Business Intelligence Journal: Articles

Business Intelligence Journal
August, 2009 Vol.2 No.2
Business Intelligence Journal

Volume 2 - Number 2 - August 2009 - Semiannual Publication
Published by the IIU Press and Research Centre, A.C., Brussels EU Commission Building, Rond Point, Schuman
6, Box 5, 1040 Brussels, Belgium, for the Department of Business Management and Economics (BME) of the
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in collaboration with the Business Intelligence Service of London, UK (Sayco UK).
Editorial Note 255

Profile of authors included in this number 256
Information for Contributors 258
Articles A Survey of the Effect of Consumers’ Perceived Risk on Purchase Intention in E-Shopping 261
Mansour Samadi and Ali Yaghoob-Nejadi
Impact Of Atm On Customer Satisfaction (A Comparative Study of SBI, ICICI & HDFC bank) 276
Sultan Singh, Ms. Komal
The Employability Of Graduates In Competitive Organisations 288
Abdul Farouk Ahmed
The Survey of the political Costs and Firm Size: Case from Iran 319
Reza Tehrani, Mahdi Salehi, Hashem Valipour, Mohammad Jahandar Lashky
Atenquique’s environmental and economic development shrinkage in Globalization era 343
José G. Vargas-Hernández, Mohammad Reza Noruzi
Analytical Hierarchy Process Applied to Vendor Selection Problem: Small Scale, Medium Scale and 355
Large Scale Industries
Sanjay Kumar, Neeraj Parashar, Abid Haleem
Implementing Enterprise 2.0 knowledge sharing tools in a Eastern European consultancy 363
Sara Bocaneanu
Manufacturing The Politics of American Industry 369
Jim Tanoos
Impact Assessment Of Corporate Culture On Employee Job Performance 388
Olu Ojo
Financial Distress Prediction in Emerging Market: Empirical Evidences from Iran 398
Mahdi Salehi, Bizhan Abedini
Short-Sea Transport and Economic Development in Penang 410
Chang Kah Loon
The Functioning Process of Logistics: A case of Licensed Manufacturing Warehouse (LMW) in 419
Malaysia
Ooi Seng Kong
Cell Based Reporting For Effective Custom Reports And Analytics 425
Rakesh Tej Kumar Kalahasthi, P. Radha Krishna

General Information 431
Business Intelligence Journal - January, 2009 Vol.2 No.1

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Business Intelligence Journal 255
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Business Intelligence Journal - August, 2009 Vol. 2 No. 2

256 Business Intelligence Journal August
Business Inteligence Journal

August 2009, Volumen 2, Number 2
Article 1: A Survey of the Effect of Consumers’ Perceived Risk on Purchase Intention in E-Shopping
Author: Mansour Samadi, Ph.D. – Department of Economics, Faculty of Management, Shahid
Chamran University, Ahvaz, Iran
Ali Yaghoob-Nejadi, M.A. – Department of Economics, Faculty of Management, Shahid
Chamran University, Ahvaz, Iran
Article 2: Impact of ATM on Customer Satisfaction
Author: 1–Prof. Sultan Singh – Dr. Sultan Singh is at present working in Ch. Devi Lal University, Sirsa
as a professor in the department of Master of Business Administration (MBA). He is having 20
years of experience. His areas of interest are finance, accounts and e-banking.
2–Ms. Komal – Ms. Komal working as a lecturer in the Institute of Technology & Management,
Gurgaon is having four years of teaching experience. She is NET (National Eligibility Test)
qualified and doing her Ph.D. in electronic banking.
Article 3: The Employability Of Graduates in Competitive Organisations
Author: Dr Abdul Farouk Ahmed, Ph.D
Article 4: The Survey of the political Costs and Firm Size: Case from Iran
Author: 1–Reza Tehrani – Assistant Professor, Management and Accounting Department, Tehran
University, Tehran, Iran
2–Mahdi Salehi – Assistant Professor, Accounting Department, Zanajan University, Zanjan,
Iran
3–Hashem Valipour – PhD Student, Azad University, Olom va Tahghigat Branch, Tehran,
Iran
4–Mohammad Jahandar Lashky – M.A Holder in Accounting, Azad University, Marvdasht
Branch, Marvdasht, Iran
Article 5: Atenquique’s environmental and economic development shrinkage in Globalization era
Author: 1–José G.Vargas-Hernández, M.B.A.; Ph.D. – Departamento de Mercadotecnia y Negocios
Internacionales Centro Universitario de Ciencias Económico Administrativas U de G.
2–Mohammad Reza Noruzi, E.M.B.A, M.A – Islamic Azad University, Iran
NO 195, Kashanee Street, Aghaee Street, Maragheh, Iran

2009 Business Intelligence Journal 257
Article 6: Analytical Hierarchy Process Applied to Vendor Selection Problem: Small Scale, Medium Scale and
Large Scale Industries
Author: 1–Sanjay Kumar – Assistant Professor Department of Mechanical Engineering Career Institute
of Technology and Management
2–Neeraj Parashar – Department of Mechanical and Automation Engineering
Guru Premsukh Memorial College of Engineering
3–Dr. Abid Haleem – Prof. Mechanical Engineering Coordinator MBA (Evening) Faculty of
Engineering and Technology, Jamia Millia Islamia
Article 7: Implementing Enterprise 2.0 knowledge sharing tools in a Eastern European consultancy
Author: Sara Bocaneanu – Doctoral student – Academy of Economic Studies, Bucharest, Romania
Str. Anastasie Panu nr. 3, bl. A3, sc. 3, et. 6, ap. 90, Bucharest, Romania
Article 8: Manufacturing The Politics of American Industry
Author: Jim Tanoos – doctoral student Purdue University College of Technology Organizational
Leadership and Supervision Dept
Article 9: Impact Assessment Of Corporate Culture On Employee Job Performance
Author: Olu Ojo – Department Of Business Studies College Of Business And Social Sciences Covenant
University
Article 10: Financial Distress Prediction in Emerging Market: Empirical Evidences from Iran
Author: Mahdi Salehi – Assistant Professor, Accounting and Management Department, Zanjan
University, D.N. 1 Nagilo Alley, Hidaj City, Zanjan Province, Zanjan, Iran
Article 11: Short-Sea Transport and Economic Development in Penang
Author: Chang Kah Loon – Master of Philosophy (MPhil) in Logistics Management
Article 12: The Functioning Process of Logistics: A case of Licensed Manufacturing Warehouse (LMW) in
Malaysia
Author: Ooi Seng Kong – Master of Science (MSc) in Logistics Management
Article 13: Cell Based Reporting For Effective Custom Reports And Analytics
Author: 1–RakeshTej Kumar Kalahasthi – SAP BI Practice, Enterprise Solutions, InfosysTechnologies
Limited, Hyderabad, India
2–P. Radha Krishna – SET Labs, Infosys Technologies Limited Hyderabad, India
In order to make contact with any of the Authors referred to above, please forward your request to: edit.bij@saycocorporativo.
com, including BIJ’s edition (BIJ Volume 2, Number 2, August 2009), article’s and author’s names with your requirement. BIJ’s
Editor will be glad to submit your requests or inquiries before authors.

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2009 Mansour Samadi, Ali Yaghoob-Nejadi 261
A Survey of the Effect of Consumers’ Perceived Risk on

Purchase Intention in E-Shopping
Mansour Samadi, (Ph.D.), Ali Yaghoob-Nejadi, (M.A.)
Abstract
This research paper aims to compare the perceived risk level between Internet and store shopping, and
revisit the relationships among past positive experience, perceived risk level, and future purchase intention
within the Internet shopping environment. To achieve the research objectives and test hypotheses, paired
sample t-test is used to analyze the mean differences of the individual and overall perceived risk levels in
two buying situations. In addition, to analyze the relationships among shopping experiences, perceived
risk, and purchase intention variables, Pearson correlation analysis and linear regression are used. The
research revealed that consumers perceived more purchasing risk from the Internet than from the store.
A more positive online shopping experience led to consumers’ less perceived purchasing risk level in the
Internet. And a higher perceived risk led to less future purchasing intention from the Internet.
M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Introduction Iran, located in Middle East, is stated to have

not only the fastest growing internet usage in this
The increased globalization of the world region (Slavin, 2005) but also in the whole world
economies has created many opportunities for [43]. Internet was introduced in Iran in 1992 at the
marketers. At the same time, this has also intensified Institute for Studies in Theoretical Physics and
competition among businesses so that many Mathematics in Tehran. It remained an academic
companies are looking towards unconventional tool until 1997. Internet has been led to a quick
forms of marketing. Marketing through the Internet expansion since 2000. The number of people
is one such unconventional form of marketing that using the internet rose from 250,000 (3.8 percent
many companies have turned to. of the total population) in 2000 to 23,000,000
While many businesses are rapidly adopting (34.9 percent of the total population) in June,
the Internet as the means through which they 2008, establishing a 9100-percent user growth
can efficiently and economically conduct their record. According to the latest World Internet
marketing activities, there are many risks User Statistics report, among the top 20 countries
associated with its use. For example, the Internet with the highest number of internet users in the
has very little security and any company using the world, Iran holds the rank 0f 17. As for Middle
Internet risks disclosure of proprietary information East internet usage rating, Iran ranks first followed
[40]. However, these are risks affecting companies by Saudi Arabia and Israel each with 6,200,000
marketing through Internet. What risks do and 3,700,000 internet users respectively [27]. As
consumers face when shopping online? many as 100,000 web logs exist in Farsi, making
Consumers perceive risks in most store purchase it the third most common language of bogs, after
decisions [11], and the general conclusion from English and French. “Three-fourths of internet
direct-marketing related studies is that consumers users are between the ages of 21 and 32, and 14
associate a higher level of risk with non-store percent use internet 38 hours or more per week”
purchase than store purchase decisions [2]. Given [54]. Regarding the online shop industry in Iran,
that Internet shopping is a high technology form of not much literature can be found. Based on EIU
direct marketing, what do we know about the risk ratings in year 2000, among 60 countries, Iran
perception of consumers who shop for goods at has the 58th place in e-commerce. Obviously,
the virtual storefront? In the marketing literature, e-commerce is something new for Iran and Iranian
research has shown that the use of certain risk shoppers. But it is steadily growing and it seems
reduction strategies such as brand reputation, to grow fast in the future. Online shopping is
product trial, and warranty are successful in also in its very early stages, as well. It has been
reducing the risk perception of consumers [45, 50, reported by ILNA (Iranian Labour News Agency)
26, and 9]. However, are these strategies effective that approximately 1200 online shops have been
too for virtual shoppers? These questions have formed and experienced online business in Iran by
not been addressed in the research on Internet 2004 (2004 Dec. 13). In addition, the manager of
marketing. In fact, most of the existing literature “the project of online purchase” of Iran post office
concentrated on explaining the advantages and organization has stated that 86000 orders of the
disadvantages of Internet marketing [40, 1], but internet shoppers have been delivered by the Post
none addresses the issues raised here about the Oﬃce by the end of year 2005-up from 30000
consumers’ concerns in virtual shopping. orders in 2004. He further added most of this orders
Online consumer behavior is a research area were CDs, books and little home appliances and
with an increasing number of publications per the average cost of each order is between 100000-
year. Although researchers have made noticeable 150000 Rls, whereas the maximum cost has been
progress with respect to the scope, quality and 15000000 Rls.
quantity of research, there are still significant The idea of buying goods (unless they are of
disagreements about the findings in this area [33]. homogenous quality such as books, VCDs, hotel

