Sam Walton Business Model 1

AFBE JOURNAL
Volume 7, No. 1, June, 2014

ISSN 2071-7873
TABLE OF CONTENTS
ACADEMIC PAPERS
Koustab Ghosh, “Sam Walton: The Exemplary Retail Leader (Case Study)” 1
C.C. Tan and SangchanKantabutra, “Towards A Theory of National and 39
Organizational Level Ethical Leadership for Sustainable Competitive
Advantage”
Yuliya Frolova, “An Exploratory Comparison of Attitude-Based Leadership 62
Styles of Young People in The United States of America and in Kazakhstan”
Mahipal Singh Yadav, “Impact of Tourism on Indian and Sri Lankan 78
Economy”
Pinaki Ranjan Bhattacharyya, Subhasis Dasgupta, “Perceptual Mapping of 91
Consumers: A Correspondence Analysis Approach Towards Consumers of
Leather Products in Calcutta, India”
Riza Firdaus, Hastin Umi Anisah, Widyarfendhi, Wimby Wandary, “Analysis 102
of Mocaf Substitution Capability to Wheat Flour and It’s Business
Feasibility”
AFBE Journal Vol.7, no. 1

AFBE Journal Vol.7, no. 1 1
SAM WALTON: THE EXEMPLARY RETAIL LEADER (CASE STUDY)
Koustab Ghosh
Indian Institute of Management (IIM) Rohtak
M.D.U. Campus, Rohtak 124001
Haryana, India
koustab.g@gmail.com
ABSTRACT
This is an in depth case study of the leadership styles and qualities of Mr. Sam Walton, the
founder of Wal-Mart, with a detailed view of his life and career as well as path to success.
The author declares that this particular case study has not been intended to indicate
strengths / weaknesses of any particular individual or organization over a period of time; and
has been developed solely for teaching and classroom discussion in the academic area of
organizational leadership.
Keywords: Leadership; Retail; Walmart

“Walmart as we know it today evolved from Sam Walton’s goals for great value and great
customer service. “Mr. Sam,” as he was known, believed in leadership through service. This
belief that true leadership depends on willing service was the principle on which Walmart
was built, and drove the decisions the company has made for the past 50 years. So much of
Walmart’s history is tied to the story of Sam Walton himself, and so much of our future will
be rooted in Mr. Sam’s principles.”
-Mr. Rob Walton, Son of Mr. Sam Walton (CEO Wal-Mart)
"I've known Sam since his first store in Newport, Arkansas, and I believe that money is, in
some respects, almost immaterial to him. What motivates the man is the desire to absolutely
be on top of the heap. It is not money. Money drives him crazy now. His question to me at 6
A.M. not long ago was 'How do you inspire a grandchild to go to work if they know they'll
never have a poor day in their life?'"(1987)
-Mr. Charlie Baum, Early Wal-Mart partner (and friend of Mr. Sam Walton)
“Walton created an unbelievable design. One of the major reasons they have survived is
because they have treated the management and the family as two separate entities.”
-Mr. Kishore Biyani, (CEO Future Group, India)
The motivation to choose Mr. Sam Walton as a Leader
The retail sector has seen an upsurge, doing extremely well even with the global turmoil
hitting the economies worldwide. The company that has always been worth noticing at such
times of recession is Wal-Mart. Some leaders are born charismatic, some are heirs to thrones
of large corporate houses, and some leaders have insight and spirit. Then there is Mr. Sam
Walton. The man who grew up in the adversities of post-World War II depression knew the
worth of money. His first quality was not that of a visionary or that of an excellent
businessman but that of empathy. Empathy towards an America that was striving in
depression and was booming post war and the passion and diligence to do something
worthwhile to support his family made Sam Walton start off a business with a mere loan of
$20000 dollars from his father in law.
This paper will view how Sam Walton developed various qualities of leadership and how
each of these qualities and his commitment towards his employees made him one of the
greatest businessmen globally and a great corporate leader, the enthusiasm and teachings of
who are followed by organizations worldwide.
In context to India where the retail industry is still in a nascent stage Wal-Marts’ entry is
going to be a massive game changer for the Indian retail business. Hence it would be a good
time to draw analogies between Mr. Sam Walton and Mr. Kishore Biyani (founder of the
Future Group), who is touted as the “Sam Walton of India” by many.
A deep study on the life and leadership strategies of Mr. Sam Walton will lead to the
development of ideas that would help Indian retailers understand Wal-Mart and the man who
created retail history.

Sam Walton's first store was a second-rate store in a second-rate town in what no one would
have classified as a first-rate state. Millions, literally, of small stores failed during the course
of the twentieth century in America. There were about 1.7 million retail establishments in the
United States in 1945.Walton was responsible for a lot of the success. His vision of a
discount retail store in rural areas was accompanied by the founder’s hard-charging,
demanding style. Even in the grips of a recession, Walton’s stores proved successful. In 1991,
as the country was mired in an economic downturn, Wal-Mart increased sales by more than
40 percent. But that success also made Wal-Mart a target, especially for small-town
merchants and other residents who argued the giant chain was wiping out a community’s
smaller stores and downtown retail.
Early life
In the era when the world would shun the idea of discount stores selling goods to the so
called semi urban America, one man stood up against all odds and taught America how to
save each and every cent they earned keeping the goals of his business intact. Sam Walton
was a man who took chances and moved against the tide. All through his life he has fought an
uphill battle and in the end he won. Sam Walton was a leader not a follower.
Sam Walton grew up during the depression and knew that hard work and thrift were a way of
life. Sam was described as to be industrious, always trying to get the most out of money, and
had a burning ambition to succeed. This is all apparent by how he helped his family through
the depression, started his own business from almost nothing, and how he changed the field
of management.
Sam Walton was born on March 29, 1918 to Thomas Gibson and Nancy Lee Walton near
Kingfisher, Oklahoma. In Oklahoma, they owned and lived on a farm until 1923. His college
fraternity brothers gave him the nick-name "Hustler". The Walton's then decided that the
farm was not profitable enough to raise a family on. So, Sam and Jame's (Sam's younger
brother born in 1921) dad decided he would go back to being a Farm Loan Appraiser. Once
this job started the Walton family moved out of Oklahoma and moved from town to town in
Missouri. When Sam was in 8th grade at Shelbina he became the youngest boy in the state's
history to become an Eagle Scout and this was only a start of his many of accomplishments.
Educational Background
As Sam Walton grew up he was always an ambitious boy. He attended Hickman High School
in Columbia there he played basketball and football, in which he was the starting quarterback
for the football team and lead them to the state title in 1935. Besides being athletic he was
also a political figure at school, too. He severed as Vice- President of his Junior Class and
President of the Student Body his senior year. Along with his education he also had to help
support his family, along with his father and brother because money was lacking due to the
depression. Sam's job was to milk the family cow, bottle the milk and then deliver the surplus
to customers and then deliver newspapers afterwards. When he graduated from high school
he was voted the "Most Versatile Boy" in his class. During this time it would have been easy
for him to just give up on school and go to work full time. Seeing though how his family was
struggling to make ends meet, he decided he was going to stay in school and attend the

University of Missouri. At the University of Missouri Sam majored in Economics. He could
not really afford to attend school so he waited tables in exchange for meals, life-guarded at
the school pool, and also delivered newspapers.
While he was not doing that he was either at his fraternity in which he was an officer, or at a
student government meeting since he was a member of the student senate, or fulfilling his
duties as an ROTC Officer, and then on Sundays he was President of a Sunday School Class
in which many of his fellow classmates attended. While accomplishing all this he was also in
the National Honor Society. When Sam Walton graduated in 1940 he was voted the
permanent President of his class. Following graduation, he aspired to attend the Wharton
School of Business but quickly found he couldn't afford it. He instead took a job as a
manager trainee at J.C. Penney. Today, the Walton College of Business at the University of
Arkansas bears his name.
Early Retail Career
Following college, Walton got his first real taste of the retail world when took a job in Des
Moines with the J.C. Penney Company, which was still a relatively small retailer. Soon after
his brush with the retail sector Walton joined the military in the US Army Intelligence Corps,
where he supervised security at aircraft plants and prisoner of war camps, eventually
reaching the rank of captain. In the year 1945 he left the military with the ambition of
opening a department store, and so with the help from his father in law and his own savings
Walton bought a Ben Franklin variety store from the Butler Brothers franchise in Newport,
Arkansas. When he left the army three years later, Walton was married, had a child, and
decided to start his own business to support his new family. With the $5,000 that he had
saved along with a $20,000 loan from his wife's father, he purchased a Ben Franklin variety
store in Newport, Arkansas. Walton was 27 years old.
It was here that Walton pioneered many concepts that would prove to be crucial to his
success. Walton made sure the shelves were consistently stocked with a wide range of goods.
His second store, the tiny "Eagle" department store, was down the street from his first Ben
Franklin and next door to its main (Newport) competitor. Walton leased the space mainly to
preempt his competitor from expanding. It held its own, but didn't fare as well.
Setbacks faced by Mr. Sam Walton
"I felt sick to my stomach. I couldn't believe it was happening to me. It was really like a
nightmare. I had built the best variety store in the whole region and worked hard in the
community—done everything right—and now I was being kicked out of town. It didn't seem
fair. I blamed myself for getting suckered into such an awful lease, and I was furious at the
landlord. Helen, just settling in with a brand-new family, was heartsick at the prospect of
leaving Newport. But that's what we were going to do."
-Mr. Sam Walton on the expiry of his lease of the first store

However the success of the first Ben Franklin drew the attention of the landlord, P.K.
Holmes, whose family had a history in retail. Admiring Sam's great success, and desiring to
reclaim the store (and franchise rights) for his son, he refused to renew the lease. The lack of
a renewal option, together with the outrageous rent of 5% of sales, was early business lessons
to Walton. Despite forcing Walton out, Holmes bought the store's inventory and fixtures for
$50,000, which Walton called "a fair price".
Bentonville Store Expansions
With a year left on the lease, but the store effectively sold, he, his wife Helen and his father
managed to negotiate the purchase of a new location on the downtown square of Bentonville,
Arkansas. Walton negotiated the purchase of a small store, and the title to the building, on the
condition that he gets a 99 year lease to expand into the shop next door. The owner of the
shop next door refused 6 times, and Walton had thus given up on Bentonville when his father
in law, without Sam's knowledge, paid the shop owner a final visit, and $20,000 to secure the
lease. (He had just enough from the sale of the first store to close the deal, and reimburse
Helen's father.)
Before he bought the Bentonville store, it was doing $72,000 in sales. After the expansion,
and 5 years under Walton, it was doing $250,000 in sales annually. With the new Bentonville
"5 and Dime" opening for business and, 220 miles away, a year left on the lease in Newport,
the cash strapped young Walton had to learn to delegate responsibility.
After succeeding with two stores at such a distance, (and with the post war baby boom in full
effect,) Sam became gung-ho to scout more locations, and open more Ben Franklin
franchises. (Also, having spent countless hours behind the wheel - with his close brother
James "Bud" Walton having been a pilot in the war - he took a shine to the idea of buying a
small plane. Both would later become accomplished pilots, and log thousands of hours
scouting locations, and rolling out the family business.)
Giving up the Bentonville Franchisee
Walton's revolutionary plan was to have large superstores in rural towns that discounted a
wide variety of products. His initial approach was to Ben Franklin. They turned him down as
they did not like the idea of operating with lower margins. Without a large company behind
him, Walton opted to go it alone. In 1962, he mortgaged his home and borrowed against
everything he owned to open his first Wal-Mart in Rogers, Arkansas, a neighboring town of
Bentonville. Excited about the prospects of getting discounts and selection that were
previously only obtainable in the cities, rural customers came out in droves to his store.
Wal-Mart: Building an Empire
In 1951 before leaving the store Sam arranged to lease another store in Bentonville, Arkansas
as another Ben Franklin franchise but called his new store the Walton’s Five and Dime. Sam

kept very busy serving as president of the local rotary club and chamber of commerce, sat on
the city council and the hospital board and launched a little league baseball program. Walton
started yet another store in Fayetteville, Arkansas in 1952 with the same Walton’s Five and
Dime name but wasn’t a Ben Franklin Franchise. The store became as successful as the first
Five and Dime. Walton used a technique of nosing around other stores looking for good
employees which turned up Willard Walker, a manager of the TG&Y variety store. Always
the pioneer Walton did another usual thing at the time by offering Walker a percentage of the
stores profit now known as profit sharing. Walton soon made the decision to move the
checkout counters to one location near the exit; customers could now pay for all goods at the
one location at the same time. Sam Walton was made sure his stores were clean well lit and
kept loyalty high with his employees by profit sharing. He continued to open stores in all
directions with the help of his brother, father in law and brother in law but decided to open
larger stores called Walton’s Family Centre. Sam allowed his managers to be limited partners
by investing in their store and any new stores that opened to give them motivation to
maximize profits. Walton and his brother Bud owned 16 variety stores across Arkansas,
Missouri and Kansas.
On July 2, 1962, in Rogers, Arkansas, Walton opened his first discount store, under the Wal-
Mart name. The idea of a discount store is to sell a lower line of goods than a regular
department store, but also to sell many of the same goods as regular department stores, at a
cheaper price. The success of his first store allowed him to expand and by 1969 he had 18
Wal-Marts in Arkansas and Missouri. From this beginning Sam Walton pioneered some
concepts that are still used today to make his business a success including a wide variety of
low priced goods, keeping his store open longer than most other stores and buying goods in
large quantities from the lowest priced wholesaler to pass on savings to customers. With
cheap prices came large sales volume which allowed him to purchase even cheaper wholesale
goods from his suppliers, leading to his store to be the most profitable franchise store in the
whole six state region.
It required cost-accounting "savings." The discount store could find some efficiencies of
scale, and also operate at a lower profit margin per unit good than a regular department store.
But primarily, Walton used two tactics, with regard to labor and suppliers.
First, he resolved to pay his workers less, ferociously resisted any unionization, and restricted
most of his workers to working no more than 28 hours per week, which would mean they
would not qualify for employee benefits—and would never be able to earn a living wage. He
offered some of them health benefits, but most did not earn enough to purchase the health
insurance. Though the myth arose that this policy became prevalent only after Walton's April
1992 death, the fact is that Mr. Sam enforced it from day one. Wal-Mart workers earn wage
and benefit packages that are 12-30% below those paid to workers in comparable jobs at
unionized companies, depending on the job classification. During most of Sam Walton's
reign, Wal-Mart had a worker turnover rate of an incredible 35-45%.
Second, Walton instituted a policy that suppliers would have to sell goods to Wal-Mart at
constantly lower prices, forcing them to cut expenses, which frequently meant cutting wages
of their own workers and/or layoffs. Eventually, this led to these suppliers outsourcing their

production to overseas sweatshops, a policy that started to gain steam in the 1980s under Sam
Walton's direction.
Funded solely through debt and reinvested profits, Walton decided that in 1970 he would take
the company public. The IPO raised $5 million and Walton retained 61 percent of the
company. The money was used to settle the company's debts and fuel further expansion. By
1980, 276 Wal-Marts were operating.
An integral component of Wal-Mart's success was its leveraging of new technologies to

improve efficiencies and save costs. Walton knew that the key to success in a low margin
business was to rigidly control his costs. Wal-Mart was, for example, one of the first major
retailers to use electronic scanners at the registers which tied to an inventory control system
so they could know immediately which items were selling well and needed to be re-ordered.
The success of his Wal-Mart stores led Sam to another idea - Sam's Wholesale Clubs. These
would be discount stores that sold to small business owners in bulk. The idea was another big
hit for Walton and by 1985 he was considered by Forbes magazine to be the richest man in
America with an estimated net worth of $2.8 billion.
Wal-Mart: Wall Street Cash Infusion
Wal-Mart faced a financing crunch. We look at two examples from Wal-Mart's history,
which crucially demonstrate that, contrary to its own public relations fairy tales, Wal-Mart
would not exist without Wall Street's direction and ample financial backing.
After Sam Walton started Wal-Mart in 1962, he flew around the American Southeast,
Southwest, and Midwest to line up loans for his company. Republic Bank, based in Dallas,
Texas, and known for its smarmy dealings, was one of the first lenders to him in the 1960s.
But Republic Bank and other banks that lent money to Wal-Mart set a limit on how much
they would lend. Walton revealed in his autobiography, Sam Walton: Made in America, that
in 1969, "we weren't generating enough profits both to expand and pay off our debts.... We
really needed the money, pure and simple."
Walton and his eldest son, S. Robson (Rob) Walton (who is now chairman of Wal-Mart),
figured that the only way they could come up with the money to pay their debts, was an
Initial Public Offering (IPO), issuing shares of stock to the public.
But there was one catch: A commercial or industrial company cannot conduct an IPO by
itself; it must be done by a financial institution. To handle the job, Sam Walton hired two of
the world's most criminally-connected, dirty-money investment banks.
The first was the Little Rock, Arkansas-based Stephens, Inc., which is the largest private
investment bank west of the Mississippi. Its founder was Jackson Stephens, who had worked
intensively with such dirty operations as the Bank of Credit and Commerce International
(BCCI), an intelligence cut-out for the financier oligarchy, which financed illegal weapons
and drug trade. In 1990, the BCCI was convicted in Miami, of money laundering for the

Colombia cocaine cartels. Published reports have also linked Stephens to work with the U.S.
National Security Agency.
The second firm Sam Walton selected to handle his IPO was the investment bank White
Weld. White Weld operates on Wall Street, but its headquarters are in Boston. Walton wrote
in his autobiography, "I thought we needed a Wall Street underwriter." The founders of
White Weld descended from Boston Brahmin families that had been involved in a treasonous
plot, the Hartford Convention of 1814, to split apart the United States. Through a series of
corporate marriages, White Weld would merge with both the Swiss banking giant Credit
Suisse, as well as the First National Bank of Boston, eventually becoming Credit Suisse
White Weld, one of the world's largest drug-money Laundromats. On Feb. 7, 1985, Federal
agents caught Credit Suisse in a multi-billion-dollar money laundering scheme, for which
they were convicted.
These two sinister firms raised more than $4.5 million for Wal-Mart through the Oct. 1, 1970
IPO, and a grateful Mr. Sam placed Jackson Stephens on the board of directors of Wal-Mart.
The second instance of Wall Street's massive financing and guiding of Wal-Mart
involves the company's spectacular growth during 1990-2002.
The bankers loved Wal-Mart because it fulfilled their policy of a post-industrial society,
whereby America's productive capacities were ravaged; the nation no longer produced quality
goods at decent prices, with a well-paid productive labour force. Instead, it became a
consumer society, purchasing goods, produced first at runaway sweatshops in the U.S. South,
and eventually at overseas concentration-camp production facilities. Wal-Mart would be the
prime seller of these goods. Soon its ferocious methods became the "norm" for America;
other retail firms, as well as manufacturers, either adopted the methods of Wal-Mart, or they
were gone.
In the late 1980s, the Wall Street-City of London financiers needed greater volumes of loot to
prop up the collapsing world speculative bubble. They gouged huge amounts of loot out of
the developing sector, under the globalization typified by the North American Free Trade
Agreement (NAFTA), which was rammed through the U.S. Congress in 1993, and
implemented the following year. Wal-Mart became the ideal vehicle for free-trade and
globalization: marketing the goods that developing countries had produced, but for which
these countries were paid only a fraction of their real production costs.
Wal-Mart was pumped up to enormous size, accompanied by structural changes, with Wall
Street pumping in the money by snapping up Wal-Mart's corporate bonds.
For most of its existence, Wal-Mart had built only one kind of store, an enormous facility
occupying approximately 70,000 square feet in sales space (other department chains' stores
averaged 40,000 square feet). But now, even these stores were no longer big enough. With
globalization going through, the United States would receive a flood of imported goods. Both
for this, and for advantage against its competitors, Wal-Mart, starting 1987, began to build
super centers, stores with an amazing 180,000 to 200,000 square feet, which sold everything
from hard goods to fresh food.

Success of Wal-Mart
Sam Walton did not invent retailing; he simply changed the business model and way of doing
business to make it a much more profitable venture. Wal-Mart is now the world's biggest
corporation, having passed Exxon Mobil for the top slot. It hauls off a stunning $220 billion a
year from We the People (more in revenues than the entire GDP of Israel and Ireland
combined).
Despite its claim that it slashes profits to the bone in order to deliver "Always Low Prices,"
Wal-Mart banks about $7 billion a year in profits, ranking it among the most profitable
entities on the planet.
Of the 10 richest people in the world, five are Waltons--the ruling family of the Wal-Mart
Empire. S. Robson Walton is ranked by London's "Rich List 2001" as the wealthiest human
on the planet, having sacked up more than $65 billion in personal wealth and topping Bill
Gates as No. 1.Wal-Mart and the Waltons got to the top the old-fashioned way--by roughing
people up. The corporate ethos emanating from the Bentonville headquarters dictates two
guiding principles for all managers: Extract the very last penny possible from human toil, and
squeeze the last dime from every supplier.
With more than one million employees (three times more than General Motors), this far-flung
retailer is the country's largest private employer, and it intends to remake the image of the
American workplace in its image--which is not pretty.
An integral component of Wal-Mart's success was its leveraging of new technologies to

improve efficiencies and save costs. Walton knew that the key to success in a low margin
business was to rigidly control his costs. Wal-Mart was, for example, one of the first major
retailers to use electronic scanners at the registers which tied to an inventory control system
so they could know immediately which items were selling well and needed to be re-ordered.
The success of his Wal-Mart stores led Sam to another idea - Sam's Wholesale Clubs. These
would be discount stores that sold to small business owners in bulk. The idea was another big
hit for Walton and by 1985 he was considered by Forbes magazine to be the richest man in
America with an estimated net worth of $2.8 billion.Today, Wal-Mart is the world’s number
1 retailer, with more than 4,150 stores, including discount stores, combination discount and
grocery stores, and membership-only warehouse stores (Sam’s Club).
The Leadership of Mr. Sam Walton
Even though Sam Walton was a good manager, his real strength was to lead people
effectively. Walton was so committed to his business and so hard-working that he affected
most of his staff with his enthusiasm. It was not only this but also his ability to create
commitment for his associates, using “reward power” by showing his appreciation of and
rewarding people’s efforts. Sam Walton emphasized the importance of team-work. He
encouraged people to help each other where they can, as often as possible, as long it is for the
benefit of their personality or of the company. His drive towards achieving goals and his

natural ability to lead people was already apparent in the early years of his life, for example
in school or later at university, where Sam Walton led several student committees.
Sam's competitors thought his idea that a successful business could be built around offering
lower prices and great service would never work. As it turned out, the company's success
exceeded even Sam's expectations. The company went public in 1970, and the proceeds
financed a steady expansion of the business.
Sam credited the rapid growth of Wal-Mart not just to the low costs that attracted his
customers, but also to his associates. He relied on them to give customers the great shopping
experience that would keep them coming back. Sam shared his vision for the company with
associates in a way that was nearly unheard of in the industry. He made them partners in the
success of the company, and firmly believed that this partnership was what made Wal-Mart
great.
As the stores grew, so did Sam's aspirations. In addition to bringing new approaches and
technologies to retail, he also experimented with new store formats—including Sam's Club
and the Wal-MartSupercenter—and even made the decision to take Wal-Mart into Mexico.
Sam's fearlessness in offering lower prices and bringing Wal-Mart’s value to customers in the
U.S. and beyond set a standard for the company that lives on to this day. His strong
commitment to service and to the values that help individuals, businesses and the country
succeed earned him the Presidential Medal of Freedom, awarded by President George H. W.
Bush in 1992.
Sam Walton: Personality Traits
Sam Walton was a leader not a follower. He was hardworking, highly motivated and
determined personality. He was innovative and always thought of novel ways to do things
and strived for continuous improvement. At the same time Sam wasn’t afraid to take risks
when the situation warranted. David Dayne Glass, former President and Chief Executive
Officer of Wal-Mart Stores, Inc. said, "Two things about Sam Walton distinguish him from
almost everyone else I know. First, he gets up every day bound and determined to improve
something. Second, he is less afraid of being wrong than anyone I've ever known”.
Sam was an excellent team player for he believed that ‘individuals don’t win, teams do’.
Sam understood the dynamics of employee satisfaction better than anyone and fostered
commitment in his employees by introducing stock options and store discounts.
He also believed in community spirit and felt that each store should reflect his customer’s
values and support the vision they held for their community. For seven years Sam worked in
a federal position that dealt exclusively with Air Force personnel. Being exposed to a
stringent workplace that makes personnel adhere to all rules and regulations has helped him
to become very organized and time efficient. It has also, helped him to realize that
compassion is a key piece that is missing in the military lifestyle.

