10 Issue 1 (Ver 1. In 1988. As a result.7 percent In spite of this. the people should have corresponding wealth and development. The improvement in the levels of prices boosted the foreign exchange earnings and thereby enabled Nigeria to achieve high economic growth at an average rate of 9. economic. as against the interest of the oil communities. The federal government has been widely accused as the major culprit in the under development of the oil states. economic deprivation arising from unhealthy influences of competition for economic resources made worse by the general paucity of infrastructural development such as electricity supply. 2003). The other predisposing factors accounting for the crisis are the region‘s poor performance on human development indicespolitical instability. For example.4 billion Naira in 1989. the federal government has continued not only to prescribe how much rent is paid by the oil companies for land used but also to collect these rents. corruption.state relations. In essence.dreaded Acquired Immune Deficiency Syndrome (HIV/AIDS). The major problem here is that the laws that govern the oil industry addressed only operational issues. 1966 that ended the uprising. oil royalties and rents are the property of Landlords and that the federal government must return to the oil communities all royalties (Suberu. These problems are compounded by the ecological problem created by the production of oil. the area is riddled with the much. (Akpabio 2009: B8). The period was when late Isaac Boro and his group took up arms to fight for a separate political entity for the region. In the words of Eteng (1977). So far.

15 percent in 1982 and 3 percent in 1992 as crude oil became the main source of national revenue (cited in Suberu. They cannot go beyond a certain limit because their primary responsibility is to make profit for themselves. However. It is therefore believed that any programme for solving the crisis will be doomed to failure if the federal government continues to adopt this policy. As Okilo remarks. Elf and Agip respectively (SPDC Report. there is also need to state that it is futile to expect these oil companies to be agents of development in the region. delegates belonging to the oil communities demanded for 25 percent special oil allocation. but reduced it to 50 percent at independence in 1960. The general perception is that the Nigerian State and its ruling class are more engrossed in the rent collecting activities and thus negating the need for development Vol. and argued that they do not have sole right to the oil within their territory. The non-oil producing states therefore. have been denounced by ethnic minority groups as a politically motivated assault by the majority nationalities on the economic rights of minority oil communities who are perceived as too small and weak to threaten the stability of the federation (Suberu. which was turn down by members representing majority ethnic groups.Global Journal of Management and Business Research observed. 1999. top government officials. The Shell Petroleum Development Company (SPDC) in particular claimed that the federal government gets 55 percent of the revenue whereas 30 percent. Derivation is. the oil companies have shifted the blames to the federal government. the leadership and in fact the entire people is divided along these lines.south delegates staged a walkout thereby ending the conference in an abrupt manner. since the federal government owns . the oil companies have not adequately addressed environmental problems such as gasflaring and oil spilling. The crisis in the Niger Delta is understood not only as interclass struggle but also as intra-class rivalry because of its backwardness. agreed to 17 percent from the present 13 percent. and fair play. 10 percent and 5 percent go to Shell. The killings of the Ogoni four otherwise known as ‗Vultures‘ by their radical youths which resulted into the arrest and killing of Ken Saro-Wiwa and eight others by the federal government is an ample example of the intra-class struggle in the region. the non-oil producing states dominated by majority ethnic groups insist on the principles of the equality of states and the size of population among other allocating principles. It stipulates that a significant proportion of the revenues collected in a locality should be returned to that locality or segment. Hence. According to SPDC. They complain of being marginalized by the numerically dominant groups who continue to feed fat on the oil revenue with little or no contribution to federal revenues. However. a long-standing principle of revenue allocation in Nigeria. Members belonging to majority groups however. the struggle for and control of power at the centre becomes the ―bone of contention‖ among diverse interest groups. as they demand on equity. The oil communities argued that a significant percentage of the federally collected oil revenue should be returned to them based on derivation principle. to 45 percent in 1970. Given.0). women and the peasantry). In fact. In fact. In other words. 10 Issue 1 (Ver 1. Febuary 2010 P a g e | 70 planning and the issue of development of technology of labor. 29). 20 percent in 1975. In the real sense. The implications of the above are that the oil companies have no legal obligations towards their local host communities and also the host communities have no say in how and what happens to oil revenue. while the oil producing states dominated by the minority groups insist on derivation. in all its imperfections and inequalities as in the Niger Delta region (Onuoha 2005: 124). accused oil-producing states of greed. the South. oil company executives and businessmen) and the radical group (human rights activists. Thus. A nation that recognized 100 percent derivation as the basis for revenue allocation in 1950. youths. In the conference. of course. the crisis is the struggle between the liberal elites (traditional rulers. in every community. The Walkout of the South –south delegates in 2005 from the National Political Reform Conference depicts how politicized the oil resource has been in the country. Although. oil made the federal government the conducts of socio-economic struggles. students. thereby institutionalizing the tyranny of the major ethnic groups and subjugation of the minorities mostly in the Niger Delta area. there is nowhere else in Nigeria has the impact of the Land Use Decree manifested. The federal government has resorted to elite manipulation through recruitment and appointment of local and active individuals from the area against the entire people. derivation has been progressively de-emphasized as mineral exploration replaced agricultural exports as the principal source of government revenues and foreign exchange earnings in Nigeria. It is no longer a secret therefore to notice the privileged members of the region working for peace conceived as tolerance of the unjust system. workers. Yoruba and Igbo). (Hausa-Fulani. Another dimension to the crisis is the insensitivity of the oil companies. It featured prominently when cocoa. 1996). On the contrary. palm oil and groundnuts were the main sources of revenue for Nigeria. This is visible through environmental devastation. politicians. These groups have strong justifications for their various positions. justice. journalists. The situation has been aggravated by the kind of politics in the country. As the region‘s economies are trained by pollution. there is hardly any meaningful development. The change in the principles of distribution. On protest. it has continued to be deliberately suppressed since crude oil became the mainstay of the country‘s wealth. the oil states have not shifted ground. They believed that the liberals are compromising with the federal government and therefore corrupt. Politics in Nigeria has been degenerated to warfare where winners control federal power and all resources associated with such control. it is important to acknowledge the contributions of the oil companies in the setting of projects that have helped to ameliorate the harsh consequences of neglecting and deprivation suffered by people from the region. The radicals are the new comers who are trying to take over the leadership of the Niger Delta.1999: 29-30). the centric tendencies and the political dominance of the three ethnic groups. which has distorted socio-economic development without the provision of commensurate developmental infrastructure.

President Obasanjo‘s administration in 2000 replaced the OMPADEC by establishing the Niger Delta Development Commission (NDDC) with similar mandate. Undoubtedly. Ethnic Minority Rights Organization of Nigeria (EMIRON). Given the years of denial experienced by this region. oil production has the impact of upsetting the delicate balance between the land. however. locates the roots of the underdevelopment of oil communities to their difficult geographical terrain. 2009. In view of this.0 percent. According to some observers. Movement for the Emancipation of Niger Delta (MEND) among others (Ugoh 2004:68). For example. the partial acceptance of the amnesty deal was to give the government the benefit of doubt. Besides. It also set up Oil Mineral Producing Areas Development Commission (OMPADEC) to administer the fund. Mr. contracts. and employment. the Niger Delta Peoples Volunteer Force (NDPVF). Without prejudice to the enormous efforts of NDDC to reach the oil communities with projects and programs that will lift people‘s standard of living. the government has proclaimed amnesty for the militants‘ youths and urged them to surrender all illegal arms in their possession unconditionally within 60 days from May 5. . the establishment of the Commission was action rooted in exploitation. there is a Joint Task Force (JTF) in the region instead of the regular police to deal with the militant youths. the amnesty deal is an exercise in futility if the people failed to see any seriousness of purpose by the government in terms of development. the federal government‘s initiatives reflect its magnanimous and godly spirit in sympathizing with the lot of the suffering and impoverished oil communities. Lately. kidnapping and hostage taking of not only oil workers but also children and other people who are not associated with the oil industry. community development projects. President Musa Yar‘Adua set up the ministry of Niger Delta. authoritarianism and the survival of the fittest. OMPADEC in its operations neglected the very important provision in sharing projects.0). the federal government has tended to respond to the inevitable crises in the Niger Delta. January2010 majority shares in the oil companies in addition to collecting petroleum royalties and profits tax. 2009 to October 6. the hostagetaking has become an alternative to robbery and cannot be anything more than sheer banditry and brigandage. it is worth wise to describe this development as positive. Global Journal of Management and Business Research Accordingly. small arms and more sophisticated weapons are being smuggled into the region from regional and international markets that led to the increased arming of the militias. The government also provides for 13 percent derivation to the oil states. water and life. any other approach to the crisis was merely scratching it on the surface.a sort of self-determination within the federation. the crisis in the region cannot be resolved in any meaningful way by institutions like NDDC. Notwithstanding.P a g e |71 Vol. they insisted that oil companies must contribute to the creation and expansion of infrastructural facilities such as basic amenities. Therefore. Meanwhile. the composition and operations of the Commission was faulty. Niger Delta Vigilante Service (NDVS). bunkering. The federal government through the Commission has spent billions of Naira in these oil communities for development. The federal government. most of them not having directed relevant to the lives of the oil communities. The establishment of the Commission in 1992 was a ―genuine‖ intension to develop the neglected oil producing areas of the Niger Delta by using the quota of production for employment. the government has responded to the restiveness with a military solution. In other words.oil producing areas. Thus. As aptly put by former US Ambassador to Nigeria. an action perceived by majority of the people across the country as evidence of a failed state. 10 Issue 1 (Ver 1. persons from non-oil producing areas are getting richer. The body also used the huge amount of money to create hundreds of uncompleted jobs. In addition. employment of indigenes. In realization to this. it is the responsibilities of the federal government to provide and maintain social infrastructure. which were identified as being the major causes of the Niger Delta crisis. and recently. The truth is that 13 percent does not address the issue of dependency and resource control. It claims that due to the fragile ecology of the Niger Delta. projects distributions. the Ethnic Rights Organization of Africa (EMIROAF). until the basic infrastructure needed to hasten the social and economic development of the Niger Delta were put in place. Association of Mineral Producing Areas of Rivers States (AMPARS). At present. These groups are therefore demanding the restructuring of the federation in a manner that would give more autonomy to the states . The inadequate representation of the oil communities is offensive in view of the inclusion of persons from the non.5 percent to 3. General Babangida‘s administration raises the derivation fund from 1. the Movement for Reparation to Ogbia or Oloibiri (MORETO). These observers therefore advised the people to give OMPADEC a chance (Suberu1999:37). bad leadership and the people themselves. no significant impact was made. and contract awards. etc. Association of Minority Oil States (AMOS). Amnesty was a process to ensure peace in the region. the intensity of their demands are often expressed in the vandalisation of pipeline. The result is that while the oil communities are being starved of projects and the people getting poorer. The adjustments in the revenue allocations indicate the impression that the federal government is sympathetic to the plight of the Niger Delta region. The effort to fight the perceived injustices and exploitation led to the formation of ethnic associations such as Movement for the Survival of the Ogoni People (MOSOP). indeed. the arrogant treatment and deprivation by the federal government to the oil communities engendered the feelings among them that they are perpetually disinherited and expendable as people. Today. In addition. However. Walter Carrington. The ministry was mandated to among other things formulate and coordinate policies for the rapid socio-development and security of Niger Delta region.

Finally. The state must be oriented towards development in a sustainable way. and deep crisis. Vol.development of the Niger Delta area is largely shaped. An Inaugural Lecture Series. Annual Report and Statement of Accounts. 9) Eze. Leadership and Development. politically and economically. In addition. Awosika. The people without any option confront both the federal government and the oil multinational companies. In essence. ability to listen and willingness to make sacrifices for the sake of the people. Nwagbo (2005). The result of this state of affairs is instability.). Logically and rationally. S and Pearce Tola O. 7) Central Bank of Nigeria. December. There is need for the country to produce a good leader characterizes with self –discipline. etc. The federal government should go beyond the pretensions of the NDDC that is directly under the apron strings of politicians who use the outfit for unnecessary political patronage. Indeed. The concentration of power at the centre has to be broken down with emphasis on the decentralization of power. frustration. Lagos: October.0). Lagos: Alsun International. and fashioned by the character of the Nigerian state. (2003). . (1986) Social Change in Nigeria. Evidently. Such a state must strive to end dependency at both the center and state levels.O (2005) ―The Leadership Question. The government must set up labor-intensive establishments in the region to absorb the hordes of unemployed youths that might graduate from the skills centre and educational institutions. December. and embrace those attitudes and behaviour that enhance development by embracing a full democratization of the centre. Development Crisis and Social Change. civil society and the ordinary people are mobilized towards fundamental reform of the Nigerian state. F. good human relations. VII REFERENCES 1) Afonja. there should be commitment towards true federalism as it was done before independence. Both the centre and the state governments are dependent on the oil resources from the Niger Delta. Petroleum Act of 1969. 10 Issue 1 (Ver 1. It is happening because the people of the areas are minorities and are suffering under the dictatorship of the majority groups under both the military and democratic dispensation. Abuja. Issues and Perspectives‖ in Oil Exploration and Exploitation. influenced. VI CONCLUSION In this paper.development approach. 3) Anyadike Obinna (1997). England: Longman Group Limited. University of Lagos Press. 4) Bammeke. Youth and the Reproduction of Corruption‖ in Oyekanmi. Akoka Lagos: University of Lagos. the state that is capable of reshaping the nature of crisis in the Niger Delta cannot be a parasitic state. (ed. modesty. the 1999 constitution. frivolous and unsubstantiated claims and visions that negate the whole essence of community development. A. The issue of resource allocation has been politicized and become a cause of disagreement among the oil states and non-oil states. The state must represent the ‗overall will‘ of the citizenry and not the will of those in power or sections of the country. This target will remain a failure until appropriate policies are put in place to reduce if not eliminate the over bearing dependence of oil. the youths must be empowered. the custodians of state power is deeply involved in the appropriation of the wealth from the region through brazen corruption and any opposition is visited with summary punishment. K and G. there is no effort towards bringing development to the Niger Delta. Inter Press Services. that have allowed the oil multinationals to ignore the demands and Vol. Febuary 2010 P a g e | 72 agitations of the oil communities should be abrogated or reformed. Every attempt by various administrations to resolve the issue has failed and the present government‘s effort is too early to conclude. The use of military option to solve the problem would be counterproductive because no amount of military operation could suppress the genuine feelings of the people. Oil Exploration and Community Interests. The country is not democratic in the real sense of the term and not truly federal. The federal government needs to change its old and negative ways.D. the key to achieve a permanent solution is a return to allocation principles of derivation where revenue accruing from the endowments of various regions was used to develop the areas. Conflict watch Africa. we have argued that under. There is need for the federal government to set the fundamental rules that will promote fair and responsible operations of the oil multi. humility. Iyang (1997) ―The Nigerian State. The government should set up a visitation committee to assess periodically what the NDDC has done for the oil communities. The degree of dependency implies the huge resource flow from the region leaving the people in poverty. December. true federalism and resource control by states are the surest ways of bringing development to the people. E. O. loyalty. 2) Akintoye. 6) Central Bank of Nigeria (2002). real development will not come in Niger Delta unless there is good leadership in Nigeria.Global Journal of Management and Business Research V ANY PROSPECT FOR DEVELOPMENT? From the analysis. II.national companies towards pro. ―Psychology. A True Perspective for Emancipation‖. Lagos: Department of Sociology. the various policies including the Land Use Decree of 1978. Statistical Bulletin. In other words. The State and Crisis in Nigeria‟s Oil-bearing Enclave. Annual Report and Statement of Accounts. In other words. 5) Central Bank of Nigeria (2002). (2000) Development Theories and Administration: A Nigerian Perspective. 8) Eteng. The ingredients of good governance can hardly be associated with its management. the development aspirations of the people will be best served if the custodians of the state. At present.

Ifeanyi (1994) ―Nigeria Loses N2. Ibadan: Heinemann Educational Books Plc. 732 billion to Ogoni Crisis‖. The Problem with Nigeria. 1. ―Resource Control and Its Challenges to Nigerian Federalism. Dares-salam. February 24. Dele. 23) Sanda. 15) Obi. No. 31) Ugoh. A Paper Presented at an International Conference on Adult Education.P a g e |73 Vol. June. 16) Ogoni Bill of Rights (1990). (1985). January 25. Ibadan. Ibadan. Lagos: The Guardian Newspaper. 25) Suberu. Annual Statistical Bulletin.0). 29) The Europa Year Book.D Thesis Submitted to the Panjab University. J (1971).Triad Associates. Industrial Society and Social Welfare. December. (1992).(2000) ―The Impact of Oil on Nigeria‘s Revenue Allocation System: Problems and Prospects for National Reconstruction. The Free Press. 10 Issue 1 (Ver 1. I. Nigeria. 24) Seteolu. Volume XXIV. ―Ethnicity and Politics: A Case Study of Nigeria Since Independence‖. 26) Tayo. 14) Obasanjo O. H. October. 11) Izeze.‖ in Amuwo Kunle. 17) Onimode. New York. 12) News watch. and Richard Synge. Chandigarh. Vol. (2005) From Conflict to Collaboration: Building Peace in Nigeria‘s Oil Producing Communities. 28) The Europa Year Book. (1995) Issues in African Development.) (1991) Elements of Development. B. C. Volume II. 22) Oseze. 4 No. (1990). Ethics and Public Accountability in Nigeria. L. 13) Nyerere. R. 21. December 3-9. Success Secretariat and Printing Services. (1999) Ethnic Minority Conflicts and Governance in Nigeria. Lukula (1994). S.N (1995). Ibadan. S. Abeokuta: African Leadership Forum. C (2004). Charles (2000) ―Niger Delta and the way Forward. Spectrum Books Limited. et al (ed). 27) The Africa Guardian. 9.‖ The Global Journal of Management and Business Research Constitution: A Journal of Constitutional Development. Spectrum House. No. 30) Ugoh. C (1995).O. Sentinel HIV/AIDS Survey. 1988: A World Survey. and Lebeaux. 19) OPEC Bulletin (1992) Volume XXIII. (2001) ―Work Ethics in the Nigerian Private Sector. Proffer Solutions to Community‖. 32) Wilensky. 20) OPEC Bulletin (1993). (ed). 21) Organization of Petroleum Exportation Countries‖(1989). 18) Onuoha. A. Rotimi T. Cyril. Presented to the Government and People of Nigeria November 7. Fajonyomi. Nigeria. January2010 10) ―Federal Ministry of Health and National Action Committee on AIDS‘ 2003‖. Vienna Austria. Theories and Practice‖. February 3. January. Federalism and Political Restructuring in Nigeria.‖ Business Times. Volume II. 1984: A World Survey. Lagos: T. 4. . An Unpublished Ph. Daily Sunray. and Akin Mabogunje (eds. in Olojede Iyabo and S. London: Adonis and Abbey. January 8. ―Oil Firms Count Losses.

Batt and Valcour (2003) adds to the determinants of turnover previously identified.0). Once employees feel they can no longer stay. supportive supervisors. The results of this research conformed to the previously conducted studies as far as the presence of a relationship between the chosen constructs is concerned. Parasuraman. conflicting work life policies (CWLP). as firstly CWLP was not identified as a strong determinant of TI and secondly CWLP only resulted in TI among working students through the mediation of JS. Richer. Loan-Clarke and Wilkinson (2001) defines turnover as a ―discontinuous variable characterized by abrupt change. West (2007) elucidates that ―conflict with a supervisor or management leads to higher turnover levels and by managing the conflict properly. Febuary 2010 P a g e | 74 Eccentric Turnover Behavior among the Working Students of Pakistan Zirgham ullah Bukhari Abstract.  Acknowledgements The author would like to pay homage to Mr. contrary to the findings of Camp (1993). job security and high relative pay were all associated with lower turnover intentions‖. The sample population will be the employees who are maintaining their jobs along with their education. as recruiting new staff is a costly process. as mentioned earlier it is costing today‘s businesses a lot and can be much a blessing for the organizations if reduced. Turnover Intentions Morrell. II LITERATURE REVIEW A. Therefore in the light of the findings of this research. they faced greater work life spillover as compared to the employees who have their whole attention concentrated and dedicated to their jobs only. originating from work motivation leads to turnover intentions‖. Sara Yaqoob whose advice and critiques helped me in all aspects of this venture and beyond. and turnover intentions directly or indirectly‖. the chosen constructs are interlinked but JS was not found to mediate the relationship between CWLP and TI. 10 Issue 1 (Ver 1. The respondents for this study were the working students who were completing their professional education while simultaneously working in some organization. and a ‗delay rule‘ which reflects the idea that employees try to stay in employment for as long as possible.The study is focused on measuring the effects of Conflicting Work Life Policies (CWLP) on Turnover Intentions (TI) with a mediating role by Job Satisfaction (JS). The primary purpose of this study is to look at the psyche of the working students in a manner that may help in the reduction of job turnover in Pakistan. this study identified CWLP as a weak determinant of TI. as they are the ones more likely to turnover because of the difficulty to maintain a balance between their education and jobs at the same time i. Thaden (2007) also advocates the need to curtail turnover practices as per his view. job satisfaction (JS). As Yasbek (2004) cite that ‗turnover reduction leads to lower costs‘. Moreover. however high turnover and poor performance is likely to cost organizations more over time. organizations may in fact be able to reduce the turnover level‖. But unlike the previously conducted studies by Karatepe and Kilic (2007) and West (2007) who found the ‗CWLP directly affecting TI‘. affective organizational commitment. Blanchard and Vallerand (2002) posit that ―work satisfaction and emotional exhaustion. Keywords. Pakistan I INTRODUCTION J ob turnover is a dismal crisis for the managements of today‘s businesses because of the ‗costs connected with it‘ (Lucas. Quazi. mediated the relationship between CWLP and TI among the working students of Pakistan.Global Journal of Management and Business Research Vol.e.‖ Tenure‘s contribution to the equation emphasizes . job satisfaction (JS).Turnover intentions (TI). The study conducted by Oi-ling and Phillips (2006) and Kenexa Research Institute (2007) suggested that those ‗employees who favoured their organization‘s effort to support work-life balance also indicated a much lower TI. it can be inferred that the TI among working students caused by CWLP can be controlled by addressing factors that enhance the JS level. it was found that JS besides being a comparatively stronger determinant of TI. This research was mainly concerned about finding the relationship among conflicting work life policies (CWLP). Davis & Enis 1987 and Soon. ―organizational culture change is an expensive endeavor. they abruptly change from retention to termination (voluntary turnover)‖. working students. Sajid Bashir – his faith augmented my continuous self-assurance in this project and Ms. and turnover intentions (TI). a willingness to recommend it as a place to work and higher overall JS‘. this research was anticipated to provide a helping hand in controlling the turnover trends. especially as performance measures become harder to meet. Tay & Kelly 2005). job satisfaction. Karatepe and Kilic (2007) find that ―work–family conflict or family–work conflict had a detrimental effect on job performance. Furthermore. According to the previously conducted studies on different populations. as their study finds that ―flexible scheduling practices. greater pride in their organization. The findings of this study suggest that JS mediates the correlation between CWLP and TI.

Naqvi and Ramay (2008) yield that. which in turn. Okpara (2004) adds that ‗dissatisfaction may have an impact on performance.P a g e |75 Vol. (2002) differ by maintaining. absenteeism. Work Life Policies Thompson. ―workload was consistently and negatively related to their turnover variables‖. Bloom and Michel (2002) maintains that ―high-pay-dispersion organizations may experience higher turnover because their pay structures violate this equilibrium.) the work life conflicts are not the sole stressor behind employee turnover. impaired performance effectiveness. as per his findings ―job satisfaction does not even demonstrate a significant relationship with turnover‖. Karatepe and Kilic (2007) and Rahman. The findings of Lucas. lower work performance.) increased the possibility to turnover‖. ―Resilient employees perceived lower levels of work stress. ―Work-life conflict refers to the difficulties in reconciling work and other domains of life‖ (McGinnity & Calvert 2008). B. Riley (2006). prioritizing work over family or family over work‖. directly affected employees‘ intentions to remain with the company . job satisfaction rated higher and job turnover was less frequent‖. and turnover‘.‖ .‖ According to Perie and Baker (1997) ―job satisfaction is an affective reaction to an individual‘s work situation‖. ―job security predicted lower work-family conflict and lower turnover probability‖. H1: Conflicting work life policies are positively related to turnover intentions. H2: Conflicting work life policies are negatively related to job satisfaction. The research work by Yasbek (2004) also yields that ―job satisfaction does have a clear negative relationship to absence and turnover‖. Camp (1993) differs to the above discussed notion.excessive spillover reduced likelihood to remain. (i. The findings of Batt and Valcour (2003) institutes that.‖ Results of Oi-ling and Phillips (2006) show that the ―longer the working hours. But dissimilar to the aforementioned view Birdseye and Hill (1995) argues that ―not surprisingly perhaps. The result of Bashir and Ramay (2008) indicates that ‗work life policies determine organizational commitment‘. In addition Hom and Kinicki (2001) cite that ―other types of interference besides work-family tension initiate the separation process‖. ‗Age however. (1987) reveal that ‗most sales managers attempt to reduce turnover through measures such as improving the job satisfaction of salespeople‘. was not found to have a significant restraining effect on turnover intentions‘ (Lachman & Diamant 1987). January2010 that ‗time variables need to be examined in turnover research‘ (Mitchel 1981). Andreassi and Prottas (2003) define work life policies as ―artifacts or surface level indicators of an organization. et al. creates dissatisfaction among managers forced to accept both lower status and substantially lower compensation. as per their findings. Likewise McConnell (1998) hypothesizes that ―when an employee's values were attained. Research carried out by Karatepe and Kilic (2007) and West (2007) suggests that ‗greater work–family conflict results in higher turnover intentions‘. et al. which in turn increased intentions to quit‘. and higher levels of family satisfaction and job performance‖ (Oi-ling & Phillips 2006). Global Journal of Management and Business Research C. experienced fewer physical/psychological symptoms and less turnover intention. As per Côté and Morgan (2002) ‗the containment of unpleasant emotions decreased job satisfaction. the higher were levels of perceived work stress and turnover intentions. the research work by Shalley. Birdseye and Hill (1995) based on their study find ‗job satisfaction to be negatively related to all three turnover variables‘. Balfour and Wechsler (1996) yield ―whether dissatisfaction with supervision will lead to increased turnover intent depends on individual perceptions of opportunities for advancement and on how much the job contributes to personal growth and learning‖. age was negatively correlated with turnover‖. which is identified to be a predictor of turnover intentions. tardiness. The study of Bhagat (1983) purports that ‗behavioral consequences of reduced job involvement. ―The consequences of low job satisfaction could lead to higher work absence rates. the research by Marks and Scholarios (2001) elucidates that ―lower negative work-to-nonwork spillover. ‗employees who are satisfied with their jobs are less likely to have turnover intentions‘. Konrad and Mangel (2000) also suggest that ―work-life programs can reduce employee withdrawal behaviors by reducing the impact of work-family conflict and by increasing motivation to exert discretionary effort‖. Study by Konrad and Mangel (2000) implies that ‗work and family life conflicts may lead to employee turnover and withdrawal‘.‖ Birdseye and Hill (1995) add.0). anticipated. Moreover. and staff turnover‘. ―Bad working conditions do not always lead to actual turnover. or deserved. and most importantly.e. lower quality of services‖ (Abu-Bader 2005). Richer. (i. Job Satisfaction Okpara (2004) defines job satisfaction as an ―affective reaction to a job that results from the person‘s comparison of actual outcomes with those that are desired. Likewise. 10 Issue 1 (Ver 1. and reduced job satisfaction would lead to absenteeism. and even reported higher levels of job satisfaction. work-life balance. The studies by Shields and Price (2002).e. Gilson and Blum (2000) further indicates that ‗individuals reported higher satisfaction and lower turnover intentions when their work environments complemented the creativity requirements of their jobs‘.

Then on acquired means. Tremblay & Lalonde (2001). Job Satisfaction For this study.D. And the second item varied from 1=most unlikely to 5=most likely. CWLP and TI (H1). JS and TI (H3). RESULTS CORRELA TIONS C onf lic t ing Wor k L if e Polic ie s S. ii. In this questionnaire the continuum again ranged from 1 to 5 (with 1=strongly disagree and 5=strongly agree) V METHODOLOGY After the collection of data. The cities of Rawalpindi and Islamabad were the geographical limits of the study.DESCRI PTIVE S TATIS TICS Me a n AND The survey items developed by Brown & Peterson (1994) were used to assess the job satisfaction level among the respondents. The Likert type scale used a choice from 1 to 5 (with 1=never and 5=always). different analyses were employed particularly correlation and regression. J ob S a tisf a c tion Conflicting Work Life Policies 2. Tremblay & Lalonde (2001) for the inputs on work life policies.728 1 Job Satisfaction 2. as many of the respondents even being assured of confidentiality were shy considering that some of the survey items were somewhat sensitive. Febuary 2010 P a g e | 76 H3: Job satisfaction is negatively related to turnover intentions. in which they were assured of confidentiality to minimize the probability of any data contamination.0). The response rate was not quite encouraging.e.687(**) 1 Turnover Intentions 3.543(**) ** Correlation is significant at the 0. Participants were presented the questionnaires along with an affixture. sample respondents were randomly chosen from among the population of students completing their professional education while being an employee of some organization. The first item of the questionnaire ranged 1=never and 5=always. we tried to utilize the time off of employees to fill the questionnaires.S CHEMATIC REPRES EN TA TI ON RES EA RCH MO DEL Conflicting Work Life Policies H 2 O F THE H 3 Job Satisfacti on Turnover Intentions Turnover intentions were measured using a two-item questionnaire developed by Paré. VI TABLE 1 . JS and TI.756 -. scores were developed for the chosen constructs by averaging the responses to items comprising each dimension i.388(**) -. IV VARIABLES INCLUDED (QUESTIONNAIRE APPENDED) A. Turnover Intentions FI GU RE 1 .389 .01 level (2-tailed) # Number of Respondents = N = 101 T ur nov e r Inte ntions 1 . To avoid any further oversights due to any non-serious attitude. Work Life Policies This study used the questionnaire developed by Paré. the responses were rated on a five point Likert type scale format. CWLP and JS (H2) and iii.292 .Global Journal of Management and Business Research Vol. consequently only 101 employees out of an aggregate of 350 agreed to fill up and return the questionnaire. For this questionnaire. 10 Issue 1 (Ver 1. CWLP.817 . to study the presence of relationships (if any) and their strength and significance along with the direction of the relationship between: i. B.576 . H 1 III PARTICIPANTS C.

000(a) (a) Predictors: Turnover Intentions (Constant). This situation calls for students to earn to make their ends meet. A plausible explanation in author‘s view for the aforementioned eccentric behavior among working students is that in the chosen geographical context. According to the study not only the relationship between the two is a weak one but also the potency of CWLP to determine TI among the chosen sample population. the financial outlook of many does not suggest higher education to post graduate or even the graduate level.543 t = -6.288 F = 41. Job Satisfaction Finally.453 Significance = . Karatepe & Kilic 2007 and Rahman. Naqvi & Ramay 2008).195 Adjusted R square = . a glance at Table 4 reveals that JS predicts approximately thirty percent out of the remaining eighty five percent. Paré.438 H3 Adjusted R square = . The research model with a strong backing from results suggests that CWLP can only lead to TI through the mediation of JS and its solo status in this particular model is not of considerable importance and worth.P a g e |77 Vol. JS has inverse correspondence with TI (Randall.595 Significance = . T A B L E 4 – R E G R E S S IO N M O D E L FOR R square = .295 β = -. Moreover validity of H2 can also be observed as CWLP maintains a negative relationship with JS (Oi-ling & Phillips 2006). among the working students in Pakistan. T A B L E 2 – R E G R E S S IO N M O D E L FOR H1 R square = . of the reasons for developing TI among the sample population.595 Significance = .388 t = 4. Cropanzano. which is contradictory to the findings of earlier researchers (Karatepe & Kilic 2007. VII DISCUSSION The eccentricity in behavior among the working students can be observed in the relationship between CWLP and TI.388 t = 4.0). T A B L E 2 – R E G R E S S IO N M O D E L FOR H1 R square = .142 F = 17.e.151 β = . Conflicting Work Life Policies Table 3 suggests that CWLP accounts for almost forty seven percent of variation in JS among the sample population. West 2007. Conflicting Work Life Policies The value of R square in Table 2 depicts that CWLP explains nearly fifteen percent of TI among the working students of Pakistan. Karatepe & Kilic 2007 and West 2007).142 F = 17.195 Adjusted R square = . and Kenexa Research Institute 2007) who identified CWLP as a worthy determinant of TI. 10 Issue 1 (Ver 1.151 β = . Contrary to the findings of Camp (1993) the table also admits the practicability of H3 i. they may go for jobs which demand extra fatigue and are comparatively .000(a) (a) Predictors: Turnover Intentions (Constant). Shields & Price 2002. Riley 2006. Tremblay & Lalonde 2001. January2010 Global Journal of Management and Business Research A look at Table 1 illustrates that CWLP holds a positive correlation with TI (H1) (Konrad & Mangel 2000.000(a) (a) Predictors: Turnover Intentions (Constant). Bormann & Birjulin 1999.

bonuses or job involvement and management by objectives techniques etc. 10) Camp. The Relationships among Organizational Context. Gender. S. Introduction of any kind of motivational packages e. M. Counseling and empathetic discussions. (1994). 9) Brown. 26. M. 192221. Ferris & Weitzman 2001). a bartender.. No. & Michel. 226-238. R. 660-671. Mendonca.Global Journal of Management and Business Research more strenuous in nature which may include call centre attendants (catering American and European markets). 58:70–80.G. (1993). another reason for CWLP to be unable to strongly predict TI among the sample population is that some of the working students think of work life conflicts as an inevitable by-product of their job. L. (1983). Applied Psychology: An International Review. 279-305. therefore different strategies can be engaged to satisfy heterogeneous employees. Pay Dispersion. 45.. B. 256-277. Duxbury and Lyons 2007). to even being a janitor due to a common level of acceptance among the public. 787-813. . The effects of effort on sales performance and job satisfaction. Although this disturbs their JS levels (because of work life conflicts) but this situation rarely is escalated to a point where they develop TI because they are bound to work to earn their way out. 33-42. Incorporation of flexible benefits and flextime at the job (Hill.. P. 4.M. Yu. But the acceptance level for such jobs among students themselves in general and masses in particular in the chosen geographical Vol. K. Impact of Culture on Human Resource Management Practices: A 10-Country Comparison. Ethnicity. Making the work place environment congenial and affable. they seldom lead to actual turnover. No. M.D. and Managerial Turnover. 42. 3. Human Resources Practices as Predictors of Work-Family Outcomes and Employee Turnover. S. J. Journal of International Business Studies. ―Organizations that want the turnover rate low are advised to pay close attention to their human resource management systems with perceived fairness‖. Febuary 2010 P a g e | 78 context amounts to almost nil. & Morgan. Vol. Even in cases where TI develops.S. Public Productivity & Management Review. 2. Just distribution of work load. Vol. Kanungo. and Job Satisfaction among Social Workers in Israel. (1995). As there are a limited job slots available for students in an economy like Pakistan‘s therefore the students in order to meet their expenses must stick to a job at hand which however is strenuous. The Academy of Management Journal. & Hill. (2008). & Wechsler. Determinants of Organizational Commitment A Study of Information Technology Professionals in Pakistan. but are not considered worth implementing in organizations.. No.G.I.. Administration in Social Work.H. 6) Bhagat. iv. (2000). Institute of Behavioral and Applied Management. Vol. 2) Aycan.. Stahl.. X REFERENCES 1) Abu-Bader. & Ramay.A.. Organizational/Work and Environmental Influences on Expatriate Turnover Tendencies: An Empirical Study. (1996). The Academy of Management Review. pay increments.g. Stahl and Khurshid (2000) is an ‗under researched country‘. Vol. 4.L. ii. Vol. sales representatives and commission agents etc.M. 11) Côté.. Although the root cause for TI in this particular research model is CWLP that is mediated by JS but the irony of situation is that working students develop TI more because of lower levels of JS than the anticipated CWLP. demanding fatigue and have a conflicting nature but has a common acceptance among the masses and students themselves. 7-21. & Peterson.0). No. Journal of Marketing.N.P. Vol.. Moreover students in developed countries who are unable to meet their expenses go for any available job ranging from being a paperboy. The Prison Journal 74. IX CONCLUSION ―There is no-one-size-fits-all solution to the issue of work life conflict‖ (Higgins. R. Individual. D. Assessing the Effects of Organizational Commitment and Job Satisfaction on Turnover: An Event History Approach. 10 Issue 1 (Ver 1. Organizational Commitment: Antecedents and Outcomes in Public Organizations. This understanding is somehow pragmatic in the chosen geographical context as there are numerous openings in the market but there is hardly a job for a student that does not result in a clash between education and work life. in a developing country like Pakistan which as per Aycan. (2002). J. VIII RECOMMENDATIONS Griffeth & Gaertner (2001) suggest. 4) Bashir. and Intentions to Quit. 189-220. & Khurshid. 29(3). Effects of Stressful Life Events on Individual Performance Effectiveness and Work Adjustment Processes within Organizational Settings: A Research Model. Deller. It is also important for western readers to bear in mind that some of the above mentioned recommendations are considered to be an implicit and understood part of an organization‘s daily routine in the developed countries. S. & Valcour. Job Satisfaction. Even though the CWLP cannot be completely avoided in the case of working students but their effects can be countered by improving the JS level using methods/techniques like: i. Longitudinal Analysis of the Association between Emotion Regulation. Yu. R.. J. Industrial Relations. 7) Birdseye. 1. Mendonca. Moreover. 8. M. R. No. S. iii. S. 49 (1). Z. (2005). Hawkins. 3) Balfour. (2002). 5) Batt. v.S. 19.. Kanungo. Deller. G. 3. A. 8) Bloom. (2003)..

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Reducing Work–Life Conflict: What Works? What Doesn‘t? Executive Summary. Okpara. Duxbury. C. (2002). (2001). Strategic Management Journal.. Racial Harassment. 2.W. Vol. pp. M... J. (1987). Personal. The Journal of Business in Developing Nations. Vol.. & Mangel. Thompson.A. (2004). Vol. Karatepe. T. 8. Trinity Western University. (1998).. Vol. New Series. Background Characteristics. Lachman. (2001). International Review of Business Research Papers. 8. No.J. Workforce Retention: What Do IT Employees Really Want? ACM 1-58113-363. 28.L. A. 4. Thaden. S. 2089–21 13. Hawkins. 947-962. 10 Issue 1 (Ver 1.P a g e |79 Vol. Konrad. H. (1997). E. Available http://www.C... Family Relations. No.P. Riley. 10. Paper presented at the 10th European Association of Work and Organizational Psychology Conference. 2.A..H.O. Graduate School of Vanderbilt University. & Gaertner. A. & Birjulin. O. Issue 3. 21. 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v. I sometimes feel my job is a waste of time (R). Labour Market Policy Group. How often do you feel like quitting your job in this organization? ii. My job does affect my role as a spouse and/or a parent (R). My organization provides work conditions (e. Examining the Relationship between Employee-Superior Conflict and Voluntary Turnover in the Workplace: A Comparison of Companies across Industries. My work schedule is often in conflict with my personal life (R). (2007). Unpublished Dissertation. XI APPENDIX Job satisfaction (Brown and Peterson 1994) i. My work has negative effects on my personal life (R). The business case for firm-level work-life balance policies: a review of the literature.S. Tremblay & Lalonde 2001) i. ii. My job is better than most. iv. I often feel like there is too much work to do (R). and telecommuting programs) which take into account the emergent needs of employees. My job is very worthwhile. University Of North Texas. Febuary 2010 P a g e | 80 . iv. iii. Managers allow generally enough time for the completion of projects so that employees can do good quality work with limited stress. flexible schedules. My job is worst than most (R).. Turnover intentions (Paré. L. ii. (2004). Work-life policies (Paré. iii. vi.Global Journal of Management and Business Research 39) West.g.0). 40) Yasbek. P. child care facilities. How likely is it that you will actually leave your organization within the next year? (R): items needed to be reversed Vol. Department of Labour. Tremblay & Lalonde 2001) i. 10 Issue 1 (Ver 1.

several factors such as consumer tendency to avoid television commercials by zipping and zapping them. and product placements in such movies helps in subsidizing such costs. When these elements are combined it allows companies to strengthen their brand awareness. From the mere fact that product placement exists. Friendly (1983) mentioned that most of the marketers pays fees of $50. package. The use of feature films as a strategy for introducing new products has grown increasingly sophisticated. January2010 Global Journal of Management and Business Research Impact of Brand Placement in Films. While some new brands have been successfully launched with placement strategies. Placement can be in the form of verbal mentions in dialogue. which seek to influence audiences through the planned and unobtrusive entry of a branded product into a film or television programme. and commercial clutter driven by increasing time allocated to advertisements and a simultaneous decrease in commercial length have caused marketers to develop innovative advertising techniques. Indore Balasubramanian (1994) defines product placement as paid messages. and marketers are looking for new ways to gain awareness among consumers. Gould et al (2000) are of the view that in certain ways it is a hybrid of advertising and publicity as it involves using movies or other media content to place or incorporate a brand in return for money or some other promotional consideration. the message can be more effective than a traditional commercial. brands used as set decoration. These changes have led manufacturers and marketers to seek newer ways product placement to reach the consumer. less obtrusive. audience fragmentation due to the rise in the number of cable channels. marketers hope audiences will connect their brand with the stars or story they are seeing on the screen. visual displays such as a corporate logo on a vehicle or billboard. Balasubramanian (1994) stated that moviemakers are also benefited from products placements in films. Product placement can be viewed as an alternative to traditional advertising. advertisers are placing traditional TV and print ads in unconventional places. television or other media vehicles for increasing the memorability of the brand and for instant recognition at the point of purchase. Advertisers are looking for newer methods and media to reach the consumers for various reasons.Prestige Institute of Management and Research. Films and television offer product exposure to millions of consumers. The impact is greater because the audience is involved in the plot of the movie. does not interrupt programming. viewers captive attention and global reach. Wells (2001) argued that many advertisers considers product placement as a targeted and a cost effective way to reach consumers. or at least an avenue to explore.0). actual use by a character. Even with the risk involved. *Senior Lecturer.Gian Jyoti Institute of Management and Technology. Singh (2006) Product placement is a marketing practice designed to intentionally insert products into the content of entertainment programs. Some of the major advantages that product placement offers includes no mute button. or even snatches of actual radio or television commercials. 10 Issue 1 (Ver 1. marketers and advertisers find that product placement can be a valuable marketing tool for creating greater exposure for their products.000 to $100. When product placement works. and gain exposure for their products. many brands featured in films are already familiar to viewers. Mohali ** Alumnus. The current study explores the viewer’s perception regarding brand placement in films.A Viewer‘s Perception Padma Singhal* Mandeep Mahendru* Neha Nigam** Abstract. Patric and Julia (2002) argued that Product placement in its very sense means the presentation of branded goods on screen. Balasubramanian (1994) stated that usually advertising agencies are involved in placing the clients‘ product in TV shows or films. Sometimes movie marketing costs remain equal to the cost of making it. improve their image. signage. making product placement a rapidly growing advertising medium.Recently. By subtly weaving a product into a scene.000 or even higher so that their brands can make a remarkable presence in movies and on television programmes. low cost. one can determine that corporate India has found this advertising practice to be a useful tool. Understanding the consumer psyche. In most cases. Savvy marketers now build elaborate marketing communication plans crosspromoting films and brands. or verbally (if it is mentioned or described). achieving brand credibility and respect takes years together. Stogel (1992) said that in today‘s competitive market. the triggers and barriers to a product category. Commercials may even be specially developed for use in a specific film. According to Maninder P. or other trademark merchandise within a motion picture. I INTRODUCTION B rand placement refers to the practice of including a brand name.P a g e |81 Vol. This practice has been existed from long but got a boost from 1982. the placement is subtle so as not to divert significant attention from the main content of the program or media outlet. It further explores the gender as determinant of ad recall capability. such as movies and television programs. product. And this is the stage when . but at times a specialist firm act as a liaison between agency and studio. either visually (if the product is shown).

placement may best serve as a means of maintaining visibility and top-of-mind awareness among target markets. The sample has been drawn from varied socio-economic groups representing a cross-section of the population of Indore city. He also found that the various strategies of product placement impact differently on consumers‘ evaluative and ethical judgments and their effects interact with the type of program. and commercial clutter driven by increasing time allocated to advertisements and a simultaneous decrease in commercial length have caused marketers to develop innovative advertising techniques. constituting of 26 statements on non-disguised 5 point Likert Scale. 10 Issue 1 (Ver 1. The Study The study is exploratory in nature and makes an effort to understand the consumer responses to brand placements in films with respect to male and female population. These changes have led manufacturers and marketers to seek product placement as a means to reach the consumer. Brennan et al (2004) investigated the attitudes and perceptions of Australian moviegoers in respect to the acceptability of product placement and audience attitudes towards the placement of ethicallycharged products. ii.Global Journal of Management and Business Research these brands need some additional support for their promotion. There is no significant difference amongst the female and male respondents‘ perception of purchasing the brands/products after watching the movies. and French findings showed a similar pattern of individual influences on product-placement perceptions. D. A. several factors such as consumer tendency to avoid television commercials by zipping and zapping them. In this case. The study depicting the comparisons to the previous American. All the respondents were keen towards the films and had their own views to every aspect related to films. Austrian. v. There is no significant difference amongst the female and male respondent‘s perception regarding the success/ failure of the movie affects the brand. Ethical Concerns Although product placement is a well-known and widely accepted practice today. There is no significant difference amongst the female and male respondents‘ perception regarding the product placement in movies receives a higher processing motivation on the part of the viewers due to intentional exposure. i. iii. There is no significant difference amongst the female and male respondents perception regarding easy identification of brands placed in movies. There is no significant difference amongst the female and male respondents‘ perception of promoting brand awareness through brand placement. Data Analysis Z-test has been applied for data analysis. but those respondents who objected. structured questionnaire.designed. The present paper aims to analyze the viewers‘ response towards brand placements in films with reference to male and female gender. Recently. Vol. The Sample A total sample of 200 respondents was taken for the study (100 Male & 100 Female). did so on ethical grounds. such as alcohol. Placement may be successful in terms of developing or strengthening brand preference. iv.‖ and this paper will analyze product placements under that definition in both film and television. There have been failed attempts to ban product placement. It aims to understand the impact of Gender on the difference in opinions.0). Febuary 2010 P a g e | 82 II METHOD A. they observed that Australian consumers found ethically-charged products to be less acceptable than neutral products. Data Collection Primary data has been collected through self. vi. but the First Amendment has thwarted those efforts and protected product placement as free speech. Critics perceive product placement to have an inherent element of deception in that placements are not clearly labeled as advertisements and therefore may be viewed as ―hidden but paid‖ subliminal messages. There is no significant difference amongst the female and male respondents‘ perception of brand placement actually promotes the band/product. audience fragmentation due to the rise in the number of cable channels. B. or viewers might perceive the brand to be endorsed by the star. Balasubramanian stated that product placement is a ―paid product message aimed at influencing movie or television audiences via the planned and unobtrusive entry of a branded product into a movie or television program. guns and cigarettes. The following null hypothesis was developed. Gender comparisons revealed that males are more accepting of both ethically charged and neutral placements. Z values were calculated to study whether males and females differ in their perception regarding brands placed in films. C. . controversy has not disappeared. A study of product placements conducted by Nebenzahl and Secunda (1999) found that most of their respondents did not object to overt product placements.

46>1. iv. There is significant difference amongst the female and male respondents perception regarding the success/ failure of the movie affects the brand because the value of Z-computed > Z-critical i. xi.236<1.362 > 1. (0. (3. There is no significant difference amongst the female and male respondents perception regarding. x. There is no significant difference amongst the female and male respondents‘ perception regarding. RESULTS AND DISCUSSION There is no significant difference amongst the female and male respondents perception regarding easy identification of brands placed in movies.e. (2. There is no significant difference amongst the female and male respondents‘ perception regarding.960). prominent product placements elicited higher recall than subtle placements because the value of Zcomputed< Z-critical i.P a g e |83 Vol. There is no significant difference amongst the female and male respondents‘ perception that movies provoke children to buy high involvement goods like cars and bikes. low value brands placed in a big banner movie helps in its promotion because the value of Z-computed > Z-critical i. xi. The null hypothesis is accepted. The null hypothesis is accepted. There is no significant difference amongst the female and male respondents‘ perception regarding the brands / products placed in movies sometimes target the wrong segment of viewers xv. There is no significant difference amongst the female and male respondent‘s perception regarding alcohol and cigarette brands placed in movies gives the negative social impact. The null hypothesis is rejected. The null hypothesis (H0) is rejected. The null hypothesis (H0) is accepted. which are. movies are an appropriate medium for brand promotion.960).3025<1.960).960). There is no significant difference amongst the female and male respondents perception in recognizing the brands placed in movies in the background.960).e.e. (0. There is no significant difference amongst the female and male respondent‘s perception regarding. There is no significant difference amongst the female and male respondents perception in recognizing the brands placed in movies in the background because the value of Z-computed <Zcritical i. xii. The null hypothesis (H0) is accepted.9498<1. ix. (1.667<1. (3. There is significant difference amongst the female and male respondents perception of brand placement actually promoting the band/product because the value of Z-computed > Z-critical i.e. product placement has switched from a practice that helped make scenes more authentic to a successful tool in product promotion. brands placed in movies gives a competitive edge to the company.0).338 < 1. There is significant difference amongst the female and male respondents perception regarding. xvii. brands . iii.960). viii. There is no significant difference amongst the female and male respondents perception regarding brand placement promotes brand awareness because the value of Z-computed < Z-critical i.e. There is significant difference amongst the female and male respondents perception regarding. (1. xvi. (1. xii. There is no significant difference amongst the female and male respondents perception regarding. The null hypothesis is rejected.960). vii. xiii.e. There is no significant difference amongst the female and male respondents perception regarding.96).960). because the value of Z-computed < Z-critical i.582 > 1. There is no significant difference amongst the female and male respondents perception regarding the product placement in movies receives a higher processing motivation on the part of the viewers due to intentional exposure because the value of Zcomputed < Z-critical i. low value brands placed in a big banner movie helps in its promotion. The null hypothesis (H0) is accepted. viii. ii.e. The null hypothesis (H0) is accepted. x.e. January2010 vii. vi. There is no significant difference amongst the female and male respondents‘ perception of changing their preferences when their favorite star promotes any particular brand in a movie. (0. There is no significant difference amongst the female and male respondents perception regarding. ix. v. xiv.404 < 1. for some people not affordable. The null hypothesis (H0) is accepted. prominent product placements elicited higher recall than subtle placements.e.e.960).4481<1. There is no significant difference amongst the female and male respondent‘s perception regarding movies promotes the wrong brand/ product sometimes.e. 10 Issue 1 (Ver 1. product placement has switched from a practice that helped make scenes more authentic to a successful tool in product promotion because the value of Z-computed < Z-critical i. (4. There is significant difference amongst the female and male respondents perception of purchasing the brands/products after watching the movies because Global Journal of Management and Business Research the value of Z-computed > Z-critical i.960). III i. The null hypothesis (H0) is rejected. There is no significant difference amongst the female and male respondents perception of changing their preferences when their favorite star promotes any particular brand in a movie because the value of Z-computed < Z-critical i. (0.565>1.