rooms and airplane tickets) that one cannot see percent in the past two years -- according to the
and touch, from sellers thousands of kilometers latest Nielsen Global Online Survey on Internet
away may take some ‘getting used to’ for an shopping habits. Globally, more than half of
ancient culture such as Iranians, who are used Internet users have made at least one purchase
to face-to-face transactions, familiarity with the online in the past month, according to Nielsen
other party, strong individual relationship and long [39]. As a global trend, shopping on the internet
term association between the parties, and getting has a high probability of creating a fully customer-
satisfaction from winning business negotiations oriented society to be led by people (prosumers =
(they are willing to employ a variety of tactics to producers + consumers) in the future. The trend is
get the best deal). a product of the characteristic of the internet with
As an ancient culture, Iran has its distinct excellent network performance and interactivity.
socio-economical environment to be studied, and In addition to this tremendous growth, the
as a developing country, there are great business characteristics of the global electronic market
opportunities foreseen by adopting e-commerce constitute a unique opportunity for companies
for years to come. to more efficiently reach existing and potential
This paper addresses the issue of Internet customers by replacing or enhancing traditional
marketing from the perspective of the consumers. retail stores with Web-based businesses [34].
It seeks to determine the risk perception of Internet Therefore, the World Wide Web (WWW) enables
shoppers and their choice of different types of risk businesses to explore new markets that otherwise
reduction mechanisms available when shopping cannot be reached.
through the Internet. The results of the study show The use of the Internet for purchasing goods
that consumers perceived Internet shopping to be of and services has enormous potential. According
higher risk than in-store shopping. They also show to some researchers the Internet is the very
that a more positive online shopping experience encapsulation of “one-to-one marketing” and as
led consumers’ less perceived purchasing risk such gives the companies the ability to establish
level in the Internet and a higher perceived risk enduring relationship with individual customers.
led to less future purchasing intention from the Consequently, Electronic Commerce (EC) has
Internet. emerged as the most important way of doing
The rest of the paper is organized as follows. business for years to come.
The next section deals with the development of Perceived risk: The term perceived risk
hypotheses tested in this paper. The third section means the individual’s subjective belief about
of this paper provides a description of the research potentially negative consequences from his/her
materials and methods, the results of which are decision. In other words, “perceived” is used as
described in Section 4. Section 5 concludes the opposed to objective outcome distributions of an
paper with a discussion on marketing implications alternative or a product class with that a consumer
of the study and research limitations. is associated.
In attempting to understand the manner in
which consumers engage in new consumer
behaviors through or in the Internet, it appears that
Hypotheses Development “risk” is one of the main concerns for shoppers
contemplating the Internet. The results of the
Internet and online shopping have been growing Graphics, Visualization and Usability Center
rapidly over the past ten years. The number [GVU] survey [22] showed that consumers are
of consumers who purchase online is growing unwilling to make a purchase in the Internet market
sharply. More than 85 percent of the world’s online because of a perceived high risk about the quality
population has used the Internet to make a purchase of the product, new payment methods, delivery
-- increasing the market for online shopping by 40 options, and information content.

There are a number of reasons why risk is an For all these reasons, investigating consumer
appropriate place to look at the manner in which risk perception and providing proper risk-reduction
traditional theories and propositions of marketers strategies within the Internet shopping environment
hold up in the Internet area. First, perceived risk offers a great deal to potential Internet marketing.
theory provides a comprehensive explanation But the investigation of risk perception in Internet
of why consumers are more often motivated shopping decisions goes beyond mere “help”
to avoid negative aspects than to seek positive for Internet marketers. The relationship between
aspects or payoffs in a given buying situation. risk perception and consumer behavior is a well-
Perceived risk theory postulates that buyers are researched and well-understood area of consumer
inclined to minimize the perceived risk first, research. The specific findings of the relationship
rather than to maximize the expected positive between risk and Internet behavior will help
outcome or expected payoff [49]. In this way, explain the manner in which we need to consider
it has been possible to understand some of the the Internet. If the Internet is simply another arena
consumer behaviors that are not comprehensible of consumer action, then we should be able to find
in a normative utility theory. Besides, it has been relationships between risk and consumer behavior
shown that once consumers’ perceived risks have in the Internet arena which are isomorphic to those
been identified in a buying situation, there seems we have found in the traditional shopping and
to be some evidence to determine subsequent consumer behavior arenas.
consumer behavior in accordance with such risks Types of Perceived Risk: Several types of
[55]. risk that consumers perceive can be identified:
Second, perceived risk theory is expandable functional risk, physical risk, financial risk,
to almost all kinds of consumer products and social risk, and psychological risk [28]. Table 1
services. That is, the previous perceived risk illustrates different types of risks according to
research demonstrates that the theory can be Jacoby and Kaplan categorization. Roselius [45]
successfully applied to a wide range of consumer also proposed a slightly different conceptualization
product categories, including coffee [4], detergent of the perceived risk types by identifying the
[13], furniture [25], automobiles [41], and services possible losses that a consumer may experience
[37]. due to a purchasing decision: time loss, hazard
Third, perceived risk analysis increases loss, ego loss, and money loss. It is notable that the
marketing efficiency [35]. Since a study of risk psychological aspect is first proposed as a major
identifies consumers’ preferred risk-reduction perceived risk type. Consumers form perceptions
strategies, the focus on useful strategies brings regarding intangible “psychic costs” in the form
about more efficient resource allocation into of anxiety, frustration, and down time along with
all marketing activities, including brand/ tangible financial and performance losses. Thus,
image development, targeting, positioning, and the perceived risk can be in psychological/social
segmentation. terms, or in economic/functional terms, or in some
Fourth, the study of perceived risk leads combination of both forms [55].
consumers to more effective decision making.
Davis and Olson [15] argued that perceived
risk is a significant source of psychological
stress that results in impaired decision-making.
Thus, marketers’ understanding of perceived
risk structure and the provision of risk relievers
give consumers a better environment for making
buying decisions.

Table 1. Types of Perceived Risk (Jacoby & Kaplan, The Mode of Shopping and Perceived Risk:
1972) The results of previous research [12, 20, 21, 30,
BUYERS MOST PURCHASES and 52] related to mode of shopping suggested
TYPE OF RISK
SENSITIVE TO MOST SUB- that perceived risk is affected not only by what
IT JECTED TO IT is purchased but also by how it is purchased.
Risk capital Mechanical or
consists of physical electrical goods
The previous studies concluded that consumers
vigor, health, and (such as vehicles, perceive more purchasing risk when buying an item
Physical vitality. Those who flammables), by telephone or mail catalog than when buying in
are elderly, frail, drugs and medical
or in ill health are treatment, food and
a store or from a salesman. In addition, the level
most vulnerable. beverages. of perceived risk is related to store selection [14,
25, and 31]. That is, consumers who perceive less
Risk capital
consists of purchasing risk prefer the specialty store, and low
importance of social, high economic risk products to the mall
time, convenience, Concert, airline and other types of products.
and effort getting tickets, items
the product that require high Based on the literature of past mode of
Convenience
adjusted, repaired, opportunity cost shopping and perceived risk research, it is logical
or replaced. are most subject to to deduce that consumers perceive more risk in
Those who have a this form of risk.
scheduled, oriented the Internet shopping environment. The direct and
life are most most important hypotheses are generated between
sensitive. mode of shopping and perception of risk.
Risk capital H1: Consumers perceive more risk in the act
consists of High-ticket items of buying from the Internet than in buying from
money and that require stores.
property. Those a substantial
Monetary
with relatively expenditure are Furthermore, psychological learning
little income or most subject to this theory conceptualization suggests certain
wealth are most form of risk. interrelationships between perceived risk and
vulnerable.
the Internet shopping experience. However, the
Risk capital general shopping experience is operationalized
consists of Products or in two detailed variables - amount of prior
alternate means services whose
of performing purchase and positive shopping experience and total number
Functional the function use require the of purchases. It is reasonable that only a positive
or meeting the and preclude shopping experience leads to decrease perceived
need. Practical redundancy.
consumers are buyer’s exclusive risk level while negative shopping experience
most sensitive. commitment increases perceived risk of future purchasing. In
addition, although Srinivasan and Ratchford [53]
Risk capital SociaIly visible or
consists of self symbolic goods proved that both the total number of purchases
esteem and self- such as clothes, and the amount of positive shopping experience
Social confidence. Those jewelry, cars,
decrease overall perceived risk of automobile
who are insecure homes, or sports
and uncertain are equipment are buying, two variables may not be positively
most vulnerable. most subject to it. correlated in the other buying situation. Thus, the
Risk capital Expensive personal
direct relationships between the overall perceived
consists of luxuries that may risk and only prior positive shopping experience
affiliations and engender guilt, from the Internet is predicted.
status. Those durable goods, and
Psychological
lacking respect services whose
H2: There is a negative correlation between the
or attractiveness use demands amount of prior positive shopping experience in
to peers are most self-discipline or the Internet and the overall perceived risk level of
sensitive. sacrifice.
shopping in the Internet.

Purchase Intention and Perceived Risk: and store shopping, and (2) revisit the relationships
Purchase intention has been widely used in the among past positive experience, perceived risk
literature as a predictor of subsequent purchasing level, and future purchase intention within the
[5]. More specifically, Mitchell, Davies, Moutinho, Internet shopping environment.
and Vassos [36] and Wood and Scheer [57] have In order to achieve the research objectives
successfully proved that purchase intention is and test hypotheses, paired sample t-test is used
negatively driven by the perceived risk associated to analyze the mean differences of the individual
with the purchase. In sum, the previous literature and overall perceived risk levels in two buying
implies the following hypothesis: situations. In addition, to analyze the relationships
H3: The greater the perceived risk associated among shopping experiences, perceived risk, and
with the act of buying from the Internet, the lower purchase intention variables, Pearson correlation
the future purchasing intention from the Internet. analysis and linear regression are used.
Risk-Reduction Strategies: Risk-reduction Sample and response rate: Convenience
strategies are possible to associate with one of sampling method is selected for this research,
the two dimensions of the perceived risk. For since respondents have to be computer and internet
instance, consumers might use brand loyalty as literate. Computer and internet illiteracy among
a way of minimizing uncertainty of purchase or Tehrani consumers can be observed widely, and
they might rely on a money-back guarantee as a would cause gathering uncorrelated data if the
means of avoiding a financial loss in the case of a number of illiterate members among the selected
purchasing failure. sample be considerable. Tehrani online shoppers
However, risk-reduction strategies more are chosen as the target population. Our sample
often aim to reduce the uncertainty component consists of all the Tehrani individuals who have
of perceived risk rather than to avoid the adverse made an online purchase of computer-related
consequences that could arise. The reason seems products (hardware or software) within the last 12
to be directly due to the nature of perceived risk months and their names are included in Irpoststore
in consumer behavior. In general, consumers can mailing list. At the time of doing this research,
not change unfavorable consequences of their Irpoststore had only 2000 e-mail addresses from
choices easily, while they can change the level of all of those who had bought something online from
uncertainty in various ways, such as by purchasing one of its 34 subscribed online computer shops
well-known brands [49]. since 2 years ago. The reasons why we have chosen
Fourteen risk-reduction methods have been “IrPostStore” and an introduction to this firm will
selected for this research based on their applicability be explained in the following paragraphs.
to Internet purchasing: Brand loyalty, Store image, feedback@irpoststore.com is a well-known
Information from friends/family, Past experience, sponsor for the distribution of the e-mails. It also
Visit/Call local retailer, Store recommendation, seems to be a well-known brand amongst Iranian
Shopping around, Well-known brand, Money-back online shoppers. Some factors that helped the
guarantee, Price information, Warranty quality, brand name might be that it is supporting many
TV /Print commercials, Consumer Reports, and successful online shops such as CDkade.com,
Internet newsgroups. The primary goal of this test Shahrenarmafzar.com, Sonycard20.com and
is on comparing the consumers’ risk-reduction so on and it is also introduced as the pioneer of
strategy preference in two shopping mode. e-commerce in Iran by ministry of commerce in
the two past years (before June 2005).
E-mails have been sent to all 2000 individuals
Materials and Methods from feedback@irpoststore.com The E-mails
acted as cover letters that linked the reader to the
This study had two main objectives: (1) to site, where the e-questionnaire was uploaded.
compare the perceived risk level between Internet The replies were then collected in two weeks;