Walton's Management Style
“Outstanding leaders go out of their way to boost the self-esteem of their personnel. If people
believe in themselves, it′s amazing what they can accomplish.”
This quote originates from none other than Sam Walton; famous founder of the world’s
largest retail company and is a good example to show one of the factors that created the
incredible success of Sam Walton’s business.
Walton opened up his first store as a franchisee of Ben Franklin Stores in 1945. But being a
franchisee and therefore having low entrepreneurial freedom, Walton was not satisfied for
long and went to open up his own store, the first “real” Wal-Mart, in Rogers, Arkansas, USA
in 1962. His business concept, combining low prices and great service, created immediate,
but enduring success.
Walton always believed in the importance of staying involved and controlling the daily
business, and therefore initiated several traditions, as it was for example the introduction of
the so-called “Saturday-morning-meetings”, a meeting where all executives come together
once a week to discuss all problems arising in their departments. This allowed Walton, even
in a fast-growing company, to control the every-day-business on a regular basis, to identify
the core problems and to make plans of how to solve them. It has to be clear that he did not
intend to solve all problems on his own, but rather to delegate the solution to his associates,
as all employees are referred to at Wal-Mart, in order to show his confidence and to
encourage them. Walton therefore also put emphasis on the fact that he never wanted his
word to be sacred, as he was conscious of having some weaknesses, and therefore relied on
others where he thought they would do better than him.
Another way of controlling and directing within the organization were Sam’s regular visits in
the stores where he intended to both motivate and check on his associates at the same time.
He loved the opportunity to learn about the problems “on the frontline”, and to discuss
potential solutions with the personnel.
Many industry observers regard Walton's management style as unique, entrepreneurial,

participative and goal-oriented. Analysts described him as a hardworking, highly motivated
and determined personality always willing to take risks.
Sam Walton’s managerial approaches and the Wal-Mart corporate culture created by him are
still key points in the company’s ongoing success. Regarding all of Sam Walton’s
management and leadership one really has to say that he was a successful leader and
motivator. Sam Walton is surely an example of a leader that was born. He led people before
he has ever had the chance to learn about leading. So Sam’s natural leadership skills and the
“high follower readiness” was another key to Wal-Mart’s success.

Sam's 10 Rules for Building a Business
Sam Walton believed running a successful business boils down to 10 simple rules. These
rules helped Wal-Mart become the global leader it is today. We continue to apply them to
every part of our business. You can read the rules below, excerpted from his book, Sam
Walton, Made in America: My Story.
Rule 1: Commit to your business.
Believe in it more than anybody else. I think I overcame every single one of my personal
shortcomings by the sheer passion I brought to my work. I don’t know if you’re born with
this kind of passion, or if you can learn it. But I do know you need it. If you love your work,
you’ll be out there every day trying to do it the best you possibly can, and pretty soon
everybody around will catch the passion from you— like a fever.
Rule 2: Share your profits with all your associates, and treat them as partners.
In turn, they will treat youas a partner, and together you will all perform beyondyour wildest
expectations. Remain a corporation andretain control if you like, but behave as a servant
leader in your partnership. Encourage your associates to holda stake in the company. Offer
discounted stock, andgrant them stock for their retirement. It’s the single bestthing we ever
did.
Rule 3: Motivate your partners.
Money and ownership alone aren’t enough. Constantly, day by day, think of new and more
interesting ways to motivate and challenge your partners. Set high goals, encourage
competition, and then keep score. Make bets with outrageous payoffs. If things get stale,
cross-pollinate; have managers switch jobs with one another to stay challenged. Keep
everybody guessing as to what your next trick is going to be. Don’t become too predictable.
Rule 4: Communicate everything you possibly can to your partners.
The more they know, the more they’llunderstand. The more they understand, the more
they’llcare. Once they care, there’s no stopping them. If youdon’t trust your associates to
know what’s going on,they’ll know you really don’t consider them partners.
Information is power, and the gain you get from empowering your associates more than
offsets the risk of informing your competitors.
Rule 5: Appreciate everything your associates do for the business.
A pay check and a stock option willbuy one kind of loyalty. But all of us like to be toldhow
much somebody appreciates what we do forthem. We like to hear it often, and especially
whenwe have done something we’re really proud of.
Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise.
They’re absolutely free — and worth a fortune.

Rule 6: Celebrate your success.
Find some humor in your failures. Don’t take yourself so seriously.Loosen up, and everybody
around you will loosen up. Have fun. Show enthusiasm — always. When all else fails, put on
a costume and sing a silly song. Then make everybody else sing with you. Don’t do a hula on
Wall Street. It’s been done. Think up your own stunt. All of this is more important, and more
fun, than you think, and it really fools competition. “Why should we take those cornballs at
Wal-Mart seriously?”
Rule 7: Listen to everyone in your company and figure out ways to get them talking.
The folks on the front lines — the ones who actually talk to thecustomer — are the only ones
who really knowwhat’s going on out there. You’d better find out whatthey know. This really
is what total quality is allabout. To push responsibility down in yourorganization, and to force
good ideas to bubble up within it, you must listen to what your associates aretrying to tell
you.
Rule 8: Exceed your customer’s expectations.
If you do, they’ll come back over and over. Give them what they want — and a little more.
Let them know you appreciate them. Make good on all your mistakes, and don’t make
excuses — apologize.
Stand behind everything you do. The two most important words I ever wrote were on that
first Wal-Mart sign: “Satisfaction Guaranteed.” They’re still up there, and they have made all
the difference.
Rule 9: Control your expenses better than your competition.
This is where you can always find thecompetitive advantage. For twenty-five years
running— long before Wal-Mart was known as the nation’slargest retailer — we’ve ranked
No. 1 in our industryfor the lowest ratio of expenses to sales. You canmake a lot of different
mistakes and still recover ifyou run an efficient operation. Or you can be brilliantand still go
out of business if you’re too inefficient.
Rule 10: Swim upstream.
Go the other way. Ignore the conventional wisdom. If everybody else is doing it one way,
there’s a good chance you can find your niche by going in exactly the opposite direction. But
be prepared for a lot of folks to wave you down and tell you you’re headed the wrong way. I
guess in all my years, what I heard more often than anything was: a town of less than 50,000
populations cannot support a discount store for very long.
Sam Walton: The Leadership Lessons
Stick to fundamental values

Sam Walton had simple values that guided him through his life and business. He didn’t
follow the latest management fad, nor did he believe in any of the get-rich-quick ideas. He
was solidly living his life by the values that he grew up with.
Similarly, as a leader building a team or an organization, you need to get away from all the
‘noise’ about the latest management framework, or the next idea about how leadership should
be done.
The principles that existed for thousands of years still exist today and all you have to do is
follow them, and people will follow you. There is nothing new under the sun and you
shouldn’t be swayed by different ways and ideas; but stick to your values and you will be
successful.
Don’t follow the money, follow your passion
Sam Walton didn’t start off his variety stores with an ambition to become rich; he simply had
a passion for his craft and at each point in time, he only wanted to do it better and better.
The thing is, if you follow the money, you’ll be running from one business opportunity to
another, without any focus. But Sam Walton had one focus: retail and so should you. When
you follow your passion, you’ll be successful, in whatever craft you do, and you’ll become a
leader in that field, no matter what is it.
Take care of your people
Sam Walton took extremely good care of his employees and he gave very employee a chance
to become successful with him by allowing them to purchase stock options of Wal-Mart at a
discount. He treated them as associates of the business and wanted them to enjoy part of Wal-
Mart’s success. If you can value every single employee or team member in your organization,
it will help toward your personal success as well. But do it only because you genuinely care.
Make them part of the organization by allowing them to share the organization’s success, be
it by stock options or other forms of rewards. There’s a saying that goes, if you can make
people around you successful, then you will be successful too.
Customer Relationship Management at Wal-Mart
Walton believed that every customer should be greeted upon entering a store, and that each
store should be a reflection of the values of its customers and its community. Wal-Mart is
involved in many community outreach programs and has launched several national efforts
through industrial development grants. What are the Key Features of Wal-Mart's Approach to
Implementing the Strategy Put Together by Sam Walton -- The key features of Wal-Mart's
approach to implementing the strategy put together by Sam Walton emphasizes building solid
working relationships with both suppliers and employees, being aware and taking notice of
the most intricate details in store layouts and merchandising techniques, capitalizing on every
cost saving opportunity, and creating a high performance spirit. This strategic formula is used
to provide customers access to quality goods, to make these goods available when and where

customers want them, to develop a cost structure that enables competitive pricing, and to
build and maintain a reputation for absolute trustworthiness
Mr. Sam Walton described as per Leadership Theories

Sam Walton: The Blake and Mouton Managerial Grid
As per this grid Walton would be considered to be on the team Leadership – High
Production/High People According to the Blake Mouton model, this is the pinnacle of
managerial style. He stressed on the production needs and the needs of the people equally
highly. His endeavours to take rounds of the stores and meet associates made his employees
involved in understanding organizational purpose and determining production needs. When
employees are committed to, and have a stake in the organization’s success, their needs and
production needs coincide. (See exhibit 9)
Walton's management style was popular with employees and he founded some of the basic
concepts of management that are still in use today. After taking the company public in 1970,
Walton introduced his "profit sharing plan". The profit sharing plan was a plan for Wal-Mart
employees to improve their income dependent on the profitability of the store. Sam Walton
believed that "individuals don't win, teams do". Employees at Wal-Mart stores were offered
stock options and store discounts. These benefits are commonplace today, but Walton was
among the first to implement them. Walton believed that a happy employee meant happy
customers and more sales. Walton believed that by giving employees a part of the company
and making their success dependent on the company's success, they would care about the
company.
His concern for production as per the grid is very evident from the profit made by Wal-Mart
and the growth. He was one of the only leaders who could balance both the production and
concern for employees which is the reason for Wal-Mart’s great success.
Sam Walton: The Big Five Trait Theory
Sam Walton’s distinct and successful style of leadership is derived from his personality.
According to trait theory, the combinations of personal traits are what define an individual’s
personality. According to the “Big Five” trait theory there are five definite traits that define a
person’s personality: extraversion, agreeableness, conscientiousness, emotional stability, and
openness to experience. With further examination of Sam Walton, his leadership style, his
life, his business tactics, and his success. (See Exhibit 3 and 4) He possessed all of these
traits. From a very young age Sam demonstrated extraversion and conscientiousness through
his entrepreneurial spirit. He created his own jobs as a child, and later bought department
stores to feed his desire of ownership and success. Many of his employees have call Sam
Walton a powerful and fair leader; this demonstrates his trait of agreeableness. Sam Walton
said “Most managers lead by fear and intimidation. They think that being tough is being a
leader; nothing is further from the truth. Good leaders add the human factor to all aspects of
their business.” Sam’s openness was expressed in his innovative ideas at Wal-Mart. Sam had
the idea to move the multiple registers located throughout his department stores to the front

of the store. That way people wouldn’t need to check out in individual departments, they
could check out at the end of their shopping experience as they exited.
Sam Walton’s locus of control also helped his leadership style. Sam Walton, like many good
managers and workers, possessed an internal locus of control. This means that Sam believed
that he controlled what happened to his business, and held responsibility for its performance.
This trait makes a good manager and leader because instead of blaming employees or
circumstances the managers accepts responsibility for a failure and changes themselves for
the better. Sam Walton had what is called high self-efficiency. This is Sam’s overall view of
his effectiveness in a multitude of activities. He was confident is his success with any type of
challenge. As a successful leader Sam Walton was a high self-monitor. This means that Sam
would take in hints and ideas from his surroundings to change his behavior.
Sam Walton: Myers-Briggs Type Indicator Instrument
Sam Walton was known as an ESTJ on the Myers-Briggs Type Indicator Instrument. ESTJ is
one of the 16 personality types identified by the Myers-Briggs Type Indicator (MBTI). ESTJs
are often described as practical, take-charge kind of people. David Keirsey, the creator of the
Keirsey Temperament Sorter, suggests that approximately eight to twelve percent of all
people have an ESTJ personality. This style of personality tester uses a serious of questions to
decide on four major areas how you behave.
The four areas are extraversion/introversion, sensing/intuition, thinking/feeling, and

judging/perceiving. (See exhibit 5). Through the combination of these four traits a personality
profile can be built, and used to describe Sam Walton’s behavior. As an ESTJ, Sam was an
Extravert, he made decisions based on of his senses, he trusted thought more than feeling, and
he judged situations. All of these qualities help to make an effective leader because they
create a social leader who works hard to gain knowledge and facts to run the business, which
is exactly what Sam did.
• Extraversion: ESTJs are outgoing and enjoy leading and supervising other people.
Walton's greatest accomplishment was his ability to empower, enrich, and train his
employees He believed in listening to employees and challenging them to come up with
ideas and suggestions to make the company better. At each of the Wal-Mart stores, signs
are displayed which read; “Our People Make the Difference. Associates regularly make
suggestions for cutting costs through their Yes We Can Sam program. The sum of the
savings generated by the associates actually paid for the construction of a new store in
Texas”.
• Sensing: ESTJs enjoy concrete facts as opposed to abstract information. Walton always
believed in knowing the customers better. He initiated the system to manage the database
of his clients so that he could sense and envision future purchases of the stores.
• Thinking: ESTJs rely on objective information and logic to make decision rather than
personal feelings. Sam Walton emphasizes building solid working relationships with both

suppliers and employees, being aware and taking notice of the most intricate details in
store layouts and merchandising techniques, capitalizing on every cost saving
opportunity, and creating a high performance spirit. This strategic formula is used to
provide customers access to quality goods, to make these goods available when and
where customers want them, to develop a cost structure that enables competitive pricing,
and to build and maintain a reputation for absolute trustworthiness.
• Judging: ESTJs like control and order, so they like to plan things well in advance.
Walton has always thought ahead of his time. That is why he had been such a game
changer of the retail industry. The founder of Kmart once claimed that Walton not only
copied our concepts, he strengthened them. Sam just took the ball and ran with it. Wal-
Mart has invested heavily in its unique cross-docking inventory system. Cross docking
has enabled Wal-Mart to achieve economies of scale, which reduces its costs of sales.
With this system, goods are continuously delivered to stores within 48 hours and often
without having to inventory them.
Sam Walton: A Transformational Leader
One of the more recent ideas about leadership analysis was the “transformational leadership”
approach, describing how the behavior of one person is influenced by the leader’s
personality.It states that by combining the factors like leader’s charisma, his motivation
skills, intellectual challenge for the associates and consideration for the individual will create
a work atmosphere that enables outstanding results. Sam Walton definitely was such a leader,
having those outstanding skills allowed him to “transform” his associates in the way required.
He always gave his partners high goals, but motivated them and gave them the feeling that
they really count for him, and therefore his staff were much more willing to work hard. Every
single strategic move was lead by Walton himself. He used his own specific strategic
ideologies taking each implementation as a challenge that required different set of leadership
skills.
There are four factors to transformational leadership (also known as the 4 ‘I’s) idealized
influence, inspirational motivation, intellectual stimulation, and individual
consideration.Each factor will be discussed to help managers use this approach in the
workplace.
• Idealized influence describes Sam Walton asan exemplary role model for associates,
employees as well as stakeholders. He was a leader with idealized influence who could be
trusted and respected by associates to make good decisions for the organization.
• Inspirational motivation Walton always motivated associates to commit to the vision of the
organization that was to sell goods at discounted prices.Even at the time of recession (1991)
and at the time of boom (170s and 1980s, time period for baby boomers in America) Sam
Walton maintained his ideologies for strictly discounted pricing also convincing other
stakeholders like his brothers and in laws and later on, once the company became limited, the
investors in Wal-Mart Corporation, that it was important to keep a single mined ideology for
a store compatible with its great brand image. He encouraged team spirit to reach goals of

increased revenue and market growth for the organization that is why the investors believed
in the sustainability of his vision.
• Intellectual Stimulation: Walton encouraged innovation and creativity through challenging

the normal beliefs or views of a group. Leaders like him, with intellectual stimulation,
promote critical thinking and problem solving to make the organization better.Every Saturday
morning at the meeting Sam would encourage his employees come up with brilliant and
extraordinary ideas that were not only strategic but also made the day to day operations
efficient. His idea was permeated to all Wal-Mart stores even to the ground level staffs so
that they were encouraged to contribute their ideas to the store heads.
• Individual consideration: Walton acted as a coach and advisor to the associates. He was a
leader with individual consideration who encouraged associates to reach goals that helped
both the associates and Wal-Mart.
Based on the Fiedler’s contingency theory we can say that it were the small milestones that
let Walton to the bigger goal fulfilment. In the times of crisis like when the lease for his first
store was not renewed or when there was recession in America he showed exceptional
leadership qualities. There was an incident mentioned in the book Made in America that
suggested that when Sam did not have enough money to pay his staff during 1988 and the
Federal government introduced the minimum pay of $1.15 for all staffs all of sudden Sam
actually gave his labourers cheques and said “if any of you encash it now I shall fire you”.
This was of course followed by a motivational lecture and ultimately no one encashed it till
the company was stable again. Such was his authority, command and charisma over his
employees.
Sam Walton: A Charismatic Leader
Sam Walton is considered by many to have possessed charismatic qualities. He worked hard
to explain his vision of retailing and serving the customer. He would visit Wal-Mart stores to
continually inform his associates (the employees) that customer service is the first, second,
and third priority that must be accomplished in order for the company to become the top
retailer. As people responded to his vision and goals, Walton kept up a fast pace to meet
people and express his viewpoint. He paid attention to his employees and his customers-the
human assets of business. Walton had a “gift” for making other people “feel” good about
working for him and buying his products and service.
His charismatic personality was one of the main reasons behind attaining such a low rate of
employee attrition in a sector like retail where there is so much pressure on sales. His
employees stuck by him through thick and thin which of course did not go in vain. He
rewarded them company stock options to make them stay.

Sam Walton: A Servant Leader
Sam Walton was a Servant Leader who never asked anyone else to do anything that he hadn’t
already proven he was willing to do himself. You might say he led by his own example. He
taught his entire leadership team at Wal-Mart to use ‘Golden Rule Values’ in their dealings
with the ‘Associates’ (Mr. Sam’s term for employees). He behaved as if he worked for
management, and he expected management to behave as if they worked for the employees,
and employees worked to serve customers. Therefore the whole company served the most
important stakeholder, the customer. He was unafraid to use his own mistakes as lessons to
teach others, and often shared stories even if the tale was told at his own expense.
Sam Walton would often say, “The Associates don’t care how much their manager knows
until they know how much their manager cares about them!” Servant-leaders achieve results
for their organizations by giving priority attention to the needs of their colleagues and those
they serve. Servant-leaders are often seen as humble stewards of their organization's
resources: human, financial and physical. Even after all the wealth Sam acquired he still
drove his big truck and wore a baseball hat to office he was extremely humble.
Larry C. Spears, who has served as President and CEO of the Robert K.GreenleafCenter for
Servant Leadership since 1990, has extracted a set of 10 characteristics that are central to the
development of a servant leader:
1. Listening: In servant leadership, Managers are required to have communication skills as

well as the competence to make decisions. A servant leader has the motivation to listen
actively to subordinates and support them in decision identification. The servant leader
particularly needs to pay attention to what remains unspoken in the management setting. This
means relying on his inner voice in order to find out what the body, mind and spirit are
communicating.
"The key to success is to get out into the store and listen to what the associates have to say.
It's terribly important for everyone to get involved. Our best ideas come from clerks and
stock boys." Sam Walton
2. Empathy: A servant leader attempts to understand and empathize with others. Workers
may be considered not only as employees, but also as people who need respect and
appreciation for their personal development. As a result, leadership is seen as a special type
of human work, which ultimately generates a competitive advantage.
“Appreciate everything your associates do for the business. Nothing else can quite substitute
for a few well-chosen, well-timed, sincere words of praise. They're absolutely free and worth
a fortune.” -Sam Walton
3. Healing: A great strength of a Servant Leader is the ability for healing one’s self and
others. A servant leader tries to help people solve their problems and conflicts in
relationships, because he wants to encourage and support the personal development of each

individual. This leads to the formation of a business culture, in which the working
environment is dynamic, fun and free of the fear of failure.
Despite his setbacks like the closure of the first Ben Franklin store or being mocked at with
the idea of discount store Walton never gave up.
4. Awareness: A servant leader needs to gain general awareness and especially Self-
awareness. He has the ability to view situations from a more integrated, holistic position. As a
result, he gets a better understanding about ethics and values. Sam always insisted on
integrity. He always separated family from business. Every member who joined the business
would first be inducted as a trainee and start work from the shop floor to move its way up to
the high posts. That is how his sons learnt the lessons of retail no one else could teach them.
It uses a MPP (massively parallel processor) computer system to track stock and movement
which keeps it abreast of fast changes in the market. Information related to sales and
inventory is disseminated via its advanced satellite communications system. Wal-Mart has
leveraged its volume buying power with its suppliers. It negotiates the best prices from its
vendors and expects commitments of quality merchandise purchasing agents of Wal-Mart are
much focused people. This awareness about the store as well as the world around gave Wal-
Mart the edge against competitors in terms of using technologies.
5. Conceptualization: As a servant leader Walton had the ability to think beyond day-to-day
realities. He saw beyond the limits of the operating business and also focused on long term
operating goals. He constructed a personal vision that only he could develop by reflecting on
the meaning of his business and how it had to function. Sam Walton was a visionary who
understood the need for everyone to have access to goods without suffering financially.
6. Foresight: Only a visionary like Sam could out bid Kmart and other big realities. He
created the concept of category killers by first acquiring Hutcheson shoes in 1978 and then
move forward into acquiring many such companies.
7. Stewardship: CEOs, staffs and trustees have the task to hold their institution in trust for
the greater good of society. In conclusion, servant leadership is seen as an obligation to help
and serve others. Openness and persuasion are more important than control. Sam always
knew that the idea he would come up with would work best only if he believed in it and made
others believe in his idea.
8. Commitment to the growth of people: A servant leader is convinced that people have an
intrinsic value beyond their contributions as workers. Therefore, he nurtured the personal,
professional and spiritual growth of employees. For example, he spent money for the
personal and professional development of the people who made up Wal-Mart. He encouraged
the ideas of everyone and involved workers in decision making.
With few locations left in the U. S. to put a new Sam's Club or traditional Wal-Mart, the
Super-centre division has emerged as the domestic vehicle for taking Wal-Mart to $100
billion in sales. Before the Super-centre, Walton experimented with a massive Hyper-mart,
encompassing more than 230,000 square feet in size. The idea failed. Customers complained

that the produce was not fresh or well-presented and that it was difficult to find things in a
store so big that inventory clerks had to wear roller skates. One of Walton's philosophies was
that travelling on the road to success required failing at times.
9. Building community: A servant leader identifies means to build a strong community

within his organization and wants to develop a true community among businesses and
institutions.
Sam Walton: Bases of Power Theory
Five bases of power were identified by French and Raven in 1960, which laid the
groundwork for most discussions of power and authority in the latter half of the twentieth
century. These five types of power are coercive, legitimate, reward, referent, and expert.
Power can be manifested through one or more of these bases.
Reward Power: Reward power, as the name implies, rests on the ability of a manager to give
some sort of reward to employees. These rewards can range from monetary compensation to
improved work schedules. Reward power often does not need monetary or other tangible
compensation to work when managers can convey various intangible benefits as rewards.
John Huey the co-author of Made in America: My Story by Sam Walton, describes Sam
Walton, founder of Wal-Mart Stores, Inc., as an active user of reward power. Walton relies
heavily on these intangible awards, indicating that "nothing else can quite substitute for a few
well-chosen, well-timed, sincere words of praise. They are absolutely free-and worth a
fortune".
When reward power is used in a flexible manner, it can prove to be a strong motivator, as
Crosby, Deming, and others have shown. Still, when organizations rely too rigidly on
rewards, the system can backfire. Employees may be tempted to unethically or even illegally
meet the quotas to which overly rigid reward systems may be tied.
Referent Power: Referent power derives from employees' respect for a manager and their
desire to identify with or emulate him or her. In referent power, the manager leads by
example. Referent power rests heavily on trust. It often influences employees who may not be
particularly aware that they are modelling their behaviour on that of the manager and using
what they presume he or she would do in such a situation as a point of reference.
Most of the associates felt honored and valued his visit and commented that it really boost
their motivation to help the growing company. He also delegated responsibilities fairly and
gave each employee the opportunity to act as leaders and according to him,“Each employee
has their own cheer to boost associates morale and organizational spirit” - Sam Walton, 1992.
Sam Walton as per Motivational Theories
Sam Walton believed in the human factor of a company; that the employees that are in
contact with the customer the most need to feel empowered and part ownership of Wal-Mart.

As a manager and leader, he implemented many motivational strategies in order to excite and
increase the efficiency of employees. One of these theories is Maslow’s Need Hiearchy.
According to Michael Bergdahl’s book The Ten Rules of Sam Walton – Success Secrets for
Remarkable Results, employees want to provide excellent customer service because it is a
self-actualized behavior and in order to complete this self-actualized behavior, the
employees’ needs have to be met first. The company provided pay to meet physiological
needs, although this portion of his career took longer to develop. Through the influence of his
wife and top managers, he increased pay and offered various incentives and rewards for high
performing employees. Sam Walton then met the employees’ security and safety needs by
creating a positive working environment. In Bergdahl’s book he stated that, “Mr. Sam
believed that if you act enthusiastic, you’ll be enthusiastic and those around you will become
energized.” Emotional contagion, the “dynamic process through which emotions are
transferred from one person to another, either consciously or unconsciously through
nonverbal channels,” is usually associated with negative energy. However, Sam Walton used
it in a positive way to motivate his employees. Emotional and social needs were met with
customer centered relationships and positive relationships between managers and employees.
These relationships then transfer to meet self-esteem needs by letting the employees “know
how much you value their contributions…. one by one.” After all of these needs have been
met, this will bring the self-actualization that is needed to provide the superior customer
service that Sam Walton wants all of his employees to strive for. Moreover, Sam Walton
exhibited many motivational factors similar to Herzberg’s two-factor theory of motivation.
ORGB explains Herzberg’s theory as having two parts: “one based on avoiding pain and one
stemming from the desire for psychological growth. In looking at Sam Walton, the only
applicable part of Herzberg’s theory is the part based on motivation factors which are “work
conditions that satisfy the need for psychological growth”.
Some factors that Herzberg identified as motivational factors were “responsibility,

achievement, recognition, advancement, and work itself”. One particular instance that speaks
to Walton’s ability to motivate based on recognition was how he visited every store once a
year until Wal-Mart became too big. During these visits he would bring a tape recorder and
make sure every worker knew he was listening to their opinions of the company. During
these visits he would also praise workers and in one instance he showed the recognition
motivational factor by speaking into his recorder stating: “I’m here in Memphis at store 950,
and George has done a real fine thing with this end cap display of Equate Baby Oil. I’d like to
try this everywhere”. George, the common worker, felt recognized for his great work by his
CEO. Walton understood the importance of recognition. Additionally, Walton typified the
responsibility and achievement factors by always addressing his workers as associates rather
than employees . By calling them associates, Walton established responsibility in his workers
and drove his workers to achieve higher levels. By visiting each Wal-Mart store, Walton was
able to identify with his workers and the work itself that they did, ultimately showing his
commitment to recognition, responsibility, achievement, advancement and work.
Walton also displayed motivation characteristics found in McClelland’s need theory, which
highlights three important needs. McClelland believed motivation was brought about from
three needs: the need for achievement, power and affiliation. Walton typified the need for
affiliation. The need for affiliation is “a manifest need to establish and maintain warm, close,
intimate relationships with other people”. Walton understood what the need for affiliation

was because he frequently visited his stores. By visiting his stores, he was able to maintain
relationships with even the lowest level workers such as the shelve re-stockers. In this way,
workers were able to relate to Walton and Walton was able to relate to his workers. The close
relationships that he formed during his frequent store visits speak volumes about Walton, the
need for affiliation and McClelland’s overall need theory.

