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PROFITABLE MODELS FOR FINANCIAL INCLUSION
Dr. Atul Bansal

Principal
C.Z. Patel College of Business & Management,
New Vallabh Vidyanagar- 388121
E.Mail : dr.atulbansal@gmail.com
Abstract
Rural India presents a remarkable opportunity for banks and financial institutions to seek their
fortunes and bring prosperity to the aspiring poor through financial inclusion. In a fast growing
economy like India the poor are the middle class of tomorrow and banks could, therefore, ill-afford
to ignore this segment. Banks, however, argue that while the benefits of financial inclusion can be
easily understood, the costs of serving the poor can be significant in the short-term, thereby
impacting profitability. Banks, therefore, need to take bold decisions and reach out to rural India
with strategies and business models which are beyond the realm of conventional thinking. This paper
looks at some of the business models and the essential elements of profitable models for financial
inclusion.
Introduction
‘India must make bold decisions to complete the financial inclusion plan in the quickest possible
time and follow it up with a more ambitious plan for economic inclusion to uplift the poor’.
Shri M Narendra, CMD, Indian Overseas Bank
The Committee on Financial Inclusion (Chairman: Dr C Rangarajan, 2008) has defined Financial
Inclusion as ‘the process of ensuring access to appropriate financial products and services needed by
vulnerable groups such as weaker sections and low-income groups, at an affordable cost, in a fair
and transparent manner by mainstream institutional players’. Financial inclusion is important for the
poor as it provides them opportunities to build savings, avail credit, make investments and equips
them to meet emergencies. The development process so far has not brought balanced economic
growth across the country.
The need of the hour for public policy and banks, therefore, is to focus on inclusive growth ie
‘growth with equity’ and make financial inclusion the uppermost policy priority. The high
dependence of rural India on the informal financial system is a wakeup call for banks to put in
greater efforts towards financial inclusion. Financial inclusion will positively impact the lives of
rural Indians and pull millions of them out of the clutches of poverty. It will also provide them with a
formal identity, access to banking products/services, payment and settlement system and a safety net
in the form of deposit insurance, etc.
The Reserve Bank’s broad approach to financial inclusion aims at integrating the financial inclusion
plans of banks with their business plans and the overarching aim of policymakers is to make
Global Journal of Management and Research October – December 2012 Page 1
financial inclusion a business opportunity rather than an obligation. On the back of a favorable
regulatory framework the past four years have witnessed a significant build-up of momentum in the
financial inclusion space. During this period banks have been experimenting with various models to
effectively deliver on their financial inclusion plans. To support banks in their endeavors, RBI has
also deregulated the interest rate on small value loans to encourage greater lending to the poor.
Recent advances in technology such as handheld devices, mobile telephones, point-of-sale devices,
kiosks, low-cost ATMs, etc have also opened up several delivery channels for providing financial
services to the poor. The current decade could, therefore, see the emergence of successful business
models as banks begin to view financial inclusion as a viable business opportunity. The need of the
hour for banks, therefore, is to develop business models that enable financial inclusion and are also
profitable over the medium to long-term.
Financial inclusion as a business opportunity

Some banks argue that while the benefits of financial inclusion can be easily understood the costs of
serving the poor can be significant in the short-term, thereby, impacting profitability. This reflects a
very narrow approach to tackling the problem of financial inclusion. Banks would, therefore, do well
to draw inspiration from the following illustration given by Dr D Subbarao, Governor, Reserve Bank
of India in the context of financial inclusion:
‘A business executive of a shoe company was sent to a large developing country to assess the market
potential there. What he saw was millions of people going without shoes. He came back and
reported to the management that there was no business potential there because no one wore shoes. A
few months later, the strategist of a rival company went and saw the same picture. He came back
and reported to his management that there is tremendous business potential in that country because
of the number of shoes they can sell. Ultimately, it is a question of mindset, and it is only the change
in mindset of all concerned stakeholders that can make financial inclusion a reality’ Bankers should,
therefore, change their mindsets, view financial inclusion as a viable business proposition and adopt
innovative methods and low-cost delivery models to reach out to the poor. They should study the
different markets across India thoroughly and offer region-wise customized products and services
riding on the higher levels of trust enjoyed by them over the other financial service providers in rural
India.
Benefits of financial inclusion

There are several benefits for banks from pursuing financial inclusion. Financial inclusion initiatives
would provide banks with a low-cost and stable source of funds, helping them improve their asset-
liability management (ALM). The potential to tap the rural areas for raising low-cost and stable
deposits is high. In urban areas whenever interest rates start rising banks are faced with a higher
interest outgo on account of migration of deposits from savings to term deposits. This type of churn,
however, would be far lower in rural India as financial literacy levels there are far lower. Therefore,
ensuring a good mix of rural and urban deposits becomes strategically important for banks. Rural

India can also help banks significantly increase their low-cost current account-savings account
(CASA) deposits, thereby, helping protect margins and spreading the business risks.
The fast growing activity in the rural credit markets also offers banks excellent opportunities for
boosting their retail loans and ensuring a balanced mix of retail and corporate loan exposures.
Opening savings accounts for rural Indians can be a win-win proposition for banks, customers and
governments.
Once the bank accounts are opened customers can receive payments in these accounts directly from
governments towards subsidies through direct cash transfers, social security transfers and Mahatma
Gandhi National Rural Employment Guarantee Programme (MGNREGA) wages into their bank
accounts of beneficiaries through the ‘Electronic Benefit Transfer’.
This will minimize both transaction costs and leakages and banks can gain from the float income in
these accounts as several hundred million bank accounts are opened. Further, the savings of the rural
poor would be brought into the formal financial system and channelized into investment. Banks
would also be able to reduce their dependence on bulk deposits ie ‘purchased liquidity’ and
effectively manage liquidity risks and asset liability mismatches.
Profitable models for financial inclusion

Several models have been tried across the world, namely, no-frills accounts banking, branchless
banking (business correspondent model), banking without a bank (using mobiles as conduits for
financial transactions), micro lending, etc for pursuing financial inclusion. Global experience has,
however, revealed that there is no ‘one size fits all’ type of solution to the problem of financial
inclusion and the above models have succeeded differently across the world. The Reserve Bank has,
therefore, studied various models for financial inclusion before deciding upon the business
correspondent (BC) model for India. Banks have been advised to leverage the benefits of low-cost
technology solutions and appoint BCs ie agents of banks who would serve as the ‘Doorstep Bankers’
and provide the last mile connectivity and reach out to millions of rural Indians. The BC model has
been a major success in Brazil, which has a similar demographic profile to India. According to an
article ‘Financial inclusion models from around the world’, (Forbes India, November 2010), the
major reason why the BC model has worked there is that the authorities established a strong business
case for BCs. For example, the payment of bills of any kind is required to be done through the
banking system using a standard form called Boletos. Bill payments comprised 75 percent of volume
(1.6 billion) and 70 percent of value ($105 billion) transacted through Brazilian correspondents in
2008 alone and have been growing.
Further, according to a Wharton School study, the average cost per transaction in India at a BC is the
lowest at INR 4.50 ($1 = INR 45 approx.) per transaction as compared to an ATM (INR 18) and a
bank branch (about INR 45). Finally, Indians are already familiar in dealing with individuals as

agents for transacting in financial products especially for insurance, postal savings, etc. The Reserve
Bank has made a commitment to a bank-led model of financial inclusion through BCs and has stated
that it will support banks in their financial inclusion initiatives by way of information dissemination,
sharing of best practices and also through regulatory incentives.
RBI has also advised that under their financial inclusion plans, banks at a minimum should offer four
products:
• A savings-cum-overdraft account
• A remittance product
• A Kisan Credit Card / General Credit Card and
• Entrepreneurial credit.
Banks may additionally offer micro-insurance and micro pension products. It is important to note,
however, that the Reserve Bank has refrained from deliberately imposing a uniform business model
on the banks as it wanted each bank to build its own strategy in line with its business model and
comparative advantage. This approach is also expected to ensure better ownership of the business
model. Banks would, therefore, need to pursue both conventional and unconventional measures to
reach out to the rural masses. They also need to understand life in rural India before they design
products/services and low-cost sustainable business models for rural India. According to the
consulting giant Boston Consulting Group’s (BCG) report ‘The Next Billion Consumers’ (November
2007), profitable business models would lead to a reduction in the cost of manpower, usage of
technology for distribution reach and collaboration across industry models.
Further, Aadhaar, India’s unique identification system will play an important role in helping the poor
establish their identity to meet the banks’ KYC norms and is, therefore, seen as a game changer in
the quest for financial inclusion and harnessing technology for the benefit of the poor. The
successful endeavors of some banks are helping gradually shed the notion that financial inclusion is
not a viable business proposition. The success story of financial inclusion in Dharavi, Asia’s largest
industrial slum spread over an area of 1.75 sq km and producing goods and services worth several
million dollars and home to a million plus people is cited as a case in point.
Even though Dharavi covers such a large area and is situated in the heart of Mumbai, it surprisingly
did not have a commercial bank branch for a long time. Things, however, changed when Indian
Bank in a bold initiative became the first commercial bank to open a branch in Dharavi in February
2007 which went on to register good business. The Union Bank of India too which has taken to
financial inclusion initiatives a few years ago calls the rural poor, the ‘new bankable class’, is
offering a combination of banking products such as a no-frills savings account, microcredit, micro-
insurance, remittance facilities and an overdraft facility. The bank also proudly claims that some
segments of its remittance facilities for the migrant laborers as also those for the milk and fruit
vendors, under the financial inclusion project are already profitable. The RBI has allotted the bank

3,159 villages and as of March 31, 2011, it has already covered 2,511 villages and intends to cover
10 million customers by March 2013 under the inclusion plan. Likewise, south based banks like the
Indian Overseas Bank, Corporation Bank, Indian Bank, etc have also taken up the implementation of
their financial inclusion plans both in letter and spirit. Of the 1273 villages given to the Indian
Overseas Bank under the financial inclusion plan the bank has already covered more than 800
villages and it expects that the remaining 400+ villages will be covered before December 2011, well
ahead of the deadline of March 31,2012.
Post-Office Banking and Insurance - Of late, Post Offices, are being remodeled to undertake last
mile connectivity in banking and insurance. Such experiments have proved very successful in
countries like Japan. So, when stabilized, it would indeed be a real breakthrough in financial
inclusion in our country.
While designing their business models, banks would do well to assess whether they are robust and
aligned with the bank’s goals. A successful model should also represent a better way than existing
alternatives and also answer management guru Peter Drucker’s age-old questions:
• Who is your customer?

• What does the customer value?
• How do you deliver value at an appropriate cost?
According to Ramon Casadesus-Masanell and Joan E.Ricart, authors of How to design a Winning
Business Model? (Harvard Business Review, January 2011 edition) a profitable business model
should consist of four elements:
• A customer value proposition

• A profit formula
• Key resources
• Key processes
The article adds that a good business model should be able to sustain its effectiveness over time by
fending off four threats, identified by renowned Harvard Business School Professor Pankaj
Ghemawat. They are:
• Imitation (can competitors replicate your business model?)
• Holdup (can customers, suppliers or other players capture the value you create by flexing
their bargaining power?)
• Slack (organizational complacency) and

• Substitution (can new products decrease the value customers perceive in your products or
services?).
Profitable models for financial inclusion could, therefore, have the following features:
i. Offering a clear customer proposition and customized bouquet of products
To succeed in their financial inclusion initiatives, banks would need to offer customers a clear
proposition and a customized bouquet of product offerings. According to the BCG Report quoted
earlier, banks need to offer the following services at a minimum: government payments, savings
accounts, credit, remittances and insurance as part of an overall ‘package’ to attract customers. Each
of these offer significant value to customer and enable banks to generate value through transaction
fees.
ii. Transaction-driven pay-per-use features
To enhance revenues from the financial inclusion drive, BCG has recommended that banks should
offer credit products in addition to deposits and remittances and shift their transaction model from
the conventional rich man's float-based model to an unconventional yet poor-friendly, transparent
pay-per-use model, where customers are charged a small fee for every withdrawal.
iii. Scalable business model with simple, user-friendly low-cost technologies

Profitable business models would need to be scalable and incorporate simple, user-friendly and low-
cost technologies so that investments would be recouped and profits begin showing up as the number
of people serviced by a particular branch or outlet increases over time.
iv. Collaborate with local agents and for-profit companies

According to consulting giant McKinsey’s report ‘A new idea in banking for the poor by Alberto
Chaia, Robert Schiff and Esteban Silva’ (November 2010), the basic problem of ‘last mile access’
can be solved if banks can team up with retail outlets (business correspondents) in low-income, often
hard-to-reach areas to offer financial services to rural masses, thereby, creating value both for
themselves and their customers. These retail outlets could be kirana stores, grocery stores, petrol
bunks, post offices, etc.
Villagers know the owners/managers of these outlets because they frequent them for other purposes,
speak their language and are aware of the local customs and culture. Banks would also do well to
take advantage of regulatory relaxations and engage even ‘for-profit’ entities as BCs as done by Axis
Bank, SBI, ICICI Bank, etc for offering financial services / products such as remittance, savings,
credit, micro insurance, micro SIP and micro pension by tying up with thousands of retail outlets of
Idea Cellular, Airtel, Vodafone and Aircel across the country, thereby, making the benefits of
banking available to the Indian rural masses and building a more inclusive society.

v. Banks need to learn from both corporate India and the informal sector
The rural markets are coming alive and many corporate are now concentrating on the rural areas.
Fast moving consumer goods (FMCG) companies, for instance, have unveiled specific strategies that
target villages with a population of less than 5,000, known as ‘micro-markets’.
Late Prof. C K Prahalad’s work on ‘profit at the bottom of the pyramid (BoP)’ has helped and
encouraged corporates to build sustainable and profitable rural business models. Banks can,
therefore, follow their clients to their markets by opening branches/banking outlets in villages as
inclusive banking goes beyond the conventional notions of commercial banking. According to the
BCG, the informal sector has been a major success in the rural areas. The formal sector must,
therefore, learn from the informal sector. It must also innovate and improve service levels in order to
provide the same level of accessibility as the local money lender, friend or relative.
vi. Subsidiary model to drive down costs

According to the BCG, Indian banks should explore the subsidiary route to drive down distribution
costs in their financial inclusion drive. Given that the average distribution cost of banks, at INR 5.5
lac per employee, is prohibitive, BCG is, urging banks to consider floating subsidiaries to bring
down their human resource costs. These subsidiaries could harness local talent (at a substantially
lower average distribution cost of INR 1 lac or less per employee) in rural and semi-urban areas for
reaching basic banking services to the un-banked. It is also urging policymakers allow banks to set
up low-cost subsidiaries only for the financial inclusion drive. BCG has also assessed that in the
traditional model for pushing financial inclusion, the cost-income ratio was about 1000 percent ie the
cost of rendering service (at about INR 600) per account exceeds income earned from the account
(INR 60). Ideally, this ratio should be around 50percent. Studies also suggest that a bulk of the
borrowing by rural poor is for consumption-related purposes followed by income generation
activities and education respectively and the dependence of rural India on the informal channel
(money lenders/ friends and family) for credit to smoothen income gaps is still very high.
vii. Educate them and take them on board

RBI has been advising banks to focus on financial literacy to boost the demand for financial
products. Banks should, therefore, make ‘boosting financial literacy in rural India’ an essential
component of their business model for financial inclusion.
viii. Ride on government payments

In August 2011, the GOI has amended its landmark MGNREGA scheme to ensure that beneficiaries
receive wage entitlements under the Act within 15 days through institutionalized channels like banks
and post offices. The amendments now make it mandatory under the law for state governments to
ensure that every beneficiary has a bank/post office account and the disbursements are made

exclusively through these channels. The GOI is also considering shifting to a direct cash transfer
programme instead of subsidy for the Public Distribution Schemes.
This will also involve banks and positively benefit financial inclusion initiatives. Again, according to
the BCG, successful models of financial inclusion would, therefore, ride on government payments as
an important source of a recurring float providing them another strong reason to push financial
inclusion.
ix. Innovate and test-market pilot products/services

Banks need to realise that the poor find it difficult to save on a regular basis and may also resort to
consumption loans to supplement their savings whenever required from a variety of sources to meet
emergencies. Banks, therefore, need to keep such realities in mind while designing their
products/services for the poor. With some understanding and innovation, over a period of time,
banks can also capture a bulk of the rural remittances market, a significant chunk of which currently
happens through informal channels. McKinsey’s report cited above also suggests that financial
service providers should test-market low-cost pilots to see which products/services are found
acceptable before large-scale introduction.
Conclusion
Traditional and conventional banking solutions may not be the answer to address the problem of
financial inclusion in India. Banks, therefore, need to innovate and think ‘out-of-the-box’ for
solutions to overcome the problem of financial exclusion in India. They need to walk the talk, go the
extra mile, deploy new technologies and create financially viable models to take forward the process
of financial inclusion in an effective manner. The problem of financial exclusion needs to be tackled
with urgency if we want our country to grow in an equitable and sustainable manner. This way banks
in India would be doing a great service to the cause of financial inclusion and make their name in
history.
Banks which are laggards in financial inclusion would do well to speed up because if history is any
indication the window of opportunity to capture market share through financial inclusion would be
available only for a short period. In a fast growing economy like India the poor are the middle class
of tomorrow and banks could, therefore, ill-afford to ignore this segment. Select public sector banks
in India have played a pioneering role in financial inclusion and their success should encourage the
rest of the banks to put their financial inclusion efforts too on the fast track. As Dr D Subbarao,
Governor, RBI, advised in his remarks at the Bankers’ Club in Kolkata on December 9, 2009,
‘financial inclusion is a win-win opportunity for the poor, for the banks and for the nation. Because
of improving awareness levels aspirations of the poor are on the rise and banks will not be forgiven
if they do not rise up to meet these aspirations. It is for the banks to convert what they see as a dead-
weight obligation into an exciting opportunity and move on aggressively on financial inclusion that
banking on the poor can actually be a rich banking proposition’. Banks would also do well to

remember the advice given by Late Prof. C K Prahalad in his epic book, Fortune at the Bottom of the
Pyramid – What is needed is a better approach to help the poor, an approach that involves partnering
with them to innovate and achieve sustainable win–win scenarios where the poor are actively
engaged and, at the same time, the companies providing products and services to them are profitable.
Financial inclusion may be a social responsibility for the banks in the short-run but will turn out to
be a business opportunity in the long-term. As Dr C Rangarajan has stated, ‘Financial Inclusion is no
longer an option; it is a compulsion’. The entire world is looking at this experiment in India and it is
important that banks rise up to this challenge and meet it successfully.
References
1. A new idea in banking for the poor by Alberto Chaia, Robert Schiff and Esteban Silva,
McKinsey Quarterly, November 2010
2. Social Development Perspectives, M. P. Vasimalai, Executive Director, DHAN Foundation
3. BCG Report, The Next Billion Consumers - A roadmap for expanding financial inclusion in India, by
Janmejaya Sinha and Arvind Subramanian
4. Financial inclusion models from around the world, Forbes India Magazine, November 2010 edition
5. Financial Inclusion: Challenges and Opportunities (Remarks by Dr. D.Subbarao, Governor, Reserve Bank
of India at the Bankers’ Club in Kolkata on December 9, 2009)
6. How to design a Winning Business Model? by Ramon Casadesus-Masanell and Joan E. Ricart , Harvard
Business Review, January 2011 edition.
********

HOW MUCH DO WE PAY FOR QUALITY?
Smita Bajpai
Asst. Professor (CSE)
Rama Institute of Engineering Technology (GBTU Code 293)
Mandhana Kanpur-209217(U.P.)
Email-Id:smitalaxmi.bajpai@gmail.com
Abstract
The basic idea behind buying a quality piece over buying multiple pieces are that you get exactly what
you want (or better) without spending more on cheap substitutes. A lot of people think they cannot
afford the high quality item, but then they go out and spend almost the exact same amount on multiple
cheap substitutes. At the end of it all, they feel unfulfilled and unsatisfied because they’re still lusting
after the high quality item but are buying cheap duplicates to fill that “void”. The role of systems
engineering is to provide technical support for sales. The duties include such tasks as technical
presentations, gathering customer requirements, designing networks and project managing the testing
and implementation of our products. One of the major aspects of the job was coordinating feature sets
and time frames between the customer and our engineering. Large customers are always looking for
additional features that can set them apart from their competition. They always leverage the vendor
into producing new product enhancements and try to accelerate the delivery. This phenomenon creates
a dichotomy and trade-off between quality and costs.
Keywords: Cost, Quality, Quantity, Substitutes, Gathering customer requirements, New product,
Vendor, People, Buying, Piece.
Introduction
How much we pay for quality
The relationships between cost management and quality management are an interesting one.
Everyone in this world is a consumer of some sort. We all buy things and we all want only the best
products for the best price. But, where is the line to be drawn for how much do we pay for quality?
Most competitive companies have goals to put out the best product for the best price. They have
many different slogans such as “quality is no.1″ or “customer service is no.1.” Nevertheless, how
much should a company spend on quality before it starts to cut into profit? What are effects of
rushing a product to market in respect to quality and costs? First, let me define a few terms:
Quality Management
Quality management is one of the hardest jobs of a manager to control. The goal behind good quality
management is improving business processes, optimizing the performance of your business, and
maximizing profitability. By definition, quality is a degree of excellence, superiority in kind. (Mish
p. 963) Management is defined as the conducting or supervising of something. (Mish p. 722) This
leads us to the definition of quality management being the supervising of a degree of excellence.
Most companies aim to achieve a certain degree of excellence without exceeding budget.

Cost-Management
Cost management is what drives companies to the top or sends them crashing and burning to the
bottom of the business food chain. Cost management is defined as the conducting or supervising of
(Mish p. 963) the amount or equivalent paid or charged for something. (Mish p. 295) When a
business purchases a product or service, just like a consumer, there is a responsibility for the
purchaser to find the best price available. This will keep the costs down for the purchasers company
and will keep the company competitive with prices.
Large customers hope to influence their vendors to provide specific product differences that would
make them unique in the marketplace, thus giving them a competitive advantage. The proliferation
of microcomputer technology has made it possible to change functionality of a product by
introducing new software programming. Most customers are unaware of the intricacies of software
programming, testing and controls. Their perception is that software development is quick and easy,
with little costs as compared to hardware development.
For Example
I have observe a small company where, has multiple large customers, each hoping to influence our
product development and time to market. Each of these customers wants different product features
that will make them unique in the marketplace. Our engineers are detailed oriented and prefer to
layout a program of design and delivery based on the goals of senior management and marketing
direction. Introducing new requirements in the middle of product development disrupts their orderly
processes, increases cost, and causes tension internally between sales, marketing, and engineering.
The type of company culture influences the outcome of the customers’ requests. If the company is
primarily sales driven, the likelihood that engineering will have to adjust their plans is high.
Engineering driven companies on the other hand, many be more staunch in their stance and maintain
the existing development schedule. Management must decide whether the proposed changes to the
product adds value long term, and is the customer willing to pay for the additional feature
development short term. Managers from some cultures are less flexible because it is a sign of
weakness.
A company never wants to discourage customer feedback on features because it helps to set practical
implementations of the product that design engineers may never think of. In addition, if the product
diverges to far from what the majority of customers need the product will no longer be viable in the
market.
Let us assume that the customer requests for product changes have received approval. We now look
at cost versus quality trade-offs that will ultimately influence the final product. Adding features to
the product development requires additional resources. In software development, additional
employees with specific programming language expertise may be required. It will also influence
how the software is tested. Testing the software will require additional time and possibly additional
automated test equipment. Additional lines of code may require more memory in the hardware to

store the increased code. Each of these factors adds cost to the product and needs carefully
evaluation prior to development.
The addition of new features adds additional work, which effects time to market. Management will
need to evaluate the trade-offs of missing the original schedule versus added costs. Missing the
original schedule will influence other customers who are counting on our company to help them
meet their goals. These are difficult decisions because they affect more than the requesting customer
and our company. This decision will affect several more companies that do business with us.
Meeting the original schedule means that we must compress the additional work. Management can
address this issue by employing more people or demanding longer work hours from existing
employees. This aspect is where most of the quality issues will show up. New employees are
unknown commodities that require training and additional supervision. Until they are up to speed
with our companies’ specific products, techniques, policies, etc, they are bound to make mistakes.
Longer work hours for current employees create additional emotional stress, lack of focus, and
possibly company resentment. All these factors add up to poorer quality.
The potential for added revenues versus the assured increase in development cost requires careful
analysis by management. Typically, management will require sales to gather additional, specific
information about the customer requirements so we are not developing the wrong feature. Sales must
try to negotiate further commitments from the customer to purchase our products and possibly help
fund some of the development. Sales will also need to assess whether other customers might have
the same needs. Do the needs exactly line up or are there variances. Can engineering design the
features to accommodate the variances?
Marketing is tasked to evaluate how these new features might set us apart from our competitors. Do
the new features add enough value to allow us to increase price? Can we make greater advertising
claims and get our companies name better known in the industry?
Politics and personal feelings always play into these decisions. Engineers who design products have
an emotional attachment to their work. When asked to change the design, a natural resistance occurs.
The owner of the company may be friends with a VP of our customer. A biased decision to add
features based on friendships versus logical business decisions. Sales representatives are looking for
attention on their clients and themselves. Sometimes there is a tendency to mislead our company
about the potential for future business.
Conclusion
Quality management is essential for a business to survive and keep consumers happy. In addition,
cost is always an issue no matter how much money one has. In order for a company to become as
successful as they can be, there must be a balance of the two. Having the right management staff and
experience in quality management and cost management can make a business very successful or can
cause it to fail miserably. Change decisions cannot be made lightly and hundreds of factors influence
the outcome. Good management is the ability to balance these factors using proven processes and

sound logic. Systems engineering is the catalyst and moderator between the company and the
customer. We influence through various forms of logic, economics and human relations factors.
References:
1. Ahire, S. L. 1997. Management Science- Total Quality Management interfaces: An

integrative framework. Interfaces 27 (6) 91-105.
2. ^ Cua, K. O., K. E. McKone, and R. G. Schroeder. 2001. Relationships between
implementation of TQM, JIT, and TPM and manufacturing performance. Journal of
Operations Management 19 (6) 675-694.
3. How to Build Quality,' Economist, September 23, 1989, 91-92.'
4. Deming, W. Edwards. Out of the Crisis (1986 )

PROFITABILITY PERFORMANCE OF COMMERCIAL
BANKS IN ELECTRONIC ERA
Dr. K. Natarajan
Director
Department of Management, PKR School of management, Gobi,
Mail Id: natarajangobi@yahoo.com
&
K. Duraisamy
Lecturer in commerce
Gobi Arts College, Gobi
Mail Id: duraisarath@rediffmail.com
Abstract
Liberalization, Privatization and Globalization (LPG) have been recognized as the key elements propelling
the world towards the present era characterized by rapid changes and increased challenges in various
fields. LPG policy has totally changed the view of our banking system. Due to the changing scenario, our
banks are facing stiff competition in the world economy to line up with the international standards. With the
pace of globalization, present banking system is shifting to e-banking system. Technology is playing an
important role in improving the performance of the banks and even making them capable to compete in the
world market. Although, public sector banks are responding positively and still are partially computerized
and unable to meet the international challenges, whereas, private sector banks and foreign banks are totally
computerized and delivering almost all the services through e- channels and are performing their best in the
world banking industry. This is the strength of these banks to perform better than public sector banks and
capturing various opportunities also. Hence, technology is a crucial factor affecting the banks performance
and making them capable to earn more through new opportunities. Due to the transformation, every aspect
of banking system is affected. Hence, this study is undertaken in Erode District, Tamil Nadu and the result
thereof is presented below.
Introduction
Profitability is the most commonly used criteria for determining the efficiency of banks. Often,
productivity and Profitability have been used in most of the banking studies in the same sense. But
profitability is the product of productivity and price recovery. Enhanced profitability is generally
considered to be the prerequisite for vigorous expansion of operation on a long term basis1.
Profitability in the bank is a function of several variables that may be as the determinants of
profitability. Profitability is a relative concept and indicates net profit as percentage of working
funds. It shows the efficiency with which a bank deploys its total resources to optimize its profits
and thus serve as an index to the degree of asset utilization and managerial effectiveness2. Profit of a
bank is predominantly driven by advances, investments, deposits and other incomes which are
1
Parmod Kumar, Banking Sector Efficiency in Globalised Economy, Deep &Deep Publications Ltd., 2006, p.32.
2
Uppal R.K and Rimpi Kaur, op. cit., p.1.

interconnected in terms of high pair-wise correlation. Increase in advances to get higher interest income
may impact the deposits in terms of higher interest cost particularly term deposits. Increase in deposits
may be achieved at the expense of advances and investments because risk-weighted assets will increase
leading to a lower capital adequacy. The assets and liabilities composition in the bank balance sheet will
have to be carefully planned because their interactions can impact the profitability either positively or
negatively. This exercise in terms of best possible solution should take care of the multidimensional
nature of the assets and liabilities management. Profits of a bank are, therefore, a function of advances,
investments, deposits and other incomes. It is essential to accurately estimate the response of profit to
changes in advances, investments, deposits and other incomes3.
According to a study by Credit Rating and Information Services of India Limited (CRISIL),
lower operating expenses including rationalization of employee costs have improved the profitability
of banks, contrary to the popular perception that only trading profits helped the banking sector shore
up their bottom lines.
The reduction in operating expenses was achieved through large-scale voluntary retirement schemes
implemented by public sector banks. Since this reduction in operating expenses seems sustainable, it promises
a brighter future for the banking sector. Hence, this study is undertaken to identify the factors that are
affecting the profitability performance of commercial banks in India.
Statement of the problem
From various studies, it is observed that with the more and better use of technology along
with the efficient employees, the efficiency of the banks going better and they started to compete
successfully in the foreign markets too.
The future of e-banking is bright but still there are some difficulties that interrupt the
working of the banks. It is also observed that there is a significant difference in the profitability
performance of fully-computerized and partially- computerized banks1. This significant difference is
due to the best performance of internet using and fully computerized banks in India. Technology is a
crucial factor affecting the banks performance and making them capable to earn more through new
opportunities.
E-banking is the outcome of technological innovations and competitions. Banks are using an
electronic distribution channel to market and sell their products to wholesale and retail customers.
The devices used by the banks are telephones, personal computers, automated teller machines,
mobile phones and internet.
E-banking has also affected the customer’s expectations as they prefer to deal with the banks
offering better, efficient and innovative services. To face and survive in this cutting edge
3
Viswanathan, P K, Ranganatham and M., Balasubramanian G., “Relative Importance of Profitability Drivers
of Indian Banks: A Preference Decomposition Approach”, The IUP Journal of Bank Management, May, 2011.
1
Uppal, R.K. (2006) “Indian Banking Industry and Information Technology”, New Century Publications,
New Delhi, p.234

competition, banks have to deliver better quality services to the customers because it is only a
customer who can evaluate quality of services. The banks must know what type of services the
customers expect to have and then accordingly serve them the products and services that meet their
expectations. The banks should not be adamant to accept changes. Otherwise their survival will
become very difficult in the emerging competition. Therefore, there is a need to evaluate the
customer’s perceptions regarding the recent e-banking services too, which will help to further
improve the services if they are not satisfied with their services.
Despite all their efforts in developing better and easier e-banking systems, these still remain
largely unnoticed by the customers and certainly underused in spite of their availability. No doubt
the main draw back in the banking scenario in India has been lack of awareness about e-banking and lack
of willingness to accept and adapt the changes by the customers. In this background, it becomes
essential to know the answers to the following question:
• Is there any improvement in the performance of the banks due to the introduction of
technology in banking transactions?
This study is proposed to find out the answers to the above question.
Review of literature
Review of literature is considered as a significant part of any research.
The role of a good literature review is to find and present the pertinent work from the primary
literature in a logical, organized manner and to bring the reader as
up-to-date as possible. Here, the research of works done by various authors relating to the current study
have been presented in a brief and understandable manner.
Rao (2000)2 analysed the impact of new technology on banking sector.
The advent of technology both in terms of computers and communications has been changing totally
the ways and doing banking business. Technology has opened new vistas and in turn brought new
possibilities every day for doing the same work differently and in most cost-effective manner. Tele
banking and internet banking are making forays such that branch banking may give to home
banking. In order to protect their profitability, the banks need to address urgently the following
emerging areas:
* Product development and marking skills.
* Modern credit management skills.
* New risk management practices.
* Skills for operating in electronic environment.
* New internal skills audit skills in a changing business environment.
2
Rao,N.V. (2000), “Changing Indian Banking Scenario: A Paradigm Shift’’, IBA bulletin, Vol.XXV, No.1,
pp. 12-20

* New focus on customer and his needs.
Nair (2000)3 the technological advancements achieved very recently in the field of computerization
have unfolded many areas of innovations in our living styles. The world of banking is first shedding
its ancient image and entering from ‘brick-and mortar ’model to ‘click’ model. The virtual banking
is rising in a total revolution in the banking transactions. The author realized that those banking and
financial service providers who switch over to the electronic environment in the quickset possible
time frame alone will be able to survive. The introduction of cyber law is also expected to boost the
e-commerce and e-banking further in the days to come and the writing on the wall rather on the net
is clear for the Indian banking Industry: E-Banking has come to stay.
Verma (2000)4 analysed the impact of IT on PSBs & NPSBS in his article ‘Banking on
change’. The IT is a threat for the PSBs. It has to be a complete face off for the PSBs. With the
business per employees, even for the front-run PSBs, a mere fraction of that of NPSBs, the PSBs
have to do a lot on improving their productivity and efficiency. NPSBs are fully computerised and
providing services on internet. Especially ICICI bank, HDFC bank is very active on this front and is
concentrating on internet and e- commerce to offer their clientele a whole range of products under
one roof. New banks like GTB, BOP, IDBI and UTI banks are not lagging behind. While some them
concentrating on expansion and modernisation, some are focusing on mergers and acquisitions for
their growth.
Niranjan (2000)5 studied the changing business dimensions of banks due to the introduction
of IT. The internet is taking banks in directions other than loans & deposits. Banking in India will
never be the same again. E-banks have started
e-commerce & many banks are entering in insurance sector.
Saxena (2000)6 analysed the importance of IT in the banking sector. According to him, the
future promises to be even more exciting, interesting and challenging. The internet has enables us to
talk to each customer as an individual, with different needs and requirements. This IT will affect the
productivity and profitability of the banks.
Pathrose (2001)7 in his study found that banking the world over is undergoing a rapid and
radical transformation due to the all pervasive influence of IT and breath taking developments in the
technology of telecommunications and electronic data processing. The winds of change are blowing in
India too. The IT which implies the integration of information system with communication
technology has radically altered the traditional ways of doing banking business and allowed banks to
wipe out the difference in time as well as distance. It is in this context his article attempts to trace the
present status of hi-tech banking in India, visualize its prospects and look at the challenges and problems
3
Nair, S.N. (2000), “E- Commerce and the Emergence of E-banking”, IBA Bulletin, Vol.XXII, No.10.
4
Verma.D. (2000), “Banking on Change,” ICFAI Reader, May, P.69.
5
Niranjan, (2000), “Internet Banking is Here,” Business World, 3rd April.
6
Saxena.M. (2001), “Bankers’ Choice: Tech it or Leave It”, Strategic Marketing, (Feb.), pp.42-50.
7
Pathrose, p.p. (2001), “Hi-Tech Banking-prospects and Problem”, IBA Bulletin, Vol.XXII, No.1, pp.12-20.

in the tracks to be traversed. He concluded that in the scenario of severe competition and escalating
expectation of customers for newer products and alternative delivery channels, the outline of
banking are being redefined. The key to survival of banks therefore is retention of customers loyalty
by providing them with value added services tailored to their needs, using state-of-the-art IT. There
is no way a bank can remain lukewarm to hi-tech and yet hope to grow. It is a choice between
survival and extinction.
Shastri (2001)8 analysed the effect and challenges of new technology for banks. Technology has
brought a sea-change in the functioning of the banks.
The earlier manual system of preparation of vouchers, etc. is slowly being automated thereby saving
a lot of time & effort. The use of ATM is more than in the past, especially in the post- VRS scenario.
Adhaivarahan (2001)9 in his article attempted to have a bird’s eye view of the provisions of
the IT Act and the pros and cons of the provisions of the act with particular reference to the activities
of banks. The study concludes that the number of incidents of e-fraud and on-line breaches is the
highest in India. Therefore cyber crimes in banking sector have to be treated with more care. For this
purpose, a statutory body similar to “Internet fraud center” should be formed in India.
Avasthi and Sharma (2001)10 advances in technology are set to change the face of the banking
business. Technology has transformed both the delivery channels used by banks in retail banking. It
has also greatly impacted the whole markets of banks. Both the authors explored the challenges that
the banking industry and its regulators face.
Kannan and Aditya Narain (2001)11 made an attempt to identify the factors influencing
spreads of scheduled commercial banks in India. The study revealed that size does not necessarily
imply higher spreads. Secondarily, higher non-interest as a share of total assets (fee) enables banks
to tolerate lower spreads. With regard to regulatory requirement variables, it was found that capital
plays an important role in affecting spreads of the public sector banks. Non-performing assets were
found to be consistency relevant across all the bank groups in influencing spreads.
Black et al. (2001) 12 found that previous experience with the computer or Internet is one of the
strongest influencing factors that affect Internet banking adoption.
Shveeta and Satish Verma (2002)13 analysed the inter-temporal profitability behavior of SBI
group, other nationalised and foreign banks in India. They empirically estimated the factors influencing the
8
Shastri, R.V. (2001), “Technology for Banks in India – Challenges,” IBA Bulletin, VOL.XXIII No.3 (March).
9
Adhaivarhan.(2001), “Information Technology Act, 2000- The Legal Viewpoint”. Indian Banking Association, Bulletin,
Vol. XXII, No.12.
10
Avasthi, G.P. and Sharma, M. (2000-2001), “Information Technology in Banking: challenges for
regulators,” Prajnan, Vol. XXIX, No.4 p.17.
11
Kannan, R. and Aditya Narain, (2001), “Determinants of net interest margin under regulatory requirements,
an economic study’ , Economic and Political Weekly, Vol. XXXVI, No.4, January 27-2, pp. 337-344.
1
2Black, N. J., Lockett, A., Winklhofer, H. & Ennew, C. (2001) “The Adoption of Internet Financial Services: A Qualitative
Study”, International Journal of Retail& Distribution Management, Vol.29, No.8, pp. 390–398.

profitability of banks. They concluded that priority sector advances (in case of PSBs) , spread and burden
(for all categories of banks) were the major and significant factors that influence the profitability of banks.
D’ Souza, (2002)14 in his study evaluated the performance of public sector banks, private
sector banks and foreign banks during the period 1990-1991 to 1999-2000. The efficiency of the
banking system was measured in terms of spread/ working fund ratio and turnover/ employees ratio.
The analyse reveals that the profitability of the public sector banks in late nineties improved
relatively to that of private and foreign banks.
Singh (2003)15 analysed the profitability management of banks under the deregulated
environment with some financial parameters of the major four bank groups i.e. public sector banks,
old private sector banks, new private sector banks and foreign banks, profitability has declined in the
deregulated environment.
He emphasised to make the banking sector competitive in the deregulated environment. They should
prefer non-interest income sources.
Chang (2003)16 examined behaviors of firms (banks) and consumers (bank’s consumers) in
the event of a new technology (internet banking) introduction.
The determinants of consumer adaptation of internet banking are characterised using survey data
from Korea in both static and dynamic frame work. I find evidence that adaptation of internet
banking is influenced by sex, age, and marital status, degree of exposure to internet banking and the
characterized of the banks. A duration analysis shows no evidence of first mover advantage (order
effects) in internet banking whilst the largest bank (rank effects) in commercial banking remains
dominant in internet banking. The results imply that social norm effects dominate the internet
banking adoption.
Hasanbanu (2004)17 studied customer services in rural banks. He found that the rural customers are
not aware of the purpose for which the loans are available and how they can be availed. Customers
do not know the complete rules, regulations and procedures of the banks as the bank personnel do
not take interest in educating the customers.
13
Uppal R.k. and Rimpi kaur, (2008), “ Indian Banking- Transformation through Information Technology”,
Mahamaya publishing House, p.136.
14
D’ Souza, Errol (2002), “How well have public sector banks done? A Note”, Economic and Political
Weekly, Vol. XXXVII, No. 23, June 8-14, pp 245-256.
15
Singh, Ranbir (2003), ‘Profitability Management in Banks under Deregulated Environment’, IBA Bulletin,
Vol. XXV, No. 7, July, pp.19-26
16
Chang.y, (2003), “ Dynamics of Banking Technology Adoption: An Application to Internet Banking”,
Department of Economics, University of Warwick, January 2003.
17
Hasanbanu, “customer services in rural banks: An Analytical study of attitude of different types of
customers towards banking services”, IBA Bulletin, August 2004, Vol: XXVI, No.8, pp.21-29.