we reached the rate of 393 responses. However, specific product, whereas low scores indicate that
this number of records has reduced to 360 records the expectation of negative consequences is low.
after editing was performed. The statements associated with each of the six
dimensions are the same in form as the following
Operationalization of Perceived Risk: Overall social risk operational statement:
perceived risk is the main dependent variable Extremely = 1 Slightly =5
chosen for this research. Overall perceived risk Moderately = 2 Neither =4
provides a comprehensive explanation about how Moderately =6
the consumers perceive the purchasing situation. Slightly =3
The primary emphasis of this study is on comparing Extremely =7
the level of perceived risk in two different buying
situations, rather than among individual products What is the probability that a purchase of a
(although the scale permits measurement of COMPUTER-RELATED PRODUCT (Software/
product differences). Measuring perceived risk by Hardware) from the Internet will lead to SOCIAL
single dimensional dual-components framework LOSS for you because others would think less
does not provide a detail explanation for the risk highly of you?
perception in a specific buying situation where
the consumer engages in risk trade-off behaviors Improbable 1____ : 2____ : 3____ : 4____ :
[28]. 5____ : 6____ : 7____ Probable
The techniques employed to measure overall - If this SOCIAL LOSS happened to you, it
perceived risk used in this study are modeled would be
from use in previous studies [6, 18, 20, 28, 38, Unimportant 1____ : 2____ :3 ____ : 4____ :
41, and 45]. In particular, perceived risk has been 5____ : 6____ : 7____ Important
hypothesized to involve a combination of six
underlying dimensions - social, psychological, Shopping Experience and Purchase
monetary, functional, physical, and convenient. Intention: Positive shopping experience and total
Thus, in this study, the perceived risk scores for all number of purchase are measured as in Srinivasan
six dimensions are combined to measure overall and Ratchford’s research [53]. However, in this
perceived risk as in: study, positive shopping experience is separately
measured in the Internet and stores. Also, in
6 purchase intention, respondents are asked how
Overall Perceived Risk = ΣPL* ILi. likely it is that they will make a purchase of the
i=1 computer-related products (Software or Hardware)
from the Internet within the next twelve months
where (Likely to buy).
Both positive shopping experience and
PL = Probability of Loss; purchase intention are measured on five-point
IL = Importance of Loss; scales anchored in unlikely-likely/unsatisfactory-
i = Type of loss. satisfactory. Sample questionnaires appear below:
• Total number of purchases:

The probability and importance of each loss is How many purchases have you made from the
operationalized as a seven-point scale anchored Internet in the last 12 months?
in an improbable-probable and unimportant- [ ] 0 [ ] 1-5 [ ] 6-10
important judgment context. High scores on the [ ] 11-15 [ ] 16-20 [ ] 20+
scale suggest that the respondents perceive the
types of risks are associated with the purchase of a

• Positive shopping experience: In the collected sample, 77% of the respondents

Overall, your shopping experience from the were male, 47.5% were in the 18-24 age group, 41.2
Internet/stores for computer-related products % of the respondents had bachelor’s degrees, and
(hardware or software) was 57.2% of the respondents had 1-5 online purchase
(Very Dislikable Dislikable Acceptable experience. As for the type of risks they perceived
Likable Very Likable No Experience) most, four specific risks were found to be related to
• Purchase intention: shopping in the Internet; monetary risk, functional
Overall, how likely is it that you will make a risk, convenience risk, and physical risk. Overall
purchase of computer-related products (hardware only monetary risk was found to be a determinant
or software) from the Internet within the next 12 factor in Internet shopping overall.
months?
(Very Unlikely Unlikely Moderately Hypothesis 1
Likely Very Likely) Table 2 shows the statistics for paired sample
Procedure: The respondents are linked to an test. Based on the results from table 3 and table
e-questionnaire set so as to: (1) rate the amount 4, the hypothesis that consumers perceive higher
of individual six perceived risk dimensions they risk for Internet shopping than in-store shopping
felt present in a purchase of computer-related is well supported. The paired sample t-test showed
products from the Internet and from the store and that there is a significantly higher level of risk
indicate proper risk-reduction strategies in the perceived by the subjects who were assessing
Internet buying situation; (2) indicate amount of Internet shopping than those who were assessing
past buying experience and rate future purchase in-store shopping (p-value = 0.000<0.05=α).
intentions from the Internet for computer-related
products (hardware or software); and (3) provide Table 2. Paired Sample Statistics
some demographic information. Std. Std. Error
Mean N
Deviation Mean
Internet
Results Overall 4.6250 360 1.48002 07800
Risk
Store
The data for this study were obtained through Overall 2.5833 360 .91032 .04798
a mail survey of those Tehrani citizens who had Risk
used and made a purchase on the Internet from one
of the 34 Irpoststore-registered online computer Table 3. Paired Sample Correlations
shops within the last 12 months. A total of 360
Pair 1 N Correlation Sig.
completed e-questionnaires from the respondents
Internet
who had the Internet purchasing experience were
Overall Risk
used for the analysis. 360 .487 .000
vs. Store
Overall Risk
Table 4. Paired Sample Test
Paired Differences
95% Confidence Interval of the
Pair 1 t df Sig. (2-tailed)
Mean Std. Deviation Std. Deviation Difference
Lower Upper
Internet
Overall Risk –
2.0417 1.30606 .06884 1.9063 2.1770 29.660 359 .000
Store Overall
Risk

Hypothesis 2 Table 6. Results of Regression Analysis (model

Hypothesis 2 predicted that there would be a summary and ANOVA)
negative correlation between the amount of prior Sum of Mean Adjusted
Model df. F Sig.
positive shopping experience in the Internet and Squares Square R Square
the overall perceived risk level of shopping in the Regression 196931.632 1 196931.632 282.755 .000(a)
Internet. This was supported. The relationship 1 Residual 249338.143 358 696.475 .440
between the overall perceived risk and the amount Total 446269.775 359
of prior positive shopping experience in the
Internet was assessed using Pearson Correlation a Predictors: (Constant), Positive Shopping
Analysis. Experience
Table 5 shows that overall perceived risk is b Dependent Variable: Internet Overall Risk
negatively correlated with the amount of prior
positive shopping experience in the Internet (R=-
0.663, P=0.000). Besides, Since p-value ≈ 0.000 ≤ 0.05 (Table 7),
Thus generally, as the amount of positive At the α = 0.05 level of significance, there exists
shopping experience in the Internet increases, the enough evidence to conclude that the slope of the
overall perceived risk level of shopping in the population regression line is not zero and, hence,
Internet decreases. that positive shopping experience in the Internet is
useful as a predictor of overall perceived risk level
of internet shopping.
Table 5. Correlation Results of Positive Shopping
Experience and Overall Perceived Risk in the Internet
Table 7. Results of Regression Analysis (Coefficients)
Positive
Internet Model Standardized Unstandardized
Shopping Coefficients Coefficients
Overall Risk t Sig.
Experience Std.
Beta B
Pearson Error
1 -.663(**)
Internet Correlation 1 (Constant) 3.970 189.709 47.791 .000
Overall Risk Sig. (2-tailed)
. .000
INTEXPER -.664 1.646 -27.683 -16.815 .000
N
360 360
Pearson
Correlation
a Dependent Variable: COMPOSIT
-.663(**) 1
Positive Sig. (2-tailed) .000 .
Shopping N
360 360 Hypothesis 3
Experience
Hypothesis 3 predicted that the greater the
** Correlation is significant at the 0.01 level perceived risk associated with the act of buying
(2-tailed). from the Internet, the lower the future purchasing
intention from the Internet. This was supported.
As reported in table 8, total purchasing intention
Also, the results of regression analysis in table is negatively correlated with the total overall
6 show that the coefficient of determination is perceived risk (R=-0.545, P=0.000).
0.44; therefore, about 44% of the variation in the Thus generally, as the amount of overall
overall perceived risk level of internet shopping is perceived risk in the Internet shopping decreases,
explained by the positive shopping experience in the consumer’s purchasing intention increases.
the Internet.

Table 8. Correlation Results of Future purchasing Preference for Risk-reduction Strategies

intention and Perceived Risk in the Internet Overall, “Money-back guarantee”, “past
INTINTEN COMPOSIT experience”, and looking for “information from
Pearson Corre-
lation 1 -.545(**) friends or family” were the most referred to risk-
COMPOSIT
Sig. (2-tailed) . .000 reduction strategies for Internet risks (see Table
N 360 360
11). “Consumer reports”, “store recommendation”,
Pearson Corre- -.545(**) 1 “shopping around” and “store image” were the
lation .000 .
INTINTEN Sig. (2-tailed)
least referred to strategies for Internet shopping.
N 360 360
Table 11. Risk-Reduction Strategies
** Correlation is significant at the 0.01 level No.
Risk Reduction
Frequency No.
Risk Reduction
Frequency
Strategy Strategy
(2-tailed). Money-back TV/Printed
1 360 8 15
guarantee commercials
2 Past experience 360 9 Brand loyalty 15
Also, the results of regression analysis (table 9) 3
Information from
360 10
Internet news
7
friends or family groups
show that the coefficient of determination is 0.30; 4
Visit/Call local
312 11
Consumer
0
retailer reports
therefore, about 30% of the variation in the total Quality of Store recommen-
5 305 12 0
purchasing intention from internet is explained by warranty
Well-known
dation
6 42 13 Shopping around 0
the total overall perceived risk. brand
7 Price information 24 14 Store image 0
Table 9. Results of Regression Analysis (model

summary and ANOVA) 5. Discussion
Sum of Mean Adjusted
Model df. F Sig.
Squares Square R Square
The findings revealed that male internet
Regression 85.536 1 85.536 151.248 .000(a)
shoppers are significantly more than female
1 Residual 202.461 358 .566 .295 internet shoppers. This outcome complies with
Total 287.997 359 Li et al. [32] and Technowledge Asia’s results (as
cited in [29]). Considering Donthu’s study [17] in
a Predictors: (Constant), COMPOSIT this regard, we may conclude into further answers.
b Dependent Variable: INTINTEN Donthu found that internet shoppers do not differ
with non-internet shoppers (just internet users)
on gender. Thus the difference on gender, which
Besides, Since p-value ≈ 0.000 ≤ 0.05 (Table we found in internet shoppers’ population, might
10), At the α = 0.05 level of significance, there have its roots in a difference on gender that exists
exists enough evidence to conclude that the slope in internet user’s population. Literature seems to
of the population regression line is not zero and, support this idea, as well. As Qureshi et al [42]
hence, that the total overall perceived risk is useful state males are more interested in learning about
as a predictor of total purchasing intention from computers than females and Teo [56] mentions that
internet. females are more likely to experience technostress
than males.
Table 10. Results of Regression Analysis (Coefficients) Yet, youngness of the Tehrani internet shoppers
Standardized Unstandardized could be related to Iran’s overall young population.
Coefficients Coefficients
Model t Sig. It could also be related to marketing strategies of
Std.
(Constant)
Beta
Error
B online shops in Tehran. For instance, they may just
.149 4.708 31.690 .000 introduce e-shopping in some special web sites that
1
COMPOSIT
-.545 .001 -.014 -12.298 .000 have young visitors. In support of this statement, it
a Dependent Variable: INTINTEN is important to notice that online shopping is still
not a well known phenomenon in Tehran and we