A fair conclusion to a great Leader and the Worlds’ Best Retailer
Though Walton was one of the top businessmen in the US and worldwide and won many
enviable awards for bringing in the retailing revolution, he was not spared his share of
criticism from industry analysts and the media. Walton was criticized for making Wal-Mart a
virtual monopolist in the retailing industry and having forced small retailers to close their
businesses down. Some of the critics said that Wal-Mart's aggressive expansion had brought
down employee wages and working standards in the retailing industry, diverting millions of
dollars from other retailing stores to the company, and that it impoverished small independent
retailers and destroyed historical downtowns in small communities.
But why did Sam Walton succeed when so many others under similar circumstances have
failed? It all started with his unique vision, and his never say die attitude. He was an optimist
and a risk-taker, who enjoyed challenging the status quo. He didn’t like to do things the way
everyone else was doing them. He shunned the well-worn path in favour of blazing his own
trails. He wasn’t afraid to challenge traditional ways and means, and in fact he enjoyed being
perceived as a maverick. He gravitated towards people who would speak their mind, and
challenge his way of thinking. He would admit that he was headstrong but he was fair, and he
enjoyed debating with others the best way to do things.
More than anything Sam Walton was a risk-taker who encouraged the people around him to
also take risks. He was the first to admit that when he took risks in those early days he failed
nine out of ten times. He was quick to point out that it was that one out of ten times when he
succeeded that made all of those other failures worthwhile. How many of us would accept
that level of failure in our own work or the work of those around us? Sam Walton believed
that in any business the path to finding the sustainable competitive advantage is by going in a
different, or even the opposite direction, that everyone traditionally goes. That’s what he did,
and that’s how he succeeded when others under similar circumstances have failed.
Some might say Sam Walton gambled and won. He would disagree. He would tell you he
wasn’t a gambler he was simply someone who believed in taking managed risks. There is a
big difference. You see, he opened his first Wal-Mart Store way back in 1962. That was the
same year TARGET, Woolworth’s and K-MART opened their first stores. Sam Walton’s
strategy for success was very different from those other early discounters. While they all
focused on urban areas, he chose to focus on rural areas. His goal was to raise the standard of
living for people living in rural areas to equal that of those living in urban areas.
At the time his “rural retailing” strategy was perceived to be quite radical. Nobody could
understand how he could possibly succeed when he was opening such large stores in such
small towns. He boldly 7 opened big stores in towns with a population of only 2000 or 2500
inhabitants which at the time the conventional wisdom was that he was downright foolish. He
was destined to fail and everyone knew it. Bankers, suppliers, his competitors and even his
customers thought he had “lost his marbles!” But Sam Walton continued to believe in his
vision when no one else did, and he remained steadfast under withering criticism. The key to
his success turned out to be that his stores drew rural customers from a 50 mile radius
surrounding his stores.

His rural discounting strategy worked so well that he eventually used his rural success to fund
his expansion into urban areas where he would take on his bigger discount retailing rivals and
beat them at their own game. The news media often pestered Sam Walton throughout his
career to divulge the success secrets he had used to grow his company to become the global
giant that it is today. Strategically, he waited until the end of his long career to share his “how
to” succeed strategies and tactics. As it turns out he did have a blueprint for success that
included seven specific strategies, and ten specific tactics for his business that he attributed to
his personal success.
These seven strategies and ten tactics serve as a blueprint others can copy, and follow, for
their own business success. In these tough economic times, it makes perfect sense to learn
from the strategies, tactics, and best practices of Sam Walton, an incredibly successful
entrepreneur, who after starting from scratch created the world’s largest company, and in the
process also became the world’s richest man.
Kishore Biyani on Sam Walton: The Indian Retail Guru
“I was struck by Sam Walton's theory that the retail business is driven either by efficient
operations or by very good merchandising. The first thing to do is to get your merchandising
right. Operations can be gotten right anytime.
We followed that principle and worked quite a lot on merchandising. We have become a
merchandising-driven organization rather than one that is operations-driven. Look at any of
the companies that are entering India -- they are all operations-driven. They want to perfect
their operations on Day One. They want to have control. That is one big difference between
them and us.
Secondly, it is all about passion. We realized that retailing is always done with passion. It is
not done with corporate imagery. Retailing is also about leading the group, leading the
cheerleaders, having Saturday meetings.
Walton's book also presents insights on how to manage the family, how to treat sons and
daughters, how to view the management and the family as two separate entities and how to
manage wealth.
Wal-Mart is the only organization I have seen that has gone against the law of nature. It has
broken one natural law, which says that when you keep growing bigger and bigger, you get
cut down.”
-Kishore Biyani on Walton
If the leader of an industry or sector is of the capability to influence people globally then he
inspires businesses to come into existence and follow his policies and practices. This is
exactly the influence that Sam Walton has had on Mr. Kishore Biyani.

REFERENCES
Bergdahl, M. (2001) The Ten Rules of Sam Walton – Success Secrets for Remarkable Results,
India, Wiley, 2001, p. 143, 148, 152.
Bergdahl, M. (2006) What I Learned From Sam Walton: How To Compete And Thrive In A
Walmart World, USA, Wiley, p. 46,48,57.
Gross, D. (1997) Greatest Business Stories of All Time. New York: John Wiley & Sons,
p. 269.
Ortega, B. (2000, March) In Sam we trust: the untold story of Sam Walton and Wal-Mart, the
world's most powerful retailer, Times Business, pp. 312. 123, 223.
Stalk, G.; Evans, P.; and Shulman, L. (1992) Competing on Capabilities: The New Rules of
Corporate Strategy, Harvard Business Review, March-April, 57-68.
Walton, S. and Huey, J. (1993) Sam Walton, Made in America: My Story, USA, Random
House.
Walton, Sam - overview, personal life, career details, social and economic impact,
chronology. Rank J Encyclopedia. 29 September 2012.
http://EzineArticles.com/?expert=Evan_Carmichael (retrieved on 12 March, 2012)
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4235Retailer Kishore Biyani:

'We Believe in Destroying What We Have Created' Published: November 01, 2007 in India
Knowledge@Wharton (retrieved on 20 March, 2012)
http://www.businessinsider.com/the-incredible-story-of-walmarts-expansion-from-five and-
dime-to-global-megacorp-2011-7?op=1,The Incredible Story Of Walmart's Expansion From
Five & Dime To Global Megacorp, Leah Goldman, July 2011 (retrieved on 1 February 2012)
http://www.leadership-with-you.com/sam-walton-leadership.html (retrieved on 15 February,

2012)
http://www.michaelbergdahl.net/.../Sam_Walton_Stategies_&_Tactics (retrieved on 2 March,

2012)

FIGURE 1:HTTP://CORPORATE.WALMART.COM/OUR-STORY/HERITAGE/SAM-
WALTON
An infographic representation of the growth of Wal-Mart Worldwide depicts Sam Walton’s vision of
the retail chain fulfilled by his heirs. It was the base and leadership ideologies of Sam Walton that
were followed by Rob Walton to run Wal-Mart into a giant conglomerate that it is today
EXHIBIT 2: HTTP://CORPORATE.WALMART.COM/OUR-STORY/HERITAGE/SAM-
WALTON
These sales figures clearly suggest that from 1982 to 1992 Mr. Sam Walton used transformational and
visionary leadership to expand his business 22 times within a span of 10 years alone.

FIGURE 3 AND 4 REPRESENT THE BIG FIVE TRAIT THEORY:
HTTP://BLOG.LIB.UMN.EDU/MEYER769/MYBLOG/2011/11/BIG-FIVE-
TRAITS.HTML

In 1936, psychologist Gordon Allport found that one English-language dictionary alone
contained more than 4,000 words describing different personality traits. His extremely long
list of traits needed to be reduced significantly because of its impracticality. Later on,
another psychologist, Raymond Cattell, reduced the number of main personality traits from
Allport’s initial list of over 4,000 down to 35 basic traits, mostly by eliminating uncommon
traits and combining common characteristics. Then, using a statistical technique known as
factor analysis, he identified closely related terms and eventually reduced his list to just 16
key personality traits. According to Cattell, these 16 traits are the source of all human
personality. Later on these traits were reduced to 5 broad traits used to describe leadership.
FIGURE 5:HTTP://WWW.ALIGNEDSIGNS.COM/BLOG/WHAT-IS-THE-MYERS-
BRIGGS-TYPE-INDICATOR.HTM
To simplify, the MBTI® is best described as a means through which a trained psychologist, a
teacher, a concerned parent, an employer, a human resources individual or even you, can

uncover the essential personality type of a specific individual. This is based on the applied
theory that a finite number of personality types exist. It also believes that, while an individual
may alter certain aspects of their personality during their lifetime, he or she retains the same
type of personality with which he or she initially developed at an early age.
FIGURE 6:
HTTP://WWW.EMERALDINSIGHT.COM/JOURNALS.HTM?ARTICLEID=1596308
&SHOW=HTML
Portrait of a transformational leader: the legacy of Dr Martin Luther King Jr , David McGuire,
(School of Management, Napier University Business School, Edinburgh, UK), Kate Hutchings,
(Department of Management, Monash University, Clayton, Australia)
FIGURE 7: COMPETING ON CAPABILITIES: THE NEW RULES OF CORPORATE

STRATEGY BY GEORGE STALK, PHILIP EVANS, AND LAWRENCE E. SHULMAN,
HARVARD BUSINESS REVIEW, MARCH 1992

FIGURE 8:
HTTP://VIRTUOUSCYCLES.NET/ENV/STRGY/SAMWALTON/TOTAL.PDF

FIGURE 9: HTTP://MAAW.INFO/MANAGERIALGRID.HTM

Teaching Notes
Synopsis of the case
This case study illustrates the leadership paradigm of Mr. Sam Walton, the founder of Wal
Mart. The case starts with brief background information of world retail industry in the initial
days with specific reference to Wal Mart. The subsequent sections describe Sam Walton’s
early life, educational background, his early retail career, difficulties and challenges faced,
and how finally Wal Mart was opened in 1962. The next sections of the case study elaborated
the strategic planning and growth phase of Wal Mart under the visionary leadership of Sam
Walton in detail. Then the subsequent sections discuss the leadership style of Sam Walton in
terms of his unique personality traits, managing day to day affairs, principles followed in
leading the business and organization, fundamentals of employee and customer relationship
management. The case concludes with the application of several personality assessment and
leadership style theories relevant and applicable to Sam Walton. The last section talks about
the views of Mr. Kishore Biyani on Sam Walton as the world’s greatest motivational retail
leader for all time to come.
Teaching Objectives
Specify the concepts, theories and principles to be taught.
This case study is expected to be taught at MBA and Executive MBA students with covering
the following main concepts:
• Relationship between strategic planning and organizational leadership
• Leadership theories and concepts like charismatic leadership, transformational leadership,
strategic leadership, visionary leadership, leadership for organization building etc.
• Relationship among leader’s personal attributes (personality, motivation, attitude, values);
early exposure (family, school, social life); and leadership orientation developed later in
professional career (people management, crisis handling, institution building etc.)
Student Assignment Questions
1. How was the vision of Sam Walton actualized? Does early life, education, personal
attributes have any impact on this?
2. What leadership lessons can be derived from Sam Walton for building, expanding, and
maintaining a world class organization? Relate with some of theories discussed in
leadership course.
3. What is the present scenario in Wal Mart? Share your view on the leadership
sustainability impact of Sam Walton in today’s context.
Analysis of the Case

A strong purpose of life and commitment to the chosen career path are the two major
constituent components in the vision actualization process of Sam Walton exhibited through
his professional achievements. The research works done in the area of leadership
development clearly points out that the exposure in early personal life in terms of family, up-
bringing, schools, social ambience always have an impact on the leadership development
potential of the individual in his later life. How Sam Walton developed a winning spirit in his
attitude and actions should be thoroughly explored and illustrated by taking the cues provided
from the various parts of the case study and putting those pieces together to meaningfully
interpret the whole picture. His masterly skills in terms of right from attention to details,
positioning and growth strategies, identifying global opportunities, and managing ups and
downs comfortably made him one of the greatest leaders of contemporary period. So far as
the analysis of leadership styles are concerned, popular leadership concepts like transactional
and transformational leadership; charismatic leadership; visionary leadership; and latest level
five leadership etc. may be considered appropriately. In conducting the analysis, techniques
like Blake-Mouton Grid, Trait theory, Situational leadership theory, Path-goal theory,
Balanced leadership approach etc. can be applied. Looking at some of his personal attributes
in terms of personality traits, attitudinal factors, work values etc. can also give consolidated
answer to prototype his exhibited leadership styles and practices. Sam Walton as an
organization builder developed what type of work culture, employment practices, and
competitive mindset needs to be explored in great detail. From the exhibits provided at the
end of this case study as well as information available from external sources may highlight
the business performance and the up rise of Wal Mart during his tenure. Information
collected from the recent period of time can show the business, financial, and competitive
position of Wal Mart worldwide. How the present CEOs of Wal Mart are still inspired by the
thoughts and achievements of Sam Walton provides the answer to his leadership
sustainability over long run. Even the views offered by some leading retail entrepreneurs of
the world (e.g. Kishore Biyani from India provided in this case) about inspirations and ideas
of Sam Walton that encouraged them to whole heartedly take up retail as their profession also
highlights Walton’s influence on present generation of world retail leaders.
Teaching Strategy and Class Experiences with Case
This case study can be handled by the case instructor in either of following two ways:
• The instructor distributes the case in advance and asks students to come prepared for
interaction and discussion in the next class. While the case is distributed, the instructor
should ask the students to explore about the background, operation, major achievements
and failures, recent scenario of Wal Mart in great detail. This gathered information from
other online / offline sources would be used in conjunction with the given case study to
effectively understand both the organization and the leader. On the scheduled class day,
the instructor should initiate the interaction with the students by asking one / two
fundamental questions about the case that may further lead to effective long discussions,
debates, and reviews of the organization as well as the leader. The instructor should be
experienced enough to handle such open ended case discussions and must focus on the
point rather than allowing students hover around or stray away from main issues.

• In the second method, all above things remain same except for the point that instead of
open ended class discussions, one or two teams are asked to make structured presentation
of the case informed in advance. During the presentation, issues and questions may be
raised both by the instructor as well as the audience, and queries may be clarified by the
presenting team members. Final suggestions may be summed up by the instructor at the
end of the presentation. For instructors trying the case study method for first time or are
relatively inexperienced in case based teaching, are advised to follow this second
approach.

TOWARDS A THEORY OF NATIONAL AND ORGANIZATIONAL LEVEL
ETHICAL LEADERSHIP FOR SUSTAINABLE COMPETITIVE ADVANTAGE
C.C. Tan and SangchanKantabutra
School of Management, Mae FahLuang University, Chiang Rai 57100
drcctan@yahoo.com
ABSTRACT
The nature of ethical leadership is shown to exhibit deontological and utilitarianism

characteristics, while the other supporting roles of being fair and trustful, and showing
caring and being disciplined should also not be neglected. Leaders possessing of these
characteristics are shown to lead to employees’ organizational commitment. In this
paper,two commitment attributes are revealed in factor analysis, namely the social contract
and being beyond normative or obligations. The latter commitment characteristic shares the
same theme with the literature of extra-role and corporate citizenship behaviors.The research
also shows significantly positive relationships among ethical leadership of a nation,
represented and inferred by available data in the corruption perceptions index and the
national social responsibility index, and the dependent variables such as the global
competitiveness index, the global innovation index, and national intellectual capital. Thus,
ethical leadership effort should stimulate the commitment ofemployees at organizational level
or the industry performance at the national level, through exhibiting both social contractual
roles and extra-role behavior.
Keywords: Ethical leadership, extra-role behavior, corporate citizenship behavior,

employee’s organizational commitment, Hofstede’s cultural dimensions, innovation,
competitiveness.
INTRODUCTION
Leaders touch the heart before they ask for a hand, and thus leadership is influence, nothing
more, nothing less (Maxwell, 1998). National leaders move the nation forward, while leaders
at organizational level stimulate growth and performance for their organizations. In short
leadership, being smart as well as leader behaviours, is an important antecedent to effectively
stimulate commitment at the workplace (Klein, Brinsfield, and Molloy, 2006) andfor
organizations (Wright and Kehoe, 2009). Nevertheless, leaders, whether they are of
transactional or transformational type (Bass, 1997), may not necessarily demonstrate
beneficial leadership that moves followers to transcend their own self-interests for the good
of the group, organization, or country (ibid, p. 133). Besides, judging from the pervasive
corporate scandals at a global scale, the study of how corporate leadership fails to
demonstrate ethical leadership and thus causes negative impact on employee outcomes has
become important. A research gap of such a nature is argued in Ponnu and Tennakoon (2009,
p. 21), “Despite its theoretical and practical significance, empirical research on the ethical
dimensions of leadership and leaders’ ethical behavior on employees’ level of commitment to
their organization is lacking, more so in the case of Malaysia,” and certainly for Thailand as

well. No empirical data for the Thai context is obvious to the authors at this juncture, which
renders this research effort necessary.
Thus the following four research objectives are established to help understand the nature of
ethical leadership to commitment of employees for their organizations, and also at national
levelthat is reflected by overall industry performance. The former is a study based on primary
data while the latter uses the available secondary data at national level but also on a global
basis.
Research Objective 1
The first research objective is aimed to study the nature of ethical leadership at the
organizational level, through explorative factor analysis, in identifying its key characteristics.
This confirms to the multidimensionality nature of ethical leadership by Etzioni (1961).
How does this nature of ethical leadership have an impact on employee commitment for their
organization is be studied and examined through inferential statistical analysis.The aim isto
build a theory based on this preliminary observation i.e. a questionnaire-based survey. This is
an inductive research process that reverses the process of the original deductive conception
that suggests a hypothesis i.e. a form of theory. In this sense, a cyclical research process that
embraces both deduction and induction is completed. Thus this movestoward a theory of how
ethical leadership takes its nature and influences ofemployee’s organizational commitment
could be suggested in the future. According to Crowther and Lancaster (2009), this act of
theory building is premised on the present situation that is knowable to help build a theory
which has predictive capability and utility.
This research does not investigate the downstream effect of having built strength in
employee’s organizational commitment. While future research on this area is necessary,
research findings on how commitment is a better predictor of jobs and organizational
performance can be found in the early work of Mowday, Porter and Dubin(1974).
Being capable to show the nature and effect of the role of ethical leadership on employees’
organizational commitment, it would be useful to see how ethical leadership at the national
level influences the state of the nation’s competitiveness achievement.This is the third
research objective in this paper Ethical leadership in this sense is indicating how national
leaders influence the industries of their nations ethically, that is through a social contractual
commitment in order to prevent corruption.
National Culture is a topic made visually reasonable to believe so by the work of Hofstede
(1980a; 1980b) and Hofstede, and Minkov (2001), who claim to have successfully
“uncovered the secrets of entire national cultures.” (Hofstede, 1980b, p. 44). Thus it is useful

to study how the cultural dimensions of Hofstede (1980a; 1980b; 1991; see also House,
Hanges, Javidan, Dorfman and Gupta (2004) at national level play towards ethical leadership
as reflected in the perceived national corruption status.
LITERATURE REVIEW
Ethical leadership, as cited in Monahan (2012, p. 56),is “The study of ethical leadership is
increasing in relevancy, as once famed organizations have fallen from grace.” On the one
hand, this paper aims to study the nature of ethical leadership using exploratory factor and
inferential statistics to explore the impact of ethical leadership on employees’ organizational
commitment. On the other hand, the researchintends to explain the outcome of the significant
role played by ethical leadership of the government, measured using secondary data in the
corruption perceptions index (Transparency International, (2013) and the national social
responsibility index (Adam-Hopkins & Hopkins, 2014), on national competitiveness (GCI,
2013) and innovation (GII, 2013).
Gaining commitment is an extremely important variable to enable organizations to gain

positive performance and for a nation to realize competitive advantage over others.
Commitment is important because commitment, as studied and discussed in Klein et al.
(2009), which captures the drivers for sustainable advantage on performance over others and
competitors, i.e. commitment is an attitude, is a force, a bond, investments, identification or
internalization, as congruence and motivation. In Klein, Wesson, Hollenbeck andAlge
(1999), commitment is studied to moderate the relationship between goal difficulty level and
task performance. This research shows that commitment does have this moderating effect, but
it is presented in terms of the behavior of corporate citizenship (Organ, Dodsakoff, and
Mackenzie, 2006), or as extra-role behavior, which is a term defined in van Dyne, Cummings
and McLean-Parks (1995) as behavior that attempts to benefit the organization and that goes
beyond existing role expectations.
Employee’s Organizational Commitment
A comprehensive literature review on employee’s organizational commitment by Barling and

Cooper (2008) highlighted three distinguishable eras of knowledge evolvement of this
construct, namely the early years (Pre-1980), the expansionary period of the 1980s and
1990s, and the new age beginning at the turn of the millennium. They discovered that in this
evolutionary body of knowledge, attitudinal and behavioral commitments are two essential
themes and foundations.
While the former is viewed as a measurable psychological state that focuses on identifying its
antecedents and consequences, the latter is focused on identifying conditions that bind
individuals to a course of action and shape beliefs that sustain that action (Barling and
Cooper, 2008). For the attitudinal front, Meyer and Allen (1991) proposed a three-component
model that describes the relevant descriptive attitudinal domains to the commitment
construct, namely affective attachment to the organization, perceived cost of leaving, and

obligation to remain.Meyer and Allen’s (1991) work clearly indicates that commitment is
multi-dimensional in nature, a theme early discovered by Etzioni (1961). This research aims
to further shed light on this multi-dimensionality aspect of the construct through exploratory
factor analysis, in the Thai context.
Ethical Leadership
As argued in Ponnu andTennakoon (2009), albeit the awareness generated by the corporate
scandal lately, there is scarce empirical evidence suggesting that leaders need to uphold
ethical values by creating a positive commitment workplace atmosphere. Thus, the study of
ethical leadership behavior becomes necessary. To this end, Brown, Trevino and Harrison
(2005, p.120) presented a definition of ethical leadership which has been highly
acknowledged in the literature – that is, ethical leadership is characterized by “the
demonstration of normatively appropriate conduct through personal actions and interpersonal
relationships, and the promotion of such conduct to followers through two-way
communication, reinforcement and, decision-making.” However, how this definition fits into
the traditional domains of business ethics is still open to further study (Ponnu andTennakoon,
2009). This research thus intends to fill the gap, albeit on a preliminary basis, through re-
examining the explorative factor structure of Brown, Trevino and Harrison (2005) survey
instruments in the domains of both business ethics and leadership.
Ethical Leadership and Employee’s Organizational Commitment
How does the personal integrity of a leader play its impact on employees’ organizational
commitment is relatively unexplored. To this end Ponnu and Tennakoon (2009) studied a
Malaysian case, based on a sample of 77 males and 97 females from companies that were
located in the Klang Valley, which was premised on an understanding that Klang Valley
represented a variety of industries in the corporate sector. They identified two factor loadings
for the ethical leadership level – the demonstration and the promotion of ethical behavior to
fit the definition given by Brown, Trevino and Harrisson (2005). However, as argued earlier
in this paper, exactly how this helps to explain the conventional theories of business ethics is
not clear. It remains a gap to perceive the nature of leadership and whether it can reflect the
domains of the principles of business ethics. In this way, both ethical leadership and business
ethics would share the same domain of themes and thus it provides content and construct
validities to an ethical leadership construct as well. In addition, both the disciplines of the
knowledge become transferrable in a meaningful manner. This is the ultimate direction of this
research effort so that the future research could be made more enriching to provide better
utility.
Thus the following hypothesis is proposed:

H1.There is a significant relationship between ethical leadership behavior and employees’
organizational commitment. The explanatory structure of this relationship is also explored
and discussed.