207886542 2.56 0.e. Table 1: Showing Mean. The null hypothesis (H0) is accepted.16878595 1. xvi.(σ p1) MEAN(X2) S.24 1.e.122947061 3.66 1.960).2485 <1.447<1.667 HO6 2.80 >1.065719276 3.90626328 0.960) of with reference to female & male respondents FEMALE RESPONDENTS (n1=100) MALE RESPONDENTS (n2=100) HO MEAN(X1) S.e. (1. (1. The null hypothesis (H0) is accepted. xiii.99818016 0.e. The null hypothesis (H0) is accepted. There is no significant difference amongst the female and male respondents perception regarding alcohol and cigarette brands placed in movies gives the negative social impact because the value of Z-computed < Z-critical i.20788654 2. (3.565 HO3 3.29 1.49 1.582 HO7 3.33 0. xv.404 HO5 3.02784466 0.338 .168785954 3. (0.D.34 1.49 1. There is no significant difference amongst the female and male respondents perception that movies provoke children to buy high involvement goods like cars and bikes. (σp2) Z HO1 4.e.111191916 3. movies are an appropriate medium for brand promotion because the value of Z-computed < Zcritical i.15027445 3. The null hypothesis (H0) is accepted.236 HO8 3.2122<1. The null hypothesis (H0) is rejected.150274451 3. xiv. Febuary 2010 P a g e | 84 placed in movies gives a competitive edge to the company because the value of Z-computed > Zcritical i. (2. 10 Issue 1 (Ver 1.46 1.960). (1. for some people not affordable because the value of Zcomputed < Z-critical i. There is no significant difference amongst the female and male respondents perception regarding movies promotes the wrong brand/ product sometimes because the value of Z-computed < Zcritical i.3025 HO2 3.D.37 0.17288387 4.960).66 1. There is no significant difference amongst the female and male respondents perception regarding.91 1.172883867 3.960).960). SD and Z Values at 5% significance level (1.0).12294706 1. which are.e.Global Journal of Management and Business Research Vol.964574539 4.1453 >1. The null hypothesis (H0) is rejected.26 1. xvii.2485 < 1.91 1. There is significant difference amongst the female and male respondents perception regarding the brands / products placed in movies sometimes target the wrong segment of viewers because the value of Z-computed > Z-critical i.46 HO4 3.960).46 1.26 1.

3 1.36 1. Galician and Mary-Lou (2004) argues that so many aspects of the American culture have been connected to advertising. commercial broadcasters.3 1.215181742 3.001564433 3. Baerns Barbara (2005) measured the future viability of the principle of separating advertising and programme content in advertising. One of the studies by Jodi Burman (2005) establishes a foundation for examining the relationship between product placement and arousal.0).14168049 0. Rupert Howell.09894348 3. placements can occur at many different levels ranging from a simple background prop to the product being an instrumental part of the story.098943478 3. They found that strategies of product placement impact differently on consumers‘ evaluative and ethical judgments and that their effects interact with the type of television program. They evaluated four factors viz.08110493 1. However. marketing. Wake (2002) mentioned that according to The American lung association and the Canadian cancer society.2122 HO13 3. The influence of 3 different levels of brand placements on explicit and implicit memory for the brand.027844661 3. type of placement. especially when they appear in information/services magazines. MD. Although product placement is a well-known and widely accepted practice today. there should be a new movie rating system that must includes tobacco use in the calculation to reduce the number of young people exposed to such messages.04330477 2.141503527 3. Meni (1994) investigated the associations among moviegoers purchase evaluations.52 1. However.57 1. Critics perceive product placement to have an inherent element of deception in that placements are not clearly labeled as advertisements and therefore may be viewed as ―hidden but paid‖ subliminal messages. and brand recall finds out that suggest that arousal. journalism.007597402 3. ITV Brand and Commercial said that Product placement could be an innovative and important new revenue stream for ad-funded. and fast foods.9498 HO10 3. 10 Issue 1 (Ver 1. product placements that play a passive role and are not clearly expressed within the program are generally perceived as less ethical. with optimal levels of arousal and pleasure mentioned earlier.362 HO11 3.P a g e |85 Vol. and public relations.145 HO15 3.2195 Astous et al (1999) studied the impact of different strategies of product placement on consumer reactions in the context of television sponsorship. They also suggested that the evaluations of product placement are most negative in the context of mini-series/drama television programs. especially placements of alcohol.14150353 1.18065211 1.034 HO14 3. Tapan K.4481 HO12 3. Jacobson1995.37 1. January2010 Global Journal of Management and Business Research HO9 3. Hudson et al (2008) studied the ethics of advertising in children movies. tobacco. discusses costs.52 1. Auty and Susan (2004) observed that the implicit memory (i. Panda and (2005) studied the rationality of the brand placement. Moonhee & David (2007) found that product placements within a movie are often either treated as a binary variable. as a single factor does not affect brand recall of product placement. Furthermore. further enabling investment in original UK content. sponsor‘s image. the possible congruity that can be built in the story line and the image of the brand in creating a positive impact in the usage through the characterization in the story. alcoholic beverages. An even larger group is opposed only to certain types of products‘ being placed. Research results of Brennan et al (2004) found that brand placement recognition levels achieved by audiovisual prominent placements exceed the recognition rates achieved by visual-only prominent placements. product placement can be seen as a positive marketing tool.29 1. For the purpose of the study. and consumption that it becomes difficult to find any other form of discourse or ideas that are not connected to consumption or branding.62 1. controversy has not disappeared.141680491 3.e. and Mazur A1995 examines the process. Placing such products and brands in a film is seen as an alarming way to get around. it is present or absent.344498705 3.248 HO17 3.57 1.11640657 0.3444987 1.447 HO16 3.68 1. as variables in bringing the desired change in consumers‘ attitude. .41 1. and lists examples of placements in feature films.043304773 3. at a time when advertising revenues are declining. pleasure. M.0075974 1. he studied the ethical evaluations of parents regarding product placements in children‘s films and found that parents wanted more regularity on the use of product placements.6 1. Ong and D.73 1.69 1.62 1. type of television program and sponsor-program congruity. This may be proved to be the indicators of success of effective brand placement in films and if so. Gupta et al (1997) has cited concern for product placements of ethically charged products such as guns.68 1.36 1. brand recall patterns and ethical judgments of the medium. The study of Gupta et al (1998) illustrates common product-placement strategies in Hollywood films and attempts to draw conclusions about the kinds of placements and the recall of products among audiences. repetition) is more important than explicit recall in terms of children‘s brand choices. and tobacco.

101-133 11) M. Product Placement Opinions and Purchase Intentions‖. 7) Ian Brennan & Laurie A Babin. While some experts argue that the public is not as susceptible to advertising when it is aware of the tactic. ―Quest for the Captive Audience‖ Superbrand. Comedy and action were the most popular genres for placement. On the other hand. Gupta and Kenneth R. and attitudes toward the brand were examined.al (2004) highlights that advertisements on television need not necessarily work. On the other hand. Wenner and Lawrence (2004) emphasise on the the ethical propriety of current trends in product placement in television and film entertainment. Ed 46 6) Gail Schiller." Reuters/Hollywood Reporter. 14) Mary-Lou Galician (2004). 131-132 13) Maninder Singh (2006). product placements are a proven way to reach the consumer. As placements have become more prevalent. Journal of Communication Management. The results confirmed that levels of brand placements influence recognition of the target brand and attitudes toward the brand. a viewer is glued to his theatre seat no matter what the situation in the film is. "Product Placements in TV. "Separating Advertising From Programme Content: The Principle and its Relevance in Communications Practice". Nathalie Séguin (1999). "Brand Placement Recognition: The Influence of Presentation Mode and Brand Familiarity". and advertisers are finding more ways to reach viewers. Study Finds. 10 Issue 1 (Ver 1. Films Soar. clothing. Jacobson and A Mazur (1995). Meni (1994). 106-107 5) David T. 896 – 910 2) Barbara Baerns (2005).6 (4) 9) Kim Sheen (2003). Canada: Sage Publications Inc. Journal of Undergraduate Research. ―Handbook of Product Placement in the Mass Media‖. simple placement of the brand within the movie influenced implicit memory and the implicit choice task. In terms of product/service categories. He analyzed three distinct "genres" of contemporary placements viz Product Placement. Journal of Promotion Management. The study has Vol. ―Controversies in Contemporary Advertising‖. Sung et al (2008) examines to the extent and context of brand placement in Korean films over the past nine year period. (2004). and Video Insertion. 10 (½). Vol. Journal of Promotion Management. 2 ( ¾). 159-175 4) Chuck Stogel (1992). Wells. 67-72 12) M. Marketers can use product placements in films and television programs as a way to bring about more awareness for their products. Newsweek. and Coca Cola was the most frequently occurring brand. Vol. but also feel that there could be certain barriers in such cases. Vol. ―Selling it at The Movies‖. "Product Placement in Movies: The Effect of Prominence and Mode on Audience Recall". Further it can be administered on a larger population to increases accuracy of findings. exaggerated expectations from the advertiser and lack of professionalism and finds out that if both filmmakers and advertisers take one step towards each other and realize that this relationship could be symbiotic. V REFERENCES 1) Alain d‘Astous.Global Journal of Management and Business Research implicit choice behavior.0). Vol. or the audience. Even so. (2005). 10) Lawrence A Wenner (2004). 185-203 8) Jodi Burman (2005). non-alcoholic beverage. ―The Effects of Arousal on Brand Recall of Product Placement in Movies: Exploring the Relationship between Low. they have also become more accepted by the consumer. the majority of audiences do not seem to be protesting the use of product placement. Lord (1998). ―Consumer reactions to product placement strategies in television sponsorship‖. He found that brands are prevalent and occurrences have increased over time. it can further be administered on a larger geographically dispersed sample across various other demographic variables. Journal of Promotion Management. "Should Product Placement in Movies Be Banned?‖. and food brands appeared most often. Since product placement is seen as an acceptable communications tool. 3) Beng Soo Ong and D. 101-113. . caution should be taken as the marketer has little control of the message surrounding the product. In addition. 9(3). In the study the responses of viewers were taken. "On the Ethics of Product Placement in Media Entertainment". (2001). European Journal of Marketing. "Product Placement Marketing Madness: A Survival Guide for a Consumer Society‖. which can also be conducted by taking the views of the brand promoters. Vol 10 (1/2). unrealistic pricing. Friendly (1983). Vol-33. automobile. alcoholic beverage. because of uncertainties whether a film would run or not. Febuary 2010 P a g e | 86 been conducted in Indore City only. Medium and High Arousal Levels and Brand Recall. Our society spends an increasing amount of time in front of the big and small screen alike. ―Who really needs Madison Avenue?‖ Forbes. One of the studies by Kohli et. New York: Haworth 15) Pola B. because the viewers invariably switch over channels or mute the sound when commercials crop up during shows and even cricket matches. The current study has been carried out on a sample of 200 respondents. Product Integration. corporate marketers should feel relatively comfortable utilizing this advertising method but should assess the opportunities for their individual effectiveness in the promotion mix. ―Product Placement: What's in there for the brands?‖ Citizen Log. IV CONCLUSION AND IMPLICATION Product placement has become a big business and it is because of the growing importance of entertainment in the lives of modern viewing audiences. it would make a lot of sense. Denver: Westview Press.

David Hudson. 41-58 S. Eastman Wake.(2000). ―Consumer Response to Brand Placements in Films Role of Brand Congruity and Modality of Presentation in Bringing Attitudinal Change Among Consumers with Special Reference to Brand Placements in Hindi Films‖. Psychology & Marketing. Gould.A12 Yang Moonhee. (2004 ). 39 – 53. (2004). Indiantelevision. vol 21 (9). Rosenberger III and Veronica Hementera. 289-304 Stacey Brennan. Ottawa Citizen. Vol. and John Peloza (2008). p. Yongjun Sung and Jongsuk Choi (2008). ―How big tobacco got Hollywood to light up‖. P.J. Vol 29 (4). 20 (1). Balasubramanian. "Promotion of Theatrical Movies" in Susan Tyler Research in Media Promotion.(1994).B. Philip J. ―Beyond Advertising and Publicity: Hybrid messages and public policy issues‖. Vol 80 (2). explicit and implicit memory. 7-25 Vanita kohli and Vikram Sukhija (2004) ―Film placement in Indian movies scoffed at Frames‖. ―Brand Placements in Korean Films. Vol. Article 1 Susan Auty and Charlie Lewis (2004). Marketing Bulletin (15). Roskos-Ewoldsen David R (2007) ―The effectiveness of brand placements in the movies: Levels of placements. Global Journal of Management and Business Research . September. Vol 23(4). 10 Issue 1 (Ver 1. 1995–2003: A Content Analysis‖ Journal of International Consumer Marketing. "Exploring Children‘s Choice: The Reminder Effect of Product Placement". Journal of Advertising.J.P a g e |87 Vol. Vol 11(4). 47-59 S. Adams and C. (2002). 469-489. Journal of Business Ethics. ―Product placements in movies: A cross cultural analysis of Austrian. ―Meet the Parents: A Parents‘ Perspective on Product Placement in Children‘s Films‖. and brand-choice behavior‖. French and American Consumers‘ attitudes towards this emerging international promotional medium‖. ―Product Placements in Movies: An Australian Consumer Perspective on their Ethicality and Acceptability‖. 20(3). Tapan Panda. Journal of Advertising. January2010 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) Journal of Current Issues and Research in Advertising. 697-713. Gupta & S Graner-Krauter. 29-46 Simon Hudson.Vol. Lubbers(2000 ).com Team W.A. B. South Asian Journal of Management.K.0). 57(3).

However. If we accept 1 FSA. the ability to rollover funding of long-dated loans. the experience of Bear Stearns in the USA and Northern Rock in the UK had shown that banks not necessarily defined as TBTF could nevertheless create significant market turbulence when they failed. it is necessary to minimise the amount of judgement required. and provide recommendations for how to mitigate this risk exposure. This raises the question as to exactly which banks are systemically risky. We also examine the nature of bank systemic risk. Prior to September 2008. there is a strong case for suggesting that almost all banks fall into at least the last category above. Hence this kind of protection afforded to a bank may make it TBTF for the system. borrowers prefer to borrow for as long a term as possible. ultimately. because while investors like to lend for as short a term as possible. while serious for its customers and creditors. Terms such as too-big-to-fail (TBTF). This implies that in a globalised economy with many interconnections. making virtually all banks potential areas of material systemic risk. They deal within the same markets and with each other. Banks such as Citibank. Banks therefore must not only manage their own risks adequately. Policy Statement 09/16. would have been catastrophic for the world economy because of the high systemic risk such bankruptcy represented. Systemic by size: the absolute size of the bank is relevant. but so is its size relative to a particular financial market or product. identical institutions. is continuously available. and whose bankruptcy. In this regard therefore. they refer to how the government. Royal Bank of Scotland. The UK‘s Financial Services Authority (FSA) has suggested that a firm be defined as systemically important as follows: ―…when its collapse would impair the provision of credit and financial services to the market with significant negative consequences for the real economy. This also gives rise to liquidity risk. Spillover effects are closely related to systemic risk. The FSA view of the factors that make firms systemically important is: i. whereupon failure by one is seen as a potential failure by all (an example would be the UK building society sector). and which remains a challenge for financial regulators. and present suggestions on to how to manage it most effectively.0). 10 Issue 1 (Ver 1. and certainly any bank with cross-border interests. We describe how moral hazard and the risk of the TBTF bank will remain in the system. ii. because a bank on the brink of bankruptcy would have a destabilising effect on the entire financial system.‖ 1 Thus the precise definition of systemic importance is no longer purely a reflection of the size of the bank. can have a bigger impact still on the wider economy because of the risk this poses to other banks. or more specifically its central bank. That means that the bankruptcy of any one bank. it remains the judgement of financial regulators to determine the extent to which a particular firm falls into one or more of the three categories and can be specified as systemically important. October 2009 . The fact that all banks irrespective of their size. we consider the role of government in the financial system in the post-credit crunch era. after Lehman Brothers collapsed. II SYSTEMIC RISK A. Bear Stearns for example had large exposure to hedge funds that had invested in low-grade assets. These were the Institutions deemed ―too big to fail‖ (TBTF). In this article. the collapse of almost any bank. For maximum risk mitigation. Systemic by association: where the market views one company as representative of a group. iii. The above is a logical approach. The act of undertaking loans and deposits creates the mismatch. Febuary 2010 P a g e | 88 Regulating Bank Systemic Risk: New Principles in Macroprudential Management Moorad Choudhry and Gino Landuyt * I INTRODUCTION T he art of banking remains unchanged from when banks were first established. would come to the rescue of a bank in financial crisis. UBS and KBC Bank were partly nationalised and/or received large cash injections from their governments. They are connected with the overall objective of safeguarding the public‘s deposit money should a financial institution collapse. In essence. At its core are the two principles of asset-liability mismatch and liquidity risk management. approach. lender-of-last-resort (LoLR) and moral hazard are closely related. it was viewed. It is this systemic risk that posed the danger for the world‘s economies in 2008. can destabilise the economy. Defining Systemic Importance The economic importance of banks is evident from the reaction of western governments to the crisis following the collapse of US firms AIG and Lehman Brothers. The events of 2007-08 suggest that not only large banks present systemic risk. or strategy must manage these two basic principles means that they are. Systemic by interconnection: the importance of the firm to the interbank market and clearing systems. and bankers are therefore required to take steps to ensure that liquidity. they also have to be aware of the potential risk exposure of their counterparties.Global Journal of Management and Business Research Vol.

as they should expect that the central bank would place unlimited resources at the disposal of private banks to keep the credit process going. This happened with the UK bank Northern Rock plc. but bailing out banks comes with a cost for the taxpayer. January2010 this. A reaffirmation of their position as LoLR creates a dual principle. This is only sustainable from a bottom-line viewpoint by taking on more risk on the asset side of the balance sheet. Living With Moral Hazard One result of the 2007-08 financial crises is that governments and central banks are now playing a pivotal role in maintaining moral hazard. The bank that is able to pay the highest deposit rate will. moral hazard has seemingly become an inescapable fact of life. Due to competitive pressures in banking a higher risk-reward profile becomes a self-fulfilling prophecy.” This and other similar utterances became known as the „Greenspan Put. because in the immediate post-crisis environment investors remain risk averse. and monetary policy ought to be used to offset the fallout. We discuss each of these points in turn. At the US Federal Reserve. even compared to inflation-adjusted levels seen during the 1930s Figure 1 Global bailout bill Global Overview Country $ bln US* 14. In part due to its more aggressive credit portfolio.00 EU** 1. then there are significant implications for bank supervisory authorities. It is necessary for the safe operation of the financial system.20 * excluding Fannie Mae and Freddie Mac ** EURUSD rate 1.60 Source: US Treasury. all else being equal. To that end. Mitigating moral hazard risk Thus.0). the drop in investments and consumption would be substantial and the decline in income and employment would be larger as well. The collapse of bubbles can be detected. the LoLR concept will not disappear. Transparent Communication By Central Banks About Moral Hazard As we noted above the crisis was underpinned by a false perception that unsecured institutions. The interconnection of financial markets and the systemic risk related to it. Three major issues around moral hazard and the TBTF issue need to be addressed: i. the bill for rescuing the banking sector and injecting stimulus packages into the global economy has risen to just below $20 trillion. the bank was able to pay out a higher rate on its clients‘ deposit accounts compared to that paid by the big ―high street‖ banks. In essence. but any losses will be socialised at taxpayers‘ expense. Consolidation trends and the risks of ―too-big-tofail‖. it gives a strong signal to deposit holders not to withdraw their money from banks. we have a conundrum that is not easily solved. 10 Issue 1 (Ver 1. 1. but as the economy recovers the issue becomes more problematic. C. attract most deposits. Protecting the public‘s money is a valid objective. if governments had not stepped in to guarantee liabilities. as banks seek to generate more customer business and attract deposits. B. it appeared as if the entire Western banking system might collapse. the majority in the US (see Figure 1). this is not an easy task. however.875. IMF Global Journal of Management and Business Research The existence of a safety net creates an unconscious reflex in bank senior management to take on more risk. Perhaps not currently. For example. with disastrous consequences for the global economy. Furthermore. Secondly. without curtailing risk taking. noted in Cooper (2008). would nevertheless be regarded as TBTF by the US government.972. We observed during the Lehman collapse the effects when a government and central bank let market forces act freely: at one stage in October 2008. Federal Reserve. he stated: “Asset bubbles cannot be detected and monetary policy ought not to be in any case used to offset them. First. For the near future.‟ ” The latter has come under criticism as this safety net gives the impression that profits within the banking industry will remain privatised. for example those that do not fall under US FDIC protection. The principle of LoLR has merit. He gave the market the impression that the Federal Reserve would put a floor under financial markets in general. we require new regulations.20 IMF 140. and exacerbated by the rhetoric of Federal Reserve Chairman . in a way that does not apply to other industrial sectors. Banks in turn compete against each other to attract deposits. Transparent communication by central banks about moral hazard. So it appears apparent that the public sector must step in for the ―greater good‖. These numbers are unprecedented.499. iii. This perception was first created by frequent interventions by central banks during the past four decades. ii. It is an economic law that in this case the fall in asset prices relative to current output prices would have been greater but for state intervention. this moral hazard principle was emphasised by a number of comments from Alan Greenspan.80 Japan 375 UK*** 2. FDIC. The ultimate solution to the problem may be no more ambitious than reducing (rather than attempting to eliminate) moral hazard. However. it encourages deposit holders to place their money at the bank with the highest deposit interest rate.40 *** GBPUSD rate 1.888.20 Total 19. During a speech at the Economic Club of NY in December 2002.P a g e |89 Vol. Continuing moral hazard is an issue that needs to be resolved if we are to avoid a re-occurrence of the crisis. The Great Depression in the 1930s could have been more contained if the central bank had played a more dominant role.

Another aspect of communication towards the market could include explaining how central banks undertake market stabilisation efforts. because it is at these times that banks withdraw credit lines with other banks. ECB or Federal Open Market Committee meetings. A central clearing mechanism that eliminated bilateral counterparty risk would make it less likely that banks would withdraw lines. Reducing leverage. The opportunity can be taken on a regular basis when communicating monetary policy. The reason why a LoLR facility is put in place is to avoid spillover effects towards other banks and to prevent a bank run. Furthermore. recognises this issue however. with only a small fraction of a bank‘s liabilities held in reserve at the central bank. 2. 10 Issue 1 (Ver 1. and at the Humphrey Hawkins testimonies. rather than wait until the next crisis. which could not be rescued by their government since they had outgrown their own country‘s GDP. market discipline will not change. If not. v. these banks were not a major threat to the . through the imposition of leverage limits on banks. efforts are already underway to set this up for credit derivatives. these banks grew from being domestic lenders to international lenders. reduce reliance on single funding 2 See Bernanke (2007). and increase the average tenor of liabilities. As bank funding is based on borrowing in the interbank market. The focus extends to the following: i. The above measures all address moral hazard. In addition to the frequency of communication. 3. During the expansion. Febuary 2010 P a g e | 90 sources. The Interconnection Of Financial Markets And Systemic Risk Transparent communication on its own could not be expected to address moral hazard risk. This suggests that governments and central banks begin the process now.Global Journal of Management and Business Research Alan Greenspan. Generalised comments along the lines of ―banks are at risk of losses due to excessive risk taking‖ cannot be expected to change market mentality. vi. its extent of risk exposure and the amount if systemic risk it represents. However. ii. Addressing this risk is a current management issue for banks and regulators. stating. Setting strict liquidity ratio limits. Imposing higher capital ratios than currently in place under Basel II. Central banks and other institutions such as the FDIC would instead be required to disclose more information on the research they are conducting on maintaining financial stability. Of course. Banking is ultimately a business based on confidence. iii. and such a system would help to reduce bilateral counterparty risk. a so-called ―International Money Exchange‖ for the interbank market that would work similarly to an exchange clearing house (Choudhry 2009). The case for this is strong when considering the Icelandic banks. systemic risk is inherent in the model. Our recommendation is that banks promote a product which has similar features to a classic reverse convertible bond. In the last decade. which would automatically convert into equity once the minimum capital ratio level of a bank is breached.”2 The implication of this is that central banks need to modify their rhetoric and persuade the market that there is no absolute floor under the markets. they acquired foreign assets of almost ten times the country‘s GDP (from two times GDP in 2003). the results of research on procedures and methodologies in identifying which depositors to protect and which can suffer losses is worthy of general release. Banks would issue so-called reverse convertible debentures. The basic bank business model relies on advantage. The establishment of a global central clearing agency for OTC derivatives. and that their expectations of being rescued must be diminished. Consolidation Trends And The Risk Of ―TooBig-To-Fail‖ The current debate on TBTF raises the issue that such banks should be made smaller. and so collectively could be expected to reduce the likelihood that a central bank or government would have to bail out the banks during the next economic downturn. the UK‘s FSA has started the process to implement a much stricter liquidity regime for banks (FSA 2008). for example. to avoid the risk of a financial crisis. Further measures are needed to reduce the frequency with which central banks and governments bail out banks. This has been recommended by the Basel Committee on Banking Supervision (BoE 2009). imposed by the regulator. such a facility would serve to make the interbank market more robust during times of crisis or illiquidity. Ben Bernanke. tailored according to the bank‘s size. When the bubble burst the only course of action available to prevent the collapse of the banking system (and thereby the economy) was an IMF emergency loan. the government will step in to prevent the failure of any very large institution – the „too-big-to-fail problem. for example during the press conference after Bank of England. almost 80% of these assets were in foreign currency. Perceptions built up over 20 years do not evaporate overnight. its quality is an issue for consideration. The instant that customers start withdrawing their deposits on a large scale. An alternative is for regional clearing centres based on currency. Vol. making them extremely vulnerable to foreign exchange volatility. banks are in trouble and will need to be bailed out (either by takeover or merger with another bank or by outright support from the LoLR). iv. if necessary by regulatory fiat. The establishment of a clearing house for the money markets. “Market discipline may erode further if market participants believe that. The current Chairman. Developing new capital instruments which absorb losses in distressed situations. as well as requirements to diversify funding sources. but something that can only take place over time. For example. this is not a short-term solution.0).

72 times. However. Unlike the Icelandic banks. Figure 2 also shows that European banks were and still are more leveraged than American banks. the Benelux countries implemented a joint rescue plan to save it from collapse. Glitnir and Landsbanki.0). the GDP of Switzerland (see Figures 2 and 3). Ultimately. provides stronger backing for advocates of making banks smaller. Some international banks remain bigger than their own country‘s GDP. As large-scale losses became evident. For example there are the Swiss banks UBS and Credit Suisse. Between 1998 and 2007 house prices nationally quadrupled in real terms. one impact of this was that the Ireland sovereign rating was cut from AAA. in countries such as the Netherlands and Belgium there is a similar pattern to that in Switzerland. The Irish situation was not as dramatic politically as the Icelandic one because Ireland had the safety net of the eurozone. the Irish banks focused mainly on their home market and the UK? The Irish banking industry grew concurrently with the domestic real estate boom. This raised another issue however as it exposed eurozone taxpayers to potential losses if the Irish government itself needed to be bailed out. 10 Issue 1 (Ver 1. on fears that the public sector debt liability created by the guarantees would become unsustainable. the Irish government intervened to provide explicit backing for the banks. the majority of Irish banks were effectively nationalised.P a g e |91 Vol. At the end of 2008 the Credit Suisse balance sheet was 2. and UBS‘s balance sheet 4. and that no UK or German bank outgrew its country‘s GDP. Global Journal of Management and Business Research . When the housing bubble burst. The case of Ireland. nevertheless the impact was not on the scale of the Lehman collapse. Irish banks were heavily exposed and as Figure 5 shows their capital ratios were not robust enough to survive the shock. January2010 international banking system.53 times the GDP of the Netherlands. which chose to expand overseas. and KBC Bank received large cash injections from the Belgian government. This was also the reason why. European banks did make writedowns on the collapse of Kaupthing. in the case of Fortis Bank.18 times. The Dutch bank ING was in effect TBTF for the government as its total assets were 1. which is a member of the euro-zone.

412.147 12.80 8.586.379 20.158.70 1.943 12.612 403.121.90 833.01 51.760 312.20 18.121 1.19 6.40 Financial Leverage 19.827 19.50 8.993.003 34.89 5.41 7.46 7.265 539.03 7.24 8.60 871.010.46 7.54 9.50 208.11 6.584.62 17.26 Goldman Sachs Total Assets 289.81 8.80 8.045.210 1.835 19.20 324.85 Citigroup Total Assets 902.50 Bank of America Corp Total Assets 642.10 9.50 187.771 Financial Leverage 19.35 24.027.44 8.70 1.222 758.562.840.202.62 6.92 588.90 7.4 7.190 1.33 10.80 Financial Leverage N/A N/A N/A N/A Tier 1 / Core No data No data No data 5.46 7.62 7.406.262 Financial Leverage 26.77 8.655.284.051.484.8 Tier 1 / Core 7.10 7.94 18.071.44 8.079 30.817.10 9.90 Mizuho Financial Group Total Assets N/A N/A N/A 134.50 1.859 412.116.75 9.309.00 1.281 192.31 7.40 99.85 6.258.7 31.99 7.04 18.021.64 8.731.87 Morgan Stanley Total Assets 426.409 33.21 6.812 27.388.216 Financial Leverage 15.60 100.829 29.750.80 31.255.465 22.680 1.007.64 16.31 Tier 1 / Core 7.970 15.227.60 1.37 6.255.190 356.401.39 7.459.87 11.69 835.10 601.493 41.87 1.1 8.198.07 25.12 1.95 24.44 11.93 6.450 1.741 11.63 8.83 No data 1.30 8.4 8.22 Tier 1 / Core No data No data No data No data Uncredit Total Assets 202.09 8.38 5.101 13.004.360.63 1.8 7.45 22.10 213.787 51.880 154.30 1.02 12.69 Tier 1 / Core No data No data No data No data BNP Paribas Total Assets 693.30 823.305 782.097.551 42 7.318 14.59 Deutsche Bank Total Assets 928.81 38.40 1. 2001-2008 Bank 2000 2001 2002 2003 JPMorgan Chase & Co Total Assets 715.884.7 Tier 1 / Core 8.860.03 898.80 2.037 13.575 758.51 62.308 2004 2005 2006 2007 2008 1.20 108.4 9.78 7.31 10.05 13.60 10.279.50 1.44 21.224 Financial Leverage 33.25 17.87 13.26 481.004 368.331.119 716.996 11.201 26.192 31.55 13.30 111.046.61 7.20 787.615.55 6.63 9.10 143.77 Tier 1 / Core No data 7.32 840.355 32.60 664.48 10.30 351.90 996.218 355.974 14.872.737 11.00 9.30 427.09 27.803 11.63 No data 658.045.119.0).60 758.357 43.64 1.60 Financial Leverage 23.32 17.59 1.86 7.440.96 7.052 1.97 35.94 8.50 2.871.527.88 15.520 11.7 6.02 23.55 Tier 1 / Core 6.172 705.339.632 17.26 7.32 1.12 No data 838.82 1.157.00 8.80 187.00 Societe Generale Total Assets 455.345 693.432 21.60 924.10 36.612 18.30 238.68 7.355 803.40 Barclays Bank Total Assets 316.26 23.7 32.90 1.956 1.20 149.307 31.30 8.000.70 1.86 13.9 32.454 34.000 454.034.03 7.523 28.44 No data 1.426 307.70 1.361 51.915 17.59 2.20 Financial Leverage N/A N/A N/A N/A Tier 1 / Core No data No data No data 4.56 17.980 54.60 2.69 14.86 19.68 No data 149.82 9.47 8.00 776.569 349.804 24.285.29 22.01 8.197 387.794 482.89 26.799 Financial Leverage 20.37 8.291.88 1.23 8.612.27 5.90 89.38 8.79 7.079.193.60 1. 10 Issue 1 (Ver 1.86 107.30 809.60 992.41 7.032 Financial Leverage 14.38 8.81 21.30 7.881 512.04 6.2 Tier 1 / Core 9.86 30.912 Financial Leverage 18.40 HSBC Holdings Total Assets 674.4 7.354.499 501.90 696.21 No data 1.05 No data 884.758 16.938.350 .020.951 719.84 106.15 7.74 37.489.628 529.20 7.91 Royal Bank of Scotland Total Assets 320.1 28.942 11.46 8.00 1.351.494.57 956.55 1.36 8.07 Tier 1 / Core 8.764 660.15 1.248 12.288 710.25 1.181 30.09 19.349.Global Journal of Management and Business Research Vol.84 Tier 1 / Core 7.08 7.215.50 ING Bank Total Assets 650.42 8.85 17.052.96 Tier 1 / Core 8.22 7.264.503 29.994 918.73 876.50 1.50 110.76 6.95 7.547 22.334 25.62 1.62 7.30 2.59 7.191 621.62 32.79 1.052 14.266 17.05 24.175.129.37 11.663 40.849 11.158 1.428 Financial Leverage 18.53 7.501.089.161 32.90 265.841 34.312.6 23.955.796 27.076.19 8.002.485 1.442 11.68 Santander Central Hispano Total Assets 348.170.423 62.746 11.90 358.47 7.46 7.41 481.068 30.06 Tier 1 / Core 7.82 14.82 8.95 575.49 7.01 8.175.30 2.29 6.74 26.06 Tier 1 / Core 6.66 Credit Suisse Group Total Assets 979.44 65.122 18.106.16 7.90 1.38 Tier 1 / Core 7.049.43 16.50 8.82 1.77 19.66 102.062 443.91 8.65 17.99 14.996 Financial Leverage 33.74 1.605 1.483 Financial Leverage 13.800 770.226.078 1.32 Financial Leverage No data No data No data No data Tier 1 / Core No data No data 5.2 32.652 37.8 Tier 1 / Core 7.26 99.432 12.14 8.134 34.02 No data 706.68 8.90 Wells Fargo & Co Total Assets 272.64 7.10 7.80 503.00 9.35 6.89 747.499 602.843 Financial Leverage 22.187.51 14.762 36.59 26.40 2.76 8.798 Financial Leverage 10.10 531.64 7.20 25.84 31.315 825.40 2.49 5. Febuary 2010 P a g e | 92 Figure 2 Bank overview of advantage and total assets.858.614 Financial Leverage 26.780.41 17.110.71 1.97 9.88 7.77 7.94 6.63 129.574 403.96 Sumitomo Mitsui Fin Group Total Assets N/A N/A N/A 104.343 31.53 18.16 12.18 7.370 778.639 16.56 8.70 8.9 14.31 25.20 1.016.639 33.29 8.91 10.44 7.20 7.694.349 51.075.480 17.30 2.27 8.70 17.80 538.39 1.42 Mitsubishi UFJ Fin Group Total Assets No data No data 99.42 912.486.60 137.510 33.470 22.64 8.130.20 5.715.391 36.

652 25.474 41.28 17.81 7.26 7.585 424. There are practical difficulties with doing this.422 309.83 9.00 7.611.511 47.66 8.79 38.80 Commerzbank Total Assets 454.16 25.27 32.40 7. The first is selecting the metric to use to determine whether a bank is 2006 2007 2008 2.413 448.917 40. In this case from an orthodox free market view it would be unfair to penalise this development.674.79 20.80 285.20 7.30 7.181.759.564 40.66 No data 92.50 8.58 27.776 19.761 Financial Leverage 42.364.600 Japan 4.70 355.10 775.278 39. and neither represents any kind of ―systemic‖ risk to the economy.40 HBOS Total Assets N/A 312.400 19.59 10.30 Lloyds TSB Group Total Assets 219.813 29.754 Financial Leverage 21.940 Belgium 506.70 616.98 Tier 1 / Core 9.821 80.30 6.68 41.9 39.75 5. in the aftermath of the ABN Amro takeover.297 1.42 31.67 7.30 9.017 78.274. is instructive: the acquiring banks had not put in place a robust funding strategy behind the transaction.73 21.01 10.953.70 9. .000 1.97 Tier 1 / Core 8.50 Financial Leverage 29.179 30.60 343.761 Germany 3.56 23. That said.10 651.513 France 2.80 11.21 162.00 10.058.74 8.434 29.2 No data 591.18 8.595 Ireland 273.030 408.32 20.554.91 28.303 106.359 85.69 Tier 1 / Core No data 11.49 44.0).99 26.80 604.085.947 29.20 158.20 8.5 34.20 7.134 381.20 614.90 8.80 7.10 436.40 7.40 355.29 11.10 34.10 666.730.47 8.90 Irish Nationwide Building Soc Total Assets No data No data 5.9 42.60 8.45 23.960 101.737 UK 2.780 Financial Leverage 20.90 7.09 6.27 32.32 20.30 728.50 8.80 25.42 33. 2008 Country GDP $ millions US 14.6 41.21 24.27 19.417.014.49 29.870 24.75 29.118 2.23 101.994.29 7.56 Bank Of Ireland Total Assets 68.891 53.28 40.813 29.82 38.431 127.23 25.994.743 37.312 422.09 20.229 38.20 7.14 17.196 36.60 11.875.006 67.893 Spain 1.082.668 523.386.313.30 15.526 19.54 10.94 8. certainly where the assets are matched with high-quality liabilities.250 89. The experience of Royal Bank of Scotland and Fortis.92 Tier 1 / Core No data 7.574.72 25.099.00 11.667. When this takes place.071 355.815 61.40 73.69 28.10 2.07 13.41 Tier 1 / Core 7.20 Anglo Irish Bank Total Assets 11.01 7.317 22.87 7.877 444.90 7.76 Tier 1 / Core 9.00 566.875 87.047.113 235.085 Italy 2.30 11.49 26.73 Tier 1 / Core 6.10 10.00 325.9 44.95 27.20 353.92 8.50 6. either to be capped in size or otherwise divested of some of its business lines. It is plausible that a bank‘s total assets increase via organic growth.P.20 221.82 39.463 388.737.90 12.85 39.50 225.552 1.30 9. Some banks have a relatively small asset base but still impose the risk of a potential run on the banking system.321 24.20 197.787 508.264.50 188.84 21.49 45.78 21.86 8.165 540.561 252.339. as we noted.865.30 7. To extend the comparison.20 177.923.10 11. neither of these corporate institutions is relying on the LoLR.118 1.20 8.53 7.801 Financial Leverage 34.692 349.250 350.40 Allied Irish Bank Total Assets 80.598 30.66 10.520.10 Fortis Bank Total Assets 438.80 48.50 Financial Leverage No data No data 12.163 325.90 8.30 11.6 8.21 28.767 Netherlands 868.00 608.143 20.10 485.50 6.46 32.70 482.40 ―too big. one would not necessarily break up the US retail distributor Wallmart or the UK supermarket chain Tesco simply because either had a dominant market position.862 19.42 26.07 9.56 Tier 1 / Core 32.214 Financial Leverage 17.24 22.10 8.97 9.11 10.012 284.10 871.348 Financial Leverage 27.61 No data 16.212 30.71 Source: Bloomberg L.2 Tier 1 / Core 7. January2010 Global Journal of Management and Business Research Bank 2000 2001 2002 2003 2004 2005 UBS Total Assets 1.429.87 Tier 1 / Core 6.396.29 25.38 44.32 26.30 7.413 Financial Leverage 32.31 7.629 11.50 182. 10 Issue 1 (Ver 1.109 133.15 9.60 Tier 1 / Core No data No data 11.80 8. Figure 3 GDP per country.20 7.10 14.873 Financial Leverage N/A N/A 27.70 689. Where regulators have a stronger case is in the area of growth through mergers and/or acquisition.41 31.‖ A measure looking at the total size of assets on the balance sheet may be too simplistic.253.50 8.346 29.726 351.298 89.597 19. Northern Rock and Bear Stearns were good examples of this.54 11.793 252.033 36.04 18.29 27.60 7.34 18.904 501.29 27.60 14.29 9.30 8.586.00 625.7 7.90 7.248 Source: IMF A strong conclusion from this experience is that any potential TBTF bank needs.392 Switzerland 492.10 Dexia Total Assets 257.861 Financial Leverage 34. A smaller bank is also no guarantee of diminished systemic risk.90 2.50 8.290 25.01 48.97 11.08 6. in effect.73 21.90 KBC Group Total Assets 187.20 7.658 227.087.P a g e |93 Vol. regulators must look closely at how the transaction is funded.75 29.24 8.30 9.90 10.29 96.81 11.

Given the cost of saving these two banks in 2008.0). When the economy is growing steadily and risk aversion is decreasing. At the end of the cycle and in a recession. to the extent that the prosperity of a country and its citizens was placed in jeopardy. this cyclical pattern is exacerbated during any significant market event. may be able to make this judgement call. A good idea of this gap can be determined by calculating the ratio of average maturity of assets to average maturity of liabilities. They also have to oversee the soundness of the industry as a whole. irrationally exuberant. particularly Tier 1 equity capital. or less susceptible to the ill disciplines of a bull market. Bradford & Bingley and HBOS. This triggered subsequent mergers among other telecommunication firms. banks fall into a pattern of lowering loan origination standards and easing the supply of credit. with the same customers and with each other. Central banks. A higher ratio is indicative of a higher gap and higher liquidity or funding rollover risk. which often take over overseas banking chains as a complete whole. While it is easy to see in hindsight at what point a market crash began. for example the break-up of AT&T in the US. We recommend that as far as possible.Global Journal of Management and Business Research This suggests that a range of quantitative and qualitative assessments need to be made before one can decide that a bank is TBTF. the entire industry (and by extension the economy) is at risk. III MACROPRUDENTIAL REGULATION The events of 2007-08 demonstrated clearly how the failure of one bank can have significant implications for other banks as well as the entire market. to prevent their failure. Keeping the size of banks in check could be first achieved by keeping quantitative measures. The supply of plentiful and cheap credit helps boost the price of assets such as equities and real estate. and thereby lead to decreased lending levels during a boom period. banks are identical entitites. The difficulty of course is the judgement call of when exactly a bull market is underway. 4 The liquidity ratio is essentially the asset-liability “gap”. 3 Because banks operate in the same markets and with each other. and/or credit is seen as too easily available. This would be feasible in the case of most multinational banking groups. banks then as a group withdraw credit on a large scale. This was the error made by UK banks such as Northern Rock. Febuary 2010 P a g e | 94 The framework within which macroprudential regulation would be undertaken remains under discussion. The first requirement in macroprudential regulation therefore is for banks to operate in less cyclical a manner. to borrow an earlier phrase. the regulator can require banks to: i. The typical reaction is a lowering of loan origination standards and a change in banks‘ strategy to the extent that market share and higher return-on-equity (RoE) targets become emphasised. which receive detailed information on a confidential basis from banking entities. The broad objective of such regulation is to ensure the continued safe running of the financial system in the event of individual bank failure. In the first instance. for example see BoE (2009). However if regulators do not succeed in keeping banks in line using these restrictions. which subsequently became large organisations. A number of steps can be taken by regulators to assist with this. Large numbers of them operate in the same markets. 10 Issue 1 (Ver 1. under strict limits as we suggested above. a policymaker who needs to streamline this into a simple metric legal framework is less capable of doing this. It is this interconnection that means that when one bank fails. Thus ―macroprudential‖ regulation is now the main focus for bank regulators. the experience suggests that banks that become this large must either be ―downsized‖ or otherwise forced to operate under severe restrictions. sometimes to the detriment of liquidity and capital management. The best examples were Citigroup and RBS. ii. These are not insurmountable problems. At any time when the market is viewed as pursuing ever more risky asset generation. A similar cap could be adopted in other countries. they will face substantial pressure not to allow these companies to grow too large again. As a generalisation. 3 It is noteworthy that the Chief Executive Officers of the last two firms had backgrounds in retail and not banking.4 Both of these steps would increase the cost of doing business for a bank. Measures that regulators may wish to consider include: i. Hence. Vol. widening the impact of the recession and also causing a fall in asset prices. The overall level of lending in the economy. There is precedent for this in other industries. In the US there is legislation in place to block a merger or acquisition if the bank is left with more than 10% of the total deposit base of the market. This then raises questions about who will buy the assets and at what price they should be sold. viable business lines are hived off into stand-alone operations under existing management. This can be enforced by altering bank capital and liquidity requirements. When governments succeed in breaking up big banks. A booming economy and tightening credit spreads alter bank risk-taking behaviour. both as an absolute level and as a percentage of GDP. There is also the issue of how to deal with banks that are already ―too big‖. However. It is evident that certain banks became too big during the last 10 years. Adjust their liquidity ratio to ensure that there is less reliance on short-term funding and wholesale interbank funding. such as liquidity and advantage ratios. bank business activity would benefit from being controlled by regulators to the extent that it becomes less cyclical. . or the precise moment when a market is. then downsizing the total asset size of a bank below a certain percentage of the GDP of its own country must become the solution of last resort. it is harder to call such an event beforehand. Increase their level of capital. The simple recourse would be to break them up. but they require consideration. it is not sufficient for financial regulators to aim to ensure that each bank is properly managed and has sufficient capital and liquidity arrangements in place.

This is expected in a new Basel III regulatory capital regime.5 Otherwise. advantage. and one that has a counter-cyclical emphasis. the regulator can ensure that asset origination cannot exceed by too much the ability of the bank to fund such assets more robustly. the requirement to have separately capitalised trading and retail divisions would be beneficial. and we would suggest that it may be addressed by focusing – not at the macroprudential level but at the direct individual bank level – on RoE targets and leverage levels. there is the risk that bank will merely pull back from lower-risk business lines and use the capital saving created to continue business in higher-risk activity. What is apparent is that a reliance on higher capital requirements alone may not be a sufficient safeguard against systemic risk. as well as the rate of increase in lower-credit-quality lending. this will also drive more counter-cyclical behaviour. Recommended Policy Approach Effective macroprudential regulation requires that banks also take specific measures as part of the effort to maintain systemic stability. The FSA has suggested that each legal entity in a banking group could be required to set up a ―living will‖ so that it could be easily and safely unwound without affecting the capital base of the rest of the group. iii. as lenders would lend to it at a premium over the parent entity-funding rate. in theory if it is a separately capitalised entity it can be unwound or allowed fail without endangering the retailbanking arm. There is therefore a strong case for requiring the trading arm to be a separate subsidiary with its own capital base. It would also need to monitor aggregate economic indicators such as the rate of growth of GDP and asset prices. A large group entity that relies on the central bank LoLR is a direct risk to the taxpayer. more so because the nature and size of the next crisis cannot be estimated with any certainty. This would reduce contagion across the market when one bank failed. KBC Bank and UBS in the US. group‘s risk-taking arm gets into difficulties. In practice the regulator may wish to use a combination of these measures when making this assessment. as a central clearing house reduces bilateral counterparty risk. 10 Issue 1 (Ver 1. Requiring a higher capital ratio for large banks. and alter them to suit the business cycle.6 The liquidity ratio for a bank is a key risk measure and regulators can use it to influence macroprudential behaviour. and which could be allowed to fail without endangering the entire group. At the micro level. January2010 ii. Notwithstanding the view that essentially all banks pose a systemic risk of a kind. This is logical. ii. and therefore greater liquidity risk. the risk from larger multi-national banks may be mitigated by specific stringent treatment. and potential risk of these banks in the build-up to the Lehman bankruptcy. UK. and enforcing a leverage ratio. but regulatory authorities and governments will view this as a desirable result because it will reduce the ability for a bank to grow rapidly during a bull market as . iv. as we noted with the examples of Citibank. This is not a risk mitigant however. due to their interconnectivity. Cross-border stability arrangements: given that uniform arrangements worldwide are unlikely to be implemented. Figure 5 showed the growth in size. The practical impact of this is that subsidiaries must be ―stand-alone‖ entities. enforce regulation that the home country of a banking group structured across subsidiaries in different national jurisdictions should not be responsible for saving the whole group. compared to medium-term average rates. following which they all had to be bailed out by their governments.0). and its failure has significant 5 Ibid. during 2008. If regulators place limits on these two values. Its subsidiarisation would also enforce funding discipline. This would reduce the risk that an economic crisis in one country was not imported into another via the banking system. A. We suggest that best-practice thinking is for measures along the following lines: i. one approach could be to require them to ensure that their overseas operations are separately capitalised and liquidity selfsufficient. 6 Global Journal of Management and Business Research impact. The trading arms of all banks should be required to hold more capital than the retail arm. More stringent macroprudential and micro-level regulation would provide for greater financial market stability at the time of the next recession. In this last regard. systemic risk will be mitigated by requiring all banks to adhere to a more stringent capital and liquidity regime. Belgium and Switzerland respectively. If a banking. particularly with regard to leverage ratios. RBS. a level that was acceptable to regulatory authorities while it was still in operation. merely a means by which the impact of failure can be concentrated into a shorter timescale. To effectively control the risk of TBTF banks. By setting a more conservative liquidity ratio requirement for banks that run large assetliability gaps. both capital and liquidity self-sufficient.P a g e |95 Vol. Reducing market exposure to large ―systemically important‖ banks by requiring them to trade a larger proportion of their trades via a centralised clearing system. for example credit card and residential mortgage approvals. which will always remain a judgement call. and whether this is running at above long-run averages. Both of these requirements will increase the cost of doing business. iii. The Bank of England has suggested that particular types of loan activity need to be targeted when capital requirements are raised. as the case of Citigroup and RBS showed. We can observe the steadily increasing risk exposure. and thus reduce lending volumes in the long run. Lehman Brothers was capitalised at 11% at the time of its collapse. because it would be difficult to ascertain what level of capital was enough. The rates of return on equity on bank capital. The rate of increase in retail lending.

infrastructure must be enhanced to reduce the level of interconnectivity in the system. IV CONCLUSIONS The 2007-2008 financial crash and recession. The conclusion from this is that regulators need to review the adequacy of macroprudential regulation. which will reduce the likelihood that the LoLR has to intervene during the next economic downturn. The current state of affairs combines government guarantees of the Western banking system alongside potentially significant moral hazard. Financial Stability Report. ―A clearing house for the money market?. Financial Regulation and the Invisible Hand.Global Journal of Management and Business Research well as reduce the need for it to cut lending during a recession. countercyclical behaviour would not occur in a completely free market. The key to efficient macroprudential regulatory oversight is to require banks to follow counter-cyclical behaviour with regard to capital. M. In the foreseeable future we do not expect that the current market structure will change. and loan origination. it becomes important for governments and regulators to act decisively to mitigate these risks. which essentially allows banks to take as much risk exposure as they wish to maximise profit in the knowledge that should they incur large losses they will be bailed out. April 11. credit bubbles and the efficient market fallacy. This would help to reduce counterparty risk and lower the impact of bank failures. The role of macroprudential policy. V REFERENCES 1) Bank of England. 2007 3) Choudhry. enforced by the central authorities. when it appeared that many Western banks were about to fail. This places the industry outside the realm of a purely private free enterprise.. 6th March 2009 4) George Cooper.‖ Europe Arab Bank Treasury Market Comment. via centralised clearing houses.---. Given the risks that such moral hazard implies. because of the significant impact of individual failure on the wider economy. Febuary 2010 P a g e | 96 . In addition. liquidity. As the natural inclination for a private company is to maximise return and minimise operating costs. 10 Issue 1 (Ver 1. Harriman House Ltd 2008 5) United Kingdom Financial Services Authority. This arrangement became necessary to prevent collapse in the global economy following the Lehman‘s default.0). November 2009 --. remarks at the NY University Law School. No 9. Vol 1. December 2008 Vol. to ensure the stability of the banking sector throughout the business cycle. Consultative Paper 08/22. demonstrated that governments deem the banking system to play an important role in the development of the world‘s economy. and its aftermath. November 2009 2) Ben Bernanke. The Origin of Financial Crises: Central Banks. We have proposed three areas in which policy makers should implement strict rules as part of a new bank business model. To enforce it will therefore require regulatory fiat.