can see from the results that most e-shoppers have Past research shows clearly that since risk is
got familiar with it through internet advertisements. related to purchase probability, risk reduction leads
Another marketing strategy that may attract just to increased purchase probability [57]. One of the
young people could be the kind of products that main factors leading to reduced risk perception
online shops offer on their web sites. A further has been the nature of the shopping experience.
research, which investigates the Tehrani internet The more positive the past shopping experience
user’s characteristics, would make a much more the lower the perceived risk and therefore the
clear understanding of what is exactly happening greater the purchase probability [53]. In this study,
in regard with age variable. this finding was replicated in the Internet shopping
The main findings of this research clearly environment; consumers who had more positive
showed that Tehrani consumers perceive more past experiences shopping in the internet were
purchasing risk when they are buying in the more likely to say they would shop in the Internet
Internet than when buying similar products in again in the future.
stores. This simple relationship explains a lot of Risk-reduction strategies are adopted by
what we see in the growth of Internet shopping. consumers as they think about purchase or used
The birth and growth of Internet retailing led to by marketers to intervene the consumer decision
predictions of dramatic and fundamental changes process to increase the probability of purchase.
in the way consumers shop and retailers do There is a range of past research that shows a
business [3, 46]. These predictions were based number of different potential strategies and how
on what we now see as a misunderstanding that differing purchase decisions, situations, and
mode of purchase on the Internet was neutral. The products are related to differing internal strategies
reasoning for predicting the fundamental change to lower risk [16, 24, 45, and 48]. These past studies
for retail stores was compelling in a logical way. suggested a methodology and a set of categories
Given the same product (a shirt) and two possible to study risk reduction strategies in the Internet
modes of purchase (store versus Internet) the environment. The results of this study show the
consumer would choose the one that was easier success of this approach and lead to implications
and cheaper. Everything else being equal, that that will be discussed in the implications section.
would be the Internet. What the experts did not The findings from this study showed that Tehrani
consider was that the consumer perceives differing consumers rely on strong money-back guarantee,
modes of purchase differently (the store is not their previous purchasing experience, information
the catalog which is not the Internet). Catalogs from friends or family, and visit/call local retailer
have not replaced the store. The Internet will not to reduce their perceived purchasing risk in the
replace the store. And this research shows clearly Internet.
that one of the reasons for the lack of purchase
in the Internet may be that a priori the consumer 6. Conclusion
perceived the Internet as a more risky purchase
environment. This was particularly the when they Managerially, this research provides
are buying personal products. marketers with the importance of the consumer’s
Four specific risks were found to be related to risk perception and associated risk-reduction
shopping in the Internet; monetary risk, functional strategies in the Internet shopping environment.
risk, convenience risk, and physical risk. Overall For marketers, awareness of the attributes of
only monetary risk was found to be a determinant risk perception is important because consumers’
factor in Internet shopping overall. Thus the perceived risk level becomes a crucial factor in
greatest barrier to Internet shopping appears to be Internet purchasing. In response to the specific
the perceived risk that the consumer will lose their findings of this research, if marketers desire to
money. increase purchasing, they must attempt three
things.

First and foremost marketers and retailers must In addition, this study has mainly used
realize that the Internet is not a neutral channel mean-variance analysis to show perceived risk
but one that a priori is seen by consumers as more differences and related issues. Clearly, there are
risky. Since risk lowers the probability of purchase other methodologies identifying the importance
retailers and marketers must eliminate and reduce and attributes of consumers’ risk perception in the
the perception of risk and the probability of risk at Internet.
each and every opportunity. This study clearly did not exhaust the variables
Marketers must know which risk-reduction that might be related to Internet shopping and
strategy is important to consumers in the Internet perceived risk. Purchasing frequency, price,
to reduce their concerns more specifically. time pressure, and store information level that
Providing an information navigation facility based influence consumers’ purchasing risk perception
on such risk-reduction strategies as money-back clearly exist and should be tested in future studies.
guarantee, desirable purchasing experience, etc. Demographic aspects of online consumers and
decreases consumers’ perceived risk and increases shopping are also interesting. In addition, there
their purchasing in the Internet. may be risk perception differences based on
Second, the marketers must provide a good demographic factors such as gender, income,
service to consumers to build positive shopping education, and Internet familiarity level. Thus,
experience in the Internet. The result of previous more research is called for based on employing
research revealed that 68 percent of customers leave more products, developing better measurement
because of bad service experience [37]. Therefore, scale, and refining the analytical tools for more
marketers are catering to the need of consumers in comprehensive explanation of online purchasing
the Internet by supporting consumers as they build behavior.
good experiences for product purchasing. Finally, this study was limited to looking
Furthermore, the number of male internet at Tehrani consumers who had some Internet
shoppers exceeds the female ones far behind. For shopping experience; at least one purchase in
that reason, more concentration can be paid on the past 12 months. The relations found might be
what men buy, at the moment. Yet, according to stronger (or weaker) given a study of consumers
different studies, female shoppers will increase in who have no experience on the Internet. This is
the near future. So, the internet shops should be clearly important.
conscious in this regard and adjust their offering
as the e-shoppers characteristics/demographics
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Impact Of Atm On Customer Satisfaction

(A Comparative Study of SBI, ICICI & HDFC bank)
Sultan Singh, Ms. Komal, (Ph.D.)
Abstract:
This paper presents the impact of ATM on customer satisfaction. This is a comparative study of three
major banks i.e. State Bank of India, ICICI bank and HDFC bank. This paper has been divided into two
sections. First section presents the introduction of ATM, brief history of three Banks compiled through
the literature available in the field. It also includes the review of the various services provided by the
three banks under study. Second section presents the result obtained on the basis of the data collected
for the three banks. A sample of 360 respondents equally representing each bank has been taken through
questionnaire. Data has also been collected through interview also. Then various statistical tools have been
used accordingly to compile the result.

2009 Sultan Singh, Ms. Komal 277
Introduction The Indian ATM industry has seen explosive

growth in recent times. ATMs represent the single
largest investment in the electronic channel
services for the Banks. In India, HSBC set the
trend and set up the first ATM machine here in
1987. Since then, they have become a common
sight in many of our metros. Automated Teller
Machines (ATMs) have gained prominence as a
delivery channel for banking transactions in India.
Banks have been deploying ATMs to increase their
reach. While ATMs facilitate a variety of banking
transactions for customers, their main utility has
been for cash withdrawal and balance enquiry. As
at the end of October 2007, the number of ATMs
ATM means neither “avoids traveling with deployed in India was 31,078. According to some
money” nor “any time money,” but certainly estimates the total cash movement through ATMs
implies both. Slim ATM cards are fast replacing across India was around Rs. 70,000 crore in FY
confounding withdrawal forms as a convenient 06. Clearly, industry watchers forecast a bright
way of getting your money from banks. In a way, future for ATMs in India. While the ATM is a
they are rewriting the rules of financial transaction. great service for customers, for the banks it means
A smart person no longer needs to carry a wallet- immense savings on the cost of operations. While
full of paper money on his person. All he needs to a typical cash transaction carried out in a banks
do is fish out an ATM (automated teller machine) branch premise would cost Rs 40 that in an ATM
card, insert it in the slot, punch in a few details and will only cost Rs18translating into a cost saving of
go home with hard cash. Rs 22 per transaction.
Automated teller machines (ATMs) were the ATM Networks

first well-known machines to provide electronic
access to customers. With advent of Automatic The ATMs of a bank are connected to the
Teller Machines (ATM), banks are able to serve accounting platform of the bank through ATM
customers outside the banking hall. ATM is switches. Inter-bank ATM networks are created
designed to perform the most important function of by setting up apex level switches to communicate
bank. It is operated by plastic card with its special between the ATM switches of different banks.
features. The plastic card is replacing cheque, The inter-bank ATM networks facilitate the use
personal attendance of the customer, banking of ATM cards of one bank at the ATM(s) of other
hour’s restrictions and paper based verification. banks for basic services like cash withdrawal and
ATMs have made hard cash just seconds away all balance enquiry. Banks owning the ATMs charge a
throughout the day at every corner of the globe. fee for providing the ATM facility to the customers
ATMs allow you to do a number of banking of other banks. The ATM deploying bank from the
functions – such as withdrawing cash from card issuing banks recovers this fee referred to as
one’s account, making balance inquiries and ‘interchange fee’. However the interchange fee is
transferring money from one account to another not fixed across banks and depends on the terms of
– using a plastic, magnetic-strip card and personal bilateral / multilateral arrangements. Banks with
identification number issued by the financial larger ATM network treat interchange fee as an
institution. important stream of revenue.
S. Singh, Ms. Komal - Impact Of Atm On Customer Satisfaction

Inter-connectivity of ATM Networks for of India was constituted on 1 July 1955. Today,
enhanced access SBI has a phenomenal 9,559 branches and its
ATM network is spread across 6,473 of its own
Inter-connectivity of ATM Networks provides locations& total 8,000ATMs including of those of
access to the customers to use any ATM in the its associate banks.
country irrespective of the bank with which the
customer is banking. There are a number of ATM • State Bank of India is a successor to Imperial
network switches such as CashTree, BANCS, Bank of India, which was established in
Cashnet Mitr and National Financial Switch 1921.
(NFS). In addition, most ATM switches are also
linked to VISA or MasterCard gateways. • The bank came into being on 1.7.1955 through
the State Bank of India Act, 1955.
Charges levied by banks
REVISED FEE STRUCTURE FOR ATMs • States of India joined the State Bank Group
Service Charges as subsidiaries under the State Bank of India
For use of own
ATMs for Free (with immediate effect)
(Subsidiaries Banks) Act, 1959.
any purpose
For use of other
bank ATMs
• State Bank of India has the following seven
Free (with immediate effect)
for balance Associate Banks (Abs) with controlling
enquiries interest ranging from 75% to 100%.
* No bank shall increase the charges prevailing
as on
December 23, 2007 (i.e. the date of release of State Bank of Bikaner and Jaipur (SBBJ)
For use of other
Approach Paper on RBI website)
bank ATMs
* Banks which are charging more than Rs.20
for cash with-
drawals
per transaction shall reduce the charges to a State Bank of Hyderabad (SBH)
maximum of Rs.20 per transaction by 31-Mar-
08
* Free - with effect from April 1, 2009. State Bank of Indore (SBIr)
Providing relief to millions of users, the RBI State Bank of Mysore (SBM)
has also said from April 1, 2009, customers using
the inter-bank ATMs (ATMs of other banks) for State Bank of Patiala (SBP)
cash withdrawals or balance enquiries will not be
charged any fee. As of now, customers have to State Bank of Saurashtra (SBS)
pay Rs 50 as annual charges for using the ATM
facility of their bank, while charges ranging from State Bank of Travancore (SBT)
Rs 20-Rs 50 per transaction are levied for the
inter-bank ATM transactions. Customers are also ICICI Bank India is the largest private sector
paying anything between Rs 10- Rs 20 for making bank. Its banking products and financial services
balance enquiries through inter bank ATMs. are some of the superior ones. The reach and
market of ICICI Bank is unmatched in India as yet.
Brief History Of The Banks It offers a countrywide network of 1,000 branches
and 3,680 ATM’s reaching out to your doorsteps.
The State Bank of India (SBI) is the oldest
and largest bank in the country. Its origins go • Founded by the Government of India in
back to the first decade of the 19th century, when the 1960’s, it was one of the three financial
the Bank of Calcutta was established on 2 June institutions set up to finance large industrial
1806. The bank got its present name after an Act projects
of Parliament in May 1955 and the State Bank