National Ethical Leadership and National Competitive Advantage
A well-known Diamond model of Porter (1998) clearly outlinesa significant relationship

structure among the effort of government, factors of infrastructural and structural
competencies, and the state of competitiveness of the industries. Most previous research
focused on the role that national culture plays in national innovation success (Rinne, Steel
and Fairweather, 2012) and innovation outcomes at organizational level (Banerjee and
Srivastava, 2012). However, to what extent ethical dimension of actions of the government
influence national competitiveness is relatively unknown, and to how culture plays a role on
government’s ethical governance is also unfound. As “culture is the meaning which people in
a society create, and which creates people, as members of societies” (Kitayama, 2002, p. 3),
understanding cultural forces as the antecedent to both national innovation and government’s
ethical governance is important. This issue is presented in the intention of research objective
4 in the Introduction. Nevertheless, some qualitative examples are available; for instance,
Brady & Spence (2010) illustrated the ethical leadership role thatthe Singapore government
played in developing national competitiveness, citing the policy statements of the then Senior
Minister Goh Chok Thong as follows:
“Leadership that is selflessly devoted to national interest and not pursuit of
party/individual interests and, havingintegrity, honesty, and incorruptibility.”(ibid, p. 108).To
further support the stance of the importance of ethical leadership at a national level on
national competitiveness advantage, available secondary data is sought from Transparency
International (2013) and Adam-Hopkins and Hopkins (2014) on national social
responsibility. The latter provides a perceived measurement of how a nation treats its
citizenship fairly, looks after their well-being, and is respectful to foreigners – immigrants as
well as their trading partners. This would serve as an explorative preliminary research to
investigate the interrelationship between ethics and overall competitiveness performance of a
nation. What exactly is the nature and depth of commitment reflected by the industries at the
national level is recommended for future research.
Thus the following hypothesis is suggested:

H2: The National corruption level is significantly associated with the level of achievement in
innovation and national competitiveness. This is the third research objective. Both national
innovation and competitiveness state of achievements are considered as the outcomes of an
overall industry commitment enabled by the government state of governance, which is a
theme reinforced by Porter (1998).
In addition, beingfirmly rooted in well-known findings of culture’s consequences for

performance at national and organizational level (Hofstede, 1980a; 1980b; 1991), there
probably exists as well an influence of cultural characteristics on corruption in governments.
The nature of corruption at the microscopic level will not be discussed in this research and
such an effort can already be seen, for instance, in Nepal (2006) who studied corruption in the
form of bribery which also was linked to national culture. As such, the following hypothesis
is proposed:
H3:Hofstede’s cultural dimensions depicting culture unique to a nation have significant

association to the corruption perceptions index.

The following section discusses how the research is designed.
RESEARCH DESIGN
This article exploits both primary and secondary data to pursue the research, based on a
positivistic paradigm (ontology, Hussey and Hussey, 1997) that upholds the principle of the
researchers remaining distant and neutral (epistemology, ibid, p. 52) when conducting the
research and not allowing values and bias to distort their objective views (ibid, p. 52). To be
specific, the three questions to answer ontology, epistemology and methodology are given in
Guba and Lincoln (1994, p. 108).
• The ontological question is “What is the form and nature of reality?”
• The epistemological question is “What is the nature of the relationship between the
knower or would-be knower and what can be known?”
• The methodological question is “How can the inquirer (would-be knower) go about
finding out whatever he or she believes can be known?
As such, astructure of the research design is proposed, as shown in Figure 1, which involves a
cycle of research effort from deduction to induction – that is:
• From the literature describing the general knowledge structure of the variables and
their interrelationship, to
• Deductive reasoning which begins with general statements (premises) and, through
logical argument in the Literature Review section (Walliman,2011), comes to propose
the three hypotheses. Once the hypotheses are suggested, then:
• Empirical data can be collected by maintaining epistemologically neutral relationship
with the researched.
• And, data is analyzed using both descriptive and inferential statistical tools. To enable
induction with the support of the existent literature, factor analysis is used. Factor
analysis, according to Hair, Black, Banin, Anderson, and Tatham(2006), is aimed to
define the underlying structure among the variables in the analysis, which in this case
is ethical leadership and employeecommitment to organizations. The way factor
analysis works in the inductive interpretation is that, through the principal axis
factoring procedure (Harman, 1967), specific items that correlate highly are assumed
to be a member of that broader dimension (Hair et al. 2006).
• Having obtained the construct’s domains of characteristics, inferential statistics based
on correlation and multivariate regression analyses, and t-test can be used to analyze
the relationship structure of the variables (i.e. the way the deontological and
utilitarianism domains of ethical leadership influence the social contract commitment
and beyond-obligation commitment. The existing bodies of knowledge in the relevant
literature are then further reviewed in order to give weight to the explanatory power of
the research finding. This completes one research cycle, which is an effort made to
build towards a theory of national and organizational level ethical leadership for
sustainable competitive advantage.
In short, thecyclical stagesof research effort, as it is shown in Figure 1, allow the theory to
gradually take shape.

FIGURE 1: STRUCTURE OF THE RESEARCH DESIGN
Sampling Design and Data Collection

There are two types of data to be collected – secondary data at national level and primary
data for the analysis at employee-organizational level. For the primary data, at this
preliminary level, nonprobability sampling method is used. According to Neuman (2006),
such a sampling method means “they rarely determine the sample size in advance and have
limited knowledge about the larger group or population from which the sample is taken”
(ibid, p. 220).
Primary data are the questionnaire-based instrument that is consisted of the items of questions
to aim to study the nature of the characteristics and the structure of relationship among
factors of ethical leadership and employee’s organizational commitment. The instrument was
conveniently distributed to the second-year students of the Bachelor of Business
Administration Programme at Mae FahLuang University, Thailand. The instrument was
discussed in the class and systematically went through with the students to make sure every
question is understood and that every student knew his or her role in the self-administered
survey. The students, from every part of Thailand, were asked to engage one participant
either from their working family members or friends. The survey and the post-survey
publication efforts would strictly respect the privacy, anonymity and confidentiality of
participant, following the guideline given in Neuman (2006, p. 138-39). In addition, it was
told to the students that all participations were on voluntary basis. All students responded
back in two weeks. While seventy questionnaires were given out, only sixty-two were
returned and all confirmed valid for further analysis, which yielded an 88.5 percent response
rate. Out of the sixty-two valid responses, twenty-nine came from the Private and the rest
came from the public establishments such as the universities and the ministry offices. The T-
test indicated no significant differences across all the variables being studied when comparing
the private- and the public sector-employees’ perceptions. As such, no moderating effects
from either private or public organizations are found.
Section of Measures

To study how Hofstede’s national cultural dimensions are interrelated to the national
innovation, competitiveness and corruption perceptions of nations, secondary data are sought
from the renowned research institutions and research scholars, as follows:
• The data of the five dimensions of national culture that manifest the patterns of
different mental programming and values commonly shared by the citizens of their
respective nations (Hofstede, Hofstede,andMinkov, 2001), are obtained
fromwww.harzing.com/download/hgindices.xls.
• National intellectual capital, consisting of market capital, financial capital, human
capital, renewal capital, and process capital, are extracted from Lin and Edvinsson
(2011).
• National innovation capability represented by the Global Innovation Index, which is
co-developed and co-published by Cornell University, INSEAD and the World
Intellectual Property Organization (2013). The Global Innovation Index relies on two
sub-indices, the innovation input Sub-Index and the innovation Output Sub-Index,
with each built around the given pillars i.e. the input to innovation strength is built
around institutions, human capital and research, infrastructure, market sophistication,
and business sophistication (2013), and the only two output pillars capture actual
evidence of innovation outputs, namely, knowledge and technology outputs and
creative outputs.
• National competitiveness level of nations is represented by the Global
Competitiveness Index (GCI, 2013), which assesses the competitiveness landscape of
148 countries and provides insight into the drivers of their productivity and prosperity
(published by World Economic Forum; GCI, 2013).
• Transparency International’s Corruption Perception Index which ranks and scores the
perceived levels of public sector corruption in 177 countries and territories, essentially
representing the ethical governance leadership of the Government (TI, 2013)
• National social responsibility index that indicates the social responsibility
commitment practice of nation States, which studies how different nations treat their
stakeholders in an ethical and socially responsible manner (Adam-Hopkins and
Hopkins, 2014)
To study how ethical leadership relates to employee organizational commitment, the nine-
item shortened positive-worded version of OCQ (Organizational Commitment Questionnaire)
of Mowday, Steers and Porter(1979) and Brown, Trevino and Harrison (2005)’s Ethical
Leadership Scale (ELS) were adopted. Both questionnaire instruments were answered using
the Five-point Likert Scale, which state the extent to which the respondents agree with the
questionnaire items (1 = strongly disagree, 2 = disagree, 3 = neither agree nor disagree, 4 =
agree, and 5 = strong agree). Thus responses of both ethical leadership and commitment were
sought from the perceptions of the employees. This makes sense as leadership, as shown in
Obsborn, Hunt, and Jauch (2011, p. 221), is “not something one does by itself. Its dimensions
emerge from actions and interactions.”
Exploratory factor analyses were performed. Ponnu and Tennakoon (2009) identified two
factor loadings from Mowday et al.’s (1979) questionnaire items, namely the demonstration
of ethical conduct and the promotion of ethical conduct to followers. This research shows a
different factor loading pattern that actually is more aligned with the traditional definition of

business ethics text (Carroll, 1979), consisting of the de-ontological factor, the utilitarianism
factor, fair and trustful factor, and caring and discipline or contingent reward factor in the
ethical leadership construct, and the social contract and beyond normative obligation factors
in the employee’s organizational commitment construct.
DATA ANALYSIS, RESULTS AND DISCUSSION

This section presents the analysis of the results of the research, organized according to the
respective research objective.
Discussing Research Objective 1

Exploratory factor analysis of employee’s organizational commitment indicates two
distinctive factors, as shown in Table 1:
• Social contract factor and
• Beyond normative or obligation factor
The latter is a theme of the extra-role behavior (van Dyne, Cummings, and McLean-Parks,
1995) which has a meaning similar to that of organizational citizenship behavior (OCB; see
Organ, Dodsakoff, and Mackenzie, 2006). OCB attempts to benefit the organization and that
goes beyond existing role expectations. However, social contract factor signifies commitment
as a bond, investment, exchange, identification (Klein, Becker and Meyer, 2009) and is a
motivation and willingness to persist a course of action because of some sense of social
contract or obligation (Vance and SHRM Foundation, 2006).
Cronbach-Alpha confirmatory reliability measure of 0.7339, that assesses the degree of

consistency between multiple questionnaire item measurements, is obtained for the social
contract commitment factor, which is consisted of six loaded items. Since 0.7339 is above the
minimum acceptable level of 0.70 (Hair et al. 2006), the items are considered meaningfully
and reliably measured. The other loaded items are 2-3 numbers of items and thus are
excluded from the reliability Cronbach-alpha analysis as the factor analysis has reflected the
intended construct meaning.
Specifically, Table 1 indicates the VARIMAX rotated factor loadings for both the ethical
leadership variable and the employee organizational commitment variable. According to Hair
et al. (2006), VARIMAX seems to give a clearer separation of the factors, as clearly shown in
Table 1.
TABLE 1: EXPLORATORY FACTOR ANALYSIS OF ETHICAL LEADERSHIP

(THE LEFT TABLE) AND EMPLOYEE ORGANIZATIONAL COMMITMENT
(THE RIGHT TABLE) (SOURCE: DEVELOPED FOR THIS RESEARCH)

a
Rot at ed Component Mat rix
a
Rot at ed Component Mat rix
Component
1 2 3 4 Component
Head Ethics 6 .804 -.133 .127 1 2
Head Ethics 5 .791 .237 .228 Respondent 6 .831
Head Ethics 10 -.133 .791 -.201
Respondent 5 .797
Head Ethics 9 .107 .636 .302
Respondent 7 .709 .118
Head Ethics 8 .590 .139 .517
Respondent 2 .627
Head Ethics 4 .751
Head Ethics 3 .320 .730 .210
Respondent 4 .349
Head Ethics 2 .214 .730
Head Ethics 7 .215 .264 -.286 .627
Respondent 1 .626
Head Ethics 1 .399 -.149 .138 .426
Extraction Method: Principal Component Analysis. Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization. Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 6 iterations. a. Rotation converged in 3 iterations.
Ethical leadership (cf. Brown, Trevino, & Harrison, 2005):

Factor 1 – de-ontological (items 8, 9 and 10)
Factor 2 – utilitarian or result (items 5 and 6)
Factor 3 – Fair and trustful (items 3 and 4)
Factor 4 – Caring and discipline or Contingent reward (items 1, 2 and 7)
Employee organizational commitment (cf. Mowday, Steers, & Porter, 1979):

Factor 1 – social contract (items 1 and 3)
Factor 2 – Beyond normative or obligation (items 2, 4, 5, 6, and 8)
Discussing Research Objective 2

The correlation and regression analyses lead to a structure, depicted in Figure 2 that describes
the significant interrelationship among the factors of ethical leadership domain and the
employee’s organizational commitment. Thus hypothesis 1 is supported. The characteristics
of ethical leadership resemble to those of business ethics (Carroll, 1979), namely, de-
ontological approach, utilitarianism approach, fair and trustful, and caring and discipline or
contingent reward aspects of business ethics (Carroll, 1979; Tan, 2014). Virtue, caring and
being justice actually manifest the ethical characteristics of the individualized consideration
of transformational leadership (Bass and Avolio, 1997). In addition, commitment variable,
consisting of social contract and beyond normative obligation factors, also represent a
significant implication for corporate citizenship behavior (Organ, Dodsakoff, and Mackenzie,
2006) and extra-role behavior (van Dyne, Cummings, and McLean-Parks, 2006).
FIGURE 2: ETHICAL LEADERSHIP – EMPLOYEE ORGANIZATIONAL

COMMITMENT DYNAMICS (SOURCE: DEVELOPED FOR THIS RESEARCH)

As such, the hypothesis suggesting a significant relationship between ethical leadership and
employee’s organizational commitment is supported. However, it is supported in the
following understanding.
There is a commitment to persist the obligation to remain and the affective attachment to the
organization, which shared the same finding by Meyer and Allen (1991). This type of
commitment is seen as an attitude, obliging force, a bond to the commitment target, as
investment, identification, congruence, and motivation to obligate a social contract (Klein,
Becker, and Cooper, 2009).
In addition, beyond-normative or obligation dimension of employee’s organizational

commitment is also important, as this factor manifests a role of corporate citizenship or extra-
role behavior. This commitment enhances the effective bonds among organizational members
through employees seeing evidences of ethical leadership in clarifying the mission, vision
and ends (doing the ethical right things, utilitarianism) and also showing the attitude of
caring, rewarding rightly, and being fair and trustful. These conditioning variables are
important as without them, employees are losing the willingness to reach beyond the norms
as designated in their roles. Thus feature of transactional leadership such as rewarding rightly
also augment the effects of the transformational leadership in terms of articulating an
inspiring vision to the employees and to provide a caring atmosphere and trust to help
stimulate their intellectual contribution. Thus, employee’s commitment to organization
clearly has strong interaction with how employees perceive their leader acting, and Figure 2
also possess the characteristics of transactional leadership (i.e. disciplined and contingent
reward), transformational leadership (i.e. caring as in individualized consideration and
intellectual stimulation through de-ontological principle and utilitarianism vision) and
authentic leadership (cf. Avolio and Bass, 1991).

In short ethical leadership, as shown in Figure 2, is a process that is similar to business ethics
management, which is concerned with ethical means and ends, while being authentic, fair and
trustful, yet caring and reward employees fairly.
Social contract commitment, which shares the similar themes of Rousseau (1995) in terms of
commitment, as psychological contract fulfilment, describes this perception of mutual
obligation as a “psychological contract”, which can take various forms, the most common
being transactional contracts and relational contracts. To achieve this social contract
commitment, ethical leadership of both deontological and utilitarianism nature of attitude is
demanded, which implies the employees gain commitment through seeing the leaders
demonstrating doing the things ethically right (deontology, or making decisions based on
ethical principles), or doing the ethically right things (utilitarianism, or making decisions
based on ethical consequences), while also showing being fair and trustful, caring and reward
accordingly.
Discussing Research Objectives 3 and 4:

Correlation and multivariate regression analyses were performed. Only global innovation
index and corruption perceptions index have shown significantly positive association with
global competitiveness index. Thus, hypothesis H2 is supported. Figure 3 indicates the
outcome, which also shows the percentage of variance in the dependent variables that the
predictor variables collectively account for:
• Both the global innovation index and corruption perceptions index account for a
significant 80% of variation for the global competitiveness index.
• National social responsibility index accounts for a significant 83.5% of the corruption
perception index.
The significant level of both cases is 0.001. Besides, each of the predictor variables also
shows significant weight of standard coefficients (or Beta values), and this gives an
indication of the relative importance of the predictor variables in uniquely accounting for the
variance in the dependent variable. In addition, the t-test, which is used to examine whether
the variance explained by each predictor variable is statistically significant, confirms the
significance at 0.001.
FIGURE 3: DETERMINANTS OF NATIONAL COMPETITIVENESS (SOURCE:

DEVELOPED FOR THIS RESEARCH)

The explanation of Figure 3 is as follows, which has significant implication to what has been
observed at the employee-organizational level. It indicates that corruption perceptions index,
an indicator of social contract of the government to the nation and the industries, together
with extra-role behavior, that of global innovation index, account a significant percentage of
variation in the level of achievement in global competitiveness of nation. Thus these two
variables consist of the same dimensions of employee’s commitment to organization in the
view of ethical leadership.Ethical leadership can also be inferred by national social
responsibility index and corruption perceptions index.
The interrelationship among the ethical factors of the government and national innovation
state of achievement is a crucial result. Ethicality could be upheld, as shown in Figure 2 at
organizational level, through its influence on the social contract and extra-role level, and this
is represented by adhering to laws without corruption (social contract) and governmental role
in promoting and realizing innovation strength (extra-role behavior). As argued in Visser
(2011), while social contract focuses predominantly on standardization it does not foster the
kind of creativity that is needed to solve the complex social, environmental and ethical
problems we face (see Visser, 2011, p. 167). Also, creativity and innovation have tendency to
be destructive – a theme popularly made known by Schumpeter (2009)in his creative
destruction concept. Since there has never been a shortage of creativity (ibid, p. 165), ethical
leadership in this innovation process becomes important. Thus, Figure 3 and the result of
Table 2 provide important perspectives to both practitioners, researchers, and the
government. This also provides alternative empirical evidence to the Diamond model of

Porter (1998).Figure 3 also shows a negative correlation between future orientation and
individualism. This can be understood by the fact that the majorities of higher level of future-
oriented countries are the Asian countries, represented in majority by the middle-income
nations of the Hofstede’s data (Hofstede, 1980a; 1980b; also see
www.harzing.com/download/hgindices.xls).
Table 2 fills up the blanks of parts of the linkages in Figure 2 which indicates the effects of
Hofstede’s national culture dimensions on the three determinants to national competitiveness.
Hofstede (1980a; 1980b; 1991) argues that societies can be uniquely described along four
major cultural dimensions: power distance, individualism, masculinity and uncertainty
avoidance, while future orientation, being incorporated later (see Hofstede, Hofstede, and
Minkoy, 2001; Hofstede, Neuijen, Ohayv, and Sanders, 1991). Only power distance and
individualism-versus-collectivism cultural characteristics play significant role in influencing
the corresponding dependent variables, namely global innovation index, corruption
perceptions index, and national social responsibility index. To Hofstede (1980a),
individualism pertains to individual responsibility over their roles and commitment for
progress in life, whereas collectivism reinforces members to be tightly integrated into strong,
cohesive in-groups throughout lifetime. In terms of power distance, according to Hofstede
(1980a), power distance is the extent to which the less powerful individuals in a society
accept inequality in power. In fact, the term power distance was coined by Mulder (1976) to
mean “the degree of inequality in power between a less power individual and a more
powerful other in the social system (ibid, p. 90).
TABLE 2: STANDARDIZED REGRESSION COEFFICIENTS (BETA VALUES) OF

THE PREDICTOR VARIABLES TO THE DEPENDENT VARIABLE AND
VARIATION PERCENTAGE
From Table 2, the hypothesis H3, that describe the influence of various Hofstede’s cultural
dimensions to global innovation index, corruption perceptions index and national social
responsibility index, are supported:
• Power distance is significantly negatively associated with the three dependent
variables.
• Individualism (versus collectivism) is significantly positively associated with the
three dependent variables.

These findings were also shared the similar research outcomes of Vitell, Nwachukwu and
Barnes (1993), being argued that in countries with a large power distance, superiors are
expected to act autocratically without consulting subordinates, resulting in higher tendency
for corruptions and unethical behaviors. On the lower scale of individualism, it reflects the
cultural characteristics towards collectivism, which is a cultural norm that members in a
society try to protect the interests of their members in response to receive permanent loyalty
and membership. The multivariate regression analysis shows that the higher the collectivism
or the lower the individualism the perceived corruptions of nation increases, national social
responsibility is reduced, and innovation capability is also reduced.
Lastly, to study how the ethical leadership of nation, depicted by corruption perceptions
index and national social responsibility,influences the competitiveness-enabled factors as
originally advocated by Porter (1998) in the Diamond model, data of Lin and Edvinsson
(2011, p. 3-4) are incorporated that capture the following dimensions of national intellectual
capitals:
• Market capital – refers to the general assets embodied in the nation’s relationships
with the international market.
• Process capital – which is the cooperation and flow of knowledge that require
structural intellectual assets.
• Renewal capital – refers to a nation’s capabilities and real investments made in an
effort to increase its competitive strength in future markets i.e. capacity for
innovation.
• Financial capital – refers to GDP (Gross Domestic Product), external debt, industrial
production by major branches and inflation.
• Human capital – is the knowledge and competency level of the nation.
TABLE 3: CORRELATIONS BETWEEN NATIONAL INTELLECTUAL CAPITALS

AND GLOBAL COMPETITIVENESS AND INNOVATION INDEX, CORRUPTION
PERCEPTIONS INDEX AND NATIONAL SOCIAL RESPONSIBILITY (SOURCE:
DEVELOPED FOR THIS RESEARCH)

In short these five capitals give an integrated and balanced picture of a country’s potential
and commitment for future growth as we see it today (ibid, p. 3). The current movement
towards Marketing 3.0 (Kotler, Kartajaya and Setiawan, 2010) and the innovative strategy
development of corporate social responsibility concepts (Newman and Robbins, 2011) are
evidencing that these capitals have now captured the essence of some exemplary greenness
practices (see Freeman, Pierce, and Dodd, 1995; 2000). As such, ethics is not just an
inseparable part of strategy but the strategy itself, as highlighted in Figure 4.
FIGURE 4: THE FOUR GREENNESS ETHICAL LEADERSHIP STRATEGY AND

COMMITMENT FOR SUSTAINABLE COMPETITIVE ADVANTAGE (SOURCE:
DEVELOPED FOR THIS RESEARCH, ADAPTED FROM PORTER, 1998)
The four shades or levels of green commitment, first originated in 1995 (Freeman et al. 1995)
and as shown in Figure 4, remain an effective way to describe some of the nuances in how
business extend ethical contribution to the environment (Newman and Robbins, 2011).The
following illustrate the four green ethics-as-innovation leadership practice and commitment
of some of the Thai organizations, as depicted in Figure 4, as a result of the synthesis from
their recent annual reports:

• Light green ethics-enabled business strategy – companies committed to this light
green strategy actively pursue public policies, and challenge their innovation
competencies to comply with the laws in order to bring the best products or services
to the consumers. Thus this ethics-induced innovation i.e. technology enables a
company to gain an advantage over competitors. For instance the mobile industry (see
DTAC, 2013) introduced smaller mobile SIM card as ways to help reduce pollution
and save energy and also to meet the compact desire of the consumers.
• Market green ethics-enabled business strategy – skillfully challenges the utilitarianism
mindset of the company to attend to the trendy needs of the market i.e. for
environmental friendly products. This commitment helps promote maturity in the
demand condition for greenness and market ethics, along the current marketing 3.0
direction as advocated by Kotler, Kartayaja, and Setiawan (2010). For instance, Thai
Government Savings Bank (GSB) implemented a CSR (corporate social
responsibility) driven strategy that helped the communities to build fish home, to
protect the sea and the coastline areas and to provide the necessary education to help
improve their living conditions. This ethics as social engineering strategies as such
allows the communities to forge good relationship with GSB, build GSB brand image
which ultimately improve revenue creatively (GSB, 2010). Another example is Siam
Cement Group’s COTTO hygienic tile product with ninety percent anti-bacteria tile
surface that attends to health and cost saving needs of the society (SCG, 2012).
• Stakeholder green ethics-enabled business strategy – companies seek collective
commitment and motivation from the value chain members and broader stakeholder
groups in order to share and implement common greenness ethical values. Thus the
stakeholder members share some similar cultural values. Examples include President
Bakery’s CSR (Corporate Social Responsibility) commitment on value-chain
operations (i.e., on energy saving and reduction of pollution), to societies (i.e., to
provide nutrition knowledge via “Farm House Cooking Club” and help set up libraries
for learning to train youths to read, write and narrate), and as corporate citizen to help
maintain clean environment (i.e. supporting conservation and cleaning activities.
Another example is the traceability, ISO 22000 and ISO 14000 management systems
committed by Charoen Pokphand Foods public listed company (CP, 2013).
• Dark green ethics-enabled business strategy – companies intend to bring its factor
conditioning, to its climax by instilling and promoting a culture of and competency
for ethical innovation i.e. by exploring and exploiting the cradle-to-cradle concept.
Thus commitment is aimed to not just to reduce, recycle and reuse, but to actually re-
conceptualize the entire business model and product concepts that contain a large
portion of earth-and-health regenerative mechanisms. As this strategy needs higher
competency in both scientific knowledge and ethical vision commitment, Thai
industries do not yet engage in this dimension of strategy. Examples available from
Canada and the States of America include 100 per cent biodegradable shoes concept,
100% hemp-made body of sport car, in replacement of steels, and building
construction materials (Tan, 2014).
Thus the ultimate cognitive capability level of business ethics is that business ethics is not a
separate dimension of strategy, but is the strategy itself as well as its context. Altogether, the
ethical inclusion actually creates a space of innovation and creativity that enables business
strategists to look beyond the traditional routes of thoughts in delivering the profitability

objective. Essentially, these four greenness strategies provide an integrated and coordinated
set of commitments and actions designed to exploit core competencies and gain a competitive
advantage. Thus realizable capable strategies to establish sustainable competitive advantage
is a manifestation of organizational commitment (Hitt, Ireland, and Hoskisson, 1996, p. 115),
which needed the support of the government (i.e. in conforming to their social contract in
preventing corruption) and the overall innovation capability of the nation and its industries, as
illustrated in Figure 3.
IMPLICATIONS FOR RESEARCH, PRACTICE AND THE GOVERNMENTAL