Kumar (2006)18 studied the bank nationalization in India marked a paradigm shift in the
focus of banking as it was intended to shift the focus from class banking to mass banking.
Internationally also efforts are being made to study causes of financial inclusion and designing
strategies to ensure financial inclusion of the poor disadvantaged. The banks also need to redesign their
business strategies to incorporate specific plans to promote financial inclusion of low income group
treating it both a business opportunities as well as a corporate social responsibilities. Financial inclusion
can emerge as commercial profitability business.
Uppal (2006)19 with a sampling of 500 bank customers explained the impact of computerisation on
the satisfaction of customers of all bank groups and concluded that customer services are quite better
in fully computerized banks and further in e-banks as compared to that in partial or non-
computerized banks.
The study is only concerned with the urban sector of Punjab.

Hroff (2007)20 gave a summary of how Indian banking are evolved over the year. The paper
discusses some issues faced by these systems. The author also gives examples of comparable banking
system for other countries and the lesson learnt. Indian banking is the threshold of the paradigm shift. The
application of technology and product innovations is bringing about structure change in the Indian banking
system.
Importance of the study
Now all the banks have realized that technology, like e-banking, is at the foundation of all its
functions and operations and to have end to end integrated paperless systems and process. High
awareness of customers on e-banking products and services is good for banks which will enable
them for decision-making, planning, managing expenses and increasing business. Hence, the study is
conducted to know the awareness level of customers of banks.
Whenever a new technology is adopted, it does not mean that all new technology
implementation would improve the process and the system suddenly brings positive results. Major
obstacles and risks are associated with innovative technology. Hence, the major problems faced by
the banks and customers while using e-banking are discussed with a view to help the concerned
authorities to avert it in near future.
Identifying the important factors contributing for the adoption of e-banking by the banks and
the factors influencing the customers for using e-banking for their bank transactions will help the
18
Kumar, T.S. (2006), “Leveraging Technology Foreign Banks Financial Inclusion” Bankers’ Conference
Proceedings (Nov), pp.144-152.
19
Uppal ,R.K.(2008), “Indian Banking- Transformation through Information Technology,” Mahamaya
Pulishing House, p.86.
20
Shroff, F.T. (2007), “Modern Banking Technology”, Bank Net Publications, Vol.IV, pp.44-49.

respective authorities to give much importance for improving quality of services and enlarge the e-
banking services. Against this backdrop, the present study has been undertaken.
Scope of the study
The main aim of the study is to assess the profitability performance of the commercial banks in India
during the electronic era. Efforts have been made to identify the factors determining the profitability
performance of the banks. The effect of each variable on Bank group profitability is also discussed.
The study also highlights the level of awareness of the customers regarding the various e-
banking products and services. This study is also extended further to cover the influence of socio-
economic variables on the awareness level of the customers. Moreover, e-banking product-wise
awareness level of the customers has also been studied.
E-banking products and services are electronic oriented and dynamic one. So, an attempt has also
been made to provide the up-to-date e-banking products and services offered by the Indian banks. It is
ensured that the study is also focusing on finding out the factors influence the banks and customers to
choose e-banking services.
While adopting new technology in the banking process, it is inevitable to encounter the
problems both by the banks and customers. By keeping this in mind, the study also spotlights the
problems faced by the customers and bankers.
Objective of the study
The following is the main objective of the study:
To evaluate the performance of commercial banks in India in the electronic era
Hypotheses
The following hypotheses have been formulated by considering the objectives of the study, the
researcher’s theoretical knowledge, discussions and deliberations with experts and from other
research studies. These hypotheses are subjected to appropriate statistical tests.
1. There is no significant association between the profitability parameters (such as Interest
Earned, Interest Expended, Spread, Non-Interest Expenditure, Non-Interest Income, Burden,
NPA, Fixed Deposits, Savings Deposits, Current Deposits, Total Credit, Provisions and
Contingencies etc.) and the profitability of the banks.
Data Collection
The study is based on both primary and secondary data. The required primary data were collected
from the respondents by using well-structured questionnaires. The validity of any research is based
on the systematic method of data collection and analysis. The required primary data were collected
from 600 sample respondents. The Reserve Bank of India brings out number of issues relating to

banking business. The required secondary data were collected from the RBI website, RBI Bulletin
and RBI Annual Reports. Besides, leading journals and magazines relating to banking industry were
also referred for this study.
Sampling Design
The ATM card holders of both the public sector and private sector banks of all the five taluks in
Erode District were considered as population of the study. There are 40 banks in Erode district
namely 3 SBI groups, 17 Nationalised banks and 20 private sector banks (old and new) with a total
of 152 branches. Also there are 207 ATM centres in Erode district.
Initially, it was decided to collect data from 800 respondents. The list of customers of each branch of
the public sector banks and private sector banks could not be obtained from the branch managers as
they did not want to disclose the names of the customers due to their obligation to maintain the
confidentiality of customer’s account. So, it was decided to adopt convenience sampling method for
selecting the sample respondents. The required data have been collected from the sample
respondents in front of the ATM centres (which is considered as an opt place) with the help of well-
structured questionnaires. On an average, 15-20 minutes were required to fill up questionnaire. The
doubts and queries raised by the respondents were properly clarified at the time of filling up of data.
Out of 800 questionnaires distributed, only 692 questionnaires have been collected from the
respondents. After deleting 92 questionnaires owing to incomplete and inconsistent answers, the
remaining 600 questionnaires were used for analysis and this constitutes the sample size of the study.
Pilot Study and Formation of Questionnaire
In order to prepare a well-structured questionnaire, a pilot study was conducted with a sample of 50
customers. In this pilot study, the questionnaire was pre-tested and then refined for use in the final
study. Many additions and deletions of questions were made in the final questionnaire based on the
response in the pilot study.
Data Processing and Analysis
The questionnaire thus filled up by the respondents was thoroughly checked to ensure accuracy,
consistency and completeness. The collected data were edited and tabulated. For the analysis of the
data, statistical tools such as Chi-square test, Z test, F test, Average, Standard Deviation, Co-efficient
of variation, Correlation co-efficient matrix and R2 were used. The statistical package SPSS 16.0
was used to analyse the data
Period of the Study
The secondary data required for analysing the profitability performance of banks have been taken for a
period of eight years from 2001-02 to 2008-09. Reviewing the relevant literature and conceptual
framework took one year. The data collection from the primary sources took eight months from

December 2009 to July 2010. Preparing the master table, data analysis and interpretations took about
five months. Report preparation took another two months.
Profitability performance of commercial banks
Profitability is an important criterion to evaluate the overall efficiency of Bank groups. Profitability
is a relative concept and indicates net profit as percentage of working funds. It shows the efficiency
with which a bank deploys its total resources to optimize its profits and thus serve as an index to the
degree of asset utilization and managerial effectiveness.
Table 1: Net profit as percentage of working fund (Y1) (In percentage)
BANK 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D C.V.
GROUP 02 03 04 05 06 07 08 09
G-I 0.69 0.98 1.19 0.89 0.81 0.85 0.9 0.9 0.93 0.13 13.46
G-II 0.77 0.91 1.02 0.91 0.86 0.82 0.89 0.9 0.90 0.06 6.82
G-III 1.08 1.17 1.2 0.33 0.58 0.7 1.02 1 0.86 0.33 38.16
G-IV 0.44 0.9 0.83 1.05 0.97 0.91 1.01 1.1 0.97 0.09 9.71
G-V 1.32 1.56 1.65 1.29 1.54 1.67 1.82 1.7 1.60 0.17 10.40
INDUSTRY 0.75 1.01 1.13 0.89 0.88 0.9 0.99 1 0.97 0.09 9.20
Mean 0.86 1.10 1.18 0.89 0.95 0.99 1.13 1.12
S.D 0.34 0.28 0.30 0.35 0.36 0.39 0.39 0.33
C.V. 40.00 25.09 25.80 39.53 37.62 39.17 34.71 29.88
Source: Report on Trend and Progress of Banking, RBI, (2001-02 to 2008-09)
Profitability of all Groups of Banks in the electronic era is given in Table 1. Profitability in
terms of an average is the highest in foreign banks (1.6 per cent) and new private sector banks (0.97
per cent). On the other hand, it is comparatively low in the old private sector Banks (0.86 per cent).
The maximum variations in profitability in terms of co-efficient of variations are observed in
old private sector Banks with 38.16 per cent co-efficient variations. The financial year 2003-04 has
highest ratio (1.18 per cent) in terms of year-wise Average. The ratios, net profit to the working
Fund, of the groups I, II and III are less than the industry Average, i.e.0.97 per cent.
The new private sector Banks HDFC Bank and ICICI Bank have dominant position to increase the
profitability of this group. Among the foreign banks, Citibank, Standard Chartered Bank, Bank of
America etc. are playing very effective positive role to increase the profitability. So, it is found that
the foreign banks and new private sector banks have high profitability ratios than other groups of
banks.
Prime determinants of profitability of banks
Efficiency, to a greater extent, is associated with profitability. Profitability in the bank is a function
of several variables that may be called as the determinants of profitability. Different determinants
may be identified as follows: Deposits, Advances, Assets and Cost. The above determinants are
analyzed in depth in different angles in the following paragraphs.
Interest earned as percentage of working funds
Since the spread is a difference of interest earned and interest expended, the relations of interest earned to
total assets and relation of interest expended to total assets can further help us to understand some fine
aspects of total economic efficiency. Table 2 exhibits clearly the interest earned by the different groups of
banks.
Table 2: Interest Earned as Percentage o f Total Assets (X2) (In percentage)
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Bank Group Mean S.D. C.V.
02 03 04 05 06 07 08 09
G-I 8.78 8.39 7.44 6.91 6.74 6.82 7.21 7.5 7.29 0.57 7.82
G-II 8.62 8.26 7.46 7.02 7.13 6.64 6.96 7 7.21 0.52 7.25
G-III 9.36 8.5 7.56 6.95 6.92 7.15 7.55 8.1 7.53 0.59 7.89
G-IV 4.48 8.13 6.71 5.77 5.89 6.51 7.57 8.3 6.98 1.03 14.74
G-V 8.56 7.68 6.74 5.97 6.17 6.53 6.71 6.8 6.66 0.55 8.23
INDUSTRY 8.26 8.28 7.31 6.61 6.65 6.7 7.16 7.4 7.16 0.59 8.28
Average 7.96 8.19 7.18 6.52 6.57 6.73 7.20 7.54
S.D. 1.97 0.32 0.42 0.60 0.52 0.27 0.37 0.66
C.V. 24.76 3.88 5.84 9.23 7.94 3.94 5.18 8.73
This ratio is an indicator of the rate at which a bank earns income by lending funds. Table 2 shows
that the percentage of interest earned to total assets is decreasing year by year in all the Bank Groups
and in the industry too except Group-IV during the study period. On an Average, it is the highest in
case of Bank Group-III (7.53 per cent) whereas G-V shows the least ratio with 6.66 per cent.
On yearly basis, it is highest in the year 2002-03 (8.19%). Year-wise fluctuations in terms of co-
efficient of variations are the highest in 2001-02 with 24.76 per cent and Group-wise, G-IV shows
the highest with 14.74 per cent. The interest earned is decreasing mainly due to the falling rate of
interest. Hence, it is concluded that new private sector banks have upward trend in interest earned
ratio than other groups of banks.

Interest expended as percentage of total assets (x3)
Interest expended refers to interest paid on various deposits. It includes interest on fixed
deposits, interest on Recurring deposits, interest on Saving Bank deposits, etc. This ratio indicates
cost of the deposits. If this ratio increases, it may become harmful for the operational profitability of
the banks.
Table 3: Interest Expended as Percentage of Total Assets (x3) (In percentage)
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

02 03 04 05 06 07 08 09
G-I 6.03 5.39 4.38 3.89 3.84 4.16 4.98 5.2 4.55 0.64 14.00
G-II 5.91 5.5 4.62 3.96 4.05 4.05 4.73 4.8 4.53 0.55 12.25
G-III 6.97 6.03 4.96 4.25 4.17 4.39 5.12 5.5 4.92 0.70 14.14
G-IV 3.33 6.43 4.68 3.6 3.62 4.41 5.17 5.6 4.79 1.04 21.63
G-V 5.34 4.33 3.15 2.63 2.58 2.77 2.91 2.9 3.04 0.60 19.77
INDUSTRY 5.7 5.51 4.44 3.78 3.85 4.12 4.81 5 4.50 0.64 14.21
Average 5.52 5.54 4.36 3.67 3.65 3.96 4.58 4.80

S.D. 1.35 0.79 0.71 0.62 0.63 0.68 0.95 1.11
C.V. 24.56 14.34 16.20 17.01 17.38 17.20 20.74 23.06
Table 3 discloses the ratios of interest paid to total assets. There is a fluctuation in the ratios during
the periods under study. Group-III has the highest ratio of 6.97 per cent in the year 2001-02 whereas
Group-V has the lowest ratio of 2.58 per cent in the year 2005-06. On an Average, the Group-V has
the lowest ratio of 3.04 per cent and Group-III has the highest ratio of 4.92 per cent year-wise, Year-
wise, it is decreased from 5.52 per cent in the year 2001-02 to 4.8 per cent in the year 2008-09. The
maximum variation in the ratio is registered by the Group-IV with 21.63 per cent. The decrease in the
ratio of interest to total asset is also due to the falling rate of interest. Hence, it is found that the
foreign banks have the lowest Average ratio (3.04) of interest expended.
Spread as percentage of total assets (x4)
Spread is the difference between interest earned and interest paid by the Banks. It plays a major role
in determining the profitability of banks. Spread is the net amount available to the banks for meeting
their operative, administrative and managerial expenses. An increase in spread leads to rise in profit.
In the face of increasing competition from entry of new banks and deregulated interest rates, the
interest spread has shown a decline.

Table 4: Spread as Percentage of Total Assets (x4) (In percentage)
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

02 03 04 05 06 07 08 09
G-I 2.74 3 3.06 3.02 2.89 2.66 2.23 2.2 2.72 0.37 13.63
G-II 2.71 2.76 2.83 3.06 3.07 2.59 2.24 2.1 2.66 0.38 14.22
G-III 2.39 2.47 2.6 2.7 2.75 2.75 2.43 2.6 2.61 0.13 4.92
G-IV 1.15 1.7 2.03 2.17 2.27 2.2 2.4 2.8 2.22 0.34 15.14
G-V 3.22 3.35 3.59 3.34 3.58 3.76 3.79 3.9 3.62 0.22 5.98
INDUSTRY 2.57 2.77 2.88 2.83 2.81 2.58 2.35 2.4 2.66 0.22 8.15
Average 2.44 2.66 2.82 2.86 2.91 2.79 2.62 2.72
S.D. 0.78 0.62 0.58 0.45 0.48 0.58 0.66 0.72
C.V. 31.97 23.51 20.38 15.63 16.38 20.79 25.26 26.43
Table 4 depicts the average ratio of spread as a percentage of total assets. Foreign banks have
the maximum average ratio during the study period (3.62 per cent). On the contrary, the new private
sector Banks have the least (2.22 per cent). The average ratio of spread as a percentage of total assets
is maximum for foreign Banks and minimum for new private sector banks, while consistency is
maximum for old private sector banks (4.92 per cent C.V) and minimum for new private sector
banks (15.14 per cent C.V). Hence, it is found that foreign banks have maximum average spread
ratio whereas new private sector banks have minimum average ratio as percentage of total assets.
Non- interest income as percentage of total assets(x5)
Non-interest income is a kind of income which includes commission on exchanges,

brokerages, profit from sale of investments, profit from Exchange transactions, service charges for
various agency services, etc. It contributes almost 15 per cent of the total income of all the banks. If
this ratio increases, the operational efficiency of the banks will increase.

Table 5: Non- interest income as percentage of total assets (x5) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 3.54 3.69 3.73 3.64 2.99 2.68 2.32 2.3 3.05 0.64 20.98
G-II 3.28 3.47 3.8 3.67 3.59 2.94 2.51 2.5 3.21 0.55 17.24
G-III 3.67 3.54 3.4 3.35 2.98 3.03 2.5 2.8 3.09 0.37 11.94
G-IV 1.91 3.37 3.26 2.85 2.93 3.03 3.37 3.7 3.22 0.30 9.28
G-V 5.3 4.41 4.77 4.54 4.74 4.66 4.87 5.3 4.76 0.28 5.98
Industry 3.4 3.63 3.74 3.61 3.19 2.92 2.73 2.8 3.23 0.43 13.23
Average 3.54 3.70 3.79 3.61 3.45 3.27 3.11 3.32
S.D. 1.21 0.42 0.59 0.62 0.77 0.79 1.06 1.23

C.V. 34.13 11.25 15.59 17.05 22.41 24.21 34.14 37.04
Table 5 explains the percentage of non-interest income to the total assets. It shows a
decreasing trend in all the bank groups during the study period except Group-IV and Group-
V. On an average, Group-V has the highest average ratio i.e. 2.86 per cent followed by
Group-IV with 2.02 per cent. On yearly basis, the Average ratio is a maximum in the year
2003-04. The consistency is the maximum for foreign Banks. Computerization of banking
activities is the main reason for declining in non-interest income. In order to promote the habits
of using E- banking products and services, RBI has instructed all the banks to waive the
service charges. Hence, it is found that the average non-interest income ratio is the highest in
foreign banks and it has minimum variation.
Non-interest expenditure as percentage of total assets (x6)
It is expenditure other than interest paid which includes establishment expenditure,
administrative expenses, advertisement expenses, etc. If this ratio decreases, it will improve the
efficiency of the bank operations.

Table 6: Non- interest expenditure as percentage of total assets (x6) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 3.54 3.69 3.73 3.64 2.99 2.68 2.32 2.3 3.05 0.64 20.98
G-II 3.28 3.47 3.8 3.67 3.59 2.94 2.51 2.5 3.21 0.55 17.24
G-III 3.67 3.54 3.4 3.35 2.98 3.03 2.5 2.8 3.09 0.37 11.94
G-IV 1.91 3.37 3.26 2.85 2.93 3.03 3.37 3.7 3.22 0.30 9.28
G-V 5.3 4.41 4.77 4.54 4.74 4.66 4.87 5.3 4.76 0.28 5.98
Industry 3.4 3.63 3.74 3.61 3.19 2.92 2.73 2.8 3.23 0.43 13.23
Average 3.54 3.70 3.79 3.61 3.45 3.27 3.11 3.32
S.D. 1.21 0.42 0.59 0.62 0.77 0.79 1.06 1.23
C.V. 34.13 11.25 15.59 17.05 22.41 24.21 34.14 37.04
Table 6 shows that there is a fluctuating trend in the ratio of non-interest expenditure to total
assets. On an average, it is the least in Group-I i.e. 3.05 per cent where industry shows 3.23 per cent.
Year-wise, it is the least in the year 2007-08 (3.11 per cent). There is a maximum fluctuation in the
G-I (20.98 per cent) in terms of C.V. Hence, it is found that the average ratio is the lowest in the
Group-I but, at the same time, the group has the maximum variance.
Burden as percentage of total assets (x7)
Burden is a difference between non-interest expenditure and non-interest income that reflects
the capacity of the banks to meet their non-interest expenses from non-interest income. Lesser the
burden more capable the banks will be to meet these expenses.
The effort to increase the banks profitability will involve the management of burden, i.e., specifying
the key factors determining burden with the intention to reduce the burden, either by increasing the
non-interest income or by reducing non-interest expenditure or reducing the non-interest income or
by increasing non-interest expenditure.

Table 7: Burden as Percentage of Total Assets (x7) (In percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 2.05 2.02 1.87 2.34 2.09 1.82 1.34 1.2 1.81 0.41 22.54
G-II 1.94 1.85 1.81 2.37 2.21 1.77 1.34 1.2 1.79 0.42 23.53
G-III 1.32 1.09 1.11 2.41 2.17 2.05 2.29 1.6 1.82 0.55 30.39
G-IV 0.72 0.63 0.82 1.11 1.3 1.19 1.39 1.9 1.19 0.41 34.49
G-V 2.4 1.53 1.57 2.03 2.05 2.09 1.98 2 1.89 0.24 12.53
Industry 1.84 1.77 1.73 2.13 1.92 1.68 1.36 1.4 1.71 0.27 15.88
Average 1.69 1.42 1.44 2.05 1.96 1.78 1.67 1.58
S.D 0.67 0.57 0.46 0.55 0.38 0.36 0.44 0.38

C.V. 39.50 39.88 31.76 26.69 19.17 20.19 26.42 23.85
Table 7 presents the average ratio of burden as a percentage of total assets for the entire bank Groups.
Group-wise analysis shows the lowest average burden ratio for new private sector banks with 1.19 per cent.
Maximum variations and minimum variations in the ratio were found for new private sector banks
(34.49 per cent) and Foreign Banks (12.53 per cent) respectively. On yearly basis, it is the least in
the year 2002-03 (1.42 per cent). Hence, it is found that the new private sector banks have minimum
Average burden ratio.
Net NPA as percentage of net advances (x8)
Non-performing assets (NPAs) are those loans given by the banks or financial
institutions where the borrowers default or delay interest or principal payments. Banks
are not allowed to set aside any amount from profit in case they cannot collect from
the borrowers, which affect the profitability adversely. The high level of Non-
Performing Assets (NPAs) of banks in India reflects the weak recovery
mechanization.

Table 8: Net NPA as Percentage of Net Advances (X8) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 6.01 4.74 3.14 1.85 1.16 0.92 0.77 0.7 1.90 1.52 80.03
G-II 5.45 4.12 2.7 2.23 1.63 1.32 1.43 1.5 2.13 1.01 47.23
G-III 7.1 5.5 3.85 2.74 1.65 0.91 0.66 0.9 2.32 1.82 78.52
G-IV 4.9 4.6 2.36 1.85 0.78 0.97 1.21 1.3 1.87 1.32 70.69
G-V 1.89 1.76 1.48 0.86 0.83 0.97 1.21 1.7 1.26 0.39 31.17
Industry 5.5 4.4 2.9 2 1.22 1.01 1 1.1 1.95 1.29 66.13
Average 5.07 4.14 2.71 1.91 1.21 1.02 1.06 1.22
S.D. 1.96 1.42 0.88 0.69 0.42 0.17 0.33 0.41
C.V. 38.56 34.31 32.64 36.17 34.62 16.81 30.90 33.99
The NPAs of commercial banks is exhibited in Table 8. It is interesting to note that the net NPAs to
net advances in all Groups of banks including industry stood around 5 per cent except Foreign Banks
in the year 2001-02 and came down below 2 per cent in the year 2008-09. On an average, this ratio is
the least in Group-V i.e. 1.26 per cent and on yearly basis, it is the least in the year 2006-07 i.e.1.02
per cent. Variations are the maximum in case of Group-I i.e.80.03 per cent C.V. G-III had the
highest NPA ratio of 7.1 per cent in the year 2001-02 and decreased to 0.9 per cent in the year 2008-
09. Hence, it could be concluded that there is a decreasing trend in the NPAs during the study
period.
Operating expenses as percentage of total assets (x9)
Banks cost structure normally includes interest costs and operating costs. The operating costs are
incurred to give better services to the customers that include both depositors and borrowers.
Operating cost includes salary, wages, all other expenses such as rent, telephone, electricity, postage,
stationery, printing, other establishment expenses, etc. Normally, in accounting terminology, the
increased operating costs imply the decreased net profit. But increased staff expenses and
establishment expenses may enhance the efficiency.

Table 9: Operating expenses as percentage of total assets (x9) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
Average S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 2.4 2.33 2.21 2.18 2 1.73 1.52 1.5 1.92 0.34 17.73
G-II 2.11 2.11 2.21 2.14 2.28 1.98 1.68 1.6 2.00 0.26 13.18
G-III 2.07 2.05 1.97 1.96 2.06 1.85 1.66 1.7 1.89 0.16 8.53
G-IV 1.1 1.96 2.04 2.06 2.12 2.11 2.28 2.2 2.11 0.11 5.01
G-V 3 2.79 2.77 2.88 2.94 2.82 2.84 2.8 2.83 0.06 2.08
Industry 2.19 2.24 2.24 2.13 2.13 1.92 1.78 1.7 2.02 0.22 10.90
Average 2.14 2.25 2.24 2.24 2.28 2.10 2.00 1.96
S.D. 0.69 0.33 0.31 0.37 0.38 0.43 0.56 0.54
C.V. 32.22 14.78 14.04 16.28 16.82 20.39 27.81 27.62
Table 9 shows the operating expenses as percentage of total assets.
The Average ratios of all Groups of Banks including the industry in the year 2008-09 are less
than the ratios in the year 2001-02 except Group-IV. Foreign Banks have the maximum
Average ratio during the study period (2.83 per cent). On the other hand, Group-III has the
least (1.89 per cent).Maximum variations are registered by nationalized Banks with 17.73
per cent C.V. On yearly basis, the highest average ratio is in the year 2005-06 with 2.28 per
cent. So, it is found that the foreign banks have the highest average operating ratio.
Fixed deposits as percentage of total deposits (x10)
Fixed deposits as percentage of total deposits also affect the profitability of the
banks. Fixed deposits can be utilized by the banks for a long period and for different
purposes.

Table 10: Fixed Deposits as Percentage of Total Deposits (X10) (In percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 64.54 63.78 63.22 62.97 61.57 64.23 66.26 69.3 64.48 2.56 3.97
G-II 63.49 63.03 60.68 60.94 56.6 57.1 58.02 61.44 59.69 2.44 4.09
G-III 75.21 75.73 74.85 72.91 71.18 71.25 71.51 73.82 73.04 1.83 2.51
G-IV 79.19 76.46 66.86 67.52 68.92 69.8 65.76 65.76 68.73 3.73 5.43
G-V 67.52 66.14 56.93 51.93 49.46 54.89 55.28 58.26 56.13 5.32 9.48
Industry 66.16 65.57 63.38 63.01 65.24 63.23 63.84 66.45 64.39 1.35 2.10
Average 69.99 69.03 64.51 63.25 61.55 63.45 63.37 65.72
S.D. 6.89 6.56 6.82 7.83 8.91 7.34 6.60 6.17
C.V. 9.85 9.50 10.58 12.38 14.48 11.56 10.42 9.39
Table 10 exhibits the ratio between fixed deposits and total deposits.
The average is the highest in private sector banks namely old private sector Banks (73.04 per
cent) and new private sector banks (68.73 per cent). These banks provide higher rate of
interest on fixed deposits. It is the effect of deregulation. This ratio is also responsible to
increase the profitability of private sector banks in India. Fluctuations are the highest in case of
Group-V with 9.48 per cent. As far as year-wise average ratio is concerned, it is 69.99 per cent in
the year 2001-02 and came down to 65.72 per cent in the year 2008-09. So, it is found that the
impact of fixed deposits on the profitability of the banks is high in the case of private sector banks.
Demand deposits as percentage of total deposits (x11)
As current deposit gives good source of income in the form of commission, overdraw
charges, etc. so increase in the share of current deposits shows a sound position of the bank
deposits. Table 2.11 shows the demand deposits as percentage of total deposits.

Table 11: Demand deposits as percentage of total deposits (x11) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 10.65 10.17 9.79 9.63 10.13 9.77 9.69 8.4 9.65 0.59 6.13
G-II 15.17 14.49 14.67 14.09 15.73 15.72 15.53 13.14 14.77 0.97 6.55
G-III 10.09 9.31 9.25 9.98 10.35 10.15 10.45 8.94 9.78 0.60 6.13
G-IV 14.23 12.75 18.88 16.96 14.56 14.33 16.13 16.1 15.67 2.00 12.74
G-V 21.1 20.89 27.31 30.13 34.02 30.61 30.97 28.28 28.89 4.12 14.27
Industry 12.75 12.13 12.9 13.66 14.32 13.11 13.39 23.48 14.71 3.92 26.67
Average 14.25 13.52 15.98 16.16 16.96 16.12 16.55 14.97
S.D. 4.42 4.60 7.45 8.38 9.86 8.50 8.56 8.08
C.V. 31.00 34.05 46.63 51.86 58.13 52.77 51.74 53.98
From Table 11, it is concluded that the share of current deposits in the total deposits is
continuously decreasing in G-I, G-II, and G-III whereas G-IV and G-V shows Sharp increase
in the ratio in all the years over previous years. On an Average, Group-V shows the highest
share of current deposits in the total deposits with 28.89 per cent followed by Group-IV with
15.67 per cent share. On yearly basis, it is the highest in the year 2005-06 and fluctuations
are the maximum in Group-V with 14.27 per cent of co-efficient of variations. So, it is found
that foreign banks show the highest share of current deposits in the total deposits.
Saving deposits as percentage of total deposits (x12)
Savings deposit shows the liquidity position of the banks. For savings deposits low rate of
interest has been given. The following Table 12 shows that the savings deposits as
percentage of total deposits.

Table 12: Saving deposits as percentage of total deposits (x12) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 24.81 26.05 26.99 27.39 28.29 25.98 24.03 22.28 25.86 2.07 8.01
G-II 21.33 22.48 24.65 24.96 27.66 27.16 26.44 25.4 25.54 1.75 6.87
G-III 14.7 14.96 15.9 17.1 18.45 18.59 18.03 15.82 16.98 1.44 8.49
G-IV 9.6 10.79 14.26 15.5 16.51 15.86 18.09 18.09 15.59 2.52 16.20
G-V 11.38 12.97 15.76 17.92 16.51 14.48 13.73 13.44 14.97 1.82 12.14
Industry 21.3 22.3 23.72 24.31 26.99 23.65 22.76 21.72 23.64 1.73 7.31
Average 16.36 17.45 19.51 20.57 21.48 20.41 20.06 19.01
S.D. 6.51 6.52 5.85 5.26 5.98 5.83 5.11 4.84
C.V. 39.76 37.35 30.00 25.55 27.85 28.54 25.48 25.45
The average ratio of saving deposits as percentage of total deposits is also in favour of Nationalized
Banks (25.86 per cent) and SBI and its associate Banks (25.54 per cent) but on the other hand this
ratio is low in private sector and foreign banks. Maximum variations in the ratio are found for new
private sector banks (16.20 per cent C.V) and SBI and its associate banks (6.87 per cent C.V). The
highest ratio is registered in the year 2005-06 with 26.99 per cent. So, it is found that the average
ratio of saving deposits as percentage of total deposits is the highest in the Nationalized Banks and
SBI and its associate Banks.
Total credit as percentage of total deposits (x13)
The total credit as percentage of total deposits is depicted in Table13. This ratio
affects the profitability either way. It also shows to what extent the deposits are utilized for
the purpose of loans.

Table 13: Total credit as percentage of total deposits (x13) (in percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 51.09 52.21 51.92 57.2 68 70.4 69.8 71.1 62.95 8.80 13.98
G-II 46.87 48.38 50.94 56.3 68.5 76.1 76.7 73.4 64.33 12.17 18.93
G-III 51.61 54.07 53.03 58.3 63.7 67.2 67.4 64.5 61.17 6.02 9.84
G-IV 87.46 77.34 70.97 77.5 77.2 77.8 79.8 83.2 77.69 3.66 4.71
G-V 72.48 75.27 75.87 87.2 85.8 83.8 84.3 77.3 81.36 5.04 6.19
Industry 53.66 54.55 54.86 62.6 70.1 73.5 74.6 73.9 66.30 8.90 13.43
Average 61.90 61.45 60.55 67.30 72.64 75.06 75.60 73.90
S.D. 17.42 13.73 11.90 14.18 8.84 6.49 6.99 6.97
C.V. 28.14 22.34 19.66 21.07 12.17 8.65 9.25 9.44
It is clear from the above Table 13 that all groups of banks including industry have registered
increasing trend when comparing the ratio in the year 2001-02 with 2008-09 except G-IV.
On an Average, it is the highest in G-V that is 81.36 per cent followed by G-IV i.e. 77.69 per
cent where as industry shows 66.30 per cent only. The maximum fluctuations are registered
in the G-II with 18.93 per cent C. V. On yearly basis, it is the highest in 2007-08 i.e. 75.60
per cent with 9.25 per cent C.V. From the above, it is found that the foreign banks have
utilized the total deposits mainly for the purpose of loans.
Provisions and contingencies as percentage of total assets (x14)
Provisions and contingencies as percentage of total assets are presented in Table 14. As per
the accounting norms, banks are required to make provisions for non-performance assets,
provision for income-tax, interest, etc.