• Earlier known as Industrial Credit and explained that banks in India have traditionally
Investment Corporation of India, it did not claimed the strength of their networks based on
entertain retail customers and was thus not a the number of branches. The logic was that the
bank in the literal sense. increase in branch network corresponds to more
transactions, more business and therefore more
• It was in the 1990’s that a subsidiary was set profits. Not unlike the rest of Asia, where branch
up in the name of ICICI Bank to take up retail rationalization first started in Japan and then
banking services including deposits, credit spread across the continent, this logic is steadily
cards, loans etc. getting reversed in India.
Kaul Urvashi (2007) in his article, “ATM: The
• In 2002, the ICICI Bank was merged back Power of Cash” explained the importance and
with the ICICI and the result was the ICICI benefits of ATM, the players in the Indian market
Bank Limited operational now. and presented various satistical data concerning
the growth of ATM.
The Housing Development Finance Manager FSDNCR Corporation India Pvt.
Corporation (HDFC) Bank is one of the first banks Ltd. (2008) in his article, “ATMs: Changing
in India to offer its customers the bill pay facility. Fundamentals” stressed that he Indian ATM
HDFC Bank is also a leader in online purchase industry has seen explosive growth in recent times
(using the HDFC Bank DirectPay product). The and Banks have committed to substantial capital
bank also offers its customers a free personalized outlays on ATM deployment, recognizing the
payable-at-par chequebook and services like real significance of the 3 Ms – Maintenance, Monitoring
time gross settlement and national electronic fund and Management – of the ATMs to make the self
transfer. service channel a reliable and profitable one.
• HDFC Bank was among the first to receive

an ‘in principle’ approval from the RBI to set Research Methodology And Data
up a bank in the private sector as part of the Base
liberalization of the Indian banking industry
in 1994. The present study is of analytical and
exploratory nature. Accordingly, the use has been
• The bank was incorporated in August 1994. made of primary as well as secondary data. The
secondary data have been collected mainly from
• The bank has 1,148branches and 1,647ATMs RBI monthly bulletins, Financial Express political
network spread across the country. weekly, various newspapers and other literature
available in the field. To know the problems of
Review Of Literature ATM structured questionnaires have been used
to collect the data from customers using ATM
Agnihotri Peeyush (2001) in his paper ‘ “ IT services. To analyze the data, various statistical
way of getting cash” explained the working of techniques such as average, std. deviation and
ATM, ATM penetration per million persons in normal distribution have been used as per the
Asian countries and the system of security –how it requirement of the data. F test has also been used
works and also the frauds of ATM. to analyze the variances.
Simhan Raja (2003) in his article, “Shared ATM
networks gain favour” explained the importance Objectives Of The Study
of shared network of ATM in Indian banks.
Puri and Kamath (2004) in their article, “Indian The paper aims to examine the scenario of ATM
Banks: Bigger, Better & Remote Controlled” in three major banks. In this broader framework, an

attempt is made to achieve the following specific 2. There is no significant difference in the
objectives: factors affecting the choice of ATM in SBI,
ICICI & HDFC Bank.
1. To analyze the present ATM facilities
provided by SBI, ICICI & HDFC Bank. 3. There is no significant difference in the
impact of ATM on customer satisfaction in
2. To examine the factors affecting the choice SBI, ICICI & HDFC Bank.
of ATM.
4. There is no significant difference in the post
3. To examine the impact of ATM on customer purchase behavior of customers in SBI,
satisfaction by appraising the problems faced ICICI & HDFC Bank.
by the customers.
Data Collection
4. To analyze the post purchase behavior of
customers regarding the different banks Primary data has been collected through
under study. questionnaire. A sample size of 360 respondents
has been taken including 120 for each bank i.e. SBI,
Hypothesis ICICI & HDFC bank. A personal visit has been
made to these banks to know about the branches &
1. There is no significant difference in ATM ATM facilities provided by these banks.
facilities provided by SBI, ICICI & HDFC
Bank
Data Anaysis

The present paper entitled “Impact of ATM Table-1

on customer satisfaction” focus that customer Reasonability of fee charged
satisfaction is one of the major factors measuring Name Highly Rea- Highly
the performance of the banks. This paper examines Can’t Unrea-
of the Reason- son- Unrea-
say sonable
Bank able able sonable
the customer satisfaction level in the three banks
under study with special reference to problems
a) SBI 12 66 18 12 12
faced, responses about the fee charged and post
purchase behavior of the consumers after using b)
ATM. The paper also examines the relationship ICICI - 36 66 18 -
Bank
between various ATM facilities, factors affecting
the choice of ATM and its interplay with customer c)
satisfaction. HDFC 12 24 24 48 12
Bank
The customer satisfaction level has been
analyzed in two terms i.e. material customer
satisfaction (MCS) level and abstract customer Table-1.1
satisfaction (ACS) level. Customer satisfaction Satisfaction level regarding the fees charged
in material sense denotes the aggregate position Name of the Bank Satisfaction Level
a) SBI 69%
of the banks in terms of fee charged, frequency b) ICICI Bank 63%
with which problems are faced and post purchase c) HDFC Bank 56%
behavior of the customers. In abstract sense,
customer satisfaction level denotes the position of
the banks in terms of post purchase behavior, the satisfaction level for fee charged
efficiency of facilities provided and the example 80%
of others using the ATM of the same bank. 70%
60%
Material Customer Satisfaction 50%
40%
a) SBI
b) ICICI Bank
Level (MCS) 30%
c) HDFC Bank
20%
Material customer satisfaction level has been 10%
0%
examined on the basis of three variables i.e. Satisfaction Level
reasonability of the fee charged, frequency with

which problems are faced and the post purchase Fig.-1
behavior of the customers.
Table-1 shows the responses number of per
1. Fee Charged person regarding the fee reasonability. Table-1.1
& fig.-1 shows the coded results in percentage
Fee charged by the banks is one of the variables term.
taken for checking customer satisfaction level. If
customer feels that the fee charged by the bank is 2. Problems Faced
reasonable then he is satisfied and vice-versa. Five
degrees of reasonability have been taken and they Second parameter for measuring MCS level
are coded as 5, 4, 3, 2, &1. There is direct relation is problems faced by the consumers while using
between fee charged and customer satisfaction. ATM of a particular bank. If consumers are facing
problems more frequently, customer satisfaction
level will be less and vice-versa. There is indirect
relation between the problems faced and the
customer satisfaction. Three degrees namely

often, rarely and never have been taken and they Satisfaction level for Problem s
have rated as 3, 2, & 1 respectively.
Table-2 73%
82%
Frequency of problems faced a) SBI

b) ICICI Bank
Problems Often Rarely Never c) HDFC Bank
Card gets blocked
a) SBI 24 36 60
b) ICICI Bank - 66 54 78%
c) HDFC Bank 12 48 60
Machine out of cash
a) SBI 42 48 30
b) ICICI Bank 60 42 18
c) HDFC Bank 42 72 6 Fig.-2
No printing of statement Table-2.1 & fig.-2 reveals the coded results.
a) SBI 30 24 66
b) ICICI Bank 36 42 42 Coding for the three degrees of various problems is
c) HDFC Bank 60 42 18 3, 2 & 1 respectively. As exhibited by the table the
Machine out of order customer satisfaction level for problems is highest
a) SBI 36 48 36
b) ICICI Bank 42 48 30 in SBI i.e. 82%, and ICICI & HDFC are on number
c) HDFC Bank 48 66 6 two and three with 78% and 73% respectively. It
Old notes means people are not facing problems more often
a) SBI 24 30 66
b) ICICI Bank 24 36 60 in SBI.
c) HDFC Bank 42 54 24
Wrong amount of statement 3. Post Purchase Behavior
a) SBI - 24 96
b) ICICI Bank - 24 96
c) HDFC Bank - 42 78 Post purchase behavior has been analyzed
Poor visibility of statement through two statements. If they are agreeing with
a) SBI 6 24 90
b) ICICI Bank 30 36 54 these statements then their customer satisfaction
c) HDFC Bank 6 60 54 level is rated to be high. There are five degrees
Reduction in balance without
cash payment for each statement and they are rated as 5,4,3,2 &
a) SBI - 18 102 1 accordingly. Post purchase behavior has direct
b) ICICI Bank 6 30 84
c) HDFC Bank 6 48 66 relation with customer satisfaction level.
If any other, please specify
a) SBI - 6 114
b) ICICI Bank - 6 114 Table-3
c) HDFC Bank - 6 114 Post purchase Strongly Unde- Dis- Strongly
Agree
Table-2 exhibits the frequency of the problems Behavior
Continue to
Agree cided agree Disagree
faced by the customer in the three banks. use this

ATM in
future
a) SBI 36 78 - 6 -
Table-2.1 b) ICICI
36 84 - - -
Bank
c) HDFC
48 60 12 - -
Bank
Satisfaction level regarding the problems Recommend
this
Name of the Bank Satisfaction Level ATM to
a) SBI 82% others
b) ICICI Bank 78% a) SBI 12 36 60 12 -
c) HDFC Bank 73%
b) ICICI
12 78 30 - -
Bank
c) HDFC
24 70 26 - -
Bank

Table-3 depicts the responses of the users Prob- Post Pur- % of

Name of Fee
Charged lems
regarding their post purchase behavior after using chase Be- Total total
the Bank Faced havior marks
ATM.
b) ICICI
378 2514 978 3870 77%
Table-3.1 Bank
Name of the Satisfaction Result as % of c) HDFC
Bank Level Total 336 2370 994 3700 73%
Bank
a) SBI 912 76%
b) ICICI Bank 978 82%
c) HDFC Bank 994 83%
79%
Post Purchase Behavior
78% 79%
77%
76%
77%
75%
76%
83% 74%
a) SBI
73%
b) ICICI Bank
73%
c) HDFC Bank 72%
71%
70%
82% a) SBI b) ICICI Bank c) HDFC Bank
Fig.-4
Fig.-3
Table-4 & fig.-4 shows clearly that in SBI
Table 3.1 and figure 3 envisages the coded material satisfaction level is highest, 2nd is ICICI
results after giving weightings. The highest rating and 3rd is HDFC.
is of HDFC with 83%, then ICICI is having 82% So, material customer satisfaction is highest
and SBI is third with 76% as for as post purchase in SBI, then ICICI and last is HDFC among the
behavior is concerned. three banks. This result is also supported by the
secondary data. For example, according to the
Overall Material Customer Satisfaction Outlook Best Bank Award, which was given in
Level Nov. 2007, SBI is the 1st largest bank in India,
ICICI is the 2nd largest bank and HDFC is the 3rd
After considering all the elements of customer largest bank in India.
satisfaction they are combined together to
find out the overall customer satisfaction level
in materialistic terms. The overall customer Abstract Customer Satisfaction
satisfaction level is the combination of three Level (ACS)
parameters i.e. fee charged, frequency of the
problems faced and the post purchase behavior. Abstract customer satisfaction level has been
examined through the deep study of the various
Table-4 parameters of customer satisfaction. Three
parameters have been chosen for this purpose i.e.
Prob- Post Pur- % of
Name of Fee factors affecting choice of ATM, the purpose for
Charged lems chase Be- Total total
the Bank Faced havior marks which ATM is often used and the problems faced
a) SBI 414 2658 912 3984 79% while using ATM.