POLICY
The empirical study suggests that leaders should actively focus on the deontological factor of
leaderships (i.e. making decisions based on ethical principles), utilitarianism (i.e. making
decisions based on ethical consequences), fair and trustful, and caring and being disciplined,
to stimulate and develop employee’s organizational commitment. Future research on ethical
leadership now can share the same dimensions of themes as traditionally discussed in the
texts and research of business ethics (cf. Carroll, 1979). Thus practical aspect of this finding
is that ethics and leadership now become two sides of the same thing, a similar theme shared
by the four shades of greenness practices originally proposed by Freeman, Pierce and Dodd
(1995), further illustrated in Freeman, Pierce and Dodd (2000).
The structured parsimony of the interrelationships of the factors characterizing and

developing ethical leadership is aimed to promote research utility that has wide scopes of
applications in the community and the industry. The government could use this research
finding to help them actively focus on the ethical leadership dimension and contents of their
governance strategies and attitude. Research shows positive correlation and interrelationship
among the national intellectual capitals and corruption perceptions index, national social
responsibility, global innovation index and global competitiveness index. In short, whether
leaders at organizational or national level, it is vital to stimulate overall ethical context and
infrastructure so as to develop people commitment. In addition, the research shows the
important role played by national culture on the nature and effort of ethical leadership as well
as on national competitive advantage, innovation and national intellectual capitals.
The research, indicated through Figure 3, also indicates an ABC framework that captures
how cultural antecedent influences the ethical leadership behavior and the people
commitment in developing and implementing competitiveness-enabled infrastructure and
systems that in the end could result in competitive advantage. Thus organizational and
national leaders must actively focus on HRD (Human Resource Development) strategies and
provide a learning atmosphere to inculcate applicable sets of culture, as the association
among culture, innovation, intellectual capitals (i.e. business model) and competitiveness
have been significantly supported.
LIMITATIONS
Lately the movement of Marketing 3.0 towards embedding the concept of spiritual
orientation in their business pursuits, with a trust on spiritual fulfillment, community-based

participation and co-creation, could gradually build a global culture of future orientation. This
movement that shifts to spiritual theme and creative zones of corporate social responsibility,
responsiveness and rectitude can already be seen in Kotler, Kartajaya and Setiawan (2010),
Freeman, Pierce and Dodd (2000), and Newman and Robbins (2011). Thus, future orientation
which does not show significant relationship to either ethical commitment of government
may be altered. At this juncture future orientation is seen as having a negative correlation
with individualism. Thus may be a more microscopic detailed investigation into future
orientation measurement should be investigated.
The other limitation is sample size for the primary data on employees’ commitment to
organization and their perception of their leader’s ethical attitude and behavior in
organizations. Future research should extensively broaden the sample size while also make an
effort to conduct causal-comparative research which aims to compare across industries, both
private and public sectors, the SMEs and the larger enterprises.
In addition, primary data should be obtained at national level by studying the nature and
structure of commitment at the industry level, represented by the perception of the
organizations, and the perception of their government’s ethical leadership in the view of the
preliminary model as identified in Figure 2. Doing so allows the research to consolidate
evidences to either support or to refute a theory of ethical leadership, as depicted in Figure 2,
to extend to national level.
CONCLUSION
Recent concern over numerous misdeeds by business and government leaders worldwide
(Lin, 1999) justifies this research effort, particularly in Thailand and elsewhere in ASEAN
countries where graft and corruption are pervasive and have negatively impacted on social
progress (Egan and Perryer, 2012; Perryer, Egan and Sheehan, 2012).
The effort of this research clearly showed the significant relationship of the two disciplines of
knowledge, namely ethical leadership and business ethics. Also, ethical leadership is action
of leader that is heavily loaded with ethical commitment but also possess the characteristics
of the traditional leadership themes i.e., transactional leadership, transformational leadership
and authentic leadership. Both social contract and beyond contractual obligation dimensions
of employee’s organizational commitment were found and both showed significantly positive
correlations to ethical leadership. While deontological and utilitarianism dimensions of
ethical leadership, together with being fair and trustful are important to social contract
commitment, the vision-driven or utilitarianism-focused factor of ethical leadership plays
more significant role for establishing beyond-obligation commitment, corporate social
citizenship or extra-role behavior.
Finally, the research extended the works of ethical leadership and its influences on
employee’s organizational commitment to the national level, by studying how ethical
leadership actually play a significant role to the state of achievement in national innovation
and competitiveness. The result shows that nations of higher corruptions perceptions and
lower degree of national social responsibility lead to lower levels of achievement in both

innovation and competitiveness. The same relationship structure is also exhibited for the
national intellectual capitals. Although the exact mechanisms and configurations of the
ethical leadership at national level are not studied in this research, the preliminary research
findings, based on the available secondary data on national level, already indicate a
significant role of ethical leadership in enabling positive outcomes i.e., competitiveness and
innovation.
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AN EXPLORATORY COMPARISON OF ATTITUDE-BASED LEADERSHIP
STYLES OF YOUNG PEOPLE IN THE UNITED STATES OF AMERICA AND IN
KAZAKHSTAN
Yuliya Frolova, Bang College of Business

KIMEP University, Almaty, Kazakhstan
Email: frolova@kimep.kz
ABSTRACT
The objectives of this article are (1) to briefly describe the concept of self-esteem, Theory X
and Theory Y assumptions, and four leadership styles based on attitudes toward self (self-
esteem) and other people at work (Theory X vs. Theory Y belief system); (2) to describe the
exploratory research conducted, which was aimed toward identification of the prevailing
level of self-esteem, the prevailing belief system or attitude toward others at work, and the
prevailing leadership style based on attitudes toward self and other people at work of
business students in the United States of America; (3) to compare pilot results received in the
USA with the previously obtained pilot results from Kazakhstan; and (4) to describe the
outcomes of the conducted exploratory research. The academic and practical contribution of
this paper is that it sheds the light on the under-researched topic of how leadership styles of
young people who today study management, but tomorrow will take managerial positions in
Kazakhstan and in the USA may differ.
Keywords: self-concept, Theory X and Y , leadership style , young people Kazakhstan, USA.
INTRODUCTION
The purpose of this study, which is based on an earlier study (Frolova, 2013) is fourfold. The
first is to briefly describe the concept of self-esteem, Theory X and Theory Y
assumptions,(McGregor, 1960) and four leadership styles based on attitudes toward self (self-
esteem) and other people at work (Theory X vs. Theory Y belief system). The second is to
describe the exploratory research conducted, which was aimed toward identification of the
prevailing level of self-esteem, the prevailing belief system or attitude toward others at work,
and the prevailing leadership style based on attitudes toward self and other people at work of
business students in the United States of America. The third is to compare the pilot results
received in the USA with the previously obtained pilot results from Kazakhstan (Frolova,
2013). The fourth is to describe the outcomes of the conducted exploratory research.

LITERATURE REVIEW
Attitudes are evaluative statements or judgments concerning objects, people or events

(Robbins and Judge, 2011). People have positive or negative (favourable or unfavourable)
attitudes almost to everything in their lives: fashion, social events, political events, their
work, their subordinates, their supervisors, their family members, self, and so on (Frolova,
2013).
Attitude of the participants of the survey toward self was measured using Rosenberg’s self-
esteem scale. Rosenberg (1965) defined self-esteem as a favourable or unfavourable attitude
toward self. Self-esteem is a well-researched topic. For instance, Baumeister, Campbell,
Krueger, and Vohs (2003) studied around 15,000 articles on self-esteem and concluded that:
• self-esteem has a strong relation to happiness (see also Diener and Diener, 1995;
Furnham and Cheng, 2000; Shackelford, 2001);
• high self-esteem makes people more willing to speak up in groups and to criticize the
group’s approach (see also LePine and Van Dyne, 1998);
• high self-esteem facilitates persistence after failure (see also Perez, 1973; Shrauger and
Sorman, 1977; McFarlin, Baumeister, and Blascobich, 1984);
• self-esteem does not lead to good school performance, instead high self-esteem is
partly the result of good school performance (see also Skaalvik and Hagtvet, 1990;
Bowless, 1999);
• high self-esteem reduces the chances of bulimia in females (see also Mintz and Betz,
1988; van-der-Ham, van Strein, and van-Engeland, 1998);
• self-esteem does not predict the quality or duration of the relationships (see also
Brockner and Lloyd, 1986; Bishop and Inderbitzen, 1995);
• high self-esteem does not prevent children from smoking, drinking, taking drugs, or
engaging in early sex (see also Glendinning and Inglis, 1999; Gerrard, Gibbons, Reis-
Bergan, and Russell, 2000; Paul, Fitzjohn, Herbison, and Dickson, 2000); and
• finally, leaders with high self-esteem show stronger in-group favoritism, which may
increase prejudice and discrimination (see also Aberson, Healy, and Romero, 2000).
Attitude of the participants of the survey toward other people at work was measured using a
questionnaire on McGregor’s (1960) Theory X and Theory Y attitudes. Theory X assumes
that employees dislike working, try to avoid work as well as responsibility, want and need to
be directed and controlled. Theory Y assumes that work for employees is as natural as rest,
they want to take responsibility, and do not need to be supervised closely. The recent research
in this field indicates that:
• theory X/Y assumptions greatly influence supervisor’s biases about employee

participation: Theory X managers perceive that participative decision making
negatively impacts their power, while Theory Y managers perceive a positive
consequences of soliciting employee participation on their supervisory power and
organizational effectiveness (Russ, 2011);

• theory X/Y assumptions serve as cognitive determinants of superior communicator
style: Theory X assumptions are positively related to the dominant and impression
leaving styles, while Theory Y assumptions are negatively related to the anxious style,
and positively related to the supportive, impression leaving, and nonverbally
expressive styles (Sager, 2008); and
• teachers with a Theory Y perspective provide increased motivation for students and
promote more active learning than Theory X-style teachers who do not view students
as active learners (Markwell, 2004).
Achua and Lussier (2010) combined a person’s attitude toward self (positive or negative)
with his or her attitude toward other people at work (Theory X or Theory Y belief system)
and concluded that – based on his or her attitudes – this person will be inclined to one of the
following four leadership styles:
• a person with positive self-concept and Theory Y attitudes will give and accept
positive feedback, expect others to succeed, and let other people do the job their way;
• a person with positive self-concept and Theory X attitudes will be bossy, pushy,
impatient, inclined to criticism and autocratic style of leadership;
• a person with negative self-concept and Theory Y attitudes will be afraid to make
decisions, will be unassertive and self-blaming; and finally
• a person with negative self-concept and Theory X attitudes will blame others if
something goes wrong, will be pessimistic and will promote a feeling of hopelessness.
METHODOLOGY
Seventy four undergraduate students studying business in the United States of America were
asked to complete a questionnaire on anonymous basis. Since all of them returned back
useable questionnaires, the response rate of 100 percent was achieved. The students
participating in the survey were mainly in their 3rd or 4th year of study.
TABLE 1:: DEMOGRAPHIC DATA – USA
Did not
Freshman Junior Senior Total
indicate
Female - 24 (32.4%) 13 (17.6%) - 37 (50.0%)
Male 1 (1.4%) 27 (36.5%) 7 (9.5%) - 35 (47.3%)
Did not
- - - 2 (2.7%) 2 (2.7%)
indicate
Total 1 (1.4%) 51 (68.9%) 20 (27.0%) 2 (2.7%) 74 (100.0%)
The results obtained in the USA were compared to previously obtained results in Kazakhstan,
where one hundred and six undergraduate students studying business completed a
questionnaire on anonymous basis (Frolova, 2013).

TABLE 2: DEMOGRAPHIC DATA – KAZAKHSTAN
Did not
Sophomore Junior Senior Total
indicate
Female 3 (2.8%) 34 (32.1%) 33 (31.1%) - 70 (66.0%)
Male 3 (2.8%) 18 (17.0%) 15 (14.2%) - 36 (34.0%)
Total 6 (5.7%) 52 (49.1%) 48 (45.3%) - 106 (100.0%)
The questionnaire used in the survey contained two parts:
• Rosenberg’s Self-Esteem Scale from Society and the Adolescent Self-Image

(Rosenberg, 1965) and
• Questionnaire on Theory X and Y from Effective Leadership (Achua and Lussier,
2010).
In the first part of the questionnaire (the part on self-esteem scale), the students were asked to
evaluate 10 items using a four point Likert-type scale: strongly agree, agree, disagree, and
strongly disagree; and the score of each student was calculated as follows (Rosenberg, 1965):
• For items 1, 2, 4, 6, and 7: strongly agree = 3, agree = 2, disagree = 1 and strongly

disagree = 0;
• For items 3, 5, 8, 9, and 10 (which were reversed in valence): strongly agree = 0, agree
= 1, disagree =2, and strongly disagree = 3.
Then, a student’s level of self-esteem was determined on the basis of total score as follows:
• Low self-esteem: score 0 – 7;

• Relatively low self-esteem: 8 – 15;
• Relatively high self-esteem: 16 – 23; and
• High self-esteem: 24 – 30.
In the second part of the questionnaire (the part on Theory X and Y), they were given 8 pairs
of statements and asked to distribute 5 points as follows: if the first statement in a pair totally
reflected his or her attitude and the second did not, the student had to give 5 points to the first
and 0 to the second; if it was the opposite, he or she had to use 0 and 5; if the statement was
usually his or her attitude, the distribution could be 4 and 1, or 1 and 4; if both statements
reflected his or her attitude, the distribution had to be 3 and 2, or 2 and 3; the combined score
for each pair of statements, however, had to be equal to 5 (Achua and Lussier, 2010):
• 0 – 5 or 5 – 0 One of the statements was totally like the student, the other not like
him or her at all;
• 1 – 4 or 4 – 1 One statement was usually like the student, the other not;
• 2 – 3 or 3 – 2 Both statements were like the student, although one was slightly
more like him or her.

Then, a student’s Theory X/ Theory Y beliefs were determined on the basis of total score for
the first statement in each pair as follows:
• X manager: score 0 – 10;

• Moderately X manager: score 11 – 20;
• Moderately Y manager: score 21 – 30; and
• Y manager: score 31 – 40.
FINDINGS
Self-esteem questionnaire findings showed that on average:
1. Students in the USA have very high level of self-esteem: mean= 24.30, standard
deviation= 4.07.Students in Kazakhstan have relatively high level of self-esteem:
mean= 19.90, standard deviation= 3.65 (Frolova, 2013).
2. There are 38% more students with high self-esteem among students from the USA
than among students from Kazakhstan:
TABLE 3:CLASSIFICATION OF STUDENTS BY THE LEVEL OF SELF-ESTEEM
Self-Esteem High Relatively Relatively Low

High Low
Students from the USA 55% 45% 0% 0%
Students from Kazakhstan 17% 74% 9% 0%
Difference +38% - 29% - 9% 0%
3. In the questionnaire on self-esteem, on average, students from the USA eminently
agreed with the statement “I feel that I am a person of worth, at least on an equal
plane with others”: mean = 2.66, standard deviation = 0.50, frequency of “strongly
agree” answers = 68%. Students from Kazakhstan, on average, eminently agreed
with the statement “I feel that I have a number of good qualities”: mean = 2.40,
standard deviation = 0.55, frequency of “strongly agree” answers = 42% (Frolova,
2013). These statements took the first places in the rating lists of students from the
USA and Kazakhstan (The rating lists for students from each country show all 10
self-esteem statements with their mean values sorted in the descending order,
where the mean value of each statement represents the relative contribution of this
statement to average total score of students’ self-esteem):
TABLE 4: RATING LIST FOR STUDENTS FROM THE USA
Self-Esteem Statement Mean (SD)

I feel that I am a person of worth, at least on an equal plane with 2.66 (0.50)
others.

I feel that I have a number of good qualities. 2.61 (0.49)
I feel I do not have much to be proud of (score was reversed). 2.61 (0.62)
All in all, I am inclined to feel that I am a failure (score was 2.53 (0.62)
reversed).
At times I think I am no good at all (score was reversed). 2.49 (0.71)
I take a positive attitude toward myself. 2.38 (0.59)
I am able to do things as well as most other people. 2.36 (0.48)
On the whole, I am satisfied with myself. 2.34 (0.63)
I certainly feel useless at times (score was reversed). 2.22 (0.75)
I wish I could have more respect for myself (score was 2.11 (0.87)
reversed).
TABLE 5: RATING LIST FOR STUDENTS FROM KAZAKHSTAN
Self-Esteem Statement Mean (SD)

I feel that I have a number of good qualities. 2.40 (0.55)
I take a positive attitude toward myself. 2.32 (0.61)
I am able to do things as well as most other people. 2.21 (0.71)
I feel I do not have much to be proud of (score was reversed). 2.15 (0.69)
On the whole, I am satisfied with myself. 2.09 (0.72)
I feel that I am a person of worth, at least on an equal plane with 2.07 (0.73)
others.
All in all, I am inclined to feel that I am a failure (score was 2.04 (0.66)
reversed).
At times I think I am no good at all (score was reversed). 1.78 (0.86)
I certainly feel useless at times (score was reversed). 1.60 (0.74)
I wish I could have more respect for myself (score was 1.24 (0.88)
reversed).
TABLE 6: ITEM-BY-ITEM COMPARISON OF MEAN VALUES FOR SELF-

ESTEEM QUESTIONNAIRE
Item Self-Esteem Statement USA Kazakhstan

## Mean (SD) Mean (SD)
1 I feel that I am a person of worth, at least on an equal 2.66 (0.50) 2.07 (0.73)
plane with others.
2 I feel that I have a number of good qualities. 2.61 (0.49) 2.40 (0.55)
3 All in all, I am inclined to feel that I am a failure (score 2.53 (0.62) 2.04 (0.66)
was reversed).
4 I am able to do things as well as most other people. 2.36 (0.48) 2.21 (0.71)
5 I feel I do not have much to be proud of (score was 2.61 (0.62) 2.15 (0.69)
reversed).
6 I take a positive attitude toward myself. 2.38 (0.59) 2.32 (0.61)
7 On the whole, I am satisfied with myself. 2.34 (0.63) 2.09 (0.72)
8 I wish I could have more respect for myself (score was 2.11 (0.87) 1.24 (0.88)
reversed).

9 I certainly feel useless at times (score was reversed). 2.22 (0.75) 1.60 (0.74)
10 At times I think I am no good at all (score was 2.49 (0.71) 1.78 (0.86)
reversed).
TABLE 7: FREQUENCY OF “STRONGLY AGREE”, “AGREE”, “DISAGREE”,

AND “STRONGLY DISAGREE” ANSWERS GIVEN TO EACH SELF-ESTEEM
QUESTIONNAIRE STATEMENT
## Self-Esteem Strongly Agree Disagree

Strongly
Statement Agree Disagree
US KZ US KZ US KZ US KZ
1 I feel that I am a person of worth, 68% 27% 31% 56% 1% 14% 0% 3%
at least on an equal plane with
others.
2 I feel that I have a number of 61% 42% 39% 55% 0% 3% 0% 0%
good qualities.
3 All in all, I am inclined to feel 0% 2% 8% 14% 32% 62% 59% 22%
that I am a failure (original
answers).
4 I am able to do things as well as 36% 36% 64% 51% 0% 11% 0% 2%
most other people.
5 I feel I do not have much to be 1% 0% 4% 17% 28% 51% 66% 32%
proud of (original answers).
6 I take a positive attitude toward 41% 40% 57% 53% 1% 8% 1% 0%
myself.
7 On the whole, I am satisfied with 42% 29% 50% 53% 8% 16% 0% 2%
myself.
8 I wish I could have more respect 4% 20% 20% 46% 36% 25% 39% 9%
for myself (original answers).
9 I certainly feel useless at times 0% 5% 19% 41% 41% 44% 41% 10%
(original answers).
10 At times I think I am no good at 0% 5% 12% 36% 27% 36% 61% 24%
all (original answers).
Findings based on Theory X and Y survey are the following:
1. Students in the USA on average have moderate Theory Y beliefs: mean = 23.5,
standarddeviation = 5.39.Students in Kazakhstan on average have moderate
Theory X beliefs: mean = 19.24, standard deviation 6.13 (Frolova, 2013).
2. There are 7% less students with strong Theory X beliefs, 24% less students with
moderate Theory X beliefs, 25% more students with moderate Theory Y beliefs,
and 6% more students with strong Theory Y beliefs in the USA than in
Kazakhstan:
TABLE 8: CLASSIFICATION OF STUDENTS BY THEORY X AND THEORY Y
BELIEFS

Strong Moderate Moderate Strong
Theory X Theory X Theory Y Theory Y
Beliefs Beliefs Beliefs Beliefs
Students from the USA 1% 26% 65% 8%
Students from Kazakhstan 8% 50% 40% 2%
Difference - 7% - 24% 25% 6%
3. Out of 8 pairs of statements offered for evaluation to students in the USA, mean
value of the first statement (which reflects Theory Y beliefs) was higher than
mean value of the second statement (which reflects Theory X beliefs) in 6 pairs:
TABLE 9: PREVELANCE OF THEORY X BELIEFS AND THEORY Y BELIEFS

AMONG STUDENTS IN THE USA
Pair Theory X and Theory Y Mean Prevalence

## Statements (SD) of Beliefs
1 People enjoy working. 3.18 Theory Y
(1.26)
People do not like to work. 1.81
(1.26)
2 Employees don't have to be closely supervised to do their 3.23 Theory Y
job well. (1.27)
Employees will not do a good job unless you closely 1.77
supervise them. (1.27)
3 Employees will do a task well for you if you ask them to. 3.30 Theory Y
(1.26)
If you want something done right, you need to do it 1.70
yourself. (1.26)
4 Employees want to be involved in making decisions. 3.74 Theory Y
(1.11)
Employees want the managers to make the decisions. 1.26
(1.11)
5 Employees will do their best work if you allow them to 2.53 Theory Y
do the job their own way. (1.39)
Employees will do their best work if they are taught how 2.47
to do it the one best way. (1.39)
6 Managers should let employees have full access to 2.78 Theory Y
information that is not confidential. (1.72)
Managers should give employees only the information 2.22
they need to know to do their job. (1.72)
7 If the manager is not around, the employees will work 2.36 Theory X
just as hard. (1.53)
If the manager is not around, the employees will take it 2.64
easier than when being watched. (1.53)
8 Managers should share the management responsibilities 2.34 Theory X

with group members. (1.56)
Managers should perform the management functions for 2.66
the group. (1.56)
4. Out of 8 pairs of statements offered for evaluation to students in Kazakhstan,
mean value of the first statement (which reflects Theory Y beliefs) was higher
than mean values of the second statement (which reflects Theory X beliefs) in 4
pairs (Frolova, 2013):
TABLE 10: PREVELANCE OF THEORY X BELIEFS AND THEORY Y BELIEFS

AMONG STUDENTS IN KAZAKHSTAN
Pair Theory X and Theory Y Mean Prevalence
## Statements (SD) of Beliefs
1 People enjoy working. 2.83 Theory Y
(1.59)
People do not like to work. 2.17
(1.59)
2 Employees don't have to be closely supervised to do their 2.05 Theory X
job well. (1.52)
Employees will not do a good job unless you closely 2.95
supervise them. (1.52)
3 Employees will do a task well for you if you ask them to. 1.95 Theory X
(1.48)
If you want something done right, you need to do it 3.05
yourself. (1.48)
4 Employees want to be involved in making decisions. 2.62 Theory Y
(1.36)
Employees want the managers to make the decisions. 2.38
(1.36)
5 Employees will do their best work if you allow them to 2.22 Theory X
do the job their own way. (1.54)
Employees will do their best work if they are taught how 2.80
to do it the one best way. (1.56)
6 Managers should let employees have full access to 2.93 Theory Y
information that is not confidential. (1.77)
Managers should give employees only the information 2.08
they need to know to do their job. (1.77)
7 If the manager is not around, the employees will work 1.88 Theory X
just as hard. (1.43)
If the manager is not around, the employees will take it 3.12
easier than when being watched. (1.43)
8 Managers should share the management responsibilities 2.75 Theory Y
with group members. (1.47)
Managers should perform the management functions for 2.25
the group. (1.49)
5. Attitudes of students from the USA and Kazakhstan coincide in relation to pairs of
statements #1, #4, #6 (where Theory Y is the prevailing belief) and #7 (where