Roehampton University. 2002). which hitherto have not been contemplated or studied. marketing.0). K. Stadthausstrasse 14. Miles. The study was conducted using qualitative interviews with key senior management of a leading biomedicines company in Europe. Opinion leaders are also viewed as powerful communicators of brand value to the HCP. One communication tool available is branding. clinical trials are required by local and international health regulatory bodies or authorities for diagnostic. McAdam and Barron.Pharmaceutical. there may also be benefits in relation to other diseases or patient populations. The role of global marketing and maximizing products‘ commercial and therapeutic value to increase branding and efficiency are still limited in pharmaceutical companies (Delagneau. School of Management and Law. 10 Issue 1 (Ver 1. The marketing and branding of prescription medicines are constrained by the restrictions on messaging. products complexity. we examined how the clinical trial process supported branding and how this process might be modified to optimize such a benefit. London SW15 5SL. 1981. Switzerland Telephone: +41 (0) 58 934 6678 Ω Researcher. Though the market for prescription drugs is unusual in many ways. Lim. United Kingdom Telephone: +44 (0) 2476 523 523 The selling to the prescribing physician is limited for the product. Lynn L. Historically. 80 Roehampton Lane. Reader in Business and Marketing. In addition to the complexity of the products. clinical trials and branding literatures have been concentrated in general medical and pharmaceutical journals (Delagneau. these issues point to the central element of customer education via multiple communication channels in the pharmaceutical industry. branding is complicated by the short product life cycles and the regulatory authorities on the officially sanctioned basic benefits of the drug. Coventry CV4 7AL. In most industries. SorensenΩ Abstract-Pharmaceutical companies face major communication challenges to ensure Health Care Practitioners (HCP) are knowledgeable about their products. 2003) in hope to convey more than the scientific benefits of the product. The customers need not just to be medically qualified but increasingly need additional training to gain an understanding of the products to ensure optimal use (especially truly ―new‖ products). The evolution of drugs‘ (possessive) known properties makes them highly complex and increasingly so with new generations of more targeted therapies. The drug as a product is. Clinical trial activities and studies are central to the industry to provide the data for registration and to inform the HCP on target patients and optimal treatment. branding plays an important role in conveying product benefits to the customer via symbols or names which trigger positive associations as well as sometimes rational and sometimes irrational. Evidence generated during clinical trials demonstrated that prescription medicines were competing with existing alternative therapies. Professor T C Melewarα. prevention and improving quality of life. January2010 Global Journal of Management and Business Research Clinical Trials: A Branding Opportunity? Dr. University of Warwick. This helps to clarify the messages that derive from planned trials and to differential a company‘s values in the marketplace. however. School of Business and Social Sciences. Keywords. since prescription medicines contribute around 90% of global pharmaceuticals revenue (Blacket and Harrison. advertising directly to the patient is not permitted in Europe (unlike in America) where drug companies turns to devise and build stronger brand names when the new products reach the early clinical trials (The Economist. Urde. Moreover. Radulescu. the product is worthless without a certification of safety and efficacy to sell and promote it. Sound clinical trial data.  Corresponding Author Ph. Thus. In addition to this complexity is the recognized information overload on medical dealers and HCP. 2004. branding. is therefore often not enough to ensure that quality medicines are commercially successful. Professor of Marketing and Strategy. the role of branding in the pharmaceutical industry has particular complications due to the official designation of product properties (the label) advertising directly to HCP is prohibited and the product cycles are short. 2004). Zurich University of Applied Sciences. Branding overcomes some communication limitations of prescription medicine marketing. Though clinical trials and brands effect have been published by academic scholars (Branthwaite and Cooper. C. United Kingdom Telephone: +44 (0) 208 392 3358 α PhD. clinical trial and opinion leader I INTRODUCTION I n the pharmaceutical industry. screening. essentially. Warwick Business School. T. 1994. Dr. unique in that all its properties are rarely known at the time of license.P a g e |97 Vol. and short product lifecycles. This means that they increasingly rely on peers and industry for education and guidance.D. . as physicians are not the end-users and a beneficiary of the product. 8400 Winterthur. Through structured qualitative interviews. 2002). The research addresses (1) how the clinical trial process itself supports branding and (2) to identify how this process might be modified to optimize such a benefit. 2001) despite the prohibition against direct to consumer advertising. 2005). 2005. Communication strategy does not mean that communication should drive science but supports the role in trial planning (Chicco and Chandler. However. This may be related to long-term benefits of the drug and safety data that may take years of use to identify. This paper will concentrate on prescription drugs in the EU. while essential. treatment.

who have no intention of pursuing registration. 2005). 2004). There is an enormous volume of scientific information in medical journals (almost 4. 1960) while retaining a simplicity which made it ideal for this type of analysis. There are often aspects of diseases and drugs. Logistics is noted as an important part of the process but it has little direct effect on the clinical trial outcome. escalating concern over the role of pharmaceutical companies and the safety of medicines in their production and use has generated an increasingly restrictive and regulatory environment. Diseases that are not yet formally studied by the company use drugs where only anecdotal or small-study evidence is available. attention focused on communication and branding. Physicians in the 21st century are faced with the daunting challenge of keeping abreast with these medical advances. Saunders and Wong. Kolter. This is where faith could play a role. Local medical community has a small cadre of readily identifiable physicians who are influential in facilitating new learning and adoption of advances. Often viewed as part of the product. is enough to raise awareness of even the possibility that there is potential for this non-proven quality. Armstrong. In the pharmaceutical industry. and practitioners who prescribe new medicines to their patients. 10 Issue 1 (Ver 1. technological and scientific developments have enabled the discovery and production of drugs. The best practice of medicine requires collaboration between the pharmaceutical industry. Opinion leaders are perceived as technically competent. improved the safety and efficacy of medicines used on patients. First. this study employed the Van Waterschoot and Van de Bulte (1992) model. Despite being a data orientated and evidence-based industry. Febuary 2010 P a g e | 98 B. 1960. 2000. independent. Stibel and Kapoor. Brand is also about feelings. Second. Whether the education sponsor is a pharmaceutical firm or an academic source. can still add to a general perception of efficiency for the drug concerned. The Pharmaceutical Industry Two key developments have contributed to the current state of the modern pharmaceutical industry. Van Waterschoot and Van den Bulte (1992) recognize that promotion is not a sole preserve of communication. The marketing mix. 1994. even in specialties. Brand is not an easily imitable differentiator because relationships are experiences and experiences are unique. James. Nevertheless. which even address the issue. Wright and Lundstrom. Alongside these models. as brands can be positive or negative.0). a relationship with the drug and the company behind it. If the drug is successful with other diseases. Even diseases that are formally studied in Phase II by companies. In a pharmaceutical study to review and identify the customers‘ value perceptions of a clinical trial process. each has the same goal of enhancing the practice of medicine. clinicians respond to new clinical interventions by seeking information and opinions from peers and opinion leaders rather than assessing the scientific merits by themselves (Dumovic and Vries.000 titles) making it impossible for practitioners to keep up with all the research. Kotler‘s et al (2005) perception of product levels and the incorporation of branding were included in the analysis.Global Journal of Management and Business Research II BACKGROUND AND REVIEW A. undoubtedly. Moller and Halinen. Vol. continues to be one of the predominant marketing theories in pharmaceutical and medical marketing (McCarthy. but performing small studies. Brands usually build on quality products and theoretically. which might take too large a study to conduct. 2002. Brands have core customers who remain loyal even after occasional (redundant) problems. authoritative. there may be faith by physicians that the drug is likely to work with other diseases. 2004). aspiration. 2004. Hence. and but also includes persuasion. Brand And Communication Brand and communication provide the level of benefit that is suggested or believed by a customer either to exist or felt to be imminent in the future. physicians are still customers who are as prone to perceived benefits as other customers. In an industry that produces products that could potentially harm patients. ―brand‖ is also a part of communication strategy and in fact serve as a useful integrative force bringing product policy and communication closer (Shapiro. For analysis of the value of clinical trials to the customer. 2004). this study also employed the relationship marketing concept because of the interactive process of a clinical trial as in a social context and the importance of relationship to the healthcare marketing (Gronroos. so we do not discuss it in detail. the use of such ―emotional communication‖ with physicians raises some ethical questions. often used to facilitate meaningful measurement of marketing efforts and their worth. 2000. 2005). major means of mass communication are through journals. including faith and trust. expressive and imaginative) (Kolter et al. Both developments have.g. conferences and local hospital educational forums which are the natural communication channels used by the medical community. these elements are not necessarily being delivered to the customer. 2000. which develops new medicines. . Industry plays a role in development of these guidelines by supporting the meetings of experts or opinion leaders (Dumovic and de Vries. A product is made in a factory while a brand is sold in a shop. but they have also increased prices. English. Medical education programs are therefore essential to help practitioners try to stay on top of the literature. The brand of a product triggers specific responses in the minds of the customer (e. clinical trials have become larger than ever due to increasing demands of licensing agencies for safety and efficacy data. which incorporates many of the criticisms identified in the original McCarthy model (McCarthy. MacStravic. 1985). dedicated and esteemed members of a local group. they are very difficult to imitate. Thus.

medication group. general practitioners were asked to cite the most important sources of information for drugs and 42% referred to pharmaceutical industry education and 36% referred to hospital consultant recommendations (Dumovic and de Vries. Moss and Schuiling. He argues that few consumers would be able to answer the pharmaceutical company that has the best record on reporting safety to authorities and a physician will rarely be asked by a patient about the maker of a drug. Wright and Lundstrom. often see the pharmaceutical industry in a negative light. opinion leaders and their influence on customers in the medicines market. The brand is an integral part of the benefit process central to the business of customer satisfaction and to build and retain customer loyalty. 2004). since a standard script was utilized. THE STUDY AND FINDINGS This research was conducted via structured qualitative interviews with seven key senior managers of a leading biomedicine company in Europe as part of our initial study. there may be a need for the pharmaceutical industry to invest in long-term corporate and product brands (Corstjens and Carpenter. due to its associations with profiteering from illness. Prior to the interview. medical affairs. The pharmaceutical companies are conspicuously absent from inter-brand leagues. Examples of product brand value statements were put before the interviewees for this project and all agreed with the statements. 2003). should take a lesson from the fast-moving consumer goods industry. Brands add a greater sense of purpose to the treatment experience. One symptom of this is the observation that mergers and acquisitions in the pharmaceutical industry take place to acquire pipelines but not brands. Pharmaceutical industry. which provided background and definitions.intangible values. A. and guided the participants through the interview questions.P a g e |99 Vol. 4 and 7 strongly agreed with the value of product branding of pharmaceuticals. 2004). corporate branding may help a drug representative gain access to physicians. People have a deep emotional connection to their health. not products (James. Blacket and Harrison indicate that the industry continues to maintain various conventional supply-driven characteristics overlaid with government paternalism (Blacket and Harrison. respected colleagues. Executive Director (Interviewee 7). They can also pressure governments to release funds for treatment. 2004. All interviews were audiotape recorded and then transcribed. January2010 The communicating of information from companies also plays an important role in patient care. 2004). buy and use brands. and therapeutic areas and franchise departments. None of the top ten selling pharmaceuticals have been judged by the Food and Drug Administration (FDA) to suggest vital therapeutic gains and existing therapies. 2001). Schroff (2003) argues that as the pharmaceutical industry currently maintains a bad image. “You have to appeal to [doctors] not only as scientists but as consumers … we sometimes shy away from the emotional . and a prevailing thought that the products could be sold based on their technical merits alone. Senior Director (Interviewee 2). which can have a positive effect on business. Therefore. 10 Issue 1 (Ver 1. dispense. there was no attempt to quantify data but it was utilized as an attempt to trigger opinions on specific subjects.0). Branding of prescription medicines has often been perceived as little more than a convenient naming of a product. the traditional sources of value creation have laid in successful research and development. which can have a negative effect on business. Some marketing guides to the pharmaceutical industry make a particular point in this aspect of the industry by adding patients and politics to the marketing mix. peers. Consumer goods manufacturers have responded to product proliferation and falling margins by building strong brand identities and preserve brands. C. perhaps. This highlights the quality of sources of information from the industry. For pharmaceutical manufacturers. 2000. Patients are becoming increasingly organized as pressure groups that exert force on companies. the patent system. Global Journal of Management and Business Research The pharmaceutical industry has not yet recognized that the management of brands. Director (Interviewee 6). not just productsaffect efficacy or tangible (Moss and Schuiling. 3. 2002). The practicality and literal aspects of pharmaceutical products are generally not allowing customer to feel something for them (Hoarse. Pharmaceutical Branding III Thomas Beecham is accredited with one of the first pharmaceutical branding exercises when he affiliated his own name with an effective new laxative in 1842 in order to make it stand out from a plethora of other products on the pharmacists‘ shelves (Anderson and Homan. During one study in the United Kingdom. Importance of Product Branding The literature has previously highlighted the debate on the value of product branding for pharmaceutical products. Third parties increasingly have a greater influence over industry in the form of regulations that come about via press. Nevertheless. This is due to the short life cycle of the products. corporate branding is unlikely to be beneficial. Stibel and Kapoor (2002) point out that only Pfizer and Johnson & Johnson have managed to make products and corporate brands benefit each other. During the primary research. hence. Associate Director (Interviewee 1) and Senior Manager (Interviewee 3) of global marketing development. Interviewees 1. The questions were identical in content and order. pressure groups and politicians. as brands are trusted and are something in which the patient or physician puts their faith. Publicity communication ensures that third parties have a positive and informed view of the product and company. all participants were given a PowerPoint presentation. 2. The seven interviewees held positions as Vice Presidents (Interviewee 4 and 5). The industry has to remind itself that customers stock. 2004). prescribe. Corstjens and Carpenter (2000) argue that there is increasing competition between drugs. The public and press.

This achieves familiarity with the drug under the ―safe‖ conditions of an ethically approved clinical trial and also allows a quality relationship to develop with the people behind the product. opinion leaders are used by pharmaceutical companies to communicate information about drugs but they are specifically sought out by peers for advice. A trusted personality conveys trust on to the product. These values include a representative‘s characteristics. they rely on well-informed peers to guide them. ethics and perception of the pharmaceutical corporation . it‘s about trust and how data gets interpreted. In summary. B. “Pharmaceutical companies have done very little or nothing over the years to identify themselves either corporately or pharmaceutically by product although that has changed in the last decade or so with drug to consumer advertising. Interviewees were asked if they thought that corporate branding was important.‘ If people think good things about our company because they know what we are about then that obviously makes our products more attractive and powerful… it‘s all about honesty‖ (Interviewee 7). These intangible features reflect the value that brands seek to communicate. though confidence and trust in the drug and/or company. it also involves trust and faith in their opinion. Both corporate and product brands may benefit from both the processes and the outputs of a study. ―Ultimately [with] third party people … [such] testimonial has high value. corporate image and branding could be seen as important competitive tools for medicines. This is a powerful differentiator which is hard for competitors to imitate. Importance of Corporate Branding Wright and Lundstrom (2004) identify three values of a sales representative. believes exist. the kinds of philosophies that we live by. Febuary 2010 P a g e | 100 leaders are in fact in many ways communicators of brand value. Hence. 10 Issue 1 (Ver 1. It was additionally pointed out that to have a good reputation a corporation will also enhances relationships with opinion leaders (Interviewee 3). Opinion leaders convey the messages that companies should seek to communicate through their brands as they represent value and trust to the customer. Although it was highlighted that branding is only possible if you are not misleading the customer (Interviewee 6). This exposes the opinion leaders or future opinion leaders to regular contact with both the drug and the company. Since doctors are unable to stay on top of the medical literature. certainly in the US. Customers use a product due to the . it was felt that opinion leaders are sought out for assurance. ―I like to think that people looking at us from the outside think ‗That guy‘s from [the company]. the ethics … the scientific credentials of [employees]‖ (Interviewee 4).‖ (Interviewee 7) ―[The brand value lies] much more in the innovation of the questions you ask.Global Journal of Management and Business Research elements because we think they just want the facts. It was also highlighted that brands can be positive as well as negative (Interviewee 1). being involved with it brings people up to speed. Interviewees were introduced to the concept that opinion Vol.‖ (Interviewee 7) ―Opinion leaders are huge… their reputation and their credentials and their credibility in the medical community … they are the most important people to have on your side. pointing out that they often try to advocate several products (Interviewees 1 and 3).‖(Interviewee 4) I agree that opinion leaders convey features of brand but positively and negatively.0).” (Interviewee 4) “[I could] not think of anything more emotional than one‟s health. After all. D. Knowing the people behind the drug on a personal basis is preferable to building a relationship with a faceless pharmaceutical company. C. with which a physician forms an overall impression. The Process of Clinical Trials Supports Corporate and Product Brand Value The brand value comprises the benefits of the product for which there is not necessarily direct evidence but which the customer. [Doctors in a trial] become from neutral to very passionate to what [the drug] and [the company] are about.‖ (Interviewee 5) However some interviewees did raise caution on the value of opinion leaders. Although this may take the form of hard clinical data. This notion was accepted. ―You need to have an important question to ask … if you are doing a trial with an important endpoint and important healthcare question. The interviewees comment on the above: It‘s a chance for a physician to see inside a company … they get a good view as to the kinds of people that we hire. It can be concluded from this that opinion leaders are human manifestations of brand value with the limitation that in a competitive environment they might represent several companies and will therefore seek to maintain these relationships by remaining as impartial as possible. doctors are also ―consumers‖ in their private lives. it was agreed that the corporate brand is seen as a way to encapsulate the companies‘ ethical position which is good for all of its products. In summary. that‘s the ethical company that tells me about problems before I read about it in the news. I think it‟s a balance.” (Interviewee 7) Interviewees suggested that it is not possible to separate fact from emotion when selling medicines but emphasis was made on the trust aspect of medicine branding. Importance of Opinion Leaders as Communicators of Brand As discussed earlier in the literature. I do not believe that corporate brand value translates into competitive advantage for a product. Product branding has a significant value if it has been built on strong clinical data. Instead of creating our own image and how we want to be perceived we have let [the media] do this for us and that‟s the worst thing that can ever happen” (Interviewee 4). Branding is considered less important if there is no competition but is a very effective way to reduce barriers to entry (Interviewee 3).

are the current organization structures appropriate for this to take place in their company. Several interviewees suggested: ―Internally we should communicate optimally about who is doing what with which opinion leaders … but not everyone needs to know everything. to work with [opinion leaders] to appropriately direct their questions and queries in a prompt fashion … everybody bears this burden. Marketing and Clinical Operations should engage … we will fail‖ (Interviewee 1) ―The opinion leaders have many needs and no one can serve all those needs. which can be created by encouraging physicians to participate in clinical trials and by being exposed to the clinical trail. not the company. 2000. 10 Issue 1 (Ver 1. Execution of Clinical Studies Since the opportunity for opinion leader development has been identified. Positive corporate branding may help the launch in new products‖ (Interviewee 5) ―[The] clinical trial is the best opportunity for a bad or very good first impression‖ (Interviewee 2) ―The process plays an important role in the product brand. the following responses were obtained: “The main contact I think that should be [the company] to ensure full branding value … however for the monitoring I do not see the need to have that done by a [the company] person” (Interviewee 3) “[Taking on trial operations is] not practical. IV CONCLUSIONS In the pharmaceutical industry. Interviewees in this study accepted the role of the opinion leader as a communicator and as an important aspect of brand value. It really takes a highly unified team … to service the need of the customer. people simply do not have the time to build customer relations‖ (Interviewee 2) There is thus a clear sentiment of the need for relationship marketing. MacStravic. You can still realize the brand value without being connected at every step” (Interviewee 4) ―CROs are agents of us. Product branding of medicines or pharmaceutical products is generally seen as an important aspect of communication. You want to encourage everyone. E.0). Moller and Halinen. mass and publicity. It is a combination of marketing. Product brand equity is generally felt to be built on the initiation of good scientific questions. So the opinion leader is a key medium to transmit intangible faith in the product and they can do this at all levels of the communication mix: personal. Branding as a concept is thought to be within the company‘s credo as long as its messages do not deviate from the evidence. Corporate branding is thought to be supportive of the product brand and help communicate the trust that is needed to sell the . 2000. Opinion leaders personify brand values and augment the communication mix at all levels. corporate brand supports product brand. Corporate branding can have a negative value if the company has been associated with something negative.. This view supports Dumovic and de Vries (2004) suggestion about clinical researchers‘ expertise and knowledge. Companies do need to take an active role. 1994. the interviewees agreed that there are clear corporate and product-branding opportunities.P a g e |101 Vol. Medical affairs and marketing should work very closely together … medical education is really a marketing tool‖ (Interviewee 3). I think in industry sometimes opportunities are lost because they are not really seeing their role as supporting what the company as a whole is doing but have a very silo‘ed approach‖ (Interviewee 7) ―Why don‘t [companies engage in customer relations]? – Marketing drugs is immensely complex. ―If we do not have a process in place on how Medical Affairs. January2010 product. coupled with a realistic acceptance that perfection may not be attainable due to resource practicalities.. 2000). One of the best ways to build Brand equity is through experience and the clinical trial allows clinicians to get that. as appropriate for their role. medical affairs and clinical operations working as a unified consolidated team leveraging every resource that they can that delivers the highest value to the customer‖(Interviewee 4) ―Everybody needs to made aware and wear the [company] cap. We are judged on whether we are performing cutting edge science or not‖ (Interviewee 5) In summary. eg a safety scandal. clinical operation and medical affairs are aligned to build and execute strategy. Interviewees were asked whether all investigators should be developed into opinion leaders and if so. The effect on the corporate brand is huge and impacts how they feel about [the company]. process it. The reasons companies do not have joint customers relation strategies [between departments] is that it is too complicated. Typically clinical studies are out-licensed to CROs to take on the operational task of executing the research and the staff members of the company are not necessarily in touch with the study itself. English. Therefore. When the interviewees were questioned with the dilemma of being in contact with the actual study to develop the corporate and product brand with the investigator versus the practicality of running the study offered by a CRO. Blacket & Harrison (2001) and Redmond (2001) suggest that the commercial team of a company must be involved with the clinical team to position the vision of branding from the early phase of the products life cycle. A company that hires a good CROs that acts as a third party that is known for quality is a good reflection on the company … But at the end of the day we are [the company] not [the CRO]‖ (Interviewee 7) ―I think companies will always care more about their customers than imported vendors‖ (Interviewee 6) ―It is critical that marketing. to external people we are all the one and the same. Each group adds value to opinion leader‘s development‖ (Interviewee 5) Relationship marketing literature stipulates that all parts of an organization must embrace the conversation with the customer (Gronroos. the company may benefit from closer liaisons between the Global Journal of Management and Business Research departments in the company. if full responsibility of the clinical study process is not practical.

March-April. ―A review of pharmaceutical industry-sponsored medical education: ten key recommendations for stakeholders‖.1. Wong V. 2. (2000). negative outcome studies are not necessarily detrimental to the brand as long as it is not very unexpected. ―Branding medicine: use and future potential of branding in pharmaceutical markets‖. pp. Vol. ―Analgesic effects of branding in treatment of headaches‖. 269(December). 20 No. 2. (1994). 12) Kotler P. pp. Corporate brand equity is built by activities that generate respect for the company. The nature and size of clinical studies also varies greatly across different medical disciplines. Vol. Ideally. (2005). The extent to which the conduct of clinical studies could be used to create barriers against patent claims on new therapeutic use of a medicine is also an important angle to explore. demand on existing resources and the contribution to corporate goals. 20-3. Armstrong G. ―Integrated communications: reaching in and out‖. Vol. Vol. (2004). The outputs of clinical studies identify three aspects. 6276. 24 No. but it would be interesting to explore whether there are different strategies of brand building through clinical studies that might be pursued at different stages of the life cycle. 7. (2002). Vol. ―From managing pills to brands‖. 132133. 3) Branthwaite A. to post registration studies where non-licensing trials can continue to deliver significant brand value. pp. one voice‖. the target of the brand messages and the customer should also have been questioned. Q. Marketing Health Services. 9) Gronroos C. 10) Hoarse J. 33-49. There is a natural progression from the registration studies. British Medical Journal (Clinical Research). 20 No. International Journal of Marketing. It is therefore an inescapable conclusion that the physicians participating in clinical trials are great candidates for opinion leader development. A strategy of multiple smaller clinical study programs also raises the possibility of using venture capital style portfolios in order to ensure risk is balanced across the studies. best for you: a history of Beecham‘s Pills 18421998‖. pp. 15 No. International Journal of Health Care Quality Assurance. 347-60. 6) Delagneau B.Global Journal of Management and Business Research products. Principles of Marketing: European Edition 4th European edition. (2002). 76. ―Marketing? Towards a relationship marketing paradigm‖. (2004). and de Vries C. VI REFERENCES 1) Anderson S. and Barron N. V LIMITATIONS OF THIS STUDY AND FUTURE STUDY RECOMMENDED This paper is only based on a small number of interviews. (2000). ―The death of the four ―P‖s: a premature obituary‖. Secondly. 10. 14) McAdam R. pp. A negative study outcome does not necessarily harm a product brand but a negative study experience will. A clear extension of this study could include an analysis of the types of clinical studies required for different phases of the product life cycles. (2003). ―The four ―Ps‖ of marketing are dead‖. V. 7) Dumovic P. pp. Febuary 2010 P a g e | 102 clinical studies. ―The role of quality management in pharmaceutical development: clinical trials analysis‖. pp. Non-registration studies if scientifically sound and addressing unmet needs can also be significant contributors to brand equity. and Harrison T. Saunders J. 5) Corstjens M. 13) MacStravic S. Vol. This may also involve the building of models to guide companies on what clinical study opportunities to take up in terms of fit with existing corporate activities. (2000). (2004). 2) Blacket T.4. Pharmaceutical Executive. Firstly. Vol. Thirdly. 4) Chicco G. pp. Another aspect which has not been covered in this analysis is the important question on the return of investment on Vol. An Introduction to Pharmaceutical Marketing. The process of a clinical study as far as the participating physician is concerned should be a highly positive experience and builds a close relationship between the physician with both the product and the company. and Cooper P. 2 No. ―One world. there is clear brand equity to be gained from the output of studies whether they are registered or not. 20-21. The registration studies establish the brand. 282 No. Marketing Health Services. Vol. 16-20. International Journal of Medical Marketing. 8) English J. The corporate brand can indeed even continue to be built from a negative outcome of a study that has been conducted in a rigorous scientific fashion. . The Pharmaceutical Journal. ―A dose of brand medicine‖. the registration studies are generally seen as forming the foundation of the product brand. where the brand is established. (2001). 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investment in Webbased government. KeywordsE-government. in and out of government if e-government uptake is to be effectively increased. drawing on experiences from different countries and the private sector. Why? What are the obstacles to the development of e-government .E-government is about making the full range of government activities available electronically. It then goes on to review and categorize the supply and demand side barriers to e-government.com. and more responsive government (Cai Li-hui. it is equally important to increase the ‘Technology Readiness’ of people and ease of access to ICT.pdf differently with regards to e-government. however. some governments with less developed ICT infrastructure seem to have a higher level of government online transactions than others with more developed infrastructure. have to be treated cautiously. University of Mauritius Abstract.0).pdf/egov. Surprisingly. investment in Telecommunications and in their human resources.do they come from within government organizations themselves. 10 Issue 1 (Ver 1. e-government is about making the full range of government activities – internal processes. Policymakers at all levels of government embrace its promises of efficiency. The relatively backward position of Japan vis-à-vis other developed countries. however. institutional theory. and organizational research into the relationship between such technologies and organizational change. 2003). the development of policy and services to citizens – available electronically. 23 July 2001. These statistics.. Febuary 2010 P a g e | 104 Strategies to Increase E-Government Take-Up: Looking Beneath Statistics Dr. Nowbutsing Baboo. there is little agreement about what egovernment is7. besides investing in ICT. how? This paper first briefly gives a picture of the realities of e-government in a few selected countries. Full transcript of the interviews can be accessed at http://www.S. Yet in many countries the potential of web-based technologies are taking much longer to be realized in government and in spite of massive investments in ICT. however. Electronic interactions have astonishing potential for transforming the internal activities of all kinds of organizations and dramatically altering the relationships between organizations and those who use them – in particular. firms and their customers. the article makes clear that different people interpret egovernment in their own ways. is being hailed as the ‗new‘ government of the 21st century. The low rankings of China and India are understandable by virtue of their being developing countries with much to catch up in terms of Web development. Information and Communication Technology is not a supporting technology. Essentials for egovernment are investments in Web-based electronic government systems and telecommunication infrastructure. Based on interviews in the U. investment in Telecommunications Infrastructure and the quality of their human resources. with an educated population providing some obvious advantages.e. Finance. due to the great variation in methodology and purpose of such reports. Finally. Table 1 below clearly shows that the rankings achieved by different countries as regards e-government readiness is a clear function of their respective investments in developing Web-based Government. through the adoption of ‗Information and Communication Technology‘ (ICT) in government. better services. telecommunications and human resources) being essential for any substantive progress to be achieved for e-government to really pick up. However. cultural theory.Global Journal of Management and Business Research Vol. Mauritius (UTM) Dr. social psychological research into societal use of information and communication technologies. It concludes that. II AN OVERVIEW OF E-GOVERNMENT REALITIES IN SELECTED COUNTRIES The tables below refer to some of the numerous ‗egovernment‘ reports and rankings produced by global consultancy firms eager for government-related work and extract some pertinent statistics. despite this enthusiasm. M.or can they be overcome and if so.gcn. INTRODUCTION -Government. This paper examines the supply and demand side barriers to e-government from a multidisciplinary perspective to identify the possible strategies to overcome those barriers. For the purpose of this paper. . but coincides with the primary process and touches government at its core. it considers how these barriers can be overcome for governments to develop effective egovernment. These 3 fundamental factors together may in fact have a mutually supportive and multiplier effect on e-government take-up both by government departments and their citizenscustomers.. or from society? Are they ingrained in organizational structures and societal interactions . Chittoo Hemant B. different countries score E 1 ―What‘s E-Government? How Do We Do It?‖ Government Computer News. Technology-Readiness I Demand and Supply. University of Technology. clearly explains the hypothesis that these 3 ingredients (i.

S with an ‗e-government readiness index‘ of nearly 1. The point emerging is that. with 2/3 of the weight given to adult literacy and 1/3 to gross enrolment ration. Even the U. The ‗Gyandoot‘ project in India and the ‗Beijing Zhongguancun e-Park‘ are live examples of how third world countries are excelling with the creative adoption of ICT. 2003) Table 2 depicting the level of government online use in the same set of countries as in table 1. and worse so.0). January2010 Table 1. while investments in Telecommunication Infrastructure and Human Resources as well as the acquisition of ICT by Public Sector Organizations are prerequisites for egovernment development. 4 The ‗Telecommunication Infrastructure Index‘ is a composite weighted average index of primary indices based on basic infrastructural indicators that define a country‘s ICT infrastructure capacity. Netherlands. secondary and tertiary gross enrolment ratio. interact. Internet Users/1000 persons.Global Journal of Management and Business Research P a g e |105 Vol. Taylor Nelson Sofres assessment by country of ‘What is the level of government online use in 2002?’ Source: Taylor Nelson Sofres (Brand Strategy.0 has a level of government online use of only about 43%. a second observation is that a countries like Canada. which measures the aptitude of governments to employ egovernment as a tool to inform. the ‗telecommunications infrastructure index‘ and the ‗human capital index‘. 10 Issue 1 (Ver 1.K have levels of government online use 3 to 4 times than in the U. These are PCs/1000 persons. 5 The ‗Human Capital Index‘ is a composite index of the adult literacy rate and combined primary. But they remain only pockets of excellence as opposed to the enormous unexploited potential of e-government. Interestingly also. Mobile phones/1000 persons and TVs/1000 persons. to the transformation of public sector. they will not by themselves lead to an increase in government online transactions. transact and network.K. . The first observation is that having a high level of ‗e-government readiness‘ is not a guarantee to have a proportionately high penetration of government transactions being undertaken online . being surpassed by Canada and Australia which have lower e-readiness indices. It shows the state of e-government readiness. Global E-Government Rankings 2003 for Selected Countries Table 2. also confirms the analysis from table 1 but allows for two very interesting observations. which in any case is beyond the scope of this paper. 3 The ‗Web Measure Index‘ is a quantitative index. In fact both have very innovative and creative and successful projects. 2nd January. New Zealand with e-government readiness index lower than that of the U. 2 The ‗E-government Readiness Index‘ is a composite index comprising the ‗web measure index‘. 6 ‗Insignificant‘ does not mean there is no e-government transactions in China and India.

Dominance of the IT department can result in the kind of techniques used for earlier technologies being applied inappropriately to Web- . like 100% government transactions to be done online or the paperless environment that are usually commonly heard from politicians or techno-economic utopian views on egovernment. which seem to offer a particular challenge for government . I Bad Historical Experience With Information Technology The history of government information technology can lead to a poor Information Technology culture for many government organizations. accountability. The poor reputation of National Health Service computing led to an extremely low interest for ICT expenditure in the sector. Previous experience of ICT projects that ran over budget. Widespread private sector experience has shown that traditional IT departments can be the worst unit to lead electronic service initiatives .to varying extents different from other types of organizations. III SUPPLY SIDE BARRIERS TO E-GOVERMENT Government organizations are . China. however hope. arising from previous bad experiences with IT projects or procurements. because they do not want to have. One may expect that these characteristics could lead to distinctive barriers to the 'supply' of e-government. 1998). as there is emerging evidence of governments carrying out more and more of their transactions online although there are disappointments as in the case of the U.K. the lack of a 'bottom line' in terms of threat of bankruptcy.experienced more problems with largescale IT systems than other types of organization (Bellamy and Taylor. There is. this section of the paper identifies a number of 'supply-side' barriers to the development of egovernment that are particularly applicable to government organizations. For example.and the extent to which they have changed with public management reforms of the last twenty years . Such a background is unlikely to foster an environment in which managers explore possibilities for innovation via web-based technologies. Organizations that can develop a more ‗technology-welcoming‘ approach will be more likely to develop the more appropriate 'trial and error' methods as is normally the approach in the relatively more successful Australian case (More and McGrath.including egovernment. two further supply side barriers.most commentators would concur upon a general list which would include size. 10 Issue 1 (Ver 1. This troubled history could shape their approach to technology in general and to the development of web-based technologies in particular. and the monopoly of some functions.S. which has planned to invest RMB 250 billion (U. 2004). In such an organization. big project approach most commonly applied to earlier information and communication technologies. Such a culture can mean that organizations approach web development in a 'fatalist' way. A common response may be a tendency to almost completely rely on technical experts to deal with the problems presented by technology. Starting late is not necessarily a bad thing as Gao Cai (2003) rightly pointed out. Febuary 2010 P a g e | 106 organizational values (which also foster distinctive approaches to technology) and third. a traditional style IT department will tend to dominate all the agency's technological developments . So by analyzing the supply and demand sides barriers I intend to identify the measures that can be taken to overcome these barriers to e-government take-up. II Response to Bad Historical Experience With Information Technology Alternatively.in general .Global Journal of Management and Business Research We are therefore far from the rhetoric of e-government.0). First.partly because they have a large amount of intellectual capital invested in earlier technologies and may be resistant to the potential of webbased technologies to render their existing expertise and training obsolete (Davenport. The realities of e-government take-up seem to confirm previous research findings like the one by Margetts (1999) about the inadequacies of techno-determinist approaches7. Vol. 2000). While the precise nature of such differences . National Health Service managers were scared off entering into ICT contracts in the 1990s after a series of high profile failures and became increasingly reluctant to spend even budgets already allocated. Apart from the historical perspective.lack of organizational demand and channel rivalry. their careers tainted through association with any more disasters. So what explains the disparity between e-government readiness index and the actual level of government online use. further exacerbating the problem (Wainright and Waring. The answer should surely lie within government as suppliers of electronic services and with the public as those who demand and get involved in government transactions. This barrier to e-government is ironic. in many countries. government organizations led the field in information technology (IT) provision – but progressively slipped from that role and have . many in the UK. 2002).$ 30 billion) annually in electronic government over the coming years (Zhou Hong Ren8. it identifies barriers deriving from organizational cultures. brought few cost savings or even failed to work altogether can lead to reluctance to invest in web-based technologies. second barriers derived from 7 ‗Techno-determinist approaches‘ forecast that the advance of computers and automation would by themselves produce pre-determined common organizational responses. because web-based technologies tend to be cheaper and easier to develop than earlier technologies and lend themselves to a 'build and learn' technique quite distinct from the high-risk. separation of policy and administration. 1992). In the 1950s and 1960s. the organizational response to previous bad experiences with IT can be a 'hands-off' approach by all staff outside the IT department. Developing countries like China and India have more to gain by learning from the experience from other countries. has to make sure that this investment does not create a stock of dormant computers in government offices. public visibility.might be debated .

if organizations are not accustomed to value customer contact per se . widespread use of e-mail in particular challenges formal notions of how government correspondence should be dealt with . These relationships or partnerships shape the context within which departments try to develop e-government. If staffs in an organization view possible e-government developments with extreme suspicion. In addition. believing that technology-induced change will be minimal.and this is a particular problem for government organizations. VI Formality First.9 IV Staff Perceptions of Client Group Perceptions of client group are also important. where the priority is the matching of resources to narrowly defined tasks. partly because they do not think it is possible to find out. For example. These values all make it more likely that an organization will develop a negative approach towards technology adoption. In contrast. most of which have a strong relationship with at least one major private supplier after a series of initiatives during the 1980s and 1990s. They will be inclined to believe that for example 'our clients don't have access to the Internet' and therefore will be unlikely to think of the Web site when planning how to communicate with them. private sector companies greatly value the potential of the Internet to provide them with information about what electronic services their customers will and will not use . hierarchy. government organizations tend to have a rather fatalistic approach to thinking about what their citizens want. for example by filing all e-mails on paper. and robustness. (Margetts. There is in any case a widespread sense that for certain matters. Likewise.particularly in the case of the large global providers undertaking much of the systems integration and development work for governments.P a g e |107 Vol. January2010 technologies. US.then they are unlikely to appreciate the new possibilities for developing government-citizen 8 Dr. If the contractor is the dominant party in the relationship. uniformity.which is deemed to necessitate the postponing of low-cost developments of the agency Web site and learning about customers' behavior until very high-cost IT investments have been made as is normally the disappointing case of U. In the U. an attitude that e-government should be delayed until some future 'big bang' release of the organization‘s entire IT infrastructure . organizational values may work against the development of electronic services. 10 Issue 1 (Ver 1. i. 1999) . for example.g. then it can be difficult for the government organization to demand Internet-ready equipment without incurring huge additional costs. V Organizational and Administrative Values of Weber‟s Bureaucracy In addition to organizational cultures and their negative effects and responses towards technology. that benefits at best will be modest and that the safest response is to ignore it.and in general. including market testing and the Private Finance Initiative (Dunleavy et al. government organizations do not . using email to dismiss a colleague would be considered insensitive (Spears et al. there are few incentives for companies to provide up-to-the-minute equipment when it is not requested .again the organization places complete reliance on experts but this time on a contractual relationship with a private sector computer services provider. Changes to web based services however. Many government organizations may try to treat e-mails as letters. 1991). 2001). it is still possible in most government organizations to discern the values of formality. but at the same time blurring the distinction between the two. Technological constraints like not being able to access the Internet from the office can in turn shape the culture of the Department with respect to egovernment . web-based developments. the level of government online use is more pronounced as shown in Table 2.K. which tend to see its use for .S. and the Netherlands. especially by trying to regulate against unusual occurrences. communication by e-mail is inappropriate – e. Australian and New Zealand government organizations. Government's reluctance to institutionalize this method of assessing the value of electronic offerings is a clear cultural barrier to the development of e-government and is illustrated by the (significant) proportion of UK government departments and agencies that do not collect usage statistics (Dunleavy and Margetts.seeming to fall somewhere between a telephone call and a letter.. In general.because the alternative has always been to spend large amounts on advertising. with respect to formality. and can work against. can be assessed almost immediately via easily obtainable usage statistics and the email responses of customers. departmental personnel can be unaccustomed to instigating technology-based innovations themselves and they may not know what is possible in terms of electronic services. Contracts (particularly large ones) can take years to negotiate by which time the requirements specified in the contract is already out of date. 2002).0). on the other hand where electronic communications are encouraged. the benefits of which are hard to assess and take a long time to materialize.web-based solutions are less likely to occur to senior managers if the Internet is almost entirely absent from their working life. III Over-Dependence on Private Sector Providers Such Technology perverse attitude can also lead to a different organizational response . Zhou Hong Ren is Deputy Director of the China National Information Generalization Experts Committee Global Journal of Management and Business Research relationships that web-based technologies provide. which have moved throughout the 1980s and 1990s to what Hood calls 'sigma' type values of economy and parsimony. Although many government organizations have changed over the last twenty years of 'New Public Management'. It has been suggested that government organizations have distinctive administrative values (Hood. All are threatened by. 2001: 24) . This is particularly likely in UK.

where customers do not even visit a counter but are reminded of their rights to a particular benefit or service by the appropriate government agency. Formality as an administrative value can also lead to lack of willingness to 'have a try' – an attitude to which the 'build and learn' nature of web-based technologies is best suited.3.patient. 2000). Febuary 2010 P a g e | 108 policy-makers. In the Netherlands talk is now of 'zero-stop shops'. And the informality of e-mail addresses creates another problem . a business portal for UK government currently under development relies on the notion of digital certificates. for example. A hierarchical culture can also be particularly threatened by. for example. Cooper.making the introduction of e-government more technically difficult and expensive than it might otherwise have been.it seems unlikely that government officials will become comfortable with the idea that an e-mail address is 'official' enough to be appropriate for government communications. maximizes the potential of web initiatives. This cultural characteristic of civil service organizations seems to be country specific.org . agencies as well as departments can have difficulties working together on technology-based initiatives .uk does not make use of or even link to the numerous useful private sector health sites. targeting and customization to which webbased strategies are best suited work against uniformity.both intra-and interorganizational. Disabled groups. one-stop shops where citizens receive a variety of government services have been advocated since the 1970s .bmj. 2001: 10). There is a perception within government that transactions with government must be particularly secure . see the Internet as a major tool for challenging Vol. in the post-NPM British and New Zealand governments where larger departments have been broken up into agencies. 10 Issue 1 (Ver 1. Robustness Another traditional defining characteristic of government organizations is 'robustness' (Hood. which organizations have to purchase in order to undertake electronic transactions with government. the more advanced use of web-based technologies by some pressure groups.yet the whole relationship between doctors and patients is being challenged by citizen use of these and countless other sites (Wainright and Waring. for example. Information on the Internet can be more easily individually targeted and personalized than other mass media (Spears et al. ICT is distinguished by its ‗network character‘. The dangers to government sites from electronic hackers pose a particular barrier to government's image of itself as 'robust'. intranets and the sharing of information throughout organizations can challenge hierarchies . Hierarchical approaches can also work against one of the key benefits to be derived from egovernment .and can only really benefit an organization that develops a more networked approach.in spite of the efforts of central co-coordinating agencies (Margetts.GSI might help 'joined-up government' more. which is particularly applicable to governments. which recognizes that an initiative that would not work with the elderly might work for students. Civil servants in some countries (for example. Hence governments all over the world tackle the design and development of a public key infrastructure (PKI). Yet if e-mail addresses are not seen as official. UK government organizations. those . such as www. as noted above in section 3. Differential levels of Internet penetration across different societal groups and the multi-channel approach essential to developing web channels challenge uniformity which is the perceived need to communicate with all citizens in the same way. Uniformity Uniformity is a second administrative value. have a strong tendency to insist that innovations are fully developed before they can be used while Australian civil servants point to their own 'try it and see' approach to technological innovation as pointed out above. Networks .to overcome the disadvantage to both citizens and government of data being held in several places at once and citizens having to deal with several departments. iv.co. A more flexible approach. In particular. and develop strategies of resistance against.nhs. The Government Secure Intranet (GSI) provides top-level security for officials within government to communicate -and the fact that security levels are set so high works against some of the potential advantages of e-government . A hierarchical approach can lead to a very centralized kind of web development. The increasingly sophisticated segmentation. for example. if local government personnel were able to use it too. ii.are the defining feature of the Dutch government (Dutch ICT and Government Advisory Committee. web development can be hampered by the fact that staff themselves do not have Internet access and cannot see their own web sites while at work.rather than hierarchies . what is the likelihood that individuals or businesses will make tax returns on another's behalf? VII Lack of Organizational Demand Lack of organizational demand can also constitute a supply side cultural barrier to innovation . In some governmental organizations. its defining feature. for instance.its contribution towards 'joined-up' government. The Government Gateway. Thus the UK health site www. In particular. Such initiatives can fail to recognize those government transactions that just do not need a level of security higher than non-government transactions. 1991). for example. 1999). 2000: 15. which will guarantee secure transactions between organizations and individuals.0). In particular.uk or even the excellent Web site of the British Medical Journal at www. iii. But cultural resistance within departments can work against joined-up government. which could be one reason why government online use is more developed in the Netherlands than in the UK.Global Journal of Management and Business Research many activities inappropriate. moves towards proactive service delivery will be almost impossible to implement. 2000). Hierarchy Hierarchy is the most traditional of cultural values of government bureaucracy.

well-educated and poorly educated. or methods of working. not all barriers to the development of e-government come from within government organizations. and trust in e-government have direct bearing on society‘s propensity to use ICT in their dealings with government. It is indicative that countries which allow for more easy access and use of ICT by its public officers are performing better than others which allow more restrictive use as is the case in the U. ii. A tendency to regard putting services on the Internet as something that must be added on to all the activities that the agency does already. until and unless the agency is conspicuously 'lagging' behind other agencies. rivalry problem in government to become so severe that progress on egovernment slows to a crawl it may only be necessary for officials to show a degree of reluctance and lack of initiative. The key cause of channel rivalry is that people and organizations that make a good living out of doing things one way will be understandably reluctant to imperil their livelihoods. the latest release of the US Department of Commerce's survey 'Falling Through the Net' (2001) suggest that the digital divide between rich and poor. Hayday (2003) even notes that such uptake is unlikely to be reality ‗until today‘s tech-literate younger generation grows up‘. A related attitude that any progress on egovernment demands the commitment of accompanying additional resources by the government or by higher-tier agencies. v. Even while Internet penetration continues to rise across all social groups. Finland. Research by Dunleavy and Margetts in the U. Social Exclusion and the „Digital Divide‟ The most obvious cultural barrier to e-government from the demand side is the problem of social exclusion caused by the problem of unequal access to the Internet per se. the 'digital divide' between those with Internet access and those without seems to be widening.P a g e |109 Vol. For the channel. Norway. iv. This stance is usually justified by the claim that since these other modes of interaction are required by law or are already established they cannot be reduced or run down in any way in favor of Web. A general reluctance to experiment with e-based methods of delivery. Only a degree of lack of positive enthusiasm allied with a very natural tendency for people‘s fear to lose their jobs and not want to embark on courses of action that are unfamiliar can become big obstacles. An insistence that because of some unique feature of the agency's business its methods of working can become seriously out of line with those used in other agencies or related areas of the private sector. Clearly. they are the countries that are presently leading the world in terms of Internet penetration and government online use. and Danemark. . (1997) so rightly assert. or via phone calls and call centers. Some have argued that an e-elite (Castells. But we do not need to posit conscious opposition ('sabotage') by public officials to envisage a possible channel rivalry problem in asking a non-e-administration to become an e-agency. A. including a high rate of return. In society. white and non-white. 10 Issue 1 (Ver 1.K (2002) has shown that key symptoms of this kind of reaction could be several or all of the following: i. allowing laggard agencies to catch up with the current leaders in a once-and-for-all and low cost way or that e-government is a 'fashion' that will soon pass. or via letters and correspondence. Issues such as ability to use ICT. viii. A chronic refusal to calculate the marginal costs of dealing with clients via office visits. IV DEMAND SIDE BARRIERS E-government services will not justify the investment if citizens do not use them and as Kester et al. there is inevitably a resistance to using the Internet in general and government offerings on the Internet in particular. An unwillingness to divert resources from established ways of doing things to developing Internet communications or transactions.or Internetbased interactions. compared with the marginal costs of Internet or Web-based interactions. This section goes on to identify ‗demand side' barriers to e-government. The U.S has dropped to the 5th position (Lucas Van Grinsven. to cost the risk of growing obsolescence in the agency's IT infrastructure. affordability. Although tables 1 and 2 above do not give statistics about the Scandinavian countries – Sweden.K. An attitude that no e-government innovation at all can be responsibly entered into until the clearest Global Journal of Management and Business Research possible financial case for it can be made. Providing government services online is like asking public officials to create new internetbased channels and put their own jobs at risks. Tendency to find reasons for inaction and for exaggerated risk-averse behavior on Internet or Web issues. 2004). and ix. vii. iii. but without making any effort to map the consequences of not developing Web or Internet-based interactions.0). January2010 countries with higher societal rates of Internet penetration) might find such a situation unthinkable. VIII 'Channel rivalry': Competition Between Old and New Ways Channel rivalry has been a problem for private sector companies seeking to introduce Web and Internet models of selling and organization . A belief that methods of working in electronic services delivery will soon 'settle down'. And in some circumstances their resistance may be able to slow down radically or even stop altogether the development of new Internet-based models. without which nothing can be done. ‗the success of a system is always in the hands of its users‘. access. vi.and it is an especially important potential barrier for government. has widened significantly during the last five years. or to see that a reluctance to develop e-government can lead to a cumulative lag in the agency's progress.