Table 14: Provisions and contingencies as percentage of total assets (x14) (In percentage)
Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean S.D. C.V.
Group 02 03 04 05 06 07 08 09
G-I 1.15 1.35 1.52 1.28 0.98 0.95 0.79 0.9 1.11 0.27 24.50
G-II 1.17 1.36 1.59 1.53 1.71 0.96 0.83 0.9 1.27 0.36 28.75
G-III 1.62 1.5 1.45 1.35 0.93 1.18 0.84 1 1.18 0.26 22.31
G-IV 0.78 1.41 1.26 0.8 0.81 0.91 1.08 1.4 1.10 0.27 24.21
G-V 1.78 1.63 2.02 1.69 1.8 1.83 2.03 2.8 1.97 0.40 20.05
Industry 1.19 1.39 1.54 1.28 1.02 1.01 0.95 1.1 1.18 0.22 18.80
Average 1.30 1.45 1.57 1.33 1.25 1.17 1.11 1.40
S.D. 0.40 0.12 0.28 0.34 0.47 0.39 0.52 0.81

C.V. 30.83 8.06 17.92 25.31 37.71 33.10 47.09 57.81
The average ratio is the highest in the foreign banks (1.97 per cent) followed by the
Nationalized banks which registered 1.27 per cent. On year-wise average, the year 2003-04 has
highest Average of 1.57per cent. The SBI and its associates have maximum variations i.e.28.75 per
cent of co-efficient variations. So, it is found that Provisions and contingencies as percentage of total
assets is highest in the foreign banks.
Empirical estimates of bank profitability
In this section, an attempt has been made to estimate the impact of factors discussed in the
previous section on bank groups and industry profitability.
The correlation co-efficient matrix of the selected determinants of the profitability with the
dependent variable profits as percentage of working funds is analysed for all the bank groups and the
whole banking industry. The underlying objective is to empirically test, which of the identified
factors have significantly contributed towards group profitability in either direction.
Nationalized banks – (g-i)
Table 15 shows that variable X6 (Non- interest expenditure to total assets) and X14 (provisions and
contingencies as percentage of total assets) have significant and positive correlation with the
profitability of nationalized banks. Other independent variables have insignificant correlation with

the profitability. X3 (interest expended), X7 (burden), X11 (current deposit) and X13 (total credit)
have negative correlation with profitability of these groups of banks.
From Table 15, it also emerges that some independent variables are also significantly correlated with
each other. One of the variables X14 (provisions and contingencies as percentage of total assets) has
significant correlation with five other independent variables i.e. X4, X5, X6, X9 and X13. X14 has
negative correlation with X13 (-0.88). Out of these, the correlation of X14 with X5 (0.93) (Non-
interest expenses to total assets) is the highest. Similarly, X6 (Non-interest income to total assets)
has positive correlation with X2 and X5. Out of these, the correlation of X6 with X5 is the highest
(0.80).
Overall, the profitability of G-I banks are affected by Non-interest expenditure and provisions and
contingencies to some extent. Interest expenses, burden, NPAs, current deposits and credit ratios
have influenced the profit of this group of banks negatively.
State bank of India and its associates (g-II)
Table 16 shows that the profitability of SBI group is positively and significantly correlated
with X6 (Non-interest expenditure to total assets).
Non- interest expenditure of SBI and its associates is positively affecting the profitability of this bank
group. Interest expenses, interest earned, NPAs, burden and Current deposits are affecting the profit
of this group of banks negatively.
The independent variables are also significantly correlated with other independent variables
as shown by this table. X14 (provisions and contingencies as percentage of total assets) has
significant correlation with four other independent variables namely X4, X5, X7 and X9. Out of
these, the highest correlation is with X5 (Non-interest expenses). X5 (Non-interest expenses) is
positively correlated with X4. X7 has close correlation with X4. X8 is significantly correlated with X2
and X3. X9 has positive correlation with X4, X5 and X7. X12 has negative correlation with X2, X5,
X9 and X10.
Overall, the profitability of SBI group to a larger extent is determined by the non-interest expenditure and
the profitability of this group is negatively affected by interest expenses, burden, NPAs and current
deposits of this group of banks.
Old private sector banks (g-iii)
From Table 17 it emerges that profitability of old private sector banks is significant and positively
correlated with X6 (Non-interest expenditure to total assets) and X3 (interest expenses to total
assets). It is negatively correlated with X7 (Burden) and X4 (spread) that affects the profitability
negatively whereas Non-interest expenditure and interest expenses are affecting the profitability
positively. The correlation between profitability and other variables is insignificant.
X4 has negative correlation with X2 and X3. X6 has positive correlation with X2, X3 and
X5. X7 has negative correlation with X2 and X6 (Non- interest expenditure). X8 (NPA) has
significant correlation with X2, X3, X5 and X6.

Out of these, correlation with X5 (Non-interest expenses) is the highest. X14 has correlation with
X5, X6, X8, X10 and X13. Out of these, X14 has negative correlation with X13 whereas other
independent variables have no significant correlation with each other.
Overall, the profitability of this group of bank is positively affected by interest expenses and
non-interest expenditure and negatively affected by burden and spread.
New private sector banks (g-iv)
Table 18 shows that X4, X5, X9 and X12 have significant positive correlation with the
profitability of new private sector banks. X4 and X9 have the highest correlation with profitability of
this group of banks. X10 (fixed deposits) and X13 (total credit) have negative contribution to the
profitability of new private sector banks whereas other variables are insignificant to affect the
profitability.
Some independent variables are also significantly correlated with other independent
variables. X3 has correlated with X2. X5 also correlated with X2 and X4. X7 has significant
correlation with X4. X10 is negatively correlated with X4 and X 9. X12 has positive correlation with
variables X4, X7 and X9 and has negative correlation with X10. X14 has correlation with X2, X3
and X5.
Overall, the profitability of new private sector banks is affected by spread, Non-interest income,
operating expenses and savings bank account. The profitability of this group is also negatively affected by
X10 (Fixed deposits) and X13(total credits).
Foreign banks (g-v)
It is clear from Table 2.19 that the profitability of foreign banks is significantly correlated
with X4 (spread). X3 (interest expenses), X7 (burden) and X9 (operating expenses) are negatively
correlated with profitability of this group of banks. Other independent variables are insignificant with
profitability of the foreign banks.
On the other hand, some independent variables are significantly correlated with other
independent variables as shown by the Table 3.19. X3 has significant and positive correlation with
X2. X11 has negative correlation with X2, X3 and X10. Out of these, X10 has the highest negative
correlation. X13 has negative correlation with X2, X3 and X10 and it has positive correlation with
X11. From the above, it can be concluded that the profitability of the foreign banks is highly affected
by the spread. That is why the foreign banks have more profitability ratio than other groups of banks.
Overall, it is concluded that the profitability of foreign banks is significantly affected by spread. Interest
expenses, burden and operating expenses are affecting the profitability of this group of banks
negatively.

Banking industry
Table 20 indicates that the profitability of banking industry is insignificantly correlated with all the
independent variables. It is observed that not even a single variable has significant correlation with
the profitability of the banking industry. Some variables X6 and X14 have the least correlation with
profitability of the banking industry. X7 and X8 have negative correlation with the profitability of
the banking industry.
On the other side, some independent variables are significantly correlated with other
independent variables also. X3 has positive correlation with X2 and X5 has significant and positive
correlation with X4. X9 has positive correlation with X4 and X5. X13 has negative but significant
correlation with X6, X8 and X9. Overall, the profitability of the whole banking industry is determined
by non-interest expenditure and provisions and contingencies to some extent and it is negatively
affected by NPAs and burden.
Regression analysis- r2
Table 21 reveals the results of R2 which represents to what extent the changes in the independent variables
affect the profitability of the bank groups and industry.
The data shows that in case of G-I (Nationalised Banks) variable X6 (Non-interest expenditure)
and X14 (Provisions and contingencies) are affecting the profitability of this group by 31% and 34%
respectively. Incase of G-II (SBI and its associates), the variable X6 is affecting the profitability by 59%
positively. In this group of banks, non-interest expenditures are dominant to affect the profitability.
The variables X4, X7 and X13 have the least effect on profitability of this group of banks.
On the other side, in case of G-III, variables X6 and X7 have 60% and 67% variations on the
profitability of banks respectively. X9 and X14 have the least effect on profitability of this group of
banks. Whereas, incase of G-IV X4 and X9 are dominant and affecting the profitability by 81% and
88% respectively. X8 has the least effect on profitability of this group of banks.
G-V shows that the profitability of X4 fluctuated as much as 75% and its average variations
in spread are affecting the profitability of this group by 75%.
At the industrial level, the profitability of X6 is fluctuated as much as 31% and its average increase
or decrease that will affect the profitability of banking industry.
From the foregoing analysis, it can be concluded that Nationalised banks, Banking Industry and
SBI and its associates are affected by non-interest expenditure and provisions and contingencies to a
large extent. The profitability of the old private sector banks is dominated by non-interest expenditure
and burden. The profitability of new private sector banks is dominated by spread and operating
expenditure. The profitability of foreign banks is determined by spread to the maximum extent.
Observations
Technology is a crucial factor affecting the banks’ performance and making them capable to earn

more through new opportunities. Due to the transformation, every aspect of banking system is
affected. So, it is important to know that what are those aspects which affect the profitability of the
bank groups the most. So, in this chapter various factors affecting the profitability are given and it is
evaluated that to what extent these factors affect the profitability. The profitability of the bank
groups is evaluated in the electronic era i.e. 2001-02 to 2008-09. The factors affecting the
profitability in either direction have been selected for the study. Averages, Standard deviation and Co-
efficient of variations have been calculated for each variable, bank group and industry also. For
evaluating empirical estimates, correlation co-efficient matrix has been calculated and similarly, R2 has
been calculated, which tells us the effect of each variable on group profitability.
Net profit as percentage of working funds
It is found that profitability in terms of an average is the highest in Foreign Banks (1.60 per cent) and
new private sector banks (0.97 per cent). On the other hand, it is comparatively low in case of old
private sector Banks (0.86 per cent). The maximum variations in profitability in terms of co-efficient
of variations are observed in old private sector Banks with 38.16 per cent co-efficient variations.
Overall, it is found that the foreign banks and new private sector banks have high profitability ratios
than other groups of banks.
Interest Earned as Percentage of Working Funds
It is found that, on an average, percentage of interest earned to total assets is the highest in case of
Bank Group-III. i.e. 7.53 per cent whereas G-V shows the least ratio with 6.66 per cent. Fluctuations
in terms of co-efficient variations are the highest in 2001-02 with 24.76 per cent and Group-wise, G-
IV shows the highest with 14.74 per cent. Overall, it is found that new private sector banks have
upward trend in interest earned ratio than other groups of banks.
Interest Expended as Percentage of Total Assets
It is found that Group-III has the highest ratio of 6.97 per cent in the year 2001-02 whereas Group-V
has the lowest ratio of 2.58 per cent in the year 2005-06. On an average, the Group-V has the lowest
ratio i.e. 3.04 per cent and Group-III has the highest ratio of 4.92 per cent. The maximum variation in
the ratio is registered by the Group-IV with 21.63 per cent. Overall, it is found that the foreign banks
have the lowest average ratio (3.04) of interest expended.
Spread as Percentage of Total Assets
It is found that foreign banks have the maximum average ratio during the study period (3.62 per
cent). The average ratio of spread as percentage of total assets is maximum for foreign banks and
minimum for new private sector banks, while consistency is maximum for old private sector banks
(4.92 per cent C.V)) and minimum for new private sector banks (15.14 per cent C.V). Overall, it is
found that foreign banks have maximum average spread ratio whereas new private sector banks have
minimum average ratio as percentage of total assets.

Non- Interest Income as Percentage of Total Assets
It is found that on an average, Group-V has the highest average ratio i.e. 2.86 per cent followed by
Group-IV with 2.02 per cent. The consistency is a maximum for foreign Banks. Overall, it is found
that the average non-interest income ratio is the highest in foreign banks and it has minimum
variation.
Non-interest Expenditure as Percentage of Total Assets
It is found that on an average, it is the least in Group-I i.e. 3.05 per cent where industry
shows 3.23 per cent. Year-wise, it is the least in the year 2007-08 (3.11 per cent). There is a
maximum fluctuation in the G-I (20.98 per cent) in terms of C.V. Overall, it is found that the average
ratio is lowest in the Group-I but, at the same time, this group has maximum variance.
Burden as Percentage of Total Assets
It is found that group-wise analysis shows the lowest average burden ratio for new private
sector banks with 1.19 per cent. Maximum variations and minimum variations in the ratio were found
for new private sector banks (34.49 per cent) and foreign Banks (12.53 per cent) respectively. Year
basis, it is the least in the year 2002-03 (1.42 per cent). Overall, it is found that the new private
sector banks have minimum average burden ratio.
Net NPA as Percentage of Net Advances
It is found that, on an average, this ratio is the least in Group-V i.e. 1.26 per cent and on yearly
basis, it is least in the year 2006-07 i.e.1.02 per cent. Variations are the maximum in case of Group-I
i.e.80.03 per cent C.V. This ratio shows sharp decrease during the period of eight years from 7.1 per
cent to 0.7 per cent i.e. ten times. Overall, it is found that there is a decreasing trend in the NPAs
during the study period.
Operating Expenses as Percentage of Total Assets
It is found that the average ratios of all Groups of Banks including the industry in the year 2008-09
are less than the ratios in the year 2001-02 except Group-IV. Foreign Banks have the maximum
average ratio during the study period (2.83 per cent). Similarly, the Group-III has the least (1.89 per
cent). Maximum variations are registered by nationalized Banks with 17.73 per cent C.V. On yearly
basis, the highest Average ratio is in the year 2005-06 with 2.28 per cent. Overall, it is found that the
foreign banks have the highest average operating ratio.
Fixed Deposits as Percentage of Total Deposits
It is found that the average of this ratio is the highest in private sector banks namely old private
sector Banks (73.04 per cent) and new private sector banks (68.73 per cent). Fluctuations are the
highest in case of Group-V with 9.48 per cent. As far as year-wise average ratio is concerned, it is
69.99 per cent in the year 2001-02 and came down to 65.72 per cent in the year 2008-09. Overall, it

is found that the impact of fixed deposits on the profitability of the banks is high in the case of
private sector banks.
Demand Deposits as Percentage of Total Deposits
It is found that, on an average, Group-V shows the highest share of current deposits in the total
deposits with 28.89 per cent followed by Group-IV with
15.67 per cent share. On yearly basis, it is the highest in the year 2005-06 and fluctuations are the
maximum in Group-V with 14.27 per cent of co-efficient variations. Overall, it is found that foreign
banks show the highest share of current deposits in the total deposits.
Saving Deposits as Percentage of Total Deposits
It is found that the average ratio of saving deposits as percentage of total deposits is also in favour of
Nationalized Banks (25.86 per cent) and SBI and its associate Banks (25.54 per cent). Maximum
variations and minimum consistencies in the ratio are found for new private sector banks (16.20 per
cent C.V) and SBI and its associate banks (6.87 per cent C.V). The highest ratio is registered in the
year 2005-06 with 26.99 per cent. Overall, it is found that the average ratio of saving deposits as
percentage of total deposits is the highest in the Nationalized Banks and SBI and its associate Banks.
Total Credit as Percentage of Total Deposits
It is found that, on an average, it is the highest in G-V that is 81.36 per cent followed by G-IV i.e.
77.69 per cent where as industry shows 66.30 per cent only. The maximum fluctuations are
registered in the G-II with 18.93 per cent C. V.
On yearly basis, it is the highest in 2007-08 i.e. 75.60 per cent with 9.25 per cent C.V. Overall, it is
found that the foreign banks have utilized the total deposits mainly for the purpose of loans.
Provisions and contingencies as percentage of total assets
It is found that the average ratio is highest in the foreign banks (1.97 per cent) followed by the
Nationalized banks which registered 1.27 per cent. On year-wise average, the year 2003-04 has
highest average of 1.57per cent. The SBI and its associates have maximum variations i.e.28.75 per
cent of co-efficient variations. Overall, it is found that provisions and contingencies as percentage of
total assets is highest in the foreign banks.
Empirical estimates of bank profitability
Nationalized banks – (G-I)
It is found that the variable X6 (Non- interest expenditure to total assets) and X14 (provisions and
contingencies as percentage of total assets) have significant and positive correlation with the profitability
of nationalized banks. Other independent variables have insignificant correlation with the profitability.
X3 (interest expended), X7 (burden), X11 (current deposit) and X13 (total credit) have negative

correlation with profitability of these groups of banks. Overall, the profitability of G-I banks are
affected by Non-interest income and provisions and contingencies to some extent. Interest earned,
interest expenses, burden, NPA and credit ratios have influenced the profit of this group of banks
negatively.
State Bank of India and Its Associates (G-II)
It is found that the profitability of SBI group is positively and significantly correlated with X6 (Non-interest
expenditure to total assets). Non- interest expenditure of SBI and its associates is positively affecting the
profitability of this bank group. Interest expenses, interest earned, NPAs, burden and Current
deposits are affecting the profit of this group of banks negatively. Overall, the profitability of SBI
group to a larger extent is determined by the non-interest expenditure and the profitability of this group
is negatively affected by interest expenses, burden, NPA and Demand deposits.
Old Private Sector Banks (G-III)
It is found that the profitability of old private sector banks is significant and positively correlated
with X6 (Non-interest expenditure to total assets) and X3 (interest expenses to total assets). It is
negatively correlated with X7 (Burden) and X4 (spread) that affects the profitability negatively.
Overall, the profitability of this group of bank is positively affected by interest expenses and non-
interest expenditure and negatively affected by burden and spread.
New Private Sector Banks (G-IV)
It is found that X4, X5, X9 and X12 have significant positive correlation with the profitability of
new private sector banks. X4 and X9 have the highest correlation with profitability of this group of
banks. X10 (fixed deposits) and X13 (total credit) have negative contribution to the profitability of
new private sector banks. Overall, the profitability of new private sector banks is affected by spread,
Non-interest income, operating expenses and savings bank account. The profitability of this group is also
negatively affected by X10 (Fixed deposits) and X13 (total credits).
Foreign Banks (G-V)
It is found that the profitability of foreign banks is significantly correlated with X4 (spread). X3
(interest expenses), X7 (burden) and X9 (operating expenses) are negatively correlated with
profitability of this group of banks. Overall, the profitability of foreign banks is significantly affected
by spread. Interest expenses, burden but the operating expenses are affecting the profitability of this
group of banks negatively.
Banking Industry
It is found that the profitability of banking industry is insignificantly correlated with all the independent
variables. It is observed that not even a single variable has significant correlation with the profitability
of the banking industry. Some variables X6 and X14 have the least correlation with profitability of the
banking industry. X7 and X8 have negative correlation with the profitability of the banking industry.

Overall, the profitability of the whole banking industry is determined by non-interest income and
provisions and contingencies to some extent and it is negatively affected by NPA and burden.
Regression Analysis- R2
It is found that In case of G-I (Nationalised Banks) variable X6 (Non-interest expenditure) and
X14 (Provisions and contingencies) are affecting the profitability of this group by 31% and 34%
respectively. Incase of G-II (SBI and its associates), the variable X6 is affecting the profitability by
59% positively. In this group of banks, non-interest expenditures are dominant to affect the
profitability. The variables X4, X7 and X13 have the least effect on profitability of this group of
banks.
On the other side, incase of G-III, variables X6 and X7 have 60% and 67% variations on the
profitability of banks respectively. Whereas, incase of G-IV X4 and X9 are dominant and affecting
the profitability by 81% and 88% respectively. G-V shows that the profitability fluctuated as much
as 75% by X4 and its average variations in spread are affecting the profitability of this group by
75%. At the industrial level, the profitability fluctuated as much as 31% by X6 and its average
increase or decrease that will affect the profitability of banking industry.
Suggestions
Based on the findings of the study, the following fruitful suggestions have been given.
1. It is found that the ratio of net profit to working fund of commercial banks in India in
terms of an average is the highest in foreign banks (1.60 per cent) and followed by new private
sector banks (0.97 per cent). On the other hand, it is comparatively low in case of old private sector
Banks (0.86 per cent). It is also found from the analysis of the correlation co-efficient matrix that the
profitability of public sector banks and old private sector banks are largely determined by non-
interest expenditure, burden and provisions and contingencies (vide Table 1).
This shows that public sector banks and old private sector banks are lagging behind new
private sector banks and foreign banks in terms of profitability as they are fully IT oriented, provide
innovative products and services to the customers through latest technology, have huge capital base
and moreover they employ dynamic, efficient, fresh and creative mind employees with full
knowledge of technology. Against this, public sector banks are having vast branch network in rural,
poor and uneducated areas, lack in the basic infrastructure in many branches, compulsion to meet
some legal obligations for the sake of public, poor in capital base, slow in introducing e-banking,
poor in customer services and having conventionalist and inefficient (lack in technology) employees
are the important causes for its poor profitability.
Therefore, it is suggested that
• The profitability of the public sector banks and old private sector banks should be increased
by speeding up the adoption of latest technologies which is a need of the hour. This will help
to reduce their burden of extra establishment expenses.

• Introduction of more innovative and globally accepted products and services in these banks
will surely increase their non-interest income and also their profitability.
Besides, in order to meet the challenges of global competition and compete with private
sector banks and foreign banks, the following measures are to be adopted.
• Policies and strategies of the public sector banks should be focused on the customers of the
banks
• Employ young persons with latest technical knowhow and provide technology training to the
existing staff members.
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INNOVATIONS IN HR PRACTICES
Mrs. Shilpi Kulshrestha
Assistant Professor
JIET, JODHPUR
kulshrestha.shilpi@yahoo.com
&
Dr. Punita Soni
H.O.D. – MBA
JIET –DMS, Jodhpur
Introduction
The combination of increasing global presence, pressures to reduce costs, and innovations in
information technology have resulted in a perfect storm challenging the delivery of HR within
multinational companies (MNC's). Implementing any kind of innovation in a firm is most likely to
result in many changes inside the firm. For example, information and communication technologies
are a kind of technical change that does not only imply replacing an old technique by a new one, or
in other words, it does not only result in automating production process, but it might also result in
organizational changes, as well as product and process innovation. HR information technology
enables firms to squeeze costs through standardization of processes, yet legal, cultural, and economic
differences across borders requires customization of those same processes. In addition, both
efficiency and effectiveness of HR processes often stem from innovation and knowledge sharing
within the global HR function. This conceptual article focuses on how MNC's are managing the
efficiency, effectiveness, and innovation of HR processes. As human resource management evolves
into an ever-increasing means of competitive advantage for multinational corporations (MNC’s)
greater importance is being placed on a corporation’s ability to manage and share human resource
innovations. This paper also touched the concept of knowledge management (KM) as it pertains to a
firm’s ability to share innovative HR practices from one HR function to another across both local
and international boundaries.
This paper aims to analyze the key determinants of HR applicability and effectiveness on a
global scale and argues that many factors limiting global HR practice diffusion can be
overcome through the effective management of organizational culture. This article explores the
extent to which innovation and HRM are interdependent; how effective human resource
management can enhance innovation capabilities within the organization and how innovation culture
may drive a need to reshape HRM systems. In order to leverage HR knowledge corporations must
have a clear understanding of how intellectual, social, organizational, and human capital as well as
different geographic regions and different business strategies, impacts creating and sharing HR
innovation across MNC’s.

Literature Review
In reviewing the literature, it appeared that there was a considerable body of researches analyzing
HRM in a context of innovation. Two issues were considered as relevant to the research question.
The first stipulates that innovative HRM practices are necessary in innovating companies to enhance
its ability to adopt change. The idea is that when an organization is implementing such new practices
for managing its human resources, then, it will increase its performance, and through this its capacity
to adopt and implement change. The second issue focuses more on the specific role an HR
department might play in the highly dynamic business environment we live in nowadays and which
entails a more strategic involvement in the business. The first important emphasis on the link
between HRM and the role of the personnel managers as “change-makers” occurred in Storey’s
(1992). According to his typology, the “change-makers” push forward processes of culture change
and organizational transformation. The role of change-maker appeared to be new, and perhaps most
clearly differentiated HRM from traditional personnel management.
In 1995, Tyson revisited his initial typology by adding two “advanced versions” of the strategic
architect role: the change agent and the business manager. The first brings about large-scale
organizational change, while the latter is a senior member of the management team focusing on the
integration between human resource strategies and business strategies. A review of the extant
literature on global HR and its international and cross-cultural applicability reveals a few key
determinants influencing the ultimate effectiveness of HR practices across national boundaries as
well as the differentiation of those practices across various localities: national culture, institutional
factors (e.g., labor-market and other regulation), labor-force characteristics, and the presence of
expatriates. While the level of operation of these factors is, for better or worse, often constrained to
the realm of “micro” or “macro”, several operate at both, or alternatively, between these distinctions
within a “meso” level. These meso-processes are based on the idea that micro- and macro-level
factors influence one another and cannot be separated as cleanly as one would first perceive. Rather,
micro-level influences—for instance, those work preferences held by the top management team—
can influence international, macro-level HR policies such as the adoption of a compensation or
performance evaluation system. This interaction would function within a meso-level process such as
the design of a unique reward system that aligns with the previously adopted macro-level policy
(McCaughey & De Cieri, 1999).
According to Hammer, companies would better “obliterate” their existing process instead of
“automating” them so they achieve better performance. This type of radical change was known in
the early 1990s as the “business process reengineering” (BPR) and was considered as a necessity for
companies aiming at benefiting from the broad use of ICTs.
The literature review brought about some elements that highlight the successful implementation of
BPR, the role played by the HR department could be considered as critical. In particular, the HR

department should be implementing innovative HRM practices. It should also act as a “change
agent” and be considered as a “strategic partner”. The substantive findings of the literature review
indicate that no single HRM approach may be sufficient to promote innovation but rather bundles of
strategies and these bundles need to be studied for the management of a firm’s intellectual capital
and maximize innovative performance with appropriate HRM systems and practices.
Defining Innovation
The bedrock of innovation is ideas. Ideas are the fuel for the engine of growth in the knowledge
economy. The economics of ideas represent a fundamental shift away from the economics of goods.
Ideas have two very distinct characteristics. First, when an individual has an idea and develops it, it
can be made available to others. Ideas can be used simultaneously. “If a person uses it, this does not
prevent another from using it too.”Physical goods, however, can only exist in one place at one time.
Second, ideas are not subjected to the law of diminishing utility.
Innovation is generally considered to be introducing or improving products, processes, defining or

redefining market positioning or altering the dominant paradigm for the firm (Tidd, Bessant, &
Pavitt, 2005). In knowledge driven growth, new knowledge provides inputs that allow investment to
generate increasing rather than diminishing returns. Further to product innovation and process
innovation, there is organizational innovation.Organisational innovation can lead to more effective
utilization of human resources that are crucial to the successful exploitation of ideas. Hence,
innovations can occur in three broad dimensions – product, process and organizational. In brief,
Innovation is:
• “the renewal and enlargement of the range of products and services and the associated
markets;
• the establishment of new methods of production, supply and distribution;
• The introduction of changes in management, work organization, and the working
conditions and skills of the workforce.”
In a fast changing business environment, there is a constant need to develop and implement new and
improved HR practices so as to remain competitive (Agarwala, 2003). There has been an increasing
awareness of the importance of linking HRM with business management and business performance.
Authors like Boxall and Purcell (2003) presented the three HRM approaches that were developed
since the beginning of the 1980s: (1) the contingency or “best fit” approach, (2) the best practice
approach and (3) the resource-based approach. The importance of these approaches lies in the fact
that they all focus on the necessity to fit HR strategy to its surrounding context and that if companies
want to improve their performance they have to identify and implement “best practices”. A number
of terms have been used to describe these new practices. They are described as ‘high commitment’,
‘high performance’, ‘high involvement’ (Pfeffer, 1998), ‘alternate work practices’ or ‘flexible work
practices’ (Richard and Johnson, 2004), ‘innovative or progressive HR practices’ (Agarwala, 2003),
or simply “best practices” (Guest, 1997). Agarwala (2003) defined new HRM practices as ‘ideas,

programs, practices or systems related to HR function and new to the adopting organization’. It is
therefore considered as an administrative innovation – as opposed to the technical innovation. This
latter refers to ideas for a new product or service or changes in production processes whereas
administrative innovations are the organizational or people’s innovations. “Why innovate” is
tackled, as the generic benefits of and barriers to innovation are identified. “What is innovation” is
answered, as the constructs: (i) innovation, (ii) innovativeness and (iii) capacity to innovate are
explored and the five models of innovation process are presented. “The link between innovation and
performance” is addressed, as studies of innovation at the firm, regional and national levels are
reviewed. Innovative HR practices are considered similar to administrative innovations as they occur
within the social system of the organization and are designed to improve organizational effectiveness
by influencing the employees’ attitudes and behavior. Boselie et al. (2005) suggested that an
organization’s HRM can be viewed as a collection of multiple discrete practices with no explicit or
discernible link between them. A more strategically minded system approach, views HRM as an
integrated and coherent “bundle” of mutually reinforcing practices.
Innovative HRM Practices and Organizational Innovation
It is useful to remind that HR policies are the organization’s stated intentions regarding its various
employee management activities; whereas practices are the actual, functioning, observable activities
as experienced by employees (Wright and Boswell, 2002). Therefore, if the HR policy is oriented
towards innovation, then the enacted HRM practices should be in harmony with this objective
(innovative HRM practices). In terms of type, innovations can be classified as radical breakthrough
type (launch of a new vaccine or the microprocessor) or incremental progressive type (the
introduction of 32-bit chips to replace 16-bit chips in electronics). Having reviewed the key
dimensions of innovation and the types of innovation, one can organize an innovation of interest
along two axes. (Figure 1). This framework is useful as far as identifying the typology of a group of
innovations is concerned.
Incremental Radical
Product 32 bit chips to replace 16 Launch of compact disc

bit chips player
Process Upgrading quality Product prototyping on

computers
inspection system
Organization Implementation of Teleconference
quality circles meeting
The HRM Practices -Promoting Innovation and Findings

Laursen and Foss identified nine discrete variables to express the degree of Innovation to which
firms apply:
1. interdisciplinary workgroups,
2. quality circles,
3. systems for collection of
4. employee proposals,
5. planned job rotation,
6. delegation of responsibilities,
7. integration of functions,
8. performance-related pay,
9. firm-internal training and finally,
10. Firm-external training.
Then they identified two HRM systems which are conducive to innovation. The first one in which
the first seven of the nine HRM variables matter (almost) equally for the ability to innovate. The
second system which was found to be conducive to innovation is dominated by firm-internal training
in addition to firm external training.
New Focus for the HR Function: Getting Closer to the Business
Transformative Change Incremental

Change
HR Vision Champion Adapter
HR Expertise Synergist Consultant
Adapted from Caldwell, 2001 HR Change Agent Roles
INNOVATION AND MANAGEMENT
• The three dimensions of innovation are product, process and organizational.

• Innovative capacity is the potential of a firm, region or nation to generate innovative
output.
• Studies suggest that at firm-level, innovative capacity is influenced by three
dimensions: firm culture; internal processes; and external environment.
• The concept of innovativeness relates to the propensity of an individual or a firm to
innovate.
• Firm innovativeness is influenced by three sets of factors: organizational characteristics;
managerial characteristics and environmental characteristics.
The models used to depict innovation process can be classified into five generations.
They are: technology-push model, market-pull model, coupling model, integrated
Model and networking model.
• Networking is a key element in enhancing the innovative potential of firms.

Innovation and Performance
What is meant by “innovation performance” is the “firm’s ability to produce new products and other
aspects of performance” (Laursen, 2002). It is possible to broaden this definition by adding that a
firm’s ability to innovate could be either in terms of new products and services (technical
innovation) or in terms of organizational innovation.
• Innovation enhances business performance because the product of innovation

increases firm competitiveness and the process of innovation transforms a firm’s
internal capabilities making it more adaptive to change.
• Innovation is hard to measure because of its multi-dimensional character.
• The most commonly used measures of innovative activities include: R&D

expenditures, patent counts and innovation counts.
• Two of the most commonly used methods of collecting information about innovative
activities are the patent analysis and innovation survey.
Innovation and Competitiveness
Innovation is the key to competitive advantage in a highly turbulent environment. It is a major

driving force for economic growth of nation states consequences for the ability to compete at the
individual, firm, regional and national level. The values created by innovations are often manifested
in new ways of doing things or new products and processes that contribute to wealth. When we
consider a firm as a bundle of resources, skills and competencies, then the effect of innovation is to
transform a firm’s inner capabilities, making it more adaptive, better able to learn, to exploit new
ideas. This enhanced flexibility is crucial in the face of changing market conditions. Thus innovation
enhances competitiveness of firms.
Barriers to Innovation
Given the significance of innovation, what are some of the barriers that hamper the ability to
Innovate. The literature8 suggests there are many barriers to innovation and that these are both
internal and external to a firm. The external barriers include the lack of infrastructure, deficiencies
in education and training systems, inappropriate legislation, an overall neglect and misuse of talents
in society. Some major internal barriers include rigid organizational arrangements and procedures,
hierarchical and formal communication structures, conservatism, conformity and lack of vision,
resistance to change, and lack of motivation and risk-avoiding attitudes. The factors perceived as
restrictive to product/process innovation include: fear of imitation, high costs of innovation,
insufficient government support, lack of information, lack of qualified personnel, no market or
insufficient knowledge about markets, and shortage of support/infrastructure in the region. The
literature also suggests that there are a number of key elements in any regional economy for
promoting innovation. First, the availability of skilled workforce. Second, the presence of a strong
regional technological infrastructure. Third, strong public support for innovation. Fourth, the
importance of trade linkages. Recognition of the key elements is not sufficient to make a region
innovative.
Global Applicability of HR Practices
As corporations continually expand across an increasingly global business environment, they strive
to find new and ever more effective ways through which they can improve their competitive
positions. In recent years, the relentless march of globalization and technical advance has begun to
threaten, and, in some cases, whittle away many of the sources of competitive advantage that drive
firm performance. As a result, MNCs have come to view their employees—as well as the human
resources systems and practices that support them—as an essential component of securing
sustainable competitive advantage.
The question then that has occupied many researchers and practitioners alike is how sustainable
competitive advantage can be gleaned from a workforce characterized by sometimes vastly differing
contextual contingencies. Any attempt to find resolution invariably leads to at least an implicit
debate about whether HR practices can be generalized across all contingencies based on a “common
logic of industrialism” (McCaughey & De Cieri, 1999) or whether these contingencies—e.g.,
culture, institutional structures, education levels, etc.—necessitate a formulation of HR policy and
practice that is unique to the environment in which it is implemented.
The New Human Resources Management for the 21st Century
HR must now be judged on whether it enhances the firm’s competitive advantage by adding real,
measurable economic value as a business partner. The HR function and its processes now must
become a strategic player (Beatty and Schneier, 1997). Increased Centrality of People to
Organizational Success is undoubtedly the most powerful force affecting the evolution of HRM. The
emergence of resource based views of organizations has placed increasing importance on intellectual
and social capital. 21st century HR requires factors like; increased centrality of people to
organizational success, focus on whole systems and integrated solutions, strategic alignment and
impact, capacity for change. (Ruona and Gibson, 2004). HR professionals need to lead flatter
organizations by encouraging individuals to exercise more initiative, autonomy and accountability
by providing tools and techniques that improve their effectiveness and by enabling the acquisition of
critical competencies through continuous learning opportunities (Schoonover, 2010).
Ø Focus on Whole Systems and Integrated Solutions: It is clear that HRM has become
increasingly systematic during their evolutions. With the strategic proactive role of HRM,
the challenge for HRM is to continue to develop innovative systems by focusing on the
integrated functions and systems of organization.

Ø 21st century HR has become more integrated by its measurement efforts and it is expected that
the importance of these efforts will increase in the coming years. This is all being driven by
increased pressure to work on issues that are most important to the business and to provide
organizational leaders with understandable information that helps them to make better and more
strategic decisions about the workforce. Ultimately, it is essential to work together to enhance
HR’s capacity to contribute to organizational and financial performance.
Ø Capacity for Change: Today’s organizations must thrive in complex and unpredictable
environments and must be extremely agile. This demands the development and implementation
of structures and processes that facilitate incremental change.
Ø The new human resources management for the 21st century should play a strategic role by
contributing the strategy formulation process and being a strategic partner during the
implementation of these strategies. The HR practices should be designed consistent with the
strategies of the organization taking into consideration the essential HR needs. In parallel with
these, organizations can be able to be more flexible, flat and agile in order to struggle with the
changes in the competitive environment by gaining competitive advantage with their HR assets.
Conclusion
This article has addressed the question of ‘why innovate?’ This question has become more pressing,
given the increasing pace of change in the world and the shift towards knowledge based economies.
Increasingly, the ability to innovate at the firm, regional and national level dictates the wealth
generation capacity of an economy as a whole. Innovation has a direct impact on competitiveness.
There appears to be limited understanding of what actions can be taken at a regional level to
facilitate innovation, although some barriers, such as costs of innovation, lack of information and
shortage of support/infrastructure have been identified.
Human resources departments have started to play a strategic role in the organizations and all HR
functions are integrated with the mission, vision and strategies of the organizations. The new HRM
perspective for the 21st century requires HRM to be strategic partners of the organization that
coordinates all functions and supporting the strategies by attracting and retaining the essential
qualified employees. It is important to keep in mind that these suggestions, as their name implies, do
not provide prescriptive paths that managers should follow in order to have a value adding HR
function. Nevertheless, they are built upon a belief that for a company to be competitive in a highly
dynamic environment, it should focus on innovation and prompt all its functions or departments to
think and focus on the company’s business strategy. Therefore, our suggestions concern both the HR
function and the executive managers.