Theory X is the prevailing belief). However, the difference in mean values of the
first and second statements in answers given by students from the USA is
significant for pairs #1 and #4 and is insignificant for pairs #6 and #7, whereas the
difference in mean values of the first and second statements in answers given by
students from Kazakhstan is significant for pairs #7 and is insignificant for pairs
#1, 4, and 6. This suggests that students from the USA who took part in the survey
have stronger Theory Y beliefs and weaker Theory X beliefs than students from
Kazakhstan who took part in the survey.
TABLE 11: COMPARISON OF PREVELANCE OF THEORY X AND THEORY Y
BELIEFS AMONG STUDENTS FROM THE USA IN PAIRS #1, #4, #6, AND #7
Pair Theory X and Theory Y Mean Prevalence Difference

## Statements of Beliefs
1 People enjoy working. 3.18 Theory Y 1.37
People do not like to work. 1.81 Significant
4 Employees want to be involved in making 3.74 Theory Y 2.48
decisions. Significant
Employees want the managers to make the 1.26
decisions.
6 Managers should let employees have full 2.78 Theory Y 0.56
access to information that is not confidential. insignificant
Managers should give employees only the 2.22
information they need to know to do their job.
7 If the manager is not around, the employees 2.36 Theory X - 0.28
will work just as hard. insignificant
If the manager is not around, the employees 2.64
will take it easier than when being watched.
TABLE 12:: COMPARISON OF PREVELANCE OF THEORY X AND THEORY Y

BELIEFS AMONG STUDENTS FROM KAZAKHSTAN IN PAIRS #1, #4, #6, AND #7
Pair Theory X and Theory Y Mean Prevalence Difference

## Statements of Beliefs
1 People enjoy working. 2.83 Theory Y 0.66
People do not like to work. 2.17 insignificant
4 Employees want to be involved in making 2.62 Theory Y 0.24
decisions. insignificant
Employees want the managers to make the 2.38
decisions.
6 Managers should let employees have full 2.93 Theory Y 0.85
access to information that is not confidential. insignificant
Managers should give employees only the 2.08
7 If the manager is not around, the employees 1.88 Theory X - 1.24
will work just as hard. significant

If the manager is not around, the employees 3.22
TABLE 13:: FREQUENCY DISTRIBUTION OF SCORES ASSIGNED TO PAIRS OF

STATEMENTS #1, #4, #6, AND #7 BY STUDENTS FROM THE USA
Pair Theory X and Theory Y 0 1 2 3 4 5

## Statements
1 People enjoy working. 1% 11% 18% 23% 34% 14%
People do not like to work. 14% 34% 24% 16% 11% 1%
4 Employees want to be involved in making 0% 4% 9% 24% 32% 30%
decisions.
Employees want the managers to make the 30% 32% 24% 9% 4% 0%
decisions.
6 Managers should let employees have full 15% 12% 12% 23% 16% 22%
access to information that is not confidential.
Managers should give employees only the 22% 16% 23% 12% 12% 15%
7 If the manager is not around, the employees 14% 19% 20% 22% 16% 9%
will work just as hard.
If the manager is not around, the employees 9% 16% 22% 20% 19% 14%
TABLE 14: FREQUENCY DISTRIBUTION OF SCORES ASSIGNED TO PAIRS OF

STATEMENTS #1, #4, #6, AND #7 BY STUDENTS FROM KAZAKHSTAN

## Statements
1 People enjoy working. 11% 11% 16% 23% 22% 17%
People do not like to work. 17% 22% 23% 16% 11% 11%
4 Employees want to be involved in making 8% 10% 31% 24% 18% 9%
decisions.
Employees want the managers to make the 9% 18% 24% 31% 10% 8%
decisions.
6 Managers should let employees have full 13% 13% 13% 15% 18% 27%
access to information that is not confidential.
Managers should give employees only the 26% 19% 15% 13% 13% 13%
7 If the manager is not around, the employees 19% 27% 22% 15% 13% 4%
will work just as hard.
If the manager is not around, the employees 4% 13% 15% 22% 27% 19%
6. Attitude of students from the USA and Kazakhstan did not coincide in relation to
the other 4 pairs of statements – that is pairs #2, #3, #5, and #8. In pairs of
statements #2, #3, and #5 , students from the USA on average preferred the first
statement (which reflects theory Y beliefs), while students from Kazakhstan

preferred the second statement (which reflects Theory X beliefs). In pair of
statements #8, however, students from the USA preferred the second statement
(Theory X), while students from Kazakhstan – first statement (Theory Y).
TABLE 15: COMPARISON OF PREVELANCE OF THEORY X AND THEORY Y
BELIEFS AMONG STUDENTS FROM THE USA AND KAZAKHSTAN IN PAIRS
#2, #3, #5, AND #8
Pair Theory X and Theory Y USA Kazakhstan

## Statements Mean Prevalence Mean Prevalence
of Beliefs (SD) of Beliefs
2 Employees don't have to be closely 3.23 Theory Y 2.05 Theory X
supervised to do their job well.
Employees will not do a good job unless 1.77 2.95
you closely supervise them.
3 Employees will do a task well for you if 3.30 Theory Y 1.95 Theory X
you ask them to.
If you want something done right, you 1.70 3.05
need to do it yourself.
5 Employees will do their best work if you 2.53 Theory Y 2.22 Theory X
allow them to do the job their own way.
Employees will do their best work if they 2.47 2.80
are taught how to do it the one best way.
8 Managers should share the management 2.34 Theory X 2.75 Theory Y
responsibilities with group members.
Managers should perform the management 2.66 2.25
functions for the group.
TABLE 16:: FREQUENCY DISTRIBUTION OF SCORES ASSIGNED TO PAIRS OF

STATEMENTS #2, #3, #5, AND #8 BY STUDENTS FROM THE USA

## Statements
2 Employees don't have to be closely supervised 7% 3% 12% 27% 42% 9%
to do their job well.
Employees will not do a good job unless you 9% 42% 27% 12% 3% 7%
closely supervise them.
3 Employees will do a task well for you if you 3% 5% 19% 22% 35% 16%
ask them to.
If you want something done right, you need to 16% 35% 22% 19% 5% 3%
do it yourself.
5 Employees will do their best work if you 9% 14% 26% 24% 20% 7%
Employees will do their best work if they are 7% 20% 24% 26% 14% 9%
taught how to do it the one best way.

8 Managers should share the management 15% 19% 19% 22% 16% 9%
Managers should perform the management 9% 16% 22% 19% 19% 15%
TABLE 17: FREQUENCY DISTRIBUTION OF SCORES ASSIGNED TO PAIRS OF

STATEMENTS #2, #3, #5, AND #8 BY STUDENTS FROM KAZAKSTAN

## Statements
2 Employees don't have to be closely supervised 19% 22% 23% 16% 14% 7%
to do their job well.
Employees will not do a good job unless you 7% 14% 16% 23% 22% 19%
closely supervise them.
3 Employees will do a task well for you if you 20% 22% 25% 15% 12% 6%
ask them to.
If you want something done right, you need to 6% 12% 15% 25% 22% 20%
do it yourself.
5 Employees will do their best work if you 16% 21% 21% 19% 15% 8%
Employees will do their best work if they are 8% 15% 19% 21% 19% 18%
taught how to do it the one best way.
8 Managers should share the management 8% 14% 19% 30% 13% 16%
Managers should perform the management 16% 13% 30% 19% 13% 8%
TABLE 18: COMPARISON OF THE COMBINATIONS OF THE PREVALENCE OF

BELIEFS (THEORY X VS THEORY Y) AND THE LEVEL OF SELF-ESTEEM
(HIGH VS LOW)
Combination USA Kazakhstan

Theory Y beliefs and high self-esteem 73% 40%
Theory Y beliefs and low self-esteem 0% 3%
Theory X beliefs and high self-esteem 27% 51%
Theory X beliefs and low self-esteem 0% 7%
DISCUSSIONAND CONCLUSION
This exploratory study provides a valuable comparison of attitude-based leadership styles of

young people in the USA and in Kazakhstan. The results of the previous study conducted by
the author revealed that students in Kazakhstan on average have relatively high self-esteem

(Frolova, 2013). However, as this study shows, students in the USA have even higher level of
self-esteem.
The findings based on Theory X and Y survey revealed that students in Kazakhstan on
average have moderate Theory X beliefs (Frolova, 2013), while students in the USA on
average have moderate Theory Y beliefs. In particular, students from two countries have
different views in the following:
• Students from the USA on average think that employees don’t have to be closely
supervised to do their job well (Theory Y belief), while students from Kazakhstan on
average think that employees will not do a good job unless you closely supervise them
(Theory X belief).
• Students from the USA on average think that employees will do a task well for you if
you ask them to (Theory Y belief), while students from Kazakhstan on average think
that if you want something done right, you need to do it yourself (Theory X belief).
• Students from the USA on average think that employees will do their best work if you
allow them to do the job their own way (Theory Y belief), while students from
Kazakhstan on average think that employees will do their best work if they are taught
how to do it the one best way (Theory X belief).
• Students from the USA on average think that managers should perform the
management functions for the group (Theory X belief), while students from
Kazakhstan on average think that managers should share the management
responsibilities with group members (Theory Y belief).
Nevertheless, the views of students from both countries coincide in the following:
• People enjoy working (Theory Y belief).

• Employees want to be involved in making decisions (Theory Y belief).
• Managers should let employees have full access to information that is not confidential
(Theory Y belief).
• If the manager is not around, the employees will take it easier than when being
watched (Theory X beliefs).
Finally, the comparative study shows that 27% of students who took part in the survey in the
USA and 51% of students who took part in the survey in Kazakhstan have Theory X beliefs
and high self-esteem. It means that when they take administrative positions, they will
probably be bossy, pushy, and impatient; they will criticize with little praising and will be
autocratic. At the same time, 73% of students from USA and 40% of students from
Kazakhstan have Theory Y beliefs and high self-esteem, meaning that they will likely give
and accept positive feedback and expect others to succeed.
LIMITATIONS AND SUGGESTION FOR FUTURE RESEARCH
This study has a number of limitations. First it is based on answers given by students of only
one university in Kazakhstan and only one university in the USA. Second, the samples of

relatively small sizes were used – 74 students from the USA and 106 students from
Kazakhstan. Third, the quality of the analysis depends much on how well the respondents
understood the items from the questionnaire and the honesty of their answers. This implies
that this study should be repeated with different samples. Despite of these limitations,
however, this study sheds the light on an under-researched topic of how leadership styles of
young people who today study management, but tomorrow will take managerial positions in
the USA and Kazakhstan may differ.
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IMPACT OF TOURISM ON INDIAN AND SRI LANKAN ECONOMY
Mahipal Singh Yadav

Department of Economics,
Swami Vivekanand Government College,
Raisen, Madhya Pradesh, India,
mahipalhj@gmail.com
ABSTRACT
Since 1990, India and Sri Lanka have experienced a rise in the foreign tourist arrivals as
well as international monetary receipts. In spite of this; there are only few empirical studies
that investigate the contribution of tourism to the economic growth and the development for
Indian and Sri Lankan economies. This study explores the potential contribution of tourism
to economic growth and development by using time series data for the period of 1990-91 to
2009-10. The results show that foreign exchange receipts from the tourism industry
significantly contribute to gross domestic product, employment and transport
infrastructure. The present study findings imply that Indian and Sri Lankan economies
could enhance their economic growth by strategically strengthening their tourism industry.
Keywords: Trend, Tourism Industry, Gross Domestic Product, Foreign Tourist Arrival and
Foreign Exchange Receipts. JEL: o10, 018,c22
INTRODUCTION
The relationship between tourism industry and economic growth has received considerable
attention in recent years. As yet, however, there is no consensus among analysts on the
relationship between these widely studied variables. A number of studies suggesting that
tourism is a facilitator of economic growth and economic development but the quantitative
test of the relationship have produced contradictory results. Insofar as our information is
concerned the existing studies fail to develop an adequate tourism theory of economic
development.
Tourism is not only an important vehicle of widening cultural and social contacts but has
now become an efficient tool for promoting economic development of national and world
economy (Khan and Toh 1995). The importance of tourism as a facilitator or contributor to
economic development is realized all over the world. Therefore, a number of developing
economies has been continuously injecting a huge amount of financial capital in its
development. Thus, tourism has emerged from being a relatively small scale industry into
one of the largest and fastest growing industry of the world ( Khatik and Nag 2012).
The empirical evidences have shown an increasing trend in foreign tourists arrival and
foreign exchange receipts in tourism industry all over the world. The foreign tourists
arrival and foreign exchange receipts have increased many folds in the world during the
period of 1950-51 and 2009-10. The foreign tourists arrival was 25 million in 1950 and has

been increased to 880 millions in 2009 -10 in the world; its corresponding international
tourism receipts has been also increasing and reached US$852 million in 2009-10 (Nikolas
2004).
The tourists organization of India had its beginning from the year 1945 when a committee
was appointed under the chairmanship of Sir John Sargent, Educational Adviser,
Government of India, for the development of tourism (Mishra, Rout and Mohapatra 2011).
The regional offices at Bombay (Mumbai), Delhi, Calcutta (Kolkatta) and Madras
(Chennai) were established in 1946 on the recommendation of this committee. The Tourist
Traffic Branch was established at national level in 1949 and it had become separate tourist
department under the ministry of Transport and Communication in 1958. The separate
ministry of tourism came in 1967; afterwards, it has been growing very quickly, generating
employment and earning foreign exchange besides social and cultural development in India
(Mishra, Rout and Mohapatra 2011). The aggregate number of foreign tourist arrivals in
India have increased many folds from 1707158 in 1990-91 to 5167699 in 2009-10 whereas
the foreign exchange receipts have increased more than fifteen times.
From the very beginning Sri Lanka has port and trading relationships with the world
particularly with the Middle East, Persia, Burma, Thailand, Malaysia, Indonesia and other
parts of the South East Asia. The first attempt to develop tourism in Sri Lanka was taken by
colonial government to establish the Government Tourists Bureau in 1937. The Tourist
Bureau was under the Ministry of Commerce and later on it was brought under the Ministry
of Defence. The Ceylon Tourists Board was formed in 1966 and it was converted into Sri
Lanka Tourism Development Authority in 2005. The aggregate number of foreign tourists
arrival in Sri Lanka has increased many folds during the period 1966 to 1980; afterward, the
arrival of foreign tourists has declined due to civil war and recently there is little bit
improvement in it (Srinivasan, Kumar and Ganesh 2012).
The present study investigates the trend of foreign tourists arrival and foreign exchange
receipts of tourism sector to ensure the impact of tourism industry on the economy of India
and Sri Lanka we need to investigate in both countries by using the time series data for the
period of 1990-91 to 2009-10.
REVIEW OF LITERATURE
The literature has emphasized the important role played by tourism sector in the economy
all over the world and this is amply reflected in numerous studies Khan and Toh (1995);
Lee and Kwon (1995); and Lim (1997). The literature about the impact of tourism sector on
the economy is limited and almost non-existent for emerging countries likes India and Sri
Lanka. Academician and researchers hold the view that rapid growth of tourism sector
causes an increase in the incomes of households and revenue of the government which does
improve in balance of payment and growth of tourism industry itself through multiplier
effect.
Lee and Kwon (1995) and Lim (1997) found that there is a positive impact of tourism on
economic development and growth. Durbarry (2002) analyzed the impact of tourism sector
on the economy of Mauritius by using cointegration and causality test and found that
tourism sector causes an increase in the incomes of household and revenue of the
government. Balaguer and Cantavella-Jorda (2002) also found positive evidence regarding

role of tourism sector in the economy of Spain. Nikolas (2004) explained that tourism has
positive impact on the economic growth in the long run in Greece. Oh (2005) concluded
that the increase in tourism income influences the economic growth of the South Korea.
Gunduz and Hatemi (2005) and Tosun (1999), have also found empirical support for the
tourism-led growth hypothesis in Turkey. Kim, Chen and Jang (2006) examined the causal
relationship between tourism development and economic growth in Taiwan and found a
reciprocal relationship between tourism development and economic growth. Khalil, Kakar
and Waliullah (2007) examined the role of tourism in the economic development of
Pakistan through error correction model and found that tourism expansion is necessary for
economic development in Pakistan. Brida, Carrera and Risso (2008) found that tourism is
one of the important factors in the productivity of Mexican economy by using tourism
expenditure, real exchange rate and economic growth quarterly data. Aliqah and Al-rfou
(2010) studied to determine the impact of tourism industry on economic development and
growth in Jordan during the period 1990-2008 by using descriptive statistical methods and
concluded that the tourism sector has significant growth in tourism services, infrastructure
and the number of tourist arrivals. Samimi, Somaye and Sadeghi (2011) examined the
causality and long run relationship between economic growth and tourism development in
developing countries by using P-VAR approach during 1995-2009 and found that there is a
bilateral causality and positive relationship between economic growth and tourism
development. Mishra, Himanshu and Mohapatra (2011) analyzed the tourism industry in
India by using time series data from 1978 to 2009 and found that tourism industry has been
growing very fast, generating employment, income and foreign exchange. Khatik and Nag
(2012) evaluated the role of tourism industry in economic development of India and found
that tourism industry has social, economic and institutional impact. Srinivasan, Kumar and
Ganesh,(2012) have studied tourism and economic growth in Sri Lanka and found that
tourism industry has positive and significant impact on the economy of Sri Lanka.
From the above review it is noted that these studies have been focusing that tourism is as an
important and integral part of the economic development strategies. Insofar as our
information is concerned a very scanty research work has been conducted with the
objectives of trend and impact of tourism industry on the economy of India and Sri Lanka.
Therefore, the present study confines the discussion mainly to the trend and impact of
foreign tourist arrivals and foreign exchange receipts of tourism industry on Gross domestic
product (GDP), employment and transport sector. The present study is an attempt to bridge
this research gap.
OBJECTIVE OF THE STUDY
- To explain the trend of foreign tourist arrival and foreign exchange receipts of the
tourism sector in India and Sri Lanka;
- To analyze the impact of tourism sector on the economy of India in terms of gross
domestic product (GDP), employment and transport infrastructure;
- To analyze the impact of tourism on the Gross Domestic Product of Sri Lanka.
DATA BASE AND METHODOLOGY
The purpose of this study is to understand the tourism industry and analyze its impact on the
economy of India and Sri Lanka for the period 1990-91 to 2009-10. The study is based on

the secondary data. The temporal data of selected indices like Foreign Tourist Arrival
(FTA), Tourism Foreign Exchange Earning (TFEE),Gross Domestic Product (GDP) at
factor cost, employment and revenue of transport infrastructure in terms of civil aviation,
road and railway has been collected from Reserve Bank of India (RBI), Bureau of
Immigration, Economy Survey of India, Ministry of Finance and Tourism, Government of
India, Sri Lanka Central Bank, Bureau of Immigration and Ministry of Finance and Tourism
of Sri Lanka. The data regarding employment and transport infrastructure has been
collected from the period of 2000-01 to 2009-10.
The raw data have been transformed into percentage, index number and logarithm units.
Logarithm regression function is used for the measurement of the impact of tourism sector
on the economy of India and Sri Lanka. Tourism foreign exchange earnings (TFEE) and
foreign tourists arrival (FTA) have been used as independent whereas Gross Domestic
Product, Employment and Revenue from transport infrastructure has been taken as
dependent variables. The logarithm regression equation is:
log y = log α +β log x + U
Where
y = GDP at factor cost; Employment and Transport Infrastructure
x= Tourism Foreign Exchange Earning (TFEE) and Foreign Tourists Arrival;
α = intercept;
β = regression parameter
u = standard error.
TREND OF FOREIGN TOURISTS ARRIVAL AND FOREIGN EXCHANGE

RECEIPTS IN TOURISM SECTOR
INDIA
The trend of foreign tourist arrivals and foreign exchange receipts of India and Sri- Lanka is
shown in table-1. The aggregate number of foreign tourist arrivals has been increased many
folds form1707158 in 1990-91 to 5775692 in 2009-10 in India. Similarly, the absolute
amount of foreign exchange earning has also been increased many folds from Rs. 431.8
millions in 1990-91 to Rs.6488.9 millions in 2009-10 during the study period. The study
found that there is no uniform trend in the foreign tourist arrivals.
The annual compound growth rate of foreign tourist arrivals in India is 5.8 percent during
the study period. The growth rate of foreign tourist arrivals during the period 1990-91 to
1999-2000 is below as compare to the growth rate of the period of 2000-01 to 2009-10. The
annual compound growth of tourism foreign exchange earnings in the twenty years is 28.4
percent in India; quite impressive and indicating that tourism sector is giving amply
contribution to the economy Table-2.
In pursuance to the policy of tourism development, central and state government have
connected and been connecting almost all the identified tourist spots by road, railway and
civil aviation. This transport facilitation attracts foreign tourists not only for sight visits but
also fulfills their eagerness to know about the history, monuments sculptures and rich
spirituals culture of the country India. The increase in foreign tourist arrivals is mainly
attributed to increasing infrastructure facilities, investment opportunity in the each and
every segment of the economic field, medical and cultural development in the country
(Khatik and Nag 2012).

The increasing trend in tourism foreign exchange earnings (TFEE) in monetary terms has
been indicating that the economic and political factors affect the arrival and receipts of the
tourist industry. The attraction of the foreign tourists for tourism in India is mainly
attributed to the lavish treatment to the visitors on the Hindu Philosophy. The Indian
handicrafts particularly Jewellery, carpets, leather goods, ivory and brass work are the main
TABLE:1 TREND OF FOREIGN TOURISTS ARRIVAL AND FOREIGN

EXCHANGE RECEIPTS IN TOURISM SECTOR IN INDIA AND SRI LANKA
Year Foreign Tourist Foreign Tourist Tourism Foreign Tourism Foreign
Arrivals in India Arrivals in Sri Exchange Earnings Exchange Earnings
( in number) Lanka in India in Sri Lanka
( in number) (Rs millions.) ( Rs. millions)
1707158
1990-91 317703 431.8 64.85
1991-92 1677508 393669 595.1 88.25
1992-93 1867651 392250 661.1 100.36
1993-94 1764830 407511 712.9 114.01
1994-95 1886433 403101 843.0 115.51
1995-96 2123683 302265 1004.6 95.59
1996-97 2287860 366165 1051.1 129.80
1997-98 2374094 381063 1215.0 148.68
1998-99 2358629 436440 1295.1 192.97
1999-00 2481928 400414 1562.6 191.62
2000-01 2649378 336794 1508.3 188.63
2001-02 2537282 393171 1506.4 242.02
2002-03 2384364 500642 2072.9 328.10
2003-04 2726214 566202 2794.4 426.63
2004-05 3457477 549308 3312.3 363.77
2005-06 3918610 559603 3902.5 425.85
2006-07 4447167 494008 4436.0 425.19
2007-08 5081504 438475 5129.4 370.94
2008-09 5282603 447890 5496.0 401.33
2009-10 5167699 654476 6488.9 650.18
Source: Bureau of Immigration and Ministry of Tourism, Government of India and Sri
Lanka.

FIGURE: 1 FOREIGN TOURIST ARRIVALS IN INDIA AND SRI LANKA
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Foreign Tourists Arrival in India ( in number)

Foreign Tourists Arrival in Sri Lanka ( in number)
Source: Annual Report of 2010-11 of Ministry of Tourism of India and Sri Lanka
shopping items of foreign tourists. Medical tourism also attracts tourists. India has historical
bilateral relationships with USA, Canada, UK, France, Russia and Australia. Besides this,
India has become hot destination for foreign investment in the world after economic
reforms in 1990-91, thereafter; the foreign tourist arrivals from these countries has
increased at higher rate. The Indian economic reforms also attract foreign tourists arrival in
India from the Asia region; particularly China is giving importance to trade and commerce
rather than political issues with India. India has become education hub for African
countries. The foreign tourists arrival from the south Asian countries is low as compared to
the other continents because of political issues, it can be increased in the long run (Khatik
and Nag 2012).
FIGURE: 2 TOURISM FOREIGN EXCHANGE EARNING IN INDIA

AND SRI LANKA
80000
70000
60000
50000
40000
30000
20000
10000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Tourism Foreign Exchange Earning in India ( in ` Crore.)