being harnessed). they are less likely to want to transfer information to government electronically and less likely to believe information that the government transmits electronically. Thomas and Wyatt. trust in national government is low in comparison with other institutions: in 1999. In some cultural contexts there is an automatic association of the Internet and web-based technologies with fun or enjoyment. for instance. as 'the killer application' is a good example of a technology that has been domesticated and is being used on a widespread basis. the state of being very formal) is another characteristic that can pose a problem to web development. Many innovations just do not have this domestication potential.but they are more likely to signify lack of demand for the given service in particular (or a badly designed website). In the UK. If they have a low expectations from a government organization then they will not look for that organization on the Internet and will continue to use traditional methods to deal with it. 700 personal files of their Democrat counterparts (Ferraro. C. Febuary 2010 P a g e | 110 1999). which make it even less likely that citizens will look for such services on the web in the future. If educated people find it difficult to domesticate technology. the problem is logically more pronounced for people with less education and who may be in more need of government services. inflexible relationship with a government organization on paper. And there is evidence that on the web. Japanese people buy more gadgets than in any other nation because 'technology has been translated into enjoyment in Japan for many years' and mobile telephones are marketed to schoolgirls as fashion jewelry. Along the same line. Low Citizen Expectation and Trust in Government Citizens' existing relationship with government organizations will obviously affect their approach to egovernment services offered by that organization. 2001)). Officials in the city government of Amsterdam. use bureaucratic language and contain no incentives other than strict functionality for users to explore the site. one of the social housing corporations put all available homes on the Internet . although many households in developed countries contain PCs with a wide range of applications. Seriousness as opposed to ‗fun‘ web sites could be one of the factors that encourage or discourage Web site visits and may be account for more government online use in some countries than in others. whereas 71 per cent said that they trusted television and 67 per cent that they trusted the radio (Euro barometer.rather than fun . Vol.Global Journal of Management and Business Research 1996) is emerging as well as an e-underclass (e-Economist.e. Government sites are conservatively designed. described by many commentators.e. previously marginal groups may continue to be marginalized when they are connected (Burrows. The e-underclass may end up believing either that egovernment initiatives will make no difference to them. Government organizations may interpret low usage figures as sign of low demand for electronic services . 2000. by trying to have everything of their own forego the opportunity to take the goodwill of already established Websites. which is normally viewed as the country with the most sophisticated privacy laws just witnessed Congressmen improperly accessing 4. in the majority of households most of these applications remain used –and have not been domesticated. 10 Issue 1 (Ver 1. Spring D. which replicate those of non-Internet society.S. Lifelong guaranteed employment in public sector organizations may also not motivate public officers to upgrade their technological proficiency level. Likewise. ‗Solemnity‟ of Government „Government Exclusion‟ Web Sites and `Solemnity‘ (i.citizens have to need or want it and see clear benefits for using electronic media rather than more traditional means of communication or transacting. Even in the U. 24 June 2000). Social psychological research into how people accept technological innovations show that innovations that cannot be domesticated into personal. In contrast. bad web sites with very limited functionality. Non Governmental Organizations Web sites. or that they will have some kind of damaging effect. There should no harm that government tries to reach its audience through such web sites instead of being completely ignored by the public. E-mail. may be better-known by the public than a new Government Website. they are likely to expect that an electronic version of the organization will be the same and are likely to be less willing to divulge information electronically than they would be to their bank. A look by anyone around himself will show that many educated people can use the PC only for routine typing and normally they cannot use the full potential of the technology at hand. and better-known to the public. stressed 'fun' as the most important design element of their web services.and . This level of trust (comparable to levels in France and Germany but 25 per cent lower than in the Netherlands) surely shapes the extent to which citizens trust an 'egovernment'. 2004). 2000. if citizens do not trust government organizations in general. one of the more advanced of Dutch municipalities in terms of e-government. 2001). All these characteristics of the Internet society have the potential to work against e-government . Spears et al. Unclear Citizen Benefits There must be clear citizen benefits for what is being offered electronically . During a recent housing shortage in Amsterdam.runs straight through virtually all UK government organizations' approach to the Web. everyday routines. 41 per cent of respondents said that they trusted the national government when presented to them in a list of institutions. governments may. for example. E. Low expectations can be further lowered by early. Inability to Use ICT Competently E-government initiatives have to be capable of domestication (i. are unlikely to be used (Frissen. As one marketing consultant put it. B. Where individuals are accustomed to a conflictual.particularly as those groups with whom government organizations deal are often the most likely to be excluded.0). But belief in seriousness .

citizen benefits of e-government can be maximized by using incentives to encourage citizen uptake of electronic services. Such incentives have to be realistically designed so that they really are incentives . low/high education . Show Benefits to Citizens Likewise. Private sector experience has shown that moving to electronic processes can remove routine tasks while allowing staffs that remain to become more skilled .000 hits a day. Where non-electronic means of administration are still predominant.all these may change quite quickly. the time and possibly frustration costs of learning a new way of doing things. In Singapore. High Transaction Costs of Change The transaction costs of change. like digital certificates) then they may obviously not work.only in age. and also finding Web and Internet based models of administration unfamiliar and technically threatening. electronic filing of taxes actually fell by 3 per cent during 2000-2001. For people to change an established way of doing something (such as filing a paper income tax form) and instead to adopt a new technology or channel of communication (such as sending in an electronic tax form) there is a substantial immediate cost .6). of course. Organizations Should Be Transition Costs Ready for Initial OVERCOMING BARRIERS TO E-GOVERNMENT Identification of barriers is one step towards e-government the second is. services are not available.but such changes have to be carefully presented. when banks introduced new technologies. Financial incentives can be offered for citizens to file taxes electronically. as taxpayers became aware that electronically filed forms were scrutinized more thoroughly than those filed in paper form.7 above). government organizations needs not just to look to save money itself but to add incentives that help citizens overcome the considerable change or transition costs of learning how to do something electronically. it is important to appreciate that an organization transitioning towards a 'fully digital' model will not be the same. then it is important to recognize that existing staff can see their whole future as bound up in the continuation of paper-based systems of administration. they are willing to try electronic communication. For example in the US. government organizations may be under more societal pressure to provide services electronically. they had to put advertisements on the TV to say the servers were overloaded. 2003). If however. another barrier to their development might be a lack of proactively 'demanding' citizens. If government can cut costs by delivering services electronically. the kinds of people who rise to the top . When the demographics of users were analyzed. they ran special campaigns in which staff take people through in a personal way how to use the new arrangements. To overcome the initial barrier of transaction costs (section 4. In the Netherlands and Singapore. To achieve this spiral. recognize explicitly that there are transaction and transition costs and then plan in an active way to overcome them. up-front transaction costs like these may stop people from making an investment of time or energy that would pay them back many times over in the slightly longer run. Overcoming barriers may have to involve tackling the barriers at the heart of resistance to e-government. Once electronic services have been introduced and are being used.which in turn may increase take up. of transition to using an electronic medium. government agencies also need to look out for possible costs or 'negative incentives' that can result from disparities developing between electronic and non-electronic service delivery. and so on. ethnic minorities. because Singapore is a not a full liberal democracy in the proper sense of the word. For instance.P a g e |111 Vol. This section includes some suggestions for ways round the obstacles outlined above. After one week. the cost of putting right any mistakes produced by unfamiliarity. Evidence like this suggests that where citizens really want something.the cost of finding relevant information. the introduction of incentives may need to follow private sector business models and practices. taxpayers are promised any refund by a certain date if they file via the Internet. can create a strong initial barrier for citizens to adopt electronic communication with government. The systems of control. it must seek to pass on as much of that cost-reduction as feasible to citizens . Older staff and perhaps staff in the most senior positions can especially feel threatened if large-scale changes of work practices are in prospect. Studies of human behavior have repeatedly shown that very small. January2010 immediately received 30. for instance.0). Of course one has to be careful. 10 Issue 1 (Ver 1. and further reduce the cost of government service delivery. the government passes on some of the savings made from electronic transactions by lowering the cost of fees to citizens (IDA. Such disparities clearly work against citizen benefits from electronic initiatives and can make citizens more reluctant to enter into electronic transactions. V Global Journal of Management and Business Research A. whether ATM . increasing Internet penetration could well be a strategy to increase pressure for government to offer their services online. Even if staff have assurances of job security or any downsizing in staff taking place through voluntary redundancies or natural wastage. C. F. the hierarchy of management roles. perhaps feeling that they are 'too old to change their ways now'. on the other hand. In countries with high rates of Internet penetration. B. there was no difference found between poor/rich. Incentives to Staff Incentives for change are important for staff.if financial incentives are offset by additional expenses (such as buying appropriate security measures. to overcome them. Therefore. in order to overcome the channel-rivalry problem (section 3. This may mean improvements in job satisfaction for many.

. in order to overcome the 'government exclusion' barrier. entertainment of any kind and indeed the overwhelming majority of nongovernment sites) (Dunleavy and Margetts.the extent to which they are at the center of social and informational networks (Hood. In Brazil for instance. Having an intermediate level of egovernment may also be a plausible solution in developing countries where the masses are still illiterate. organizations might have to think in a 'de-centered way' about the extent to which their services are offered on the sites of other organizations. fear of new technology etc. 'a cultural theory analysis suggests that any given technological change can lend itself to very divergent visions of social modernization'.rather than focusing on their own Web site. it was interpreted as a positive indication that staff were using the intranet (Broughton and Chalmers. There hundreds of such creative solutions being used around the world and which can be accessed in the ‗E-Government Handbook for Developing Countries‘ (Khalil et al. The greatest resistance or barrier remains people leading some researchers to claim that the potential of e-government can only be tapped when the present technology-savvy generation takes over from the old and . If we want technology to be ‗domesticated‘ allowing freer use of ICT rather than controlling their use may be advisable. This kind of thinking about web development can mean overcoming the barriers of hierarchy and formality and accepting that a centralized and controlling strategy may not make the most of what the Internet has to offer.. government organizations have to think creatively about increasing their 'nodality' . for example. What may be required are strategies to overcome the institutional. with more personal interactions with customers by staff or more extended average interactions for a time. or phone/correspondence based accounts without counter service. 1983). Such a positive attitude to Internet use by staff might Vol. 2002). E. For this reason. Overcoming Solemnity of Government Websites Solemnity (4. Different institutions and societal groups . to make innovations acceptable to citizens. organizational. Overcoming Government Exclusion Finally.0). the Internet has to 'embedded' into everything the organization does.2).will have different cultural responses to the possibilities that these new technologies provide. So an environmental agency that gives advice on sustainable products might need to liaise with a variety of retailers to ensure that their information is presented. people may be very reluctant or unsure whether they can switch and need counseling and active help to do so. Even though passengers who make the transition will be much better off. 2001). what underpins societal myths about technology . Another similar example concerns airlines trying to get passengers to use automatic ticketing and check-in machines in order to cut queuing times and allow them to cut down on staff costs of operating so many check-in desks.and what innovations could be 'domesticated' (see 4. Counterpoint. however inadequate. This paper supports that claim and makes clear the inadequacy of techno-determinist approaches that forecast that. Many government organizations (particularly in the UK) insist that their employees do not use the Internet for any kind of non-government use. government organizations have to develop ways of understanding how citizens use the Internet. So agencies may need to go through a higher cost transition phase in the short term. social. crashed after a significant proportion of employees were checking cricket scores on the ABC network during a crucial match. in that they will not by themselves lead to an increase in government online transactions. VI CONCLUSIONS The tools of e-government have created a new technological environment for both citizens and governments. either because of cost. Yet creativity can be required to develop web-based solutions to government problems – and it may be that organizations full of staff actively using the Internet may be better placed to think in this way. The point made in this paper is that investment in Telecommunication infrastructure and Human Resources as well as the acquisition of ICT by Public Sector Organizations are pre-requisites for the development of egovernment. They are.1). central government has to think hard about ways of widening Internet access in general through centrally sponsored local initiatives or otherwise. in order to be able to reap the longer term advantages of electronic interactions. Febuary 2010 P a g e | 112 actually encourage a more ‗technology positive‘ attitude and contribute to development of e-government. As Hood (1998: 199) put it. illiteracy. Bridging the „Digital Divide‟ and Increasing Social Inclusion With regard to the question of unequal access to the Internet and therefore the possible 'social exclusion' barrier to egovernment (section 3.4) of government web sites might be overcome by a more casual approach to Internet use within organizations. prohibits its employees from using sites connected with travel. or Internet banking. This may actually require a substantive change to thinking about web development . leisure. when the intranet of the Australian social security organization. In the same way. 10 Issue 1 (Ver 1. which in the case of some departments can apply to almost all sites (one department. D. there are mobile government offices fully equipped with ICT and they move from one village to another allowing people to engage in online transactions through public officers operating these mobile vehicles.Global Journal of Management and Business Research machines.with different organizational cultures . and psychological barriers to e-government both in and out of government. Important is to make ICT accessible to sections of the population who otherwise on their own can never afford same. F. cultural. 2002 ). To successfully develop Internet services. the advance of computers and automation would produce pre-determined and common organizational responses. in and of themselves. sport. what they use it for.

P a g e |113 Vol. (2004) ‗About 4700 US Democratic files improperly obtained‘. 60 no. March 5: http://in. Lord. 1 2003.0). Drops – Survey. IT literacy may not be adequate.tech. People‘s/Consumers‘ propensity to embrace technology may vary widely. January2010 present generations of public officers and citizens. (2000) The Net Effect: A Survival Guide for Companies in the Internet Era London: Random House. London. T. Washington. Zhu. P.D. but also in terms education and training of both public officers within government and of citizens outside government. available at http://www. http://www. 2 The Networked Society. No. Open University Press. insecurity) of technology readiness. increasing the number of people having access and also the ease with which access may be obtained. (2001) Under Construction. http://in. 1. Center for Asia-Pacific Policy Publications [Online].org. CASS Journal of Political Science (Quarterly). R (2000) 'Delivering the Virtual Promise? From Access to Use in the Virtual Society'. R. 10 Issue 1 (Ver 1. (1983) The Tools of Government (London: Macmillan). Oxford: Blackwell.com/040419/137/2cmno. A. B. pp. T. Gao Cai (2003) ‗E-Government: Starting Late Is Not a Bad Thing‘. Madhya Pradesh‖.A. V.H. International Thomson Business Press. 58. Citizen and Government in the Information Society: the Need for Institutional Innovation (The Hague: Dutch Ministry of the Interior and Kingdom Relations). Davenport. Paper for the 18) 19) 20) 21) 22) 23) 24) 25) American Political Science Association‘s Annual Conference 2001. ICT and Government Advisory Committee (2001). V. Harvard Business School. (1997) Management in the Public Sector : Challenge & Change. 69/1: 3-19. We may very well be in a process of social re-engineering of government and society/citizens in trying to increase the uptake of egovernment by increasing the Technological Readiness of the population of a country and its access to ICT. Australia and New Zealand‘.un.infodev. http://poverty.A. C. Volume 13. 28 August –1 September. 4) Burrows. and Dewan. What may be required is to increase the ‗Technology Readiness‘ of public officers and citizens alike. Rhetoric and Public Management (Oxford: Clarendon Press). (1992) Process Innovation: Reengineering Work Through Information Technology. resulting from an interplay between drivers (optimism. Indications are that massive investments will be required not only in physical ICT infrastructure. C. (2002) ‗An Australian Case in e-Health Communication and Change‘. San Francisco.. London: ESRC.C. Australian Journal of Public Administration. 81-88.yahoo. 445-452 Hood. Lanvin. Society and Culture. M. What may be required are IT proficient public officers and citizens. No.com/040305/137/2btt7. IDA Singapore (2003) ‗The Road Starts Now – Singapore‘ [Online] http://www. U.unpan1. & Hachigian N.org/nsrd/capp/pubs/egovernment. [Online] http://www. VII Global Journal of Management and Business Research 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) REFERENCES 1) Bellamy.org/files/14649_Gyandoo t-web. M.org/intradoc/groups/public/d ocuments/apcity/unpan011293. E. G. Part C1 Hayday. J.worldbank.news. (2003) ‗Mass e-government take-up – a decade away report‘. 6. and the relative dominance of favorable will vary across individuals. M. (1998) The Art of the State: Culture. decreasing cost of access.rand.yahoo. (2001) ‗Reconsidering the Relations: Australian Public Sector Adminstration in 2000‘. 19 April. Kester et al. C. By ‗Technology Readiness‘ I mean people‘s propensity to embrace and use new technologies for accomplishing goals in home life and at work.html Ma Lin. and Hill F. .silicon.com Hazlett S. Buckingham 2) Bhatnagar.A. vol. I disagree with this overly pessimistic view. May 23. S. J. (2001) ―Gyandoot Project: ICT Initiative in the District of Dhar. (1996) The Information Age: Economy. (2003) E-government: the realities of using IT to transform the public sector. D. 5) Cai Lihui (2003) ‗Electrical Government Affairs: The Application of Internet in Public Services by a Government‘. Amsterdam: Infodrome. (2001) ‗Policy Learning and Public Sector Information Technology – Contractual and E-government Changes in the U. and Chaudhry. Ferraro. Center for Democracy and Technology.C. Bright Daily.pdf 3) Broughton C. innovativeness) and inhibitors (discomfort. (2001) ‗Case Study of a Beijing Pilot Project on E-government for the World Bank‘. World Bank..S. (1991) ´A Public Management for all Seasons´ Public Administration. Vol.K.html Frissen. pp. Increased access to ICT by the largest possible number of people is another very important strategy – increasing the number of access points. No. and Chalmers. (2002) The E-Government Handbook for Developing Countries. (1998) Governing in the Information Age. Lucas Van Grinsven (2004) ‗Denmark is Websavviest Nation. General Serial. 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The International Journal of Public Administration. P. R. Febuary 2010 P a g e | 114 .com/gostudy/ US Department of Commerce (2001) Falling Through the Net. Rogers. and Waring. H. T. A.htm Vol. State Services Commission (New Zealand) (2003) ‗E-Government Strategy Updates‘.tnsofres.nz/programm/strategy.org/web/news/china_egovt. pp. 8. (2000) ‗The Information Management and Technology Strategy of the U. M. 13 no.. 2002. P.govt. (1999) Information Technology in Government: Britain and America London: Routledge. (2002) ‗Cultural Barriers to e-Government. 621-632. Vol. 241-259 Zhou Hong Ren (2004) ‗China e-government programs are worth U. Department of Economic and Social Affairs. Washington: GPO.asp Margetts.K. D.S.$30 billion per year‘:Shanghai Guangji Business Consulting. United Nations. 21 no. T.Global Journal of Management and Business Research 26) 27) 28) 29) 30) 31) 32) 33) 34) 35) Journal of Management Development. London: NAO Spears. United Nations (2003) World Public Sector Report: E-Government at Crossroads. (1998) Growing-up Digital: the Rise of the Net Generation (McGraw Hill). Taylor Nelson Sofres Consulting. Postmes. vol. http://www. H. D. Government Online 2002 Benchmarking Study. Available at www. National Health Service: Determining Progress in the NHS Acute Hospital Sector. and Dunleavy. http://www.nhita. (2000) Social Psychological Influence of ICT´s on Society and their Policy Implications (Amsterdam: Infrodrome). New York Wainright.egovernment. Wolbert. Margetts. 3.0). pp. Tapscott. 10 Issue 1 (Ver 1. Lea.

855. CNPQ Bursary.46) also affirm that the survival of the firm frequently depends on the ability of the stakeholders to adapt to the changes that have occurred in the world around them. 2002: p. this issue regards the fact that innovations change the power structures because they change traditional abilities and strengthen the positions of those who new abilities.Student . 2003.. However. Centro. 2001). 2002). p. medium and long term for different stakeholders. Bunn et Al. E-mail: gcmalafaia@gmail. The IBIE (Instituto Brasileiro de Intra-Empreendorismo). changes destabilize and threat old norms and beliefs that must be sacrificed before any certainty that the new solution will work out.eds.br.P a g e |115 Vol. Street Washington Luis.Post Graduate Program Center for Research and Studies in Agribusiness (PPGA/CEPAN) at the Federal University of Rio Grande do Sul (UFRGS) Porto Alegre – RS. As a conclusion. it became possible to review all the concepts of sustainable development in search for sustainable products. I INTRODUCTION T he term stakeholders has been used to identify the main agents responsible for the strategies of innovation and changes in organizations. According to Probst et al. Weisenfeld. 9% salary increase. (2002). Sustainable Development. 2007). These changes have caused strong impacts to the companies‘ development to create their strategies. 2005). An innovation process also comprehends meanders in which it can become accepted and exercised not only due to its own merits but also due to the influence of powerful actors interested in them and due to creative initiatives led by institutional entrepreneurs with their own styles and approaches imbued with great discipline.E-mail: deniazevedo@hotmail. demands for new approaches of company management in their strategic capabilities and innovations are emerging. Brazil. 12% moral recognition from bosses and teammates.855. adopting more flexible. 9 ‗Electronic Data Serives‘ (EDS) is an American company. the biggest multinational company in the world providing government services on a contractual basis.This essay demonstrates the interaction between the innovation process and stakeholders based on the principle of sustainable development. Companies are going through a moment of redefinition of their capabilities. It can be observed that the .Post Graduate Program in Management . School of Management (PPGA/EA) at the Federal University of Rio Grande do Sul (UFRGS) Porto Alegre – RS.Cep 90010-460. monitored and reinforced environments and opportunities and then explore their competitive advantages. being that it is not surprising that they delay the formulation and development of new ideas (Probst et. Keywords.Brazil . 6% job promotion (IBIE. Along with the new rules of the game. 2002). al.com Caxias do Sul-RS. 111).com. Stoner and Freeman (1989. January2010 Global Journal of Management and Business Research The Innovation Process under the View Denise Barros de Azevedo1 Eugênio Ávila Pedrozo2 and Guilherme Cunha Malafaia3 Abstract.0). Contrary interests or defensive expectations in relation to the innovation are predictable and therefore natural. values are created that insert the logic of environmental thought to sustain the results in a short. Since then. Porto Alegre-RS. A new market of opportunities has emerged and the companies need to learn how to clear out their old capabilities and have more innovations in the path that succeeds the capture of new opportunities for competition (Birchall and Tovstiga.Brazil. 1991. On the other hand. Brazil. The goal is to verify to which point the pressure of stakeholders generates innovations.Ms Rural Economic.Meyer and Rowan.ufrgs.com for facts about the company Innovation also involves the creation of habits and structural arrangements as well as the formalization of policies and procedures (Tolbert and Zucker. FONE/FAX: 55 51 3308 3727-3484 3 PhD in Agribusiness.Cep 90010-460. 17% possibility to facilitate their own work. Porto Alegre-RS. Lecturer at University of Caxias do Sul (UCS). 8 PhD. ability to take risks and concrete implementation perspectives (Landberg and Simeone. it is reasonable to consider that firms that face great uncertainties. See www. as well as to investigate how the stakeholders’ power of influence in the innovation management process works. For these authors. Group Studies in Organizations Member (GESTOR). Street Washington Luis.2002. an institute that promotes corporative enterpreneurism has listened to around 5000 employees and verified that the factors that most stimulate innovation in companies are: 34% personal satisfaction. although with this they face resistance to the appearance of organizational formats that challenge the status quo (Laursen and Mahnke. despite the fact that they face high rates of technological changes. must anticipate and favor the adoption of arrangements that are characteristic of organic forms. 10 Issue 1 (Ver 1. FONE/FAX: 55 51 3308 3727-3484 2 Director of Post Graduate Program Center for Research and Studies in Agribusiness (PPGA/CEPAN) and Professor of Post Graduate Program. Centro. Innovation companies focus their model of change in their immersed. Hall and Martin. 1984).Stakeholders. 22% company image and growth. Coordinator of Group Studies in Organizations (GESTOR).Email: eapedrozo@ea. decentralized and less formal patterns. the stakeholders have substantially changed in the last years. It could also be noticed that when integrating sustainable development and innovation. Innovation Process. there have been many indicatives that the stakeholders possess great potential to influence the environment as well as the organizational structure according to the nature of the institutional context and the available resources (Freeman. as well as to try to understand how they use their power to make the changes and innovations socially legitimate. 1983:2001.

clients. II IDENTIFYING THE STAKEHOLDERS The Introduction to the Stakeholder Theory was first developed by Freeman in 1984 in his work entitled Strategic Management: A Stakeholder Approach. Key. Managers and researchers can use and comprehend the stakeholders through strategic questions in turbulent environments in which many multinationals have to operate in nowadays (Freeman. Along with this introduction. the innovation process is an instrument that the organizations and the stakeholders are using to establish competitive advantages. the article will present at first a bibliographical review of the stakeholder approaches. He also affirms that the modern organization is affected by a great number of powers. He then delimitated the space of Vol. every group or individual that is affected by or affects the organization in search of their objectives. Therefore. a discussion of the innovation process will be presented and in the third part. employees. In the fourth part. the external environment. finances and political agendas (Gilbert. Many authors consider the discussion of environmental conservation and economic growth extremely ambiguous (Opwood et al. affirm that the goal of the companies is to attend to its stakeholders‘ interests. Innovation Process. which without their interests the organization would cease to exist. Atkinson.. but global. p. and are generally important for the organization. the article will present its final considerations. The concept of stakeholders includes what the administrated know. On the other hand. the government. These powers comprehend shareholders. It can be verified in sustainable development that there is a process of integration of environmental criteria in the economic practice in order to guarantee that the strategic plans of organizations satisfy the need of continuous growth and evolution and at the same time conserve the natural capital for the future. And at last. 10 Issue 1 (Ver 1. groups with special interests. Freeman. He explained the relations between firms. There are two main lines of thought. From this observation. think. Freeman indicates that the term ―stakeholder‖ intends to generalize the notion of the shareholder as the only group to whom the management has to respond to. the need to develop in the present without compromising the resources available to attend the needs of future generations (anthropocentric concept) is observed. (1999) define the importance of the stakeholder through the degree of its contribution to the organizational performance. or in other words. In the second part of the article. which are frequently consulted by the stakeholders. These groups‘ characteristics are vital for the survival and success of the organization. 1984). the stakeholders‘ pressures are making the companies seek this interaction between sustainability and competitivity. and society. the construction of the related interconnections between Stakeholders. and Sustainable Development will be carried out.Global Journal of Management and Business Research factors related to human issues are much stronger than other elements. Donaldson and Preston (1995). At the same time. The studies about stakeholders were presented from several different perspectives. as well as to investigate the stakeholders‘ influence power in the innovation management process. In today‘s tougher and tougher markets. they affect or are affected by its internal policies and external behavior. The basic difference among them is the degree of importance given to the organizations. The ecological problems are not local.. partners. It is about not only air pollution. suppliers and the management (Freeman. depletion of the ozone layer. 1984. the general public. When searching for new ways to interact with sustainability. It is also an objective of this essay to verify how sustainable development can provide elements for the innovation process and stakeholder satisfaction in a highly competitive market. The managerial version of the stakeholder theory is particularly influenceable. commerce. use of raw material and residue management but also about a truly international problem which affects transactions cross borders. 1984). 413). a view of sustainable development. creating an infinite possibility for the action of stakeholders. and the behavior of the firms without contact with the environment. This is the function of the administrator. This version affirms that the role of management is to gather information regarding the interests of all individuals and groups. 1984). When some of these groups are not formally part of the organization. 1995). since the stakeholders can be used to enrich the comprehension of these strategic tasks. the mediums. 2005). water conservation. 1997. for even climatic factors exercise this role (Mitchel et al. Waterhouse and Well (1984). Febuary 2010 P a g e | 116 social responsibility to a more restricted dimension with the following definition of Stakeholder: it includes any group or individual who can affect or is affected by the organizational goals. In this report. . in which he declares that the same is originated by the Firm Theory.0). 1999. Jones (1995). The goal of this essay is to verify to which point the stakeholders‘ pressure generates innovations. the author derives the managers‘ responsibility in verifying the interests of different clients. the attempts of many researchers to entirely define the stakeholder theory require certain attention because it is a ―misguided‖ theory (Freeman. Therefore. The 1980 Brundtland Report can be considered the milestone of this consciousnessraising. Freeman (1984). in a way that the actions and impacts should be considered internationally. Metcalfe (1998) and Moore (1999). this opens space for any one who can affect or is affected by the organization. The list of stakeholders can be easily increased by other possible stakeholders (secondary) such as the local community. The concept of Sustainable Development was developed due to the acknowledgement of an increase of the environmental problems and their relations with social-economic issues such as poverty and inequality in face of the need to assure a healthy future for humanity. Shankam (1999) and Berman et al. the companies discover new forms of competition by using innovation and sustainable development as strategic tools.

P a g e |117 Vol. commerce. inside a new perspective of economy. transactions and the institutional context. The interactive perspective of innovation is the base for many conceptual elaborations related to the innovation process. the first refers to the recognition of opportunities. Considering the variety of definitions for sustainable development. water conservation. experience. users. This article discusses these four basic problems and concludes suggesting how together they can form a structure to guide longitudinal studies of innovation administration (Van de Ven. b) what is the central approach to this solution?. Many times a necessity exists without being perceived and will only be perceived once there is a problem. ideological and academic. Regarding the stages of an innovative process. the importance of external knowledge sources and the intra and inter-institutional relations for the success of the innovation. as is the case of those that deal with the national innovation system (Lundvall. By formulating an idea. Silva and Lezano . the use of raw material and residue management. The authors characterize the types of innovations as: a) Incremental Innovation. develop. The vertical axis allows the classification of the innovations as radical (4). a good management experience involves a looser control so that several ideas can be elaborated while in the final stage. such objectives have not been reached and the fact that economic interests always win when confronted with environmental interests can be verified (Banerjee. i) Institutional version – the three institutions are based on the satisfaction of needs. It is not only about air pollution. which are: new ideas. and finish as well as how the nature of the relations between producers. 1999) and those related to production chains. Such interpretations reflect the growing interest in the processes by which the ideas and practices are created. grow. 1998). putting this new technology in use. The authors also point out that the innovations can generate impacts along the value chain. Lethonen (2004). Mebratu (1998) summarizes the versions in three groups: institutional. architectonic (3). which involves the coordination of innumerable engineers with different backgrounds a more rigid control becomes necessary. 1999). intuition. 1988). Innovation represents more and more the development and implementation of new ideas by people and organizations that have transactions with different stakeholders. The key to this process is the research for answers to different managerial questions faced in each of the different phases. work and society. After a potential opportunity is observed. 10 Issue 1 (Ver 1. people.Walter(2002). Henderson and Clark (1990) present a structure with four different types of innovation and their impacts on the competitive capacity of the organizations. This definition is focused on four basic factors. finances and political agendas. clusters and company networks (Porter. c) a structural problem to entirely administer the relationships. differently affecting the different stakeholders. It considers the increase of complexity. it is sought to solve a problem by placing it in practice through the development of a prototype in order to then commercially develop and diffuse it. local innovation systems (Cassiolato and Lastres. d) what is the key instrument for the solution?. the formulation of an idea occurs. However. for he uses the training. c) what is the proposed solution platform?. modular (2) and incremental (1) and the horizontal axis allows the identification of the impacts of these innovations in the different agents of the aggregated value chain. b) a problem in the process of administrating new ideas. 2002. The Brundtland propositions include changes in the quality of growth and incorporation of the environmental issue in the decision-making processes. developed and reinvented (Slappendel. opposite management forms are necessary depending on the phase of the process (Robert. it is also about a truly international problem that affects the transactions and crosses borders. Therefore. A comprehension of how these factors are related leads to the four basic problems faced by the administrators: a) a human problem to manager the attention. 1996). culture. Studies such as those of Green and Vergragt. d) a strategic problem of institutional leadership. January2010 III THE INNOVATION PROCESS The perspective of the interactive innovation process has obtained greater popularity in recent years because it investigates the nature of the innovation process by examining how the innovations emerge. 1986). 2002. Some models are considered references in this area. The capability to create a problem with the appropriate solution is a greater invention than merely solving an existing problem. 1992). in his search to answer the following questions: a) what can be identified as the source of the crisis?. and institutions occur. b) Radical Innovation and c) Architectural Innovation. eco-feminism and eco-socialism) . in the initial phase. being that economical globalization allows the demands of the stakeholders to gain relevance as emerging demands such as the need pf political and private interventions that accompany the growth of implications of the environment in the lives of the stakeholders. Gao and Zhang (2006).0). It can still be affirmed that an inventor does not invent anything. For example. and propose the Innovation Hypercube. Bunn and Savage. depletion of the ozone layer. IV SUSTAINABLE DEVELOPMENT The principles of sustainable development involve the process of integrating environmental criteria in the economic practice in order to guarantee that the organizations‘ strategic plans satisfy the needs of continuous growth and evolution and at the same time conserve the natural capital for the future. ii) Ideological version – presents three ideologies (eco-theology. and background that allow him to recognize a Global Journal of Management and Business Research need.(2005) affirm that the collective initiatives allied with the principles of sustainable development are related to the nature of the human being. Innovation is defined as the development and implementation of new ideas by people committed throughout time in transactions with other people inside an institutional order.

Environmental sustainability and the need to protect the environment and conserve natural resources are now a value comprised by more competitive and prosperous multinational companies. The stakeholders are shifting from the traditional reunion with the public format to methods that involve relatively intensive small groups and offer collaborations based in general consensus with the group. ecology and sociology reflect the response the scientific community gives to the challenges of the 21st century environmental crisis. Van Kleef and Roome (2007) argue that innovation is not necessarily related to solving problems. production processes. 2001. 1995). Innovation is an inventive process applied to new ideas.0). the study about the relations between society and organizations gain a new dimension. suppliers. 1998. Garcia and Vredenburg. (2001) demonstrate the importance of sustainable development as a change of strategic principles in organizations. NGOs and other stakeholders (Rome. Authors such as Berry and Rondinelli (1998) and Marjolijn et al. Therefore. technologies. Innovation Process and Sustainable Development in a way that 4 types of common factors can be perceived: agents. The strategy that allows the company to guide or participate of these platforms is consistent with the creation of competitive advantages and can help the companies acquire legitimacy trough transparency and the collaboration of the external stakeholders (Hart. 2005). the diversity of actors is important to help identify and specify the necessary objectives to be conducted by the innovation. society has to deal with a continuous flow of information. (2002) affirms that product development is one of the most complex organizational processes and can be related with practically every other managerial function. In contrast. 1995). Van der Linde. organizations that think ahead view this as an opportunity to preserve a sustainable competitive advantage (Porter. Seeking to face the environmental crisis. the participation of many stakeholders can be organized. Considering that the term ―stakeholders‖ denotes a gap. it becomes necessary to visualize the pluralistic point of view of the organization: the supposition that the stakeholders are attracted to the organization for the satisfaction of personal aspirations and the reason different people desire different things for the organizations. Table 1 demonstrates the connections between Stakeholders. 10 Issue 1 (Ver 1. However. the innovation process can be seen as a sequence of exploration through research. Mundim et al.Global Journal of Management and Business Research and iii) Academic version – the conceptualizations of disciplines such as economy. These steps can be taken in the beginning of the innovation processes by using actors such as consumers. product management and change process. to develop products consists in carrying out a range of activities by which. This issue is restricted to the study of sustainable development under the environmental perspective. There is a natural link between the conception of stakeholders in the companies and the strategical-cultural formulations. 1993). Conceptually. contributing with new technologies and ideas and using technical resources in their decision-making processes. involves collective problems. but is usually related to the improvement of the economic and competitive success and this is carried out by technology. Although many organizations view the governments‘ requisites to ‗become green‘ as a restriction. organizations. once conflicts and policies are natural aspects of the organizations‘ life. Febuary 2010 P a g e | 118 than its predecessors. it is much more personalized in the public decisions Vol. INNOVATION PROCESS AND SUSTAINABLE DEVELOPMENT Innovation is perceived as a process of Discover and Development that creates new products. In case of orientation problems. These platforms can be selected as opportunities to create and discuss sustainable objectives (Roome. institutional systems. Technology should interact with the interests of the relations of different stakeholders. and arrangements. Through sustainability. This is the intention of progress that. For this reason. The result of innovation has an economic meaning. 2003). The same author states that the Firm Theory is too limited for the Innovation Theory. which foments the ―post-project learning process‖ (Clark and Wheelwright. development of future perspective systems and other necessary innovations to reach these perspectives. it is sought to obtain products that the organization has the conditions to fabricate (Rozenfeld et al. Once the power of the stakeholders is understood. This process is extended until the post-release of the product with the objective of obtaining information that improves the project of a given product and the production process common to other developments. It can still be noticed that the stakeholders contain more evidences and provide better decisions. 2003). the search for environmental sustainability is a . This assists in clearly noticing the development of the intensity of how people adhere their positions toward the changes. knowledge and interest perception regarding the environmental problems as well as options of solution. Networks of actors can be created through a combined platform to exchange ideas and information. through a sustainable action. Such innovations can preserve the stakeholders‘ preferences and satisfactions. 2001). it can be noticed that this particular development helps the leaders emphasize the pertinent gains or losses. strategies. There is logic between capturing stakeholder information and translating it in innovations that can propel the companies. through the needs of the market and the technological possibilities and restrictions and considering the company‘s competitive and product strategies. the organizations that have chosen as target niches segments of the ‗green‘ market can be requested to significantly modify their environmental activities through a wide range of functional areas. V INTERCONNECTIONS BETWEEN STAKEHOLDERS. With propositions concerning social responsibility parting from the stakeholders. especially people involved in the location through networks expanded in organizational levels (Shilling and Osha. In order for innovation and stakeholders to interact..

January2010 Global Journal of Management and Business Research Table 1. Some firms seek a commitment with the cause and others only observe the legislation. According to Jones (1998).Turning the organizations ―Green‖. Innovation and Sustainable Development. . . .Environmental changes through the agents. Fundamental adaptations and changes of the technological systems are necessary.Insertion of in the products of attributes that are not only economic. reality demonstrates that the release of new environmentally sustainable products has passed from a proportion of 1. ―interorganizations‖ and society based on the ―double learning or inside the learning‖.0). Not only economic and financial gains in every business Accept economic-financial losses in the short term in order to have gains in the long term – radical changes The stakeholders‘ demands impute to the organizations legal sanctions or forms of explicit or implicit manifestation of non-conformity to their expectations. . . as well as market procedures and voluntary procedures that ecologic sustainability can promote to the organizations.Main agents to develop strategies with the decision. which will reside in every organizational level and completely compromise the innovation if the employees believe as much as the organizations that they will probably benefit in the long term (Kay. Strategies Development and implementation of new ideas from the stakeholders.Influences environments. .Growth/ incorporation of the . This does not mean a simple transition to an environmentally correct technology. . of the behavior of individuals. the concept of stakeholders is central for the creation of an innovative culture.P a g e |119 Vol. Understanding in this manner the reasons that lead to the promotion of ecological responsibility in the companies can be criticized for two reasons: first.1% in 1986 to almost 15% in the beginning of the 1990s. services and processes. Over the past decades. Factors Stakeholders Innovation Process Sustainable Development Agents . 2002). it is necessary to create mechanisms that measure the efficiency of command and control. Interaction between Stakeholders. However. Product Management in . researchers have dedicated themselves to the investigation of how the firms respond to the challenges of the environmental issues. Integrations and paradoxes: Stakeholders. . In practical terms.Environmental issues are integrated in the process of product development generating competitive advantages. In spite of the great potential that the SPD (Sustainable Product Development) presents for companies and for society as a whole. the organizational theories do not predict this type of ―ecological‖ behavior and second. technological systems tend to remain inactive and resist to changes.Progress of the sustainable action involves collective problems and the identification of technologies and other necessary innovations. continuous progression of desired goals. Several studies have verified that the ―becoming green‖ of certain companies is motivated by the . Innovation Process and Sustainable Development. I .. .Organizations that seek or not an understanding with their stakeholders and incorporate the issues of sustainable development and innovation process can be built and implemented although with radical changes.Transaction and interactions with Stakeholders.. groups.Increase of the continuous flow of information.Provides the orientation to breach the nature of the strategies. 10 Issue 1 (Ver 1. . . 2003). Such innovative culture.Sustainable development as a change of the organizations‘ strategical principals.Co-production: Active participation innovation process adapt Manage more responsible the production with the insertion of Environmental Responsibility.Main signalizers for new products . including those connected to society as a whole. which requires a permanent changing process.There is a need of a transformation Change Process environmental issue. Source: Elaborated based on the research. but with radical changes. At the same time. the exploration of this segment seems restricted (Baumann et al. 1993). organizations. a level that is considered insufficient in face of the current and forthcoming environmental challenges (Pujari et al. knowledge and perception of interests regarding environmental problems as well as options of solutions. it evidences the importance that everyone in the organization accepts the responsibility of improving products.

. J. This essay has sought to answer if the stakeholders‘ pressures generate innovations and what is the power of the stakeholders in the act of innovation. D and G.Savage. Manag. Cap. 722-740.55. M.B. 5. Clean. 16) Gilbert.Proc.1989. 12. innovation can result in competitivity and profit.. 4.181-203 9) Carrol.Waterhouse. Sloan Manag. .E.B. 20 .L.M Lastres. Underlining what Williams (1992) affirms.T. Does stakeholders orientationa matter? The relationship between stakeholdr management models and a firma financial performance. 3. 18) Hall. Towards sustainable households : a methodologic for develping sustainable technological and social innovations. Globalização e inovação localizada: experiências de sistemas locais no Mercosul. 1995. Management-collaboration between corporations.M.1984. Acad.And K. 2005.M.. This essay allowed a revision of all the concepts of sustainable development in search for sustainable products and to demonstrate that these products are already reality in some organizations.0). Vergagt. 1999.J.Wells. Roth.OH. 2002. Mapping the green product development field:engineering.E.. In face of this conclusion. 2000).Vredenburg. 14) Garcia.Exec. A. 15) Gao. E and H.Manag. Proactive corporate environmental management: A new industrial revolution.and H. 488-506. 2. B.43.1994. UK.2002. from the moment the organizations seek an understanding with their whether or not relevant stakeholders.F.C. A.C.Tech. they discover solutions that. J. Vol. and D. 11) Clarkson. 1999.J. Journ. 8) Bunn.36-41. apparent competitive advantages and administrative tendencies such as ethics and criticisms (Bansal and Roth.and P. 10 Issue 1 (Ver 1.M. J. 1997.1. T. Disruptive technologies. E. Acad.2/3. 2000. Cincinnati. Strategic management: a stakeholder approach. 3850. Instituto IMAM..17..J.409-425. 4) Bansal. Acad. stakeholders and the innovation .6. 1999.Martin. 34. A. Product. B.Global Journal of Management and Business Research pressure of stakeholders. 25-36.K. M.. VI CONCLUSION The development of new products originated from the stakeholders‘ capability to innovate through sustainable elements opens a gap for the organizations to seek competitive advantages. S. São Paulo. nongovernmental organizations.R. and J. R.B. Boston: Pitman Publishing. The future administrator must develop tools that keep him always cautious and concerned and that incentive their stakeholders to give out signs of the needs that will then be catalyzed by innovators..Jones. A Bragd.K. J. VII REFERENCES 1) Altkinson.D. 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During the mid nineties the KM movement started gaining momentum with a rapid increase in its body of knowledge (McAdam and McCreedy. Mauritius.mu  University of Mauritius. A. capturing and leveraging knowledge‘ (Atefeh et al. Specific benefits cited from the introduction of knowledge management projects include operational improvements. there has been a rise of its application in the private sector. 10 Issue 1 (Ver 1. Mauritius B.ac. public sector and NGO. survival and competence in face of increasingly discontinuous environmental change. section 2 provides various definitions of KM as per the theoretical literature. Second.Sables. discuss the different KM models and KM processes.co. 1999). Republic of Mauritius. Republic of Mauritius..  University of Technology. Chittoo University of Technology. and communicating both tacit and explicit knowledge of employees so that other employees may make use of it to be more effective and productive in their work‘. Essentially it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies and the creative and innovative capacity of human beings. January2010 Global Journal of Management and Business Research Knowledge Management: Promises and Premises H. APQC concluded that many companies mostly valued the transfer of knowledge and best practices in order to improve internal operations or to embed such knowledge in products and services.Sables. Mauritius Abstract. enable superior performance. In this paper we present the premises and promises of knowledge management. organizing.‘ Malhotra (2001) asserts that ‗knowledge management caters to the critical issues of organizational adaptation. encourage innovation and enhance customer value. Email: rakeshramchurn@yahoo. Total Quality Management (TQM) and Organizational Learning (OL) among others. the explosion in information and related technologies led organisations to search for ways to cope with the complexity and volumes of information. La Tour Koenig. 1999). its body of knowledge has grown substantially over the past few years. I INTRODUCTION O ver the previous decades there has been major improvement in business philosophies and approaches. Mauritius. We focus on the various definitions of knowledge management. The American Productivity and Quality Centre (APQC) define knowledge management as ‗the strategies and processes of identifying. Matennson (2000) is of the opinion that the growth of knowledge management occurred as a direct result of two major shifts. Beckman (1999) defines knowledge management as ‗the formalization of and access to experience. .mu  University of Technology. Definition of Knowledge Management The literature on knowledge management indicates the existence of multiple definitions of knowledge management. money saved or earned (Atefeh et al. Pointe Aux. Pointe Aux. the emphasis is on teams. including those by both ―classical‖ and contemporary KM authors. Nowbutsing University of Mauritius R. PROCESSES In this section we provide the various definitions of KM which is very vast in the literature. relationships and networks by which knowledge can be transferred.0).nowbutsing@uom. La Tour Koenig. Alavi and Leidner (1999) define knowledge management as a ‗systematic and organizationally specified process for acquiring. The next discussion is aimed at reviewing some of the definitions. public sector and even NGO. In this context. Wainwright (2001) notes that there is no single definition to adequately describe knowledge management.uk II KNOWLEDGE MANAGEMENT: DEFINITION. Email: b. M. Republic of Mauritius. MODELS.Although knowledge management is a fairly new concept. This has led to the emergence of many sub fields such as Business Process Re-engineering (BPR). we survey the various KM models and we provide the KM processes as per Alavi (2000). the different knowledge management models and processes. section 4 considers the critiques of KM and we conclude in section 5. Email: schittoo@utm. knowledge and expertise that create new capabilities.. the application of knowledge management in the private sector.P a g e |123 Vol. Ramchurn University of Technology. section 3 considers KM applications. the impact of downsizing strategies of the 1980‘s and the subsequent loss of human capital as people walked out the door with their knowledge. Reduit.intnet. Although Knowledge Management (KM) is a relatively nascent field of study. This paper attempts to synthesize the premises and promises of KM and goes further to categorise the areas of KM applications. 1999). First. Despite the rapid growth of KM and the euphoria that is apparent when one considers the above findings by the APQC. In order to attain our objectives.

Firestone and McElroy (2003) assert that the definitions exhibit the following weaknesses. enhancing. Third. First. Mc Adam and McCreedy (1999) evaluated several definitions and classifications relating to knowledge. However. failure to reflect the notion of validation of knowledge claim. little risk is associated with managing knowledge. ‗uncodified‘ knowledge is knowledge that cannot be easily transmitted such as experience. lists a number of such outcomes (1) a way to improve an organisation‘s performance. However. govern. journals. drawing a distinction between information processes and knowledge processes. competitiveness (2) acquiring. people and learning issues are central to KM. According to Stewart et al (2000). Second. Third. organisations benefit from managing knowledge. This ‗codified undiffused‘ deliberately transmitted to a small group of people on a ‗need to know‘ basis. B. By managing intellectual capital that exists in both explicit and tacit forms. knowledge is considered as either ‗codified‘ or ‗uncodified‘ and as ‗diffused‘ or ‗undiffused‘ within an organization or institution. knowledge management enhances an organisation‘s ability to learn from its environment and to incorporate knowledge into business processes. failure to define activities that comprise KM and fifth. models. processes and technologies that support the protection and development and exploitation of knowledge assets. In this context. personal knowledge is a combination of uncodified and undiffused knowledge. They argued that the various definitions and classifications reflect a wide spectrum of viewpoints. University of Kentucky (1998). control. 1 The definitions analysed are Malhotra (1998). Fourth. Second. with the purpose of contributing to the creation and maintenance of an organic. First. having surveyed a number of literature sources concerning the goals and expected outcomes of KM. IT is regarded as a useful enabler. The fifth type of knowledge which is the combination of uncodified and undiffused knowledge is known as common sense. It encompasses theories. ‗codified‘ knowledge. examining information management and knowledge management and secondly. Firestone and McElroy (2003) analyse what they describe as typical definitions by various contemporary KM authors9. 10 Issue 1 (Ver 1. offer their own definition: ‗KM is a management discipline that seeks to enhance organizational knowledge processing‘ Firestone and McElroy (2003) in fact. there are many knowledge management initiatives in various organisations. tacit knowledge may contain incorrect assumptions. organise. effective data mining is crucial. The fourth type of knowledge is a combination of codified and undiffused knowledge which is referred to as propriety knowledge. books. unified whole system. Febuary 2010 P a g e | 124 However. direct. sharing and usage of information (3) a tool for improved decision making (4) a way to capture best practices (5) a way to reduce research costs and delays (6) a way to become more innovative The various nature of the definitions of knowledge management is evidence that KM is a body of knowledge which is still not stabilised and that it is an area of growth which will attract research to inform practice about knowledge in the years to come. producing. . there are four basic assumptions that underline KM. the fact that many organisations have embarked on KM projects does not indicate whether knowledge is worth managing. failure to demonstrate how knowledge could be managed. Second. tacit knowledge has been ignored. knowledge management is a set of things involving various activities. Wiig (1988). Murray (1998) and Devenport (1998) Vol. from mechanistic type orientations (knowledge as an asset) to approaches that reflect the notion that knowledge is constructed through social relationships. many companies have set up organizational structures for knowledge management. it refers to knowledge that can be easily to knowledge that can be easily prepared for transmission mechanism such as economic data. Lastly. examples include library. Sveiby (1998). the failure to adequately treat the concept of ―management‖ in knowledge‖ in KM Firestone and McElroy (2003) after firstly.Global Journal of Management and Business Research In fact. Many companies have appointed knowledge officer in their organization. newspapers etc. while much effort has been put in managing explicit knowledge. facilitate. knowledge can be managed. First. maintaining. Third. acquiring and transmitting the enterprise‘s knowledge base. This assumption recognises the importance of a knowledge economy. In this context. coordinate. and activities participating in basic knowledge processing (knowledge production and knowledge integration). KM has strong multi-disciplinary influences with practitioners holding a wide array of perspectives. To clarify the scope of knowledge management and understand its premises. Third. knowledge is worth managing. failure to distinguish between knowledge and information. Knapp (1998). there are six types of knowledge. Fourth. First. the combination of codified and diffused knowledge is referred to as public knowledge. There are various common aspects in the definitions. In this context. plan. Fourth. Martennson (2000). but is not regarded as the essence of KM.0). components. Boisot‘s Knowledge Category Models In the Boisot‘s Knowledge Category models. enable and empower) other agents. normally gathered through the process of socialization and externalization. Wenig (1998). productivity. Knowledge Management Models This sub-section investigate the current understandings of the theory and practice of the some of the existing knowledge management models i. KM and Intellectual Capital (IC) are used interchangeably and there are traces of confusion regarding the two concepts. purposeful interaction among humanbased agents through which the participating agents manage (handle. Second. Similarly. Thus. argued that KM is an ongoing persistent.