References:
• Agarwala T. (2003) Innovative Human Resource Practices and Organizational commitment: an

empirical investigation. The International Journal of Human Resource Management. 14(2), pp.175-
197.
• Ferris, G. et al. (1999) ‘Human resource management: Some new directions’, Journal of
Management, vol. 25, no. 3, pp. 385-416.
• Greer, C. R. (1995) Strategy and human resources, New Jersey: Prentice Hall.
• HRM:Absences and politics, The international Journal of Human Resource Management, 19(4),
pp.562-581.
• http://ecsocman.hse.ru/data/696/521/1221/litreview_innov1.pdf
• Leede J.D. and Looise JK (2005) Innovation and HRM: Towards an Integrated Framework,
Creativity and Innovation Management, 14 (2), pp.108-117.
• Legge K. (1978) Power, Innovation and Problem Solving in Personnel Management, London:
McGraw-Hill
• Pfeffer J. (1994) Competitive Advantage Through People, California Management Review, 36 (2),
pp.9-29.
• Pfeffer, J. (1994) Competitive advantage through people: unleashing the power of the workforce,
USA: Harvard Business School Press.
• Ruona, W. E. A. and Gibson, S. K. (2004) ‘The making of twenty-first century HR: an analysis of the
convergence of HRM, HRD and OD’, Human Resources Management, vol. 43, no. 1, pp. 49-66.
• Rogers, E. M. (1962, 1971, 1983, 1995), “Diffusion of innovations”, New York : Free Press.
• Zanko M., Badham R., Couchman P. and Schubert M. (2008) Innovation and Management.

IMPACT OF QUALITY OF WORK LIFE ON EMPLOYEE
PERCEIVED PERFORMANCE, JOB SATISFACTION AND
EMPLOYEE COMMITMENT
Ms,Anu Gupta
Asst.Professor
Chimanbhai Institute of Management & Research, Ahmedabad
&
Dr.Jaya Aashish Sethi
Director
Manish Institute Of Management, Visnagar
Abstract
In an ever-changing environment competition is necessary evil which everyone witness sooner or later.
Various approaches are adopted by company right from trimming cost, adding new products to
existing product line, creating new markets etc.
Some groups like Tata, Infosys, HCL marks a difference attitude by adopting a more holistic approach
and melding the business view and work life view by innovating ways to develop the happiness
quotient among the employees which counts for a series of activities like greater flexibility,
developing tools and equipments which allows employees to take care of their personal needs etc.
QWL therefore has emerged as new mantra for gaining loyalty .QWL programs have a strong
correlation with productivity( Childs 2003) .Quality of work life is important since there is an
evidence demonstrating that the nature of work environment is related to the satisfaction of employees
and work related behaviors( Martel& Dupuis 2006). Various researches have been conducted so far
right from the beginning of nineteen century but limited one is available to establish the impact of
quality of work life on employees perceived performance, Job Satisfaction and employee’s
commitment. This research paper is an attempt to study the quality of work life in telecom sector and
thereafter tries to establish a relation between the qualities of work life with employees perceived
performance, job satisfaction and employee commitment. A total of 150 employees from various7
companies Bharti Airtel Limited, Bharat Sanchar Nigam Limited, MTS, Idea Cellular Limited,
Uninor, Reliance Communications, Vodafone participated in survey. Statistical tools like factor
analysis, regression and anova was used for analyzing the survey. Survey results depicted that there
was a positive impact of quality of work life on employees perceived performance, job satisfaction and
employee commitment. Certain demographic variables like age and qualification exhibited negative
effect with quality of work life wherein variables like experience demonstrated positive effect with
QWL.This study would serve as base for HR practitioner of telecom sector and strongly recommends
implementation of QWL.
Keywords: Quality of work life (QWL), employee perceived performance, job satisfaction and
Employee commitment
Literature Review
The literature on quality of work life is extensively available and started somewhere back from 19th
century. Bhatia and Valecha (1981) studied the absenteeism rates of textile factory and
recommended that closer attention should be paid to improve the Quality of Work Life. Kavoussi

(1978) compared the unauthorized absenteeism rates in two large textile factories and recommended
that closer attention be paid for improving the Quality of Work Life. Raghvan (1978), the Ex-
Chairman of BHEL, a public sector organization, stressed the need for worker’s participation in
management.”
Singh (1983) conducted studies in chemical and textile factories in India that were designed to
improve the Quality of Work Life by reorganizing the work and introducing participatory
management. Rice (1985) emphasized the relationship between work satisfaction and Quality of
people’s lives. Karrir and Khurana (1996) found significant correlations of Quality of work life of
managers from three sectors of industry viz., Public, Private and Cooperative, with some of the
background variables (education qualification, native/migrant status, income level) and with all of
the motivational variables like job satisfaction and job involvement. The article by Hannif et al.
(2008) has highlighted the concerns that have surfaced regarding the quality of call centre work
alongside the rapid expansion of this market over the past decade. Davie N. (2003) studied that
Quality of Life is the extent of relationships between individuals and organizational factors existing
in the working environment. It is focusing strongly on providing a work environment conducive to
satisfy individual needs. It is assumed that if employees have more positive attitudes about the
organization and their productivity increases, everything else being equal, the organization should be
more effective. The results hold that demographic factors and work related factors have significant
relationship with perception of quality of work life.
Susan and Santiago (2006) examined the relationship between quality of work life, professional
isolation and an organization's cultural values surrounding telecommuters and non-telecommuters.
Chan and Wyatt (2007) examined Quality of Work Life (QWL) in China in terms of how their
work lives satisfy eight basic needs of employees and how the satisfaction of each individual need in
their work life affects employees’ job satisfaction, affective commitment, turnover intention, life
satisfaction and general well-being. Sirgy et. al. (2007) have worked on new measure of QWL was
developed based on need satisfaction and spillover theories. The measure was designed to capture
the extent to which the work environment, job requirements, supervisory behavior, and ancillary
programs in an organization are perceived to meet the needs of an employee. Gupta and
Sharma(2011) studied the Quality of work life for the employees of telecom sector and determined
whether and how the QWL affects the satisfaction level of employees of telecom employees.
Bagtasos(2011) said that QWL is indeed a multi-faceted concept, having multi-dimensional
constructs brought about by the variation of interest of the researchers and or its user.. Natarajan &
Annamalai (2011) did an empirical research to find out overall perception about determinants of
QWL. Their results showed that out of six determinants identified as determinants of QWL, the 3
factors viz. present job, working condition and work culture are highly influencing QWL.

Job Satisfaction:
Job satisfaction may be termed as reaction of an individual towards job. Various theories are given
for job satisfaction by various experts from time to time. Job Satisfaction is related to organizational
psychology (Green 2000).The different theories of job satisfaction can be divided into three
basically content theorists, process theorist and situational theorist (Maslow 1954; Herzberg 1966;
Glisson & Durick 1988). Content theorist related need fulfillment with the job satisfaction (Locke,
1976). Process theorist (e.g. Adams 1963; Vroom 1964) defined job satisfaction as mingling of
individual, job and organization variables.
Employee Commitment:
Commitment may be defined as psychological attachment of an employee with an organization

(Mathew and Zajac 1990, Mowdayetal 1985). Recent definition of employee commitment relates
to three forms of commitment that is affective commitment, normative commitment and continuance
commitment etc.
Though extensive literature is available on quality of work life, it is very limited to establish a
relationship between quality of work life, employee perceived performance, job satisfaction and
commitment therefore this research optimizes to minimize the existing research gap.
Background of the study:

An employee spends more time at workplace than at home and therefore it could be rightly said that
satisfied mind outperforms. Since work occupies an important place in many people’s lives, such
conditions are likely to affect not only their physical but also their psychological and spiritual well-
being. If organizations are concerned about developing their human resources and gaining a
competitive advantage in the marketplace, it seems necessary that they attend to one of their most
precious assets, namely, their human resources. Levering (1988) argued that the profit of successful
organizations is not to be achieved at the expense of its employees. According to Caudron (1994),
the only thing that will maintain today’s source of competitive advantage is high quality personnel
instead of merely capital, technology or long-lived products. In fact, employees are the soft assets
and are the hidden value of a company (Abdeen, 2002).
One method for developing a unique and inimitable workplace is for organizations to create a special
quality of work life (QWL) within their socio technical systems. This term ‘quality of work life’ is
reputed to have originated from an international labour relations conference in 1972 at Arden House,
Columbia University, New York (Davis & Cherns, 1975). Mills (1978) first coined the term
‘quality of work life’ and he suggested that QWL had moved into the permanent vocabulary of both
unions and management.

From a business perspective, quality of work life (QWL) is important since there is evidence
demonstrating that the nature of the work environment is related to satisfaction of employees and
work-related behaviors (Greenhaus et al., 1987) QWL is also found to affect employees’ work
responses in terms of organizational identification, job satisfaction, job involvement, job effort, job
performance, intention to quit, organizational turnover and personal alienation (Carter et al., 1990;
Efraty & Sirgy, 1990; Efraty et al.,1991). In a review of the health and well-being literature there is
a linking of people who experience greater QWL with those who also experience higher levels of
health and well- being (Danna & Griffin, 1999). Other work-related behaviors such as absenteeism,
reduced productivity and efficiency also appear to be affected by experienced levels of QWL. While
there are many studies and emphasis on QWL in North America, it seems that the concept has been
less popular in Asia. Improving the QWL may be one of those competitive factors needing attention
in business organizations. Specifically telecom sectors, financial sectors etc which are always found
to have employee crunch and high attrition rate is always a serious concern therefore undertaking
study of QWL in these sector makes sense.
Rationale of the study

The research paper underpins the basic concepts about the Quality of Work Life prevalent in the
telecom service provider companies. The telecom sector in the present scenario is one of the most
challenging sectors for HR personnel as the attrition rate in this sector is high (approximately 30%).
Highly demanding, target oriented jobs and high movements of employees in the sector itself are the
main reasons for high attrition rate. Therefore this paper is an attempt to study the Quality of work
life in telecom sector and to know its impact on employees’ perceived performance, employees’
commitment and job satisfaction.
Research Methodology
Objectives of the study
The objectives of the study can be listed as follows:
• To study the quality of work life prevailing in selected telecom service provider companies
at Ahmedabad.
• To find out the impact of quality of work life on the employee’s perceived performance.
• To find out the impact of quality of work life on the employee’s commitment.
• To find out the impact of quality of work life on the job satisfaction.
• To find out the significant difference in QWL across different age groups
Proposed Hypothesis:
Based on the above mentioned objectives following hypothesis are formed:

Regression
H0: There is no significant impact of Quality of work life on employee’s perceived performance.
H1: There is a significant impact of Quality of work life on employee’s perceived performance.
H0: There is no significant impact of Quality of work life on employee’s commitment.

H1: There is a significant impact of Quality of work life on employee’s commitment.
H0: There is no significant impact of Quality of work life on job satisfaction.

H1: There is a significant impact of Quality of work life on job satisfaction.
Annova
H0: There is no difference in QWL across different age groups.
H1: There is difference in QWL across different age groups.
H0: There is no difference in QWL across different qualification groups.

H1: There is difference in QWL across different qualification groups.
H0: There is no difference in QWL across different experience groups.

H1: There is difference in QWL across different experience groups.
Sampling Frame
Population: All employees of selected telecom sector companies in Ahmedabad.
Sample design: Involves purposive or deliberate selection of particular units of the population for
constituting a sample which represents the population.
Sample Size: 152 employees.
Description of the sample

The sample for this study was drawn from employees of telecom service provider companies of
Ahmedabad. Total of 152 employees from 7 companies participated in the survey. Participants
include employees of all levels. Various companies included are Bharti Airtel Limited,

Bharat Sanchar Nigam Limited, MTS, Idea Cellular Limited, Uninor, Reliance Communications,
Vodafone.
Table 1: Sample demographics:

Demographics N %
Age
20 to 30 113 74%
31 to 45 19 13%
46 and above 20 13%
Gender
Male 111 73%
Female 41 27%
Qualification
Undergraduate 15 10%
Graduate 81 54%
Post-graduate 54 36%
Experience
0-1 year 20 14%
1-5 years 78 52%
5-10 years 32 21%
Above 10 years 20 13%
Income
<10,000 3 2%
10,000-20,000 65 46%
20,000-30,000 47 33%
>30,000 26 19%
Data collection tool: data is collected through questionnaire which includes open ended and close
ended questions. Analysis was done on 5 point likert scale.

Description of the Instrument
The instrument used in the research was questionnaire. The questionnaire includes questions on four
different areas to fulfill the objectives of the research. Four already proven scales were used to
gather the required data.
Leiden Scale of Quality of work life:

For QWL Laiden scale of quality of work life was taken. The questionnaire adopted assessed
work characteristics from two influential occupational stress models, the Job Demand Control
Support model (Johnson & Hall, 1988; Johnson, 1989; Karasek & Theorell, 1990) and the Michigan
model (Caplan, Cobb, French, van Harrison & Pinneau, 1975). It measured 12 work characteristics,
namely, skill discretion, decision authority, task control, work and time pressure, role ambiguity,
physical exertion, hazardous exposure, job insecurity, lack of meaningfulness, social support from
supervisor and social support from coworkers and the outcome variable of job satisfaction. Items
from the Questionnaire for Organizational Stress, version Doetinchem (Bergers, Marcelissen & de
Wolff, 1986), which assess the key concepts of the Michigan model, were included in the item pool.
This questionnaire included items on the following work stressors: overload, role ambiguity,
responsibility, role conflict, restrict place, lack of decision authority, lack of meaningfulness and job
insecurity.
Although the Leiden Quality of Work Life Questionnaire consists of 12 work characteristics or
dimensions, for this research it was only decided to use the first eleven. This was because job
satisfaction is considered to be an outcome variable of QWL.
These characteristics according to Van der Doef and Maes (1999) include:
Skill discretion which refers to task variety and the extent to which job challenges one skill,
Decision authority refers to freedom of decision making over ones work, Task control refers to
the flexibility that one has in ones work, Work and time pressure refers to ones workload and time
pressure, Role ambiguity refers to not knowing what ones tasks and what is expected from one task,
Physical exertion refers the extent that one’s work requires physical effort, Hazardous exposure
refers to the extent that one is being exposed to dangerous tools, equipment and machinery, Job
insecurity refers to uncertainty about one’s job, Lack of meaningfulness refers to whether one’s
work is worthwhile doing, Social support supervisor refers to the support that is provided by ones
supervisor, Social support colleagues refer to instrumental and emotional support provided by
colleagues.
Validity
The correlations between the scales indicated that some scales were very strongly related to one
another. The results of the confirmatory factor analysis, however and the different correlations of the

control concepts with the other work characteristics gave good reason to view them as separate,
though related concepts. The equal between factor correlations was .87 to .88. The validity of the
questionnaire was seen as satisfactory (Van der Doef & Maes, 2002).
Reliability
The internal reliability of the scales was assessed by means of Cronbach alpha. The model includes
59 items, measuring 12 factors. Although the Goodness of Fix Index (GFI) and the Non normed Fit
Index (NNFI) were still somewhat below the recommended criterion (.90), the RMSEA (root mean
square error of approximation) indicates a good fit of the model. The alpha coefficient of QWL as
measured by the LQWLQ was .86.
Employees’ Perceived Performance

The outcome of employee work is significantly interpreted as organizational performance( Wall
etal.2004).Commonly performance is exhibited by financial figures but sometimes it may be
measured through the combination of expected behavior and task related aspects(Motowidlo
2003).Job Analysis is used as a means for developing the performance standard of each employee
which serves as benchmarking for targeted performance( Heneman and Judge2005).In fact the
performance which may be based on the eventual value or relative judgment may be true
representative of organizational performance.( Gomez-Mejia,Balkin and Cardy 2007;Walletal
2004).
One of the most challenging area for human resource is to make their employee work beyond the
stated work responsibilities mentioned in their job profile..These maximization of effort from
employee side serve as one of the key basis for encashing upon competitive edge( Organ 1997) This
further serve as basis in the development of OCB which is commonly termed as contextual
performance or extra role performance.( Podsakoff etal 2000 and Organ 1997). The questionnaire
used for measuring employee perceived performance adapted questions from William and
Anderson(1990) .Some of the questions were further adapted from Podsakoo and Mackenzie
1990.Six item measuring innovative behavior were adapted from Moon et al (2007)
Satisfaction
Scale Description: Minnesota Satisfaction Questionnaire
Original Citation – Weiss, D. J., Dawis, R. V., England, G.W., & Lofquist, L. H. (1967). Manual
for the Minnesota Satisfaction Questionnaire. Minneapolis: University of Minnesota, Industrial
Relations Center.
Brief Description of Instrument – Measures satisfaction with various aspects of work and work
environments.
Test-retest Reliability – For General Satisfaction 0.89 over one-week and 0.70 over one year. No
results for intrinsic or extrinsic sub-scales.

Construct Validity – The MSQ has been shown through data from various occupational groups to
differentiate job satisfaction at the 0.001 significance level on all scales.
Employee Commitment
Scale Description:
The scale used measures an employee's self-reported identification and involvement with a particular
organization. The scale is intended to capture more of the attitudinal component of commitment
rather than the behavioral part and represents something more than passive loyalty (Mowday et al.
1979). The typical format is fifteen items and a seven-point Likert-type response scale.
Scale Origin:
The scale was developed by Porter and his colleagues (1974; Mowday et al. 1979). The article by
Mowday et al. (1979) subsumes the earlier study and reports on the testing of the scale with 2563
employees who worked in a variety of jobs in nine different organizations. In general, the scale
showed evidence of high internal consistency (average alphas of .90), satisfactory stability (e.g., two
month test-retest correlation, r = .72), and acceptable (though far from ideal) convergent,
discriminant, and predictive validities. Another version of the scale that only used the nine positive
items had alphas ranging from .84 to .90 in samples of three different employee types.
Validity:
No specific examination of scale validity was discussed by any of the studies. However, the
dimensionality of the scale was tested by Sager (1994) who reported that the items loaded on two
factors. Nine of the items appeared to measure affective commitment while the remaining six items
seemed to relate more to intention to quit.
Reliability:
Good et al. (1996) reported alphas of .91 and .90 for entry- and upper-level retail mangers,
respectively. Alphas of .90 were reported by Michaels et al. (1988) for both the salesperson and
buyer samples. Michaels and Dixon (1994) reported alphas of .90 and .91 for the sales and
purchasing samples, respectively. The alpha for the nine item version of the scale used by Sager
(1994) was .90. Siguaw, Brown, and Widing (1994) reported an alpha of .88 for the scale.
Data Analysis and Interpretation

Preliminary Analysis:
SPSS version 17.0 was the statistical software used to perform all procedures. The tabular form can
be presented as follows:

Table 2: Statistical tool and objective
STATISTICAL TEST OBJECTIVE
Mean analysis- QWL To measure the level of QWL

Factor analysis- Perceived Performance For data reduction
Factor analysis – Job Satisfaction For data reduction

Regression analysis –Employees’ Perceived To find out impact of QWL on employees’ perceived
Performance performance
Regression analysis – Employees’ Job To find out impact of QWL on employees’ job
Satisfaction satisfaction
Regression analysis – Employees’ To find out impact of QWL on employees’
Commitment commitment
ANOVA test – Age, Qualification, To find out the whether the overall model is
Experience statistically significant or not
Impact of Quality of Work Life on Employees’ perceived Performance:
Regression Analysis - Perceived Performance

H0: There is no significant impact of Quality of work life on employee’s perceived performance.
H1: There is a significant impact of Quality of work life on employee’s perceived performance.
Table 3: Quality of work life and Perceived Performance
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .486a .236 .231 5.184

a. Predictors: (Constant), QWL
Therefore we can say that there is a significant impact of Quality of work life on employee
perceived performance.

Impact of Quality of Work Life on Employees’ Job Satisfaction:
Regression Analysis - Job Satisfaction

H0: There is no significant impact of Quality of work life on job satisfaction.
H1: There is a significant impact of Quality of work life on job satisfaction.
Table 4: Quality of work life and employee job satisfaction
Model Summary
1 .732a .536 .533 7.024

a. Predictors: (Constant), QWL
Therefore we can say that there is significant impact of quality of work on job satisfaction
Impact of Quality of Work Life on Employees’ Commitment:
Regression Analysis - Commitment

H0: There is no significant impact of Quality of work life on employee’s commitment.
H1: There is a significant impact of Quality of work life on employee’s commitment.
Table 5: Quality of work life &Employees’ Commitment
Model Summary
1 .307a .094 .088 2.999

Therefore we can say that there is significant impact of quality of work life on employee
commitment.

ANOVA
Anova was done taking Quality of Work Life (QWL) as the dependent variable and Age,
Qualification, Experience per month as independent variables.
QWL and Age
H0: There is no significant difference in QWL across three age groups
H1: There is significant difference in QWL across three age groups
Table 6: Age Group and QWL

ANOVA
QWL_MEAN
Sum of Squares df Mean Square F Sig.
Between Groups .289 2 .144 1.243 .291
Within Groups 17.085 147 .116

Total 17.374 149
We need to reject H1 and accept H0.Therefore we can say that there is no significant difference in
QWL across three age groups
QWL and Experience

H0: There is no difference in QWL across different experience groups.
H1: There is difference in QWL across different experience groups.
Table 7: Experience and QWL
ANOVA
QWL_MEAN
Sum of Squares df Mean Square F Sig.
Between Groups 1.120 3 .373 3.353 .021
Within Groups 16.254 146 .111
Total 17.374 149

There is no significant difference in QWL across different experience groups as the sig. value is
more than α level. So we reject H1.
Findings:
The summary of the findings can be enumerated as follows:
Table 8 Summary of Findings

No. Particulars Significance Beta value Hypothesis
Value Rejected
1. Impact Of QWL On Employees’ Perceived 0.000 .486 Reject H0
Performance
2. Impact Of QWL On Job Satisfaction 0.000 .732 Reject H0
3. Impact Of QWL On Employees’ Commitment 0.000 .307 Reject H0
4. ANOVA- Age 0.291 - Reject H1

5. ANOVA- Qualification 0.262 - Reject H1
6. ANOVA- Experience .021 - Reject H0
Conclusion
Research proves that QWL has a strong impact on employee perceived performance, job
satisfaction and employee commitment. The research goes further in proving that there is significant
difference in QWL and experience of workers.QWL and its relationships with employee perceived
performance, job satisfaction and job commitment must become an explicit objective for many of
the human resource policies in modern organizations. An unstrained work environment ensures good
health and psychological conditions which enables the employee to perform job and non work
related functions without inhibitions. Thus, it leads to an unstressful work environment providing a
comfortable work life.
Recommendations
It is clear from this study that lots of initiatives need to be taken to improve quality of work life of
the employees. Initiatives can provide staff with experiences that are conducive to improving their
overall quality of work life. It is also clear that quality of work life can contribute to the perceived
enhancement of the perceived performance, job satisfaction and job commitment. Since quality of
work life and quality of service are key organizational priorities, several recommendations can be
offered to improve the quality of work life. Some important recommendation includes providing an
opportunity for staff to interact socially with other members of the organization, arranging for get

together parties, implementing robust systems of training and development, introducing employee
assistance programmes, providing realistic job previews( RJPs) to potential employees and a lack of
balance within the work day may suggest a need for greater promotion of the intended benefits of
quality of work life initiatives and for more support and encouragement to be extended to staff in
their efforts to participate.
Limitation & Future Research

The sample represents a small part of the entire population so it may actually not be a true
representative of the data .As sample taken is too small the study cannot be generalized .Similar
study should be replicated in other sectors like banking focusing on QWL as a predictor of perceived
performance, job satisfaction and job commitment as very few studies are available. It is
recommended that future studies be expanded to other service organizations in different related
industries as well as other spheres of the working environment. Future research should include a
more representative sample consisting of a broader range of work environments. Standardized
questionnaires that measures QWL and other predictors should be developed for the Indian context,
since the questionnaires that were used during this study were internationally-based and developed.
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Industrial Relations, October, 1981, Vol. 17(2), pp 12-34.
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Evidence from Malaysia”, ICEMT 2010.
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Volume 2, Issue 1, January 2011.
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Karrir, N. and Khurana, A., “Quality of work life of managers in Indian industry”, Journal of the Indian
Academy of Applied Psychology, Jan-Jul, 1996, 22(12), pp 19-26.
Natarajan P. and Annamalai C, “A Study of Quality of Work Life in Pondicherry University Pondicherry”,
Vol. 4 (5) May 2011.
Pandit N. & Pant R., “Study of Quality of work life of nurses and its impact on their job satisfaction in
selected private & government hospitals of Gujarat”, International Journal of Business Research, Volume 10,
Number 3, 2010.
Rice, R. W., “Organizational Work and the Perceived Quality of Life towards a Conceptual Model”,
Academy of Management Review, April, Col. 10(2), 1985, pp 296-310.
Sirgy J. et al., “A new measure of Quality of work life based on need satisfaction & spillover theories, Social
Indicators Research, Vol. 55, No. 3 (Sep., 2001), pp. 241-302.
Subrahmanian M. , Anjani.N, “Constructs of Quality of Work Life– A Perspective of Textile and

Engineering Employees”, Asian Journal of Management Research, ISSN 2229 – 3795.
Susan J. and Santigo H., "Organizational Culture and Telecommuters' Quality of Work Life and Professional
Isolation" 6 (3) (2006).

EVOLUTION ON PRIVATE LABEL BRANDS IN INDIA
Dr. Ravichandran M
Dean Academic, Anna Institute of Management,
Chennai
&
Ms. Nidhi Tandon

Faculty South Delhi Polytechnic for Women, New Delhi
nidhitandon79@gmail.com
Abstract
Private label or store brands are on escalation journey for growth in last few years in Indian market.
The growth of private label is impressive in all categories from food and grocery to apparel,
furnishing, kitchenware, and electronics and so on. Though previously private label were considered
as cheap alternatives, today they have almost all elements of big label- a brand name and exclusivity.
This paper discuss about evolution of private label in Indian retail industry, difference between
private label and national brand, how private works and advantages of private label.
Keywords: Private Label, National Brands, Manufacture Brand, Indian Retail
Introduction
The globalize world of 21st century had many effects on consumer lives. The rapid technological,
economical and social changes from last few decades have changed consumer consumption pattern
behavior. Manufactures have started to take over retailing functions to the end- consumer in order to
increase their in whole value chain. On the other hand many retailers started with creation of their
own brand i.e. Private Label Brand (PLB). In fact emergence of consumer brand preference has
resulted in more strategic brand management and in various brand application that are all features
that add to the value of a product (Kolter & Armstrong, 1996). One of these strategies involves
product sold with the label of wholesaler/retailer that is different from the manufacturer/national
brands, also referred to as private brand, private label brand or store/supermarket brand (Burton and
Lichtenstein, 1998; Quelch and Harding, 1996; Halstead and Ward, 1995; Hoch, 1996). In order to
obtain competitive advantage, to increase their market share and profit margin and to obtain loyal
customer, retailers develop their own private brand product or product lines (Davies, 1998). These
private brand product produced/ordered by retailers are observed especially in the food sector and
occupy an increasingly larger space in the stacks of the product groups with high purchasing
frequency (Anonim, 2003). Private label brands are also defined as consumer products produced by,
or on behalf of, retailer and sold exclusively by them under their own name or trademark within their
own chain of stores (Baltas 1997). A private label brand, often referred to as an in-house brand or
store brand, is that which is owned by the retailers themselves.

Background of Private Label Brand
Private label brands were traditionally defined as generic product offerings that competed with their
national brand counterparts by means of a price-value proposition- first developed by Sainsbury in
the U.K. in 1869 (Collins & Bone, 2008), these products often sacrificed quality to reduce costs and
appealed primarily to lower-income consumers.. Often the lower priced alternative to the “real”
thing, private label or store brands carried the stigma of inferior quality and therefore inspired less
trust and confidence. There was no attempt to make them anything more than just a ‘value pay’ and
retailers evolved these products often referred to as private label. These are terms consumer use
interchangeably, but the market has actually changed quite considerably. Retailers continued to push
more and more private label products into different categories of the marketplace because they
represented high margins and the promise of profitability with little to no marketing effort.
The first value brand was Tescos Value range, launched in 1995; today, it includes over 2,000
products in food and non-food categories (Collins & Bone, 2008). Other retailers quickly followed
suit creating their own value lines. For example, Sainsbury created essentials, later renamed Basics,
and Wal-Mart created Coles Smart Buy (Collins & Bone, 2008).During the past 30 years,
internationally we have seen all major retailers jointing the bandwagon and some of them today are
emerged exclusively in private brands or labels, e.g. – The Gap, Banana, Republic, Benetton.
In India private label penetration began in the mid-2000s when retailers established organized retail
format stores across the country. - Organized retail occupies a small percentage of the overall retail
market in India. Traditional forms of retail, such as neighborhood 'kirana' stores, dominate the
market. - The most widely used private label products were cereals, pulses and spices. This was
followed by packaged food products and fruits and vegetables.- In 2011, Spencer's Retail revamped
its business strategy to focus on the young, urban population. In these terms they are repositioning
themselves as an affordable, luxury retailer. - The Future Group launched its new private label
brand, 'Sach', in 2009 with the Sach branded toothbrush, which was followed by Sach branded
toothpaste in March 2010.
Definition of Manufacturer’s Brands and Private Label Brands
Even if in literature various definitions of manufacturer brand exist they all have in common that this type of
brand is owned by producers (e.g. Kotler et al. 1996; De Pelsmacker, Geuens and Van den Bergh 2007;
American Marketing Association 2010). De Chernatony and McWilliam (1989, p.156) state “If the
manufacturer has registered a trademark {i.e. some identifying brand name or symbol), its legally protected
right to an exclusive brand name enables it to establish a unique identity, reinforced through its advertising,
and increases the opportunity of attracting a large group of repeat purchasers.” This statement includes the
important aspect of ownership by the manufacturer and furthermore indicates that manufacturer brands have
the aim of attracting purchasers by means of advertising efforts.

The definitions of private labels in literature vary and therefore no standard definition exists. The Private
Label Manufacturers Association (2010) provides on its website the following definition for private labels:
“Private label products encompass all merchandise sold under a retailer’s brand. That brand can be the
retailer’s own name or a name created exclusively by that retailer. In some cases, a retailer may belong to a
wholesale group that owns the brands that are available only to the members of the group.” The German
Committee for Definition of Terms in Trade and Distribution (2006) sees private labels as product- or
company brands with which retailers or wholesale groups label products, in order to distribute these labeled
products exclusively in their own retail stores. These definitions from two different sources mention two
important factors for defining private label products. First of all, both definitions imply that the retailer has
the ownership of the private labels sold in his retailing stores and also the control over these private labels.
The second consistent factor of both is the exclusivity of the retailer’s rights to the labeled products. The
number of definitions of private label strategies is similar high as the number of definitions of private labels
itself. The strongest agreements can be seen with the categorization into classical private label, premium
private label and discount brand/generics (e.g. Bruhn 2006; Lingenfelder and Lauer 2005).
Classical private label products have a comparable product quality as manufacturer fighter brands
(also called B- and C-Brands). Fighter brands are known in literature as low price brands with low
quality perception (De Pelsmacker, Geuens and Van den Bergh 2007). Example- Big Bazaar.
Premium private label products are positioned in the high price segment and have a high quality
perception (Bruhn 2006). Even if their quality standard is comparable to the manufacturers’ prestige
brands, most premium private label products still have a lower price than manufacturers’ prestige
brands. De Pelsmaker defines prestige brands as luxurious brands with high-quality. Prestige brands
target this small segment which is looking for status and high psycho-social meaning. (De
Pelsmacker, Geuens and Van den Bergh 2007). Example- Spencers, Shopper Stop.
Discount brands or generics are positioned on the price entry level of the product category with the
main intention to demonstrate the cheapness of the specific retail store (Bruhn 2001). Example-
Food Bazaar.

Brand Vs In-house Brands
Brands In-House brands
Brand Name From the point of view consumers: -

30-40% cheaper than brands.
Consumers associate them with quality
From the point of view of retailers:
Advantages Advertisements, hence better visibility
only production cost involved and no
advertisement or distribution charge
Prestige associated with owing the
brand involved
Disadvantages Expensive Consumers may not associate with it,

especially when placed with a branded
Must live up to expectations item
Less visibility
Available only at the retail store
Some Examples
Tea Red Label, Lipton, Taj Mahal Reliance Value (Reliance Fresh)
Handwash Dettol, Lifebuoy Caremate (Big Bazaar)
Jam Kissan, Tops Smart Choice (Spencer’s)
Noodles Maggi, Top Ramen Reliance Select (Reliance Fresh)
Source: “Why big retail is in a mess”, DARE.CO.IN April 2009
Private Label Brands in Indian Retail
The retail sector in India is growing at a phenomenal pace, with an increasing focus on private label.
Recently in sharp contrast to earlier periods, consumers have started considering purchase of private
label as smart shopping. Indian retail industry is the fifth largest in the world with currently
estimated at around $450 billion and organized retail accounts for around 5% of the total market
share. It is estimated that the retail sector would continue to grow at 10-12 % per annum, which is
extremely encouraging when the country's economy is only projected to grow at 6%. Private brands
already account for close to 7% of modern trade sales in India, compared to 1% in China, according
to a Nielsen survey that covered more than 50 countries last year.

According to Images Retail Report 2009, as quoted in Indian Retail: Time to Change Lanes" by
KPMG; private label brands constitute 10-12% of organized retail in India. Of this, the highest
penetration of private label brands is by Trent at 90%, followed by Reliance at 80% and Pantaloons
at 75%. Big retailers such as Shoppers Stop and Spencer’s have a penetration of 20% and 10%
respectively. Globally, store brands constitute nearly 17% of retail sales. In fact, international
retailers such as Wal-Mart and Tesco have 40% and 50% of in-house brands in their stores.
According to Salil Nair
“Customer Care Associate & COO, Shoppers Stop Ltd. “Private labels are highly profitable. The
profits earned from them are almost double than those from the third -party brands.”
Customers have begun to like private labels due to better quality, high food safety standards,
international look and feel of products, customized packaging created after customer feedback and
the credibility of the retailer," said William Savage, chief merchandising officer, Bharti Walmart,
which has Private labels owned by retailers such as Bharti Retail, Future Group and Aditya Birla
Retail outsell several national brands in certain home care and food categories at their retail stores

even as big brands push more sales through modern retail. In India some of important retailers who
have come up with their own brands are:
Reliance Fresh is a subsidiary of Reliance Retail Ltd which in turn is a subsidiary of Reliance
Industries Limited. Reliance Retail Ltd. was established in 2006. The first Reliance Fresh store was
unveiled in October 2006 in Hyderabad. Reliance Fresh is the pioneer for the multi-format retail
initiative of Reliance and involves an investment of Rs 25,000 crore. Reliance Fresh stores stock in-
house brands like Reliance value grains, pulses, rice and spices, Reliance Select tea, noodles, jam,
honey grains, dry fruits, dals as well as healthy life fortified grains, flours and pulses.
Shoppers Stop is an Indian department stores promoted by the K Raheja Corp Group (Chandru L Raheja
Group), started in the year 1991 with its first store in Andheri, Mumbai. Shoppers Stop is one of the leading
retail stores in India. Shoppers Stop began by operating a chain of department stores under the name
―”Shoppers Stop” in India. Shoppers Stop has 35 stores across the country and three stores under the name
Home Stop. Shoppers Stop retails a range of branded apparel and private label under the following categories
of apparel, footwear, fashion jewellery, leather products, accessories and home products. These are
complemented by cafe, food, entertainment, personal care and various beauty related services.
Aditya Birla Retail Limited is the retail arm of Aditya Birla Group, $40 billion corporation. The
Company ventured into food and grocery retail sector in 2007 with the acquisition of a south based
supermarket chain. Subsequently, Aditya Birla Retail Ltd. expanded its presence across the country
under the brand "more." with 2 formats Supermarket & Hypermarket. They are currently pursuing
strategy to increase its private label sales from the current 3% to 10-15% of total sales in the next
two to three years. These products shared the shelf space with other branded products. For instance,
in the Reliance store that we visited, its curd brand Dairy Life was placed next to the other brands,
such as Amul. More offers food brands like Feasters, Kitchen Promise, Best of India and home and
personal care products like Enriche, 110%, Pestex, Paradise and Germex.
Easyday India is the retail chain operated jointly by Wal Mart and Bharti Retail a subsidiary of
[1]
Bharti Enterprises. It opened its first retail outlet in the city of Ludhiana in 2008. The first
Easyday store in South India was opened at Mysore. Bharti Retail has introduced eight Walmart
private labels, including two of its largest—‘Great Value’ and ‘George’—in its supermarket chain
Easyday. It has introduced Great Value line of food (flour, dry fruits, spices, cereal and tea). Equate,
a brand for pharmacy and health and beauty items, has been introduced only in the hand wash

category as of now in Easyday stores. Other Wal-Mart private labels introduced in India include
Home Trends (home furnishing), Mainstays (plastic containers, kitchen accessories), Kid
Connection (toys, clothing), Faded Glory (footwear) and Athletic Works (athletic shoes, equipment).
Spencer's Retail is one of India’s fastest growing retail stores.Spencer's is based on the 'Food First'
Format (it mainly offers fresh and packaged food). Many outlets though sport multiple formats for
retailing food, apparel, fashion, electronics, lifestyle products, music and books. It is owned by the
RPG Group, a major business house. Spencer's boasts of a wide range of private brand products that
encompasses both foods as well as non-foods FMCG category. 'Spencer's smart choice' is the
leading instore brand which has a plethora of products ranging from juices, noodles, cookies, honey,
Air freshner etc. Spencer's also has the 'clean home' range of home improvement products and 'Tasty
wonders' range of snacks and impulse food range. Its general merchandize products under the brand
name of MAROON which includes Non Stick, Hard Anodized, Home Plastic and Foils.
Future Brands Limited (FBL) is involved in the business of creating, developing, managing,
acquiring and dealing in consumer-related brands and IPRs (Intellectual Property Rights). Its offer
fashion brands- John Miller, RIG, Bare, DJ&C, UMM, Srishti, Knighthood, Lombard. Electronic
brands like- Koryo, Dreamline, Sensei, IQIP, Unpaid. And FMCG brands like- Fresh & Pure,
Caremate, Tasty treat, Cleanmate, Sach. Clean Mate and Great Value, respectively, top the floor
cleaner segment, according to market researcher Nielsen's data for July-September 2011 period, the
latest available. When PepsiCo Frito-Lay decided to boycott Pantaloon’s Food Bazaar due to
differences in terms of trade, it was the latter’s Private Label which got a boost in shares. Today the
Private Label product line of Tasty Treat (line of pickles, ketchup, jams) is leading with 5-10 percent
of its overall sales.
Nilgiris is South India’s leading chain of retail stores providing consumers a shopping experience
that hinges around freshness of produce, superior quality and better value. From humble beginnings
in the hills around Ooty and Coonoor at the turn of the twentieth century, Nilgiris has grown from
being a Dairy Farm specializing in butter to a supermarket chain of over 90 stores spread across
India’s southern states. Nilgiris offers exotic range of handmade Jams/Marmalades/Chutneys with
more than 50% real fruit. Classic Kids Favorite: Strawberry, Mango, Peach, Apricot, Guava Jelly.
Your Kind of Flavors: Cinnamon Apple, Black Cherry, Bitter Orange, Strawberry Mint Meal
Times or Bread Spreads: Mango Chutney, Tomato Chutney, Ginger Orange Jam.