1. Factors affecting choice of ATM Table-.1

Example of V. Un V. Un
Imp Neutral
While choosing ATM of a particular bank others Imp Imp Imp
customer takes care of some things. a) SBI 5% 20% 35% 20% 20%
b) ICICI
They are known as factors affecting the choice 5% 30% 40% 15% 10%
Bank
of ATM. c) HDFC
10% 35% 30% 15% 10%
Bank
Table-5
Trust and
V. Imp Imp Neutral
Un V. Un Table-5.1 reveals that performance of HDFC is
security Imp Imp
114 6 better as compared with SBI and ICICI. In case
a) SBI - - - of HDFC 45% people are regarding it important
(95) (5)
b) ICICI 120 while this percentage is 35% & 25% in case of
- - - -
Bank (100)
c) HDFC 108 6 6 ICICI & SBI respectively.
- -
Bank (90) (5) (5)
Speed 2. The purpose for which ATM is most
66 54
a) SBI
(55) (45)
- - - often used
b) ICICI 60 48 6 6
-
Bank (50) (40) (5) (5) ATM does not mean the plastic card and PIN
c) HDFC 36 72 6 6
- (Personal Identification Number) but the services
Bank (30) (60) (5) (5)
Example of for which you can use it are the most important
others
6 24 42 24 24 part. These services are cash/cheque deposit, fast
a) SBI
(5) (20) (35) (20) (20) cash withdrawal, view account balances & mini
b) ICICI 6 36 48 18 12 statements and request a chequebook or account
Bank (5) (30) (40) (15) (10)
c) HDFC 12 42 36 18 12 statement.
Bank (10) (35) (30) (15) (10)
Convenience
in use
Table-6
78 42 Cash/Cheque Very
Often Rarely Sometimes Never
a) SBI - - - deposit often
(65) (35)
b) ICICI 72 30 12 6 6 30 30 54
- a) SBI -
Bank (60) (25) (10) (5) (5) (25) (25) (45)
c) HDFC 90 30 36 36 12 6 30
- - - b) ICICI Bank
Bank (75) (25) (30) (30) (10) (5) (25)
42 30 18 6 24
Cost c) HDFC Bank
(35) (25) (15) (5) (20)
42 48 24 6 Fast cash
a) SBI -
(35) (40) (20) (5) withdrawal
b) ICICI 66 42 12 114 6
- - a) SBI - - -
Bank (55) (35) (10) (95) (5)
c) HDFC 84 24 12 120
- - b) ICICI Bank - - - -
Bank (70) (20) (10) (100)
108 6 6
c) HDFC Bank - -
Table-5 envisages the frequency of the respective (90) (5) (5)
View account
importance of the various factors for choosing balances
ATM in the three banks. & mini-
Among all the factors affecting example of statements
48 24 24 12 12
others is one, which is the clear indicator of the a) SBI
(40) (20) (20) (10) (10)
customer satisfaction. People will purchase ATM b) ICICI Bank
48 42 6 18 6
(40) (35) (5) (15) (5)
of a particular bank on the basis of other’s example 48 36 12 24
c) HDFC Bank -
if customers using it previously are satisfied. (40) (30) (10) (20)

Cash/Cheque Very
deposit often
Often Rarely Sometimes Never 1. Post Purchase Behavior
Request a
cheque book
or account
Post purchase behavior has been analyzed
statement through two statements. If they are agree with
6 30 12 12 60 these statements then their customer satisfaction
a) SBI
(5) (25) (10) (10) (50)
12 18 36 24 30 level is rated to be high. There are five degrees
b) ICICI Bank
(10) (15) (30) (20) (25) for each statement and they are rated as 5,4,3,2 &
c) HDFC Bank
36 24 18 18 24 1 accordingly. Post purchase behavior has direct
(30) (20) (15) (15) (20)
relation with customer satisfaction level.
Table-6 brings out that performance of HDFC Table-7

bank is best as far as frequency of using ATM Post pur-
Strongly Unde- Strongly
chase Agree Disagree
services is concerned. ICICI & SBI are at the 2nd Behavior
Agree cided Disagree
and 3rd number respectively. In case of SBI there Continue

to use this
are 45% customers who have never used cash ATM in
deposit service. future
36 78 6
a) SBI - -
(30) (65) (5)
Table-6.1
b) ICICI 36 84
Customers never using these services - - -
Bank (30) (70)
View Request c) HDFC 48 60 12
Cash/ account a cheque - -
Fast cash Bank (40) (50) (10)
Services Cheque balances book or Recom-
withdrawal
deposit & mini- account mend this
statements statement ATM to
a) SBI 45% - 6% 50% others
b ) ICICI 12 36 60 12
25% - 3% 25% a) SBI -
Bank (10) (30) (50) (10)
c) HDFC b) ICICI 12 78 30
20% - - 20% - -
Bank Bank (10) (65) (25)
c) HDFC 24 70 26
- -
Table-6.1 depicts that the %age of people not Bank (20) (58) (22)
using services is very low in case of HDFC, which
indirectly means services are very good. Second is Table-7 depicts the responses of the users
ICICI and 3rd is SBI. regarding their post purchase behavior after using
ATM.
Table-6.2
Customers using services very often Table-7.1
View Request Name of the Satisfaction Result as %
Cash/
Fast cash
account a cheque Bank Level of Total
Services Cheque
withdrawal
balances book or a) SBI 912 76%
deposit & mini- account b) ICICI
statements statement 978 82%
Bank
a) SBI 5% 95% 40% 5% c) HDFC
b) ICICI 994 83%
Bank
30% 100% 40% 10% Bank
c) HDFC
35% 90% 40% 30%
Bank Table-7.1 envisages the coded results after
giving weightings. The highest rating is of HDFC
Table-6.2 presents that on the basis of usage with 83%, then ICICI is having 82% and SBI is
rate HDFC is 1st, 2nd is ICICI and 3rd is SBI. third with 76% as for as post purchase behavior is
concerned

So, if we examine the customer satisfaction in Customer Satisfaction

abstract sense then rating becomes totally different
from material customer satisfaction level. The 100%
30 25 15
reason for this is that MCS level is high in case of 80%
Satisfaction 60%
SBI because people are not facing problems which Level 40%
55 60 70
High degree
due to the fact that mostly people are not using 20%
15 15 15
Medium Degree
Low Degree
services frequently. Thus, according to abstract 0%
SBI ICICI HDFC
customer satisfaction HDFC is at 1st position, 2nd Bank Bank
is ICICI and 3rd is SBI. Name of Bank
Proof Or The Result Fig.-5
We can prove the results of ACS with MCS Table-8 & fig.-5 shows clearly that average
also. After considering all the three elements i.e. satisfaction level is highest in HDFC Bank, second
fee charged, frequency of the problems faced and comes the ICICI Bank and the third is SBI.
post purchase behavior, they are coded. Customer
satisfaction of the respondents has assumed to be F-Test
distributed normally. So, the customer satisfaction
of the respondents for these three variables is Further F-test is applied to find out whether the
divided into three categories, below average, difference in the customer satisfaction level of the
average and above average levels. The lower and three banks is significant or not. On the basis of
the upper limits of the average level have been the table-8 above
calculated on the basis of formula:
Table-9
Analysis of Variance
The lower limit of average level= M-1s.d. Sum of Degree of Mean
Sources
The upper limit of average level= M-1s.d. Squares Freedom ( v) Square
Between
4457.19 2 2228.59
groups
Source: Dr. A.B.Bhatnagar; Measurement &
Within
Evaluation, P. 116-120 155.39 6 25.89
groups
The below average, average and above average
levels have been defined as low, medium and high Calculated value of F = 86.07
respectively. The results after using this statistical Tabulated value of F = 5.14
method are as under: Hence the calculated value is more than the
tabulated value, the H 0 is rejected. It means
Table-8 that there is a significant difference between the
Customer Satisfaction level regarding ATM various banks as far as customer satisfaction level
Name of Low Medium High is concerned.
the Bank Degree Degree degree
18 66 36
Conclusion
a) SBI
(15) (55) (30)
It is concluded through this paper that material
b) ICICI 18 72 30
satisfaction level is highest in SBI, then second is
Bank (15) (60) (25)
ICICI Bank and third is HDFC Bank. This is due
c) HDFC 18 84 18 to the size of the respective bank and number of
Bank (15) (70) (15)
years of its establishment. But according to abstract

customer satisfaction i.e. in terms of efficiency Table-9 & fig.-6 depicts that material customer
and performance, HDFC Bank is at 1st position, 2nd satisfaction level is highest for SBI at 79%, 2nd is
is ICICI Bank and 3rd is SBI. The results are also ICICI Bank with 77% and 3rd is HDFC Bank with
shown clearly with the help of table and diagram. 73%. Table also presents that average customer
satisfaction level is highest in HDFC bank with
Table-9 70%, in ICICI Bank it is 60% and SBI is at third
Customer Satisfaction Level place with 55%.
Material Abstract
Customer Customer References
Name of the Bank
Satisfaction Satisfaction
Level Level
a) SBI 79% 55% News updates & Events: ATMindia.com
b) ICICI Bank 77% 60%
Log in………….. Tribune
c) HDFC Bank 73% 70%
Financial Express
Custom er Satisfaction Level
80%
79%
The Economics Times online
70% 77% 70%
73%
60%
60% RBI Monthly bulletin
50% 55%
SBI
40%
30%
ICICI
HDFC
Dataquest: IT Giants 07
20%
10% Express Computers Business Weekly

0%
MCS ACS
Banknet India
Fig.-6
www.ibef,org
Websites of banks

The Employability Of Graduates In Competitive

Organisations
Abdul Farouk Ahmed, (Ph.D.)
Abstract
This paper attempts to clarify the employability construct as it relates to competitive organisation.
The major purpose of the paper is in promoting awareness of the need for curriculum reform directed at
improving employability of graduates.
Unemployment of graduates or underemployment of university graduates is a gross waste that no nation

can afford. Past studies have focused in identifying the reasons for the large unemployment of graduates.
Jobstreet, a Malaysian employment agency conducted a survey of human resource personnel and bosses
in 2005, and they reported that the major reasons for unemployment in Malaysia were: -
• Weak English - 56%

• Bad Social Etiquette - 36%
• Demand too much pay - 32%
• Degrees not relevant - 30%
• Fresh graduates too choosy - 23%
• No vacancies - 14%
In Nigeria, Tim Akano, Chief Executive Officer of New Horizon Training Institute, told BusinessDay,
an interview in Lagos, that the high rate of unemployment was because of the lack of appropriate skilled
manpower to fill job vacancies. He said there are people changing jobs almost every four months whereas
others have been looking for jobs since the last five years. He reasoned that this was so because of the type
of skills they have. He pointed out that there was a mismatch between what tertiary institutions produce
and what employers need.
Even in UK, it has been reported that there are mismatchs between what industry needs and what
graduates are qualified in. One – in - 12 graduates from courses, including fine arts, drama, dance and
music were not in work or further study six months after leaving university (Graeme Paton, Education
Editor –3rd July 2008)
The curriculum reform recommendations of the paper are based on the experiments of R.E.Boyatizis
and his aasociates in the Weatherhead School of Management(WSOM) at Case western Reserve
University(l980) and the Princples of Andragogy defined by Knowles(1986).

2009 Abdul Farouk Ahmed 289
Introduction Motive profiles and the associated

thinking, feeling and behaviours as
The Motivation of Young Graduates. explained by McCelland
The research to analyse and study the hiring Motives drives, directs and selects behaviour.
decisions being made by corporations was carried (D.C. McCelland, Motive, Personality and Society
out during the period 2001 to 2005 whilst working – Pg 56). McCelland explained that people who
on manpower studies with several organizations. scored high on the three social motives behaved in
The Picture Story Exercise, PSE, (McCelland, these three ways as if they were more motivated.
Koestner R,& Weinbeger J 1989) was administered Described in summary form here are the thinking,
to graduates seeking employment. Further, the feeling and behavioural patterns associated with
PSE was also administered to managers being the three social motives:-..
considered for promotion in several corporations.
The PSE is a projective test similar to the The Achievement Motive (nAch) is a recurrent
Thematic Apperception Test method of Morgan concern for performing better.
and Murry l938, designed to let a person write
imaginative stories based on pictures (ambiguous • Meeting or exceeding an internal standard
scenes of people) presumably revealing hidden • Performing better than others when others
thought, feelings and behavioural tendencies. present a standard
The written essays were then content analysed for • Doing something unique or innovative
meaning - to uncover underlying needs, attitude • Planning long-term career goals and action
and patterns of thinking. The stories written by steps to achieve them
subjects were scored for Achievement imagery,
Affiliation imagery or Power imagery – refer Under low pressure situations managers who
scoring system attached as Appendix 1. The scoring have Achievement as a dominant motive will most
system used was a slightly modified system then naturally gravitate to pacesetting, either by doing
the one used by Atkinson & McCelland, ( l948, the tasks themselves or by having others who
The effect of need for Achievement on Thematic can perform to their standards to accomplish the
Apperception.) and McClelland 1984. work.
The purpose of administering the PSE to all Under high pressure, they may resort to being
candidates seeking entry to corporations was to find coercive and telling subordinates exactly how to
out whether there was motive profile differences do it as they would.
between candidates (graduates) who were selected Managers dominant in nAch are satisfied most
compared to candidates who were not selected. when they personally produce high quality work.
Further, it was necessary to know of how different They need, and seek performance feedback.
the entry level graduate’s social motive profile was
different from the successful Senior Manager’s The Power Motive (nPow) is a recurrent
social motive profile. This information was needed concern about being seen as strong (personalised
to chart the management development programs power = nPower) or impacting, or influencing
of corporations. Having obtained this information, others to be strong (socialised power – nPows).
it is now been used as a basis for recommending
curriculum design and development changes for • Taking strong, forceful actions to influence
Higher Education Institutions. others
• Giving unsolicited help or advice
• Evoking strong, positive or negative, emotions
in others
• Impressing others
A. F. Ahmed - The Employability Of Graduates in Competitive Organisations