P a g e |125 Vol.0). Like Boisot‘s Knowledge Category models. Demerest‘s Knowledge Management Model Demerest‘s knowledge management model emphasise on the construction of knowledge within an organization. this model consist of a 2 x 2 matrix with four elements. a process known as combination. January2010 ii. Second. Nonaka‘s Knowledge Management Model According to Nonaka and Takeuchi (1995). explicit knowledge can be transferred into tacit knowledge in others by translating theory into practice. not just through explicit programs but through a process of social interchange (Mc Adam and McCreedy. The model assumes that constructed knowledge is then embodied within the organization. Fourth. Third. knowledge consists of tacit and explicit elements. tacit knowledge can be transferred into explicit knowledge by forming a body of knowledge or through externalization process. Figure 1: Demerest’s Knowledge Management Model Source: McAdam and McCreedy. 1999 . iii. 1999). First. a process of internalization. tacit knowledge can be transferred into tacit knowledge in others through socialization. This construction is limited to scientific inputs but is seen as including the social construction of knowledge. 10 Issue 1 (Ver 1. explicit knowledge can be transferred into explicit Global Journal of Management and Business Research knowledge in others by combining various theories.

. Ultimately. Febuary 2010 P a g e | 126 it invites a more holistic approach while.0). people-based) paradigms. the flows of knowledge transfer may be extremely rapid and circulatory. the knowledge is seen as being of economic use in regard to organization outputs. It shows that there is a process of dissemination of the espoused knowledge throughout the organization and its surrounding. These issues should be seen as complementary rather than mutually exclusive. The solid arrows in figure 1 show the primary flow direction while the plain arrows show the more recursive flows. 10 Issue 1 (Ver 1. 1999 This model emphasises the creation of knowledge within the organization. codification. as in the case for some forms of action learning. The model shows that knowledge construction is influenced by both scientific (older. This construction is not only dependent on scientific input. it must be disseminated throughout it. but also includes the social construction of knowledge. This constructed knowledge is then embodied within the organization by explicit means. Instead Vol. rule-based) and social (newer.g. Figure 2: Modified version of Demerest’s KM Model Source: McAdam and McCreedy. The ―use‖ element of the model is expanded upon in order to address both business and employee benefits. and through social interchange. The model does not assume any given definition of knowledge. The disseminated knowledge is then used in the production of organizational outputs. while the plain arrows indicate recursive flows. e. Once the knowledge is embodied in the organization. in reality. The solid arrows in Figure 2 indicate the primary flow direction. Demerest‘s model has been slightly modified and seeks to address these limitations by explicitly showing the influence of both social and scientific paradigms of knowledge construction (see Figure 2).Global Journal of Management and Business Research Figure 1 presents the Demerest‘s knowledge management model. The recursive arrows show that the flow of knowledge in the organization is more complex than a simple sequential process (McAdam and McCreedy. 1999).

Intellectual capital is made up of two main components. Level 3 – Knowledge Focused Knowledge focused indicates that organizations should have covered the implementation aspects as in the lower two levels and start focusing on five new activities namely (1) process engineering (2) providing initial knowledge management infrastructure. services and training (3) support early adopters and knowledge community (4) monitor and report on management indices and (5) knowledge management in budgets. Level 5 – Knowledge Centric This is the highest of all knowledge management implementation maturity level based on Frid‘s model. all knowledge management activities should be given equal emphasis at this level. to understand and implement Frid‘s framework for knowledge management. January2010 Global Journal of Management and Business Research Skandia Intellectual Capital Model of Knowledge Management (Source: Edvinson. Level 1 – Knowledge Chaotic Knowledge chaotic suggests that organizations at this level are in the process of understanding and implementation of Frid framework for knowledge management which includes knowledge management vision. . Moreover. namely human capital and structural/organizational capital (McAdam and McCreedy. However. Also. customer and innovation in managing the flow of knowledge within and externally across the networks of partners. 1997 The intellectual capital school of thought (particularly prevalent in the Scandinavian countries) equates knowledge with intellectual capital. advocating and adopting departmental knowledge management vision and goals. The distinctive and differentiating activities that organisations should focus on are institutionalizing successful initiatives and valuing intellectual assets. Level 2 . Level 4 – Knowledge Managed Knowledge Managed adopt the fundamental activities in level one. knowledge management objectives and knowledge management indices. Frid’s Knowledge Management Model Frid (2003) divided the knowledge management maturity assessment and knowledge management implementation into five levels. According to this model knowledge management is not seen as the transfer of tacit and explicit knowledge but also consists of intellectual capital. These activities differentiate knowledge from other levels. 1999). The intellectual capital school of thought takes a scientific approach to the management of knowledge with a strong emphasis on measuring each intellectual asset in the organization.0).Knowledge Aware Organisations at this level are a step higher than those at knowledge chaotic. The model focuses on the importance of equity. Organisations at this point should focus on developing a knowledge management road map and working collaboratively with knowledge management office. human. this intellectual view of knowledge management ignores the political and social aspects of knowledge management. and performing Frid framework maturity assessment.P a g e |127 Vol. two and three other than organizations should attempt to embed knowledge management in performance reviews and also in business plans apart. 10 Issue 1 (Ver 1.

evaluate and select the solution test and implement the solution and lastly. The two authors cite Kolb‘s learning cycle as a framework to understand the effects of participation in new experiences. e. warns against the complacency. internal and external to the organization. ii. e. Liebowitz and Beckman‘s arguments show glimpses of second-generation KM thinking when they cite Couger‘s work on the Creative Problem Solving (CPS) method (Couger. 1983). 2000). work processes and procedures. combination and internalization. Alavi (2000) draws special attention to the emphasis that Nonaka places on appropriate organizational mechanisms to support and nurture each of the modes of knowledge creation discussed earlier. diversity.informal.g. structure. generate solution ideas. Fusion. Rental. people and organisations simply forget and mechanisms are needed to store acquired knowledge and to retrieve it when needed. The Knowledge Management Process Alavi (2000) notes that organisations continuously engage in certain knowledge management processes. they are socialisation. Febuary 2010 P a g e | 128 C. 2000) i. Adaptation. Community of Practice (COP) Davenport and Prusak do not explicitly refer to learning as a result of the knowledge creation process. for instance through an external research unit or hiring a consultant with specific expertise. document and share the results (Couger. This is not necessarily new. 1996).Global Journal of Management and Business Research Vol. Knowledge Creation A discussion of knowledge creation will be lacking if it does not consider the contribution of Nonaka. Organizational memory includes individual memory (individual experiences) as well as shared knowledge and interpretations resulting from social interactions. One such mechanism identified by the knowledge management community is ―organizational memory‖ (Alavi.external changes causes organization to ―adapt or die‖. citing the work of Argyris and Schon (1978). It is fair to assume that the organization that keeps track of its experiences. ―core rigidities‖ or the tendency to stay on well-known paths. ecology and archives (Alavi. However. Davenport and Prusak (1998) propose five options available to organisations through which knowledge is created: Acquisition: refers to knowledge acquired by the organization from external sources including knowledge internally generated. including organizational culture. self-organizing networks of people that might become formalized. externalization. Knowledge Storage and Retrieval Alavi (2000) asserts that to create new knowledge is not enough. All the above refer to the different perspectives on the way knowledge may be created in and for an organization. Alavi (2000) warns about the negative effects associated with organisational . reflective activity.0). Networks. Some organization sometimes generate a crisis in order to stimulate creativity. For the sake of convenience.g. It includes knowledge copied from competitors or other industries as well as also knowledge bought via mergers. the team and the organization as an integral part of knowledge creation. 1996).the deliberate introduction of complexity. 2000). Liebowitz and Beckman (1998) regard learning of the individual. Dedicated resourcesutilising resources exclusively for this purpose like for instance R&D units. and conflict to create new synergy. by recording and retrieving knowledge about best practices. The six problem solving steps proposed by Couger are: define the problem. stands to benefit as opposed to one that keeps on reinventing the wheel. analyse the problem. 10 Issue 1 (Ver 1. Alavi (2000) identifies four processes that are depicted in Figure 3. Nonaka‘s modes of knowledge conversion are again listed. Figure 3: Generic Knowledge Management Processes by Alavi Knowledge Creation Knowledge Storage and Retrieval Knowledge Distribution Knowledge Application (Source: Alavi. concept formulation and the development of hypotheses (Kolb.

coding/decoding. Most approaches considered by the EKMF include the phases identified by Alavi above. focuses solely on knowledge creation. Martennson‘s (2000) research. Davenport and Prusak (1998 cited in EKMF. correspond with some of the knowledge management phases identified by the various other KM approaches in the EKMF study.specialists. ii. efforts to extract tacit knowledge from experts using a combination of elicitation methods and technology systems and to make that knowledge available to the organisation in some form. interaction protocols and process specializations iii. It is also in this sphere that technology is playing a significant role. Knowledge Distribution Alavi (2000) is of the opinion that the knowledge distribution process. In the information age. email. A complacent attitude can prevent the organization from engaging in continuous learning and innovation as a result of inability to adapt to change. channel. Directives. certain concepts used by Nonaka in his popular SECI model. it absorbs information. providing access. turn it into knowledge and takes action based on experiences. The communication process involve the following: source. Nonaka. Knowledge Management and Corporate Sector Many organizations look at knowledge management as a solution to challenges due to the information age. of crucial importance is the perceived value of source unit‘s knowledge stock as well as the motivational disposition of source. outlook and current knowledge. this relates to the absorptive capacity of the receiver. which include. The second generation of knowledge management emphasizes more on the use of organizational processes and creation of knowledge. Organisational routines. iii. relate to patterns for task performance and coordination. the first generation of knowledge management aimed to improve knowledge sharing within organizations. Group problem solving often requires Global Journal of Management and Business Research coordination and facilitation of frequent interaction and intense collaboration Liebowitz and Beckman (1998) state that ―knowledge can be applied by people or machines to perform work‖ The researchers disagree with the notion that a computer or some type of machine is able to apply (directly or indirectly) knowledge in a business activity. Knowledge Managements. the existence and effective transmission channels should exist for knowledge distribution. Davenport and Prusak do not describe a knowledge management process (EKMF. He identified the following four stages: knowledge acquisition. despite its importance. as the organization interacts with its environment. traditional methods of accounting and monitoring systems design to deal with tangible inputs and outputs are no longer adequate. capabilities. This above phase of KM has traditionally been a fertile ground for proponents of codification strategies. III KNOWLEDGE APPLICATION AND USE Having critically reviewed various models of KM. revealed results that are consistent with those found by the EKFM study. amongst others. and Web portals (Liebowitz. Intranets. who did not adopt Knowledge Management as an approach in the first place. For Davenport and Prusak (1998). Firms have to share knowledge internally more efficiently and learn to adapt more quickly to the changing external environment in order to retain their competitive edge. Gauging from an analysis of various knowledge management approaches followed in Europe. standards. values and internal rules. Davenport and Prusak (1998) provide a detailed discussion of knowledge markets. Most approaches considered by the EKMF include the phases identifiable modules.P a g e |129 Vol. Notably. However. referred to earlier. 2000). compelling the reader to view knowledge markets as a framework for understanding and improving the transfer of knowledge. knowledge itself does not constitute a competitive advantage. the European KM Forum – EKMF (2001). message-the nature of the message can be either tactiness or explicitness. refer to the creation of teams to attend to tasks where a high degree of uncertainty exists and where group synergy can be exploited. procedures and instructions converted from tacitly held specialist knowledge into explicit forms for communication to non.0). data mining. Organisations have to constantly guard against rigidity in terms of structure. sets of rules. Thus. knowledge codification and coordination and knowledge transfer as key focus areas in a knowledge management initiative. 10 Issue 1 (Ver 1. 2000). it is the application and integration thereof with business processes that makes a difference (Alavi. is under-studied. receiverof crucial importance is the perceived value of source unit‘s knowledge stock as well as the motivational disposition of receiver. 2001). according to authors. and knowledge use A. According to McElroy (2000). Self-contained task teams. Alavi (2000) postulates that the knowledge distribution process is subject to the same influences as the communication process that is often neglected in organisations. concluded that with few exceptions (Davenport and Nonaka). 2001) highlight knowledge generation. Grant (1996) identified three following mechanisms for integrating knowledge into the organisation: i. stages or phases. is an effort to improve the efficiency of such knowledge markets. This helps organizations to have an upper hand on their competitors. the focus was on the use of information technology. the next section deals with areas of KM applications According to the knowledge. The distribution of knowledge is arguably where most of the knowledge management activities occur. Savage (2000) argued that . January2010 memory. referring to the use of intelligent agents to customise information delivery.based theory of the firm. stages or phases. most approaches have the same basic structure and identifiable modules. storage.

A competent PA with sufficient capacity and influence can provide for a great society. This is . success. All this requires NGOs to have high quality internal learning and information processing systems. It affects most aspects of society. even ruin. It also implies long-term responsibilities to foster development of a competitive work force that can compete in regional and global economies. An ignorant citizenry is a poor public policy partner. from pure ‗technology‘ KM applications to also include ‗process‘ applications. human habits.0). is made available to its public servants. and agreement with actions by public entities and acceptance of implications of those actions. educator. and resources like intellectual capital (IC). Public Administration (PA) in any society is important and complex. Its approach and effectiveness determine the society‘s culture. Edwards (1994) postulated that Northern NGOs are taking the role of information broker and advocate in the interface between Southern communities and national/international policy processes. When and how these shifts should be undertaken depends on the type of organizations in questions. capability of people. this implies participation in building and leveraging society‘s IC to obtain the necessary economic foundation. Southern NGOs Hailey and James (2002) build on the case studies of nine successful South Asian NGOs in order to comment on how NGOs learn. and is embedded in structural and other intellectual capital assets that can be leveraged internally and in the global market. and viability. An incompetent or dysfunctional one can lead the society into severe decline. geographic location. they have to build credible relationship with Southern partners. These includes: organisational complexity. hierarchal structure. From a societal knowledge or IC perspective.Global Journal of Management and Business Research successful organizations are shifting from strategies based on prediction to strategies based on anticipation of surprises. the past has not offered opportunities to address them with powerful and systematic approaches. They include natural resources. Heeks (2002) attributes this gap between the design of Northern IT systems and the reality of Southern institutions. Vol. They conclude that the single most important factor affecting organisational learning is a learning leader. Uphoff (1992) examined the success of a large-scale irrigation system and argues that it worked well because it was not planned according to a predictable and fixed model but rather evolved organically as farmers gradually engaged in flexible systems of cooperation. Schein (1992) argued that such constraints can be avoided if there is presence of good leadership. 10 Issue 1 (Ver 1. the citizenry must cooperate in many ways and have confidence in the society‘s capabilities. Four types of organizations can be identified namely . the ‗competence‘ model concentrate on low level of interdependence and high level of interpretation while the ‗network‘ model concentrate on high level of interdependence and high level of interpretation. The ‗competence‘ model describes a workplace that is highly reliant on individual‘s expertise in order to carry out evaluation and judgment-oriented work.‗process‘. in fact they have to prove legitimacy. peacemaker. C. Levitt and March (1988) doubted the capacity of organistions to manage knowledge effectively and to learn from past experience. directions. planner. They are also shifting from utilization of already known knowledge to the creation of new knowledge. It also acts as pace setter. These issues are well known to public administrators (PAs). However. and disciplinarian. calls for knowledge-based aid and the globalization of knowledge require NGOs to reflect on how their internal KM and learning systems interact with external KM and learning systems interact with external information flows and policy trends. To be successful in fulfilling its functions in a democracy. routines and differing interpretations by sub groups within an organization. Northern NGOs A parallel development occurred with the emergence of the information age in the nineties. Thus. and actions. There are many constraints in an organization that impede learning. quality of life. the rise of NGOs. PA shares responsibility to assure that its society provides the quality of life intended for its citizens. Knowledge Management. Fowler (1992) argued that the legitimacy of NGOs is no longer guaranteed. which on the whole do not have same level of technological infrastructure. According to Keeble (2002) another role of NGOs to build the capacity of Southern civil society organizations to process knowledge and engage effectively in national/international development debates and decisionmaking processes. Public Sector and Public Administration Viability and success of any society is largely a function of how its resources can be leveraged.based on the different levels of interdependence and complexity that are required in different work situations. to contain anxiety and to influence the organisation‘s structure in a positive way. ICT projects in Southern institutions frequently fail or remain functional for only a brief period of time. B. The most important features of learning leaders in South Asia was their ability to understand and work within a complex and changing environment. However. Thus. Knowledge Management and NGOs i. A vital aspect of the society‘s success is the knowledge that its citizens possesses. all with different emphases depending on the society‘s culture and agendas. Febuary 2010 P a g e | 130 ii. The ‗network‘ model denotes a workplace that depends on the fluid deployment of flexible teams in order to improvise and meet new challenges as they arise. The role of Northen NGOs has change in considerable ways. Successful citizen participation and confidence depend largely on broad understanding of. ‗network‘ and ‗competence‘. ‗systems‘. In addition. Good leadership implies the ability of the leader to guide the organization in the right in the face of changing environment. implementer.

Liebowitz J. knowledge distribution and knowledge application. & L. In the age of technology. This paper presents the promises and premises of knowledge management. Butterworth-Heinemann. The KM objectives for PA in a democracy may be expressed as the intent to provide: i. Alavi M. KM must be fully aligned to the enterprise‘s central objectives. 7. Working Knowledge: How Organisations Manage What They Know. Public services must address issues and requirements relevantly. 3(3). The Process of Knowledge Management within Organisations: a Critical Assessment of Theory and Practice. M. Mc Creedy (1999). Knowledge Management: the New Challenge for the 21st Century. capabilities. the Data Agenda for Understanding and Investigating Knowledge Management. Burlington. 65(3): 204216. Steward K. or a single individual. R. KMCI Press/Butterworth-Heinemann. (2000). 172-179. Frid R. & H. 16. particularly through building. decide. Effective PA services and functions to implement the public agenda. and practices to assist PA to great advantage. V REFERENCES 17. Martennson M. 30 (3): 366 . Washington. We present the various definitions of knowledge management. maintaining. IV Global Journal of Management and Business Research 2. Long Range Planning. 8. Nonaka I. organizations. iv. (2003). Takeuchi (1995). 1(7):2-41. L. Burlington. 6. 5. . McElroy (2003). The New Knowledge Management: Complexity. Knowledge and Process Management. the Organisational Change Program for the CGIAR Centers. Moorhead & S. 31(4): 41-60. and public agencies to be effective policy partners – to create sound public opinions – to engage in public debates and policy formation – to participate in processes to conceptualize. A Common KM Framework for the Government of Canada: Frid Framework for Enterprise Knowledge Management. McElroy M. Canada Institute of Management. and secure society. Knowledge management is becoming crucial in almost every sectors of an economy. Learning and Sustainable Innovation. The goals of knowledge management are to improve the effectiveness and sustained viability of any enterprise – be it a commercial corporation. Prusak (1998). (2000). 9. Key Issues in the New Knowledge. Harvard Business Press. & D. Prospering in Dynamically Competitive Environments: Organisational capability as knowledge integration. Atefah S. Over the years knowledge management has been applied in many organizations and institutions whether private. Bota Raton Malhotra Y.C & Long C.. Baskerville. Edvinsson L. and leveraging commercial and public intellectual capital. competently. 6 (2): 101113. Mass. (2003). (1996). (1997) Knowledge Management: A Technical Review. London. CONCLUSION 12. 10 Issue 1 (Ver 1. & S. GWU Working Paper. orderly. (2000). 13.H. 1. 14. & Beckman T.. Idea Group Publishing. Journal of Knowledge Management. private or NGO. ii. A stable. and timely and consume minimal resources. knowledge storage and retrieval. 15. Grant R. Alavi M. (2000). Davenport T. H Gitters (1999). The various models of knowledge management show knowledge are created within organization and institution. Ontario. Communication of the Association for Information Systems. Building Organisational Intelligence: A Knowledge Management Primer. The knowledge management process by Alavi (2000) concentrate on knowledge creation. Organisation Science. Leidner (1999). R. Systems for Managing Organisational Knowledge. a part of society. plan. Oxford. Confronting the Assumption underlying the Management. It becomes a new responsibility to manage knowledge to strengthen public service effectiveness and improve the society it serves. 11. Boston. Knowledge Organisations What Every Manager should know? St Lucie Press. Beckham T. (1997). McCamble. This includes preparing citizens. (2001). The Data Base for Advances in Information Systems. The Knowledge Creating Company. A prosperous society by developing its citizens to become competent knowledge workers and its institutions to be competitive. a country. W. Firestone J. and implement public actions – to observe society policies – and to provide support for the administration. Mc Adam R. just. M. we reckon that the application of knowledge management in various organizations will continue to rise. Challenges and Benefits. Oxford Press. 10. Acceptable level of quality of life. pp. Knowledge Management Systems: Issues. January2010 changing. Liebowitz J. Knowledge Management and Business Model Innovation. 7 (4): 175-387. 4. Some are complements to each other while others competing. Developing Intellectual Capital at Skandia. & M.P a g e |131 Vol. 3. iii. Journal of Knowledge Management. A Critical Review of Knowledge Management as Management Tool. (1998).373.0). Crc Press LLC. Storey. The broad field of knowledge management introduces new options. Senn V. They should also deal appropriately and expeditiously with unexpected challenges and disasters. C.

the paradigm of qualified educational system must orientate on the increasing of community life skills. Based on the researcher observation. there are some graduated and literate inhabitants however. Furthermore. There are not many Paciran youth take strategic position. in order they will have relevant life skill with the occasion of work opportunities (Tampubolon. I INTRODUCTION The quality of human resources is a challenge that should be face in this 21-century and the next centuries. Satori. Anis Siti Hartati and Hendri Gusaptono* Abstract.life skills. the less of skills on someone looking for a job and the tight and limited competition in the market of manpower. self esteem. life interest and role behavior before and after training. The result of hypothesis examining explains that there is differences of self efficacy. SWK 104 Ringroad Utara Condong Catur Yogyakarta Indonesia 55283 Tel: +6181328058966. it explains that the existing of WBL. The educational institution will be left in creating a relevant study process. Community exchange caused by knowledge and technology discoveries cannot be anticipated soon. Life Interest.com We would like to thanks to Direktorat Jenderal Pendidikan Tinggi (Dirjen Dikti) Indonesia which had give grant to this research with scheme Hibah Kompetitif Penelitian Sesuai Prioritas Nasional 2009. and Role Behavior for Unemployed Youth Muafi. an educational discourse often cannot follow acceleration of community dynamics. 2002. Lamongan regency. Through the life skill program. this problem can be solved through together moving by community empowering such as life skills. East Java.The impact of global crisis has a big effect on unemployed rate and poverty in Indonesia generally and in Lamongan Regency particularly. in Lamongan regency the biggest population density rate is in Paciran sub district (Lamongan dalam Angka. 2009). along with industrial growing in Paciran sub district may have a significant contribution for the government in wiping out poverty (pro poor). *Dept. Kranji. 10 Issue 1 (Ver 1. Keywords. It is supported by Dhuha (2008) research. which required the criteria to be examining. Wisata Bahari Lamongan (Lamongan Maritime Tourism) and Maharani Gua Zoo are near Sunan Drajat Grave. role behavior. maritime produce and tourism potentiality have not arousing life interest and role behavior of youth particularly unemployed youth in the villages. The amount of sample. A nation which has qualified human resources will win the global competition and survive in the future. By developing Wisata Bahari Lamongan (WBL). life interest. these are crossed Paciran. Heterogeneity of educational level in Indonesia can be seen in Indonesian archipelago community. life interest and role behavior for unemployed youth in Paciran sub district. By acquiring life skill the unemployed youth will arouse their self esteem and self efficacy with the result that increase their life interest and role behavior. It is believed that life skills can give positive influence toward individual self-efficacy and self esteem and then it implied to life interest and role behavior from unemployed youth. the one of objectives in the Work Plan 2010 in Lamongan Regency is decreasing unemployed rate in the community as 97%. This research investigates the role of life skills training in influencing self efficacy. Moreover. industrial sector (pro growth) and the community itself (pro job). Febuary 2010 P a g e | 132 The Role of Life Skills Training on Self-Efficacy. 2002). Maharani Gua and Zoo. The problems are the increasing number of work force while limited volume of field of work. Lamongan Integrated Shorebase (LIS) and other economic potentialities may not be experienced by surrounding youth. According to the data. it is hoped the quality of Indonesian human resources will be better (Tampubolon. The technique of statistics applied in this research is paired samples t test. some .Global Journal of Management and Business Research Vol. University of Pembangunan Nasional Veteran Yogyakarta (UPNVY). 2002). Self Esteem. It is a survey research by experiment research type. Skill education becomes a need. In community development. Indonesia is still buried cause of neglecting educational development in the past. Therefore. 2002. self-esteem. Sendang and Blimbing villages. self-efficacy. The respondents are participants from youth drop of school particularly unemployed youth in Paciran sub district. In rural area. +618122747563.of Management Economic. Galib. is 73 respondents. The technique of sampling utilizes purposive sampling.0). +618122717294 Email: muafipaciran@gmail. These villages have abundant potentiality in natural resources from maritime and tourism. There is a manpower problem in Lamongan regency. self esteem. II LITERATURE REVIEW Global life gives a challenge and open opportunities automatically for economic development and qualified Indonesian human resources taking competition for work opportunity in Indonesia and abroad (Tampubolon. 2002).

2004). 2002). Creed et al. It is supported by an argument that some training methods can arouse self-efficacy in the selfmanagement areas (Frayne and Lathan. a graduated from a vocational school is not guarantee to be already working. Kreitner and Kinicki (2007) explain that self-efficacy is a person‘s belief about his or her chances of successfully accomplishing a specific task. Related to life interest. morally and socially has reduced becomes a means for social statue only. They usually get frustration and involved in juvenile delinquencies. It is also lack attention to many needs and empirical problems surrounding the students‘ growth. (2) increasing of drop out youth and uneducated youth. As the result. but it is very determining a kind of job that make someone feel in longterm satisfaction and happiness. The same thing is also happened on junior and senior high school. crime. The essence of school as a development vehicle of individual personality to be smart intellectually. the development must focus on preparing field of work and qualified human resources (Tampubolon. Oppositely. These interests are not hobbies – opera. Self-efficacy arises from the gradual acquisition of complex cognitive. The problem of work opportunity for youth work force caused not only by the limited of job vacancy but also they are not already to work since lack of expected skill qualification. To solve this problem it is necessary a skill education that appropriate to work opportunity needed by the society by considering a talent and interest. Some training held by an organization will be able increasing one self-efficacy. Moreover. anxiety reduction. The main causes are poverty and parents‘ inability to finance their children goes to higher school grade. pain tolerance. The above reality causes increasing the amount of unemployed youth directly. This approach is human. avoidance of seasickness in naval cadets. Recently. cognitive model (Gist. Muller (1992 in Creed et al. A way to understand one life interest can be through job sculpting. but they are not able to follow it. Several studies have also evaluated self-esteem outcomes for unemployed people who attend training programs (Creed et al. a gang fight and the worse in drug abuse. Creed et al. Life interest is not examining where the best performance. illness recovery. Butler and Waldroop. frustration and not conducive environment stimulate them involved in the above problems. Looking for a job they do not have any skills so they escape from the facts and performing destructively. It is not only a hobby or a moment enthusiasm toward a job but also it more than that (Butler and Waldroop. 10 Issue 1 (Ver 1.P a g e |133 Vol. 1989). The other causes are: (1) limited opportunity in formal education and other technical skills for children (youth). 2002). (2001) explains that an unemployed youth will be eagerly looking forward to offer training. The last choice is work seasonally as manual laborer with lower-paid. career choice. however there are some of them work as family worker in the farm. and/or physical skills through experience. to solve this problem the community is acquainted with the concept of life skill education. (3) limited functional illiterate youth and (4) the worse quality of youth human resources (Tampubolon. social. Self-efficacy is associated with work related performance. Some facts show empirically that dissatisfaction. which has close relation to one skill level. at elementary school grade there are graduated and drop out students but it still many uneducated children who never feel the elementary school. 2001) studied the effects of personal development courses on unemployed women‘s level of self-esteem and depression and fond that participants improved significantly more on both than the control group. linguistic. Why do they get frustration and dissatisfaction? Since their parents compel them or they force themselves to go to junior or senior high school that Global Journal of Management and Business Research the curriculum are only understood by smart students. 1987). It will have impact for a long term. Eden and Aviram (1993) concluded that individuals of low general self-efficacy should be given priority access to scarce behavioral-modeling training resources. January2010 of them still illiteracy too. learning achievement and adaptability to new technology (Gist and Mitchell. Live in-unemployed causes decreasing of self-efficacy.. it is defined as a relative long wish in life but difficult explaining through one personality. Researchers have documented strong linkages between high self-efficacy expectation and success in widely varied physical and mental tasks. Kurnia (2002) points that life skill education applied in Indonesia because the curriculum content tends to only academic-theoretic skills. 2004). Therefore. Gist and Mitchell (1992) examine the significance of selfefficacy. It causes students cannot be able to apply their study ability with their needs and community problems. They hope eagerly the training will influence their self-esteem and self-efficacy to search for a job. 1989) and behavior model (Gist. those with low self-efficacy expectations tend to have low success rates. 2004. and probability they can work autonomy or to be employee. 1992). They do not have skills to work autonomy particularly in informal sector. In fact. and so forth – nor are they topical enthusiasms. The consequences are majority unemployed and live in many cities.0). it means that an acknowledgment they have potent to develop. Since the knowledge they studied cannot give much utility moreover to do some exchange toward deviation in society. addiction control. 2001). (1996) observes the importance of skill programs from trainings that have relation to self-esteem and self-efficacy for unemployed youth. Schwoerer and Rosen. it is not surprised that although the output seem smart they lack of experience and creativity. coping with difficult career-related task. it is an art to explore and understand one life interest so it can conform to one‘s job in order they can express their life interest from the deeply embedded life interest (Budiadi. such . If development is meant a plan exchange to raise society life quality. self esteem life interest and role behavior. It can be happened because most of them graduated from public school not vocational school. Self-esteem benefits from the course were maintained at follow up. and stress avoidance. skiing.. Life skill education has orientation on students acquiring ability and having based capital to live autonomy and surviving in their community. they do against the good values and norms.

10 Issue 1 (Ver 1.Global Journal of Management and Business Research as Chinese history. life skills will be implemented by giving trainings that it will have significant role toward selfefficacy. This design utilizes one sample group with twice questionnaire. Grundy and Wensley (1999) give a name to role behavior by strategic behavior. (2006) states that role behavior are the behavior required by an individual in his or her role as a jobholder in a social work environment. The research implies the experiment quasi method with control group by One Group Pretest-Posttest Design Approach. 2008). 1998). where he feel enjoy and happy doing his job. Life Interest and Role Behavior for Unemployed Youth Hypothesis Based on the research model. this study hypothesis that: H1. al. 2004). There is difference of self-esteem from unemployed youth before and after training. At work. In this research. H3. Wijaya. 2008). this research is an experiment research. Linan. Kristiansen and Indarti.. Lin and Lee. al. Someone can have one or more interests on those field. In this research the examined behavior is role behavior from unemployed youth. Self-esteem is a belief about one‘s own self worth based on an overall self-evaluation (Kreitner and Kinicki. life interest and role behavior. self esteem. quantitative analysis. and it keeps them from quitting (Butler and Waldroop. Instead. theory development and conceptual thinking. Research Model of The Role of Life Skills Training on Self Efficacy. Febuary 2010 P a g e | 134 unemployed youth in future. The following is a summary of each: application of technology. creative production.. H4. 2004. emotionally driven passion.0). self esteem. It keeps people engaged. There is difference of self-efficacy from unemployed youth before and after training. like an attempt to make a better life quality than others. looking at the influence of the treatment toward dependent variable like self efficacy. The result of research shows that there is a positive relation between self efficacy and behavioral intention (Ramayah and Harun. et. 2005. While self esteem also has positive influence to behavioral intention in changing behavior (Peterson. III RESEARCH METHODOLOGY Based on the characteristics of research problem. and thus born of an indeterminate mix of nature and nurture. and they do not change . deeply embedded life interest are long held. The names of sample are listed. 1992. the stock market or oceanography. Pretest and posttest are conducted by the determined questionnaire (Hair. Generally. and after experiment questionnaire (after training) (02) called posttest. Butler and Waldroop (1999) found only eight deeply embedded life interests for people drawn to job careers. managing people and relationship. Deeply embedded life interest does not determine what people are good at – they drive what kinds of activities make them happy. and influence through language and ideas. They are unemployed youth that drop out of school and their age between 15 and 25 years old.. life interest and role behavior for Vol. that happiness often translate into commitment. Self Esteem. and behavioral intention toward behavior (Dharmmesta. Zhao et al. 2007). In their research. Noe et. 1998. 2005. This literature has been used to develop the conceptual framework for this study as shown in Figure 1.. the researcher takes manipulation or control toward at least one independent variable that is the implementation of life skills. Figure 1. they are before experiment questionnaire (before training) (01) called pretest. et. In the experiment research. 2008). Muafi. counseling and mentoring. Strategic behavior is also significant as it helps to understand the behavioral process. This research is called a longitudinal survey research because the research sample is certain population members during the survey taken. 2008. enterprise control. There is difference of role behavior from unemployed youth before and after training. 2003. H2. intricately entwined with personality. There is difference of life interest from unemployed youth before and after training. al.

6%) and drop out diploma/university 56.132 by significance 0. Sample Profile In relation to sample profile. Self Esteem. life interest and role behavior before and after training can be seen in Table 2. It defines that an individual who involved in the training has different level of self-efficacy than who do not involved. The Analysis of Difference among Self-Efficacy. The scale arrangement technique applied to asserting selfefficacy. The result of data processing of difference examining of self-efficacy. The type of questionnaire is closed questionnaire and asking the perception of drop out school youth in Paciran sub district Lamongan East Java. self esteem. 10 Issue 1 (Ver 1. and then it will be collecting information from them is directed. Table 1 shows that the majority respondent characteristics were females (80. It defines that an individual who involved in the training has different self- .P a g e |135 Vol. self esteem. January2010 their position along the survey carried out. Life Interest and Role Behavior before and after Training. It means that there is a significant difference of self-efficacy before and after training (Hypothesis 1 accepted).0). Table 2Comparison Group: Self Efficacy. life interest and role behavior is Likert scale by scale 1 (strongly disagree) until 7 (strongly agree). It means that there is a significant difference of self-esteem before and after training (Hypothesis 2 accepted). Self Esteem.5 (valid) (Appendix A). self esteem.010. An individual with high life skills will form a strong self-efficacy compared with an individual with low life skills. in reliability examining points out cronbach alpha >0. The examining result of paired sample t test for self-esteem variable shows t test -2. Table 1.6 (reliable) (Appendix B).2.660 by significance 0. The technique of statistics Global Journal of Management and Business Research utilized in this study is paired sample t test used for differentiate self-efficacy. Profile of Respondents (N = 73) B. ages between 24 to 25 years old (70. The result of validity and reliability examining conclude that for each indicator in examined variable points out significant or loading factor >0.0%).036. This study applies non-probability sample design (purposive technique). Life Interest and Role Behavior t test Pre and Postintervention Based on table 2 it can be seen that the examining result of paired sample t test for self-efficacy variable shows t test 2. life interest and role behavior before and after training. The amount of respondent who involved in the training is 73 respondents. However. IV EMPIRICAL RESULT AND DISCUSSION A.

Innovative behavior according to De Jong and Kemp (2003. An individual with high life skills will form a stronger life interest than who has low life skills will form a weak life interest. To increase the core activity in one life interest. 2006) and is principally an individual ability to exchange the way of work in procedure. and proactive cooping scores were found to be correlated.025. Self efficacy is necessary be increased since a close relation between expectation of high self efficacy and success in working physically or mentally at last it imply in life interest and role behavior. they tend to hope that the implementation of life skills through the training can be held regularly. proactive attitude. and take responsibility for changing their situation. Discussion The result of research finds that there is a significant difference among self-efficacy. (2005) explain the role of age in influencing the relationships among general self-efficacy. It means that there is a significant difference of life interest before and after training (Hypothesis 4 accepted). life skills program aim to prevent problem behavior by promoting ‗abilities for adaptive and positive behavior that enables us to deal effectively with the demands and challenges of everyday life.025. work practice and technique in work finishing or applied some new advantage ideas. distinct and having integrity. and always applying innovative role in every action. 2002). acceptable. A high life interest will be able to arouse role behavior with strategic orientation. Based on interview.. Meanwhile one role behavior can be increased by: willingness to change for better life. Role behavior with strategic orientation can be created by innovative and conservative role (Schuler and Jackson. If one or more points from the eight core activities increased partially or together it is predicted will influence to strategic role behavior. 1987. The complex environment and pressure demand respondents having innovative role behavior. The research result shows that the complex and volatile environment demand will appropriate to innovative behavior (Muafi.290 by significance 0. responsible. human relationship. The examining result of paired sample t test for life interest variable shows t test -2. Their research result indicated that the moderation process could be explained by a mediating effect of proactive cooping. conceptual thinking. 2009). IMPLICATION AND LIMITATION OF THIS STUDY AND Conclusion of this research states that there is difference among self-efficacy. The examining result of paired sample t test for life interest variable shows t test -2. life skills and role behavior before and after respondents involved in the training. It defines that an individual who involve in the training has different life interest than who do not involved. unemployed youth in this research and got the training are hoped they have cognitive and effective skills at least. technology application. Furthermore. Febuary 2010 P a g e | 136 reducing the negative aspects of unemployment by adopting cognitive coping strategies. Albion et al. counseling. quantitative analysis. on the taxon level they can apply their knowledge and respond to do the job they studied. In facts. Muafi. and they have psychomotorics skill that they can do all the work they have studied correctly (mechanism) (Kibler et al. not external ones. The definition of earning here is not only for comply their daily needs but also they can be more survive for better life quality. It means proactive individuals regard the journey of their life as being determined by individual factors. self esteem. The developing program of life skills is expected can help respondents having prestigious and confidence in earning in the opportunity context in their social environment. 2001). 2009).. (1991) stated that individuals could take a proactive approach to Vol. championing. The ideal is respondent with skills and knowledge able to work autonomy and open field of endeavor for others. 1992. According to Buhler et al (2007). It affirms once more that training for unemployed youth will has close relation to self-esteem and self-efficacy in a long-term period (Creed. Self esteem. The general self-efficacy. entrepreneurship control and idea expending.Global Journal of Management and Business Research esteem than who do not involved. life interest and role behavior from the respondents tend to be increasing. result from a research by Turner et al. It is proved that there is a difference result of mean from respondents‘ response before and after training. The unemployed youth who got the training if they have worked be expected they get earnings to meet their needs. 1996. life interest and role behavior before and after training. proactive attitude. exploring opportunity.. V CONCLUSION. self-efficacy. This research affirms that the measurement of literacy and life skills can do by arising competency so someone may have success in his life and useful for his community (Murray. It defines that an individual who involve in the training has different role behavior than who do not involved. and proactive coping in unemployed people.0). Respondents in this research are very enthusiasm participating in the training and they hope will get advantages from the training. An individual with high life skills will form a strong self-esteem compared with an individual with low life skills.290 by significance 0. it can be done by expressing their life interest through. innovative in life. C. et al. Therefore. 2005). An unemployed youth with lower self-esteem and self-efficacy before get the training will have different response than after training. Irianto. Life skills like explaining previously has main goal to accommodate society education needs who cannot go to higher school level. 10 Issue 1 (Ver 1. Snell. self esteem. and a moderating effect for age was found on the relationship between proactive attitude and general self-efficacy. All of them will give advantages for individual having innovative role behavior by creative behavior. An individual with high life skills will form a stronger role behavior than who has low life skills will form a weak role behavior. Self-esteem is also be aroused actively in order using life more meaningful. It means that there is a significant difference of life interest before and after training (Hypothesis 3 accepted). creativity. . from the training the participants have more self-esteem and self-efficacy to look for a job. et al.

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10 Issue 1 (Ver 1.P a g e |139 Vol. January2010 Global Journal of Management and Business Research .0).

. In this approach has been started to the model of determining the financial performance by financing that was used for 2 samples of enterprises Manuscript received ―29. the ones that fall outside the bankruptcy risk obtain a high financial performance. this model takes into account the specificity of the Romanian building sector. the subject of many scientific papers presented at national and international levels. This prediction is used for ranking the enterprises by the financial competitiveness. Febuary 2010 P a g e | 140 Assessing of the SME‘s Financial Competitiveness Nicoleta Bărbuţă-Mişu Abstract .ro II THEORETICAL AND EMPIRICAL LITERATURE . which made and still made the subject of numerous works of specialty in the country and abroad show the importance of the bankruptcy models. By studying the intervals found for the score function. some enterprises are classified as presenting a high bankruptcy risk.01. Researchers of the statistical models have used the financial rates for building some predictive functions of bankruptcy. or a lower one. or development of other models valid for the new conditions (Siminică. 2009a). The bankruptcy prediction of the enterprises as well the financial performance is a great interest issue. Furthermore. ROMANIA. or without bankruptcy risk. From this it results that the enterprises that show a high bankruptcy risk obtain lower financial performances. G. Sharma and Mahajah (1980) present a general pattern of bankruptcy in which the ineffectual management doubled by the inability of anticipating events cause a systematic deterioration of performance indicators.Global Journal of Management and Business Research Vol. Beaver has brought the most important contribution to the univariate analysis of bankruptcy for an enterprise. 10 Issue 1 (Ver 1. financial performance. In this approach. Galati.Barbuta@ugal. capital structure.0). retained profit ratio. financial modelling. Setting up a model for bankruptcy prediction was. „Dunarea de Jos‖ University of Galati. The conclusions show the relevance of the model in forecasting the financial performance and ranking the SME’s by their performance. which for decennials continues to be of great interest for researchers and practitioners. This situation requires an update at regular intervals of time. for assessing the financial competitiveness has been used data from the balance sheets of these SME’s in the period 2007-2008. is a topic of great interest. Altman realized a multivariate analysis of bankruptcy that supposes to develop a multiple discriminate analysis. or within the branch or sector of activity studied. this deterioration to the financial conditions determines the bankruptcy (Sharma S. that were designed taking into account the characteristics of economies in which they were performed. which has continued such attention to researchers and specialists for several decades. The technique of the univariate analysis implies the use of a single financial rate in a model of bankruptcy prediction. 1980). banks and not only. In the absence of the corrective actions.. Nicoleta. general leverage JEL Classification: G32. returns on equity.2010‖ Lecturer PhD. and vice versa. Address: 47 Domneasca Street. N. Phone: +40336130172. and continues to be today. Keywords. This model of prediction of the risk of bankruptcy was achieved by using the information from balance sheets of 11 enterprises acting in the building sector in the period 2001-2006. so as to maximize the prediction accuracy. Unlike those models known in the literature. 33 The financial performance prediction for enterprises. The financial performance is evaluated using a model of determining the financial performance developed especially for features of the Romanian business environment in the construction sector. the periods marked by economic instability determine the alteration of the correlations examined by the developed score function.This paper evaluates the financial competitiveness or performance of SME’s acting in the building sector in Romania.financial competitiveness. risk of bankruptcy. which limits in time the use of these models. and Mahajah V. All the predictive studies of enterprises bankruptcy are based on original contribution of Beaver's (1966) and Altman (1968). The prediction of the bankruptcy in this paper was achieved by using information from the balance sheets of the enterprises of those 2 samples on the period 2007-2008. 2005). Beaver separately analysed few financial rates and selected the critical point for each rate. Zip Code 800008. The development of many bankruptcy prediction models. The first sample includes 11 enterprises to which data on the period 2001-2006 were used to determine the variables and coefficients of the model mentioned above and the second sample of 10 enterprises that were used for testing the same model. Department of Finance and Economic Efficiency. The models proposed until today have the disadvantage that they may be applied only in the economies of the countries where the statistical study was performed. their use unable to be extended to a greater area. the lack of ability in paying the contracted debts. The main idea of the multivariate analysis is represented by I INTRODUCTION T his study evaluates and predicts the enterprise financial performance of the enterprises acting in the building sector using the model of determining the financial performance by financing designed in the paper ―Modelling the Financial Performance of the Building Sector Enterprises – Case of Romania‖ (Bărbuţă-Mişu.