From the above stated data it is evident that Future Brands Limited is having more private labels in
contrast to the other retails in India.
How Private Label Works
The development of the Private Label can be seen as a vital winning strategy for improving store
image and profitability. Private Labels usually offer customers value for money and increase the
overall price competitiveness of the chain.
While shares of private labels have been constantly increasing compared to national level brands,
they have never been able to shrug off the indignity of being called cheaper brands (with fairly good
levels of quality), for example John Miller from Pantaloon. The major elements of the private label
are rational and emotional appeal. Rational appeal includes the marketing mix and distinct
positioning, while emotional appeal involves communication with customers. The consumer
perception behind buying private label depends on demographic factors, individual differences,
variable like extrinsic cues, level of perceived risk and degree of knowledge about particular
category. Besides higher margins the key growth drivers for private label retailers are differentiation
and positioning in economic downturn, freedom from pricing strategy and strong customer loyalty.
Private label provide the ability to offer a significant price advantage to consumers, typically around
16-23% lower as compared to manufacture brand. For example Reliance tea brand price tag of
Rs.118 for 500gms where as Brooke Bond, which was placed next to it was Rs.132 for 490gms.
Atulit Saxena, COO of Future Brands, explains, “Traditionally, private brands worldwide were
always conceived to take on category leaders. If we are talking about soaps for instance, you might
have 15-20 soaps, but as a large organized modern retail player, you might want to create your own
trademark in your store, which is of the same quality, but at a price that is substantially lower.” This
also becomes the differentiating factor for a retailer, as these brands are exclusively available at that
retail outlet only. So a customer, for example, may want to revisit the store if they find the quality
comparable to others at a more affordable price point. Private labels are mostly priced much lower
that branded products because of substantial marketing and distribution savings. Retailers make up
for lack of media marketing through in-store promotions and prominent display.

The private label provides the end delivery of fulfillment to consumer within the purview of the store
brand. A consistent delivery mechanism and careful attention to detail may lead consumer to prefer
the private label to competing offerings.
Line extensions provide another lesson for private label manufacturers (or the retailer). The presence
of other branded outlets extend the offering and brand equity of the parent store- as in the case of
Lifestyle International’s Kappa (a sportswear brand)- and provide a distinct identity by targeting a
well-defined audience.
Increasingly, retailers are offering much beyond the traditional, right from financial services to
holidays. Wonder how it would sound if I told my neighbor that I went on a national holiday (26
January or 15th August)? In these stores, the private label is not limited to a particular category. For
instance Shopper Stop it extended from apparel for men, women and children to crockery,
kitchenware and even furnishing. Similarly in Reliance store it extended from pulses to spices,
noodles and even dairy products.
Advantages of Private Label
1. You have control over your pivotal product, and that means over your business.
2. It is the only way to be able to market high quality product, if you so choose.
3. You save substantially in product cost. You can spend these savings on anything you please,
including higher product quality.
4. You have no competition for the brand of product that you carry. No one can trade on your
name legally. This is a strong motivational plus for your salespeople.
5. With your exclusive brand you can, if you wish, enter the entire Out-of-Home market supply
for every other nook and cranny of the market.
6. You can sell the mystique as well as the real quality of your product, enabling you to achieve
a higher average selling price (though many operators make the mistake of selling their
private label for a lower price than the national brands).
Disadvantages of Private Label
1. It takes time to work up your private label with the right quality coffee. While that is not
terribly difficult, you can simply opt to have the supplier pack one of his standard blends in
your graphics.
2. Because no one else is handling your product it will have to be packed to order, requiring
some lead time from the day of order to the day of delivery. This requires at least a bit more

organizing and control of inventory than would be necessary in purchasing the national
branded, though of course it guarantees freshness.
3. The private label roaster may have his own imperatives in terms of production, with your
order being shoved aside in favor of his own customers' needs.
4. Although the cost of your product will be substantially less when bought from a good private
label supplier there will, of course, be little "help" in marketing the product by that supplier.
The selling of your own product is likely to be entirely in your own hands.
Future Trends
• Lifestyle International, a division of Landmark Group, plans to have more than 50 stores
across India by 2012–13.
• Shoppers Stop has plans to invest Rs250 crore to open 15 new supermarkets in the coming
three years.
• Pantaloon Retail India (PRIL) plans to invest US$ 77.88 million this fiscal to add up to
existing 2.4 million sq ft retail space.
• PRIL intends to set up 155 Big Bazaar stores by 2014, raising its total network to 275 stores.
• Timex India will open another 52 stores by March 2011 at an investment of US$ 1.3 million
taking its total store count to 120. In the first six months of the current fiscal ending
September 30, 2009, the company has recorded a net profit of US$ 1.2 million.
• Australia's Retail Food Group is planning to enter the Indian market in 2010. It has plans to
clock US$ 87 million revenue in five years. In 20 years they expect the India operations to be
larger than the Australia operations.
Conclusion
Private label come a long way over the few decades, private label are showing increasing growth
because of attractiveness that they offer to retailers. Private label are slowing becoming hero in the
nig Indian retail industry. Taking cue from the other countries- in India also private label are going
to give tough competition to national brands only if retailers are consistently providing quality
products at fair price.
This new paradigm of private label thinking requires that retailers consider an arsenal of often-
overlooked business and branding tools to further success.

Category management and brand management must work together to fuel the marketing strategy.
One cannot replace the other. Both product and positioning points of difference set the “own” brand
apart in consumers’ minds. A consumer-centric approach is at the heart of “own” brand development
and elevates above the product-centric thinking of the past.
In order to have a consistent and compelling brand voice, retailers need to understand the
contribution and role of proprietary or "own" brands within their business and also within the lives
of their consumers. “Own” brand products, branded communication and expressions should all be
developed in accordance with this thinking.
When “own” brands are appropriately created and steered, they have the potential to reach their
pinnacle of success. In doing so, they create a persuasive connection with consumers, drawing them
into a retail store, but more importantly, becoming an essential, experiential and indispensable
lifestyle choice that they embrace over the long-term.
References:
Hirschman, E.C. (1981), "Retail research and theory", in Enis, B.M. and Roering, K.J. (Eds), Review of Marketing,
American Marketing Association, Chicago, IL, pp. 120-33
Laxmi Prabha.G. (2007), “The prospects and problems of Indian Retailing”, Indian Journal of Marketing,Vol. XXXVII,
No.10, pp
Laksmi Nair (2011), “Private labels brands in food & grocery: the changing perceptions of consumers & retailers in
India- a study in the Pune region”, Reserchers world-Journal of Arts Science & Commerce, Vol.-II, Issue-1 pp. 144-156.
Shannon, R., & Mandhachitara, R., (2005). “Private label grocery shopping attitude and
behaviour: A cross-cultural study”, Brand Management, 12(6), pp. 461-474.

BRANDS EXTENSON CONFUSE CONSUMERS
Dr.M.Jagadeesha
MBA-PhD-IB-USA
Asst.Professor
Dilla University
Ethiopia
Email:jaggisun@gmail.com
Abstract
Now days we are seeing so many brands in market with different name and same quality[private
label] and brand extensions, like “extra power, excel, ultra” etc. This creates confusion to end users
whether they should stick to existing or extended product. Very frequently changing the brands is
difficult, especially for kids and middle income group consumers, because they are addict to their
regular brands due to price as well as quality. Organization always thinks either extending their
brands or increase product lines to improve their market share or cannibalize their compititetors
market share, but the real impact is on the existing consumers as well as existing brand rather than
Compitetitetors. On the other side different manufacturers selling similar type of products with slight
variation in brand name [by adding some additional words to existing brand name]. All companies
are having their own sales infrastructure [“field force, CFA and distributors”] to cater their goods to
market, even though it is difficult for managers to look at a competitive threat objectively in a long
term context when day to day performance is suffering. All are selling their products in the same
markets, how this is possible!!!!! Is it route cause for private labels or maintain their brands/brand
name for long term. We can see this in below comments. Here I would like to exhibit two categories of
confectionaries and how they are compete each other and selling their products also how this
impacted on their brand name.
:
Keywords Brands extension activities in confectionaries [candy and toffees]
Introduction
More regional players/private label products entering rural market with similar products and
tempting sellers by offering more margin of profit, just because of more profit and credit facilities
sellers sell these regional manufacturers products to consumers rather than established brand. This
attitude pushes consumers to land in confuse stage. Here I would like to exhibit one of the leading
manufacturer products in southern parts of India. Parry’s is the oldest and well reputed confectionary
manufacturer, their brand “Parry’s LBB [lacto ban ban]” green color wrapper on confectionary was
dominated in rural as well as in urban markets, when consumers ask for Parry’s product especially
kids, retailer will give locally manufactured similar product, because kids does not have patency to
cross check whether the brand is what he/she wants. Why these regional/small manufacturers entered
especially in this candy/sugar based confectionary category? Because of the following two reasons
1] The ingredients procurement is easy
2] The manufacturing process is much easier when compare to toffees

Also regional players were seen the sales volume of big players, then start manufacturing and
selling the same product with different brand name with same color wrapper, quality and quantity.
The effect of regional Players entry may not be immediate, but in the long run big players sales
volume was cannibalized by regional players. Regional players/private label manufacturers become
strong in their respective regions, also the big players were not giving much importance to rural and
remote areas distribution due to high operational cost, because of this threat big players start thinking
towards brand extensions and introduce more brands, this attitude created more brands and
introduced to market. But these innovations or innovated products are existed or sustained in
consumers mind? Or again the same confusion or copying the same by regional players!! Yes
absolutely it has happened.
Literature Review
Indian confectionery market size is close to 14th position in terms value and is expected to grow at a
rapid pace by 2014. More than 30% of the Indian chocolate consumer population is in the age group
of 2-14 and the primary target market for confectionery manufacturers. These age groups are prime
movers/ real consumers for confectionery manufacturers in India, especially candy and sugar boiled
category. Companies like Cadbury (Kraft), Nestlé, Parle and other regional players like
Parry’s[Lotte], Nutrine, Ravalgon etc, are focusing more on chocolate products with consistent
growth. Since 1914 Parry’s was dominated in Indian confectionary market till 1970’s, especially
kids [2-14] were prefers to buy “Lacto ban ban” chocolate. In the beginning of 1980’s Ravalgon
and Nutrine confectionary’s entered the market. All the three manufacturers start fighting for their
market share in the sugar boiled confectionery category. Apart from these three, plenty of
local/regional manufacturers also entered and target consumers, then category has divided the age
group [2-8 & 8-25]. Table 1 shows the consumption of confectionaries age wise as well as product
wise.
Table-1
Product
By age groups
Variation
2 to 8 years 15% Type Share (%)
8 to 25 years 55% Plain candies 43
25 to 64 years 25% Toffees 39
Over 64 years 5% Adult Candies 9
Gums 3
Éclairs 6
Source : Ministry of food Processing industries-Government of India.

This divided age groups first category [2-8] is stick to a favorite brands like LBB/Lacto, it may be
parry’s or Nutrine or somebody’s, but the other group[8-25] was matured about brand and
sellers/retailers can not be able to cheat them by giving some other manufacturers product. As for as
“éclairs” chocolate is concerned this will not be applicable much [Nestle, Cadbury and Lotte].
Because the éclairs brand itself positioned as premium category toffee right from the day one and
consumers have trust on brand name “éclairs”, they don’t think to cross check who is manufacturer
especially in smaller size, because very few manufacturers are in the race.
The compitetitation is high in sugar boiled confectionary category and really this is acid test time for
all the company sales persons as well as distributors of Plain candies category especially in informal
markets like semi urban, rural and remote areas. Because the penetration rate high, this is not a
healthy compitetitation as well was brand sustainability in market, everybody wants push their
brands through retailers by offering them more discounts as well as credit to occupy retailer shelf’s.
Ultimately the brand name will exist in the market but not the one company product, if any kid goes
to retail shop/kiosk for Parry’s chocolate, retailer will give a chocolate wrapped with green color
wrapper and the kid will be happy because green color wrapper indicates brand what he wants. This
category may brings volume for manufacturers, CFA’S, Distributors as well as retailers, but this
volume will not generate profit, just for paper thin margin profits, all are running and this situation
leads manufacturer to hang this brand into records “due to higher operational cost and less margin”
also this will leads manufacturers to restrict their market activities or financial crunch. Table 2 shows
the size and segment of the market.
TABLE-2
Market Segmentation
Segment Share (%)
Organized 35
Informal 65
North 28
East 17
West 32
South 23
Source: Ministry of food Processing industries-Government of India
One more instance we can how parents are influencing in creating confusion in the minds
consumers[Kids] about brands, because all the time kids will not go to shop/kiosk to buy chocolates,
their parents also buy chocolates for their kids on the way to home after their office hours and kids
will accept the brand whatever his parents brought, they will be under the impression, their parents
buy good brands, “this is also one of the reason for diverting their minds or switch over to other
brand”. Where as in rural areas “retailer or mum and pop shops” are selling the confectionaries

whatever available in wholesale market, means any confectionary which is wrapped in green/similar
color wrapper means it will be parry’s/Nutrine/ the brand he needs, here wholesaler influence will
forcing on retailers because they are buying these goods on credit basis, this is quite common
especially in sugar boiled confectionaries. This type unethical trades force manufacturers to revive
their strategies or invent more products to restrict local manufacturer entry or to sustain their brand
image in the market. To avoid these unethical trade practices, two more brands entered the market
from sugar boiled category in the name of “Lacto and Mahalacto from Parry’s and Nutrine” and the
next was “Cookies range”. In these categories the real profit makers were regional/local players,
because neither they did market research nor they think to innovate new products, always they are
watching big Players movement and they will copy big players successful brands. Here we should
notice how Parle company encashed this opportunity/market gap by placing their toffee products,
right from the day one they concentrate more in urban and semi urban markets to create strong retail
base for their products. They did not try to sell their products in rural or remote areas due less returns
and high operational cost, they targeted urban and semi urban areas for their products [Parle-Kiss
me, Melody etc]. Regional/local players can easily enter into the manufacturing process of sugar
boiled confectionary sector rather than soft toffees, also soft chocolate sector in the retail market was
not filled with consistent and quality brand too, soft chocolates manufacturing process needs
hygienic atmosphere, technical expertise and raw materials procurement is costly when compare to
sugar boiled confectionaries. Even the compitetitation was not high like sugar based confectionary,
soft toffee market was not a cakewalk for Parle, because regional players like parry’s, Nutrine and
many others come out with soft toffee’s like “Coffee flavor” series and MNC’s like Cadburys,
Nestle and many more companies entered market with éclair brand in small denominations like
Rs.1,2 etc.
Again consumers land in confuse state, whether they should buy éclairs of Cadbury or Nestle or
lotte. All the three companies are manufacturing, marketing and selling these brands, ultimately
éclair brand sustained not the one perticular company, also same in sugar boiled confectionaries
brands. One more surprising sales activity is taking place in market, nobody is consider this sales is
contribution on their sales volume, “whether its supermarket, shopping malls or even medical stores
whenever we do shopping cashiers are giving chocolates in place of Rs.1 or 2 refundable change”.
One more trend we can see in the market Candy’s are occupying place of sugar boiled
confectionaries. Candico is targeting these segments, in 80’s and 90’s we were calling this as “loly
pups” same old products are entering market with different name and the markets are same, it just
like a proverb “Old wine in new Bottle”.
Research Methodology:
Due to global recession plenty of industries suffered with huge financial crunch. The impact of this
recession forced some of the industry sector[software, banks etc] adopt cost cutting strategies, but
this was not much affected on food processing industry, especially in confectionary sector “The
Indian confectionery market is one of the fast growing markets in the processed foods sector.

Growing at a rate of 6+% in organized and unorganized sector, according to e-probe market research
statement, the market size of the Indian Confectionery Market is Rs. 41 billion with a volume of
223500tones/annum [approx]. This category consumers located in urban areas with a 73% skew to
urban markets and a 27% to rural markets. Generally sugar made Confectionery consumed by
individuals of all age and regions. The industry in India is approximately divided into: Chocolates,
Hard-boiled candies, Éclairs & toffees, Chewing gums, Lollipops, Bubble gum, Mints and lozenges.
“Sugar confectionery will remain the largest segment” and new products like mints, lollipops and
chewing gum, as well as boxed assortments will grow at the fastest rates”. Table 3 show year wise
growth
TABLE-3
Demand: Past and Future
Year Rs bn
2004-05 21.7
2005-06 23
2006-07 23.75
2007-08 25.4
2008-09 26.8
2009-10 28.2
2010-15 36
Source: Ministry of food Processing industries-Government of India
Apart from these, there are some products comes under health platform like “Hajmola [digestive]
with sweet and sour flavor etc, Jagery based candy’s are still popular in rural areas, just like “kitkat”
from Nestle. These Jagery based candy’s are has not been considered in confectionary sales volume
due to less awareness of brand. When I was working as sales officer[1996-97] I have seen in Bijapur
and Belgoan districts of Karnataka state, these “Jagery based candy were exporting to European
countries”
Analysis and Discussion:
Many of the manufacturers are not recognized [local manufacturers or private labels], because their
operations are restricted to certain rural pocket. Whenever recession is occurred this local or regional
or private label manufacturer growth is rapid. Sugar Confectionery market face a major challenge.
Understanding market size and segmentation is valuable, so for it has not happened due informal
distribution system, but the keys to effective targeting is known just how valuable specific consumer
groups are, and being able to quantify the impact of consumer trends as well as retail trends.
Consumer trend will playing vital role in urban and semi urban or tier 1, 2 and 3 cities, where as in
rural market distributor relationship with retailer playing vital role in selling. But how much of the
Sugar Confectionery market accounts for which consumer trend and what trend drive their behavior.
Here we should notice product penetration levels are high and the fast-pace of growth in the Indian

market most likely offer both volume and value growth opportunities. But it should not be an
inventory building exercise, it should move out from retailer shelf’s just to liquidate the stocks
retailers using all kinds of strategies like selling the goods with least profit margin. Marketers
seeking to target this growth should aim to target the specific groups which offer the most value, as
well as the most important consumer trends in order to position their products effectively. The
following figure shows [Table-4] the current trend and growth stages of confectionary industry in
India.
TABLE-4
Market Growth Rates
1990-91 - 1996-97 8.9%
1996-97 - 2001-02 7.3%
2001-02 - 2006-07 6.4%
2004-05 - 2009-10 5.4%
2009-10 - 2014-15 5.0%
Source :Ministry of food Processing industries-Government of India
Conclusion:
With the above said facts and figures we can see consumption behaviors, consumer trends and retail
trends influence on their consumption and the size of the market. These trends influence on brand
and private label choices as well as retailer choices. Consumers’ uptake of products and the
influence of consumer trends are fundamental causes of change in market making, by knowing these
trends local players/private labels playing vital role in creating platform for their products. But these
influences force leading manufacturers to wind up their existing brands. The best example for this
category is Parry’s confectionaries LBB brand, till 1995 this brand was cash cow for them, but due
liberalization of economies consumers disposable income capacity improved and they shifted
towards better hygienicall toffees. This will not applicable only to parry’s but for all. Also this is not
end of road, there are plenty of ways come out from this gallops, today all are trying to “Sustain
their company rather than brand”, they are adopting strategies like private labels, decentralizing
their manufacturing facilities, effective distribution system, technology collaborations, adopt good
MIS system and act quickly to market trends.
Limitations of the Study
As this impact of assessment is not limited only on how many consumers will respond quickly on
these trends, but also how often they act on this new brands and promotional activities, it provides
unique insight into the size of the market and penetration level. When we targeting these markets
then consumers strategies should be covered each category. Sizes and segments consumers, tracks
their behavior and shows the impact of this on these markets through good merchandising, in shop
campaign trade fairs and many more activities. Unfortunately companies are not keen on doing such

activities to understand market trends and consumer trend, except MNC’s and some national players.
This is one reason regional and local players dominated in semi urban and rural markets. This also
one of the reason restrict our category/brand trend researches and limits market information system.
The research results will cover very limited consumer trends, showing exactly to what extent these
trends have a direct influence on a market. This is high time adopt new methodologies to remove our
limitations of the study. Limitations of study should not be restricted to Urban and semi Urban, it
should go beyond that to dig out the real trend.
Scope for Further Research:

Still there is big scope across the whole market especially for Sugar confectionery and this is the
leading category accounting for over half of sales. In this large market, the kids, younger generation
combines with a combination of population growth increases the chances of growth opportunities.
The Sugar Confectionery market of India is dominated by branded products in urban and semi urban
areas, while private label penetration is almost significant in semi urban, rural and remote areas as
well as whole sale markets. While at present this situation is very favorable for branded products in
tier 1 and 2 cities, it might be that in the future retailers might start to seek to develop their presence
in the market, but private labels, regional and local players cannot be ignore. Perhaps unsurprisingly,
market value for packaged/branded Confectionery appears to be significant growing/driven by the
more affluent consumer groups rather than non affluent groups in India, which account for majority
of market share. This trend pull more and more MNC’s to Indian market.
References:
Business standard issue

E-probe [confectionary market article-2011-06-02
Life stages-2012[Euro monitor]
Ministry of food processing India
Research and Markets [consumer trend in the confectionary market in India]

LAPTOP BRAND AWARENESS LEVEL AMONG UNIVERSITY/
COLLEGE GOING STUDENTS
Pinki Sharma
Assistant Professor(Commerce)
University of Delhi
E-mail:-pinki154@yahoo.com
Abstract
Whether it is a growing craze or the emergence of a new breed of technology-conscious Laptop market
is going to flourish in India. The need for anytime-anywhere access to information is pushing laptop
demand in the market due to their convenience in terms of portability, flexibility and adaptability. In
every field of life like, hospitality, railways, metro trains, corporate houses, academics, professionals
etc. we found the use of laptop/computers for different purposes. The purpose of this study is to find out
the awareness level of students about different laptop brands, their purchase criteria and to determine
the Laptop size and price range as preferred by them. The study segregates the respondents on the bases
of their geographic and demographical profile. Finally present paper comes with some practical
problems generally associated with Laptop usage and it will provide a scope for innovation. It will
further help the manufacturer to reach near the Indian students in a manner of their likings.
Introduction
Present Laptop Market
Globalization of the economy has exposed various Laptop brands to Indian consumers.Growing
Indian market is flooded by various laptop brands available at different look, shape, size, price,
colour, features, quality, usage and offering multiple benefits in different walk of life.Some of the
dominating Laptop brands were Dell, Lenovo, Apple, Sony, HP, Samsung, LG, HCL, Acer, Compaq
etc. easily available in the market.High productivity, ease of use, mobility and declining prices has
made laptops a rage among executives, high-fliers, entrepreneurs, travellers and even academics.
With the growth in the PC industry, laptops have registered record sales in 2005, with computer
buffs switching from desktops to notebooks.Notebook sales grew at 94 % in the first half of the
fiscal year 2005-06, according to Manufacturers' Association for Information Technology. During
the first half of the current financial year, Indians bought nearly 1.53 lakh laptops. There were
estimated 1.2bn computers in use worldwide at the end of 2008 with mobile PCs driving the current
and future computer expansion although general PC growth is slowing. However, developing
countries will increasingly account for a larger share of the global market is expected to double by
2013.National laptop brands have to face tough competition from international brands. Acer is
combating leading and well-entrenched MNC brands like IBM and Toshiba, and other popular ones
like Dell.

Laptopmarkets
markets constitutes of four things, creating buying power, improving access, tailoring
aspirations.The 4 As model described in Figure
local solutions and shaping aspirations. igure 1, is explained in the
context of laptop market.The he 4 A's model of Availability, Affordability, Acceptability and
Awareness provide us with a means of developing appropriate strategies to tackle the marketing
issues for marketinglaptop. Each of the A’s is detailed out below:
below:Figure
Figure 1: The 4 A’s Model
Awareness is linked to the issues of promotion of laptop brands. Availability is about making the
laptops within reach of the consumers. Affordability shows the purchasing capacity of consu
consumers.
Reduction in laptop prices make it affordable to the consumers.Acceptability would include issues
needed to be addressed to improve the willingness to consume, distribute or sell a product.
Laptops are completely portable, use less power and make le less
ss noise, though they are often a little
slower and have less graphics and sound processing power. But these shortcomings are too small for
most users to notice. Some factors responsible for increased laptop demands are as follows:
1) Desire to possess the latest

atest technology: There is a growing desire among the people in
India to possess the latest gadgets. The workers do not want to work in an old
old-fashioned
office anymore. Similarly, many financial and marketing sector professionals also want to
change the wayy they work now.
2) Affordability:Laptop
Laptop is easily affordable to general consumers being available in different
size and price range.
3) Accessibility:The
The government has consciously dropped duties for both fully imported and
locally manufactured laptops, thus making it more accessible to the common man.

4) FavourableGovernment policies: The government now allows duty-free import of
notebooks andalso, focus on improving IT infrastructure like WAN, WiFi, which allows
linking up of mobile devices to the internet at any place.
5) Reduction in prices: On an average, the prices of entry-level notebook computers now range
between Rs 38,000 to a little over Rs 50,000, approximately, compared to Rs 75,000 to over
Rs 1 lakh that prevailed a few months back.
6) Growth of new professions: The growth of various new professions in IT, marketing, web
designing, advertising, etc., has led to the increase in the sale of laptops in India.
7) Lucrative market: With Europe and US markets reaching a saturation point, Asian
countries are expected to be the growth market for laptop sales.
For the success of the branding marketers tries to trace target market and to make proper positioning
of the product for that very target area. Laptop manufacturers are constantly looking for new ways to
differentiate themselves. A better understanding of the laptop consumer enhances a manufacturer’s
ability to properly segment and market the message to the right audience, increasing the likelihood
of purchase.
Objectives of the study

The primary objective of the present study is to access the awareness level of students about
different laptop brands and find out the popular brand. Secondary objectives for the present study are
as follows:1)To determine the laptop size and price range as preferred by students.2)To study the
students purchase criteria.
Scope of the study

A Sample size of 150 students were taken, from different colleges of Rohtak and Bahadurgarh city
.This sample consist of 55% (82 students) male and 45% (68 students) female. Out of total 150, 33%
(49 students) were from rural areas and 67 % (101 students) were from urban areas. Also 53% (80
students) were having a laptop and 47% (70 students) were not.In this study exploratory and
analytical research has been used.
Review of Literature
Managing Brand Equity(1991)The study reveals that the total value of a brand in a particular
product/ service category is mainly composed of three parts : Physical and readily identifiable (and
replicable) features of the brand, perceived intrinsic value associated with the brand and price/cost of
the product.Further, it shows that brand value has a direct link to customer loyalty. DELL: The Top
Laptop Brand In India (2006)The study reveals that Dell’s is going to strengthen itself in the niche
market by offering versatility of its products. The company used flexible marketing by providing the
facility to its customers to order laptops through its website. Customers can literally choose what
features they want and configure their own laptops.Utter,j.et al(2008)This study demonstrates that
using Wi-Fi enabled hand-held internet tablets is a feasible methodology for school-based surveys
especially when asking about sensitive information. In the last 20 years, researchers have been using
computer self-administered questionnaires to gather data on a wide range of adolescent health
related behaviours. A major advantage of computer-administered questionnaires is their potential to
improve the quality of self-reported data collection. Efaw, J. and Bailey, J. The main conclusion of
this Study was that learning style does have an influence on whether or not students choose to use
laptop computers in the classroom to take notes. The obvious difference between learners
demonstrated by this study was between the tactile learners and visual learners.The ergonomic
impact of student use of laptops in university settings(IRIS Publications) April 2007 There are a
number of ergonomic concerns with this proposal, which this research paper outlines. Laptops are
considered high risk for intensive use under the DSE Regulations 2002, not only because their
configuration often imposes postural strain and high visual load, but also because of the variety and
unpredictability of the environments of use. In addition, there are other factors for students, such as:
pressure to meet coursework deadlines; poor furniture in halls and teaching rooms; cultural factors
such as being away from home; and social issues such as the risk of being mugged in a city
campus.Rachel V. McClary (2006) Laptop vendors are constantly looking for new ways to
differentiate themselves. The commodization of this market precipitates a deeper view into what
drives a consumer purchase of one brand over another.Results support the premise that relationships
exist and that consumers are more likely to purchase one brand over another based on age, education
level, gender or technical competence. Vuojärvi, H This study reports how university students
domesticate their personal laptops at the beginning of studies on a wireless campus. The aim was to
examine how students integrate the laptop into their personal education experience, what sort of
processes were experienced to render the laptop useful and meaningful, and how gender and IT
proficiency influenced this process.Gulek, J.C. & Demirtas, H. The study presented here examined
the impact of participation in a laptop program on student achievement. A total of 259 middle school
students were followed via cohorts. Laptop students showed significantly higher achievement in
nearly all measures after one year in the program. Cross-sectional analyses in Year 2 and Year 3
concurred with the results from the Year 1. Longitudinal analysis also proved to be an independent
verificationof the substantial impact of laptop use on student learning outcomes.Maastricht
University Mobile and Laptop Survey 2010In April 2010, Maastricht University started a project
on Mobile Learning, in which several pilots will focus on how students and teachers can use their
mobile devices for teaching and learning. Teachers ask to use more flexible tools to enhance
interaction between students and the teacher during face to face activities.
Research Methodology
Research Design:
Following Methodological steps are followed for conducting the research:

1) Literature / Internet Survey: This study started with the literature survey via various journals,
magazines that helped to comprehend the various facts of the Laptop Industry. Also, internet
survey was conducted to understand the latest occurrences in the industry.
2) Design of Questionnaire: The questionnaire consisted of mainly closed-questions and only two
open-ended questions. This first section consisted questions with the sole purpose of gathering
personal details of the students regarding their names, educational stream, gender and residential
status. The second section consisted of ten questions, first question pertaining to 'top of the mind
awareness/ recall of laptop brand', 'brand of laptop presently being used', ' brand of laptop they
intend to purchase if they are not using one at present”
3) Design of sample survey:In this study, the target sample size was 150 students, in the age group
of 19 years and more, and was students of different management and engineering colleges from
Rohtak and Bahadur Garh city. Random sampling method was adopted in this study where
students were approached directly and requested to fill the questionnaire.
4) Data Collection Method: Primary data was collected by means of a structured questionnaire to
conduct the study and arrive at conclusions based on the findings.
5) Data Tabulation/Validation: After the data collection the data was tabulated in a SPSS
worksheet and then edited, coded and verified for validity. During the survey, 180 respondents
were interviewed from the target group, as mentioned earlier. Out of them, around 30 records
were discarded due to inconsistencies and incompleteness.
6) Determination of the Data Analysis Methods: In this study simple statistical technique has been
used. Percentage of respondents has been calculated in respect of most of the data collected.
Further, Chi-square test for independence was conducted to unearth possible dependency between
variables.
7) Interpretation of the Result: Finally the results that emerged from the study was analyzed and
interpreted and suitable conclusions were drawn from those results.
LIMITATION OF THE STUDY

Some limitations of the present study were as follows:
1. Sample Size:Sample size is limited to 150 respondents only which may not be representatives of
universe. A large sample could not be taken due to limited time.
2. Unwillingness and inability of the respondents to provide information:Especially question

regarding the demographical factors. Many persons were unable to answer accurately due to
ignorance of facts.
2. Time constraints: Time available at the disposal was not enough. Therefore it was not feasible to
go in depth and choose wider area.

3. Limitation regarding analysis: Due to limited resources and time, a deeper statistical analysis
like analysis of variance, rank correlation could not be carried out.
Testing of Hypothesis- The chi-square test for independence was conducted to determine the
statistical significance of hypothesis. Chi-square is based on the observed versus expected
frequencies when data is compared with a large value indicating that a statistically significant
relationship exists between two variables and the sig. value/p-value is less than 0.05.
Research question 1
Is there a relationship between the demographics of the students and the brand of laptop preferred?
H10 The brand of laptop preferred is independent of the gender of the students.
Table 1: Cross Tabulation for H10
Laptop Brands
Gender Total
Dell HP Compaq Sony Lenova Samsung Acer Others
Male 36 11 8 13 2 3 5 4 82
Female 22 13 6 8 2 4 5 8 68
Total 58 24 14 21 4 7 10 12 150
Table 2: Chi Square Test for H10
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 5.237a 7 .631
Likelihood Ratio 5.262 7 .628
Linear-by-Linear Association 2.481 1 .115
N of Valid Cases 150
H10, At 5% level of significance, the chi-square cut off is 14.067. The observed statistic (5.237)
falls in the acceptance region, which leads to the acceptance of H10. Also the p-value is .631, which
is more than 0.05, showing the acceptance of null hypothesis.
Research question 2

Does a relationship exist between the demographics of students and the size of notebook preferred
by them?
H20 The sizes of notebook as preferred by the students are independent to their residential
Status.
Laptop size prefered by students

Students Residential
Note book
Status
10" screen or Ultra portable Thin and Light 13"- Main Stream
less 11"-12" screen 14" screen 15"or more Total
Rural 10 9 18 12 49
Urban 6 21 49 25 101
Total 16 30 67 37 150
At 5% level of significance, the chi-square cut off is 7.8147. The observed statistic (7.597) is less
than the chi square cut off , which leads to the acceptance of H20. Also the p-value is .055, which is
more than 0.05, showing the acceptance of null hypothesis.
Research question 3
Does a relationship exist between the demographics of students and the laptop price range preferred?
H30 The laptop price ranges are independent to their residential status.

At 5% level of significance, the chi-square cut off is 7.8147. The observed statistic (8.745) is more
than the chi square cut off , which leads to the rejection of H30. Also the p-value is .033, which is
less than 0.05, showing the rejection of null hypothesis.
Laptop price range preferred by students

Residential Status
20000 and less 20000-30000 30000-40000 40000 above Total
Rural 8 14 22 5 49
Urban 6 28 39 28 101
Total 14 42 61 33 150
Research question 4
Does a relationship exist between the demographics of the students and the criteria of purchasing a
laptop?