• Concern over position or reputation to take the load off of subordinates, or get into a
• Controlling events so as to influence others Democratic, joint problem-solving mode.
• Making a point when the object is not to reach The data for this study was accumulated over
agreement the period 2001 to 2005 during several consulting
• Creating conditions for group compliance engagements.
The Affiliative Motive (nAff) is a recurrent The Findings

concern for warm personal relationships.
Generally, the stories that “unemployable”
• Establishing warm personal relationships graduates wrote had low content of achievement
• Liking or being liked by others imagery stories compared to the selected
• Preventing the disruption of relationships candidates.
Power imagery was extremely low in the
Managers dominant in nAff will be concerned stories of the unemployable graduates. The chart
about treating employees as individual human below shows the social motive profile of the low
beings. They may have trouble directing, giving aspiration graduates, (unselected) candidates
performance compared to the graduates who were selected.
feedback, or disciplining employees for fear of It can be summarized that candidates who are
the impact on their relationship. selected were more “motivated” as measured by
Managers dominant in nAff also tend to the three social motives.
personalise conflict and can be more subjective In the chart below the red line shows the typical
in their assessment of others’ performance. profile of candidates who were selected. The blue
Their natural style is Affiliative. Under pressure line is the typical profile of candidates who were
however, they can take on a pacesetting mode not selected.
Achievement Affiliation Power

Percentile Related Related Related
PSE PSE PSE

100
75
50
The typical
young
Selected graduate with
a high self/
Graduates
esteem
25
Poor
interpersonal
Graduates sensibility and
who were weak
not selected interpersonal
0 skills
Related Related Related

These findings suggest that graduates who These findings seems to suggest that managers
have a high achievement orientation and who who were successful in being promoted higher
demonstrate some power orientation ( power up the organization clearly demonstrated high
imagery) are likely to be successful in interviews. achievement drive and power orientation in
It can also be concluded that graduates with promotion interviews. Top leadership positions
low n-achievement and even lower n-power are demand very high power orientation, thinking,
unlikely to be selected compared to candidates feeling and behaviours. Leadership capability
with high n-achievement and at least some power depends on high power motives.
imagery.
The Soft Skills of a Person Determines
The Motive Profile of Managers who One’s Motivation
were successful in promotion interviews.
Achievement competencies are most important
During the same period, the PSE was also in entrepreneurial, sales and professional individual
administered to Managerial Staff in various contributor jobs such as system engineers and
organisations to study the selection decision for architects where work requires taking individual
promotion to Top Management positions. The chart initiative and personal responsibility for task
below shows the typical social motive profile, of accomplishment to a standard of excellence.
candidates who were ranked high on the selection (Lyle’s Spencer), page 12, History and State of the
list, represented by the black line. The broken line Art
represents the typical motive profile of candidates Influence competencies are driven by concern
who were not selected – their n-achievement was for personnel impact or “Socialized” power
low and their n-power was even lower. motivation (McCelland 1975) the ability to

Percentile Related Related Related
PSE PSE PSE

100 20 14 18
17 13 16
16 12 15
15 14
14 11 13
13 12
10
12 11
75 10
11 9
9
10
8
9
7
7
50 8
6
7
6 5
6
6
5 4
5
25
4 4 3
3
3 2
2
1
2
1 1 0
0
0
0
Related Related Related

influence others in order to serve ends greater than Employalibility needs of competitive
oneself such as the “common good”. Influence organisations.
competencies are required in all managerial
positions – functional heads, supervisory jobs and Effective deployment of human capital has
leadership positions. clearly been recognised as a key contributor of
The Curricular Vitae (CV) of candidates at organisational effectiveness. The speed with
best indicates knowledge and skills of a person which changes are taking place in the economic
obtained through formal study. environment is forcing organisations to be very
The soft skills of the person which is cultivated flexible and responsive. Hence, there is pressure
informally is the driver of the socio-political to staff organisations with knowledge workers
thinking and the determinant of the personality who are able to think, feel and behave effectively
of the person. The diagram below illustrates that despite significant changes and challenges in the
deeper attitudinal factors differentiates between working environment.
the two candidates and the match between job Job design is usually the set of accountabilities
requirements and person character. for results that needs to be accomplished based
on the mission of the organisation. A typical
accountability statement in a modern organisation
is as follows:-
Job vs Person Match: Hotel Sales Executives
by--------- studying consumer
, behaviour
Ms. A Ms. B by---------identifying prospective sales Job
by---------making persuasive sales presentations competencies
Degree in Social Sc. Degree in Social Sc. by---------closing sales deals effectively
Skills &
Knowledge
All accountability statement carry indications
I like to meet new
Social Role I don’t like injustice of competencies needed as shown above. The
people
accountability areas and the competencies are
I like to learn new Self Concept I am always unlucky
things derived from the vision, mission and the goals and
Problems can be Traits Better to attack business objectives of the organisation.
resolved Assertive/Aggressive first The match between Job Design needs and
I want to do better I told them what Person Competencies (capability) is a major
(nAch) The Motive Pattern is – right
n-power consideration in selection
In a changing and competitive environment
It is the attitude of a person that enables one to person competence is the key factor to maintain
effectively interact with the environment long-term success. Therefore there is a strong
demand for employable graduates.
External Influences
Mission
1. Asset value growth
2. Acquisition &
Partnership
Key Results 3. New foreign markets
objectives
Job Title : Investment

Org Structure & Manager Relationship
Job Design Accountabilit
Accountability: : Ensure client
Competent Leadership satisfaction
y by structuring and
Person Style cross - selling products and services
services
Organisational Culture t Coaching & Counseling
t Counseling
Training & Development
Selection criteria: t Development
Pay for capability and
t Concern for performance
Motivated and
t achievement
Influence strategy
Performance --- Driven t Performance Management
t Conceptual
Management
t Relationship
thinking
t Team
building
leadership

Higher education institutions, in becoming level (ability to perform routines) to ability to

more demand-driven, are attempting to respond lead complex teams, distributed across different
to industry needs. However, right now there is a industries and geographies.
widening gap between output of higher education Extensive job analysis research involving
institutions and the quality manpower needs of several large organisations covering different
corporations. industry segments revealed that corporations
design jobs according to business plan needs.
What is Employability? What is life long Employees then are emplaced in positions or
employability? promoted by matching employee capability to job
needs.
The academics have been grappling with the The capability levels for specific professional
operational definition of employability. Several jobs are sometimes referred to as Career ladder.
definitions have been suggested. While these Shown below are three capability levels of
definitions are intended to be all encompassing, Accountants. The non-technical capability content
they still do not give higher educational institutions in jobs higher up the organisation progressively
useful information as to how employability increases and are critical for success in top jobs
judgements are being made by employers. Higher Educational institutions have been
A particularly articulate definition of concerned about employability. However, to a
employability is by Dr. Peter Hawkins (1999) “To large extent their effort is in getting the graduate
be employed is to be at risk, to be employable is the first job through provision of technical
to be secure.” This suggests that in a dynamic and knowledge. Courses designed by the continuing
increasingly competitive economic environment, education faculty of traditional universities have
business organisations are becoming progressively not adequately satisfied industry needs. Hence,
more focused on what they require as human the development of the corporate universities for
capital – being employed alone is not sufficient, specific industry related knowledge. Competitive
one must be employable (or effective) throughout organisations select and appoint people to
one’s career. positions based on matching job competency
needs to people capability levels. On the next
Selection decisions at entry levels are page is shown the generic capability levels used to
necessarily predictive assess and promote executives. The lowest level
capability on this scale is the sub-professional (SP)
The significant organisations of our economic who have knowledge and skills that are normally
environment are seeking to identify and hire people obtained in a two years course at a vocational
who have the potential to produce extra-ordinary training institution
results – they want people who are at the top end of The chart describes three capability areas. The
the capability scale, but this is only one dimension first column describes Technical knowledge and
because organisations are looking for the graduate skills. The second column describes the problem
who will continuously grow and be employable to solving and managerial skills, whilst the third
be promoted to higher level positions. column describes the freedom to act environment
Companies are making decisions on selection that the individual is likely to be able to manage.
to fill critical positions at various levels of the The Job points is a measure of the job size, and
organisation and the key concern is employability, the job point range is the cluster of jobs that are
i.e. whether the selection decision will result in considered as being similar in size and which are
potential high returns on investment. treated the same in compensation grading.
This conception of employability suggests Each capability level is the assessed job
that employability is a series of levels for based abilities that one must possess to fulfil the
distinguishing people capabilities from low knowledge, skills and attitude requirements of the

position role and accountabilities in a standard This chart is an indicator of the capability
manner. For full details of how Job Evaluation standards for life long learning and growing for
is carried out to determine the job points refer executives in competitive global organisations.
appendix 2.
Levels of Capability used as a guide to promote executives to various levels -Version 2.1
Ability to take risks and to Act
Organizational and Technical Capability Managerial and Problem Solving Capabilities – the
Job Prints for Results - non-technical
Know-How Level non technical competencies.
competencies
• This individual shows
exceptional competence and • This individual possesses the managerial and
• This leader is unconstrained by
unique mastery in his technical, visionary leadership necessary to integrate several
the BOD
scientific or other learned area of major operations of different sectors which
• This individual has the
interest. He is an internationally 16 significantly affects overall planning and objectives
4201 - above freedom to act for the
recognised authority in the field • This individual is capable of philosophical and
attainment of ultimate
• This individual is capable of strategic integration of very large multi-business
enterprise philosophy
ultimate integration of a global global enterprise
enterprise
exceptional competence and
• This individual possesses the managerial and
unique mastery in his technical, • This leader is unconstrained by
visionary leadership necessary to integrate several
scientific or other learned area of the BOD
major operations of different sector which
3301 - 4200 interest. He is an internationally 15 • Freedom to act for the
significantly affects overall planning and objectives
recognised authority in the field achievement of enterprise goals
• This individual can organise strategic integration
• This individual is capable of and objectives
of very large multi business globalise enterprise
integration of a very large multi
national enterprise globally
• This individual possesses the managerial and
unique mastery in his technical,
visionary leadership necessary to integrate several • This leader is unconstrained by
scientific or other learned area of
major operations of different sector which the BOD
interest. He is an internationally
2501 - 3300 14 significantly affects overall planning and objectives • Freedom to act for the
recognised authority in the field
• This person can organise strategic integration of achievement of longer term group
• This individual is capable of
very large multi business regional group or a very goals and objectives
leadership and integration
large national network
of very large regional multi
business group