The time period considered for data collection from the first sample of enterprises is of 6 years that is 2001 – 2006. the Edmister models (1972).. the models developed by Altman.. and. to have a continuous activity throughout the analysed period. 3. The greatest problem we faced was to identify the building sector enterprises active in Galati County. The discriminate analysis had shown significant differences between the two groups of enterprises (performant and nonperformant). I. Also. I designed an aggregate index of financial performance for the building sector enterprises from Galati (Bărbuţă-Mişu. as a great number of enterprises closed their activity while other was only beginning it. retained profit ratio. in Romanian and foreign literature and also in financial practice. which were thought the most significant.. 2002) is represented by following empirical models: Manecuta and Nicolae model (Mânecuţă C.. M. I. the Deakin probabilistic model (1977). were selected only 8 for the discriminate analysis. Beaver and Altman had many successors who developed the performances of models for analysis the bankruptcy risk. to grasp the evolution in time of the financial performance of the enterprises under study. the model of Balance Exposure of France Bank. The return on equity measures the profitability of owners‘ capital that is the financial investment made by shareholders when buying the enterprise shares (Stancu. respectively. the Ohlson model (1982).55% of the workforce employed in the building sector of the county.. Thus. The Romanian school (Anghel. In the year 2006. The main conditions that must be met by all enterprises from the sample are: to be included in the building sector. As the obtained results will be generalized for all enterprises showing the same features with those under focus. M. 2005).. for bankruptcy prediction had been shown by two schools (Anghel. January2010 combining information related to few financial rates in a single function (weighted index). 1998) and Model I – Ivonciu (Ivonciu P. M. the continental school represented by the Yves Collongues model (1976).. with high financial performance). was proved the representativeness of the chosen sample for setting up the model of determining the financial performance. 2009a) that will be used for financial performance prediction in this paper. the selected sample must include not only enterprises showing Global Journal of Management and Business Research high financial performance. the Diamond model (1976).28% of the total employed in Galati County. . After a long analyse of many financial rates the enterprises from sample were grouped in two categories: performant enterprises or with a low risk of bankruptcy and nonperformant enterprise or with a high risk of bankruptcy. they represented 0. 2002): the Anglo-Saxon school represented by the Beaver model. being designed with a starting point that takes into account the past financial status of bankrupt enterprises (thus with very low financial performance) and of some enterprises that experienced no financial difficulties (thus. general liquidity and the weight of financial debts within the total debts. 5.. Thus. the Springate model (1978). searching for these enterprises was mainly based on their notoriety.. I. N. N.. Finally. general leverage. The financial information was extracted individual. Within the sampled enterprises in 2006 there were 3. The economic and financial modelling made history in traditional domains: multi-criteria models for the financial and macroeconomic equilibrium and for the quantification of this equilibrium (Bărbuţă-Mişu. by the financial structure of the enterprise (La Bruslerie. the Fulmer model (1984).85% of the turnover obtained in the Galati county building sector and. Bankruptcy risk prediction models have a predominantly statistical character. the Score Function AFDCC 2 (1999). Model B – Bailesteanu (Băileşteanu Ghe. respectively 35. the Shirata model (1999) designed in Japan on the basis of Anglo-Saxon school studies. can be derived a plethora of ratios that can be used as variables for various models. respectively. the Koh and Killough model (1980). This condition greatly reduced the number of potentially sampled enterprises. 1998).P a g e |141 Vol. for each ratio employed. the model of the French Commercial Credit (CCF). 2009a). Siminica. 2002) and is influenced by the way of asset securing and. 2002). The collection of data required to the study was provided by the Register of Commerce by studying the balances filed by those 11 enterprises. 1996) proposed in the metallurgical industry. thus. with a turnover of 100. mention must be made from the start that the features and the activity sector of the selected enterprises for the study must be presented. but also low financial performance. out of these were selected just 5 for the model variables: return on equity. has achieved a Model for analysis of bankruptcy risk in the Romanian industrial firms (Siminică. Nicolae. One essential condition taken into account when establishing the sample was that the enterprises active in this sector to show continuous activity during the chosen time interval. 2009b).639 employees. the Koh model (1992).93% of the total number of active enterprises in the building sector.61 million euros. for each enterprise above the period 2001-2006 and aggregate to the building sector. that is 29. the Zavgren study (1983). the Romanian school is more distinguished by theoretical contributions.0).78% of the total turnover of the Galati county. which means that we managed to grasp the time evolution of financial performance for the enterprises under study. the Conan and Holder model (1979). The selected and analysed enterprises are representative for Galati County. From the whole of the financial ratios presented in the literature. From the financial diagnosis of the enterprise. Thus there were identified 11 enterprises. 10 Issue 1 (Ver 1. I. N. initiating alternate analysis methods. for which the site of the Ministry of Finance has yet to give a solution. Unlike the Anglo-Saxon school and continental school. Chartered Accountants model (CA Score – 1987). III THE MODEL OF DETERMINING THE FINANCIAL PERFORMANCE DESCRIPTION This study asses the enterprise financial performance of the enterprises acting in the building sector using the model of determining the financial performance by financing (Bărbuţă-Mişu. Thus.

a fact demonstrated also by Zmijewski (1983) in a study performed on 75 enterprises filing for bankruptcy.25. and 3.25 the enterprise has a very low financial performance. the literature deals with the ratio of dividends distribution ( RDv ) by the shareholders (Krainer. as the intention was to design a parameter of financial performance.0). for example Raiffeisen Bank and the Commercial Bank. but it was considered useful as a relevant indicator in what concerns the temporal stability of financing sources used by the enterprise. in the above mentioned formula. 2009a) obtained is: Pf  0. Romanian Bank for Development). the general leverage mentioned in the above formula is considered the most relevant parameter of the decision for financing. The majority of Romanian banks use as trust indicator the general leverage. Yet. This is because the investors. including the net profit at the disposal of the enterprise for self financing (Lumby. and even taxation.25 ≤ P f < 2. This is not a ratio that is used by banks. . On the other hand. The reasons for which were chosen the return on equity as first variable took into account the fact that.573 non-bankrupt enterprises. as it indicates the degree in which its long and short term commitments are guaranteed by own assets. Vol. the circulating actives are corrected (diminished) with the value of non valorised stock and of uncertain clients. for example Raiffeisen Bank. (the limit that mathematically separates the enterprises with high financial . The limits agreed for setting up the intervals represent the simple arithmetic average of scores granted for two consecutive groups of enterprises. redimensioning the social asset. in accordance with Zmijewski study. more than the value of 1. . the enterprise will fall in one of the following 5 performance areas: . it is a parameter widely used by banks. ensuring the best predictions.Global Journal of Management and Business Research The return on equity ( R f ) is calculated in accordance with Rf  Net result Owners' capital the formula: and quantifies the remuneration of capital invested by shareholders.25 ≤ P f < 1. This parameter can be also interpreted as a ratio of financial autonomy of the enterprise. 2003).75 ≤ P f < 4. . The reasons for doing this refers to enhancing the enterprise position on the competitive market. R The reinvested profit ratio ( pr ) is a ratio less used in the Romanian literature and in banking. are interested mainly in the level of earnings on short term and in the time of recovering their investment by cashed dividends. This parameter shows the dependency of enterprise towards banks and other business partners. computed as: ( 1  R pr ).32  R f  0. Jones.if P f < -0.if -0.25 the enterprise has a very high financial performance. N. it is a parameter widely used by Romanian banks when performing the analysis of enterprise worthiness. Using these variables. Commercial Bank.25 the enterprise has a low financial performance. Febuary 2010 P a g e | 142 The general liquidity ( Rlg ) computed as: Circulatin g actives measures the capacity of cash Short term debts flow of the enterprise that is short term solvency and reflects the degree in which the turning into cash flow of circulating actives can satisfy the exigible payment obligations..if 2. but many times this is calculated as a ratio between total debts and total liabilities (Raiffeisen Bank. we appreciate it as being the most relevant parameter of this variable.if 1. More frequently. The higher the value of score P f determined for an enterprise. 2003). General leverage ( Gig ) calculated as follows: Gig  Total debts Own assets reflects the degree in which own assets ensures the financing of the enterprise activity.8787  Rlg  10.75 the enterprise has a satisfactory financial performance. the model for financial performance assessment (Bărbuţă-Mişu. especially the ones who speculate. this is the most expressive parameter for measuring the result as it is superior (as compared to owner‘s concern) to economic profitableness. although this has proven to be a bad bankruptcy predictor.if Pf ≥ 4. As the intention was to set up a model of financial performance by financing. The weight of financial debts within the total debts ( D f %  ) Rlg  is computed as: D f %   Financial debts and reflects the ratio Total debts of financial debts with a view of pointing out the nature of enterprise financing. but it was chosen to use it within the model as Romanian enterprises used extensively the profits for reinvesting. to expenses or turnover. In accordance with its value.25 the enterprise has a medium financial performance.7815  D f % This model allows for framing an enterprise with the characteristics of those enterprises selected for the sample. in a certain performance area. for the owner. on the basis of which the score P f is determined. The retained profits are an alternative and cheaper method of increasing owners‘ capital in comparison with new shares issued and is the most important source of capital used for financing intangibles. 10 Issue 1 (Ver 1. For this there are firstly calculated the 5 financial ratios involved in the analysis. also. . There was chosen the ratio of general liquidity as it reflects the short-term financial balance of the enterprise.0207  Ri  0. With the Commercial Bank and the Romanian Bank for Development. increasing the degree of capitalization.4554  Gig  4.

only 60% of enterprises with low financial performance. Thus.028 Pf ≥ 4. Firstly.25 ≤ f < 1.71%. the following results were obtained after model testing for the 11 enterprises in the initial sample: In 2006. the managers should take measures for recovery. the success ratio (comparing the predictive classification with the known data on the initial sample enterprises) being of 85.75 Enterprise has a financial performance P -0.25 Enterprise has a low financial performance Source: Calculus performed by author satisfactory .2006 period. and also for other enterprises in the posterior sample. respectively.P a g e |143 Vol. Furthermore. comparing the well-known models to the international level for assessing the risk of bankruptcy with this model for determining the financial performance adapted to the specificity of the Romanian economy there are clear the significant differences. The first sample includes 11 enterprises to which data on the period 2001-2006 were used to determine the coefficients and variables of the model for determining the financial performance (Bărbuţă-Mişu.879 2. and. the success ratio was 50%.. and based on medium financial ratios (calculated for the latest six years) 71. 2009a) and the second sample of 10 enterprises that were used for testing the mentioned model.047 0. obtaining an average success ratio.0).872 5.73%. for performant enterprises. Table 1.688 5. in these conditions. which were not included in the first sample. for enterprises with low performances. where only 60% of the performant enterprises.945 0. were correctly grouped for the year 2006 and 80% of the performant enterprises and 60% of non-performant enterprises were correctly grouped for 2001 . January2010 performance apart from the low financial performance ones).25 Enterprise has a very high financial performance P 1. the greater the possibility of obtaining a higher performance. 10 Issue 1 (Ver 1. N.852 1.82% and for the year 2006 was of 72.449 1.25 ≤ f < 2. the model was tested for also enterprises in the same sector. In 2006. IV METHODOLOGY AND DATA PREDICTION The capacity of prediction of this model was tested on those 2 samples of enterprises in the period 2007-2008. as its reduction in value implies a reduction in the financial performance and. The ranking and appreciation of enterprises after the financial performance in 2007 and 2008 are presented in the Table 1 and 2.788 1. the recurrent calculation of the score P f is needed. the success ratio of establishing the financial performance (calculated on the basis of medium values of the financial ratios involved in our analysis) was of 81. In the given conditions.708 4. and based on medium financial ratios 100% of enterprises were included correctly. There were calculated the values of the variables considered and determined the P f score for both samples. To always have a higher financial performance. starting to the model of determining the financial performance it was achieved the prediction of financial competitiveness for the period 2007-2008 for the first sample (a priori). Ranking of the enterprise after the financial performance in 2007 (a priori sample) Enterprise Appreciation Interval P f P f score CONSTRUCŢII AVRAM IANCU SRL ARCADA COMPANY SA CONFORT SA ARCADA SRL SOREX SA VEGA 93 SRL CONSAL SRL MOLDOVULCAN SA CONSTRUCŢII ŞI REPARAŢII SA ICMRS SA CONSTRUCŢII FEROVIARE SA 10.693 6. This model was later tested both for enterprises from the first sample under study. Global Journal of Management and Business Research In conclusion.43% of enterprises were correctly included. The data for period 2007-2008 were collected from the balance sheets of the enterprises. and it results as models for assessing the risk of bankruptcy are relevant only if there are satisfied conditions related to the presence of some similar economic characteristics in the analyzed period and enforceability on some enterprises in the sector of activity had referred to. it was noticed a prediction success degree lower than the aprioric one. Overall of tested enterprises included in the initial sample.

Global Journal of Management and Business Research Vol.25 MOLDOVULCAN SA 1.934 5.25 ≤ Pf < 2.25 Enterprise has a very low financial performance - Source: Calculus performed by author . This is an explanation for enterprise Confort that in 2008 presents a high risk of Enterprise Table 3.555 6.Also. The whole analyzed period.332 -3. Ranking of the enterprise after the financial performance in 2008 (a priori sample) Enterprise Appreciation Interval P f P f score ARCADA SRL CONSAL SRL VEGA 93 SRL ARCADA COMPANY SA SOREX SA 9. Pf ≥ 4.792 1.021 Pf CONSTRUCŢII AVRAM IANCU SRL 3.177 8. the enterprises Construcţii Avram Iancu. with a satisfactory performance. Confort and Arcada were included in this range of performance and in 2008 only Arcada maintain this position. In 2006 and there wasn‘t any enterprise classified as having a medium financial performance but in 2008 Construcţii Avram Iancu is framed in this range of performance. when was the largest development of the building market. the enterprises ICMRS. that proves the significant changes that took place in the building sector caused by the effects of the economic and financial crisis.25 Enterprise has a very high financial performance Enterprise has a medium financial performance Enterprise has a satisfactory financial performance Enterprise has a low financial performance Enterprise has a very low financial performance Source: Calculus performed by author Studding the individual values of the model variables we can conclude that more affected by the crisis effects were enterprises that have established large debts unpaid or with large terms of collection (that means a low current liquidity).25 ≤ Pf < 2. Ranking of the enterprise after the financial performance in 2007 (a posteriori sample) Appreciation Interval P f P f score DRUMURI ŞI PODURI SA VIVA CONSTRUCT SRL TRIPLEX SRL COMTIEM SRL KATY SRL CIVICA SA BAZA SRL 12.75 ≤ Pf < 4..25 ≤ Pf < 1.25 Enterprise has a very high financial performance 2. Table 2.75 Enterprise has a satisfactory financial performance -0. those enterprises who have several works in progress and need more source of financing to complete the work (a high degree of debts). In 2007.014 3.75 CONFORT SA ICMRS SA CONSTRUCŢII FEROVIARE SA 1. 10 Issue 1 (Ver 1. N. in 2008 the financial performance of the enterprises was dispersed in all 5 ranges of the model.565 6. we can observe in the Tables 1 and 2 that if in 2007.774 5. there were only 3 intervals of performance.25 CONSTRUCŢII ŞI REPARAŢII SA Pf ≥ 4.667 1.865 2. The most fluctuating evolution of the financial performance was registered by Confort that in 2006 was in the uncertainty area.0). as well as in 2008. 2009).131 5. the enterprises Arcada Company and Sorex.25 Enterprise has a medium financial performance 1. both enterprises are maintaining to the same level of performance. Construcţii feroviare and Constructii şi reparaţii where within the range with high bankruptcy risk.428 -0. were classified as having a high financial performance (BărbuţăMişu.210 6.25 < -0.75 ≤ Pf < 4. the Table 2 show that in 2007.385 BRICO SRL VÎLCEANA SA UNICOM SA bankruptcy in conditions which in the preview period had a risk of bankruptcy less.093 0. The enterprise Moldovulcan has passed from a high competitiveness in 2006 to the uncertainty area in 2007 and 2008.766 3.477 Pf < -0.463 -0. Febuary 2010 P a g e | 144 If in 2006. in 2007 registered a high financial performance and in 2008 was ranged in the enterprises with low financial performance.960 3.

classified in 2006 as having a high risk of bankruptcy becomes bankrupt and from 2007 was removed from the Register of Commerce. The enterprise Global Journal of Management and Business Research Unicom.75 ≤ P f < 4.598 BRICO SRL DRUMURI ŞI PODURI SA UNICOM SA P f ≥ 4. Table 4. This proves that the enterprises acting in the building sector were affected by the economic and financial crisis as well as the first sample. entering in the class of companies with high financial performance. 10 Issue 1 (Ver 1.225 CIVICA SA 4. Ranking of the enterprise after the financial performance in 2008 (a posteriori sample) Enterprise Appreciation Interval P f P f score VIVA CONSTRUCT SRL 11. If in 2006..25 ≤ P f < 2. the performance index slow down. the same model was applied for prediction the risk of bankruptcy on the period 2007-2008 for the second sample of enterprises (a posteriori) used in the testing of the above model. The ranking and appreciation of enterprises after the financial performance in 2007 and 2008 are presented in the Table 3 and 4.0).056 BAZA SRL 9. This situation appears to be a generalized evolution in the building sector and not only. the enterprises Viva Construct and Comtiem were classified as having a medium performance. the Table 3 show that in 2007 both registered a medium performance. A very fluctuating evolution had the enterprise Drumuri şi poduri that in 2006 and 2008 had a high risk of bankruptcy and in 2007 had a financial performance very high to the sample level.345 COMTIEM SRL 5. 2009a).75 Enterprise has a satisfactory financial performance -2.25 Enterprise has a medium financial performance 1.191 P f < -0. despite of the financial and economic crisis. These companies were involved in small-scale works. January2010 The return on equity that has been significantly reduced due to the economic crisis there is another cause that has generated the increasing of the bankruptcy risk to the assessed enterprises. in 2007 and 2008 progressed.231 TRIPLEX SRL 7.25 Enterprise has a very low financial performance Source: Calculus performed by author .531 VÎLCEANA SA 1.346 KATY SRL 3. If in 2006.472 1.P a g e |145 Vol. which did not affect its activity. Brico is the enterprise that overall period maintained in the uncertainty area. but from one year to another. and in 2008 (Table 4) only enterprise Baza returns to the same class of competitiveness.25 Enterprise has a very high financial performance 2. N. the enterprises Katy and Baza were classified as having a high financial performance (Bărbuţă-Mişu. Secondly. which no required important sources of funding or had worked with materials provided by the client.

Altman. Economica. Köln: LAP Lambert Academic Publishing. Sauriel A. September. W. H. 20) Mânecuţă C.. Financial Ratios. (1966). 2e édition. (2002). Proutat. E. it is possibly that some companies evaluated in this paper having a low financial performance may actually be in the area of uncertainty and the enterprises from uncertainty area may be in fact assessed having a high degree of competitiveness.. John Wiley & Sons. An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction. Analiza riscului de faliment prin metoda scorurilor. June. L. 12) Diamond. Killough. Universite Paris Dauphine. H. This means that such models requires an update at regular intervals of time.. Variables explicatives de performances et controle de gestion dans les P. The author is grateful for the comments and recommendation provided by the Scientific Coordinator. (1984). 14) Fulmer. 2) Altman. La revue banque.I. 19) Lumby. I. Analyse financière. in Financial Crises Institutions and Markets in a Fragile Environment. Journal of Finance. or development of other models valid for the new conditions Anyway. (2002). Jr. 16) Koh. M. Also. (2009a). (1998). J. 5) Băileşteanu Ghe. E. Elsevier. Timişoara: Mirton. in Romanian Journal of Economic Forecasting. Dissertation. I. 7th edition. risc şi eficienţă în afaceri. 10) Conan and Holder (1979). N. Diagnostic. R. Journal of Monetary Economics. Construirea şi utilizarea funcţiei scor pentru diagnosticarea . Paris. (1977).. (1990). 4. March.D. J. a relatively stable period that generated some exigency in assessing the financial performance of the enterprises. 4/2009. according to the values of the financial performance index. The use of MDA in the assessment of the going concern status of an audit client. the model provide the financial performance forecasting for an enterprise in the case in which we can make a prevision as real as possible of the financial rates that constitute the model variables. Theory and International Comparisons. 17) Krainer. (1990).M.. VII REFERENCES 1) Altman. 4) Barbier. No. The model may offer some other benefits: listing enterprises in certain performance areas according to the value of the financial performance aggregated index. (1968). Modelling the Financial Performance of the Building Sector Enterprises – Case of Romania. Gavin. Governance and Business Cycles. E.. T. the enterprise management can timely acknowledge the performance level their enterprise will take. 8) Beaver. (1977). Vol. 4. Supplement to Journal of Accounting Research.. Under these conditions. E. R. 13) Edmister. Journal of Business Finance and Accounting. October. the capacity of prediction of this model was proved and the most important advantage of it is that provide a way of ranking of the enterprises after their financial performance. 589-609. Thomson High Holborn House. H. 6) Bărbuţă-Mişu. Amsterdam. Revista Finanţe-BănciAsigurări. Information financière et diagnostic. Febuary 2010 P a g e | 146 3) Anghel. Discriminant Analysis and the Prediction of Corporate Bankruptcy. Journal of Commercial Bank Lending. Professor PhD Radu Stroe from Bucharest Academy of Economic Studies. 9) Cohen. New York University. Business Failure Prediction: An Empirical Analysis. Ph. Dunod. 195 – 212. 443-466. Jones. S. and can take corresponding decisions. Corporate Finance. and Sametz. (2003). 18) La Bruslerie. Traite pratique de l‘analyse financiere a l‘usage des banques. H. starting from a sought level of financing rates that constitute the model variables. 7) Bărbuţă-Mişu. Moon. (1972). (2003). If the model had taken into account and the period 2007-2008 or 2009 (when the effects of economic and financial crisis had made felt this) then the model exigency would be lower. C. A. N. 4. the model for determining the financial was created using financial data of the enterprises in the period 2001-2006. 17-19. (1976): Pattern Recognition and the Detection of Corporate Failure. Falimentul.0). at a certain moment. Financial Ratios as Predictors of Failure. A. Bucharest: Economică. (1980).. financing etc. Erwin. J. VI ACKNOWLEDGEMENTS This research was performed on the base of the model proposed in the doctoral thesis „Enterprise Financing within the National Strategy of Development Converging to the European Integration Process‖ and published in the article Modelling the Financial Performance of the Building Sector Enterprises – Case of Romania.Global Journal of Management and Business Research V CONCLUSIONS In conclusion. M. Predicting Performance in the savings and loan association industry. A Bankruptcy Classification Model for Small Firms. (1998). 15) Ivonciu P. E.. I. Corporate Finance: Theory and Practice. (2009b). Nicolae. Analysis and Modelling of the Financial Performance of the Enterprises – Case study of Romania on building sector (Galati County). Romanian Journal of Economic Forecasting. 10 Issue 1 (Ver 1. No. the management of the enterprise can take decisions related to the activity. 11) Deakin. Radiografie şi predicţie... (1996). Analyse financiere – Outils et applications. London. investments. E. Journal of Finance and Quantitative Analysis.. Empirical Research in Accounting: Selected Studies.

şand Mahajah V. 3rd edition. Revista Finanţe. Finanţe. Revista de Politica Ştiinţei şi Scientonomie. C. 47-54. Bellas. M. Contabilitate. Sharma S... Financial Ratios as Predictors of bankruptcy in Japan: An Empirical Research. Journal of Business Finance and Accounting. Accounting and Business Research. 19-45. 1. Bucharest: ASE. I. Back. M. C. 10 Issue 1 (Ver 1.H. Zavgren. 2 (4). (1980). Vol. V. (1985). Corporate Bankruptcy Prediction. Credit.. No. E. (1983). Bucharest: Economică. Ş. 12. International Journal of Hospitality Management. Modelarea deciziei financiare. Stancu. Global Journal of Management and Business Research . 5. Olsen. Pecican. (2006). January2010 21) 22) 23) 24) 25) 26) 27) 28) eficienţei agenţilor economici. working paper. L. Siminică. Spring.. C. C. Special number. R. (2002). Kish.P a g e |147 Vol.0). (2002). Tsubuka College of Technology. Stroe. Y. Assessing the vulnerability to failure of American industrial firms: a logistic analysis. Raport de cercetare: Model de analiză a riscului de faliment la nivelul firmelor industriale româneşti. V. 187-193. (1999). Improving the prediction of restaurant failure through ratio analysis. I. Shirata. Econometrie. (2005).

Internet Financial Reporting (IFR) describes one of the other existing printed information distribution channels and provides complementary and extended information. video and graph. there is a comprehensive set of D financial statements (including notes and auditor‘s report) at their websites. share price information.Dramatic development in presenting internet information is attributed to this fact that companies can put more information at their websites by spending least expenses. 2006). this check list was completed. Findings indicate that the companies investigated in this research are weak in presenting financial statements at the website of their corporations. which are not economically worth of printing (Smith and Pierce. analysis reports and management discussions of operations (Poon and Tak Yu. Tel. Gaved. Iran Abstract. internet has provided new situations to different print information. 2003.com Mehdi Moradi Assistant Professor of Accounting Department. 1996. Jones. Email: Mahdi_salehi54@yahoo. descriptive research investigates the quality and manner of internet financial reporting. after referring to companies’ websites. 2005). In addition. To do this. ability of downloading and manipulation of data. forthcoming prospect and corporations value. 2000. and in many cases companies are lacking in that. too (Kelton. Febuary 2010 P a g e | 148 A Study of the Integrity of Internet Financial Reporting: Empirical Evidence of Emerging Economy Mahdi Salehi (Corresponding author) Assistant Professor of Accounting Department. improving the manner of presenting corporations function. (Lymer and Tallberg. 1997) completing traditional disclosure methods. 2003). (Conosco. 2005). contact with unfamiliar customers and information background (Lymer. Pasewark and Typpo. IFR points to the use of corporations‘ websites to print information related to their financial function.com Arash Ariyan Pour Faculty of Economics and Administrative Sciences. improving the access to potential investors. people may in few seconds‘ access to very much information. 2000). most countries use the form of portable document format (PDF) to print reports (Ashbaugh. 10 Issue 1 (Ver 1. Features and Advantages of IFR Today‘s. increasing international addressees and possibility of global marketing. The main purpose of this study is to conduct an investigation of the integrity of internet financial reporting of the corporations listed in Tehran Stock Exchange. Ferdowsi University of Mashhad.Global Journal of Management and Business Research Vol. 1999) and possibility of dynamic information up to dating (Haasbroek. and internet enables them to access to different users and scattered information. many corporations regardless of their size. can create many opportunities to improve reporting. 1999). Ferdowsi University of Mashhad. Email: mhi_moradi@yahoo. Making the browser technology – that makes more access to the internet – has led to increasing the dissemination of big companies‘ reports at their websites. also acquired experimental information show that. Although companies may have websites. increasing the investors exchanges. quarterly reports. increasing the amount and kind of disclose information. the archive of financial statements of the companies exists in Tehran stock exchange is incomplete on the companies’ websites. and Hypertext markup language. existence of hyperlinks to other information. It cause access to potential investors in all some companies encountered to increase information exchanges . In this study. The content of IFR can include annual reports. press releases (to print in newspaper). Johnstone and Warfield. 2005). their annual report is together with and authors‘‘ report. the kind of information presented on the internet is different. Haasbroek. Louwers. (FASB. 2005) accessing to up-to-date information (Rhein. compared to the similar researches in other countries. At those sites by linking from one site to others. 2000) among the motivation on which. and Khadaroo. corporations that use IFR. corporations which use IFR. including financial statements and annual reports (Xiao. Portable document format. When corporations use IFR. and Lymer. 2003). Also. Keywords. Since internet is able to uniform other information and communication technologies. and a link has been created to their annual report in everywhere of the internet. I INTRODUCTION uring last year‘s. 1997. Iran. In general. corporations present their financial information. this from of reporting can be presented through video or audio files. Developed methods of information presentation consist of using audio. a check list of 34 attributes was prepared. Iran. are generally larger and more profitable than other corporations (Pervan. +989121425323.0). put the information at internet websites and in access of the public. so it‘s convergence with data base technology.Internet financial reporting. Ferdowsi University of Mashhad. we can refer to decreasing time and expense of printing information.

Hedlin (1999). Pirchegger and Wagenhofer (1999). In this study. it was cleared that 86 percent out of 660 companies investigated had websites. Immediacy: accounting information users are on time in searching information. England. vi. are discussed about. Louwers et al. it can be referred to Gowthorpe and Amat (1999). Louwers et al. among these investigations can be referred to the researches of Petravick and Gillett (1996). some of the next researches extended these exploratory researches through investigating other geographical domains or through developing the breadth of examined features to broaden the standards and criterions considered in earlier researches. and Hong Kong. the level of internet use in both countries is the same. Another study was done by Allam and Lymer (2003) about very big corporations in 5 countries of the world. and Ettredge at al. the relation between size of corporations and amount of internet reporting was investigated. English. Except Australia. Also in this research. and this is possible through IFR. Among these we can refer to research by Ettredge et al. This check list was based on Pirchegger and Wagenhofer (1999) checklist items existing in Marston and Polei (2004) were generally 53 cases. . however. Australian corporations have websites. in general consisted of 250 corporations. and Xiao. (2001). through investigating. Results showed that 99 companies had websites. England. the form and certain features of corporations‘ internet reporting and certain features of corporations‘ internet reporting and their impact on institutes and users reporting. in Hong Kong corporations do not have websites. Canada. This board prepared a checklist of attributes related to investment. They also stated that the level of IFR in America. (2001). Earlier investigations indicate that first put their financial information on the internet. and 18 other cases were added too.0). 2003). (1999). iv. on average. CICA was responsible for Global Journal of Management and Business Research doing a research in North America to reach an insight into the amount of using web for financial reporting. while internet connection can provide the possibility of immediate reporting. (1996) investigated 150 companies in the United States. Connectivity: users ask for accessing to accounting information regardless of geographical places. ii. 2002) and available up-to. and implications of electronic online reporting for accounting standards were referred to. Ashbaugh et al. has always been criticized. In recent years. did not present information at websites. Oyelere et al. iii. and summarizing the existing noticeable webbased information. Interactivity: information users want to use accounting model for their personal interests. Researchers stated that. This research was done by Trites (1999). This research was investigated in 42 different countries. Jones. They expressed that. there was no meaningful difference between IFR methods used in American and English corporations. Access: accounting information users have unlimited and clear access to financial information.date dynamic cited (Lymer. O‘kelly (2000) expresses some features of this. (2000). Richness: users are searching for full content video and media on world web. FASB (2000) conducted a study about variety of IFR. and Canada is better than other countries. and Germany. but only 35 companies showed all information (complete annual report) at websites and 42 companies‘ although having website. (1999). (1997). Following these investigations. the committee of international accounting standards conducted a study by direction of Lymer et al. Debreceny and Gray (1997). have some forms of presenting financial information at their websites. Recent investigations by Canadian institute of chartered accountants (CICA) and Financial Accounting Standards Board (FASB) developed this way by considering other aspects like the form of moving annual reports in internet and access ability. in Austria a research was directed by Pirchegger and Wagenhofer (1999) about using the internet to present final information. it was cleared that the level of using World Wide Web to present financial information is high. Researches related to corporations‘ reporting based on internet were begun in 1996 and 1997 (Allam and Lymer. audition and other attributes. For example. which it can referred to listing the variety of IFR. Canadian. among the objects of this research design. 36 corporations presented their annual statements in the form of portable document format or hypertext markup language. in 4 other countries. Results indicate that all American. v. 2000. no meaningful relation was found. including America. (1996). In the research by Debreceny and Gray (1999) about 45 big corporations investigated in England. 10 Issue 1 (Ver 1. France. For example. Among those. and Lymer. external reporting had periodic nature and because of lacking the on time feature. Beattie (1999) regarding immediacy indicates that from ancient times. II REVIEW OF RELATED LITERATURE IFR is a new technology that has been introduced in financial reporting domain. 97 companies investigated had websites. They investigated sample included 50 big corporations of each country.P a g e |149 Vol. January2010 to improve how the investment performance of future corporations downloading and manipulation of data and available interested international marketing to global (Russell. Australia. like: i. considering the current and forthcoming needs of users of disseminated electronic information. 1997). financial reporting. that is 69 per cent of these corporations have websites and 35 per cent. then they analysis these results and compared them with their corresponding corporations in Germany. In this research kinds of profession reporting (financial and non-financial) were discussed about. Lymer. Marston and Polei (2004) directed a study which in this research a checklist was used to evaluate corporations‘ websites. The checklist used in this research to evaluate integrity of IFR is based on research by financial accounting standards board and committee of International Accounting Standard (IAS). They concluded that.

III RESEARCH METHODOLOGY A. a list was received from TSE. some methods were used. access to other websites (21 corporations) was impossible. They concluded that corporations at chemical and pharmaceutical industries have better environmental reporting than other corporations. Preparing the checklist of IFR Allam and Lymer (2003) in their study about IFR on 5 countries of the world made use of a checklist shows attributes were used in FASB or CIAS researches. General attributes. but is discussed about as new topic. Febuary 2010 P a g e | 150 general attributes. Corporations governance information. also only 4 corporations (3. Among all corporations having websites.com. B. which was used in many researches to evaluate corporations‘ websites. Khadaroo (2005) stated that although there was increase in number of corporations and kinds of information provided in the internet. and included only 210 corporations‘ websites. while in Marston and Polei (2004) research and CICA. Results show that Indian corporations use different methods for IFR. Accounting and financial information. for every corporation‘s websites acquired from www. because auditors have little control on the content of web and changes resulted from audited information Malarvizhi and Yadav (2008) conducted an empirical study in India. Results showed that only 104 corporations (38. and many factors like social. these websites were not complete and in some cases were wrong. They directed the research on 268 companies in Dhaka Stock Exchange and Chittagong Stock Exchange. Google searching engine were used. For example. It is necessary to say that most of classifying these attributes is different in different researches. Khadaroo (2005) also concluded that reporting methods is different in Singapore and Malaysia. In this received list. the attribute of ―current share price‖ in Allam and Lymer‘s (2003) research is classified in Vol.80%) had no websites. In the same sense.Iranbourse. Purpose of their research was investigating the access ability of the corporations‘ websites in Bangladesh Stock Exchange and presenting a complete snapshot from the integrity of IFR of these corporations.81%) had websites. In investigation related to finding website of corporations listed in TSE. Also 143 corporations had no websites. concluded that reporting methods is different in countries of different domains. Therefore. finally for other corporations whose website added was not found so far phone call was made.20%) were acquired websites and 64 remaining corporations (15. In this study. which develops day by day.60%) were inaccessible with matching the attributes of checklists. This sample include 24 the best corporations of India that consists of 16 industrial corporations and nonindustrial corporations. Items constituting the checklist and results of its completion This section related to a checklist prepared on the basis of researches to determine the characteristics of IFR for every corporation in TSE. then featured so said corporations were matched with the checklist.85%) presented their last financial year footnotes.60%) were accessible and out of remaining websites. organizational factors can influence the acceptance of the IFR. and websites were in reconstruction (2%) and 31 websites (7. D.0). Timeliness of information. corporations‘ use of portable document format to present reports. attributes of said checklists were matched with Iranian situation and finally a checklist of 34 attributes was prepared. ii. . CICA (2008) have presented a check list on internet financial and commercial reporting domain. However. corporations‘ websites were listed.com and list were controlled to determine whether these websites are true or not. for 342 corporations (84. cultural. only the website of 303 corporations (74. Researchers stated that only 64 corporations (61. Corporations that accessed to their websites were impossible ―Internet explored‖ browser ―Internet explorer 7‖ and. most companies made use of this framework. Based of their checklist is the same checklist prepared by Pirchegger and Wagenhofer (1999) and was used to investigation the integrity of financial information at corporations‘ websites. E.54%) showed their financial information on their websites. In short. this attribute is in ―Timeliness of information‖ and ―share information‖ classes respectively. we needed the websites of corporations listed in Tehran Stock Exchange (TSE) to complete the checklist prepared. and F. Marston and Polei (2004) made use of a check list. IFR is a new and broad research topic. In this section some of the other corporations‘ website was listed.Global Journal of Management and Business Research Allam and Lymer (2003) after investigating the size of corporations. Among other results we can refer to. finally the checklist of this research was classified in 6 sections: A. Also in Germany. corporations‘ websites were incomplete too.iranbourse. also information acquired from the website of this organization was in conflict with information received from office of this organization. i. 10 Issue 1 (Ver 1. Dutta and Bose (2007) conducted a study in Bangladesh. The quality of information reported in the internet is low for users. To finding out websites of corporations. Regarding to the investigation done in www. In some causes the websites were wrong. level of reporting methods and difference between reporting methods of big corporations listed in different countries. Contact details and other information. C. Corporations overview. nevertheless in Iran this reporting system has not still been publicized. Already. The manner of gathering information to complete IFR checklist In this research.

With relation to investigation done in TES 10 corporations (2. and duties of employees in each section. 242 corporations (59. The form of presenting financial statements is often through portable document format hypertext markup language and video files are other format. In rare cases both Excel and Word files have been used.5%) in form of hypertext markup language. 42 corporations (10. Later.7%) have presented in form of hypertext markup language.and in many cases corporations are lacking in that. 2) Profit and loss statements of last financial periodRegarding to the investigation done in TSE.80%) have presented audited balance sheet of last financial period at their websites.0).40%) had Links News summaries. This map consists of hyperlinks.70%) in form of video file.Introduction or advertising products and services at the corporations‘ website is a method corporations use Global Journal of Management and Business Research to sell their products and introduce their services to others. to determine download ability of financial statements presented at the websites. It is essential to say that. Among other important cases. General Attributes First class of the checklist attributes in this research includes following cases: 1) Site Map: usually site Map shows more details of the site information.90%) have presented in form of portable document format. Regarding to the investigation done in TSE 106 corporations (26.40%) have presented the attached notes relates to audited financial statements of last financial period at their websites. we can say . 38 corporations (9. 4) Notes related to the audited financial statements of last financial period. B.10%) introduced and advertised their products at corporations‘ website. 4) Introduction or advertising the products and services of the corporations.60%) have presented in form of portable document format.40%) had news summaries. and corporations (2%) in form of hypertext markup language and 3 corporations (0. Table 1 illustrates that none of the corporations have completely presented financial statement in year of 2007. with relation to investigation done in TSE 12 corporations (3%) presented their employee profile information at the websites.10%) had site maps. Regarding to the investigation done in TSE. C. 2) Customer profile-among cases related to customer profile we can name details of important customers like their location. 2 corporations s (0. completeness and timeliness of the corporations‘ information. corporations (62. financial statements of corporations presented. 54 corporations (13. the archive of corporations financial statements in uncompleted. One of the reasons. 42 corporations (10. through which they guarantee the rightness. This class includes following attributes 1) Audited balance sheet of last financial period: regarding to investigation done in TSE. corporations‘ reflex links to the information in other resources of their website.30%) have presented audited profit and loss statements of last financial period at their websites. With relation to investigation done in TSE 252.Regarding to this matter. 2) Search Box: search box helps to identify the location of certain information.30%) have presented audited cash flow statements of last financial period at their websites.30%) have presented in form of portable document format. for instance.50%) presented their customer profile information at the websites. among other things we can refer to overview of the industry. Regarding to investigation done in TSE. 3) News summaries Links to News summaries: News summaries section on the websites.60%) present information and goals of the corporations at websites.70%) in form of video file. Among these 36 corporations (8. were downloaded. 3) Audited cash flow statement of last financial period-Regarding to the investigation done in TSE. Corporations Overview The second class of checklist includes the following attributes 1) Information related to corporations activities and objectives-This section includes general information about the corporations like corporations‘ headquarters and corporations‘ mission and objectives. 36 corporations (0. 3 corporations (0. Objectives discuss can include the summaries of corporations successes in the past.P a g e |151 Vol. Among these. Among these 43 corporations (10. 56 corporations (13. 106 corporations (25. Result overview of financial archive for industries that put them on the website is presented in Table 1. January2010 A.7%) in the form of video file. Financial And Accounting Information Third class of the checklist is a set of attributes which show the accessibility to financial and accounting information. includes press release to print in newspaper and general news about the corporations. statistics related to the presentation of financial statements will be provided. sex. It is necessary to say that. is that.80%) had search box. 3) Employee profileAmong cases related to employee profile we can refer to the number. That user can directly crawl to a certain page or section of the website. 121 corporations (29. Among these. 10 Issue 1 (Ver 1. and users can reach to a certain term or clause by entering that regarding to the investigation done in TSE. Also 103 corporations (25. 11 corporations (2. age.

institutes and other organizations automobile & construction of segments Computer & related activities other products of nonmetal other financial mediators Financial investments cement.20%) have presented their financial statements of 2006 in form of portable document format. but only 17 corporations (4.Global Journal of Management and Business Research that the number of archives were low during different years. chalk Industrial multifold oil products. lime. 10 Issue 1 (Ver 1. 25 corporations (6. Name of Total number of corporations Total number of corporations having industry having basic financial statements attached notes with financial statements Coal extraction Metal are extraction Mass production of properties banks.20%) have disclosed the Vol.0). Table 1: results related to financial statements archive exiting at the websites of corporations listed in TSE. For example. Febuary 2010 P a g e | 152 attached notes of that year in form of portable document format on the websites. coke nuclear fuel basic metals sugar & cube sugar Tile and ceramic Machinery & equipment Wooden products Chemical products Food & beverage products 2001 and before 2002 2003 2004 2005 2006 2001 and before 2002 2003 2004 2005 2006 - - - 1p 1p 1p - - - 1p 1p 1p - - - - 1p 2p - - - - - 1p 1p 1p 1p 1J 1P 1J 4P 1J 3P 1J - - 1J 1J 4P 1J 2P 1J 2P 2P 2P 2P 2P - 2P 2P 2P 2P 2P - 1J 1J - - - - - - - - - - - - 1P - - - - - 1P - 2P 2P 1W 2P 1W 2P 1W 2P 1W 2P 2P 2P 2P 2P 2P 2P - - 1P 2P 3P 2P - - - - - 1P - - 1P 1P 2P 2P - - 1P 1P 2P 1P - 1P 2P 2P 3P - - 1P 1P 1P 1P - - 1P 1H 1P 1H 1P 1H 3P 1H 1P 1H - - 1P 1P 1P 1P - - - - 1P 1P - - - - 1P 1P 1P 1P 1P 1P - - 1P 1P 1P 1P - - - - 1H 1H 1H 1H - - - - - - - - - - - 1H - - - - - - - - 1P 1P 2P 1P - - 1P 1P 2P - - - 1H 1H 1H - - - - - 1P 1P 1P 2P 5P 3P 1P 1P 1P 2P 4P 3P - - 1J 1J 1H 1J 1P 1H 1P 1H - - - 1J 1P 1J 1P 1J .

70%) show the share prices of last year on their websites.90%) have presented interim financial of 2008 at their websites. 32 corporations (7.80%) includes information related to corporations. Legal inspector‘s signature on inspector report related to financial statements of last financial period. Link to www.20%) is in form of hypertext markup language and for one corporation (0.5%) in form of video. p =Portable Document Format. presented the information related to corporations management at their websites.iranbourse. H=Hypertext Markup Language. Legal inspector‘s report about financial statements of last financial period. Name and characteristics of management. for example only one corporation of this industry had financial statements archive. 26 corporations (6. for corporations presenting auditor‘s report. manner of contact. the website of 40 corporations (9. In 24 corporations (5.90%) the form of presenting report is portable document format and in 2 corporations (0. Among these. Overview of financial ratios related to last financial period. iii. iv. Regarding to the investigation done in TSE. Results of annual general congress related to last characteristics of m period: the investigation done in TSE shows that 14 corporations (3. ii. The signature of the board on board‘s report of last characteristics of period. and J=IPEG - - It is necessary to say that among industries having complete archives of financial statement. 10 Issue 1 (Ver 1.0). 74 corporations (18. Regarding to the investigation done in TSE. W= Word. legal inspector expresses his idea of financial statements and of board‘s activities report.40%) have presented the auditor‘s and legal inspector report at the website. background and in some cases the name of their representative. 34 corporations (8. Document format. It is noticeable that one corporation has presented the audited forth coming financial statements at the website. ―Tile and Ceramic‖ industry has the least amount of presentation. D. Auditor‘s report is an important source of making annual reports credible and assuring. 1 corporation (0. Auditor‘s report about financial statements of last financial period ii. In all cases.80%) are linked to www. Only 23 corporations (5. and only for 2006.40%) have put the board‘s report at the website of corporations. 7 corporations (1. .90%) have presented in form of portable document format. Corporations Governance Information Items related to this class of checklist includes following cases: Name and characteristics of members of board. The board‘s report of last characteristics of period. With relation to investigation done in TSE. the signature of auditor and inspector has been scanned.10%). budget and each share‘s profit related to forthcoming financial period.2%).P a g e |153 Vol. 2 corporations (0.5%) it is in form of hypertext markup language. 5) Interim financial statements of 2008: regarding to the investigation done in TSE.20%) in form of excel.2%) has presented financial ratios of last financial period in summary at its website and the form of presentation was hypertext markup language. Among these.2%) is in form of ―Word‖ file. i. the form of presenting these results is portable (0. Regarding to investigation done in TSE.com through their corporations‘ websites.40%) have presented the results of annual general congress of last characteristics of m period at the website. It is necessary to say that. 8 corporations (1. the signature of members of the board was seen on the report. Regarding to investigation done in TSE. January2010 except sugar & cube sugar Textile materials pharmaceutical products Total - - 1P 1P 1P 1P Global Journal of Management and Business Research - - 1P 1P 1P 1P 2P 2P 3P 2P 1P 1P 1H 1H 2H 3H 16P 19P 33P 8P 25P 3H 6H 6H 11P 13P 24P 7P 1J 1J 6H 6P 6P 17P 1J 2J 2J 2J 1J 2J 1J 1W 1J 1W 1W 1W Notes. 60 corporations (14. i. like characteristics. In 8 corporations. only 1 corporation (0.20%) present information of the board. Prediction about corporations operations: in this section. forthcoming operations. auditor‘s report and legal inspector report are in same report.com : Regarding to investigation done in TSE. some information has been presented about buying & selling.iranbourse. in 21 cases (5.70%) have presented in form of portable document. Auditor‘s signature on audit report of last financial period. for 5 corporations (1.

4) English version of website: since corporations can have different users in the countries.0).2 14. Regarding to the study in TSE 246 corporations (60.60 15.90 P+0. Febuary 2010 P a g e | 154 E. F. Regarding to the investigation done in TSE. 32 corporations (7. the website or 251 corporations (61. the price of share have been considered base on last day of transaction.60 100.7 H+0.80 26.60%) have English version for their website.00 7.80 100. Total Site map Search box News summaries Links to news summaries Information related to corporation‘s activity Customer profile Introduction or advertising the corporations products ad services Audited balance sheet of last financial period Audited profit & loss statements of last financial period Audited cash flow statements of last financial period Attached notes of last financial period (LFP) Interim financial reporting Auditor‘s report of last financial period Signature of auditor – report of (LFP) Legal inspector‘s report of (LFP) Signature of legal inspector – report of (LFP) Overview of financial ratios related to last period Links to www.70H+0.30 P+2.90 P+0.40 7. Overview of results acquired from investigation the websites of corporations listed in TSE is shown in Table 2. 10 Issue 1 (Ver 1. Contact Details And Information Corporations should present their contact information completely so that investors and beneficiaries could contact with the corporations and receive their essential information. 2) Current share price or share price at last day of transaction regarding to investigation done in TSE. Results of integrity of IFR of corporations listed in TSE Name of industry Total number of corporations Number of accessible websites Number of corporation that don‘t have websites Number of the websites in reconstruction Number of inaccessible websites. Time Lines Of Information 3) Post and phone number This class of checklist includes the following cases: 1) Determination of last updating: regarding to this matter in TSE. Regarding to the investigation done in TSE.5 J 8.iranbourse. 3) Financial calendar: Among cases registered in financial calendar we can refer to date of annual congresses or results of forthcoming quarters.00 74.00 26. 262 corporations (64.5 J 8.00 H+0. In some corporations that no transaction has done. Regarding to in TSE.com All industries Number 406 303 64 8 31 406 106 121 106 103 242 12 Per cent 252 62.Global Journal of Management and Business Research Vol.00 .80 2.10 42 p+11 H+3 j 10.5 H 1. none of corporations have presented this attribute at their websites.1%) present the corporations post address. Last class of the checklist includes following cases.60 3. so it is better to present their website‘s information in different languages. 1) E-mail to contact 2) Fax and phone number Table 2.60 P+20.7 J 43 P+8 H+3 J 10.10 25.7 J 36 P+2 H 7 P+1 X 32 P+2 J 34 32 P+2 J 34 1 60 8. and website of 252 corporations (62.50%) have presented e-mail of corporations at the website.10 29.90%) show the updating of information at the corporations website.2 H 7.90 P+0.7 J 36 P+3 H+3 J 8. Other necessary information for investors to make contact includes fax & phone number and postal address.90 P+0. 20 corporations (4.40 59.70 P+0.80%) includes fax & phone number.90%) show the share price at that day.40 0.

3 98 98 98 98 100 100 100 100 70 70 46. Canada.10.3 Un 84 87 3 2. IV COMPARING THE INTEGRITY OF IFR IN TSE WITH SIMILAR RESEARCHES In this section.7 98 59 67 . January2010 corporations share price 23 5. 40 9. postal address of corporations. It is noticeable that the amount of presenting financial statements at the corporations‘ website is low.2 W Prediction of analysts‘ (buying/selling.60%) was accessible. Of course the most attributes observed at corporations websites include e-mail. Marston & polie (2004).3 73. W= Word. profit & loss statements.0).9 and 8. 1999).70 Name and arrangement of board of director 74 18. Australia.80 Post address of corporations 252 62.6 98 96 100 98 83. cash flow statements. the website of 303 corporations (74.20 Name and management‘s information 77 18.50.00 e-mail to contact 262 64.3 20 23.20 Results of general annual meeting of (LFP) 8 P+5 H+1 W 2 P+1.80 26.90 Letter / board report (LFP) 24 P+2 H 5.6. among 406 corporations listed in TSE.7 83.1 4 2 Un 6 40 Un 4 4 Un 0 0 Un Un Un Un Un Un Un Un Un Un Un Un Un Un 11 Un Un Un 71 Un Un 46 13. and Germany have websites.9 P+0. H=Hypertext Markup Language. Table 3.9 respectively.2 H+0.90 Selling or weekly/monthly operations 2 0. 62. the results of the study are compared with Allam and Lymer research (2003). have websites while all corporations investigated in America.3 92 96 100 100 70 46. Table 3 shows the summaries of this comparison. is financial calendar. Comparison of integrity of IFR in TSE with similar researches Items Results Research of this study Iran America Percent Percent of 84.3.3 36. 8. 61. notes attached to financial statements in the form of portable document format is 10.10 English version of the page 246 60. Committee of International Accounting Standard (CIAS) (1999). and X= Excel Table 2 showed that.90 Current share price 32 7. 10.5 62.5 H Signature on board‘s report 21 5.7 13.50 Fax and phone number 251 61.10.67 Canada Australia percent percent percent 100 100 100 research (2005) of khadore Malaysia Singapore percent percent 75 87 26.20 per cent of corporations listed in TSE.60 Notes: Notes. 10 Issue 1 (Ver 1. Also the attribute corporations website are lacking in that.10 29.3 16.10 25. and khadaroo (2005). J=IPEG.Global Journal of Management and Business Research P a g e |155 Vol.7 73. Table 3 shows that 84. It is interesting to note that amount of presenting financial statements and audit report at the websites of corporations of this study is low in comparison with similar researches (Except Australia related to research of CIAS.80 operations/EPS/Budget) Determination of last updating 20 4. introduction or advertising corporations products & services and fax & phone number that are 64.7 93.7 76.80 per cent respectively. p =Portable Document Format. For example.3 98 98 63 60 80 80 10.4 74 86 100 24 52 82 98 10 74 66 100 10 60 64 98 2 Un Un Un Un Un Un Un Un Un Un Un Un Un Un Un Un 77 70 Un Un 19 47 Un 60 82 38 Un 64 59.20 100 Existence website site map search box News summaries Links to news summaries Information related to corporations‘‘ activities Customer profile employee profile Introduction or advertising corporation products and services Balance sheet Profit & loss statements Cash flow Allam & Lymer (2003) Research of CIAS (1999) research of Marston & polie (2004) England Canada Percent percent 100 100 Australia American percent Percent 100 100 England percent 96. the amount of balance sheet presentation. 62.7 46.50 Financial calendar 0 0.

Global Journal of Management and Business Research
statements
Attached notes
Interim financial
reporting
Auditors‘ report
auditor‘s signature
Legal inspector‘s
report
Overview
of
financial
statements
Links
to
www.iranbourse.
com
corporations
share price
Name
&
arrangement of
board of director
Name
and
information
of
management
Letter / board‘s
report
Signature
on
board‘s report

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 156

9.4
1.9

90
92

96
10

100
98

100
10

70
Un

46.7
Un

73.3
Un

16.7
Un

98
95

57
25

80
21

84
8.4
8.4

96
Un
Un

98
Un
Un

100
Un
Un

98
Un
Un

60
Un
Un

43.3
Un
Un

56.7
Un
Un

13.3
Un
Un

98
Un
Un

48
Un
Un

69
Un
Un

0.2

68

56

62

60

Un

Un

Un

Un

Un

Un

Un

14.8

U

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

5.7

90

90

74

66

Un

Un

Un

Un

93

Un

Un

18.2

98

98

100

98

Un

Un

Un

Un

84

63

80

18.9

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

6.4

98

94

96

96

70

56.7

70

33.3

u

48

67

5.2

Un

Un

Un

Un

Un

Un

Un

Un

Un

28

33

Results of annual
general congress

3.4

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

Prediction
of
analysts‘ (include
buying / selling /
operations/EPS
/Budget
Determination of
last updating
Current
share
price
Weekly monthly
selling
of
operations
Financial
calendar
e-mail to contact

9.8

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

4.9

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

7.9

96

96

92

68

Un

Un

Un

Un

93

25

38

0.5

Un

Un

Un

Un

Un

Un

Un

Un

2

Un

Un

0

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

Un

64.5

60

74

68

40

Un

Un

Un

Un

100

33

41

Fax &
number

phone

61.8

Un

Un

Un

Un

Un

Un

Un

Un

98

37

38

Post address of
corporation

62.1

Un

Un

Un

Un

Un

Un

Un

Un

80

35

38

English version
of the page

60.6

Un

Un

Un

Un

Un

Un

Un

Un

95

Un

Un

Notes: Un= Unknown or incomparable with other studies
V

CONCLUSION

By matching the checklist complete in TSE with similar
researches, it is clear that in Iran, there is weak in
presentation some items like balance sheet, profit & loss
statement, cash flow statements, and notes attached to
financial statements compared to similar researches of other
countries. Also the archive of corporations existing in TSE
is in complete, and in many cases corporations are lacking in
that. In other words, based on researches we can conclude
that integrity of IFR in corporations listed in TSE is not
good in comparison with other countries.