H40 The criteria for purchasing a laptop are independent to the residential status of students.
Purchase criteria for laptop

Residential
Status Education Just for Show off
Purpose Entertainment Communication or Status Symbol Total
Rural 32 10 7 0 49
Urban 66 24 9 2 101
Total 98 34 16 2 150
Linear-by-Linear Association .013 1 .910
At 5% level of significance, the chi-square cut off is 7.8147. The observed statistic (2.028) is less
than the chi square cut off , which leads to the acceptance of H40. Also the p-value is .567, which is
more than 0.05, showing the acceptance of null hypothesis.
Findings of the Study

The findings of the study were as follows:
1) Out of total 150 students,39% were preferring Dell and 16% were preferring HP.According
to their gender total 44% Male and 32% Female preferred Dell and rest percentage were
shared by other brands.According to students residential status total 47% from rural areas
preferred Dell and 35% from urban areas preferred dell ,rest were shared by other
brands.Thus the result shows most of the students were preferred Dell.

2) According to the size of laptop , 11% preferred Note Book 10” Screen or less, 20 %
preferred Ultra-Portable 11”-12” Screen, 45% preferred thin and Light; 13”-14”Screen and
24% preferred Mainstream;15”-more.This study shows that 13”-14” Screen Size is popular
among students.
3) In case of Price Range,9% preferred 20,000 and less,28% preferred 20,000-30,000,41%

preferred 30,000-40,000 and rest 22 % preferred 40,000 and above price. The above data
shows that from student’s point of view laptop price should be in between 30000 to 40000.
4) So far as purchase criteria is concerned 65% considered education purpose for their purchase
criteria, 23% considered entertainment,11 % considered communication and 1% considered
just for show off as their purchase criteria. Therefore along with educational applications
entertainment and communication should be there.
Suggestions
Students faced various problems while using laptop like Internet Speed(2G), Battery Backup,
window installation,Software,Volume Scaling,Virus,Heavy to carry, costly and it get hot in very
short time, after sale service, High maintenance and repairing cost etc.Students recommended
various features to improve laptop quality like water proof, Laptop having Insurance coverage,
Inbuilt Graphic Card,Good Looks, Long Battery Life, Use of renewal solar energy to increase
battery life, Fully secured system from VIRUS and hacking anti threats, Software compatibility
according to invention of a new processor, Small size, Good quality graphics card to handle heavy
duty software’s, Running without need of Battery charging,Improve Sound System, Connectivity
and security system, Make it more portable, Light Weight, More Plugs better Wi-Fi, Stylish and
stronger body etc.
Conclusion
The entire study shows that Laptop usage is very much popular in between the students whether their
residential status is urban and rural. It’s the present day demand to run hand with the latest
technology. This technology not only simplify students task but it also seem to morale boost up of
the students. Students found themselves connected with the entire world with the help of Laptops
and by mean of this they can contribute a lot for the nation.
Scope for further Research

Due to various limitations like limited sample size, time shortage etc. the study being carried out
only in two cities of Haryana state. Further research can be carried out at large scale to know about
student perception level across the geographical boundaries.

References:
1) Kotler, P. (2003), Marketing Management.11th Ed. New Delhi: Prentice Hall of India Pvt. Ltd.
2) Shah, A. and Dalal, A.(2009), The Global Laptop Industry :Industry Overview and Analysis.
3) Kothari, C.R.(1985)Research Methodology.2nd Ed. Delhi: New International(P)Ltd. PP.1-10.
4) MalhotraNareshK(2000),Marketing Research,(4th Edition),Pearson Education.
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brand local and nonlocal origin on consumer attitudes in developing countries. Journal of
Consumer Psychology, 9(2), 83-95.
6) Carr, S. D. (1996). The cult of brand personality. Marketing News, 30(10), 4-9.
7) Einhorn, H. J., & Hogarth M. R. (1981). Behavioral Decision Theory: Processes of JudgEment and
Choice. Annual Review of Psychology, 32, 53-58.
8) Freling T. H., & Forbes, L. P. (2005). An empirical analysis of the brand personality effect. Journal
of Product & Brand Management, 14(7), 404-413.
9) Hill, R. P. (1988). The effects of advertisements on consumers‘ mood states: an interactive
perspective. Advances in Consumer research, 15,PP 131-134.
10) Utter, j. et al (2008).Hand-held internet tablets for school-based data collection. BMC Research
Notes 2008, vol 1, 3.details of which can be found on
http://http://www.biomedcentral.com/1756-0500/1/52.
11) Chompu-inwai, R. and Doolen, L.(2006) A Methodology for Studying the Impact of Laptops in
Engineering Classrooms.36th ASEE/IEEE Frontiers in Education Conference, San Diego, CA.
12) Gulek, J.C. & Demirtas, H. Learning with Technology: The Impact of Laptop Use on Student
Achievement. The Journal of Technology, Learning, and Assessment, Vol 3, Number 2, January
2005.
14) Vuojärvi, H.(2010) Domestication of a laptop on a wireless university campus: A case study.
Australasian Journal of Educational Technology 2010, 26(2), 250-267.
Websites
1) http://www.gse.uci.edu/person/warchauer-m/docs/laptops-jcer.pdf
2) http://www.cmu.edu/news/archive/2006/november/nov.-20-laptop-study.shtml
3) http://www.laptop advisor.com>product comparison
4) http://www.buzzle.com/articles/best-laptop-for-college-students.html[last updates 8/25/2011]
5) etopmost.com/best-laptops-for-students

HUMAN RESOURCE (HR) CHALLENGES FOR THE
INFORMATION TECHNOLOGY (IT) INDUSTRY IN INDIA
Rakesh Yadav
PhD Scholar
Tata Institute of Social Science
Mumbai, India and visiting Faculty, Business school,
VIT University, Vellore, India
Abstract
Manuscript Type: Conceptual

Research Question/Issue: This paper analyses the challenges Human resource practices in Information technology
industry of India.
Research Findings/Insights: The focus of HR Practitioners should not be only on to attract, motivate and retain key
'knowledge workers. But HR practitioners must also play a proactive role in IT industry. Profitability and sustainability
of company in long run can’t be ensured without focusing on HR Management practices
Theoretical/Academic Implications: This paper adds to the conceptual literature of on the challenges for the HR
policies. An implication of this study is the HR policies of the IT companies are not appropriate to deal with the future
challenges IT sector in India.
Practitioners/Policy Implications: This conceptual paper demonstrates that HR policies of the companies are
inefficient in managing the key success HR factor for IT sector. This study offers insight into the practices with respect
to the HR policies of the IT Industry in India.
Key words: Human resource, information technology, India.
Introduction
The Indian software industry attracted such global interest with the Y2K computer crisis or the
millennium bug in 2000. Organizations worldwide needed computer remediation and Indian
software engineers were able to provide superior technical services worldwide (Meredith, 2008).
Indian software professionals worked closely with several multinational companies (MNCs) on Y2K
projects and created high visibility and established incredible credibility for the entire software
industry. The quality of work that Indian employees delivered was rated very high and the software
industry was identified as one of the best in the world today (Friedman, 2005). India has become an
attractive destination for MNCs for several reasons. First, the government’s trade liberalization
policy in 1991 was the first major step in this globalization process (Meredith, 2008; Manikutty,
2000). Second, the country has a very well-educated English-speaking work force that can
communicate easily with other English-speaking cultures. The British left an undeniable legacy of an
English-speaking school curriculum after their colonial rule (Vijayraghavan, 2008; Khanna et al.,
2005). Third, the country’s work force is commended for its high-work ethic-demonstrating a
willingness to work 12-hour days for six days a week (Zakaria, 2006). Fourth, professional labor
costs are much lower in India, almost 25 percent lower than that in the USA (Gordon, 2002). Global
consultants, McKinsey, identified that if a MNC of 1,000 employees shifted its operations to India,
the organization would save $18 million in labor costs (Budhwar et al., 2006). The US companies
such as Dell and Microsoft are doubling their work force in India bringing increased attention to
staffing practices (Frauenheim, 2006). The software industry’s phenomenal growth has brought
several human resource management (HRM) challenges right from elaborate staffing to high attrition
(Friedmann et al., 2008; Grossman, 2006).
HRM challenges of the Indian software industry However, this unprecedented growth of the
software industry has brought several HRM challenges (Friedmann et al., 2008). First, the number of
employees working in the software industry increased from 242,000 in 2002 to 697,000 in 2004 –
almost threefold-making staffing a very time-consuming process (Murthy and Abeysekera, 2007;
Grossman, 2006). The sheer magnitude and size of recruitment at the entry-level positions is
stupendous and on an average annually large companies recruit about 10,000 entry-level engineers
(Schlosser, 2006). Entry-level applicants are subjected to several tests (such as logical, analytical,
and communication skills) and interviews before the final applicants are chosen (Grossman, 2006;
Schlosser, 2006). HRM leaders spend an enormous time on staffing – almost about 80 percent of
their time on recruitment and selection (Grossman, 2006). Second, as the knowledge, skills and
abilities (KSAs) of this dynamic industry are constantly changing, predicting the skills “even two
quarters away” seems quite a big challenge (Company D). Organizations rely online managers’
judgmental techniques to predict future staffing requirements (Companies D and E). Third, scholars
suggest (Nancherla, 2008; Agrawal and Rao, 2002) entry-level employees need intense training or a
“finishing school” touch to integrate and transition into the corporate. Usually, organizations offer
about 12 weeks of training where work-related skills are offered. The Indian educational system also
does not sufficiently prepare its graduates for business skills which therefore organizations provide
like a “surrogate educational” system (Wadhwa, 2008; Nancherla, 2008).
Fourth, there seems to be a perennial shortage of employees and job hopping is very common.
Potential applicants usually have two to three job offers and spend considerable time deciding which
offer they should accept. Organizations are never certain about applicants’ acceptance of any job
offer until the applicants report to work (Grossman, 2006; Agrawal and Thite, 2003). The job
attrition rate is around 15-20 percent, which further gets amplified at the lower and mid-management
level (Friedmann et al., 2008). Fifth, Indian employees are very brand-conscious and prefer to work
for organizations that are well-known. This can be attributed to the assertive national cultural
dimension that dictates a very status-oriented society. Indian employees prefer to work for software
companies that are identified as the employers of choice (Chokkar, 2007; Brandel, 2006; Agrawal
and Thite, 2003). Therefore, employer branding becomes an integral part of the recruitment strategy
(Grossman, 2006). Finally, recruiting for mid-level and senior and managers is quite a challenge for
both domestic and multinational software companies. Software engineers with over three years of
experience usually accept more lucrative offers overseas. Further, software professionals have
demonstrated a reluctance to pursue supervisory positions and prefer technical positions congruent
with their engineering background. The shortage of leaders has prompted organizations to promote
high-performing junior employees to leadership positions, albeit they might not be the best
candidates (Agrawal and Thite, 2006, 2003).
Agrawal and Thite (2006) in a study of 117 software leadership participants identified several
challenges experienced by software leaders such as managing global teams, working on very tight
delivery schedules, having work-life balance issues, experiencing communication problems with
overseas peers, and accumulating knowledge at a very fast pace. These additional demands could
also contribute to the reluctance of employees in pursuing leadership positions. To hire senior talent
to work in India, US MNCs usually recruit Indians living in the USA or Europe and offer them
lucrative compensation packages. Meredith (2008) refers to such overseas talent as “sea turtles” –
animals that are known to usually find their birthing place – and a very attractive recruiting option
for MNCs. MNCs lure such senior-level employees with attractive compensation packages of about
$200,000 or 250,000 (Frauenheim, 2006).
The information technology (IT) industry is a dynamic and people-based organization where the role
of HR management is very crucial and different. It is a job creating industry. Schuler and Macmillian
(1986) listed human resource planning, staffing, appraising, compensating, training and development
and union management relationships as key HRM practices, which if carried out successfully help in
achieving competitive advantage.According to the market researcher Data Monitor, the size of the
worldwide software industry in 2008 was USD 303.8 billion, and in 2013, the global software
market will have a value of USD 457 billion. It employs millions of professionals worldwide. The
IDC- Nasscom Strategic Review 2010 says that with USD 47 billion of the USD 94 billion global
sourcing revenue, India holds the majority share of the global market in technology (IT, ER and D)
and business process outsourcing. India has improved its share 49 per cent in 2005 to 51 per cent in
2009 and now has a 62 percent share of the global business process outsourcing market. India has
managed to retain a majority share even with the emergence of multiple new low-cost locations. The
Indian IT –ITeS industry employed around 1.8 mn employees in 2010.
Being a knowledge-based industry, high intellectual capital lends competitive advantage to a firm.
Intellectual Capital is the value of a company or organization's employee knowledge, business
training and any proprietary information that may provide the company with a competitive
advantage. Intellectual capital is considered an asset, and can broadly be defined as the collection of
all informational resources a company has at its disposal that can be used to drive profits, gain new
customers, create new products, or otherwise improve the business. Some of the subsets of
intellectual capital include human capital, information capital, brand awareness and instructional
capital. The IT boom has brought with it, its own set of challenges to organizations like how to put
in place systems and processes that are in tune with the IT revolution, how to compete in the IT era
etc. But a major challenge that the IT industry has been facing is in the field of Human Resource
Management.
Lawler and Ledford (1992) pointed about the advantage of skill based HRM approach which leads
the organisation to perform better and results in creating core competencies which is an important
key to competitive success. Similarly Swierez and Spencer (1992) studies have showed the
contribution of effective human resource system in the creation of sustainable competitive
advantage. Martinez (1997) explained that successful business leaders must also analyze how
economic and societal changes will affect their businesses now and in the future. The IT industry is a
service industry. How well you are able to offer quality service to individuals and organizations will
determine the success of your organization This leads us to the fact that the creativity,
innovativeness, knowledge and skills of your employees are your important assets .Effective
management of these assets is the challenge that the IT industry is facing. It is not capital or finance
or marketing management that gives it the competitive edge but rather how well you are able to
manage your human resources whose intellectual expertise drive your business. With a global
explosion in market-opportunities in the IT sector, the shortage of manpower both in numbers and
skills is a prime challenge for HR professionals. Some of the HR challenges that the IT industry
faces are in Recruitment of world-class workforce and its retention, Compensation management,
Training and Development, Employee Turnover, Technological obsolescence and HRM as a whole.
Recruitment has become an important sub system in HR especially in the IT industry. When Human
Resources are your major asset, it is important that quality people join your organization. How you
are able to fine tune your recruitment process in a manner that you are able to get the best talent
available and how well you have been able to put various systems in place so that the people that
you recruit are a perfect fit for the job and the organization are the major challenges.
The challenge does not stop with recruiting the right persons but extends to the performance
management of your employees. The challenge would be to create a performance culture wherein
opportunities are provided for enhanced performance and where giving out optimum performance
becomes a way of life.
Training and Development is another area where challenges arise. Training and development is a
key focus area in the IT industry training. In the IT industry training takes a new connotation. It is
just identifying training needs and giving the required training, but also foreseeing and anticipating
the requirements and develop suitable training so that the employees are well equipped to handle the
challenges beforehand.
Attrition, Retention and Motivation
Lawler and Ledford (1992) pointed about the advantage of skill based HRM approach which leads
the organisation to perform better and results in creating core competencies which is an important
key to competitive success. Similarly Swierez and Spencer (1992) studies have showed the
contribution of effective human resource system in the creation of sustainable competitive
advantage. Martinez (1997) explained that successful business leaders must also analyze how
economic and societal changes will affect their businesses now and in the future. Broderick (2005)
described that in the past, human resources departments were often considered the poor relations of a
business, the last to be hired and, more often than not, the first to be cut loose during downtimes.
Attrition, Retention and motivation of personnel are major HR concerns today. Managing attrition
has always been a key challenge for all IT companies. Post-recession, the attrition rate in the IT
industry has bounced back and it is the major challenge that many MNCs are currently faced with.
Rising attrition levels
Q1 -2010 Q1-2009
TCS 13.1% 11%
Infosys 15.8% 11.1%
Wipro 15.8% 9.8%
HCL 15.7% 13%
In October 2010, the all-India attrition rate in the IT industry was up 10 percent from 5-6 percent in
2009.
. Brewster and Larsen (1992) defined the concept of development as "the degree to which HRM
practices involve and give responsibility to line managers rather than personnel specialists". So in
new scenario the scope of HRM is extended from HR professional to each line managers. There are
different causes of high attrition rates such as compensation levels, cultural mismatch, computer
vision syndrome, stress, lack of role models in workplace etc. The Gartner Group specializing in the
management of human capital in IT organizations has observed that the average tenure for an IT
professional is less than three years. Further, the use of new technologies, treating employees as
customers, the support of learning and training, and a challenging environment ranked higher than
competitive pay structures as effective retention practices. A survey of 1028 software professionals
from 14 Indian software companies, showed that while the professional gave importance to personal
and cultural job-fit, HR managers believed that the key to retention was salary and career
satisfaction. Money was a prime motivator for 'starters', but for those into their third or fourth jobs,
their value-addition to the organization was more important. Monetarily, offering 'the best
compensation in industry' is the minimum every company is doing, apart from performance-based
bonuses, long-service awards, and stock options. Many organizations frequently conduct employee
satisfaction and organization climate surveys, and are setting up Manpower Allocation Cells (MAC)
to assign 'the right project to the right person'. In fact, some are even helping employees with their
personal and domestic responsibilities to satisfy & motivate their workforce. Weier (2007) indicates
that 20 percent of Cisco’s top Indian talent will move from USA to India by 2010 to take-up senior-
level positions in India. Similarly, in 2003-2004 approximately 10,000-40,000 overseas Indians
returned from the USA to their homeland in search of better opportunities and also to satisfy the
“sea-turtle syndrome” (Meredith, 2008; Takeuchi and Nomura, 2008). The software industry seeks
applicants with specific competencies such as innovativeness, team-building (both domestic and
global), and quick problem-solving skills. Further the industry has distinct characteristics such as
high attrition, intense domestic and global competition, and a very project-based recruitment
approach. Thus, staffing (recruitment and selection) has become a very critical function and
domestic HRM leaders are constantly seeking different practices to attract, recruit, and retain so as to
have the sustainable competitive advantage (Ghosh and Geetika, 2007)
Attracting the Best Talent
Metzler (1998) studied the changing business environment in 1990’s and the current risk scenario for
HR professionals. According to her, human resource professionals are at risk: their future includes
dramatically different possibilities – extinction, or a dynamic, critical role in their companies'
success, assisting corporate leaders in navigating the uncharted waters of the new business reality.
Turner (2006)2 examined the context of the role, the needs and opportunities arising from this
context and the challenges of becoming a business partners, which are grouped into business
challenges like global competition, advances in technology; organizational challenges like alignment
of mission, vision, strategy, structure, systems and values; people challenges like attracting,
selecting, assessing, appreciating, motivating, challenging, developing, promoting, listening to,
supporting, measuring and rewarding. This approach is vital in making sound strategic business
decisions.
Qualitative people with embedded interests are the key to success for in IT companies. In a job
market, many organizations often experience precipitous and simultaneous demands for the same
kinds of professionals. In their quest for manpower, they are cajoling talent around the world. In
such a seller's market, software companies are striving to understand which organizational, job, and
reward factors contribute to attracting the best talent, having the right blend of technical and person-
bound skills. This would mean a knowledge of 'the tools of the trade' combined with
conceptualization and communication skills, capacity for analytical and logical thinking, leadership
and team building, creativity and innovation. The Indian software industry suffers from a shortage of
experienced people such as systems analysts and project managers, and attracting them is a key HR
challenge. The IT sector, whose growth had dived to single digits in 2008, is back on its feet now.
Both the IT and ITES sector are witnessing strong hiring trends.
Compensation and Rewards
Nelson (2006)3 explained the competencies required for HR, the ability to maximize results in the
competitive environment. He focused on the competencies HR professionals need to have to be
effective. Shahnawaz and Juyal (2006) described the different management practices followed in the
industry and the challenges encountered during organizational commitment issues.
Kuruvilla(2010),argued rapid growth of the outsourcing industry has resulted in both high turnover
and labour shortages and at the same time provided employment opportunities to a new group of
employees: young upwardly mobile college graduates. Further argued that this particular
demographic profile is prone to high turnover and presents new managerial challenges, and
examined the variety of recruitment and retention strategies that companies in the business process
outsourcing industry , economies within the next three decades (Meredith, 2008; Zakaria, 2006). The
success of the Indian software industry is very instrumental for the global attention the country is
receiving today (Meredith, 2008; Friedman, 2005). The focus of the software industry is to provide
solutions to their customers worldwide. The industry is predicted to bring around $110 billion worth
of business by 2010 (Murthy and Abeysekera, 2007; Babu, 2006).
Compensation Management is very important factor in human resource management. Increasing

demands of technology coupled with a short supply of professionals (with the requisite expertise)
has increased the costs of delivering the technology. This makes incentive compensation a
significant feature, with the result that software companies have moved from conventional pay-for-
time methods to a combination of pay-for-knowledge and pay-for-performance plans. With the
determinants of pay being profit, performance and value-addition, emphasis is now on profit sharing
(employee stock option plans) or performance-based pay, keeping in view the long-term
organizational objectives rather than short-term production-based bonuses. Skills, competencies, and
commitment supersede loyalty, hard work and length of service. This pressurizes HR teams to devise
optimized compensation packages, although compensation is not the motivator in this industry.
The median annual compensation paid to various IT professionals in India was as follows:
Sr.Software Rs.526,935
engineer/Developer/Programmer(13167
Software engineer(5961) Rs.325,521
ProjectManager,Information Rs1,016,887
Technology(IT0(4953)
Software Developer (2689) Rs.304,356
Test/Quality Assurance(QA)Engineer Rs.302,563
(Computer software)(2501)
Information Technology(IT)(2260) Rs.596,555
Cur:INR/Updated :9 Feb11/Ind.Reporting:196,210
Source: Pay scale Inc.@www.Payscale.com
Encouraging Quality and Customer focus
In the era of globalization and rapid technological changes, quality is of utmost importance for the
Indian companies, which earn most of their revenues through exports. Quality improvements in IT
delivery and service support can be achieved by introducing such considerations as user satisfaction,
integration and flexibility early on in the decision process and reinforcing them throughout the
review process. Hence, the HR professional as a strategic partner needs to encourage a culture of
superior quality to ensure customer satisfaction. To be competitive today, an organization needs to
be customer responsive. Responsiveness includes innovation, quick decision-making, leading an
industry in price or value, and effectively linking with suppliers and vendors to build a value chain
for customers. Employee attitudes correlate highly with customer attitude. The shift to a customer
focus redirects attention from the firm to the value chain in which it is embedded. HR practices
within a firm should consequently be extended to suppliers and customers outside the firm.
Up-gradation of Skills through Re-training
Rapid and unpredictable technological changes and the increased emphasis on quality of services are
compelling software businesses to recruit adaptable and competent employees. Software
professionals themselves expect their employers provide them with all the training they may need in
order to perform not only in their current projects, but also in related ones that they may
subsequently hold within the organization. As observed by Watts Humphrey, Fellow of the Carnegie
Mellon University, "as software professionals gain competence, they do not necessarily gain
motivation. This is because a creative engineer or scientist who has learned how to accomplish
something has little interest in doing it again. Once they have satisfied their curiosity, they may
abruptly lose interest and seek an immediate change". And when the rate of technological change is
high, higher is the time required to acquire competence in one area. Professionals could undergo
psychological turbulence owing to the need to work in a new technology throughout their career.
They want to gain new knowledge, which will be utilized by their organization. On the basis of the
new learning they want to work in higher segments of software value chain. Therefore, constant up-
gradation of employee skills poses yet another challenge for HR personnel. Recently, TCS
announced a Rs.1000 crore project to put up a training center of over 15,000 capacity in Kerala
while Infosys has plans to further enlarge its learning centre in Mysore.
Conclusion
The focus should not be only on to attract, motivate and retain key 'knowledge workers', but also on
how to reinvent careers when the loyalty of the employees is to their 'brain ware' rather than to the
organization. With lifetime employment in one company not on the agenda of most employees, jobs
will become short term. Today's high-tech employees desire a continuous up-gradation of skills, and
want work to be exciting and entertaining a trend that requires designing work systems that fulfill
such expectations. As employees gain greater expertise and control over their careers, they would
reinvest their gain back into their work.
HR practitioners must also play a proactive role in IT industry. Profitability and sustainability of co.
in long run can’t be ensured without focusing on HR Management practices. Having a market
approach to managing people is an attempt to transform HR from a maintenance job to a strategic
partner in business.
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A STUDY OF FEMALE BUYING BEHAVIOUR OF HERBAL
SKIN CARE COSMETICS IN RURAL & URBAN CONSUMERS
FROM BHOPAL, M.P, INDIA
Geetanjali Bonde
Research Scholar,
Jaipur National University
geetubonde@gmail.com
Abstract
The study was undertaken with 100 female respondents show that urban females are more
interested in cosmetics and taking care of their beauty. Affordability factor does not have a
significant effect on herbal cosmetics purchase made by both Urban and Rural females. Natural products
and the Brand have a significant effect on purchase with respect to age of the female buyers.
Segmentation (both Urban and Rural) and Age has a significant effect on herbal products purchase with
respect to the Annual Income of the female buyers.
Key Words: Herbal cosmetics, buying behaviour, Brand and Affordability.
Introduction
Every day, when new things come out from industry it seems that fashion trends are making a U-
turn. Several decades before, people seemed unwilling to place same importance on natural
products than in synthetics and chemicals. Nowadays, synthetic and unnatural products are
giving out their stance to natural products. The safety and security of the products are valued more
and more by people. Natural elements have added style and grace to the look of human through
safer and healthier care for the skin. Furthermore, the effects last for a long period of time.
Allergies are not their worry. The increase in demand has urged the scrupulous
manufacturers to produce more. Maybe the producing process is costly but the value is vital for the
skin and beauty. Natural cosmetics keep you beautiful and healthy. A study was performed by Isa
Kokoi from DP International Business which aimed at examining the buying behaviour patterns of
Finnish women related to facial skin care products in made in cooperation with a Finnish
cosmetics company Lumene Oy. The aim is to compare the similarities and differences in the
buying behaviour between young (aged 20 to 35) and middle-aged (aged 40 to 60) Finnish women.
The study focused on the factors that affect the buying decisions of female consumers. Shahina
Pervin, Southampton Business School, Southampton Solent Univ., UK, attempts to explain how consumer
behaviour is influenced by cultural factors in Bangladesh.
It is conceptual in nature and attempts to uncover the key facets of culture involved in shaping
decisions on cosmetics purchase by female consumers in the Bangladeshi cross-cultural environment.
This study aims in finding the female buying behavior related to herbal skin care cosmetics and
the factors that drive their purchasing decision.
Origin of the Problem
Now-a-days, commercial cosmetics are easily available in the market. There are several reasons
behind it. The first and the foremost point is the effortless accessibility of chemical ingredients.
Another important point is the lowest price of these chemicals than ayurvedic herbs.
According to ayurvedic formulas all beauty care and health care products must be made with
natural ingredients like plants, herbs which need to be cultivated in proper ways. This process
includes time and efforts. But in case of making chemical based products no such complex and
lengthy procedures are required. We call it resource (man, machine, money, minute) saving process.
Do we really think about the harmful effects of the chemical products while buying them? Are we
conscious about how much of these substances like Sodium laurels sulfate, petroleum stuffs,
propylene glycol or benzene, additives, artificial colors, Quaternium-15 etc. can affect our body or
skin.
Objectives of the Study
* To study the factors which influence the buying attitude of females towards Herbal facial skin
care cosmetics.
* To compare the inclination of females to look beautiful from Rural and Urban areas.
Hypothesis
I.Urban females are more interested in cosmetics and taking care of their beauty.
II Affordability factor has a significant effect on herbal cosmetics purchase made by

both Urban and Rural females.
III. Natural products and the Brand do not have a significant effect on purchase with
respect to age of the female buyers.
IV. Segmentation (both Urban and Rural) and Age has a significant effect on
herbal products purchase with respect to the Annual Income of the female
buyers.
Sampling
Stratified Random sampling is used in this study and data is collected from the following:
1. Youngster Females (10 - 19yrs)

2. Adults Female (20 - 34 yrs)
3. Middle Aged Females (35 - 49 yrs)
According to the population census survey of Bhopal in the year 2001, the calculated sample size
comes to be 19 females from rural areas and 81 females from urban areas. 19 females from rural areas
were again grouped into 7, 6 and 6 for youngster, adults and middle aged females
respectively and urban females were grouped as 27 each from youngster, adults and middle aged.
Data Collection -
Primary Source:
a) Electronic Questionnaires Secondary Source:
a) Internet b) Published - Electronic / Printed
Period of Study - Actual survey was undertaken in the month of May & June,
2012.
Tools used
1. SPSS software is used to perform one way ANOVA.
2. SPSS descriptive statistics.
Limitations of the study
1. The study is proposed to be limited to only rural and urban areas of Bhopal, Madhya
Pradesh.
ii. Sample of only 100 is taken from a total of 870861 females.
Data Analysis & Interpretation
I.First Hypothesis
“Urban females are more interested in cosmetics and taking care of their beauty”.
Table 1(a) and 1(b) show that urban females are very interested in cosmetics and
taking care of beauty as it accounts for 60.5% share while rural females make only 36.8%. It is also
found that a share of urban females spending over 10 minutes on an
average time on daily skin care routines is 29% while that of rural females is mere
0%. Table 2(a) and 2(b) reflects that frequency of use of special herbal skin care treatment products
is highest of 50.6% which is once a week usage for urban females whereas, it accounts for 0% in rural
females. It clearly indicates that null hypothesis is accepted in this case as “Urban females are more
interested in cosmetics and taking care of their beauty”.
II.Second Hypothesis
“Affordability factor has a significant effect on herbal cosmetics purchase made by both Urban
and Rural females.” Table 3 shows that affordability does not have a significant effect on purchase
of the herbal facial skin care cosmetics for the urban and rural female buyers with p > 0.05, i.e., F =
0.233. Therefore, we reject null hypothesis and accept the alternate hypothesis which is
“Affordability factor does not have a significant effect on herbal cosmetics purchase made by both
Urban and Rural females.”
III.Third Hypothesis
“Natural products and the Brand do not have a significant effect on purchase with respect to age of
the female buyers.”
Table 4(a) shows that brand has a significant effect on purchase of the herbal facial
skin care cosmetics for the urban and rural female buyers with p < 0.05, i.e., F = 12.424. Also Table
4(b) shows that Naturalness of the product has significant effect on purchase of the herbal facial skin
care cosmetics for the urban and rural female buyers with p < 0.05, i.e., F = 10.960. Therefore, we
reject null hypothesis and accept the alternate hypothesis which is “Natural products and the Brand
has a significant effect on purchase with respect to age of the female buyers.”
IV.Fourth Hypothesis
“Segmentation (both Urban and Rural) and Age has a significant effect on herbal products
purchase with respect to the Annual Income of the female buyers”. Table 5 shows that fragmentation
has a significant effect on purchase of the herbal facial skin care cosmetics with p < 0.05, i.e., F
= 25.064. Age factor also has a significant on purchase of the herbal facial skin care cosmetics with
p < 0.05, i.e., F = 7.529. Therefore we accept the null hypothesis which is “Segmentation (both
Urban and Rural) and Age has a significant effect on herbal products purchase with respect to the
Annual Income of the female buyers”.
Findings
1. Annual Income of the buyers, Packaging of herbal products and Previous age experience
factors highly influence the female buying behaviour which varies within the segmentation of urban
and rural zones of Bhopal, Madhya Pradesh.
2. Not even a single female from the urban and rural areas of Bhopal fall in the category of being
not at all interested in cosmetics and taking care of beauty.
3. 68.4% of rural females use some special facial skin care treatment products less often
than once a month. While in case of urban females it accounts for only 8.6%.
Conclusion –
The study undertaken indicates that urban females are more interested in cosmetics and
taking care of their beauty. Affordability factor does not have a significant effect on
herbal cosmetics purchase made by both Urban and Rural females. Natural products and
the Brand have a significant effect on purchase with respect to age of the female buyers.
Segmentation (both Urban and Rural) and Age has a significant effect on herbal
products purchase with respect to the Annual Income of the female buyers.
Scope for further research
1. Since this study is mainly concentrated at Bhopal city the factors under study may vary
among different cities.
2. The study had its main focus on the female buying behaviour of the herbal facial skin
care cosmetics in general. Buying behaviour towards specific herbal facial skin care
brands were could be studied.
References:
1. Dr. Hamza Salim Khraim ,The Influence of Brand Loyalty on Cosmetics Buying Behavior of UAE
Female Consumers, International Journal of Marketing Studies, Vol. 3, No. 2, May 2011.
TABLES:
1(a) RURAL
How interested are you in cosmetics and taking care of your beauty?
Cumulative
Frequency Percent Valid Percent
Percent
Valid Very interested 7 36.8 36.8 36.8
Fairly interested 6 31.6 31.6 68.4
Somewhat interested 6 31.6 31.6 100.0
Total 19 100.0 100.0
1(b) URBAN
How interested are you in cosmetics and taking care of your beauty?
Frequency Percent Valid Percent Cumulative Percent