Tourism Foreign Exchange Earning in Sri Lanka ( in Rs. Crore))

Source: Annual Report of 2010-11 of Ministry of Tourism of India and Sri Lanka
TABLE:2 ANNUAL COMPUND GROWTH RATE OF FOREIGN TOURISTS

ARRIVAL AND FOREIGN EXCHANGE RECEIPTS
Year India Sri Lanka
Foreign Foreign Foreign Foreign
tourist exchange tourist exchange
arrivals (%) receipts (%) arrivals (%) receipts (%)
1990-91 to 99-00 3.8 13.7 2.3 11.4
2000-01 to 09-10 6.9 15.7 6.7 13.2
1990-91 to 09-10 5.8 28.4 7.2 12.2
SRI LANKA
The aggregate number of foreign tourist arrivals in Sri Lanka has increased many folds and
become double from 317703 in 1990-91 to 654476 in 2009-10. Similarly, absolute amount
of foreign exchange receipts has also been increased more than ten times during the study
period Table -1. There is an increasing trend in the foreign tourist arrivals and foreign
exchange receipts except few years in Sri Lanka. It is an impressive achievement for a
terrorist affected country.
The annual compound growth rate of foreign tourist arrival and foreign exchange earnings
is 7.2 and 12.2 percent respectively in Sri Lanka Table-2. The growth rate of foreign tourist
arrival in Sri Lanka is high as compare to India and low in the case of foreign exchange
earnings.
The attraction of the foreign tourists for tourism in Sri Lanka is mainly attributed to the
natural beauty in terms of sea beaches and hill stations on the one side and the other side the
Buddhists Philosophy attracts tourists from Japan, Middle East, Persia, Burma, Thailand,
Malaysia, Indonesia and other part of the South East Asia. The Tamil culture also attracts
tourists from India particularly south India.
IMPACT OF TOURISM ON THE ECONOMY OF INDIA
The present study also estimates the impact of tourism sector on the Gross Domestic
Product (GDP), employment and transport infrastructure in terms of the revenue from road,
railway and civil aviation by using foreign exchange receipts and foreign tourists arrival as
an independent variable and result has been shown in table-3and 4.
IMPACT OF FOREIGN EXCHANGE RECEIPTS OF TOURISM SECTOR ON

GROSS DOMESTIC PRODUCT (GDP)
The study found that the value of β the co-efficient of foreign exchange receipts in the
logarithm regression equation is positive and greater than unity indicating that increase one
unit amount of foreign exchange receipts will bring about more than proportionate increase
in the GDP of India. The co-efficient of determination (R2) provides the level of variance in
dependent variable explained by the independent variable and it is 98 percent indicating

high level of goodness of fit. The (t) value of (βx) Foreign Exchange Receipts (FER) is
significant at 1 percent level of significance (table-3).
TABLE-3 IMPACT OF FOREIGN EXCHANGE RECEIPTS OF TOURISM

SECTOR ON GDP IN INDIA
Regression α β t-value of β R2 D.F

Equation foreign exchange receipts
1 2.7911 1.1114 337.60* 0.98 18
*Significant at one percent level.
IMPACT OF FOREIGN TOURISTS ARRIVAL OF TOURISM

The value of β the co-efficient of foreign tourists arrival (FTA) is also positive and greater
than unity which explains that foreign tourists arrivals (FTA) has been added more than
unity to the Gross Domestic Income (GDP) of India. The (t) value of β the co-efficient
foreign tourist arrivals (FTA) is statistically significant at 1 percent level of significance
indicating that foreign tourists arrivals (FTA) variable also increases the GDP of the country
significantly. The co-efficient of determination (R2) in the Foreign Tourists Arrivals (FTA)
logarithm regression equation is more than ninety percent which shows that there is high
degree of explanation of variability in the national income (table-4).
TABLE-4 IMPACT OF FOREIGN TOURISTS ARRIVAL OF TOURISM


Equation foreign tourists arrival
1 1.0536 1.2471 94.477* 0.93 18

IMPACT OF FOREIGN EXCHANGE RECEIPTS ON EMPLOYMENT
The main objective of economic activities is to generate employment and income. The
present research work also analyzes the impact of tourism activities on the employment by
using foreign exchange receipts as independent and employment as dependent variable
during the period 2000- 01 to 2009-10 and result has been shown in table-5. The
regression co-efficient ( β) foreign exchange receipts is positive, greater than unity and
statistically significant at one percent level indicates that any increment in foreign
exchange receipts of tourism sector will bring generation in employment but the value of

co-efficient of Determination (R2) is less than fifty percent indicating lower degree of
explanation of variability in the generation of employment.
TABLE-5 IMPACT OF FOREIGN EXCHANGE RECEIPTS OF TOURISM ON

EMPLOYMENT IN INDIA

1 2.1579 1.027 76.664* 0.43 8
IMPACT OF FOREIGN EXCHANGE RECEIPTS ON TRANSPORT SECTOR

A number of studies proved that tourism industry has significantly contribution to the
development of transport infrastructure. The present research work has also analyzed the
impact of tourism industry on the revenue of transport infrastructure. The transport network
system in India mainly consists of civil aviation, road and railway. The foreign exchange
receipt has been used as an independent and the revenue from civil aviation, road and
railway transport as dependent variable and their result has been shown in table-6.
The value of (β) the co-efficient of foreign exchange receipts in the first regression equation
is positive and greater than unity. It means that with the existing transport system the returns
on the investment of tourism industry bring about more than proportionate increase in the
revenue of civil aviation. The regression co-efficient (β=4.4178) is statistically significant at
one percent level of significance. The co-efficient of determination (R2) is more than
seventy percent and low as compared to the road and railway transport system shows high
level of goodness of fit.
The impact of tourism industry on transport infrastructure is also explained by two other
regression equations in which revenue from road and railway have been used as a dependent
variable. The value of (β) the co-efficient of foreign exchange receipts in the second
regression equation is positive and greater than unity indicating that foreign exchange
receipts of tourism industry has also been contributing to the revenue of road transport
system of the country significantly. The value of co-efficient of determination (R2) in the
second regression is 94 percent and higher than civil aviation of the first regression equation
indicating significant impact of tourism sector on road transport infrastructure.
Third regression equation explains the impact of foreign exchange receipts of tourism
industry on the revenue of Indian railway. The value of (β=1.333) the co-efficient of foreign
exchange receipts is also positive and greater than unity indicting that the international
monetary receipts has been significantly contribution to the revenue of the Indian railway.
The value of co-efficient of determination (R2) in the third regression equation is
approximately equals to the unity, which shows that there is high degree of explanation of
variability in the revenue of the Indian Railways.
TABLE-6 IMPACT OF FOREIGN EXCHANGE RECEIPTS OF TOURISM ON
TRANSPORT IN INDIA

1Civil Aviation 0.3231 4.4178 14.399* 0.74 8
2 Road 1.385 1.3178 57.549* 0.94 8

3 Railway 1.1459 1.333 129.456* 0.98 8
IMPACT OF TOURISM ON THE ECONOMY OF SRI LANKA

The present research works analyze the impact of tourism sector on the economy of Sri
Lanka in terms of GDP and result has shown in the table 7 and 8.
IMPACT OF FOREIGN EXCHANGE RECEIPTS OF TOURISM SECTOR ON
GROSS DOMESTIC PRODUCT (GDP)
This study also estimate and analyze the impact of tourism industry on the Gross Domestic
Product (GDP) at factor cost of the Sri Lanka and found that the value of( β=1.1632) the
co-efficient of foreign exchange receipts in the logarithm regression equation is positive and
greater than unity. It means that the increase in one unit amount of foreign exchange
receipts will bring about more than proportionate increase in the GDP of the Sri Lanka. The
co-efficient of determination (R2) is 60 percent and low as compared to India explained
moderate level of variability by the independent variable in dependent variable. The (t)
value of (βx) Foreign Exchange Receipts (FER) is significant at 1 percent level of
significance (table-7).
TABLE-7 IMPACT OF FOREIGN EXCHANGE RECEIPTS OF TOURISM

SECTOR ON GDP OF SRI LANKA

1 3.2018 1.1632 40.610* 60 18
IMPACT OF FOREIGN TOURISTS ARRIVAL OF TOURISM

SECTOR ON GDP IN SRI LANKA
The present study also analyzes the impact of tourism sector in terms of Foreign Tourists
Arrival (FTA) on GDP. The value of β the co-efficient of foreign tourists arrival (FTA) is
also positive, greater than unity and significant at one percent level of significance which
explains that foreign tourists arrivals (FTA) has significantly contributed to the economy of
the Sri -Lanka. The co-efficient of determination (R2) in the Foreign Tourists Arrival (FTA)
logarithm regression equation is less than fifty percent which shows moderate degree of
explanation of variability in the national income.
TABLE-8 IMPACT OF FOREIGN TOURISTS ARRIVAL OF TOURISM

SECTOR ON GDP IN SRI LANKA

Equation foreign tourists arrival
1 0.3795 1.637 13.976* 49 18

CONCLUSION
The aggregate number of foreign tourist arrivals in both countries has increased many folds
and there is an increasing trend except few years during the study period. It means that the
governments of both countries giving attention on the development of the tourism and have
connected almost all the identified tourist spot by road, railway and civil aviation.
The absolute amount of foreign exchange earnings (FEE) has increased more than fifteen
times in India and more than ten times in Sri Lanka. It shows that the economical, political
and social peace has positive impact on the arrival and receipts of the tourist industry in
both countries.
The value of β the co-efficient of foreign exchange receipts and foreign tourists arrival in
the logarithm regression function is positive, greater than unity and statistically significant
at one percent level of significance indicting that increase one unit amount of foreign
exchange receipts will bring about more than proportionate increase in the gross domestic
income (GDP) of India and Sri Lanka.
Tourism industry has been provided significantly contribution to the employment
generation and income of the transport sector of India.
SUGGESTION AND POLICY IMPLICATIONS
The findings of this study confirm that tourism activities have significant impact on the
economy of both countries. Therefore, the Indian and Sri Lankan government should focus
mainly transportation, communication and security issues for tourism development. India
and Sri Lanka can improve their economic growth performance by strategically harnessing
the contribution of tourism industry and improving their governance performance. Since
tourism is a vital determinant of economic development and growth, it is necessary to
develop rural tourism.
DIRECTION FOR FUTURE RESEARCH
The result of this study suggests productive area of supporting research to analyze the
impact of tourism industry on foreign investment, per capita income and trade and hotel
industry of the Indian and Sri Lankan economy to another extension to the study.

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PERCEPTUAL MAPPING OF CONSUMERS: A CORRESPONDENCE ANALYSIS
APPROACH TOWARDS CONSUMERS OF LEATHER PRODUCTS IN
CALCUTTA, INDIA
Pinaki Ranjan Bhattacharyya,

Calcutta Business School,
Diamond Harbour Road,
Bishnupur, Pin – 743 503
pinakirb@gmail.com
Subhasis Dasgupta,
Praxis Business School,
Bakrahat Road, 24 Parganas (South),
Rasapunja, Pin- 700104
subhasisibs@gmail.com
ABSRACT
Perceptual mapping is an important tool which the marketing managers or the product
developers can use before taking up any major decisions in advertisements, brand
positioning or even in case of new product development. The same tool can be effectively
used for even market segmentation to identify the specific target audience or customers. In
this paper, the focus has been kept on correspondence analysis for its ease of use and better
understanding of different perceptual maps which are existing in the market of Calcutta,
India on leather products. The maps will clearly show how different attributes are mapped in
the minds of the customers and how the same information can be helpful for managers to take
marketing decisions on leather products.
Keywords: Perceptual mapping, correspondence analysis, MDS, customer segmentation,
hierarchical cluster analysis
INTRODUCTION
Perceptual mapping is one of the most important tools in marketing research. It refers to
market research techniques for displaying consumer perception of brands in a category,
companies in an industry and so forth. Perceptual maps are often used to investigate
positioning issues to new or existing brands (Fox 1988) Dickson and Ginter 1987, Bijmolt
and van derVelden 2012). If a broad categorization is done on various type of perceptual
maps, there are two ways of building perceptual maps; compositional and decompositional
methods. Decompositional method is a technique where consumers only give their overall
preference or ratings and those overall evaluations are decomposed into a set of dimensions.
The typical decompositional method for developing a perceptual map is Multidimensional
Scaling (MDS). However, there are a few problems with this method. First, there should be
more than four objects per dimension which means that for a two dimensional layout, at least
nine objects are to be selected. For measuring similarities or preferences between two objects,
a respondent is required to respond to 36 different combinations (9C2) and for 3 dimensional
layout, the number of comparison will be as high as 78 (13C2). Thus, with the increase in

number of dimensions, the number of comparisons increases exponentially which will cause
consumer wearout. Second, it is very difficult to identify the dimensions in a proper way. The
dimensions are decided subjectively and many a times, it becomes very difficult to justify a
dimension in a proper way. That is why compositional methods are more frequently used for
building perceptual maps.
In a compositional approach, a set of different attributes are evaluated on the basis of
preference or rating and afterward the results are combined (composed) together to get an
overall evaluation. Compositional methods, particularly factor analysis is found to be
superior to decompositional methods with respect to underlying theory, interpretability of
dimensions ease of use and predictive validity (Hauser and Koppelman, 1979; Holbrook,
1981; Huber, Wittink Fiedler and Miller, 1993).
As a result, compositional method is used quite extensively in marketing research. But this
method has at least two problems associated with it. First, compositional methods cannot
identify perceptual dimensions that do not have at least one attribute to represent them.
Second, the most important, presenting all consumers with same set of a priori attributes
assumes that (1) all attributes in the study are relevant to all consumers, (2) no other attributes
are relevant to certain group of consumers and (3) consumers attach the same meaning to an
attribute (Steenkamp, Hans, and ten Berge,(1994). Traditionally discriminant analysis and
factor analysis have been used to develop perceptual maps but in the recent developments,
aspects of both the methods and MDS are combined to develop new tools for perceptual
mapping (Hair, Black, Babin, Andrson,and Tatham, 2011). In this regard, Bendixen (1985)
has shown how Chi-square test can be used to do perceptual mapping and Katahira (Katahira,
1990) tried to develop perceptual maps using ordered logit analysis. Chaturvedi and Douglas
(2006) developed a three way hybrid model for doing perceptual mapping which incorporated
overlapping clustering and MDS. But these models are mathematically intensive and the
software is not readily available to apply these models. That is why correspondence analysis
is used for its easy to use feature and relative advantages over MDS.
Correspondence Analysis
Correspondence analysis is a compositional approach in building perceptual maps. It is based
on the association between an object and a set of descriptive characteristics specified by the
researcher (Hair et al, 2011). It is particularly useful in developing a correspondence between
variables which are measured in nominal scale. The most attractive feature of correspondence
analysis lies in its ability to develop the perceptual map in a single step with much lesser
mathematical computations. Basically correspondence analysis use cross tabulation of data
which it uses to measure similarities or dissimilarities between attributes. Typically, an N x P
cross-tab matrix with N rows and P columns will have NP cells in it. Each cell contains the
observed frequency count of occurrence of an outcome(𝑂𝑂𝑖𝑖𝑖𝑖 ). Correspondence analysis
calculates the expected cell value (𝐸𝐸𝑖𝑖𝑖𝑖 ) using the formula
𝑆𝑆𝑆𝑆𝑆𝑆 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑜𝑜𝑜𝑜 𝑅𝑅𝑅𝑅𝑅𝑅 𝑖𝑖 ×𝑆𝑆𝑆𝑆𝑆𝑆 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑜𝑜𝑜𝑜 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑗𝑗
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 �𝑛𝑛𝑖𝑖𝑖𝑖 � = = 𝐸𝐸𝑖𝑖𝑖𝑖 [1]
𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑜𝑜𝑜𝑜 𝑎𝑎𝑎𝑎𝑎𝑎 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
Based on expected cell value, it calculates Chi-square (𝜒𝜒 2 ) value for individual cells using the
formula
(𝑂𝑂𝑖𝑖𝑖𝑖 − 𝐸𝐸𝑖𝑖𝑖𝑖 )2
𝜒𝜒 2 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑓𝑓𝑓𝑓𝑓𝑓 𝑎𝑎 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 (𝑖𝑖, 𝑗𝑗) = [2]
𝑖𝑖𝑖𝑖 𝐸𝐸
Chi-square value denotes the degree of similarity or association between two attribute levels.
But what happens in the calculation is that the direction of association is removed because of
squaring the difference. That is why, to restore the direction, the original sign of difference is

put back into the chi-square value. A negative sign is introduced if the expected value is
found more than the observed value. Thus, a positive value indicates a positive association
whereas the negative value shows a negative association. The chi-square value gives a
standardized measure of association or similarities and the same values can be used for
developing a similarity matrix which is, afterward, used in the same way how a similarity
matrix is use by MDS. Thus, correspondence analysis is a hybrid method incorporating both
MDS as well as cross-tabulated non-metric data. Correspondence analysis is now considered
to be a very popular method for developing perceptual map in a very cost effective way.
However, the further mathematical part is intentionally not included in this paper. Readers
can refer to Hoffman and Franke (1986); Doey and Kurta (2011) for the mathematical part of
Correspondence Analysis.
An application
Correspondence analysis can be easily used for understanding how leather products and
leather brands are mapped in the perceptual levels of consumers. Leather items which are
found in Calcutta vary from key rings to shoes to weather jackets. Each item has its own
attribute, own utility and market value. For men, leather office bags are available which are
costly but ladies bags are available in different range of prices. The reason behind such a
wide variation in prices can be explained by the fact that the market for leather items is
highly fragmented. Leather bags can be found in Gariahat Market, New Market and also in
malls like Forum, City Center and South City Mall. In Gariahat Market or in New Market,
mostly unbranded items or local brands are found which are sold on the pavements of
Calcutta because of which they can be sold at a much cheaper price. But malls usually keep
famous brands like Da Milano, Grant’s Leather, Gucci, Millie, Rene, Duckback etc. That is
why in this paper the focus has been kept on how
• different brands are positioned in the minds of consumers with respect to price
category
• different brands are positioned in the mind of consumers with respect to importance
of different attributes (color of product, fashion, price, smoothness, toughness,
ethnicity and brand name)
• different brands are positioned in the mind of consumers with respect to preferred
product category
• Different leather products are positioned in the minds of consumers with respect to
their preferred price category.
Not only is this, even the reasons for choosing different brand plotted in a perceptual map to
get a better picture of consumer behavior in buying of leather products.
METHODOLOGY
A self-administered questionnaire was prepared for this study because the study deals with
mainly categorical data. Through qualitative study, total seven attributes were found to be
important for leather products. These attributes (Colour, Smoothness, Fashion, Price,
Toughness, Ethnicity and Brand Name) are incorporated in the questionnaire to understand
the importance level of these attributes against each brand. The importance was measured
using a 10 point rating scale where 1 was indicating least important and 10 was indicating
most important. Responses were collected from four different parts of Calcutta, India, i.e.
north, south, east and west, so that they accord with the population of Calcutta as a whole.

Mall and street intercept techniques were employed for collecting the data. From each region
50 responses were collected through convenience sampling technique. However, to maintain
a systematic methodology, every fifth (5th) person was targeted for getting the responses. In
this way, a total 150 responses were collected based on convenience sampling through mall
intercept and street intercept. Respondents were asked to mention their preferred brands, their
preferred price category, preferred product category and rate the above mentioned attributes
on a 10 point scale. Instead of binary responses (important/not important), a rating scale was
used because an attempt was also made to see how these attributes formed clusters based on a
hierarchical clustering method using Euclidian Distance measure.
ANALYSIS
The responses were taken from various categories of Calcutta respondents in terms of
gender, age and income group. 58.7 per cent of the respondents were male while 41.3 per
cent of the respondents were female. In terms of age category, 12 per cent of the respondents
were in 20-25 years age, 34% of the respondents in the 26-30 years age, 25.3 per cent of the
respondents were in the 31-40 years of age, 19.3 per cent were in the 41-50 years of age and
9.3 per cent were in the above 50 years category.
Correspondence analysis is more like an exploratory analysis which does not consider any
hypothesis testing. In fact it is just a way of putting things in a pictorial manner so that better
understanding about the aspects can be viewed and further analysis can be done based on the
output. Hence, in the first place, correspondence analysis was done on two variables, i.e.
preferred price category and brands. The summary table as well as the perceptual map is
shown below in Table 1 and Figure 1 respectively.
TABLE 1
SUMMARY TABLE OF CORRESPONDENCE ANALYSIS BETWEEN
PREFERRED PRICE CATEGORY AND BRANDS
Confidence Singular
Proportion of Inertia Value
Singular Standard Correlation

Dimension Value Inertia Chi Square Sig. Accounted f or Cumulative Deviation 2
1 .778 .605 .499 .499 .126 .119
2 .661 .436 .360 .859 .062
3 .413 .170 .141 1.000
Total 1.212 93.316 .000 a 1.000 1.000
a. 30 degrees of freedom

FIGURE 1
PERCEPTUAL MAP OF PREFERRED PRICE CATEGORY AND LEATHER
BRANDS
P1: Less than Rs 500
P2: Within Rs 501 and

1500
Gucci Duckback
1.5
Lee Cooper P3: Within Rs 1501 and
Red Tape
1.0 3000
P4 Local
P3
Dimension 2
P1
0.5 Hi Design P4: Above Rs 3000
0.0 Shree Leathers
-0.5 Bata
P2Metro
-1.0
Rene
-1.5
-1 0 1 2 3 4 5
Dimension 1
The summary table, based on Chi-square significance value, clearly shows that there exists a
relationship between preferred price category and brands. The perceptual map also shows
which brands are lying close to which preferred price category. Moreover, the two
dimensions explain almost 85 per cent variances which is a good representation of the
perception. The second perceptual map is drawn using importance of attributes and brands.
However, to calculate the frequency, importance score of above or equal to 5 was considered
to be important and below 5 was considered not important. Thus, from the rating scores, a
binary response was generated for each respondent and then the correspondence analysis was
done. The summary table is shown in Table 2. The table clearly shows that there exists no
relationship among attributes and brands in the perceptual levels of consumers (Chi-square
significance value is much above 5 per cent significance level). And the perceptual map also
gives a pictorial representation of the same.
TABLE 2
SUMMARY OF CORRESPONDENCE ANALYSIS OF IMPORTANCE OF
VARIOUS ATTRIBUTES AND BRANDS
Confidence Singular

1 .233 .054 .499 .499 .066 .012
2 .177 .031 .286 .786 .044
3 .098 .010 .088 .874
4 .092 .008 .078 .952
5 .072 .005 .048 1.000
6 .007 .000 .000 1.000
Total .109 41.950 .963 a 1.000 1.000

FIGURE 2
PERCEPTUAL MAP OF IMPORTANCE OF ATTRIBUTES WITH RESPECT TO
BRANDS
1.0
Duckback Ethnicity
Bata
Red Tape
0.5 Color
Toughness
Dimension 2
Rene
Woodland
Brand Name
0.0 Price Metro Hi Design
Smoothness
Gucci
Lee Cooper
Local bran
Shree Leat
-0.5
Fashion
-1.0
-0.5 0.0 0.5 1.0 1.5 2.0
Dimension 1
Interestingly, Rene and Red Tape were closer to Ethnicity and when the importance of color
and toughness comes into the picture, people perceive Bata, Duckback and Woodland are
more appropriate brands. However, these observations are just indicative and cannot be said
with full confidence. The same analysis can be done with a larger sample to establish any
relationship among the brands and attributes, if any such relationship exists. The third
analysis was done on how different brands are attached with the preferred leather products.
The summary tables as shown in Table 3 indicate that there is a significant relationship
among preferred product category and the preferred brand. The perceptual map is also shown
in Figure 3. The map clearly shows how the products and brands are perceived to be
associated. It is understood that for belts and wallets consumers, usually, don’t go for
established brands whereas for bags, Duckback, Gucci and Rene are more preferred. Sree
Leather is almost evenly spaced between bags and shoes which mean it is having similar
preferences towards these products. Lee Cooper, Red Tape, Bata etc are predominantly
dealing with footwear and hence the association is also clearly visible in the perceptual map.
TABLE 3
SUMMARY TABLE OF CORRESPONDENCE ANALYSIS OF PREFERRED
PRODUCT WITH RESPECT TO PREFERRED BRANDS
Confidence Singular

1 1.000 1.000 .543 .543 .000 .000
2 .716 .513 .278 .821 .076
3 .574 .330 .179 1.000
Total 1.843 141.887 .000 a 1.000 1.000

FIGURE 3
PERCEPTUAL MAP OF PREFERRED PRODUCT WITH RESPECT TO
PREFERRED BRAND
1 Red Tape
Bata Lee Cooper
Metro
Shoe
Belt Local Shree Leathers
0
Wallet
Dimension 2
Bag
-1 Duckback
Rene
Gucci
Hi Design
-2
Other
-3
-5 -4 -3 -2 -1 0 1
Dimension 1
Another perceptual map is drawn between preferred products and preferred price range. This
is important because price plays a critical role in product design. Consumers may develop
their own inherent understanding of how a product should be priced and how much they are
willing to pay for a particular type of product. That is why a perceptual map in this regard
will throw light on how different leather products could be priced from consumers’ point of
view. The summary table is shown in Table 4. And the corresponding perceptual map is also
shown in Figure 4.
TABLE 4
SUMMARY TABLE FOR THE CORRESPONDENCE ANALYSIS OF PREFERRED
PRODUCT WITH RESPECT TO PREFERRED PRICE CATEGORY
Confidence Singular

1 .836 .699 .863 .863 .027 .035
2 .324 .105 .130 .993 .186
3 .077 .006 .007 1.000
Total .810 121.537 .000 a 1.000 1.000

FIGURE 4
PERCEPTUAL MAP FOR PREFERRED PRODUCT WITH RESPECT TO
PREFERRED PRICE CATEGORY
1 P1: Less than Rs
500
Shoe
P2 Bag
P2: Within Rs 501
0
P3 P1Wallet and 1500
Belt
P3: Within Rs 1501

Dimension 2
and 3000
-1
P4: Above Rs 3000
-2
Other
P4
-3
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Dimension 1
The map indicates that leather bags are more preferred in P3 price category than P2. Other
high valued items are falling in P4 category. The interesting thing in this map is that even
though many branded shoes are actually falling in P3 and P4 category, the preferences are
shown in P2 category. This shows that there could be a reasonable influence of brand in shoe
category which is also evident from Figure 1.
These maps give key insight to product managers or brand managers in terms of product
design or brand positioning/repositioning. Apart from the perceptual maps developed through
correspondence analysis, hierarchical cluster analysis can also be used to see which attributes
are perceived to be nearer to each other. In this analysis, seven attributes were rated by the
respondents on a scale of 10 on the basis of importance. A hierarchical clustering algorithm
was run using nearest neighborhood method to see which are the attributes seem to be closer
in terms of importance. The dendogram is shown in Figure 5.