Research limitations
The limitations of the study as follows
1) Items of the checklist are limited in comparison
with basic researches like, research of (FASB).
2) The websites of 39 corporations were inaccessible
because websites of some corporations were in
reconstruction and because of problems related to
the disconnection of internet and servers this was
very different.

P a g e |157 Vol. 10 Issue 1 (Ver 1.0), January2010
VI

Global Journal of Management and Business Research

RECOMMENDATIONS

1) It is recommended that a standard should be
determined by TSE organization to present IFR.
2) In order to IFR, some legal necessities should be
determined by TSE to presenting information on
the corporations‘ websites.
3) Users should be informed of internet use
advantages as a auditing & reporting tool, to
improve IFR.
4) In educational schedule of management and
accounting fields and other related fields, one
course named accounting & IFR should be
included.

12)

13)

14)

15)
VII

REFERENCES

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P a g e |159 Vol. 10 Issue 1 (Ver 1.0), January2010

Global Journal of Management and Business Research

Brand Decisions and Brand Influence:
A Comparison of Rural and Urban Consumers
Jagwinder Singh and B B Goyal
Abstract - Indian economy has witnessed a significant growth
in recent years. Rural India offers a huge potential for
marketers who are battling in the saturated urban markets.
The study has been carried out in Punjab state of India with a
view to understand the differences between rural and urban
households in terms of their brand decisions and brand
influence on the buying of select durable goods. In-depth
interviews have been conducted to look into insights of the
consumers’ behaviour with the help of a bilingual
questionnaire that was served to the respondents. Overall there
have been considerable differences between rural and urban
consumers for the buying of television and refrigerator.
However these differences have been found moderate for the
buying of an automobile10.

Keywords- Rural, Urban, Households, Durable, Brand.
I

INTRODUCTION

ne-sixth of the world‘s population lives in India.
Therefore, India is an attractive market (Ling and
Dawn, 2004). The economy witnesses increased potential
for consumption, increased competition, availability of
products both in terms of quality and quantity, and increased
level of awareness among consumers. A large urban middle
class and upper class, which constitutes one-third of the
population, is a huge market for branded goods. The market
for branded goods is increasing at 8 per cent per annum and
in certain consumer goods, it is increasing at even 12 per
cent. The Indian economy is the third largest in Asia. It is
expected to grow at 7 per cent. The decrease in import
tariffs has allowed large inflow of products from the other
nations. Besides this, the Indian companies are entering into
strategic alliances with the foreign reputed brands (Kinra,
2006). There is a tremendous potential in the rural areas.
However many companies had not been successful in rural
areas due to lack of adequate knowledge about rural
consumer and consequently failure of the companies to
develop sustainable strategies. According to Sinha (2005),
rural India in which more than 74 per cent of the population
of the country resides; generates one-third of country‘s
GDP, and accounts for 38 per cent of two-wheelers sales of
the country. Not all people are engaged in agriculture; about

O

Manuscript received on ―January 17, 2010‖.
Ist Author is Assistant Professor, Dept. of Humanities and
Management, Dr B R Ambedkar NIT Jalandhar, India. Ph:
91-98885-03708. Email: jagwinpandher@yahoo.co.in.
IInd Author is Reader, UBS, Panjab University Chandigarh.
Ph: 91-94173-07276. Email: ubschd@yahoo.co.in.

25 percent have non-farm occupations. Disposable income
again is not low. According to report of Ace Global Private
Limited (2001) for The Commercial and Economic Section,
Embassy of Italy in India, on Overview of Consumer Goods
Sector: Market Potential and Prospects for Italian Goods;
the rural population is spread all over India in close to 0.6
million villages. Nearly 45 per cent of rural Indians are
literate (men 59 per cent, women 31 per cent). The rural
share (%) for refrigerators is 25, black and white television
63, washing machine 15, color television 29, scooter 29, and
48 in motorcycle. Due to heavy dependence on agricultural
output, rural consumers are highly sensitive to price, prefer
small consumption packages, and tend to discount intangible
benefits to more functional product attributes. The
competition has tremendously increased in urban areas due
to the emergence of more players and they are battling for
market share in terms of gaining or regaining by reducing
prices.
II
REVIEW OF LITERATURE
A brand is a set of mental associations, held by the
customer, which add to the perceived value of a product or
service. These associations should be unique (exclusive),
strong (salient), and positive (desirable). In practice, brands
have always provided a competitive advantage to
companies, which sought to understand the wants of their
target market in order to develop a package of attributes to
meet these wants (Ind, 2003). Furthermore, brands have
been perceived as providing a greater security and a higher
level of performance while eliminating alternatives by
providing a better overall customization of perceived
preferences (Jiang, 2004; Keller, 2003; Temporal and Lee,
2000; Bahmanziari et al, 2003; The Economist, 2005). As a
result, consumers more often choose branded products when
given the choice between products with similar features and
benefits, fully prepared to pay a premium price (Temporal
and Lee, 2000; The Economist, 2005). But not only that,
now-a-days consumers have also started building an
emotional bond with brands, becoming friends with them,
and are even said to be seduced to look alike, eat alike and
be alike (McFadden and Train, 1996). Temporal and Lee
(2000) added that not only mass customization became a
reality that brands have to face, but also, because of the
global village we are living in, everything physical can be
copied with amazing speed, which leaves only a little room
for the traditional USP brands that were built on originality.
It is important to make a distinction between a decision to
buy a car (product) and a decision to buy a particular brand
of a car, as the two decisions will be influenced by different
considerations. The former decision will be affected by
income, liquid asset holding, hire-purchase terms and other

Maharaja Appliances have launched a range of products with ‗no frills‘ especially for rural and semi-urban areas. has been carried out in Punjab state of India in 2008-2009. Brand switching behaviour was expected to be lower for cultures that were rated high on uncertainty avoidance. As regards to the relationship between needs and brand loyal behaviour. In case of additional purchase/replacement or their likelihood in near future about the select items. satisfied switchers (who switched to other brand for reasons other than dissatisfaction). as it will be the benchmark for understanding the unknown behaviour of the rural consumer. It lowers the time of choice as the consumers who are familiar with the brand take less time in choosing a brand. the acquisition of information regarding the quality of individual attribute is either not easily available or very costly as compared to experience products. The consumers‘ age group of 18-24 years is less brand-loyal (Wood. Korean consumers were more brand-loyal as their two needs – social and functional needs get satisfied to the large extent and at the same time there is fulfillment of experiential needs to the reasonable extent. Little attention had been paid to rural consumers‘ buying behaviour (Home. Television (entertainment product). The consumers disagree that brand choice is a reflection of ‗self image‘ (Wood. Alpert and Kamins (1995) observed that consumers generally had positive perception about the brands. which emerged first and it continued even after the entry of follower brands. refrigerator. design. considering smart work as key and hard work obsolete. 2004). Brand serves a different role than other attributes. Many companies of consumer products (both durable and non-durable) are making their efforts in rural areas. the features of the product may be sufficient for a consumer to reach a quantitative decision in customization but the qualitative aspect of the decision is represented by the brand name. Young consumers are competent consumers and influence consumption choices of the family to the great extent (Gronhoj. 2006). There is a positive and significant relationship between brand name effects and preference match and further positive and significant relationship between consumers‘ preference match and willingness to pay premium price. in this situation the importance of brand name is reduced. The later decision is taken subsequent to the former decision and is influenced by price. Brand recall too of urban consumers was better than rural ones (Sun and Wu.0). The study finds association of brands with status. relative attitudes and actual purchase behaviour. the quality information available about customization attributes is large. Brand name has stronger effects in customization of search products than experience products. The role of understanding urban markets is also very important. and an Automobile (two-wheeler. 2004). 2007). Increase in infrastructure and change in lifestyle due to proliferation of television have changed the buying habits of the rural people Shivakumar and Arun. precedence of money and symbols of social stature over everything else. 2007). Consumers with high knowledge of brands can choose brands from the market with ease. Sharma (2004) examines the human behaviour with respect to urban Indian youth. A sample of 407 (204 from urban and 207 from rural areas) households across the state have been selected based on non-probability convenience sampling. and adopting contemporary western setting among today‘s youth. harboring individualism and selfishness. Refrigerator (home appliance). In case of Korean consumers. may rely on the prior information. In case of experience products the constituents are non-quantifiable. There is a positive and significant effect of brand names in consumers‘ decision-making during customization process. Therefore. 10 Issue 1 (Ver 1. 1956). 2002). and therefore. In search products like TV or computer. In such a situation brand name is not a considerable quality symptom. The roles can vary for different products such as search and experience products. next social needs and finally functional needs. Urban consumers being more exposed to the advertising messages had been found more brand conscious. size. 2002). The same amount of inter-household and retailer-household discussion will take place for both types of decisions (Downham and Treasure. Sony has also introduced its models in the rural areas. color. which is descriptive in nature. The data about current ownership or likelihood of purchases in the next 24 months on the select durable goods (television. brand name that represents the composite ‗enriched attribute‘ becomes increasingly important (Jiang. 1998). In case of search products. and all other attributes of a durable good. The consumers base of the company consists of three categories of consumers: stayers (who had never switched from the previous brand). The consumers above 46 years of age are not carried away by brand names (de Rada. 2002). and any type of automobile) were obtained. All respondents had been found possessing at least one item of each select product. Therefore. The . Further there was a strong positive relationship between volume purchase behaviour and brand loyalty as the brand loyal consumers tend to spend more (Kim et al. The consumers. the respondents were asked to give their responses only to the latest/likely buying. thereby appraising the pros and cons of different brands. Three durable goods from three different product categories.Global Journal of Management and Business Research economic and sociological factors.Gregory (1999) concluded that brand loyalty had the direct relationship with consistency between subjective norms. There is a positive relation in brand name effects and consumers‘ product knowledge. Rural consumers are those who live in villages and those residing in cities (district headquarters) are urban consumers. III METHODOLOGY ADOPTED The study. if find that the search cost is greater for getting relevant information. capacity. it was observed that the Chinese consumers Vol. motorcycle and car/jeep) have been selected for study. Febuary 2010 P a g e | 160 remain loyal to the brand first to satisfy their experiential needs. functional and social needs were stronger determinants of brand loyalty than experiential needs. 2007). and dissatisfied switchers (who switched because they were dissatisfied with the previous brand) (Nasir et al. This is so because of increase in rural purchasing power over the past decade due to increase in support prices for the farm produce.

their significance has been checked at 95% confidence level. The concern for quality had been found significantly greater among the urban consumers than the rural consumers. Twoway ANOVA (Analysis of Variance) has been applied to test the independent effects and the interaction effects of habitat (rural or urban) and income. The tendency to buy the brand of good reputation had been found among both the rural and urban consumers (X8). air conditioners. and economically different from his urban counterpart. They are significantly different in terms of their lifestyle from their urban counterparts. The study has been carried out in one state and therefore. The p-values have been calculated for all the variables statements and on comparing with central value (3 representing indifference to the statement). Both the groups had not found following their friends‘ choice of television brands (X5). the marketers of national and international corporations are committing the same mistakes as multinational corporations did while entering into the developing countries with the same practices as that of their own country. A household includes the related family members and all the unrelated persons who occupy a housing unit. generator sets. In understanding cross-cultural differences. Television Though quality is a primary concern for both rural and urban groups while choosing their brands (X4). The households may include either a family or a non-family or both (Louden and Della Bitta. Ordinal scale has been used which has been converted into 5 point interval scale (1 for strongly disagree and 5 for strongly agree) at the time of data analysis.2). The brand makes a lot of difference for the urban consumers . X3. However there are large number of consumer durables such as washing machines. However this tendency had been significantly greater in rural consumers as compared to their urban counterparts. 2003). Moreover only three products (only one product from three categories) have been selected. depth interviews with the respondents are necessary because such an exploratory research will provide valuable insights regarding the variations across different cultures (Maheswaran and Shavitt. had strong preferences to buy their favorite brands whereas. The questionnaire has been pre-tested before going for final survey. No differences could be observed among different income groups for all the select variables. In terms of the roles of the brands on the consumers‘ buying of television sets (X7 to X12). X4. Discriminant analysis has also been carried out to observe the differences between rural and urban consumers. The urban consumer on the other side considered the price to the moderate extent while choosing the brand. Downham and Treasure (1956) has emphasized on indirect questioning and subtle psychological approach to obtain information regarding intrinsic factors. 2007). The significant values have been marked as *. Both the groups had the strong tendencies to stick to the brand once they find a good brand (X6). Overall. Similarly. the urban consumers irrespective of price. the rural consumers had such preferences to the moderate extent (X7). The structure matrix of the discriminant analysis reveals X3 to be the most discriminating variable followed by X6 and X2 (Table T 1. and X6 (Table T 1). 2000).7% of crossvalidated groups have been found correctly classified. H1 Rural and Urban consumers differ in terms of brand decisions. Global Journal of Management and Business Research LIMITATIONS OF STUDY V The sample size is too small to generalize the findings. rural India should not be treated as an extension of urban India (Mano Raj and Selvaraj. 2002). psychologically. The significant differences between behaviors‘ of the rural and urban consumers could be observed for the variables X2.1). Therefore. Two-way ANOVA reveals no interaction between income and habitat of consumers for all the select variables.0). both the groups have distinct behaviors‘ as the same is revealed from the classification results. The study here includes only family households. The different states may exhibit different consumption patterns (Halan. VI DATA ANALYSIS The data collected have been presented and analyzed here as under: A. cannot be generalized for whole of the country. This is so because conventional techniques can take us only up to a point.5 % of original groups and 72. H2 Rural and Urban consumers differ in terms of brand influences. However such tendencies had been significantly higher among urban consumers as compared to their rural counterparts. pvalues have also been calculated to observe the significance (95% confidence interval) of differences between the responses of rural and urban consumers. 73. January2010 consumers residing in towns (semi-urban areas) have not been considered in the study. Following hypotheses have been tested in the study. IV RATIONALE FOR STUDY In spite of tremendous potential in the rural areas. yet the brand choice of rural consumers is significantly governed by the price (X3). In-depth interviews have been conducted to look into insights of the consumers‘ behaviour with the help of a bilingual questionnaire that was served to the respondents to obtain important information as regards to the prime objectives of the study. water purifiers. according to which. There had been significant differences between rural and urban consumers for all other select variables except X1 and X5 with the highest F value for X3 (Table T 1. The rural consumer is socially. and habitat and select durables. 10 Issue 1 (Ver 1.P a g e |161 Vol. There is again a variety of items within a product category and they carry different utilities at different values for different strata of consumers. and kitchen appliances etc.

according to which. Overall. the urban consumers did not think so. The urban consumer on the other considered the price to the moderate extent while choosing the brand. 81% of original groups and 80% of cross-validated groups have been found correctly classified. The rural consumers believed that all the brands of television sets are almost alike quality wise (X9) whereas.1). However.6% of the groups have been found correctly classified. This preference had been found significantly greater among the urban consumers as compared to their rural counterparts. both the groups have distinct behaviors as the same is revealed from the classification results. it had been found making significantly greater difference for the urban consumers than the rural ones. However. Though quality was a primary concern for both rural and urban .0).5 % of original groups and 82% of cross-validated groups have been found correctly classified. where there had been significant interaction. Two-way ANOVA reveals no interaction between income and habitat of consumers for all the select variables. Febuary 2010 P a g e | 162 reveals X3 to be the most discriminating variable followed by X2 and X6.2) of the discriminating analysis also Vol. such tendencies had been found relatively higher among rural consumers as compared to their urban counterparts. The brand makes a lot of difference to both rural and urban consumers (X12). the rural consumers are moderately influenced by the advertisements for their brand selections. There had been significant differences between rural and urban consumers for variables X2. No differences could be observed among different income groups for all other select variables except X8. Automobiles In terms of branding decisions (X1 to X6). However such tendencies had been found significantly higher among urban consumers as compared to their rural counterparts. 69. However this tendency is significantly greater in rural consumers as compared to their urban counterparts. Both the groups had been found considering the other features of the product important besides brand (X11). 82. The urban consumers had a strong tendency to change brands for the sake of variety and novelty (X2) whereas. it makes an impact to the moderate extent on the buying of the rural consumers. In terms of the influence of the brands on the consumers‘ buying of refrigerators (X7 to X12). Two-way ANOVA reveals no interaction between income and habitat of consumers for all other select variables except X11. B. There had been significant differences between the behaviors of rural and urban consumers for all the select variables (Table R 2). 10 Issue 1 (Ver 1. Though quality is a primary concern for both rural and urban groups while choosing their brands (X4). regardless of price (X7). yet the brand choice of rural consumers is significantly governed by the price (X3). the urban consumers did not think so. But there had been significant differences in the extent of perceptions of these groups. The significant differences between behaviors of the rural and urban consumers could be observed for the variables X2. The urban consumers were most likely to buy the most advertised brands (X10) whereas. The tendency to buy the brand of good reputation had been found among both the rural and urban consumers (X8). X3 and X6 with the highest F value for variable X3 followed by X2 (Table R 1. both the groups have distinct behaviors as the same is revealed from the classification results. No significant differences could be observed among different income groups for all other select variables except X8. There had been significant differences between the behaviors‘ of rural and urban consumers for all the select variables (Table T 2).Global Journal of Management and Business Research (X12) whereas.1). Both the groups had the strong tendencies to stick to the brand once they find a good brand (X6). both the groups have distinct behaviors‘ as the same is revealed from the classification results. according to which. it has been observed that both rural and urban consumers had more than one preferred brands of refrigerators (X1). Refrigerator In terms of branding decisions (X1 to X6).2) of the discriminant analysis reveals X9 to be the most discriminating variable followed by X8 and X10. both rural and urban consumers irrespective of price. this tendency had been found significantly greater among urban consumers than their rural counterparts had. The urban consumers had a strong tendency to change brands for the sake of variety and novelty (X2) whereas. the rural consumers had the same to the moderate extent. Both rural and urban consumers were most likely to buy the most advertised brands (X10). had strong preferences to buy their favourite brands.2) of the discriminant analysis reveals X9 to be the most discriminating variable followed by X12 and X8. The structure matrix (Table T 2. However. the same had been significantly less among rural consumers. according to which. There had been significant differences between rural and urban consumers for all the select variables with the highest F value for X9 followed by X8 (Table T 2. Overall. Two-way ANOVA reveals no interaction between income and habitat of consumers for all other select variables except X11. However. The rural consumers strongly believed that all the brands of refrigerators are almost alike quality wise (X9) whereas. Overall. X3 and X6 (Table R 1). This propensity had significantly been observed among the urban consumers as compared to their rural counterparts. The structure matrix (Table R 2. The structure matrix (Table R 1.1). No significant differences could be observed among different income groups for all the select variables. There had been significant differences between rural and urban consumers for all the select variables with the highest F value for variable X9 followed by X12 (Table R 2. Both the groups had not found following their friends‘ choice of refrigerator brands (X5). such tendencies had been found relatively higher among rural consumers as compared to their urban counterparts. C. Both the groups had been found considering the other features of the product important besides brand (X11). it has been observed that both rural and urban consumers had more than one preferred brands of automobiles (X1).

There had been significant differences between rural and urban consumers for all other select variables except variables X3 and X6 with the highest F value for variable X2 followed by X5 (Table A 1. The Global Journal of Management and Business Research structure matrix (Table A 2.7% of cross-validated groups have been found correctly classified.4% of the original groups and 66. A. Both the groups had been found considering the other features of the product important besides brand (X11). the urban consumers did not think so. VII DISCUSSION AND CONCLUSIONS Following conclusions can be drawn from the study. Wood (2007) further found that the brand loyalty is more among laggards. In case of automobiles. There had been significant differences between the behaviors of rural and urban consumers for all the select variables except X7 and X11 (Table A 2). Brand Decisions Both rural and urban consumers have more than one preferred brands of the select products. Overall both the groups have moderately distinct behaviors as the same is revealed from the classification results according to which. 67. Moreover. Shivakumar and Arun (2002) have also found that rural consumers consider only selected brand before making a purchase decision. X5 and X6. no interaction between habitat and the product categories had been observed for all other variables except X6. probably due to which rural consumers are relatively more brand loyal.2) of the discriminant analysis also reveal X2 to be the most discriminating variable followed by X5 and X3. this tendency is significantly greater among urban consumers than the rural ones. The tendency to buy the brand of good reputation had been found between both the rural and urban consumers (X8).P a g e |163 Vol. The urban consumers have a strong tendency to change brands for the sake of variety and novelty whereas. In terms of the roles of the brands on the consumers‘ buying of automobiles (X7 to X12). Two-way ANOVA reveals no interaction between income and habitat of consumers for all the select variables. There had been significantly greater agreement among the urban consumers as compared to their rural counterparts. in case of automobile. where the same is greater among urban consumers than their rural counterparts.1). There had been significant differences between the behaviour of these consumers for the three different select products in terms of all select variables with the highest F value for X12 (Table T-R-A 1). Two-way ANOVA reveals no interaction between income and habitat of consumers for all other select variables except X10. therefore.2) of the discriminant analysis also reveals X9 to be the most discriminating variable. There had not been significant differences between rural and urban consumers for all other select variables except variable X9 (Table A 2. No significant difference could be observed between different income groups for all the select variables. Both the groups had been found following their friends‘ choice of automobile brands (X5) and such tendency had been found significantly greater among the rural consumers as compared to their urban counterparts. both rural and urban consumers irrespective of price. Both the structure matrix and the standardized canonical discriminant function coefficients (Table A 1. regardless of price (X7). The classification results revealed that 15.1). the urban consumer considered the price comparatively less. the urban . There had been significant differences between different income groups for all the select variables except X7 and X8. In branding decisions. such a tendency had been found higher among urban consumers than rural ones. this tendency exists to the less extent among rural consumers. There had been significant differences between rural and urban consumers for all the select variables with the highest F value for X2 followed by X3. In terms of brand influence. with the highest F value for X6 followed by X5. The significant differences between behaviors of the rural and urban consumers could be observed for the variables X1. In case of an automobile. The study reveals that brand decisions are taken with equal participation of all family members (including youngsters) in majority of urban households. 10 Issue 1 (Ver 1. the rural consumers have the same to the moderate extent in case of television and refrigerator.0). However this tendency had been found significantly greater among urban consumers than their rural counterparts. The brand choice of rural consumers is significantly governed by the price. The urban consumer also considered the price to the significantly greater extent while choosing the brand. X2. X3 and X5 (Table A 1). January2010 groups while choosing their brands (X4). there had been an interaction between habitat and the product categories for all the variables with the highest F value for X11. yet the brand choice of rural consumers was significantly governed by the price (X3). The urban consumer on the other side considers the price to the moderate extent while choosing the brand of television and refrigerator whereas. the brand loyalty is relatively lesser among urban households as per the revelations of the study conducted by Wood (2007) that found the age group of 18-24 years less brand loyal.9 % of original groups and 65. There had been significant differences between the behaviour of these consumers for the three different select products in terms of select variables X3. their role within the household is more pronounced in deciding the brand (Shoham and Dalakas. 2003). However.7% of cross-validated groups have been found correctly classified. Quality is a matter of prime and equal concern for both rural and urban groups while choosing their brands except in case of televisions. Both rural and urban consumers were most likely to buy the most advertised brands (X10). Both the groups had significantly less tendencies to stick to the brand once they found a good brand (X6). The rural consumers strongly believed that all the brands of a particular category of automobiles are almost alike quality wise (X9) whereas. There had been significant differences between rural and urban consumers for all the select variables with the highest F value for X9 followed by X8. had strong preferences to buy their favourite brands. The brand makes a lot of difference to both rural and urban consumers (X12). However comparing with rural consumer.

B. In case of an automobile. these differences differ among rural and urban consumers. However. Both rural and urban consumers are most likely to buy the most advertised brands for all the select products except television. Similarly. both the groups do follow considerably. The brand building measures by the automobile companies will help their penetration into rural markets as well. this tendency is significantly greater in rural consumers as compared to their urban counterparts. in case of automobiles. Both the groups have the strong tendencies to stick to the brand once they find a good brand in case of televisions and refrigerators. Their decisions are largely decided by price of the brand. In case of automobiles. The same measures can also be taken for urban consumers by regularly introducing newer models and raising the quality of the products. both the groups do not follow their friends‘ choice of brands. and sticking to a brand on finding a good one. However. (1995). There are also differences between different income levels of the habitants for such tendencies in case of television and refrigerator. 1967). In the later case. However such tendencies had been found relatively higher among rural consumers as compared to their urban counterparts for televisions and refrigerators. where such tendency is moderate among the rural consumers. However. In case of an automobile.it/estero2/india/market. Overview of Consumer Goods Sector: Market Potential and Prospects for Italian Goods.gov. both the groups do not have such tendency. these are moderate for the buying of an automobile. 2005]. such differences also exist among Vol. Nevertheless. the urban consumers do not think so. http://www. Overall. F. there have been differences between rural and urban consumers for all the select variables. These preferences are greater among the urban consumers as compared to their rural counterparts for all other two select products except automobiles where it is at par. there have been differences between rural and urban consumers for all the select variables. following friends buying. Product based differences do exist for price based brand choice. they should focus more on the other features relating to the utility and functionality of the products and should offer the same at reasonable prices while approaching the rural markets.0). They buy their favorite brands because brands make a lot of difference to them.pdf [Accessed on May 13. Considering all the select products. In case of televisions and refrigerators. As brand decisions are taken with equal participation of all family members (including youngsters) in majority of urban households. they have a tendency to stick to the brand provided they find a best suited brand. H.ice. The brand building measures can prove effective for targeting urban consumers for all the products as they have a tendency to buy reputed. Moreover. the marketers must take proactive measures in terms of ensuring brand loyalty. therefore. Febuary 2010 P a g e | 164 different income groups. . such tendencies are higher among urban consumers as compared to their rural counterparts. these differences differ with the product category. these vary among different income groups of these consumers‘ categories. urban consumers have greater consideration to brand as compared to their rural counterparts. However. IX REFERENCES 1) Ace Global Private Limited (2001). the differences vary between rural and urban consumers. such considerations are equal between both the habitant groups. A. The brands should be positioned in such a manner to give feeling among the rural consumers as these have been tailored specific to their requirements. and Kamins. This is in conformity to the findings of Sun and Wu (2004) that revealed greater brand consciousness among urban consumers as compared to their rural counterparts. brand consciousness is relatively greater among urban households as per the revelations made by Gronhoj (2007). M. 2) Alpert. In case of televisions and refrigerators. 10 Issue 1 (Ver 1. But in case of automobiles. However. where such difference is moderate to the rural consumers. have strong preferences to buy their favorite brands. Both the groups consider the other features of the product important besides brand. Overall. there are significant differences between rural and urban consumers for the buying of television and refrigerators. However. These differences between rural and urban consumers vary among their different income groups. these differences are moderate for the buying of an automobile. there are differences among different income levels of the habitants to this variable. VIII RECOMMENDATIONS The rural consumers are more brand-loyal as compared to their urban counterparts. there are considerable differences between rural and urban consumers for the buying of television and refrigerator. most advertised brands. There are also differences in the perceptions among the different income levels of habitants in case of the buying of an automobile. The rural consumers strongly believe that all the brands of select products are almost alike quality wise whereas. This is probably due to overweighing of psychological aspects over performance aspects in case of probably low both general and specific self-confidence of rural consumers (Bell. the rural consumers have this tendency to the large extent as compared to their urban counterparts. Considering all the select products. Therefore. However this tendency is greater among urban consumers than their rural counterparts. However. regardless of price for all other select products except television. Brand Influence Both rural and urban consumers irrespective of price.Global Journal of Management and Business Research consumer considers to the large extent but less than the rural consumer. An Empirical Investigation of Consumer Memory. the brand makes a lot of difference to both rural and urban consumers for all the select products except television. The tendency to buy the brand of good reputation exists among both the rural and urban consumers. In the other two products as well. where the rural consumers have preference to the moderate extent. However.

S. (2000). Vol. A single consumer or different types of consumer: an analysis of social types according to their consumer habits. and Dawn. January2010 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) Attitude and Perceptions toward Pioneer and Follower Brands. pp 683. L. Rural consumers‘ Patronage Behavior in Finland. T. K.6 (6). 2nd ed.12 (2). P. pp 108-117. K. (1956). L. London. Distribution &Consumer Research. pp 60-64.0). Keller. L.indeconomist. Vol. (2003). L. K.59 (4). USA. 27) Wood. The Journal of Computer Information Systems. 109 (2). (2003). K. J. Journal of Brand Management. Vol. 100 (7).E. Leaders: brand new. 7 (3). pp 4654. pp 59-66. King's Lynn and London. Downham. 149-64. (2006). 41 (7). British Food Journal. Kinra. 2007].. 15th January. Journal of Consumer Marketing. D. 374 (8409). Guilford. Vol.. Maheswaran. 2006). (2000). V. N. Q. pp 481-502. Vol. Ling. S. 24) Sun. and Lee. 22) Shivakumar. Vol. (2004). R. Market Research and Consumer Durables. N. Tata McGraw-Hill. T. and Train. 19 (6). and Treasure. G. New Delhi. Indian Management. S. D. D. Indian Management. Journal of Product and Brand Management. Marketing Intelligence and Planning. (2004). 43 (4). The Journal of Political Economy. pp 326-336. 104 (4). 21 (4). pp 52-54 Vol. Gu. Consumption patterns of Chinese urban and rural consumers. Journal of Consumer Marketing. (2005). Home. The role of brand name in customization decisions: a search vs experience perspective.C. pp 371-391.. and Crosby. S. de Rada. Ind. Y.. Consumers' evaluation of new products: learning from self and others. Yoruker. (2004). S. International Marketing Conference on Marketing & Society (April 8-10.M. Journal of Marketing. Cross-cultural consumer values. P. pp. pp 15-30. S.. 21) Sharma. P. Vol. Vol. N. needs and purchase behavior. Vol. Consumer Behavior. Understanding urban youthinstant karma. (2003). and Wu. S. 25) Temporal. 26) (The) Economist (2005). Gronhoj. 42 (11). (2002). consumer electronics. (2007). (2004). .ht ml [Accessed on July 09. The consumer competence of young adults: a study of newly formed households. pp 393-408. Vol. Kim. A. British Food Journal. A. 10 Issue 1 (Ver 1. Jiang.com/150305_msharma. P. Global Journal of Management and Business Research 18) Mano Raj. Sixth Global Conference on Business & Economics (October 15-17. The Incorporated Statistician. 2007). J. S-S. J. Wiley Eastern. (2002). Vol. F. Vol. V. Adopters of new food products in India. Issues and New Directions in Global Consumer Psychology. (2007). and Selvaraj. Price Squeeze (Cover Story). 13 (2). 4th ed. 9 (2). Gregory. (2002). D. Gunes. J. pp 34-45. and Moon. (1998). A. IIMK.. pp 73-83. 43 (4). T. pp 245-253. G. Strategic Brand Management: Building. A. Journal of Consumer Psychology.L. pp 72-81. Halan.. Vol. pp 243-264. Pearson. (2006). Rural Marketing is a Different Ballgame. and Shavitt. Forsythe. pp 206-216. Measuring. Vol. J-O. (2007). Vol. P. Beyond Branding: How the New Values of Transparency and Integrity Are Changing the World of Brands. Social Changes and the Growth of Indian Rural Market : An Invitation to FMCG Sector. Functional and symbolic attributes of product selection. 10 (3). 41 (7). Marketing Intelligence and Planning.P a g e |165 Vol. Indian Management. A... Gutman Conference Center. 24 (1). Vol. Hi-tech and Hitouch Branding: Creating Brand Power in the Age of Technology. Vol. International Review of Retail. 20) Nasir. Vol. (1999). pp 55-57. J. 23) Sinha. G. pp 10. (2003). and Arun. Qualitative Market Research: An International Journal. Bahmanziari. http://www. Biddles. Integrating Cultural Influences into Current Theory on Customer Loyalty Formation. and Ozdemir. 19) McFadden. The effect of country-of-origin on foreign brand names in the Indian market. (2002).D. pp 108-118. Factors Influencing Consumers‘ Laptop Purchases. Vol. and Managing Brand Equity. Pearson Education. (1996). and Della Bitta. Buying Behaviour In The Hinterland. 22 (4). Louden. Is trust important in technology adoption? A policy capturing approach.

Your choice of brand was/will be largely based on price. Table T 1.131 0. Quality as a primary concern. S.168 0. No.93 0.86 <0. X2 X3 To change brand for the sake of variety and novelty.249 0.340 43. No. IG = Income Group.93 0.0001 -0.589 1. X6 Stickiness to a brand if find a good one.232 0. Variables U p (1 t) R p (1 t) U X1 More than one preferred brand.16 0. p (1 t) = p value one tailed.0001 -0. X2 X4 To change brand for the sake of variety and novelty.0023 0. 3.0451 <0.391 1.0001 3.78 <0.1970 3.0001 U = Mean Urban.0001 4.793 12.0001 0.0001 2.1039 3. X3 U-R p (2 t) R 3.03 <0.20 0.183 4. Your choice of brand was/will be largely based on price.16 0.0001 3.71 <0. R = Mean Rural.33 <0.37 <0. S. Variables X1 More than one preferred brand.0001 X6 0. X5 Buying what friends buy. X4 Quality as a primary concern.0).Global Journal of Management and Business Research Vol.1677 0.694 1.6315 2. and p (2 t) = p value two tailed. and R/U*IG= Two-way interaction between R/U and IG. .0001 2.05 Stickiness to a brand if find a good one.192 0.485 1.331 30. Febuary 2010 P a g e | 166 Table T 1 Brand Decisions (Mean Values). 10 Issue 1 (Ver 1. F ratio R/U (df =1) IG (df =4) R/U*IG (df =4) 2.73 -0.85 <0.02 <0.825* 0.513* 0.976 R/U = Rural-Urban.490* 1. X5 Buying what friends buy.39 <0.0001 2.0001 4.69 <0.968* 1.45 <0.1 Brand Decisions (F ratio).

73 <0.477 3. No.0001 3. X 11 Importance of other features than brand. F ratio R/U IG (df =1) (df =4) Buying of favourite brand.172 R/U = Rural-Urban. X8 Buying a brand of good reputation.0001 3.610 1.0978 0.1968 0. and p (2 t) = p value two tailed.1 Brand Influence (F ratio). X 11 Importance of other features than brand. U p (1 t) R p (1 t) S.021* 2.192 X3 -0. Standardized Canonical Unstandardized Canonical Discriminant Function Discriminant Function Coefficients Coefficients Structure Matrix -0.10 <0. 1 2 3 4 5 6 Variables X1 X2 X3 X4 X5 X6 Constant Global Journal of Management and Business Research Table T 1. U 0.593 X2 -0. X 12 The brand makes a lot of difference to you.031 27.401 1.164 0. 10 Issue 1 (Ver 1.22 <0.0001 3.67 <0. R = Mean Rural.793 42.66 <0.75 <0.078 75. R/U*IG (df =4) 1.0001 3.0001 3.638 0.865* 1.129 0.76 0.412 -0.159 -0. Variables X9 Most of the brands in this product class are all alike quality wise X 10 Buying of one of the most advertised brands.038 U-R p (2 t) R 3.0001 4. S.0024 3.578* 0.196 -0.0001 U = Mean Urban.0001 2.09 0.0001 -1. X9 Most of the brands in this product class are all alike quality wise X 10 Buying of one of the most advertised brands.89 <0. regardless of price. IG = Income Group.662 X5 -1. No.08 0.65* 18.088 0.355 -0.630 0.074 Buying a brand of good reputation.093 25. and R/U*IG= Two-way interaction between R/U and IG.349 X6 0.561* 0.P a g e |167 Vol.358 -0.70 <0. X7 X8 Table T 2. January2010 S.738* 1.65 <0.60 <0.163 X1 0. p (1 t) = p value one tailed. regardless of price.0).52 <0.75 <0.0001 3.87 <0.0001 -0.579 -0.089* 1.862* 1.188 Table T 2 Brand Influence (Mean Values).0001 3.496 X4 0. 30. Variables X7 Buying of favourite brand.1281 0. X 12 The brand makes a lot of difference to you.0168 0.646 0.14 0. . No.07 0.2 Brand Decisions (Discriminant Analysis).0001 3.

7.356 -0.071 X4 -0. 0. X2 X4 To change brand for the sake of variety and novelty.0001 4.359 0. Quality as a primary concern.812 -0.39 <0.205 Structure Matrix X3 0. No.335* 0.152 Quality as a primary concern.513* 0.8182 2. R = Mean Rural.0023 0.0001 -0.0877 3.240 -1.319 X1 -0.0001 -0.02 0. 1 2 3 4 5 6 0.265 -0. X5 Buying what friends buy. IG = Income Group.232 1.65 <0.807 X2 -0. 2.133 0.32 0.397 -0.1677 0.070 0.0012 U = Mean Urban.0001 2.485 1.161 X5 0.340 Your choice of brand was/will be largely based on price.0001 3.242 Unstandardized Canonical Discriminant Function Coefficients -0.214 -0. X1 X2 X3 X4 X5 X6 Structure Matrix X9 X8 X 10 X7 X 11 X 12 Table R 1 Brand Decisions (Mean Values).259 -0.1 Brand Decisions (F ratio).694 To change brand for the sake of variety and novelty.Global Journal of Management and Business Research Vol.435 0.0).225 -0.222 0.469 -0.4779 Stickiness to a brand if find a good one.496 -0. Your choice of brand was/will be largely based on price. 45.20 0. 1 2 3 4 5 6 Variables X7 X8 X9 X 10 X 11 X 12 Constant Standardized Canonical Discriminant Function Coefficients -0.216 0.02 <0.69 <0.708 -0.0004 -0.442 0.00 <0. U p (1 t) R p (1 t) U R S.244 0.328 Variables X1 X2 X3 X4 X5 X6 Constant Standardized Canonical Discriminant Function Coefficients -0. Febuary 2010 P a g e | 168 Table T 2.282 Stickiness to a brand if find a good one.45 <0.086* 1.0001 0. Table R 1. and R/U*IG= Two-way interaction between R/U and IG. and p (2 t) = p value two tailed.658 0. S. No.0001 2.445 X6 0.218 R/U = Rural-Urban.367 1.354 0.192 Variables X1 More than one preferred brand.705 -0. F ratio R/U IG R/U*IG (df =1) (df =4) (df =4) More than one preferred brand.2 Brand Influence (Discriminant Analysis). No. 0.37 <0.793 -0.681 U-R p (2 t) 3. 10 Issue 1 (Ver 1. 3.022 .2 Brand Decisions (Discriminant Analysis). Variables Table R 1.404 0. p (1 t) = p value one tailed.07 0.0001 4.76 <0.247 0.89 0. X6 S.16 0.181 -0.87 <0.117 0.756 -0.1039 3. X3 Unstandardized Canonical Discriminant Function Coefficients -0.023 Buying what friends buy.93 0.0001 2.459 0.0001 3. 12.399 -0.33 <0.409 1.76 0. S. No.640 -0.451 0.

R = Mean Rural.677 0.73 <0.11 0. No.0001 0.15 0.0001 3. X8 X9 X 10 X 11 X 12 S.19 0.43 <0.0001 3. No.369 -0.716 -0.0003 3.809* 2. X7 X8 X9 X 10 X 11 X 12 Global Journal of Management and Business Research 3.581 3.416 -0. regardless of price.0001 4.461 -0.819 Buying of one of the most advertised brands.397* 0.301 Importance of other features than brand. 7.204 U-R p (2 t) 3.0005 <0.0121 3. <0.0001 3.0001 -1.575* 0. 30.0001 4.0001 0.1909 3.75 U = Mean Urban.454 Most of the brands in this product class are all alike quality wise 86. 27.2 Brand Influence (Discriminant Analysis).0001 <0.51 The brand makes a lot of difference to you.P a g e |169 Vol.96 <0. 3.79 <0.94 <0. 1 2 3 4 5 6 Variables X7 X8 X9 X 10 X 11 X 12 Constant Standardized Canonical Discriminant Function Coefficients -0.42 <0.348 -0. Your choice of brand was/will be largely based on price.0001 0. January2010 Table R 2 Brand Influence (Mean Values). X3 Structure Matrix X9 X 12 X8 X7 X 11 X 10 Table A 1 Brand Decisions (Mean Values). 3.333 -0. X5 Buying what friends buy.0001 3.0077 0.231 0.34 0.057 0. and p (2 t) = p value two tailed.578* 1. 3.126 1.980 0.0001 3.33 <0.0205 U-R p (2 t) 0.351 0.17 0.0001 4.80 <0.24 <0.64 <0. U p (1 t) R p (1 t) U R S.0007 .1 Brand Influence (F ratio).07 <0.70 0.279 R/U = Rural-Urban. 10 Issue 1 (Ver 1. X2 Unstandardized Canonical Discriminant Function Coefficients -0.060 0.0001 4.0001 3.0001 0.242 0. U p (1 t) R p (1 t) U R S.236* 1. No. p (1 t) = p value one tailed. Variables Table R 2.67 <0.43 <0.09 <0.0001 -0.400 -0.47 <0.59 Most of the brands in this product class are all alike quality wise 2.0001 -0.441 Buying a brand of good reputation.0076 0.549 1.25 0.0001 <0.813 0.0001 Table R 2. Quality as a primary concern.310 Variables X1 X4 More than one preferred brand.293 -0.61 <0.167* The brand makes a lot of difference to you.33 Importance of other features than brand.0056 0.0001 0.0001 3. 25.23 Buying of one of the most advertised brands. No.691 -0. Buying a brand of good reputation.82 0. regardless of price.01 <0.107* 0.675* 1.310 -0.29 <0. and R/U*IG= Two-way interaction between R/U and IG.750 -0. To change brand for the sake of variety and novelty.79 <0. S. IG = Income Group.0001 3. Variables X7 Buying of favourite brand.0001 2. F ratio R/U IG R/U*IG (df =1) (df =4) (df =4) Buying of favourite brand. 27.0).93 <0.

2.0001 3.84 <0. Variables X7 X8 X9 Buying of favourite brand.0010 <0. p (1 t) = p value one tailed. 2.096 R/U = Rural-Urban.71 <0. p (1 t) = p value one tailed.919 Buying a brand of good reputation.0001 -0.73 Buying of one of the most advertised brands.423* Importance of other features than brand. F ratio R/U IG (df =1) (df =4) S.0880 0.89 <0. and p (2 t) = p value two tailed.481 0.0001 0.278 X2 0.608 R/U*IG (df =4) 2. No.38 U = Mean Urban. X 10 X 11 X 12 R/U*IG (df =4) p (2 t) 0. F ratio R/U (df =1) 7.69 Vol.04 <0.403 Most of the brands in this product class are all alike quality wise 13.796* 3.980 0.76 <0.567 2.646* 3. 10 Issue 1 (Ver 1. 1 2 3 4 5 6 S. U p (1 t) R p (1 t) U-R U R Buying of favourite brand.721 -0.5488 0.771 0. Stickiness to a brand if find a good one. To change brand for the sake of variety and novelty. 1. Table A 1.383 1. 2.0001 0.000 0. No.38 -0.2 Brand Decisions (Discriminant Analysis).306 X6 -1.473 1. and p (2 t) = p value two tailed.69 <0. and R/U*IG= Two-way interaction between R/U and IG.979 0. Variables X1 X2 X3 X4 X5 X6 More than one preferred brand.166 IG (df =4) 0.205 X1 -0. No. S.155 -0.65 <0.18 Buying a brand of good reputation.140 0.0029 0. 2.0001 3.1 Brand Influence (F ratio).0001 0.56 <0.475 -0. R = Mean Rural.762 X5 -0. Febuary 2010 P a g e | 170 <0.283 0.577 3.007 2.447 1.841 4.226* 2. 4. IG = Income Group.821 0.72 <0. regardless of price.078 2. X7 X8 X9 X 10 X 11 X 12 Variables X1 X2 X3 X4 X5 X6 Constant Table A 1.466 X4 -0. Standardized Canonical Unstandardized Discriminant Function Canonical Discriminant Coefficients Function Coefficients Structure Matrix 0.0001 quality wise 2.364 -0.311 -0.371 0.461* 10.0001 2.0001 3.555* 1.547 Buying of one of the most advertised brands.0001 3.349 0.28 Importance of other features than brand. IG = Income Group. regardless of price. R = Mean Rural.993 The brand makes a lot of difference to you.957* 21.0).117 0. Your choice of brand was/will be largely based on price.0001 3.405 -0.05 The brand makes a lot of difference to you. 3.0001 -0. and R/U*IG= Two-way interaction between R/U and IG.178 0.133 X3 0.0001 3. 3. Buying what friends buy. S.926 1.556 1. No.0001 0. Quality as a primary concern.911* 1.1 Brand Decisions (F ratio).877 R/U = Rural-Urban.480* 1.167 0.29 Most of the brands in this product class are all alike <0. 4.03 0.0001 0. 2.0001 .66 <0.63 <0. Variables Table A 2.040 Table A 2 Brand Influence (Mean Values).7415 U = Mean Urban.394* 0.299 0. 3.Global Journal of Management and Business Research X6 Stickiness to a brand if find a good one.05 <0.