Valid Very interested 49 49.0 60.5 60.5
Fairly interested 25 25.0 30.9 91.4

Somewhat interested 7 7.0 8.6 100.0
Total 81 81.0 100.0
Missing System 19 19.0
Total 100 100.0
2(a) RURAL
How often do you use some special facial skin care treatment product?
Frequency Percent Valid Percent Cumulative Percent
Valid Few times a month 6 31.6 31.6 31.6
Less often than once a month 13 68.4 68.4 100.0
Total 19 100.0 100.0
(b) URBAN
How often do you use some special facial skin care treatment product?
Cumulative
Frequency Percent Valid Percent Percent
Valid Several times a week 20 20.0 24.7 24.7
Once a week 41 41.0 50.6 75.3
Few times a month 13 13.0 16.0 91.4
Less often than once a month 7 7.0 8.6 100.0
Total 81 81.0 100.0
Missing System 19 19.0
Total 100 100.0
3. ANOVA
F Sig.
AGE Between Groups .062 .803
ANNUAL INCOME Between Groups 20.646 .000
BRAND Between Groups 1.761 .188
PACKAGING Between Groups 6.019 .016
AFFORDABILITY Between Groups .233 .631
NATURALNESS Between Groups 2.041 .156
PROMISED EFFECTS Between Groups . .
CONSISTENCY OF PRODUCT Between Groups 3.547 .063
SUITABILITY TO SKIN Between Groups . .
QUALITY Between Groups 2.041 .156
PREVIOUS USAGE EXPERIENCE Between Groups 27.268 .000
FRIENDS RECOMMENDATIONS Between Groups 1.334 .251
NEW PRODUCT Between Groups .773 .381
SALES PERSON RECOMMENDATION Between Groups .268 .606
ORGANIZATIONAL CULTURE OF SECONDARY
SCHOOLS – AN ANALYSIS
Dr.Purna Prabhakar Nandamuri
Associate Professor, ITM Business School,
Hunter Road, WARANGAL-506001, Andhra Pradesh, India.
purnapnandamuri@yahoo.com; prabhakarn@itm.edu;
&
Dr.K.V.Rao.
Senior Professor and Vice Chancellor (I/C) of Acharya Nagarjuna University,
Nagarjuna Nagar, Guntur-522510, Andhra Pradesh, India.
kodativrao@yahoo.com.
Abstract
It is widely believed that the effectiveness of a school is the specific function of its organizational culture.
The objective of this article is to study the prevailing organizational culture among the secondary schools.
A sample of 188 secondary schools – about 34% of the population in Krishna district of Andhra Pradesh
in India, was selected through stratified sampling technique. The findings identified that around half of the
public sector schools having positive culture despite sober efforts by the administration. A good majority
of the private managements are successful in developing positive culture among their schools.
Keywords: School organizational culture, School based management, School leadership, Distinct identity,
Organizational behavior.
Introduction
A student during his school life up to higher secondary level spends 25,000 hours in the school
campus. His/her life is, more influenced by the institution’s environment. The extent of success they
attain within those institutions is inextricably linked with the extent to which they perceive that their
presence is valued by the institution they attend. Recently, educationalists are focusing on the
organizational culture of schools to comprehend its impact on performance. Peters and Waterman
(1982) observed that an organization’s success could be attributed to its culture and drew a lot of
attention to the importance of culture to achieving high levels of effectiveness. Culture is a result of
sustained interactions among people in organizations and exists commonly in thoughts, feelings, and
behaviour. The effectiveness of the chosen approach to organizational culture and strategy at any
given time is dependent upon contextual factors relating to both the internal and the external
environment (Bate, 1994). Thus, context determines whether a culture needs to be maintained or
changed.
Schools possess an organizational culture and the dynamism of this culture varies from one school to
another. It is the principal’s responsibility to uphold and develop the school’s culture in a given
direction through their actions and deeds as well as management style. Peters and Austin (1985)
noted that outstanding principals were ‘visionaries, masterly users of symbols and act like super
salesmen’. As Deal and Peterson (1999) observed, ‘parents, teachers, principals, and students have
always sensed something special, yet undefined, about their schools - something extremely powerful
but difficult to describe.’ This ‘something’ has been defined by the researchers as ‘school culture.’
Patrick (2008) says that school culture do not form in a vacuum but rather is developed and nurtured
within a framework imposed by the institution’s sense of purpose or mission, rituals and traditions,
size, and internal structures. Denison (1984) concludes that if an organization possessed a ‘strong’
culture, then it will perform at a higher level of productivity.
In an American study, the influence of school as an important factor of student’s success was cited
by 51% of boys and 33% of girls who had dropped out of school. It has been observed that students
perform best in schools with a ‘participatory’ climate at all levels and better student results are the
main indicator of the effectiveness and excellence of schools. It is strongly believed that schools can
be improved by changing their cultures and structures through the practice of certain kinds of
leadership. However, it is easier to say than to do, because schools are not businesses and students
are not adults. Students bring numerous cultures, languages and habits of mind to the classroom.
Layered on these are class cultures and the culture of bureaucracy. People working in this complex
environment should develop a set of values, beliefs and means of operating which shall transcend all
the other influences and allow everyone to focus more on the central tasks of learning.
Review of Literature
Preety (2009) found that there was a significant difference in the climate of private and government
schools. Private schools possessed ‘controlled’ type of climate whereas government schools posses
‘familiar’ type of climate. Joolideh and Yeshodhara (2009) in their cross country analysis of high
school teachers’ organizational commitment found that Indian teachers had better commitment in the
affective and normative components and Iranian teachers were found to have better organizational
commitment. In both the countries, age groups and subjects taught by teachers did not have any
influence over their organizational commitment. Pooja and Renu’s findings (2006) indicated
significant differences in the climate profile of public and private schools. Philip and others (2005)
found that a healthy and positive organizational culture exists in high-achieving schools whereas the
same cannot be said for low achieving schools. Sabiha’s findings (2003) showed that both
government and non-government schools were not very significantly different from each other
except that non-government school principals possess the ability to take quick decisions and take
into consideration the long-term effects of the decisions taken. Non-government school principals
were found to be better planners and innovators who could foresee the need to introduce innovations,
ahead of government school principals, in developing and defining the goals and objectives of the
school. Government school principals were more involved and concerned with academic activities
while non-government school principals were more system-oriented. A difference, not so much in
dimension but reasonably high in magnitude, is seen in the overall personalities of principals where
government school principals were mature, confident and hard-headed, yet tolerant.
Non- government school principals are warm, friendly and sociable with a preference for social
activities and high expectation of themselves. No significantly remarkable difference was seen in the
organizational health except that government schools were not able to use their human resources
better and to the maximum, where some are over worked while others are underutilized. Non-
government schools use their resources properly and intelligently, distributing the workload equally,
being able to lead their staff members dynamically, towards well defined organizational goals and
deal intelligently with the maintenance needs of the organization and its inhabitants. They were
constantly coping with the changing needs of the society, well equipped and ready to accept change.
Experts like Senge (1990), Fullan and Hargreaves (1992), and Deal and Peterson (1990) have
stressed the importance of a shared vision championed by a strong leader with a sense of moral
purpose. However, the literature dealing with school organizational culture is still too recent and not
sufficiently developed to draw out definitive conclusions. The present study attempts to enhance the
understanding of this issue.
Statement of the Problem
There is an increasing awareness around the world for incorporating professional management into
traditional public services to achieve results pro rata to the investments. Similar trend has been
encompassing the school education sector. As countries are seeking to adapt their education systems
to the needs of contemporary society, the expectations for schools have changed profoundly. Many
countries have been initiating reforms to facilitate school based management. Many researchers
established that the efficiency of the school system in general and the effectiveness of each school in
particular is a specific function of the organizational culture of individual schools. In this context, it
would be significant to study the prevailing school organizational culture to facilitate efficiency of
the entire system.
Objective of the Study
The principal objective of the study is to identify the nature of the organizational culture prevailing
among the select secondary schools.
Hypothesis
That there prevails a positive organizational culture contributing to effectiveness among the
secondary schools of all types of managements.
Methodology
Sample: Stratified sampling has been utilized to draw the sample from the finite universe of 557
secondary schools operating under four major types of management in Krishna District of Andhra
Pradesh in India. The sample has been made largely representative by selecting 188 secondary
schools accounting for around 34% of the population and representing 49 out of a total of 50 mandal
administrative units in the sample district.
Data and tools: The primary data is collected through self designed questionnaire and interview
schedules from the select Principals of the respective secondary schools. The data was processed
through Chi Square Test with the help of SPSS-17.
Limitations: The limitations of time and money are inevitable since it is done by the researcher’s
own effort. The conclusions reflect the responses provided by the principals of sample schools only.
Findings and Analysis
The efforts by the District educational authority to promote a cultural identity for the schools were
bleak except seeking a strict compliance with the rules and regulations. The headmaster and the staff
are solely responsible for the prevailing culture at schools. The schools run by private managements
experience better organizational culture than those operating under the public sector. Internal
conflicts among the staff members are also observed in a small percentage of schools. Around 25%
of government and 22% of the local body schools are suffering from such phenomena. The internal
conflicts among the individual staff members and between the informal groups are affecting the
relations between the school heads and staff members, thus resulting in an adverse impact on the
culture of the entire school. The school heads of such schools expressed inability to contain such
situations and try to improve the organizational culture at their schools, unless they are endowed
with some authority and resources. Irrespective of the conflicts and informal groups among the staff
members, the schools under private managements were maintaining good relations between the head
master and staff for creating group specific culture in their schools. The private managements
attributed the achievement of better results to the team-oriented culture inculcated in their schools.
Even among the public sector schools, some correlation is observed between the positive
organizational culture and better student performance and less drop-out rates. The responses of the
school heads regarding the nature of the organizational culture in their schools are processed with
the help of Chi Square Test and the pattern of responses is presented in Table-1.
About 50% of the government schools rated their organizational culture as ‘positive’ while similar
response attracted around 60% of the local body; 69% of the private aided; and 55% of the private
unaided schools. The adjective-‘very much positive’ is favoured by a largest chunk (40%) of the
unaided schools followed by around one-forth (23%) of the aided and only 6% of the local body
schools. None of the private sector schools ranked their culture as ‘negative’ while around 25% of
the public sector schools have rated the prevailing culture on this option. Thus the majority opinion
of all categories coincides with the majority opinion of the total sample (60%). The Chi Square value
(47.191) is very highly significant at 0.001 level.
110
Figure
Figure-1: Interested to create distinct identity.
90 100
88
70
75
68
50
Government Local Body Pvt Aided Pvt.Unaided
A majority of the school heads showed interest for creat

creating
ing a distinct identity for their respective
schools in terms of academic excellence, discipline, inculcating competitive spirit and overall
development of the student, provided the required support in terms of resources and autonomy is
accorded by the sponsoring
nsoring organizations, as presented in Figure
Figure-1.
Around 70% of the public schools and more than 80% of the aided and all of the unaided schools are
enthusiastic to create a unique identity for their schools provided they get the required support. The
heads
ads of local body and government schools wanted to create unique identity for their schools by
achieving the ‘model school’ status at mandal / block level and through maintaining effective rapport
with the local community.
Conclusion
From the analysis, it is heartening to note that around half of the schools under public sector
managements reported positivetive culture owing to the specific efforts by the school heads and staff
despite the sober support by the administration. The private unaided managements are distinctly
ahead of the other categories of school management in developing a positive culture amo among their
schools. However, despite the non
non-conductive situation prevailing, around two-thirds
thirds of the heads of
public schools expressed pro-activeness
activeness to create a distinct identity to their schools provided the
required support from the managements is accor accorded.
ded. Thus, finally it can be concluded that the
slackness lies not in the people managing the schools but in the system itself.
Scope
The study leaves a wide scope for further research by undertaking similar research at multi
multi-district;
multi-state; and even at multi-national
national levels. The school organizational culture can further be
probed in-depth
depth with the help of structured questionnaire on various aspects of organizational
culture. Further research on the same aspect can be conducted on the institutions aat various levels.
References:
Bate, S. 1994, Strategies for Cultural Change, Butterworth Heinemann, Oxford.

Deal TE, Petersen KD (1999). Shaping school culture: The heart of leadership. San Francisco;
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Tables & Figures
Table- 1: Nature of organizational culture (cross tabulation).

School Rate your school’s organizational culture
Management Very much Positive Negative Neither
Total
Type positive positive nor
negative
Count 0 2 1 1 4
Government % within category .0% 50.0% 25.0% 25.0% 100.0%
% of Total .0% 1.1% .5% .5% 2.1%
Count 7 68 32 6 113
% within category 6.2% 60.2% 28.3% 5.3% 100.0%
Local body % of Total 3.7% 36.2% 17.0% 3.2% 60.1%
Count 6 18 0 2 26
% within category 23.1% 69.2% .0% 7.7% 100.0%
Private aided % of Total 3.2% 9.6% .0% 1.1% 13.8%
Count 18 25 0 2 45
% within category 40.0% 55.6% .0% 4.4% 100.0%
Private % of Total 9.6% 13.3% .0% 1.1% 23.9%
unaided Count 31 113 33 11 188
% within row 16.5% 60.1% 17.6% 5.9% 100.0%
Total % within column 100.0% 100.0% 100.0% 100.0% 100.0%
% of Total 16.5% 60.1% 17.6% 5.9% 100.0%
Table-2: Chi-Square Test Results (SPSS Output).

Pearson Chi-Square 47.191*** 9 .000
*** Highly significant.
CONSUMERS’ ATTITUDES TOWARDS ONLINE SHOPPING -AN
EMPIRICAL STUDY CONDUCTED IN HARSHA
RETAIL STORE, SHIVAMOGGA
D.M.Arvind Mallik
Lecturer
PG Dept of Management Studies & Research Centre
PES Institute of Technology and Management
Shivamogga, Karnataka
aravind.mallik@gmail.com
Abstract
The growing use of Internet in Shivamogga provides a developing prospect for E-marketers. If E-
marketers know the factors affecting online buyers’ behavior, and the relationships between these
factors and the type of online buyers, then they can further develop their marketing strategies to
convert potential customers into active ones, while retaining existent online customers. This paper is
part of larger study, and focuses on “Consumer Perception on Online Shopping with Special
Reference to Harsha Shivamogga. It also investigates how different types of online buyers perceive
websites differently. This paper explores search behavior of online shoppers. Information economics
literature suggests that search cost in electronic markets has essentially been reduced to zero as
consumers are able to use powerful search tools, free of charge, to easily find and compare product
and shopping information on the Internet. This research found that website design, website
reliability/fulfillment, website customer service and website security/privacy are the four dominant
factors which influence consumer perceptions of online purchasing. These buyers have different
evaluations of website design and website reliability/fulfillment but similar evaluations of website
security/privacy issues, which implies that security/privacy issues are important to most online buyers.
It also provides a support that helps researchers understand the drivers of consumers’ attitude and
goal to shop on the Internet, and consumers’ perceptions regarding ease of use and usefulness.
Conclusions derived from the analysis can be used as useful guide for market orientation. The
outcomes of the study suggest that assessment of consumer buying behavior can contribute to a better
understanding of consumer buying behavior in respect of online shopping.
Key words: Internet, online shopping, shivamogga, Harsha, E-Commerce
1. Introduction
It has been more than a decade since business-to-consumer E-commerce first evolved. Scholars
and practitioners of electronic commerce constantly strive to gain an improved insight into
consumer behavior in cyberspace. Along with the development of E-retailing, researchers
continue to explain E-consumers’ behavior from different perspectives. Many of their studies
have posited new emergent factors or assumptions which are based on the traditional models of
consumer behavior, and then examine their validity in the Internet context. Butler and Peppard
[1998], however, explained the failure of IBM’s sponsored web shopping malls by the naïve
assumption of the true nature of online consumer behavior. A critical understanding of
consumer behavior in the virtual environment, as in the physical world, cannot be accomplished
if the factors affecting the purchase decision are ignored or misunderstood. For instance, online
consumers’ concerns about lack of opportunity to examine products prior to purchase are
regarded as the specific factor affecting the online buying decision.
Internet is changing the way consumers shop and buy goods and services, and has rapidly
evolved into a global phenomenon. Many companies have started using the Internet with the
aim of cutting marketing costs, thereby reducing the price of their products and services in
order to stay ahead in highly competitive markets. Companies also use the Internet to convey,
communicate and disseminate information, to sell the product, to take feedback and also to
conduct satisfaction surveys with customers. Customers use the Internet not only to buy the
product online, but also to compare prices, product features and after sale service facilities they
will receive if they purchase the product from a particular store. Although business to consumer
(B2C) gets a lot of attention for being on the “sexy” side of ecommerce, 2010 U.S. Census data
shows estimates for business to business (B2B) revenue transacted online—not through
electronic data interchange (EDI)—at approximately US$300 billion.
Indian consumers as a whole spend about 55% of the total consumption expenditure on food
items. According to a survey conducted by ORG, the expenditure on non-food items has
recorded large growth that the expenditure on food items. Consumers decide whether, what,
when, from whom, where and how much to buy. They can avail various mediums to buy the
products. But currently we are living in the age of internet. According to a study, “About 44
percent students use Internet in India and overall 72% of young people access Internet on
regular basis. Due to the vast usage of Internet, the buying patterns have been changed. It has
changed the way goods are purchased and sold, resulting to the exponential growth in the
number of online shoppers. However, a lot of differences concerning online buying have been
discovered due to the various consumers’ characteristics and the types of provided products and
services. Attitude toward online shopping and goal to shop online are not only affected by ease
of use, usefulness, and enjoyment, but also by other factors like consumer individuality,
situational factors, product distinctiveness, previous online shopping Understanding and faith in
online shopping.
2. Literature Review
By the internet, consumers find that they no longer have to accept fixed prices for the products
and services and through the click of a few buttons the lowest priced, highest quality product
can be found. The concept of online shopping developed gradually, after the launch of the
World Wide Web. Charles Stack was the first person to create an online book store in 1992.
Even Pizza Hut opened an online pizza shop, whereas eBay and Amazon took the concept of
online shopping to an entirely new level. Online shopping began in full swing since the year
1996. Overall, 71 million users accessed Internet in year 2009, with 52 Million “active” users
who accessed it at least once in a month.
The current literature on consumer online purchasing decisions has mainly concentrated on
identifying the factors which affect the willingness of consumers to engage in Internet
shopping. In the domain of consumer behavior research, there are general models of buying
behavior that depict the process which consumers use in making a purchase decision. These
models are very important to marketers as they have the ability to explain and predict
consumers’ purchase behavior. The classic consumer purchasing decision-making theory can be
characterized as a continuum extending from routine problem-solving behaviors, through to
limited problem-solving behaviors and then towards extensive problem-solving behaviors
[Schiffman et al., 2001].
The traditional framework for analysis of the buyer decision process is a five-step model. Given
the model, the consumer progresses firstly from a state of felt deprivation (problem
recognition), to the search for information on problem solutions. The information gathered
provides the basis for the evaluation of alternatives. The development and comparison of
purchasing evaluation criteria result in the actual decision to buy. Finally, post-purchase
behavior is critical in the marketing perspective, as it eventually affects consumers’ perception
of satisfaction/dissatisfaction with the product/service. This classic five stage model comprises
the essence of consumer behavior under most contexts.
Consumers' attitude towards online shopping is a prominent factor affecting Consumers'

attitude towards online shopping is a prominent factor affecting actual buying behaviour.and
Todd [1997] proposed a model of attitudes and shopping intention towards Internet shopping in
general. The model included several indicators, belonging to four major categories; the value of
the product, the shopping experience, the quality of service offered by the website and the risk
perceptions of Internet retail shopping. In the research conducted by Vellido et al. [2000], nine
factors associated with users' perception of online shopping were extracted. Among those
factors the risk perception of users was demonstrated to be the main discriminator between
people buying online and people not buying online. Other discriminating factors were; control
over, and convenience of, the shopping process, affordability of merchandise, customer service
and ease of use of the shopping site
Consumer Attitude
Customers’ attitude to purchase the product through the online a very important role in the
field of marketing. Attitude can be defined as a set of opinions developed by the individual or
group of customers towards a product after using it over a period. It may be both positive and
negative. A good research always tries to know which factors helps in building positive attitude
towards the product, and which factors are building negative attitude towards the product.
Harsha is operating in Karnataka more than two decades, and has been trying to understand the
consumer needs, wants and preferences through providing good retail service. It has
introduced innovative things like offers and events like Harshotsava, Monsoon Magic,
Deepavali Bajar, and Happy times, to attract the customers towards Harsha. Also the
customers’ opinion changes over a period due to many reasons.
3. Need for the Stud
In the present market economy, it is very essential to trace customer satisfaction/& attitude and
accordingly the problem taken up in Harsha with respect to consumer perception
justifies. The project report is also concern with market research because we know about the
how to organization are working in the markets the study on consumer perception on online
shopping we are studying about the market problem and situation for the analysis for a
originations. The present study helps researcher to put the theoretical concepts into practice this
project helps the various campaigns to know the impact of consumer perception on online
shopping with special reference to Harsha Shimoga.
The study is also to have an insight about customer general opinion about the Harsha
organization. Such a study will help the organization to assess the business opportunities
in different segments, which in turn will help in knowing to what extent it needs to promote
its business so that it can strategically position itself to the customers’ needs.
4. OBJECTIVES OF THE STUDY:
• To measure the consumer expectation of online shopping of Harsha outlet.

• To measure the influence the online shopping on buying behavior of customer
• To understand and analyze the customer’s internet usage patterns
• To understand needs of customers while searching products and services on the internet
• To known the understand attributes attracting customer to visit the website
5. LIMITATIONS OF THE STUDY:
1. The study was done for short period which might not hold true long run
2. Because of time constraint study confines only to Shimoga city and its is not possible to
make extensive study
3. It was assumed that all response given by respondents are true and unbiased
4. It is assumed that sample selected represent the whole company
5. Some respondent refused to participate the survey and that affected the study
6. By busy schedule of the respondents it is difficult to extract more information from them.
7. Time is one of constraint to meet respondent
2. RESEARCH METHODOLOGY OF DATA COLLECTION
2.1 Research Design
In this researcher has used the DESCRIPTIVE RESEARCH DESIGN. Descriptive

research describes the characteristic of a group. This type of research is also a grouping that
includes many particular research methodologies and procedures, such as observations,
surveys, self-reports, and tests since our population size was more we have used t h e sample
survey research method. We c o n s i d e r e d a s a m p l e w h i c h is the representative of the
total population. Duration of completing this paper was from 18th Dec 2011 to 27th Feb,2012 in
shivamoga only
2.2. Methodology of data collection:

Sources of Data:
1) Primary Data:
Primary data is the information that has been collected specifically for the purpose of
investigation at hand. The primary information was collected using questionnaire and
personal interview method. The respondents were asked different questions on internet
usage online purchasing activities features that attract them internet the respondents in the
survey are students, businessman, housewife, professional, government employee and
others
Sources of Primary data:
a. Observation method
b. Personal Interview of respondents with the help of Questionnaire.
c. Personal interview of respondents without the help of Questionnaire.
d. Depth Interview.
2) Secondary data
Secondary data is the information that has been gathered not for the immediate study but
for some other purpose. Secondary data is collected from company websites, company
broachers, Annual reports of the company, internal company journals.
The sources of secondary data including the following
a.
Internet
b.
Various reference text books
c.
Annual report of the company
d.
News paper
e.
Magazines
2.3. Sampling Plan
1. Location of the Study: The study has conducted about the Harsha retail outlet Shimoga city
2. Sample Unit; respondents (Customer walk-in) @ Harsha retail outlet. Shimoga
3. Sample Size: 250
4. Sampling Selection: convenience sampling
2.4. Tools and techniques of data collection;
Survey Method
2. Likert’s questionnaires’ values and Interpretation:
The likert survey has been selected questions in the questionnaires have enable the
respondents to answers the survey easily in addition this research to carry out the
quantitative approach effectively with the use of statistics for data interpretation once all the
answers of the respondent have been gathered the researcher computed the weighted mean
value for each survey item the mean value for each survey item the mean was compared
the likert scale to interpret the weights mean was used in order to obtain the average values
that represents the sample’s response to each question in the survey this helped the
researcher identify the general to particular to the questions given.
Scale Strongly Agree Neutral Disagree Strongly
Score 5 4 3 2 1
3. Weighted Mean score
Weighted Average Method Can be calculate by the fallows formula this tool used to find the
rank given by the respondent to measure.Weighted mean for necessary question item was
computed weighted mean is average where in every quantity to be averaged has a
corresponding weight. These weights represent significance of each quantity to the
average to compute for the weighted mean. Value must be multiplied by its weight.
5. Simple percentage method:
3. ANALYSIS AND INTERPRETATION OF DATA

1. Over all Presentation of Demographic profiles of respondents
Sl No Parameter Particular No. of respondents Percentage
1 Gender of respondents Male 180 72
2 Age of respondents 25-35 80 32
3 Education UG 107 42.8
4 Occupation Student 60 24
5 Monthly income Rs10,000-20,000 65 26
6 Interests Internet 88 35.2
7 Living area City 222 88.8
Analysis- This table shows the classification of respondent on the basis of their demographic
profiles and they are-
1. It is identified that the 72% (180) respondent in the gender group, male is highest.
2. From the analysis it is clear that the 32% (80) respondents are highest in the basis of age group are
25-35 years.
3. From the analysis it is confirmed that the 42.8% (107) are of the total respondents falls under
graduate of this education level.
4. From the analysis it is clearly that 24% (60) respondents are student is highest from the
occupation.
5. From the analysis it is clear that the 26% (65) respondents have of Rs10, 000-Rs20, 000 & total
monthly income.
6. From the analysis it is conformed that 35.2% (88) respondents has interest expressed there is
internet.
7. From the analysis is the clear that the 88.8% (222) respondents are living area from the city.
2. Usage of Internet among consumers
No of
Sl No Internet usage Pattern Particular Respondents Percentage
1 Use internet. Yes 220 88
2 Normally use online Mail 90 36
3 Ever visited Any online shopping website No 240 96
No 242 96.8
4 Are you aware Harsha has a online shopping.
5 spend time online /week 1-2 hour 80 32
will Harsha website be your first choice for online Yes 250 100
6 shopping
Analysis- This table shows the classification of respondent on the basis of their demographic profiles
and they are-
1. The above table are classified by the 88% (220) of the respondents are using the internet.
2. From the analysis it is clearly that 3.6% (90) respondents are normally using online for mail.
3. From the analysis it is clear that the 96% (240) respondent are ever visited online shopping website
4. From the above analysis it is clear that 96.8% (242) respondents are not aware Harsha has online
shopping website.
5. From the survey it is evident that the 68% (170) respondents buy products, through online, if
the product willing to has the same price which matches is shope.
6. From the analysis, it is clearly that the 32% (80) respondents spending time on online are 1-2
hours/weekly.
3. a. Which Online website are you aware of the shopping site.
Classification of respondent on the basis of aware of shopping site
Sl. no Particular No. of respondents Percentage

a Amazon 3 1.2
b Flip cart Nil Nil
c Harsha Nil Nil
d Home shop 18 4 1.6
e Snap deal 2 0.8
f other 1 0.4
Total 250 100
Analysis: From the above table shows the 1.2% respondents are aware of shopping site Amazon,
1.6% are aware of home shop 18 is the 0.8% are a snap deal & the 0.4% of the others respondents.
(b) If no: why don’t visit you buy online
Table showing the Respondents why don’t visit to buy online
Sl. Reasons 1 2 3 4 5 WMS Rank

no
a Online security 39 56 59 60 26 2.792 2
b Would like to see & feel 30 51 67 52 40 2.964 1

while buying
c Doesn’t have credit card 57 68 50 40 25 2.512 4
d Needs & wants to use 45 48 61 55 30 2.7814 3

products immediately
e Traditionally way of 53 51 67 52 40 2.66 5

shopping
Analysis: The above table shows that the 2.96 (1) respondents the consumers opinion would
like to see & feel while buying the second fear & not using online are
2.792 (2) respondents the consumer opinion online security.
4. If the product has the same price both in shops & on the internet would you like to
buy online?
Sl. Particular No. of respondents Percentage

no
a Yes 170 68
b No 80 32
Total 250 100
Analysis: From the above table shows the 68% (170) respondents are willing to buy
online for the products & 32% (80) respondent said no not buying the product.
6. Do you think online shopping a feel safe than a stores

This table shows the Respondent opinion’s online shopping feel safe than stores
Sl. no Reasons SA A NA D SD WMS Rank
a Easier to return goods 25 10 30 13 2 0.892 5

b Can check the goods 40 20 10 6 4 1.304 1
c before
Direct buyingthe
observed 20 30 15 10 5 1.16 4
d Awarefeatures
of the store & 33 28 9 8 2 1.288 2
e location
Face to face interaction 18 27 26 7 2 1.168 3
Analysis: Above table shows the 1.304 (1)for respondents can check goods before buying the
product 1.288 (2)respondents are aware of the stores location for online shopping.
6. What kind & stuff will you buy online?
This table shows Classification of respondent on the basis of their kind & stuff will buy
online.
Sl. no Particular No. of respondents Percentage

a House hold 60 24
b Cosmetics 35 14
c Electronic 70 28
d Consumer durable 40 16.8

e others 43 17.2
Total 250 100
Analysis: The above table shows the 24% (60) of respondents would like to purchase house hold
product & 14% (35) are purchase cosmetics, 28% (70) are purchase electronic 16.8% (40) are
purchase consumer durable & 17.2% (43) are would like to purchase.
7. On Agreeable terms
Sl No Internet usage Pattern SA A SD D N

Consider the online shopping the product affect your 45 62 57 36
1 buying decision. 50
Think online shopping will be more cost effective 55 49 126 16 4
2 way & buying.
Effective advertisement in website are better than 130 100 9 0
3 banners, paper, electronic media, marketing 11
Analysis-
1. From the analysis for 24.8% (62) respondent are Strongly disagree online shopping product affect
buying decision.
2. From the analysis 50.4% (126) respondent are neither agree nor disagree online shopping will
be more cost effective way & buying.
3. 52% (130) respondents says that the effective advertisement website is better than the banners,
paper, electronic media marketing
8. What influencing you to buy online shopping decision?
The table shows of respondent on the basis of their influencing buy online shopping decision
Sl. Reasons SA A NA D SD WMS Rank
noa Convince & save time 40 60 90 40 20 3.24 4

b Promotion & advertisement 80 70 60 25 15 3.7 5
c Care & product price & 50 67 88 29 16 3.424 2

quality comparison
d Variety & products 62 51 79 30 28 3.356 3

e Website provide 68 62 75 25 20 3.532 1
sufficient product
information & explanation
Interpretation: 3.532(1) respondent the majority of consumers are influencing decision are
website provide sufficient product information & explanation. For the product through
online.
9. Do you have concern about online shopping tick which one thinks you
Table shows of respondent on the basis of their concern online shopping opinions
Sl. no Reasons VS S NS Not WMS Rank
satisfy
a Product quality 90 79 78 3 3.024 1
b Product 65 75 100 10 2.78 3
delivery
c Service quality 63 81 79 37 2.6 5
d Privacy issues 40 70 80 60 2.36 4
e Security issues 49 71 83 47 2.488 2
Analysis: From the analysis 3.024 rank (1) respondents about online shopping consumers
are thinking the product quality.
11. How confident are you that your rights as a consumer are protected when online
shopping.
Table shows of respondent on the basis of consumer rights of online shopping
Sl. No Consumer Protected 1 2 3 4 5 WMS Ran
k
1 Very Confident 74 61 38 46 31 2.965 5
2 Fairly Confident 56 73 53 41 27 2.976 4
3 Not Very Confident 37 30 73 62 48 3.216 2
4 Not all Confident 63 31 47 51 58 3.04 3
5 Don’t Know 45 25 35 39 10 3.544 1
Analysis: From the Analysis are WMS Respondents are don’t know about the
consumer rights protected online shopping.
12. Which among there your priority while consuming the products for Harsha in
online rank according 1-5
This table shows the respondent on the basis of priority consuming products Harsha in
online
Sl. no Consumer care 1 2 3 4 5 WMS Rank
a Price 82 63 57 31 17 2.352 4
b Quality 51 48 69 70 12 2.776 2
c Service 90 63 50 27 20 2.296 5
d Brand 40 56 68 29 27 2.908 1
e Durability 60 73 58 34 25 2.564 3
Interpretation: 2.908 (1) respondent is the priority while consuming the products for
Harsha online for brand.
Findings
The overall project is mainly of what the consumer/customer think and how behave with
Harsha. In this project the major findings are as follows.
1. 88% of the Harsha consumers are using the internet for using mail.
2. About (96% )of the respondent are ever visited any online shopping website.
3. Majority 96% of the Harsha consumers they not know aware of shopping site .
4. 32% of total respondents contacted spend time for online weekly 1-2 hours.
5. 28% of respondents are will to buy the products through online for electronic products.
6. Only 11% of respondent think that online shopping will be more cost effective way and
buying.
7. About 96.8% respondents are not aware of Harsha online shopping website.
8. About 52% respondent & effective advertisement in website are better then banner’s paper,
electronic media marketing.
9. 68% respondent opinion as product has same price both in shops on the internet are buying
the product through online.
10. Above 72% of respondent from belongs the age group of 35-40 years.
11. 100% of respondents in future Harsha online shopping website recommend to friends and
family.
12. About 2.908 rank (1) respondents are while rates brand image and quality in their high in
priority while products for online.
13. About 100% of respondents recommended Harsha online shopping websites to friends
& family.
Suggestions
The overall project is mainly of how to increase consumer walk-in Harsha in this project the
major recommendations are as follows:
1. Harsha should create colorfull web design it attract the consumers by adding relevant
product & service information for all product & service
2. Harsha should use different marketing strategy online for TV, Paper & face book
for online shopping.
3. Selling the goods to consumers if it damage of any complaints try to attend as per early.
After sales service
4. Harsha should target the educated people to attract & buying product through online
which is getting more popular these days.
5. Harsha can give offers (like price discounts and quantity discounts) to consumers
who order through online. By this will be induced to purchase more products through
online.
6. Harsha consumers capturing Only limited number of respondents will to buying

the product through online so harsha has to capture remaining respondents to
buy the product through online.
Conclusion
The R e t a i l Industry h a s been Developing dynamically due to advanced technology

there is a lot competition among retail outlets each one tries to provide its customers with
qualitative & wide range of the products from to which they can choose they try their level
best to create more customers & retain then Harsha is one of the oldest show rooms dealing
with customer durable products. It important reasons for consumers not to shop online are
online security would like to buy things by touching & feeling the people regard shopping
especially organic & social experience, enjoying going around& spending time in bazaars
& shopping centers. Searching for bargains & having an outgoing activity with the family
while shopping. It is seen that most advantageous items to purchase online.
The consumer perception on online shopping we can tell that both e-commerce users & non
users have positive attitudes. As per survey majority of consumers needed online shopping
at Harsha in Shimogga. No one of the company are not adopted online shopping in
Shimogga. Harsha will be first adopting online business. The company has created brand
image. The people will recognize the company, then sales will be
increased. It will easy to identify the products through online.
References:
1. Gurvinder S Shergill, Zhaobin Chen “WEB-BASED SHOPPING: CONSUMERS’ ATTITUDES TOWARDS
ONLINE SHOPPING IN NEW ZEALAND, Auckland, New Zealand, Page 79 ,Journal of Electronic
Commerce Research, VOL. 6, NO.2, 2005
2. Findings from consumer surveys on Internet Shopping ,a comparison of pre and post study consumer Research,
Office of Fair Training,May 2009
3. H. Jahankhani” The Behaviour and Perceptions of On-Line Consumers: Risk, Risk Perception and Trust”
University of East London School of Computing and Technology, International Journal of Information Science
and Management
4. Ankur Kumar Rastogi, A STUDY OF INDIAN ONLINE CONSUMERS & THEIR BUYING BEHAVIOUR,
RNI: RAJBIL 2009/30097 VOL I *ISSUE 10, International Research Journal , July 2010 ISSN- 0975-3486
5. Chuleeporn Changchit,” CONSUMER PERCEPTIONS OF ONLINE SHOPPING” Texas A&M University -
Corpus Christi, BIMA Publishing, Vol. 2011 (2011), Article ID 575361
6. Na Li and Ping Zhang,Drivers and Attitudes towards Online Shopping: comparison of Turkey with Romania
CONSUMER ONLINE SHOPPING ATTITUDES AND
BEHAVIOR: AN ASSESSMENT OF RESEARCH, Syracuse University.
BRINGING SUSTAINABILITY TO THE FORE IN FORESTRY
THROUGH ENVIRONMENTAL ACCOUNTING
OLATUNJI, TOYIN EMMANUEL
Ladoke Akintola University of Technology,
Ogbomoso- Nigeria
Abstract
The concern to preserve our earth from pollutions and degradation has brought the issue of
sustainability to the centre stage. Attention is increasingly being focused on sustainable
management of natural resources, especially the forests. Incorporating environmental costs
of deforestation into national/regional accounts will serve the purpose of engendering
sustainable forest management. However, determining the environmental costs to reflect
depends on accurate measurement of the cost elements. Thus, the objective of this paper is
to examine the rate of depletion of a typical rainforest in Nigeria’s southwest; and, to
determine the value of forest environmental services lost due to deforestation. Secondary
data obtained from records of the forestry department were used to determine the rate of
physical depletion of the forests. Primary data from a contingent valuation survey were
obtained. The survey covered about three hundred respondents comprising mainly of local
residents around five forest reserves in Osun state, Nigeria. It was observed that the forest
has been declining at an average rate of 3.86% annually, while the natural forests are
almost exhausted posing serious threat to biodiversity and gene pools. The carbon storage
capacity of the forests is declining as a result of continued removal of the tree canopies and
watershed services have also been lost. It was concluded that unless the values of the
environmental services foregone due to unregulated tree felling are incorporated into the
production and asset accounts of the state there would be no meaningful response towards
sustainable forest management.
Introduction
Economies of developing nations are based on primary production which tends to put pressure on
natural resources. Nigeria’s economic history is replete with such testimonials- from the early trades
in hides and skins, groundnuts, palm oil, pepper and cotton to the later years of cocoa exports, timber
and mineral extractions for exports. These resources are extracted and exported in their natural states
(unprocessed). Thus, for these economies the drive for economic growth involves some externalities
or social costs which are not adequately reported in national accounts. Is this development
sustainable?
Sustainable development is development that lasts. (World bank, 1992). The World Commission on
Environment and Development (1987) defined sustainable development, as one which meets the
needs of the present without compromising the ability of future generations to meet their own needs.
Technically speaking, a cost can be identified with every productive effort. Some are captured by
conventional costing systems; others are concealed in overheads and are hardly properly assessed or
accounted for. (EPA, 1995). The ability to assess and account for the proper costs of such production
will go a long way to promote sustainability of natural resources and the environment.
Forests are natural resources, which have many inherent advantages when viewed from
environmental perspective they are renewable, recyclable, biodegradable and carbon neutral. They
are truly sustainable. This discovery notwithstanding, there is still a need to quantify and account for
the environmental implications of tree felling and deforestation.
Statement of the Problem