FIGURE 5
DENDOGRAM OF ATTRIBUTES
The diagram gives a very interesting insight about the association of attributes with each
other. colour, ethnicity and are seen almost at the same time whereas a Smoothness of the
leather product is associated with Price. At a later stage fashion is coupled with smoothness
and price and then even at a much later stage the first three attributes are merged, importance
of brand stays as separate entity till the end which reflects that importance of brand is
evaluated differently.
DISCUSSION
Perceptual maps are more exploratory in nature which is mainly used for getting an insight
without testing a hypothesis in statistical terms. The four perceptual maps that are developed
give a pictorial view of how different categorical variables are mapped in the perceptual level
of consumers with respect to leather products. Consumer behavior in buying a product
generally goes through five different stages like need identification, information search,
developing choice set, purchase and post purchase behavior. Marketers strive a lot to put their
product in the choice set of consumers so that the probability of making a purchase of that
product is increased. That is why, a knowledge of how various attributes of products are
mapped in the perceptual level of consumers can actually help the marketers to go for new
product development and positioning it accordingly. In the current study, it is observed that
two price ranges P3 and P4 are not very far apart when brands are coming into the picture but
in case of product category, they are quite far apart. This is a meaningful insight for
marketers because it clearly shows that switching to a different price category is relatively
easy for consumers who are having the preferred price categories P3 and P4. And this can be
achieved through some promotional activities or even through carefully crafted brand
repositioning activities. The reason why correspondence analysis is so useful in such study is
that the responses can be got very easily without any significant consumer wearout.
LIMITATIONS
But the study is not out of its limitations. One of the major limitations of the study is its
sample size. Looking at the different product categories and brands, the sample size is not
adequate in its true sense. However, the focus of the study was to explore the applicability
and usefulness of correspondence analysis in marketing research and particularly in the
buying behavior of leather products. Since the study is exploratory in nature and these

constructs were used for the first time in the consumer non-durable sector, item reduction was
solely done on statistical basis. Therefore, future researchers may replicate this study in other
consumer non-durable sector to ascertain the validity of the analysis. Furthermore, since the
study has only been conducted in n Calcutta, India, due to convenience sampling, the sample
might not be a true representation of the population of Calcutta, India. Researchers can
conduct similar studies in other industries (with experiential or utilitarian goods or services)
and regions and compare the results before arriving at any generalization of these results.
Further descriptive researches can also be carried out on buying behavior of leather goods
based on the findings of this research.

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ANALYSIS OF MOCAF SUBSTITUTION CAPABILITY TO WHEAT FLOUR
AND IT’S BUSINESS FEASIBILITY
Riza Firdaus
Master of Management Program, Lambung Mangkurat University – Banjarmasin,
South Kalimantan-Indonesia
riza_firdaus@yahoo.com
Hastin Umi Anisah, Widyarfendhi, Wimby Wandary

Economics Facaulty of Lambung Mangkurat University - Banjarmasin,
South Kalimantan-Indonesia
hastin_umi@yahoo.com/ fendhi2scs@gmail.com/ wimbywan234@gmail.com
ABSTRACT
This research aims to investigate the substation capability of Modified Cassava Flour
(mocaf) toward conventional flour – it is wheat flour, and its business feasibility, by using the
Anova and Duncan test. These statistical analysis tools are used to discover mocaf flour
characteristics to wheat flour whether there are significant difference in terms of: taste,
aroma, appearance, and texture among mocaf and wheat flour. The result of Anova analysis
found that there is significant difference in aroma (0,039). In advance, more information
about its dominant characteristic, gathered using Duncan test under two groups of mocaf
subset. The first subset characterized of the 100% standard and premium mocaf flour, and
the second subset characterized by the 100% premium and 50% standard mocaf. The
Duncan findings is the closest characteristic of mocaf in wheat flour substitution is the
second subset, the 100% premium and 50% standard mocaf. This closes characteristic of
mocaf to wheat flour drive to increase business feasibility potential; because of its
economical contribution lessen the total cost production to 77% compared with the 100% in
wheat application.
INTRODUCTION
Indonesia is a country blessed with natural resources, with it decreasing non-renewable

natural resources by the years gone by. It requires the counterbalance for the development of
renewable natural resources industries, especially in agriculture and plantation as the sources
of basic ingredient for national food endurance, despite of keep on exploiting the un-
renewable natural resources. Agriculture’s value-added commodities and plantation are the
national potential in providing the national food self-sufficient for the communities.
Indonesian’s food products are flour based, wheat flour application. The halted of local
diversification for food product will boost the government policy to prolong the wheat import
activities since it can grows well under Indonesia’s tropical climate. Meanwhile, Indonesia is
the largest producer of cassava in Asia, reaching a surprise 28 tons in 2012 (Serikat Petani
Indonesia, 10 January 2013) but under many circumstances are still importing cassava starch.
This controversial situation seems to hold cassava farmer to produce. Indonesia should use
those 28 tons of cassava to meet its food needs through modification of cassava.
According to Asosiasi Pengusaha Tepung Terigu Indonesia (APTINDO), wheat flour
consumption in 2011 exceeded 4.6 million tons, which is higher to the consumption in 2010

that was 4.3 million tons. The increasing consumption of wheat flour is caused by the very
low capacity of national wheat production, that approximately only 10% of the total need for
overall domestic wheat flour productions. Actually, Indonesia’s dependency on imported
wheat flour commodities can be reduced by using “mocaf (modified cassava) flour” as a
derivative product of cassava made through fermentation process.
In South Kalimantan, the central for cassava plantation is the District of Tanah Laut,
which geographically between 114o30’20’’ WL – 115o23'31'' WL and 3o30'33'' SL –
4o11'38' SL. The total land’s area of Tanah Laut, according to the Decree of the Governor of
South Kalimantan, is about 3,631.35 km2 that covers about 9.71% of overall South
Kalimantan Province’s land area (BPS, 2011). The hilly Tanah Laut has abundant mineral
deposits including iron ores and coals. The fertile soil condition of Tanah Laut brings the
agricultural and plantation sectors are able to cover the domestic needs and also the needs of
its surrounding regencies.
Under such conditions, Tanah Laut has a great potency in terms of production
development plant, specifically for cassava plantation. Statistik Perkebunan Indonesia for the
year of 2007-2009 measures the cassava’ potency in Tanah Laut about 45,772 tons
meanwhile the land used for cassava plantation is only 3,210 tons or only 7% of the total
potency. National cassava production in 2012 was only reach for 25million tons (Subagio,
2013). Farmers interest for cassava farming is low, because its low prices. The cassava-based
products itself still in a few so the demand became lower compared to several other
plantation commodities. This condition, of course, holds the farmers from growing more
cassavas.
Considering the national capability of national food endurance by suppress the national
imported conventional flour, it is urgent to utilize the domestic natural resources. Tanah Laut
natural potential for cassava plantation is the good opportunity to develop the conventional
flour substitution product, which is mocaf flour. So, it increases the importance to find out the
business feasibility of mocaf flour production industry, that the feasible business will draw
multiple benefits for the society. This research addresses the questions of:
1) What is the result for capability analysis of mocaf-based products to substitute wheat
flour-based products?
2) How its business feasibility for South Kalimantan?
LITERATURES REVIEW
Husein (2007) explains that business feasibility study studies the business plan, which does
not only pay attention to the business feasibility, but also to the analysis of the maximum
profit within unlimited time period is possible when the business is operated on regular basis.
It’s applicable for investors, creditors, company managements, government, communities,
and other parties who may need the study to provide a source of consideration to review their
business plans. He also mention that the several steps taken in the study aims to establish the
business for real, includes: discovering idea, researching, evaluating, arranging appropriate
suggestions, planning, and executing the plan. In the research phase itself, several aspects to
consider are market situation, company’s internal aspect, market competition, and other
external aspect. Under such theme, internal aspects marketing aspect, technical and
technological aspect, human resources, managements, and finance requires a smart conscious
thought (Husein, 2007).

Defining Mocaf
Modified cassava flour (Mocaf) is a modification products derives from cassava
(manihod esculenta crantz) in forms of flour through fermentation phase. The fermentation
process is the phase that made the difference from mocaf to tapioca flour and gaplek flour
(local dried cassava flour in Jokjakarta), the other form of cassava derived flour. Time period
of fermentation process defines the type of mocaf flour, that the more time of fermentation
process will produce the premium quality while the average time of fermentation will
produce the standard quality. There is no specific type of cassava that eligible to be fermented
as mocaf flour, because basically every tuber group of crops is flour-able commodity. Under
these circumstances, seems that Indonesia possessing the potential to be an independent
country in fulfill its national flour supply, since the cassava crops is easily grows and there
are a lot of variant of tuber group of crops in Indonesia. Actually, mocaf already been applied
in food production but not as comprehensive as wheat flour in Indonesia. People are not yet
accustomed with the term of mocaf itself, simod (term in middle Java), motekap flour
(modifikasi tepung ketela) and MOCAL (from Manihot Esculenta Crantz, but the
community refuse to use this term because in Javanese terms it means: impossible to do).
Application of mocaf flour as wheat flour substitution usually as ingredient for food products,
such as noodles, bakeries, cookies, and some other (Bambang et.al, 2011:p.3).
Growing microbes in cassava fermentation processes change the characteristics of
mocaf flour in which cause the increasing of viscosity, gelational ability, rehydration ability,
and degree of solubility. The microbes also produce organic acids, specifically lactic acid,
which can blend well into other ingredients. When the ingredients are processed into edible
food, the acids will boost distinctive aroma and taste which cover the original aroma and taste
of cassava that tend to be unpleasant to customers. During the fermentation process, color
changing component and protein causing brownies color in drying process are eliminated so
that Mocaf-T1 produced is lighter in color compared to regular cassava flour.
Characteristics of Mocaf
Bogor Agricultural Institute research findings that there are several advantages of mocaf flour
(IPB, 2010), such as: the mocaf aroma and taste are better, also whiter than common cassava
flour; it has the economic price than rice/ wheat flour. Adry (2013) in Food Crops and
Horticulture Department of Riau Islands - Indonesia describes that mocaf can be categorized
as “edible cassava flour” by the special quality of: 1) higher soluble fiber than tapioca flour;
2) higher mineral (calcium) paddy and; 3) Oligosaccharides which cause the
flatulency have been hydrolyzed in mocaf flour; 4) Mocaf’s expandability on par with
wheat flour type II (medium protein content); and 5) Digests easier than tapioca flour.
General Benefits of Mocaf Industrial Development

The primary benefits of mocaf industrial development is the reinforcement of national food
endurance as previously mentioned. Its economic price is widening the poor’s access to food
availability, as well as the creation of business and employment opportunities. Mocaf
industrial development program engaged with farmers and cooperatives, as it use ability as
ingredient for homemade, medium, and the larger industry. Increasing demand of cassava
will improve the farmer’s welfare. Cassava development plant is empowering the marginal
lands are in Indonesia; since there is neglected area of marginal land suffers from erosion,
fire, and reduction of land’s fertility. Cassava is a highly adaptive plant which can grow even
in dry land.

RESEARCH METHODOLOGY
Both primary and secondary research data collected using the combination the
techniques of: In-depth interview as the direct collecting information to mocaf’s producer in
Tanah Laut district; Experiments in making flour based product combines with mocaf flour
application of 100% and 50% composition under the certain standards;. Observation of the
real activity and the real situations of cassava farms and mocaf’s manufacturer in Tanah Laut;
and Documentation of gathering secondary data such as income per capita, consumption
pattern, and surrounding community conditions based on occupations of community
members.
This experimental research intends to figure out the effect of mocaf substitution toward
wheat flour. Experiment is one of the ways used to find out causal-effect relationship
between two factors raised by the researcher through the elimination of other disturbing
variables. The independent variables in this research consist of two groups of mocaf
combination of 50% and 100% substitution of regular mocaf and 100% substitution of
premium mocaf while the characteristics of experimental result products that have been
compared to wheat flour-based products in four aspects of comparisons: taste, aroma,
appearance, and texture as the dependent variables. The making process of mocaf-based
substitution products has been carrying out in the same way as it is on other flour-based
products. Composition of ingredients and utilities used are following the standard of those in
the process of regular wheat flour-based products making.
The assessment resulted from 88 respondents on mocaf-based products in terms of

flavor, aroma, appearance and texture found that there is no significant difference on the
flavor, aroma, appearance and texture of the product made of mocaf and the one made of
wheat flour. In general, the product made of 50% mocaf has the closest characteristics to the
product made of wheat flour, except for its texture. By comparing the characteristics of the
product made of 100% premium quality mocaf to the product made of 100% standard quality
mocaf, the product made of premium quality mocaf has the closest proximity level of
characteristics to the product made of wheat flour.
The Flavor of Mocaf-Based Product

It is expected that the mocaf-based product flavor is similar to the wheat flour-based
product. The comparison of flavor of 100% premium quality mocaf-based product, 100%
standard quality mocaf-based product, and 50% standard quality mocaf-based product is
using one-way Anova test.

TABLE 1 ONE WAY ANOVA OF THE FLAVOR OF MOCAF-BASED
PRODUCT ON DIFFERENT SUBSTITUTION LEVEL
Sum of Mean
Squares df Square F Sig.
Between 7.66 2 3.834 2.721 0.072

Groups 9 85 1.409
Within Groups 119.78 87
Total 6
127.45
5
Source: Data processed, 2013
The findings is that there is no significant difference on the flavor of the products made of
either 100% premium quality mocaf or 100% standard quality mocaf and 50% standard
quality mocaf.
The Aroma of Mocaf-Based Product

The table below shows the comparison of the aroma of mocaf-based product and wheat
flour-based product by using one-way Anova.
TABLE 2 ONE WAY ANOVA OF THE AROMA OF MOCAF-BASED PRODUCT

ON DIFFERENT SUBSTITUTION LEVEL
Sum of Mean
Squares df Square F Sig.
Between 6.89 2 3.447 3.361 0.039

Groups 4 85 1.026
Total 5
94.0
8
The finding is that the aroma of the products is different depends on the amount and the
quality of the mocaf flour used. The Duncan test is used to figure on which level of mocaf
substitution that satisfied the respondents the best.

TABLE 3 DUNCAN TEST OF THE PROXIMITY OF MOCAF-BASED PRODUCT
AROMA ON DIFFERENT LEVEL OF SUBSTITUTION
Duncana,b
Tingkat Substitusi N 1 2
Mocaf
100% Mocaf 41 3.0 3.5
100% Mocaf Premium 42 7 5
50% Mocaf 5 3.5 4.0
Sig. 5 0
.25 .27
3 5
There are two groups to compare in this analysis. the 1st group is content of 100% standard
quality mocaf and 100% premium quality mocaf, and 2nd groups content of 100% premium
quality mocaf and 50% standard quality mocaf. It turns to the 2nd group provides the closest
to the aroma of wheat flour-based product.
The Appearance of Mocaf-Based Product

The comparison of appearance for the mocaf-based product to flour-based product
using One-way Anova to see whether there is a significant difference among the three levels
of substitution.
TABLE 4 ONE WAY ANOVA OF THE APPEARANCE OF MOCAF-BASED

PRODUCT ON DIFFERENT LEVEL OF SUBSTITUTION
Sum of Mean
Squares D Square F Sig.
f
Between 2.48 2 1.242 1.278 0.284
Groups 4 85 0.972
Total 7
85.09
1

The finding is that there is no significant difference on the product appearance of the three
levels of substitution. Thus, Duncan test is not needed to see the level of proximity of the
mocaf-based product to the wheat flour-based product.
The Texture of Mocaf-Based Product

One-way Anova is used to compare the products texture resulted as follows.

TABLE 5 ONE WAY ANOVA OF THE TEXTURE OF MOCAF-BASED
PRODUCT ON DIFFERENT LEVEL OF SUBSTITUTION
Sum of Mean
Squares D Square F Sig.
f
Between 1.68 2 0.843 0.693 0.503

Groups 6 85 1.216
Total 3
105.0
8
Of all the substitution levels - 100% premium quality, 100% standard quality, and 50%
standard quality - there is no significant difference on the appearance of the products. Thus,
advanced test is not needed. The data distribution of mean relative scale of each substitution
group described as follow.
TABEL 6 STATISTIC DESCRIPTIVE OF THE MOCAF SUBSTITUTION LEVEL

BASED ON THE CHARACTERISTICS OF PRODUCT
Substitution
Characteristics Level
100% Mocaf 100% 50%
Total
Premium Mocaf Mocaf
Flavor 3,31 3,10 4,40 3,27
Aroma 3,55 3,07 4,00 3,35
Appearance 3,26 3,29 4,00 3,32
Texture 3,21 3,15 2,60 3,15
Mean 3,3325 3,1525 3,75 3,2725
Mean value relative 0,63 0,75 0,65

0,6665
to the scale 05 00 45
Table 6 above shows that the product made of 50% mocaf has the closest proximity to the
product made of wheat flour since its mean value relative to the scale of five is 0.75.
Meanwhile, the mean value relative of the product made of 100% premium quality is 0.66%
and the product made of 100% standard quality is 0.63%.

TABLE 7 WHEAT FLOUR CONSUMPTION AND THE SAVING OF MOCAF
SUBSTITUTION
Yea
2009 2010 2011 2012
1. Wheat Equivalent (000 MT) 5.224 5.793 6.210 6.668
2. Growth* (%) 12,54 10,91 7,12 7,06
3. Average substitution 0,68 0,68 0,68 0,68
4. The amount of wheat 3.564,5 3.952,7 4.237,2 4.549,8
5. The value of wheat
substituted 26.733,8 29.645,6 31.779,6 34.123,4
6. The value of mocaf (in
trillion Rp) 23.169,3 25.692,9 27.542,3 29.573,6
7. Saving, 5 – 6, (billion Rp) 3.564,5 3.952,7 4.237,2 4.549,8
Source: *= Aptindo, 2013, data processed in 2013
Above table shows the increasing wheat flour consumption in 2009, 2010, 2011 and 2012
released by Asosiasi Produsen Tepung Terigu Indonesia (2012). The average substitution
score for different mocaf substitution levels is 0.68. By taking the price of wheat flour and
mocaf into account, it is predicted that Rp 3.56 trillion could have been saved in 2009, Rp
3.95 trillion could have been saved in 2010, Rp 4.23 trillion could have been saved in 2011,
and 4.55 trillion could have been saved in 2012.
Business Feasibility Analysis

The feasibility analysis in this research focuses on the amount of cost that can be saved
by substituting wheat flour to mocaf flour. The result, afterwards, is used to identify the effect
towards the Net Present Value (NOV), Internal Rate of Return (IRR), Payback Period (PP),
Profitability Index (PI), and Modified Internal Rate of Return (MIRR).
The first step on the feasibility analysis was conducted by calculating the obtained
saving ratio by considering the proximity level, price and the mean value relative to the scale
of five in order to determine the proportional price difference and mean relative price of the
total. As the result, the cost saving ratio obtained is 14.22%, as can be seen on the followed
table.

TABLE 8 THE RATIO OF PRODUCTION COST SAVING RATIO SEEN FROM
DIFFERENT LEVEL OF MOCAF SUBSTITUTION
Price Mean Proortional price Relative

Wheat Mocaf Price Mean difference Relative difference (Rp) price to
Level of flour price difference Relative relative to 100%
substitution price (Rp) (Rp) Scale 5 (Rp) 100% (Rp)
(RP)
(1) (2) (3) (4) (5) (6) (7) (8)

100% Premium 11.000 7.500 3.500 0,6665 2.332,75 0,3256 759,54 3.581,58
100% Standar 7.500 6.500 1.000 0,6305 630,50 0,3080 194,20 2.310,09
50% Standar 7.500 6.500 1.000 0,7500 750,00 0,3664 274,79 2.747,92
Total 1.228,53 8.639,59
Saving ratio (Sv) = Total (7)/Total (8) 0,1422
Source: data processed, 2013
Thus, the amount of cost saving obtained by substituting wheat flour to mocaf flour is
predicted as below:
S – C = EBIT
Due to cost saving, the formula turns into:
S – (C-(C x Sv)) = EBIT
S – (C(1 – Sv)) = EBIT ………………………………………………………… 1)
Because EBIT – i = EBT, where i = interest, then:
S – (C(1 – Sv)) – i = EBT…………………..…………………………..………. 2)
Because EBT – Tax = EAT, then:
(S – (C(1 – Sv)) – i) – Tax = EAT,
((S – (C(1 – Sv)) – i)) (1 – T) = EAT ……………………………………………3)

If the tax (T) is 10% = 0,1, and based on the calculation of saving (Sv), obtained Sv =
0,1422, then:
((S – (C(1 – 0,1422)) – i))(1 – 0,1) = EAT
(S – C(0,8578) – i)(0,9) = EAT
0,9S – 0,9(0,8578C) – 0,9i = EAT
0,9S – 0,77C – 0,9i = EAT
If S = 2; C = 1 and i = 1, then:
Mocaf-based product will earn net profit as much as:

EATmocaf = 1,8 – 0,77 – 0,9 = 1,8 – 1,67 = 0,13
While wheat flour-based product will earn net profit as much as:
EATwheat = 1,8 – 0,9 – 0,9 = 1,8 – 1,8 = 0
Or in the other words, the focus of the calculation is the cost variable since other variables
are quite similar. The lower cost is the result of the saving due to the substitution of
wheat to mocaf, and reduction of tax of the needed cost.
NCF = EAT + Depreciation

Since the depreciation of wheat flour-based product and the mocaf-based product is
similar, the depreciation can be excluded, or in the other words Cash Flow (CF) = EAT.
Where: S = Sales; C = Cost; Sv = Savings; EBIT = Earnings Before Interest and Tax;
EBT = Earnings Before Tax, EAT = Earnings After Tax
The lesser the cost, the higher the profit is. As the result, the net cash flow earned in the
next periods will be more than the amount earned at the current state. NPV earned by the
existing business will be bigger if the business earns bigger profits and net cash flow without
adding more cash to the investments and to other components. The increasing value of NPV
is possible since the cost decrease to (0.8578(1 – Tax rate)). Furthermore, due to the same
reason, Payback Period will be faster, Internal Rate of Return will be bigger, and Modified
Internal Return will also be bigger. By referring to the result of feasibility analysis, it can be
concluded that a business that has already been run well will earn more profit if the business
substitutes wheat flour to mocaf flour.
CONCLUSION
The value of mocaf substitution to wheat flour is approximately 0.68 or 68%. By

considering the high number of wheat flour consumption in Indonesia in 2012, around Rp
4.55 trillion can be saved by substituting wheat flour to mocaf flour. Industries or businesses
that use mocaf flour as their main raw material will have lower production costs which lead
them to have bigger net cash flows per period. In addition, by considering various investment
assessment methods, the businesses that have been run will be more feasible through the
saving of cost after tax as much as 0.77 as the result of the substitution.

REFERENCES
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Sam Walton Business Model 1

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Sam Walton Business Model 1

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AFBE JOURNAL

Volume 7, No. 1, June, 2014

AFBE Journal Vol.7, no. 1

Keywords: Leadership; Retail; Walmart

AFBE Journal Vol.7, no. 1 2

The motivation to choose Mr. Sam Walton as a Leader

AFBE Journal Vol.7, no. 1 3

AFBE Journal Vol.7, no. 1 4

Early Retail Career

Setbacks faced by Mr. Sam Walton

AFBE Journal Vol.7, no. 1 5

Bentonville Store Expansions

Giving up the Bentonville Franchisee

Wal-Mart: Building an Empire

AFBE Journal Vol.7, no. 1 6

AFBE Journal Vol.7, no. 1 7

An integral component of Wal-Mart's success was its leveraging of new technologies to

Wal-Mart: Wall Street Cash Infusion

AFBE Journal Vol.7, no. 1 8

AFBE Journal Vol.7, no. 1 9

An integral component of Wal-Mart's success was its leveraging of new technologies to

The Leadership of Mr. Sam Walton

AFBE Journal Vol.7, no. 1 10

Sam Walton: Personality Traits

AFBE Journal Vol.7, no. 1 11

Many industry observers regard Walton's management style as unique, entrepreneurial,

AFBE Journal Vol.7, no. 1 12

Rule 1: Commit to your business.

Rule 3: Motivate your partners.

Rule 4: Communicate everything you possibly can to your partners.

Rule 5: Appreciate everything your associates do for the business.

AFBE Journal Vol.7, no. 1 13

Rule 8: Exceed your customer’s expectations.

Rule 9: Control your expenses better than your competition.

Rule 10: Swim upstream.

Sam Walton: The Leadership Lessons

Stick to fundamental values

AFBE Journal Vol.7, no. 1 14

Don’t follow the money, follow your passion

Take care of your people

Customer Relationship Management at Wal-Mart

AFBE Journal Vol.7, no. 1 15

Mr. Sam Walton described as per Leadership Theories

Sam Walton: The Big Five Trait Theory

AFBE Journal Vol.7, no. 1 16

Sam Walton: Myers-Briggs Type Indicator Instrument

The four areas are extraversion/introversion, sensing/intuition, thinking/feeling, and

AFBE Journal Vol.7, no. 1 17

Sam Walton: A Transformational Leader

AFBE Journal Vol.7, no. 1 18

• Intellectual Stimulation: Walton encouraged innovation and creativity through challenging

Sam Walton: A Charismatic Leader

AFBE Journal Vol.7, no. 1 19

1. Listening: In servant leadership, Managers are required to have communication skills as

AFBE Journal Vol.7, no. 1 20

AFBE Journal Vol.7, no. 1 21

9. Building community: A servant leader identifies means to build a strong community

Sam Walton: Bases of Power Theory

Sam Walton as per Motivational Theories

AFBE Journal Vol.7, no. 1 22

Some factors that Herzberg identified as motivational factors were “responsibility,

AFBE Journal Vol.7, no. 1 23

AFBE Journal Vol.7, no. 1 24