220* X3 R/U = Rural-Urban.145* 0.743 -0.257 X 10 -0.249 -0. 4.669* X8 Buying a brand of good reputation. No.669* 16. 111.0).P a g e |171 Vol. .011 0.494* 9. Quality as a primary concern.765* X9 273.377 0.233* 0.246 -0.410* 5.029 0. 94.072 0. PC = Product Category.281 X 12 -0. 65. Variables X7 X8 X9 X 10 X 11 X 12 Constant Variables Global Journal of Management and Business Research Table A 2.205 -0.418 X7 -0.254* 4. 7. and R/U*PC= Two-way interaction between R/U and PC. 1 2 3 4 5 6 S.071* 1.576* 6.784* X 11 Importance of other features than brand.302* 9.643* X7 Buying of favourite brand. January2010 S.964* 22. Your choice of brand was/will be largely based on price.305* 6. regardless of price.396 -0.147 X9 0.751 66.766 0.359 0.169* 18.683 X6 Stickiness to a brand if find a good one.674 Table T-R-A 1 Two-Way ANOVA (Habitat and Product Categories).172 0.415* 5.396 -0.600* 110. 10 Issue 1 (Ver 1.2 Brand Influence (Discriminant Analysis).778* 3. F ratio R/U (df =1) PC (df =2) R/U* PC (df =2) X1 More than one preferred brand.943* 17.051 X4 To change brand for the sake of variety and novelty.153* 81.608* X 12 The brand makes a lot of difference to you.249* 0. 52.468 0. Buying of one of the most advertised brands. 11.748 X5 Buying what friends buy. 60.643 X8 -0.864* X 10 Most of the brands in this product class are all alike. Standardized Canonical Unstandardized Discriminant Function Canonical Discriminant Coefficients Function Coefficients Structure Matrix -0.254 X2 76.885* 2.155 -0.400 X 11 0. 38.260* 11.069* 10. No.

modernization is innovative in character in the same way as a 'carrier‘ and generator of technical progress. man finds himself on the verge of becoming a true opponent of nature who either threatens to exhaust its resources or maintains within it causes that lead to major deterioration and unbalance. – State of the World.sometimes for ambient purposes . The increase in the qualitative level of the labor force.and long-run. Implementation. distribute and use the richness that man labour extracts from the planet‘s resources'[1]. Professor PLEŞEA DORU University „George Baritiu‖ of Brasov – Romania Abstract. The guilt belongs to human society and to the way it understands to obtain. innovative ideas have been promoted in relation to potential development patterns. 2002. of their increasingly complex and numerous desires. The quantitative and qualitative improvement of the economic effects appears because of the advantages put forward by the modernization activity. the passive fixed capital (buildings) requires a smaller volume of resources since it gets only [1] Brown. as we witness an explosive proliferation of the human beings. a fact that creates the premises for the funds allocated to modernization to be particularly oriented towards those activities which trigger the amelioration of the company's economic results. slightly modified . Febuary 2010 P a g e | 172 Management of the Modernization Projects from the Technical-Economic Systems Ph. which can be achieved due to the higher equipment parameters and to the improvement of the quality of the finished products and their structure. Modernization ensures the reduction in the specific material and labor consumption. Consequently. Bucharest. adapting and structurally improving the active fixed capital. or adapting the existent ones. Cicea. new ideas and solutions get applied by means of modernization. special constructions. p. In the case of modernizations. 10 Issue 1 (Ver 1. I. meaning the use of well proportioned raw materials and materials of an adequate quality and observing the requirements of the technological process.D. in its very essence. The main influence of the modernization process is related to the impact on the qualitative aspects of the factors that take part in the social-economic life. Economic Publishing House. Associate Professor CAMARDA ADINA Ph. man realized that it is for his best interest to control his demands and satisfactions so that these do not conflict with the laws which govern nature and ensure its so much needed balance. I. is closely connected with the improvement of the equipments and technologies' quality. One of its direct effects is the increase in the obtained production resulting from an extra-production. in that they are mainly oriented towards building. as well as the diminishing of the losses by increasing the degree of processing of the raw materials. such as: the equipments. Because of the improvement of the mentioned factors. L. 2002. 2000. House. because of using better technological equipments and solutions. modernization ensures the reduction in the scrap non-compliance. both from the viewpoint of its content and of its structure. I INTRODUCTION ‗ The Earth is polluted‘ – states the famous researcher Barry Commoner. The modernization also puts pressure on the quality of the technologies by modernizing the existent flows. director of the Centre for the Biology of Natural Systems from Chicago – ‗neither because man is some kind of especially dirty animal nor because there are too many of us. finding new technological solutions. . this serving as the final purpose of the modernization activity. Product Progress. Românu. since. Teora Publ. Keywords- Modernization. as well as of the frequent armed conflicts and of the scientific and technical progress in certain directions. Bucharest. ‗The increase in the value of production and of all economic effects in general is also due to the improvement of the consumed resources' structure.Global Journal of Management and Business Research Vol.36.D. technological lines.or not at all modified.. p.'[2] Irrespective of the level at which it is achieved. meaning that capital that is directly involved in the attaining of the economic results. more precisely the increase in the fixed active capital. II PECULIARITIES OF THE MODERNIZATION PROJECTS Within the framework of the technical-economic systems. but also of human resources capable of living up to the expectations of the operating equipments' technical level [2] Vasilescu. etc. The numerous alarm bells rung by scientists with respect to the potential consequences of a development lacking in control have lead to the institutionalization of the environmental issue on a global level. ‗the modernization-related expenses are more judiciously assigned.0). – Investments.Lately. Technical Environment. Dynamic Process. a fact that entails the decrease in the modernization and production-related effort. Technological Environment. C. In the same time. whose consequences are among the most unwanted on the medium.. 87. While witnessing the partial effects of industrialization. the product quality is enhanced.

and macro-economic level. which witness a rapid evolution of the technological progress. Lasfargue. the competitive capacity and the market potential are other markers for the beginning of the modernization activity. January2010 and of the products‘ qualitative level‘[3]. experience. Any incongruity between the three qualitative levels (the capacity of the equipment. The field of activity is another factor that influences the modernization moment. simple and low-cost manner. To be able to measure the extent of the modernization impact. constructions and agriculture. The Product Modernization allows the technical Economic systems to offer the best products/services on the market and increased functionality. 10 Issue 1 (Ver 1.and after-sales services. Cicea. flexibility. Ensuring high competitiveness. The market position. since the first competitiveness factor is the renewal of the technology or of the product. performance of the technical-economic system. meaning the quantity and quality of the pre. The superior utilization of the existing potential: production capacities. the fields. the technological progress. The modernization of the technological processes The modernization of the technological processes is destined to improve and increase the rate. ii. in accordance with the availabilities (internal and export-related) and the global levels of specific consumption. . 2000. and the existing and potential competition. which can be the answer to a new product idea or to a new function of an existing product. I. determined by statistical and marketing analyses. The modernization of all economic activities is one of the main ways to achieve economic efficiency improvement on all levels. the corresponding strategies may be oriented towards products or technologies and technological processes. etc..0). iv. Paris. Comment réussir les changements technologiques. The reduction in the consumption of raw materials. any disregard of any of these factors being able to significantly affect these actions' success. C. WAYS OF ORGANIZING THE MODERNIZATION PROJECTS The modernization activity imposes the adoption of some technical-organisational measures that ensure the organization‘s sustainable development. p. or to allow the same functionality in a more efficient. Les Editions d‘Organisation. The modernization of the raw materials and materials that shall be part of the future products. The sizing of the industry components and. which implies plain modifications in the products‘ shape and design performed based on certain functionality and ergonomic requirements.. quality. The implementation of the technological process [4] [3] Vasilescu. It is time for the organization to rely more on integrating and using computer technologies to assist the decision. The implementation of the product modernization process may take several forms: The concept modernization. III The timing for the implementation of the modernization processes within the technical-economic systems must be the right one and shall be determined according to various factors[4]. as well as its organizational and competitive implications. Efforts face a relative decline while the economic effects increase both in volume and in structure. v.Global Journal of Management and Business Research P a g e |173 Vol. I. smoothness. Some of the main objectives of the modernization process are: i.Techno jolies. also require modernization actions to be performed over short periods. The improvement and optimization of the management systems also play an important role since they have to ensure a stimulating context for all the resources involved. 1991. vi. The re-orientation of the flows from the labor market towards activities from the fields of the infrastructure. – Investments. 88. Modernization is also a pre-requisite for the increase in the economic efficiency at the micro. This involves the optimization of the manufacturing processes by means of investments that lead to the promotion and introduction of the technical progress in the current activities and to the more efficient use of the earned experience. as well as a ‗sine qua non‘ condition for economic growth projected on the development background that characterizes today‘s world. The modernization of the services that accompany the products of the economic agents. iii. According to the final destination of the modernization process. Yves. Bucharest. of the relationships between these components. Economic Publishing House. in accordance with the internal and external market demand. techno folies. an objective factor sufficient to itself. thus. reputation. B. . since it can ensure the modification of the balance between efforts and effects. Românu. These factors mainly depend on the anticipation capacities of the organization‘s management with respect to the market evolution. especially of energy and fuel. the quality class of the products and the employee qualification) may have negative effects on the production process. one must assess the degree of novelty introduced in accordance with the market and its demands. The design modernization. implicitly. The main ways of organizing the modernization processes are: A. personnel qualification. but also to monitor the technological processes. The computerization and expansion of the computer use for the purpose of transmitting realtime useful information as well as for decisiontaking at the right moment. services.

local and central authorities. This is because any action entails modifications that have a bearing on each of the involved factors. the modernization actions focused on the improvement and growth of the organizations‘ technicaleconomic parameters. extent.0). The management team of the technical-economic system senses the influence of the implemented modernizations by means of the new business dimensions. Any modernization measure must be approached from the viewpoint of the heterogeneity of its implications on the main ‗actors‘ of the social-economic life.E. namely institutions. Febuary 2010 P a g e | 174 . 10 Issue 1 (Ver 1. The synthesis of the criteria that I suggest should be taken into consideration on the substantiation of such modernization projects is presented in figure 1 hereinafter. Thus. etc. or to the organization of the training and instruction programs focusing on the personnel needed for the technological transfer. object and purpose. [5] Stoian. the internal and external technical and technological environment (tools. human resources) and the organization‘s management team. and the project‘s potential risks[5]. the modernization of a system may signify for authorities the increase or decrease of the financial contribution. The substantiation of such a development project must also rely on the analysis of the information regarding the promoter's economic interest. Publishing House. the current tendencies. IV TENDENCIES AND PERSPECTIVES IN THE MODERNIZATION OF THE TECHNICALECONOMIC SYSTEMS Though. the characterization of the project's external environment. Irrespective of its dimensions. Marian – Investment Management. Vol. the project's place and role in the general strategy of the initiating company. initially. A. Bucharest.S. equipments. no matter their field. This same team must manage the issues related to the presence of competent human resources for the purposes of the project execution and operation. 2004. etc. the dynamics of the technical and technological progress that ‗floods‘ into the current activity and the increasingly important needs require a multiple perspective systematic approach. the development of new activity sectors. because of the need to observe the environmental performance.Global Journal of Management and Business Research modernization strategy also implies an increase in the quality of the human resources involved in these processes and technologies. technologies. the modernization activity can only be performed by means of investments as the material support for the economic growth. The correlation between the volume and structure of the investments and the modernization process is fundamental for all economic activities. from the viewpoint of the activity conforming to the national and international requirements and standards. the possibility to get authorities involved in publicprivate partnerships.

If the solution to the problems related to the economic and financial elements can be easily found (the current assessment systems include numerous quantification options). technicaleconomic systems must realize their necessity and capacity to face the efforts generated by the viability and longlastingness of the estimated results. In my opinion. – op. Cicea. Comment réussir les changements technologiques. 2) Vasilescu. the evaluation of the social and ecological costs and benefits proves more difficult. Starting with the identification stage of the modernization needs and until the project completion. If modernization implies the seizing of a market opportunity. Românu. If modernization implies a technological transfer. techno folies.. From this point of view.. as well as the definition of deadlines associated with this phase/stage. p. then the project identification. 3) Vasilescu. the relevance of the activities projected on the background of the micro. C. aware of the fact that any delay may affect the global result of the project. VI REFERENCES 1) Brown. I. modernization projects should rely both on quantitative as well as on qualitative analyses. I. 4) Lasfargue. prior to the design of a modernization project. Românu.. Bucharest. 1 – Table of criteria proposed for the substantiation of the modernization projects Modern tendencies in the organization of these projects require the definition.Techno jolies. L. Les Editions d‘Organisation. In the case of the modernization projects. The delays with respect to the time needed for the completion of a modernization project can cause changes in the project‘s substantiation conditions taking into account that certain considered premises may no longer be relevant.36. . from the very project design stage.and macro-economic level tendencies. Cicea. then the identification and implementation of the optimum solution must be carried out as soon as possible. as well as the rate and coherence of the implementation. as well as to the determination of the measuring units both for the needed efforts and for the anticipated effects. I. – State of the World. Paris. design. 1991. 2000. since the ‗optimum‘ notion is time-limited. Teora Publ.0). Bucharest. V CONCLUSIONS The transfer from plain modernization activities to complex projects that are well substantiated and oriented causes the technical-economic systems to face certain challenges and constraints.. C.P a g e |175 Vol. time must be carefully justified due to aspects such as: i. I estimate that. 2002. p. 2002. aware of the fact that in certain contexts it is impossible to quantify all the aspects involved. cit. These mainly refer to the dimension of the needed efforts. January2010 Global Journal of Management and Business Research Fig. namely the implementation of a new technological solution. p. of the responsibilities corresponding to each existing phase or stage.. Economic Publishing House. ii. – Investments. . 88. implementation and completion time must perfectly correlate with the existence of the respective opportunity. 10 Issue 1 (Ver 1. 87. From this perspective. House. Yves. time is an extremely important variable to which the project team must permanently relate. iii. special attention should be paid to the quantification of all the modernization project's parameters. I.

0 hectares per farmland.land scale farmers.M. Operation Feed the Nation.A. And World Trade Organization. Agriculture is an indispensable real sector in Nigerian economy. These factors include prices or markets. This set of small land scale holders representing over 90% of the farming populace. these result into the different types of risk and uncertainty faced by farmers. A structured questionnaire was employed to obtain information from the five hundred (500) randomly selected small-land scale farmers in central part of Nigeria. 2007). Globalization has caused the East Asian countries to enjoy remarkable increases in per capita income but subSaharan African countries have had effect of low rates of economic performance (LeBel. For examples. Keywords. production inputs. E.Global Journal of Management and Business Research Vol. Nigeria. More so. farm outputs and institutional factors. The result reveals the normative plans for the small-land scale agriculture system in Nigeria.Sensitivity and uncertainty analysis is useful in providing information about local and global change tendency of the management of enterprise mixtures to the choice of target return level. These policies and programmes include Agricultural Credit Guarantee Scheme. with smallholding ranging from 0. and accounts for more than one-third of total Gross Domestic Product (GDP) (World Bank. * E. In addition.com Abstract. Omotesho O. Green Revolution. sensitivity. The international environment also creates uncertainties because of unpredictability. Febuary 2010 P a g e | 176 Sensitivity and Uncertainty Analysis: Applications to Small-land Scale Agriculture Systems in Nigeria * Ayinde. Hardakier and Huirne 1997). the study examines the sensitivity and uncertainty analysis in small-land scale agriculture in Nigeria. low capitalization. Invariably. . Marketing Board System. although creates free trade.mail: opeayinde@yahoo.B. their aforementioned importance and with the expectation that developing countries such as Nigeria is expected to experience increase in economic growth. 2003). policies and programmes that increase returns and reduce risk level should be put in place in order to shape the small land scale agriculture system. 10 Issue 1 (Ver 1. grade and varieties of their export crops. the merging of Eastern and Western Europe definitely had an effect in the world market. Risk and Uncertainty may result from one or a combination of four factors which may be endogenous or exogenous (Anderson. rudimentary farm systems. TargetMOTAD model I INTRODUCTION Nigeria is blessed with various climatic zones. The roles of agriculture remain significant in the Nigerian economy despite the strategic importance of the oil sector. so also was the outcome of Europe‘ 92 on commodities. Nigerian agriculture is characterized by: a multitude of small land scale agriculture systems scattered over wide expanse of land area. and the possible lack of availability of loan finance when required. Guaranteed Minimum Price Scheme. National Accelerated Food Production Programme. 2000). 2007). Nigerian governments have over time tried several strategies and introduced numerous policies and programmes aimed at shaping the Nigeria agriculture production. A Department of Agric – Economics and Farm Management University of Ilorin. Despite the importance of the small. Nigeria.1515.0). P. Production risk could emanate from the unpredictable nature of the weather and uncertainty about the performance of crops or livestock. marketing and exporting of different output and commodities from agriculture (Babafada 2003). Agriculture provides primary means of employment in Nigeria (Ogundari and Ojo. Financial risk may result from unexpected risk in interest rates on borrowed funds. 2000). they still operate largely under risk and uncertainty and are inadequately equipped against risk and uncertainties (Adubi. in spite of the existence of urban agriculture. Ayinde K. Nigeria agriculture has for decades depended largely on these small-scale landholders farmers. Given this setting of the small-land scale agriculture in uncertainty. these small-land scale farmers will continue to constitute the backbone of Nigeria agriculture for the next twenty-five years. While institutional risks emanate from the instabilities in government and its policies. 2003). Ilorin. and low yield per hectare (Ogundari and Ojo. Hence. and socio-legal uncertainty within which the farmer operates. River Basin Development Authorities. The sensitivity analysis reveals that there is a positive relationship between capital and returns and negative relationship exists between risk level and returns in small-land scale agriculture systems. has results into high inequality internationally and within the countries. cultivate produce as much as 85% of the total agricultural production and 87% of export crops (Adubi. increasing the level.Small-land scale. O.05 to 3. Price or market risk comes from imperfect knowledge about prices of farm inputs and outputs at the time that a farmer takes decisions. Hence. The study used both primary and secondary data (time series). Descriptive statistics and Target-MOTAD (Minimization of Total Absolute Deviation) model were used to analyze the data. enormous resources and the potentials of producing. and Muhammad-Lawal. processing.

P a g e |177 Vol. 10 Issue 1 (Ver 1.0), January2010
Agricultural Development Projects (ADPs), etc. However,
the success of all the various agricultural programmes has
been minimal (Ukpong, 1993). This is may be because the
factors at which the small land scale agriculture is
responsive are still yet to be considered in the various
programmes. This couple with the fact that this small-scale
agriculture is more expose to risk and uncertainty than other
segment of economy may cause the results of the various
programme been minimal in its impact on agricultural and
economics growth. Hence a need to understand the factors
that can result into the small land scale agriculture stability
on the efficiency frontier through a sensitivity and
uncertainty analysis. Therefore, the study examines the farm
plan(s) that would adequately provide the small-scale
farmers with improved income under uncertainty and
explores the sensitivity and uncertainty analysis that will
consequently raise the efficiency of the small-land scale
agriculture in Nigeria.
This study will not only help policy planners but it will also
provide useful information to small-scale land agriculture
especially on farm size plan, budgets and returns to
investments. It will also offer suggestions on how risk
efficiency in small-scale agriculture could be improved such
that it would have greater impact on agricultural and
economic growth.
II

THEORETICAL AND EMPIRICAL
FRAMEWORK IN UNCERTAINTY ANALYSIS

The concept of uncertainty in any application depends on
the behavioral decision model employed. The popular
Bernoullian (1738) expected utility criterion utilizes an
objective function that is a function of all the statistical
properties of the outcome of risky actions ai, (i = l - - - - - n)
available to the decision makers. In practice, it is popular
among empiricists to assume that the underlying utility
function is quadratic and that profits are normally
distributed yielding the simpler function of mean and
variance only (Young 1979).Thus,
Max (E U) of ai = f (μa, σ2ai) –
(1)
With equation (1), variance or standard deviation or
coefficient of variation is clearly the appropriate ―measure
of uncertainty and risk‖.
Different sets of risk concepts are implied by various nonBernoullian decision models. For example, the ―minimax‖
model would identify the maximum loss of an action
(regardless of how remote the probability of its occurrence)
as a measure of riskness of an action. The lexicographic
―safety first‖ model identifies the probability (α) that
random net income (Y) will fall below some critical or
disaster levels (d) as risk,
i.e. Pr (Y < d) =α
(2)
There are many criteria in decision making under risk and
uncertainty. These are Wald‘s Maximin, Maximax,
Huriwicz Laplace, Salvage Minimum Regrets, and Excess
Benefit.
Wald‘s maximin criterion is associated with strategy, which
maximizes its minimum while maximax criterion is

Global Journal of Management and Business Research
associated with strategy which gives the highest possible
outcome. Hurwicz criterion is a hybrid of the maximin and
maximax criteria. It considers the weighted average of the
minimum and maximum payoffs under each of the
strategies. Savage Minimum Regret criterion aims at
selecting a strategy, which minimizes the opportunity cost of
marking decision. The Excess Benefit is associated with
subtraction of the minimum element from original matrix
and applying the maximin criterion to it.
Laplace criterion assumes that each state of nature is equally
likely to occur. Equal probabilities are, therefore assigned to
the various states of nature and the decision maker selects
that strategy which gives the highest expected income. This
study employed programming model developed from the
laplace criterion model with modification given to the
Lexicographic ―safety first‖ principle. This study utilized a
programming model called target-MOTAD model under
safety – first principle.
III

TARGET MOTAD MODEL

This study employs the linear programming model called
Target-MOTAD (Minimization of Total Absolute
Deviation) programming developed by Tauer, (1983). There
are other risk programming such as Mean-Gini model which
has been criticized based on the fact that some stochastically
efficient solutions that would be preferred by strong riskaverse decision makers may be excluded from the efficient
set and its tableau is much larger than that for Target
MOTAD and direct maximization of expected utility and
utility-efficient which are non- non-linear programming
models and are superior to linear programming model.
However, they are not widely used as they have been
criticized because they can only be applied when an
individual decision maker exists who is risk averse and
whose utility function is available. Moreover, they are not
applicable to a group of farmers considered in this study
(Anderson et al 1997). The Target MOTAD model is
superior to other programming model under risk because it
is computational efficient and generates solutions that meet
the second-degree stochastic dominance (SSD) test (Tauer,
1983).
IV
SENSITIVITY ANALYSIS
Sensitivity analysis is the study of how the variation in the
output of a model (numerical or otherwise) can be
approached qualitatively or quantitatively to different
sources of variation (Wikipedia 2007). Sensitivity analysis
can be used to determine model resemblance with the
process under study, quality of model definition, factors that
mostly contribute to the output variability, region in the
space of input factors for which the space of factors for use
in a subsequent calibration study, and interaction between
factors (Wikipedia, 2007). It is in fact described as been
useful in providing information about local and global
sensitivity of the enterprise mixture(s) to the choice of target
return level (McCamley and Kliebenstein, 1987)
Sensitivity analysis is popular in financial application, risk
analysis, signal processing, neutral network, and model-

Global Journal of Management and Business Research
based policy assessment studies and any area where models
are developed (Saisana et al, 2005). The conventional
methodology to account for risk and uncertainty in project
appraisal analysis adopted by Gittinger, 1972, and little and
Mirrlees, 1974. However, sensitivity analysis based on this
method is surely inadequate because it is based on the
subjective judgment about possible increments in project
costs of otherwise reduction in project benefits.
Hiller (1983), developed a project appraisal model for
estimating the probability distribution of present value (PV)
by using expected value E(PV). He relied on the Central
Limit Theorem for approximately normal distribution of PV.
By estimating the mean and variance of PV, the decision
makers can evaluate the risk consequences of a particular
investment. This model, however, is criticized for statistical
dependencies and potential correlations of covariance.
Stochastic simulation model was also used for evaluating
uncertainty in project appraisal (Anderson, 1983). Monte
Carlo sampling technique for estimating distribution of PV
and internal rate of return (IRR) was also examined by
Reutlinger, 1970. This approach as developed and applied
by Reutlinger is based on identifying the most applied
critical components of the project and simulating the
probability of IRR under different assumptions underlying
the critical components. However the most common
sensitivity analysis is sampling-based. A sampling-based
sensitivity is one in which the model is executed repeatedly
for combinations of values sampled from the distribution
(assumed known) of the input factors (Cacuci, 2003, Cacuci,
Mihaela and Navon, 2005). In general sampling-based
method performed the sensitivity analysis jointly with
uncertainty analysis by executing the model repeatedly for
combination of factor values with some probability
distribution (Cacuci, 2003).The steps involved are as
follows: Specify the target function and select the input of
interest; assign a distribution function to the selected factors;
generate a matrix of inputs with that distribution(s) through
an appropriate design; Evaluate the model and compute the
distribution of the target function; and select a method for
assessing the influence or relative importance of ach input
factor on the target function. Risk programming models
such as Target-MOTAD used in this study perform a
sampled–based sensitivity analysis. Hence the study
employed The Target-MOTAD in perform the sensitivity
analysis.
V METHODOLOGY
The study was carried out in Kwara state of Nigeria. The
state lies in the central part of Nigeria. It comprises of
sixteen (16) Local Governments with a population of about
1.8 million (1991 census). It has a total land size of 3682500
hectares (F0S, 1995). Agriculture is major occupation in the
state with over 70 percent of the population being farmers
and majority of the farmers in the state are into small land
scale agriculture. The climatic pattern, vegetation and the
fertile soil make the state suitable for the cultivation of a
wide range of food and tree crops. The major food crops
planted are Cassava, Yam, Maize, Rice, Soyabeans,
Cowpea, Guinea-corn and millet. The sixteen Local

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 178
Government Areas have been divided into four zones by the
Kwara State Agricultural Development Project (KWADP)
in consonance with ecological characteristics and cultural
practices (KWADP 1998).
SAMPLING DESIGN

VI

The population for this study consists of small scale farming
households of Kwara state of Nigeria. A three - stage
stratified random sampling technique was utilized to select
the sample for the study. In the first stage, the nonoverlapping four zones divided by the KWADP as Zone A,
Zone B, Zone C and Zone D zone were utilized. In the
second stage, half of the blocks in each zone were randomly
selected. While in the third stage, proportion allocation
technique was utilized to distribute a sample size of 500 into
each zone using proportion allocation technique.
Consequently, a random sample of 64 respondents was
taken from zone A, 128 from Zone B, 132 from Zone C and
176 from Zone D based on the farming household
population‘s proportion of the zones.
VII

SOURCE AND METHOD OF DATA COLLECTION

Both primary and secondary data were collected for this
study. The primary data were collected during the 2006
production year through a survey with the aid of interview
schedule administered to the heads of the selected farming
household heads with the assistance of well trained
enumerators. Input-output data were collected on individual
farms. The secondary data were collected from the yearly
agronomic field records of KWADP to determine the past
performance of crops. A seven-year (1999-2005) record
was synthesized for all crops. Other information was
obtained from the records of the National Bureau of
Statistics, journals and relevant texts to supplement the
primary data.
VIII

ANALYTICAL TECHNIQUE

The study employed Target MOTAD Model and Sensitivity
analysis for it analysis. Mathematically, the model is stated
as
n

c x
j 1

Max E (Z) =

m

j

(1)

n

 a x
Subject to:

i 1 j 1

T-Yr+-Yr -≤ 0

j

ij

j

 bi
(2)
(3)

∑ PrY-r =α
(4)
α = (M
0);
X, Y > 0
Where E (Z)=expected returns of the plan or solution to the
plan in Cj; cj =expected returns of activity j; Xj = level of

P a g e |179 Vol. 10 Issue 1 (Ver 1.0), January2010
activity j; aij =technical requirement of activity j for resource
i; bi =level of resource i; T = target level of returns in naira
(it was derived from mean absolute deviation); Crj=returns
of activity j for state of nature or observation r (N); Y+=
deviation above expected returns; Y- = deviation below
expected returns; Pr = probability that state of nature or
observation r will occur; α = a constant parameterized from
M to 0; i =1, ----------, m; j = 1,----, n.

 c
n

Yr =

j 1

ij

 c j x j

Global Journal of Management and Business Research
1

   S 2

D


2
S

1

 Std Deviation =

(5)

Where, S = number of states of nature; D = estimated mean
absolute deviation of return to the farm. The mean absolute
deviation (MAD) or D for an activity (j) and for the whole
farm over all states of nature (years) is estimated
respectively as

S 1    Crj  CJ  X j 
Follows;

m = number of constraints or resource equation; r =
number of state of nature or observation;
M = large
number (represents the maximum total absolute deviation of
return of the model). Points on the risk efficiency frontier
are obtained by arbitrarily decreasing the value (y)
parametrically. Along the efficiency frontier, the TargetMOTAD model minimizes the mean absolute deviation
(MAD) for any given expected gross margins. Essentially,
this minimizes the standard deviation of returns to the farm
measured by the estimator.
IX

Dj =

r

(6)

1 n
Dj

n
j

1
D=

(7)

All variables are as defined earlier in this risk model;
magnitude of standard deviation allows the model to
determine a set of efficient farm plans along the E-V
efficiency frontier. Furthermore, sensitivity analysis was
carried out using the Target MOTAD programming model.

RESULTS AND DISCUSSION

Table 1: Availability of Different Resources for the Small Scale Farms
RESOURCES
(a) Average Cultivated Area (Ha)

ZONE A
2.49

ZONE B
4.4687

ZONE C
3.6154

ZONE D
2.8I68

(b) Average Available Labor (Mondays/Ha/
Growing Season).
( c) Capital (N/Ha/Growing Season)

300.00

380.00

214.82

270.54

71,038.46

60,331.3

37907.69

41,442.1

(d) Minimum Food Requirements (MJ)

145.908

118.944

92.484

144.569

(e) Target Level(N)

32,416.22

27,767.78

36,795.80

43,576.1

Source: Field Survey Data 2005/2006
The framework for this study is based on incorporating such
stochastic elements to evaluate the planning process in a
risky agriculture environment. This study assumed that risk
in returns arises from price and yield factors. In the risk
model, the farmer decides between possible crop
combinations on the basis of expected returns and the
absolute deviation of returns for each crop from its expected
value. Table 1 presents the resource position of small land
scale crops farms.
The result of the risk programming model gives the
normative plans. The normative plans are divided into risk
minimizing plans and profit maximizing plan. The profit

maximizing plans for all the zones are only profit
responsive, they are therefore likely to be selected by a risk
neutral decision maker. The plan has the highest risk
expected returns and hence the highest risk. Any risk level
higher than that of the profit-maximizing plan‘s risk level
will give no different plan. Also any risk level lower than
that of the lowest risk minimized plan will result in no
feasible solution. Hence the lowest risk minimizing plan and
profit-maximizing plan fall on both extremes and therefore
forms the risk efficiency frontier.

Global Journal of Management and Business Research

Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 P a g e | 180

Table 2: Normative farm plans.
ENTERPRISES

NORMATIVE SITUATION

PLANS
RETURNS
YAM(Ha)
MZE(Ha)
GNC(Ha)
MZE/GNC(Ha)
RICE(Ha)
GNT(Ha)
CSV (Ha)
CWP (Ha)
MZE/CSV
PLAN
TOTAL
CROPPED AREA
CROPPED AREA
RISK LEVEL

RISK MINIMIZING
I
II
288,793.4
296,050
0.4828
0.4778
(29.44)
(29.13)
___
___
___
___
___
___
____
0.0632
(3.85)
___
___
___
___
___
___
___
___
0.4828
0.5410 (32.99)
(29.44)
1.64
1.64
33246
45000

III
311,489.9
0.4671
(28.48)
___
___
___
0.1912
(11.66)
___
___
___
___
0.6583
(40.14)
1.64
70000

IV
330,015.5
0.4541
(27.69)
___
___
___
0.3506
(21.38)
___
___
___
___
0.8047
(49.07)
1.64
100000

PROFIT MAXIMAZING
VI
370,257.4
0.4263
(25.99)
___
___
___
0.7095
(43.26)
___
___
___
___
1.1358
(69.26)
1.64
165167.06

V
360,891.4
0.4328
(26.39)
___
___
___
0.6280
(38.29)
___
___
___
___
1.0608
(64.68)
1.64
150000

NOTE: Figures in parenthesis represent the percentages of Cultivated Area.
Source: Programming model Output
Table 2 presents normative plans for the small-land scale
agriculture in all the zones. This is done by pooling all the
resources together and getting the average of their risk
coefficient. The result shows that profit-maximizing plan
suggests the cultivation of both 0.4263-hectare of yam and
0.7096 hectare of rice which gives N370, 257.4 as returns
whereas the lowest risk minimized plans is cultivation of
only 0.4828 hectare of yam N288, 793.7 as returns.

limiting resource in all the normative plans. Hence, the
response of the optimal farm planning under risk solution to
changes for capital was also explored by using the
sensitivity analysis of the risk-programming model. Figure
1-4 show the efficiency frontier of risk minimizing plans
with increased capital of zone A, B, C, and D respectively.
700000

600000

SENSITIVITY ANALYSIS

Original Frontier
Frontier With Increased Capital

400000

Return
Value

The sensitivity analysis of the optimal farm planning under
uncertainty solution varying the target level was explored
using the risk programming model (see appendix1). It is
observed that the lower the target income level the higher
the returns and the lower the risk level. In another word,
there is a positive relationship between target income and
risk level and a negative relationship between target level
and income.
It is observed that generally, in all the zones the highest
return (which is of profit maximizing plans) with the lowest
risk level is found in frontier with lowest target (T =
N10,000 see appendix 1). For instance in zone A, the
highest returns of N611,011.80 with the lowest risk level of
N32,592.11 is found in frontier with the target of N10,000.
Furthermore, in all the risk-minimizing plans, the lowest
target has higher returns accompanied with lower risk level.
For example the risk level of N30, 520 gives a return of
N566, 683.90 in the frontier with target of N10,000.00
which is higher than all other targets used.
However, it is further observed that this negative
relationship between target and returns is associated with an
increase in return which correlates with less risk level. This
is more obvious in zone A. This may be due to high amount
of available capital since capital resource only becomes a
limiting factor in the last risk minimizing plan and profit
maximizing plan. This is further shown in Figure1-4.
Generally, in the other zones, amount of capital is the only

500000

300000

200000

100000
29000

31000

33000

35000

37000

39000

41000

43000

45000

Risk Level

FIG. 1: Sensitivity Analysis: Efficiency Frontier of Risk
Minimizing Plans with increased capital of Zone A’s
Farm.
350,000.00

330,000.00

310,000.00

290,000.00

270,000.00

Return
Value

X

Original Frontier
Frontier With Increased Capital

250,000.00

230,000.00

210,000.00

190,000.00

170,000.00

150,000.00
25000

27000

29000

31000

33000

35000

37000

39000

41000

Risk Level

FIG. 2: Sensitivity Analysis: Efficiency Frontier of Risk
Minimizing Plans with increased capital of Zone B’s
Farm.

Uncertainty and Public Project Appraisal‖ World Bank Working Paper 1983-4. R. government. B. Heineman London. Discovery Innovation. (1983) ―Target MOTAD‖ American Journal of Agric Economics.O (2007): ―Economic Efficiency of smallscale Food crop production in Nigeria: A stochastics frontier Approach‖ Journal of Social Science. CBN 31(2): 86-90 . J. 300000 250000 Return Value 200000 Original Frontier Frontier With Increased Capital 150000 100000 50000 20500 Global Journal of Management and Business Research 21000 21500 22000 22500 23000 23500 24000 24500 25000 Risk Level FIG. A world Bank Publication. Bangkok.: (2000) ― The Economic of Behaviour Nigerian Small Scale Farmer Implication for Food Policy in the 1990s‖. (2005) Sensitivity And Uncertainty Analysis: Applications to Large-Scale Systems (Volume II). and Ojo. their societies. (2005) ―Uncertainty and Sensitivity analysis techniques as tools for the quality assessment of composite indicators. (1993) ―Some Strategies for the Development of Nigeria‘s Agricultural Sector in the 1990s‖ Economic and Financial Review.B. CAB INTERNATIONAL Wallingfor U. 307-323. S. American Journal of Agricultural Economic 69(3):669-679. and REFERENCE 1) Adubi. Chapman & Hall 6) Gittinger. The government can stand as guarantor for the farmers who should be organized into Unions or Cooperatives. F. and private stakeholder to provide better sources of capital in order to increase the agricultural crop output and returns. It further revealed that an increase in amount of capital increases the plans‘ returns.0). F. 9:443457 8) KWADP (1995-2001) Staff Appraisal Report. D. (2003) In Sensitivity & Uncertainty Analysis. L. 65:607-610. (2003) Risk in Globalization: A Comparative Analysis of African and Asian countries in 7th International Conference on Global Business and Economic Development. D. 11) McCamley. G.P a g e |181 Vol. (1983) ―The Derivation of Probabilistic Information For Evaluation of Risky Investments‖. 99-155 7) Hiller. 10 Issue 1 (Ver 1. and J. G. 12) Saisana M. 14) Ogundari. Management Science. I. (1983) ―Forecasting. and Huirne R. 3) Anderson. A. (1997) Coping with Risk in Agriculture. 350000 300000 XII Return Value 250000 200000 Original Frontier Frontier With Increased Capital 150000 100000 50000 0 26000 26500 27000 27500 28000 28500 29000 29500 Risk Level FIG. K. 10) Little. (1987) ―Describing and Identifying the Complete Set of Target-MOTAD Solutions‖. G. 12 (3/4):199-2002 2) Anderson. D. 168 (2).‖ Journal Royal Statistical Society A. R. January2010 education service at reduced cost to decrease target income level. a concerted effort should be made by government to facilitate access of small farmers to small-scale credits. and Kliebenstein. government.P.. and private stakeholder to provide better infrastructures amenities. July 1983. P. Thailand. 15) Ukpong.. Generally in all the zones. S. J. 3: Sensitivity Analysis: Efficiency Frontier of Risk Minimizing Plans with increased capital of Zone C’s Farm. (1972) Economic Analysis of Agricultural Project. 13) Tauer. Mirrlees (1974) Project Appraisal and Development Planning For the Developing Countries.M. Saltelli A and Tarantola S. Chapman & Hall. Volume 1: Theory. E.A. K. 4) Cacuci. it is recommended that policies and programmes that increase returns and reduce risk level should be put in place in order to shape the small land scale agriculture system. Given that capital is a limiting resource and the use of credit on the farm reduces risk. 4: Sensitivity Analysis: Efficiency Frontier of Risk Minimizing Plans with increased capital of Zone D’s Farm. health services. the sensitivity analysis with increased capital shows an extension of the range of riskreturn possibilities available to the decision maker except in zone A where the extension is minimal. J. Hence. W. P.. 5) Cacuci. M. Kwara State Agricultural Development Project (1998-2004) 9) LeBel. There should be a concerted effort by the farmers through their societies. There should be a concerted effort by the farmers. Hardakier J. 14(2):123-130. J. XI CONCLUSION AND RECOMMENDATION It can be concluded that there is a positive relationship between capital and returns and negative relationship exists between risk level and returns in small-land scale agriculture systems. A. which in turn increases returns with a lower risk level. Mihaela Ionescu-Bujor and Michael Navon.

(1979) ―Risk Preferences of Agricultural Producers Their use in Extension and Research‖ American Journal of Agric Economics. L.C. 22 may 2007. World Development Indicators 2003 CD-Rom. (2007) Wikipedia. the free encyclopedia. Febuary 2010 P a g e | 182 .org/wiki/sensitivityanalysis. 18) Young.wikipedia.0).61: 1063 -1084. D. 10 Issue 1 (Ver 1.Global Journal of Management and Business Research 16) Wikipedia..last odified 19:02. Mimeo 2003. Vol. http://en. 17) World Bank (2003): Washington D.

000.297.90 14.70 12.00 185.271.349.315.011.00 21.00 566.50 20.00 20.00 134.779.720.520.00 134.00 10.20 Target level = N30.825.00 477.00 26.00 157.000.00 30.00 110.80 33.149.00 121.515.60 160.198.20 191.00 176.00 134.00 170.00 161.70 191.100.481.40 196.P a g e |183 Vol.00 27.00 343.30 135.80 13.00 205.000 Risk level Return( N) 24.334.00 178.500.800.556.11 611.20 11.204.766.000.000.00 103.041.399.000.000.910.60 611.689.542.50 180.445.00 205.767.854.675.00 134.520.500.68 12.642.120.057.00 135.683.628.037.00 65.164.80 147.011.500.800.60 14.50 35.20 205.80 24.000.00 30.000.80 205.037.40 20.00 36.80 30.314.00 128.990.721.80 D 16.00 156.000 Risk level Return( N) 8.50 30.00 18. January2010 Global Journal of Management and Business Research APPENDIX 1 Zone Target level = N10.60 131.000.00 16.760.70 17.520.00 148.011.50 26.00 23.472.00 280.195.80 12.389.427.279.00 188.00 205.500.20 23.352.200.90 191.00 20.00 482.00 20.120.477.50 76.697.00 22.300.000.520.332.361.70 41.962.11 8.758.00 127.000.3 20.30 26.80 30.592.40 22.00 176.251.500.000.423.357.00 180.00 17.122.00 40.96 10.30 39.31 17.20 126.10 21.00 30.520.055.368.884.00 184.300.194.100.638.000.90 24.000.640.60 135.50 N20.53 7.50 A 26.338.300.30 177.739.10 200.55 130.565.164.40 24.327.31 45.164.60 156.00 85.666.90 30.721.238.00 238.568.000 Return( N) 90.000.000.00 84.00 129.20 7.203.44 8.30 30.000.10 133.00 202.00 110.80 10.240.520.445.00 141.90 B 15.00 24.500.745.500.00 567.00 15.271.00 30.20 167.568.812.675.725.594.705.348.00 31.150.164.90 220.331.10 35.016.20 205.273.00 30.078.450.499.90 135.50 18.90 32.00 454.40 131.20 .157.20 Source: Programming Output Target level = Risk level 16.961.271.300.0).064.00 24.60 C 8.00 135.000.00 205.000.10 24.778.80 100.20 611.074.80 32.80 10.149.500.80 42.445. 10 Issue 1 (Ver 1.553.

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86. 168. 86. 62. 147 asymmetric · 29 attractions · 21. 81. 35. 30. 159. 104. 33. 169. 176. 36. 106. 170. 30. 177. 166. 100. 163. 23. 160. 24. 70 AIDC · 7 Alavi and Leidner · 123 Allam · 149. 87 Bammeke · 69. 36. 135. 38 Collongues model · 141 conflicting work life policies · 74 Confort · 144 Consequently · 14. 181 arguably · 129 Argyris and Schon · 128 Armed Robbery Claims Data · 11 Arshanapalli · 33. 95. 167. 157 Assessing · 78. 87. 165. 40 capital structure · 140 chaotic · 127 Chittagong · 41. 145. 81. 72 bankruptcy · 88. 150 Choudhry and Lin · 33. 102. 169. 129 Debreceny · 149. 78 Couger · 128 cronbach alpha · 135 Cropanzano · 77. 180. 167. 13 Brand · 26. 142. 100 cointegrating structure · 33. 170. 176. 157 Allam and Lymer · 150 Amat · 149. 164. 146. 72 Côté · 75. 157 decomposition analyses reveal · 32 Deductible · 11. 141. 6. 117 bunkering · 66. 32. 181 Andreassi · 75. · 68 Applications · 55. 103. 100. 23. 101. 172. 85. 43. 144. 109. 25 B Baerns Barbara · 85 Bahari Lamongan · 132. 168.Extras life interest · 132 A Adedeji · 67 Afonja and Pearce · 67 Afrinvest · 65 Agip · 68. 98. 79 D Danemark · 109 Davenport and Prusak · 128. 7 capital market integration · 29. 102. 137. 170 Brand Influence · 159. 161. 59. 17 deep crisis · 72 . 178. 155. 147 barriers · 29. 171 Brand Decisions · 159. 45. 166. 157 Amro takeover · 93 Analysis · 17. 137 Bailesteanu · 141 Balasubramanian · 81. 171 Branding Opportunity · 97 Brundtland · 116. 157. 178 constellation · 11 Construcţii · 144 contradictions · 66 Co-opettion in Peripheral Surroundings · 27 Corporate Tax Holiday · 7 Corruption · 26. 22. 102. 40 Click and Plummer · 33 clinical trial and opinion leader · 97 Clinical Trials · 97. 169. 176. 164. 105. 140. 168. 140. 167. 79. 167. 71 Butler Destination · 21 C Capital Financing · 2. 35. 169. 163. 171. 150. 38 artifacts · 75 Asian-Pacific · 31. 143. 170. 111. 47. 121. 181 Anderson · 99. 40. 78. 79 Anyadike. 82. 46. 112 Bashir and Ramay · 75 Beijing Zhongguancun · 105 Bernoullian · 177 Berry and Zeithaml · 42 billion Naira · 69 Blimbing · 132 Bormann & Birjulin · 77 Box-and-Whisker · 12. 87. 168. 106. 82.

30. 68. 113 eigenvalue · 62 Elf · 70 emerging tourism destination · 21. 106 Doukas · 33. 71. 137. 23. 46 dissemination · 126. 38 Durable · 159 dynamic linkages · 29. 178 inappropriate · 41. 110. 63. 71. 167. 20 Gyandoot · 105. 170. 8. 169. 127 insurmountable · 94 interaction · 29. 166. 165 EDA · 12. 137 Dickey-Fuller test · 59 discrepancy · 67 disinherited · 71 dissatisfactory · 41. 46. 58 ethically-charged · 82 Ettredge · 149. 157 exhaustion · 74 exigible · 142 Expert Model Mining System · 11 F fairly predictable · 43 federal · 9. 56. 24. 115. 143. 131 demographics · 111 demonstrates · 58. 172 inadequacies · 106 inadequate · 22. 161. 35. 113. 118. 177 Internet financial reporting · 148 . 40 Gremler and Bitner · 42 Griffeth & Gaertner · 78 Gumbel · 18. 144. 44. 22. 31. 27 Dominance · 57. 116. 70. 26. 121. 65. 45. 130. 131. 146. 22. 72 Felmingham · 34. 6. 23. 82 Frayne · 133. general leverage · 140 financial performance · 120. 117. 181 Economy · 36. 119 destination marketing organization · 21 destinations · 21. 119. 111. 44. 23. 148. 43. 34. 55 Hypertext markup language · 148 I Implementation · 47. 171. 68. 21. 157 Granger causality · 34. 129. 124. 38. 120. 66. 66. 29. 145. 20 frivolous · 72 Fuzzy logic · 48 G gasflaring · 70 General Babangida · 71 General Crime Insurance · 11 generated · 5.degradation · 66. 113 H Hardakier · 176. 67 devastation · 70 Dharmmesta · 137 Dhuha · 132. 109. 131 Flow of Funds · 56 fragmentation · 81. 34. 65. 175 Glitnir · 91 Government Policies · 56 Gowthorpe · 149. 113. 140. 141. 116. 107 indigenes · 71 infrastructural indicators · 105 Innovation · 9. 36. 97. 26 Emerging tourism destination · 21 Emerging tourist · 21 emphasises · 126 empirical finance · 17 empirical models · 141 entrepreneurial · 3. 181 institutionalization · 172 institutionalizing · 70. 30. 62. 69 Demand and Supply · 104 democracy · 26. 98. 145. 109. 65. 118. 115. 146 Firestone · 124. 105. 67. 115. 15. 69. 31. 162. 62. 60. 40 festivals · 21. 36 E Economic Development · 56. 163. 128. 148 distinctively · 27 diversification · 8. 137 Frechet · 18. 26 Financial Competitiveness · 140 Financial integration · 29 financial modelling. 40 DMOs · 21. 44. 59. 79. 112. 181 Hibah · 132 Households · 159 Hybrid flow shop · 48. 168. 142. 17 Eden and Aviram · 133 Edmister models · 141 E-government · 104. 35. 22. 27.

38. 134. 157 kidnapping and hostage · 71 Killough model · 141 Kliebenstein · 177. 78 multinationals · 69. 173 modernizations · 172. 40. 81. 125. 22. 115. 175 Modernization · 172. 94. 173. 157 Martennson · 124. 157 Manecuta · 141 manipulation · 70. 130. 58. 16 Looking Beneath Statistics · 104 low visitor arrival · 22 Lundstrom · 98. 178. 30. 128. 172. 174 modesty · 72 Moldovulcan · 144 Morgan · 75. 98. 100. 42. 129. 138 Life Skills · 132. 12. 99. 75 Kaupthing · 91 Keeble · 130 Kenexa Research Institute · 74. 78. 73. 99. 130. 75. 79 Konrad and Mangel · 75 Kreitner · 137 K-S test · 15 Kwara · 178. 129 Life Interest · 132. 79 khadaroo · 155 Khadaroo · 148. 148 Oyekanmi · 72 . 66. 72 Modelling · 11. 68. 25. 110. 148. 17. 150. 135. 75. 67. 129. 102. 117. 129. 69. 103 Lymer · 148. 174. 24.J M JEL Classification · 140 Jenderal Pendidikan · 132 job satisfaction · 74. 138 listen and willingness · 72 loglogistic distributions · 13 log-Normal · 12 Lognormal Model · 11. 132. 101. 103. 127. 79 Nebenzahl · 82 Niger Delta region · 66. 79 opportunities · 7. 137 life skills · 132. 8. 60. 70. 101. 25. 149. 27. 176. 21. 22. 155. 134. 150. 176 Marketing Organisation · 23 Marston · 149. 135. 71 Nigeria · 11. 72. 137 Landsbanki · 91 laplace · 177 Lately · 71. 85. 97. 157. 21. 172 Lathan · 133. 131 Matennson · 123 Medical Device · 4 Mendonca · 78 Merchandising · 25 mobilized · 69. 95 Nowicki and Smutnicki · 48 O Obasanjo and Mabogunje · 66 Oesterreichische · 36 Ohlson model · 141 Oil Politics · 66 Okilo · 70 Okpara · 75. 57. 34. 172 Macroprudential Management · 88 Malarvizhi · 150. 23. 136. 134. 68. 28. 119 Liebowitz and Beckman · 128. 77. 26. 181 Knowledge Management · 123. 77. 118. 86. 173. 63. 128. 150. 124. 131 Notwithstanding · 71. 146 modernization · 112. 155. 29. 56. 158 N Naqvi · 75. 137 Laursen and Mahnke · 115 legislation · 33. 140. 76. 72. 181 Nigeria private sector · 64 Nonaka · 125. 135. 148 marginalization · 66. 134. 131 Kolmogorov-Smirnov · 14. 64. 102. 116 multivariate Cointegration analysis · 34 K Kanungo · 78 Karatepe and Kilic · 74. 71. 15 Kompetitif · 132 Konrad · 75. 111 judiciously · 69. 69 marketing · 7. 181 L Lamongan · 132. 65. 77.

140 social inequalities · 66 sparingly · 43 spillover · 74. 118. 90 spontaneous · 45 Stakeholders · 115. 171 rural counterparts · 161. 143. 120. 150. 118. 65. 181 Sensitivity · 176. 162. 134. 107. 121 Systems in Nigeria · 176 T Takeuchi · 125. 36. 89. 157 polie · 155 political patronage · 72 postponing · 107 Premises · 123 prescribe · 25. 40. 168. 178. 73 Scheduling · 48 Schroff · 99. 133. 74. 163. 172. 118. 25 Promotional strategy · 23. 69. 177. 176. 179 Tauer · 177. 159. · 74. 144. 136 Self-Efficacy · 132. 137. 24. 138 self-esteem · 132. 65. 98. 73. 141. 69. 137. 178 Strategies · 28. 134. 75 Private Sector · 56. 122. 48. 98. 145 Risk Premium · 17 risk programming · 177. 136 sensitivity · 32. 79 R Rahman · 75. 113. 181 Sharma and Wongbangpo · 33 Shell · 68. 25. 79 psychomotorics · 136 Q Quazi. 167. 87 parasitic state · 72 Pasewark · 148. 133. 58. 135. 146. 119. 108. 180 robustness · 15. 77. 70 Shirata model · 141 Sikap · 137 Skewness · 12 Small-land scale · 176 Small-land Scale Agriculture · 176 SME · 7. 82. 177 PROLOGUE · 2 Promises · 123 promotional strategy · 21. 180. 78. 131 Tapan K · 85 Target utilization · 48 Target-MOTAD model · 176. 104 Sustainable Development · 115. 23. 172. 19. 79. 27 Prottas · 75. 103 Search · 190 SEBI regulations · 8 Self Esteem · 132. 77. 143. 178. 116. 135. 190 Petravick · 149. 120 Stochastic · 35. 179. 116. 23. 26. 102. 37. 111. 39. 135. 164 S Sanda · 67. 180. 119. 186 Product Progress · 172 Projects · 172. 70. 83. 84. 124. 141 returns on equity · 140 risk of bankruptcy · 140. 133. 116. 134. 135. 99. 64. 79 Raiffeisen · 142 Rayleigh · 18. 173. 100. 103 Phylaktis and Ravazzolo · 33. 74. 133. 97. 81. 123. 131. 39 Pirchegger · 149. 104. 99 prioritizing · 49. 118. 165. 75. 108 role behavior · 132. 20 recapitalisation · 57 reduction · 32. 178 retained profit ratio · 140. 179. 135 Rural · 115. 100. 134. 157 Patric and Julia · 81 penalise · 93 Penelitian Sesuai Prioritas Nasional · 132 perception · 4. 181 Sunan Drajat Grave · 132 Surprisingly · 64. 157 Petroni · 48. 170. 177. 181 Tay & Kelly · 74 Technical Environment · 172 Technical-Economic Systems · 172 Technological Environment · 172 . 160. 107 Process · 9. 57. 135. 134. 135. 115. 65. 169. 98. 160 Perilaku · 137 persistent · 32. 136 Role Behavior · 132. 166. 55 Petrovic and Duenas · 49 Pharmaceutical · 7. 100. 67.P Pakistan · 34. 137 self-efficacy · 132. 128. 161. 79 Panda · 85.

39. 78 X xenophobia · 11 Y Yaqoob · 74 Youth · 72. 43 Thaden · 74. 74. 4. 5. 76. 8. 40 unobtrusive · 81. 7. 21. 3. 108. 170. 75. 9 VCF ENVIRONMENT · 6 vector autoregression · 32 Venture · 2. 82 unsubstantiated claims · 72 urban · 41. 181 undercapitalisation · 57 unidirectional · 33. 198 VICE · 24 W Wagenhofer · 149. 162. 160 Wisata · 132. 77. 171 Uriel Ezequiel · 36 Utomi in Solanke · 64 V Valcour · 74. 137 witness unimaginable · 66 Wongbangpo · 33. 176 Urban · 159. 6. 5. 160. 9. 134 . 161. 137 willingness · 4. 150. 169. 165. 37 working students · 74. 8. 3.Technology-Readiness · 104 Tetreault · 42. 166. 132. 78 vandalisation · 71 VCF · 2. 10. 45. 160. 164. 77. 161. 9. 159. 34. 10 venture capital · 2. 6. 163. 98 Turnover intentions · 74. 7. 167. 7. 157 Wainwright · 123 Wallmart · 93 WAPIC · 12 Waterhouse Coopers · 4 Wenner and Lawrence · 86 Wensley · 134. 5. 79 Tinggi · 132 tourism business environment · 21 Trajectory · 2 Tremblay & Lalonde · 76. 79 Thompson · 75. 168. 136. 4. 80 U Uncertainty · 176. 8. 80 triggers · 81. 6. 102.