The present state of the forests is an apparent indication that the true costs of forestry activities are
either unknown or ignored. There is an urgent need to measure and evaluate the environmental
consequences of timber extractions, considering its significance in the sustenance of Osun State. The
forests need to be well catered for, to prevent depletion. The implications of forest losses transcend
the economic costs of imminent loss of revenues from timber and associated products, but include
the short and long term social costs. Has there been substantial change in forest holding? Has the rate
of forest regeneration matched its rate of consumption? Is there any accounting procedure that
accounts for social costs and benefits of forest operations? Would the adoption of environmental
accounting assist in sustainable forest management?
Research Questions
The following questions were raised for the study:
i. What is the prevalence of deforestation in Osun State, Nigeria?
ii. What is impact of deforestation on the environment?
iii. How could the impacts of deforestation be valued for accounting purposes?
Research Objectives
The general objective is to examine the significance of environmental accounting in promoting
sustainable forestry. Specific objectives for this study were:
i. To examine the rate of deforestation in Nigeria’s Osun State forest reserves as a result of the
gap between forest regeneration and tree felling;
ii. To identify the impacts of deforestation in Nigeria’s Osun State forest reserves;
iii. To evaluate the adoption of environmental accounting to guide decisions relating to timber.
CONCEPTUAL AND THEORETICAL FRAMEWORK
Three concepts are prominent in this paper. These concepts are sustainable development,
environmental accounting and forestry operations.
a. Sustainable Development
Operationally, we cannot talk of sustainable development without considering income accruing and
the attendant costs. Similarly, a discussion of environmental accounting must open the reader’s
understanding to the process of identifying, assessing and reporting environmental issues related to
production. Finally, forestry operations include all activities related to forests, including timber, wild
life and other resources. The process of extracting trees must elicit some costs, much of these costs
are externalities impacting on the communities.
World commission on Environment and Development (1987) defines sustainable development, as
one which meets the needs of the present without compromising the ability of future generation to
meet their own needs. The World Bank (1992) describes sustainable development as development
that lasts. Sustainable development can be expressed in the macroeconomic sense – with reference to
national economies, or in the microeconomic sense of firms and households. The developmental
efforts of governments tend to leave some after effects such as reduction in life expectancy, ozone
layer depletion and so on. The currently reported national income may not be exactly so if the true
costs are all integrated into the calculation. The nation could be actually worse off than it would
otherwise be. (Hicks, 1946; Daly 1996; El-Serafy and Lutz, 1998; Owolabi, 2007).
b. Accounting for Environmental Costs
Environmental Cost Accounting is an integrated approach which examines the inter-relationships

between accounting, the environment and management information; decision making and
accountability. It is an extension of the scope of conventional accounting to make it include practical
environmental and economic implications of the concepts of corporate sustainability and eco-
efficiency (Environmental Protection Agency, 1995). Schatlegger and Burrit (2000) identified three
key tenets of environmental accounting as achievement of ecoefficiency in production, effective
production and equity. Steele and Powell (2001) recognized that environmental costs may be
difficult to measure and thus recommended that in assessing external costs of existing environmental
burdens, use monetary values based on how people have reacted to changes in environmental
quality, which have already taken place. They further suggested that future organization status
should be assessed in terms of its potential impact in monetary terms.
c. Nature of Forestry
Forest resources are those resources derivable from forests such as timber, wildlife, and fruits, nuts,
medicinal plants and wood fuel. The uses of forests (including vegetative cover) are to prevent
erosion, desertification, extinction of wildlife species, the provision of biomass and to serve as
tourists’ attraction. Non-timber forest products can play a vital role in food security and income
generation. The World Bank, in its World Development Report-Development and Environment
(1992) explained that forests provide a wide range of social and ecological functions. They provide
livelihood and cultural integrity to forest dwellers and a habitat for a wealth of plants and animals.
Forests protect and enrich soils, provide natural regulation of hydrologic cycle, affect local and
regional climates through evaporation, affect water shed flows of surface and groundwater and help
to stabilize the global climate by taking up carbon as they grow. Many forests have a larger spiritual
significance for those who may never visit them but still cherish the thought of their existence.
The report continued by categorizing the world’s forests into three broad types namely, tropical
moist and dry forests, temperate forests and degraded forest land. It identifies the tropical moist
forest as the main concern for it is fast disappearing. These forests which covered more than 1.5
billion hectares are the richest ecosystem in biomass and biodiversity on land. (the World Bank,
1992, 2003; Muir-Leresche, 1990; Ashbey,1988).
Fig.1 Conceptual Framework of the Interrelationships Among Forestry Operations,

Environmental Accounting and Sustainable Development
TARGET NATURAL ENVIRONMENTAL CONVENTIONAL

RESOURCE(FORESTRY) ACCOUNTING ACCOUNTING
Measures
Integrates & Reports
Resources Activities Products Impacts

logging planks Deforestation -
Timber lumbering furniture Beneficial +
Haulage service Degradation _ United Nations System
exports exports Beneficial + of National Accounts
ecotourism tourism Beneficial + measures development
Wildlife meat through National income
gaming Extinction
Leather of species _
Medicinal peeling service Beneficial +

Plants felling service Degradation _
manufacture drugs Beneficial +
exports exports Beneficial +
Wood picking service Beneficial +
Fuel felling service Degradation _
haulage service Degradation _
Leaves packaging service Beneficial +

food
processing service Beneficial +
-
Other sources of income reported
- Income from forest activities
Net effects of environmental impacts

i.e.logging,lumbering,haulage exports, tourism,
gaming, fruits and nuts, medicinal plants, wood
fuel, leaves less: Imports of spares, tools,
machines etc. Depreciation of Equipment and
machines, etc.
Less: Net Environmental Costs+ Benefits
= SUSTAINABLE NATIONAL INCOME
Source: Olatunji (2003), “Environmental Accounting and Sustainable Development of Forestry

Operations in Osun State, Nigeria” Ilorin.
The Problems of Measurement and Valuation of Environmental Services of Forests
RESEARCH METHODS
Data Collection
Primary and secondary data were employed in this study. Primary data was obtained through a
survey of the local residents in and around forest reserves of Osun state, Nigeria. Secondary data
were obtained from the records of Department of Forestry Management of the Ministry of
Environment in Osun State, Nigeria. Data relating to number and size of forest holdings as well as
the volume of timber harvested viz-a-viz hectares achieved in regeneration were examined to
determine the prevalence of deforestation. Data relating to the nature of impacts of deforestation
were obtained through a survey of local communities around the forest estates using questionnaire.
Data Analysis
The questionnaire contained a section for a contingent valuation survey wherein questions in relation
to Willingness to Pay was asked and the responses were subjected to analysis using the Logit
Regression Model. The result was tested for significance at alpha= 0.05.
Model Specification:
The Logit model analyses the dichotomous question in relation to Willingness to pay (WTP) for the
environmental services of the forests. The WTP was analogous to creation an hypothetical markets
for the services of forests and so is the dependent variable while the socioeconomic characteristics of
the respondents were independent (explanatory) variables. The model is expressed as follows:

Where
X1 = Gender of respondents
X2 = Marital Status of respondents
X3 = State of origin of respondents
X4 = Education of respondents
Xs = Size of farm of respondents
X6 = Annual Income of respondents
X7 = Age of respondents
X8 = Size of family of respondents
X9 = Distance from Forest Reserves.
RESULTS AND DISCUSSION
Results
The data collected and analysed are shown below:
i. The change in forest holding within the state is depicted in Appendix 1, showing a reduction
of 32,097Ha out of initial 90,738Ha representing a loss of 35.37% of land mass allocated to
forests within a nineteen-year time frame. If this trend is maintained by the year 2030, about
70 per cent of the forest would have disappeared and by the year 2050, there would be no
more forested land in the state. The consequences of this are quite grave.
ii. Annual average of tree felling in Osun state is 1,267,398 cubic feet with a standard deviation
of 791,814 cubic feet (see appendix 2). The present trend when viewed closely shows a
continuing annual growth and at an alarming rate. When a trend line is estimated (Y’=a+bx)
(see appendix) Y’ = 883,597 cubic feet at origin between 2005 and 2006 having an annual
growth rate of 34,883 cubic feet. This will result at 3.948% or approx. 4% annual growth in
tree felling within Osun state. (See appendix).
4,000,000
3,000,000
2,000,000
Series1
1,000,000
0
1 3 5 7 9 11 13 15 17
Figure 2 Annual Tree Felling Records (1993-2010) in cubic feet in forest reserves
iii. The average rate of tree planting per annum is put at 47.433 hectares. But the trend shows a
continuing decline in tree planting at an annual rate of 2.927 ha. (See appendix for the
calculation of the trend. The annual rate of decline is given as 2.7927/72.04 = 3.877%. This
implies that regeneration is declining at the rate of 3.877% or approx. 3.9% annually.
150
100
Series1
50
0
1 3 5 7 9 11 13 15 17
Figure3 Tree Planting/ Regeneration in the Forest Reserves of Osun State, Nigeria.
iv. The survey showed the following types of impacts were observed as a result of deforestation
were identified as capable of costing for accounting purposes:
a) Loss of indigenous trees;
b) Loss of carbon sequestration capacity, indeed, a release of carbon compounds to the
atmosphere whenever matured trees are felled;
c) Damage to undergrowth, immature and unintended trees;
d) Loss of biodiversity;
e) Loss of watershed and resultant siltation of lakes and rivers as well as water
pollutions posing problems to aquatics and humans;
f) Loss of protective cover for vegetation and serving as windbreaks for protection of
living houses from rainstorm damages;
g) Loss of wildlife and other non-timber forest products;
h) Loss of tourism income;
i) Erosion, leaching and percolation of ground water;
j) Emission of greenhouse gases (Amoo- Onidundu, Baiyewu, Ceply, Alao and
Bodede,2009; Knowler and Lovett, 1996; Sedjo,1999)
v. The contingent valuation of the forest environmental services lost to deforestation through
the WTP survey show the profiles of responses as follows:
Improvement of Agriculture
Prevention of desertification
and desert encroachment
Absorption of Green house
gases
Preservation of Resources for
Future Generation
Preservation of Biodiversity Willingness To Pay Total

Willingness To Pay No
Maintaining of Carbon Balance
Willingness To Pay Yes
Wildlife Conservation
Watershed and Prevention of

Water Pollution
Protection from Rainstorm
Damage
Topsoil Protection from erosion
and leaching
0 50 100 150 200 250 300
Figure 4 Willingness To Pay for Forest Environmental Services
Willingness to Pay for Environmental Services
The equation line for determining the probability and level of significance of the
WTP for RSD. The outcome variable, z, is the willingness to pay for Prevention of Rainstorm
Damages. As stated earlier, the independent variables are X1 to X9. Thus, the expanded equation is
given as:

From appendix 5, this can be expressed as:
=f (1.99X1 +0.74X2 - 0.36X3 – 0.45X4 -0.72X5 +0.63X6 - 0.19X7 - 1.45X8 + 0.32X9 +3.01)
The P values and odds ratio are:
X1 X2 X3 X4 X5 X6 X7 X8 X9
P values 0.047 0.460 0.718 0.650 0.469 0.526 0.850 0.147 0.747
Odds ratio 4.006 2.423 0.661 0.941 0.598 1.210 0.892 0.429 1.264
The combined influence of the nine variables to determine the willingness to pay for forest
environmental services showed that there was no significant difference in the opinions of
stakeholders as to willingness to pay for environmental services of forests. This showed as P=
0.2442 which is substantially greater than 0.05 significance levels. This is further proved by a mere
9.41% Pseudo R2. The only variable that showed significant difference in opinion was X1, i,e. Gender
(at 5% level of significance).
Discussions
The first objective examined the prevalence of deforestation in the forests of Osun state, Nigeria
with results showing that while annual stumpages was growing at about 4%, the regeneration efforts
evidenced by tree planting was declining at an average rate of 3.9%. When both negative factors are
combined the net effect is about 7.8% annual loss of the forest cover. This is also evident in the
changes in forest holding which showed a decline of 35.37% over a nineteen year period, giving an
annual loss of about 1.86%. These developments are indicative of imminent loss of the entire forest
in the near future. It is apparent that the loss of forest cover give rise to various ecological damages
and environmental degradation, some of which are by now evident in the state.
The second objective identified the environmental impacts of deforestation. The opinions of
stakeholders in respect of environmental impacts of deforestation showed that it included erosion,
rainstorm damages to roofs and installations, loss of biodiversity, loss of tourism attraction and
potential income, loss of wildlife, threat to indigenous plant species among others. These
consequences require to be captured, not merely in terms of occurrence but also proactively. The
ability to determine the impacts should be followed with measurements of these impacts and thus an
assignment of value. The resulting valuation will provide needed input for accounting purposes.
The third objective is a follow to the second. If the impact must be measured, then the community
within and around the forests must be made to express their willingness to pay for the services. The
WTP surveys is analogous to the creation of an hypothetical market where environmental goods are
displayed for bids. The initial WTP is expressed in dichotomous form wherein respondents answer
Yes or No. When this is analysed in the light of the socioeconomic conditions of the dwellers, the
perception of the community as to the significance of the environmental service is apparent. In the
light of the work carried out, it was observed that stakeholders opinions as to the significance of the
environmental good did not differ significantly except that the women felt that the concern for the
environment was overemphasized- the forest has always been there and will never finish, many said.
Recommendations and Conclusions
In Osun state-Nigeria, there is urgent need for firm policy for conservation of forests and indeed the
need to allocate more land to it. The consideration had always been that the state is agrarian
therefore forests are often opened up for agriculture. This need not be so, as agro-forestry has been
found to be effective in other climes and could be adopted also. The accounting procedure in the
state need to accommodate the valuation and costing of the forest environmental services lost to
deforestation. This will guide the policy makers in providing adequately for the rejuvenation of
forests. Specifically, it was noted that:
• The present practice requires major reforms in the area of accounting for the
environmental costs of forestry projects and exploitation, responsible management of
forestry resources to promote intergenerational equity, effective forestry policies
promoting other stakeholders interests in the forestry business for collaboration and
effective audit and monitoring system.
• Environmental Costing of Forestry Projects
This will serve as basis for accruing full costs to each cubic foot of wood felled. The
present practice whereby the prices for forestry products are fixed without due regard to
costs and economic realities had only furnished the opportunists and speculators with
great gains at the expense of sustainable production. (Repetto and Gills, 1988).
• Forestry Management and Income Recognition

Forestry management and income recognition needs to be well defined. The present
practice has allowed too many leakages that promotes corruption of field men in
collusion with illegal takers and this cause untold distortion on the accounts of state.
• Effective Auditing of Forestry Proceeds
The proceeds of forestry operations, especially stumpages need to be audited in such a
manner as to ensure that the various appropriations there from are undertaken as laid
down.
• Costs-Benefit Analysis
Willingness to Pay assessment in Cost-Benefit analysis. The efforts of relating costs to
benefits will provide an impetus for development of forestry.
Conclusions
The following conclusions were derived from the study:
• Forestry operations exert tremendous impact on the economy as well as ecology of Osun
State. Its products and natural resources are quite valuable for sustainable development in
Osun State.
• Although it is a well known fact that environmental accountability will enhance the
continuity or sustenance of Osun State forests, no definite action was taken to promote
such accountability. There is need for evolution of a basis for determining the value of
environmental services lost to deforestation.
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APPENDIX 1
A Comparative View of Forest Reserves of Osun State
S/N Name of Forest Size (Ha) Size (Ha) 2010 DIFFERENCE Reasons for Difference
Reserve 1993
1. Ago- Owu 31,744 19,847 -11,897Ha Farm settlement/ excessive
logging.
2 Ede 1,344 1,044 -300Ha Logging/ Housing development
3 Ejigbo 314 214 -100Ha Excessive/ illegal logging
4 Ife F3 8,383 7,168 -1,215Ha Excessive logging.
5 Olla 107 - -107 Ha Fully exploited
6 Ikeji-Ipetu 4,349 2,849 -1,500Ha Excessive logging
7 Ila 256 230 -26Ha Plantation has been heavily
exploited
8 Oba Hills 6,773 4,225 -2,548Ha Excessive logging/ Encroachment
9. Oni 5,632 - -5632Ha Disputed
10. Osogbo 594 - -594Ha De- reserved
11. Shasha 31,232 23,064 -8,168Ha Excessive logging
TOTAL 90,738 58,641 -32,097Ha Unsustainable practices
Source: Forest Management Department-Ministry of Environment, Osun State Nigeria, 2011
APPENDIX 2
Timber Harvests
YEAR Stumpages
Cubic Ft. X2 (1012)
1993 731,193 0.5346
1994 342,586 0.1174
1995 563,631 0.3176
1996 993,139 0.9860
1997 912,720 0.8340
1998 1,035,724 1.0727
1999 968,152 0.9373
2000 1,080,811 1.1682
2001 1,008,118 1.0163
2002 1,200,000 1.4400
2003 1,462,008 2.1374
2004 439,007 0.1927
2005 756,987 0.5730
2006 1,325,865 1.7579
2007 2,964,657 8.7892
2008 2,758,001 7.6066
2009 1,437,953 2.0677
2010 2,832,604 8.0236
Total 22,813,156 31.549
Mean 1,267,398
Source: Forest Management Department, Ministry of Environment, 2011.
APPENDIX 3
Tree Planting/ Regeneration (in Hectares)
Year Tree Planting

In Hectares X2
1993 110.4 12,188.16
1994 115.0 13,225.00
1995 83.0 6,889.00
1996 70.0 4,900.00
1997 64.0 4,096.00
1998 41.0 1,681.00
1999 32.0 1,024.00
2000 66.0 4,356.00
2001 62.0 3,844.00
2002 75.0 5,625.00
2003 42.0 1,764.00
2004 17.0 289.00
2005 6.4 40.96
2006 20.0 400.00
2007 20.0 400.00
2008 12.0 144.00
2009 18.0 324.00
2010 0.00 o.oo
Total 853.8 61,190.12
Mean 47.433
APPENDIX 4
Willingness to Pay for Forests Environmental Services

Forests Environmental Services Willingness To Pay
Yes No Total
Topsoil Protection from erosion and leaching 251 15 266
Protection from Rainstorm Damage 252 14 266
Watershed and Prevention of Water Pollution 218 48 266
Wildlife Conservation 236 30 266
Maintaining of Carbon Balance 194 72 266
Preservation of Biodiversity 187 79 266
Preservation of Resources for Future Generation 244 22 266
Absorption of Green house gases 184 82 266
Prevention of desertification and desert encroachment 199 67 266
Improvement of Agriculture 255 11 266
Research Survey, 2011.
APPENDIX 5
logit WTP(forest environmental services)
sex ms so aq sof aai age soof dpr, vce(robust)
Iteration 0: log pseudolikelihood = -54.738531
Logistic regression Number of obs = 264
Wald chi2(9) = 9.99 Prob > chi2 = 0.3510
Log pseudolikelihood = -50.164751 Pseudo R2 = 0.0836
------------------------------------------------------------------------------
| Robust
var41 | Coef. Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
sex | -1.061061 .7374809 -1.44 0.150 -2.506497 .3843747
ms | -.7828729 1.252039 -0.63 0.532 -3.236823 1.671077
so | .2793808 .7818172 0.36 0.721 -1.252953 1.811714
aq | -.0480108 .1320985 -0.36 0.716 -.3069191 .2108975
sof | .8844212 .5277434 1.68 0.094 -.1499369 1.918779
aai | -.5580187 .2695947 -2.07 0.038 -1.086414 -.0296228
age | .4561735 .5215869 0.87 0.382 -.5661181 1.478465
soof | -.7616532 .5299899 -1.44 0.151 -1.800414 .2771079
dpr | 1.548698 1.074341 1.44 0.149 -.5569722 3.654368
_cons | 2.516516 1.429395 1.76 0.078 -.2850472 5.318078
logit WTP(forest environmental services)

sex ms so aq sof aai age soof dpr, vce(robust) or
Logistic regression Number of obs = 264
Wald chi2(9) = 9.99
Prob > chi2 = 0.3510
Log pseudolikelihood = -50.164751 Pseudo R2 = 0.0836
------------------------------------------------------------------------------
| Robust
var41 | Odds Ratio Std. Err. z P>|z| [95% Conf. Interval]
-------------+----------------------------------------------------------------
sex | .3460883 .2552335 -1.44 0.150 .0815534 1.468696
ms | .4570909 .5722955 -0.63 0.532 .0392885 5.317895
so | 1.322311 1.033805 0.36 0.721 .2856601 6.120931
aq | .9531235 .1259062 -0.36 0.716 .7357101 1.234786
sof | 2.421582 1.277974 1.68 0.094 .8607623 6.812637
aai | .5723419 .1543003 -2.07 0.038 .3374242 .9708116
age | 1.578024 .8230767 0.87 0.382 .567725 4.386208
soof | .4668939 .2474491 -1.44 0.151 .1652304 1.319309
dpr | 4.705338 5.055138 1.44 0.149 .5729412 38.64307
Research Survey, 2011.
MICROFINANCE- A WAY TO ALLEVIATE POVERTY
Shweta Sawhney
Shilpa Sardana & Megha Kapoor
Assistant Professors
Panipat Institute of Engineering & Technology,
Panipat, Haryana
Abstract
The paper traces the fruition of the Microfinance insurrection in India as a potent tool for poverty
mitigation and women empowerment. Where institutional finance failed Microfinance delivered. In a
country like India, where almost 70 per cent of the population is in the rural areas, with little or no
access to main stream financing options, microfinance has a huge role to play and a huge population
to uplift. The paper discusses the present scenario of microfinance Institutions (MFIs) in India. In spite
of the impressive figures, the supply side of microfinance in India is still presently abhorrently
inadequate to fill the fissure between demand and supply but it holds the promise to act as a great
opportunity for the financial sector and the economy as a whole.
Keywords: Microfinance, alleviator of poverty, Overcome poverty, Finance to poor, Government

financial help, Finance.
Introduction
There is growing interest in microfinance as one of the avenues to enable low income population to
access financial services. Micro finance is the provision of thrift, credit and other financial services
and products of very small amounts to the poor for enabling them to raise their income levels and
improve their living standards. It has been recognized that micro finance helps the poor people meet
their needs for small credit and other financial services. The informal and flexible services offered to
low-income borrowers for meeting their modest consumption and livelihood needs have not only
made micro finance movement grow at a rapid pace across the world, but in turn has also impacted
the lives of millions of poor positively. Micro finance is the provision of financial services to low
income clients including consumers and self employed who traditionally lack access to banking and
related services.
Microfinance is gathering momentum to become a significant force in India. The self help group
(SHG) model with bank lending to groups of (often) poor women without collateral has become an
accepted part of rural finance. “Microfinance” is often defined as financial services for poor and
low-income clients. In practice, the term is often used more narrowly to refer to loans and other
services from providers that identify themselves as “microfinance institutions” (MFIs).
‘Microfinance refers to small scale financial services for both credits and deposits- that are provided
to people who farm or fish or herd; operate small or micro enterprise where goods are produced,
recycled, repaired, or traded; provide services; work for wages or commissions; gain income from
renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other
individuals and local groups in developing countries in both rural and urban areas’- Marguerite S.
Robinson. Microfinance refers to a movement that envisages a world in which low-income
households have permanent access to a range of high quality financial services to finance their
income-producing activities, build assets, stabilize consumption, and protect against risks. These
services are not limited to credit, but include savings, insurance, and money transfers.
Microfinance Clients
Microfinance clients are poor and low-income people that do not have access to other formal
financial institutions. Microfinance clients are usually self-employed, household-based
entrepreneurs. Their assorted “micro enterprises” include small retail shops, street vending, artesian
manufacture, and service provision. In rural areas, micro entrepreneurs often have small income-
generating activities such as food processing and trade; some but far from all are farmers.
Data on the poverty status of clients is limited, but leans to suggest that most of the microfinance
clients fall near the poverty line, both above and below. Households in the poorest 10% of the
population, including the impoverished, are not traditional micro credit clients because they lack
stable cash flows to repay loans. Most clients below the poverty line are in the upper half of the
poor. Women often comprise the majority of clients.
Over the past decade, a few MFIs have started developing a range of products to meet the needs of
other clients, including pensioners and salaried workers. Although little is known about the universe
of potential clients, the number of households without effective access to financial services is
gargantuan. Microfinance data can be used by both private sector and public sector. We can collect
data related to microfinance through provider surveys (surveys of financial institutions and their
regulators) and through household surveys.
Under the microfinance, loans are extended to the ‘Self Help Groups (SHG)’ who pools a part of
their income into a common fund from which they can borrow. The members of the group decide on
the minimum amount of deposit which ranges from Rs 20 to Rs 100 per month depending upon the
size of the group. The group funds are deposited with a Micro Finance Institution (MFI) against
which they usually lend (The deposits are usually placed with a bank by the MFI) at a credit deposit
ratio of 4:1 but the ratio improves with account performance record i.e. prompt repayment of loans.
Microfinance Delivery Vehicles
Most MFIs started as not-for-profit organizations like NGOs (non-governmental organizations),

credit unions and other financial cooperatives, and state-owned development and postal savings
banks. An increasing number of MFIs are now organized as for-profit entities, often because it is a
requirement to obtaining a license from banking authorities to offer savings services. For-profit
MFIs may be organized as non-bank financial institutions (NBFIs), commercial banks that specialize
in microfinance, or microfinance departments of full-service banks. Most MFIs are societies and
trusts. Among the large MFIs, most are NBFCs, but not-for-profit organizations are also counted in
this category.
The Impacts of Microfinance
Microfinance loans are used for starting new business as well as for existing businesses or for non
producing purposes such as for purchasing household items like refrigerator; or for marriage of
children etc. As per data available 30% of loans are used for starting a new business; 22% were
supposed to be used to buy stock for existing business, 30% to repay an existing loan, 15% to buy a
durable for household use, and 15% to smooth household consumption. (Respondents could list
more than one purpose). In other words, while some households plan to use their loans to start a
business and others use a loan to expand a business they already have, many others use the loan for a
non-business purpose, such as repaying another loan, buying a television or meeting day-to-day
household expenses.
A feature of starting a business is that there are some costs that must be paid before any revenue is
earned. While a small business like those operated by households in our sample may not require a lot
of sturdy assets (machinery, property, etc.), they normally need working capital, such as stock for
business, fabric to make dresses, etc. And as there is always a .fixed minimum time commitment in
any of these businesses, it makes no sense to operate them below a certain scale and hence it is hard
to imagine operating even these businesses without a minimum assurance of working capital. Many
businesses also have some assets, such as a sewing machine, stove, etc. The need to purchase assets
and working capital constitutes a .fixed cost of starting a business, and one impact of microfinance
may be that it enables households who would not or could not pay this fixed cost without borrowing,
to become entrepreneurs.
Challenges Ahead
A World Bank study assessing access to financial institutions found that amongst rural households in
Andhra Pradesh and Uttar Pradesh, 59% lack access to deposit account and 78% lack access to
credit. Considering that the majority of the 360 million poor households (urban and rural) lack
access to formal financial services, the numbers of customers to be reached, and the variety and
quantum of services to be provided are really large.
A tiny segment of this US$30 billion potential market has been reached so far and this is unlikely to
be addressed by MFIs and NGOs alone. Reaching this market requires serious technology and
human resources. However, 80% of the financial sector is still controlled by public sector
institutions. Competition, consolidation an capital, the convergence are all being discussed to
improve efficiency and outreach but significant opposition remains; Microfinance on its own is
unlikely to be able to address formidable challenges of underdevelopment, poor infrastructure and
governance.
There is still lot of policy focus on what activities are and are not allowed and not enough
operational freedom as yet for banks and financial institutions to design and deliver programmes,
and be responsible for their actions. Prescriptions and detailed circulars often limit organizational
innovation and market segmentation. If the right indicators are monitored and operational freedom
and incentives are clear, both public and private banks have the capacity to rapidly address the
remaining challenges. Regulation of the microfinance sector poses unique challenges. They are
worth enumerating as there appears to be inadequate appreciation of these challenges in India.
The CGAP (Consultative Group to Assist the Poor), an international consortium of public and
private development agencies evolved a set of “Microfinance regulation consensus guidelines”
which have been adopted by its donor agencies. These guidelines are general in nature and each
country is expected to evolve its own regulatory framework based on considerations of likely
effectiveness and cost of supervision.
The regulation of microfinance poses certain unique challenges, different from bank regulation.
• MFIs may not pose systemic challenges in the sense that it is unlikely that even the largest
MFIs are “too big to fail”. MFIs however deal with low income groups least likely to bear
downside risks, in a democratic country, politically the MFIs may be “too sensitive to fail”.
• In the case of MFIs, most loans are collateral free and hence no such measures are possible.
On-time repayments on microfinance loans however tend to be high, though experience
shows that once a loan is overdue, the ultimate collection of the loan is less likely, than in the
case of loans that are backed by collateral (Rosenberg, 2008). As a result, provisioning
already delinquent loans needs to be more aggressive for micro credit loans as compared to
other loans.
• While bank failures may be contagious in the sense that the failure of one bank is likely to
impact solvency of others due to the interdependent nature of the payments system, the
interdependencies between group members in microfinance can lead at times to a different
kind of contagion effect. Widespread defaults can occur either if some members start
consistently defaulting or if there are rumors of MFI failures. An important incentive for
repayment of collateral free MFI loans is the ability to obtain larger loans in the future. Any
event which Regulating India’s Microfinance Sector: A Suggested Framework 11 makes the
possibility of future loans reduce considerably, has the potential to trigger widespread
defaults. A regulator of MFIs has therefore to be highly sensitive to these realities.
• MFI customers are often first time users of financial services and usually have low education.
The responsibility on the MFI to offer the right products which suit their members’ needs as
well as provide adequate financial education and training to them is considerable. Regulation
needs to necessarily oversee this important element of MFI operations.
• Merely formulating regulation regarding codes of conduct for MFIs and providing channels
for dispute resolution regarding MFI practices is not sufficient. MFI customers need to be
made aware of them by using appropriate communication. Moreover the channels need to be
easily accessible.
• The cost that MFIs would incur in complying with regulation needs to be considered, as it
may have an impact on their lending rates.
Conclusion
Providing microfinance to poor for starting business or improving existing business or providing
finance for household needs is a great step by government and the financial institutions such as
Grameen Bank, BARC, etc.
Micro-Finance can be a powerful instrument initiating a cyclical process of growth and
development.
Using microfinance as a platform to offer integrated services increases economies
of scope for all the organizations involved in trying to service the same base of clienteles. With
leveraged resources – assets, infrastructure, knowledge, distribution channels, etc. – we can
increase the capacity of the service offerings to reach more clients and to reach them more
effectively.
Micro-Finance activity improved access of rural poor to financial services, both savings and
credit.
Increased access signifies overcoming isolation of rural women in terms of their access to
financial services and denial of credit due to absence of collateral.
The pool of savings generated out of very small but regular contributions improved access of the
poor women to bank loans.
It could also help in strengthening poor families’ resistance to external shocks and reducing
dependence on moneylenders.
The observed support for consumption smoothening would not have been possible, but for the
SHGs internal support.
The predominance of borrowing for crop cultivation reflects support for meeting working capital
needs.
Possibilities could be of explored for using SHGs as a strong conduit for purveying crop cultivation
loans to very small and marginal farmers to step up crop loan finance.
MFIs that took steps of forge in offering integrated services to their clients and to partner wherever it
makes sense must be appreciated. The fight to assuage poverty is too great a task for anyone or any
one discipline to combat it alone. As an ingrained and recognized leader in this mission,
microfinance can serve as a bridge beyond banking and development. It can be the link that brings
together the services and products available today to the people who need them most. Only through a
collective effort will we have the best chance of succeeding.
References:
1. Almario,J., E. Jimenez and B.R. Pia (2006) : The development and implementation of a uniform set of
performance standards for all types of microfinance institutions in the Philippines
(http://www.microfinanceregulationcenter.org/files/34558_file_Philippines_PESO.pdf)
2. Asian Banker (2007) : Upwardly Mobile Asian Banker August 13 Basu, P (2006): Improving access to finance
for India’s rural poor, Washington DC: World Bank CGAP (2002) : Microfinance Consensus Guidelines
(http://www2.cgap.org/gm/document-1.9.2787/Guideline_RegSup.pdf)
3. CGAP (2008) : Note on Regulation of Branchless Banking in India (http://www.cgap.org/gm/document-
1.9.2322/India-Notes-On-Regulation-Branchless-Banking-2008.pdf)
4. Economist (2009) : The power of mobile money Economist September 26th – October 2nd
5. Ghate, P (2006) : Microfinance in India A State of the Sector Report, 2006, New Delhi:
6. Microfinance India Ghate, P (2007) : Financial inclusion via exclusion? Economic Times
7. Ghate, P, S Gunaranjan, V Mahajan, P Regy, F Sinha, and S Sinha (2007) : Microfinance in India A State of the
Sector Report, 2007, New Delhi: Microfinance India
8. Intellecap (2007) : Inverting the pyramid: The Changing face of Microfinance (www.microfinancegateway.org)
9. Mahajan, V (2007) : Charting the History of Microfinance in India ISB Insight March
10. Microcredit Ratings International Ltd. (2005) A Study of the Regulatory Environment and its implications for
legal form by Microfinance Institutions in India Final Report (http://www.microfinancegateway.com)
11. NABARD website. (http://www.nabard.org/)
12. Regulating India’s Microfinance Sector: A Suggested Framework 23 NCAER (2008) Impact and sustainability
of SHG Bank Linkage Programme http://www.apmas.org/pdf%5CGTZ_NCAER.pdf
13. Porteous, D (2006) : Competition and Microcredit Interest Rates (http://www.cgap.org/)
14. Rajan, R (2008) : A Hundred Small Steps Draft Report of the Committee on Financial Sector Reforms
(http://planningcommission.nic.in/reports/genrep/report_fr.htm)
15. Rangarajan, C (2008) : Report of the Committee on Financial inclusion
(http://www.nabard.org/pdf/report_financial/Full%20Report.pdf)
16. Reddy, Y V (2005) : Microfinance: Reserve Bank’s Approach, Address at the Microfinance Conference
organised by the Indian School of Business, August 6 Reserve Bank of India (http://www.rbi.org.in/)
17. Reserve Bank of India (2009) : Handbook of Statistics on Indian Economy (http://www.rbi.org.in/)
18. Rosenberg, R (2008) : How should governments regulate microfinance? In: S. Sundaresan, ed.
19. Microfinance Emerging Trends and Challenges, (Cornwall: MPG Books pp) 85-107
20. Rutherford,S (2001): The Poor and their Money
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22. Shylendra, H S (2006) : Microfinance Institutions in Andhra Pradesh Crisis and Diagnosis
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24. Tankha, A., (2006) : Challenges and potential for Indian banks to implement Business Facilitator and Business
Correspondent models A status report GTZ Rural Finance Program India Paper October

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PROFITABLE MODELS FOR FINANCIAL INCLUSION

Dr. Atul Bansal

Financial inclusion as a business opportunity

Benefits of financial inclusion

Global Journal of Management and Research October – December 2012 Page 2

Profitable models for financial inclusion

Global Journal of Management and Research October – December 2012 Page 3

Global Journal of Management and Research October – December 2012 Page 4

• Who is your customer?

• A customer value proposition

Global Journal of Management and Research October – December 2012 Page 5

iii. Scalable business model with simple, user-friendly low-cost technologies

iv. Collaborate with local agents and for-profit companies

Global Journal of Management and Research October – December 2012 Page 6

vi. Subsidiary model to drive down costs

vii. Educate them and take them on board

viii. Ride on government payments

Global Journal of Management and Research October – December 2012 Page 7

ix. Innovate and test-market pilot products/services

Global Journal of Management and Research October – December 2012 Page 8

Global Journal of Management and Research October – December 2012 Page 9

Global Journal of Management and Research October – December 2012 Page 10

Global Journal of Management and Research October – December 2012 Page 11

Global Journal of Management and Research October – December 2012 Page 12

1. Ahire, S. L. 1997. Management Science- Total Quality Management interfaces: An

Global Journal of Management and Research October – December 2012 Page 13

Global Journal of Management and Research October – December 2012 Page 14

Global Journal of Management and Research October – December 2012 Page 15

Global Journal of Management and Research October – December 2012 Page 16

Global Journal of Management and Research October – December 2012 Page 17

Global Journal of Management and Research October – December 2012 Page 18

Global Journal of Management and Research October – December 2012 Page 19

The study is only concerned with the urban sector of Punjab.

Global Journal of Management and Research October – December 2012 Page 20

The following is the main objective of the study:

To evaluate the performance of commercial banks in India in the electronic era

Global Journal of Management and Research October – December 2012 Page 21

Global Journal of Management and Research October – December 2012 Page 22

BANK 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Mean 0.86 1.10 1.18 0.89 0.95 0.99 1.13 1.12

S.D 0.34 0.28 0.30 0.35 0.36 0.39 0.39 0.33

C.V. 40.00 25.09 25.80 39.53 37.62 39.17 34.71 29.88

Source: Report on Trend and Progress of Banking, RBI, (2001-02 to 2008-09)

2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Average 7.96 8.19 7.18 6.52 6.57 6.73 7.20 7.54

S.D. 1.97 0.32 0.42 0.60 0.52 0.27 0.37 0.66

C.V. 24.76 3.88 5.84 9.23 7.94 3.94 5.18 8.73

Source: Report on Trend and Progress of Banking, RBI, (2001-02 to 2008-09)

Global Journal of Management and Research October – December 2012 Page 24

2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Average 5.52 5.54 4.36 3.67 3.65 3.96 4.58 4.80

C.V. 24.56 14.34 16.20 17.01 17.38 17.20 20.74 23.06

Source: Report on Trend and Progress of Banking, RBI, (2001-02 to 2008-09)

Global Journal of Management and Research October – December 2012 Page 25

2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-

Average 2.44 2.66 2.82 2.86 2.91 2.79 2.62 2.72

S.D. 0.78 0.62 0.58 0.45 0.48 0.58 0.66 0.72

C.V. 31.97 23.51 20.38 15.63 16.38 20.79 25.26 26.43

Source: Report on Trend and Progress of Banking, RBI, (2001-02 to 2008-09)

Non- interest income as percentage of total assets(x5)

Non-interest income is a kind of income which includes commission on exchanges,

Global Journal of Management and Research October – December 2012 Page 26

Bank 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-