competencies
• This individual possesses the managerial and • Guided by philosophical
unique mastery in his technical,
visionary leadership necessary to integrate principles from the highest level
scientific or other learned area of
several major operations of different sector which of the Enterprise
1801 - 2500 interest. He is an internationally 13
significantly affects overall planning and objectives • Able to accept freedom to act
recognised authority in the field
• This person can organise strategic integration of for the achievement of group
• This individual is capable of a
large multi business group business objectives
strategic integration and leading
a large multi- business group
• This individual exhibits
determinative mastery of • This individual possesses the managerial know-
techniques, practices and how necessary to integrate and co-ordinate
• Guided by broad policies set by
theories which have been gained functions which are diverse in nature and
the BOD
through wide seasoning and / objectives, in an important operating complex or
• Freedom to act for the
or special development. He is major management function. He is able to plan
1481 - 1800 12 achievement of operating
recognised expert in his field of and integrate all accountabilities within a major
objectives and strategies without
specialisation function in a large organisation or all functional
being constraint by functional
• This individual is capable of accountabilities within a smaller organisation
policies
strategic integration of a large • This individual can organise and lead strategic
business which is an industry integration of a business
leader.
determinative mastery of • This individual possesses the managerial know-how
techniques, practices and necessary to integrate and co-ordinate functions which • Guided only by strategic guidance
theories which have been gained are diverse in nature and objectives, in an important from the CEO
through wide seasoning and / operating complex or major management function. • Freedom to act for the
or special development. He is a He is able to plan and integrate all accountabilities achievement of operating
1181 - 1480 11
recognised expert in his field of within a major function in a large organisation objectives and strategies within
specialisation or all functional accountabilities within a smaller broad functional guidance from
• This individual is capable of organisation the CEO or the highest level of
strategic integration of large • This individual can organise integration of a large the enterprise
functional divisions or large functional area
business group
determinative mastery of
• This individual possesses the managerial know-
techniques, practices and
how necessary to internally integrate or co-ordinate
theories which have been gained
accountabilities which are relatively specific in
through wide seasoning and / • Constrained by strategic control
nature. He can plan and integrate the functional
or special development. He is from the BOD and CEO
accountabilities of a major function in a large
a recognised expert in his field • Able to accept freedom to
organization or all functional accountabilities
941 - 1180 of specialisation and is capable 10 manage conceptual direction
within a small organization
of leading a large functional and achieve goals and business
• This individual is effective in a job bound by
division objectives within broad operating
broad goals and broad policies and he is capable of
• This individual formulates policies
managing for key results to be achieved by the
strategic plans for a large but
organisation long term strategic results and
relatively homogenous business
planned business results
units or he is able to manage all
function of a small business.
• This individual exhibits mastery
• This individual possesses the managerial know-
of techniques, practices and
how necessary to internally integrate tasks which
theories which have been gained • Constrained by policy guidance,
are relatively specific in nature. He can plan and
through years of seasoning. He goal orientation and functional
integrate relatively homogenous accountabilities
has the ability to extrapolate policies set by the CEO
within a major function in a large organisation or
801 - 940 from existing knowledge 9 • Able to accept freedom to
all accountabilities within one function in smaller
• This individual is competent in manage strategic and directive
organization
functional policy development alternatives of the business unit
• This individual has conceptual and business
and implementation to achieve within functional policies
leadership skills in evaluating strategic decision
corporate planned results in very
alternatives
large enterprise
• This individual demonstrates
• Guided by broad managerial
mastery of techniques, practices • This individual possesses the managerial know-
directions and functional policies
and theories which have how necessary to internally integrate tasks which
and goals
been gained through years of are relatively specific in nature and objectives.
• Report results to Chief Executive
seasoning. He has the ability He can plan and integrate relatively homogenous
or Functional Head of large
to extrapolate from existing accountabilities within a major function in a large
691 - 800 8 commercial organization
knowledge organisation or all accountabilities within one
• Able to accept freedom to act to
• This individual is capable of function in a small organisation
deliver business objectives by
developing and implementing • This individual can initiate the development of
acting within defined functional
functional policies to achieve conceptual alternatives within broad policies of a
policies
corporate planned results in a functional area
large business area
• This individual has knowledge • This individual possesses the managerial know-
• Guided by managerial directions
of principles and concepts how necessary to supervise some or all the tasks in
and functional policies and goals
to operational knowledge a functional unit to achieve objectives
591 - 690 7 • Freedom to act to achieve
of application of principles • This individual uses conceptual alternatives within
objectives set by functional Head
and concepts to develop and broad functional policies and principles under
or Head of the small operations
recommend functional policies guidance in delivering results


competencies
• This individual has knowledge • Works within broad processes and
and experience in reviewing and • This individual possesses the managerial know- functional precedents and policies
recommending policy changes how necessary to supervise some or all the tasks of • Works within clear managerial
to functional head in very large an accountability in a unit to achieve objectives direction for achievement of
511 - 590 6
business, or implementing • This individual has the ability to use conceptual functional results
policies and processes of a alternatives to resolve problems subject to general • Freedom to act to deliver results
function in a medium size guidance and achieve functional objectives
business within policies established
• Works within broad processes and
proficiency gained through
functional precedents and policies
wide exposure and experience • This individual possesses the managerial know-
• Works within clear managerial
in a specialized technical how necessary to supervise some or all the tasks of
direction for achievement of sub-
field. He carries experience an accountability in a unit to achieve objectives
441 - 510 5 functional results
covering involved processes and • This individual is capable of management
• Ability to act for achievement
systems of scientific theory and systems and processes based on set principles and
of sub-objectives and delivery
principles or both objectives to produce designed results.
of results within policies or
• This individual can manage
standards set
processes and systems variations
• This individual demonstrates
• Implements sub-systems and
ability in techniques which
• This individual possess the face to face supervisory processes
require a grasp either of
skills to motivate others in accomplishing related • Freedom to act for delivery of
involved practices and
tasks task based results
381 - 440 precedents; or of scientific 4
• This individual has the ability to conduct work • Achievement of department sub
theory and principles; or both.
which is largely processes and administration of objectives and/or specific results
He could be described as
sub-system’s within principles set. • Reports achievement of tasks to
“professionally” competent in a
functional Head
field of study
• This individual is capable
in implementing systems
• This individual possess the face to face supervisory • Implements processes to achieve
and processes based on set
skills to motivate others in accomplishing set standards
specifications and objectives.
related tasks • Freedom to act for taking action
331 - 380 • This individual has the ability 3
• Usually the individual is involved in scheduling for results within well defined
to deliver results applying
and managing activities to achieve standard output processes and precedents
discretion on choice procedures
on time supervised by a Senior professional • Review of results by superior
involving similar but varying
tasks on problem situation
• This individual possesses
• This individual possess the face to face supervisory
systematic proficiency in using • This individual works within
skills to motivate others in accomplishing related
procedures and programs based several but related standardized
tasks by scheduling and controlling
on theoretical models. practices and procedures on
activities
281 - 330 • He would be described as 2 assigned tasks
• This individual has the ability to conduct work
“technically” competent in a • Works within well defined
based on tasks assigned and keep to prescribed
field of study and can perform processes and procedures on
standards by applying learned solutions and
specialised procedures or conduct
principles.
administer specialised methods.
• This individual can work as an individual • This individual has the ability to
contributor displaying minimal supervisory or produce set output within strict
• This individual has knowledge
managerial knowledge standards on conduct
of basic theoretical models
Entry Job • This individual has the ability to learn and • Works within well defined
241 - 280 of a field of study and he can
1 understand basic work processes and procedures. processes and procedures
be expected to perform some
Assist others in work assignments under close • Review of progress and results by
specialised tasks.
supervision. Thinking within diversified supervisor
established procedures
• This individual has some

practical but specialised • Learning and understanding basic work processes • Works on assigned tasks within
technical skills. and procedures. Assist others in work assignments strict standards
200 - 240 SP
• Large body of knowledge under close supervision. Thinking within • Close supervision of progress and
used is provided in the form of established procedures and standards. results by superior
manuals and SOPs.
The New Dimension of the Labour of being effective in a globalised environment.

Market Internationalisation has become an important
strategy. Higher education institutions are now
Generally, most educational institutions have under pressure to improve the “employability”
been nation based or community centered. They of their graduates across geographical boundaries
produce effective people for specific locations, and cultural borders. In part this is due to nations
industry or profession. However, this specialization wanting to become effective in a globalised
approach is now giving ways to the ambition world.

Transformation Areas of Traditional Nations need competent and emotionally

Tertiary Institutions effective citizens
The general criticism levelled at traditional • Emotional Intelligence is the capacity for
tertiary institutions is that they have emphasised effectively recognising and managing ones
teaching rather than the development of the learner own emotions and those of others.
holistically. • Emotions have the potential to get in the
The curriculum in higher educational institutions way of ones most important interactions and
is typically organised and communicated through personal relationship.
as menu of courses defined, labelled, and
organised by discipline. Since disciplines are Job competency needs are both technical
often equated with department, disciplines are competencies and attitudinal (emotional) in nature
also the basis for the organisational structure of such as self-control, interpersonal sensitive, and
universities. Both of these factors may result in a risk taking.
 Teacher centred instruction Student determined learning
 Input orientation Outcome measurement
 Discipline – defined knowledge Operational knowledge and holistic

development of learner
further emphasis on the teaching (R.E.Boyatzis, The U.S Foreign Services Information
Scott S. Cowen,,D.A.Kolb ,l995,Innovation Officers selection (FSIO) case:-
ion Professional Education). Other factors that The United States State Departments evaluation
encourage teaching are:- the view of faculty as of its selection method, in the early 1970’s in
experts, the faculty reward system, and the drive identifying “employable” FSIO, Foreign Services
to maximize autonomy. Information Officers, illustrates how employability
Employability and internationalisation on the was accurately determined by a very significant
other hand is dictating the following transformation employer.
in higher education institutions:- Dr. Kenneth Clark had prepared a careful
The implications of these transformations are report that applicant’s score on the FSIO’s written
deep. It impacts the traditional university power exams did not predict success of a FSIO, as rated
structures. A major question in the design of the afterwards by performance on the job. How a
curriculum of higher education institutions is the young FSIO did on his/her feet in Ethiopia was
extent to which it needs to cater to the needs not predicted by very high vocabulary or aptitude
of the different stakeholders, particularly the test scores. David C. McClelland was retained by
manpower needs of industry for competent the State Department to determine what predicted
executives and leaders. Corporations having on the job performance?
become quite disappointed by the output of To determine what correlates with on the
the traditional university have relied upon the job performance, McCelland and his associates
competency based assessment of capability needs carried out Behavioural Event Interviews (BEI) of
and competency based training and instruction. the subjects in two groups identified as Superior
Performers and Average Performers

Extract from Competency Assessment Methods – History and State of the Art, by: -
1. Dr Lyle M. Spencer. Jr., Phd
2. David C. McClelland, Phd
3. Signe M. Spencer
The Behaviourial Interviews (BEI) group. “Competency” characteristics which

differentiated superior from average FSIO’s were
The BEI essentially asks people to think of identified: -
several important on-the-job situations in which
things turned out well or poorly and then to • Cross-cultural interpersonal sensitivity
describe these situations in exhaustive narrative • Maintenance of positive expectation of others
detail, answering such questions as these:- despite provocation
- What led up to the situation? • The ability to sit down opposite somebody
- Who was involved? from a foreign culture and really understand
- What did you think about then? what the person is saying
- What did you see, and what happened? In the • Empathy – understand another persons opinion
situation? and “pain”.
- What did you do? • Relationship building despite ideological
- What was the outcome? And how did you feel differences
about that? • Power position awareness
McClelland and his colleagues “thematically” These non-academic competencies were found
analysed the BEI transcripts of Superior to be causally related to superior performance.
performing group and the average performing

The Conceptual basic of McClelland’s Study
McClelland and his associates used the Behavioural Event Interview (BEI) method and the Thematic
Apperception Test (TAT) to uncover deep personality characteristics of people who did a job well.
What is stated in the

Knowledge CV – does not correlate
& Skills with Superior
Performance on the job
Self Concept
Social Role
Traits Deep non-conscious

characteristics -
correlates more reliably
with long term
Achievement Affiliation Power performance
“The need to “The need to establish “The need to

accomplish and maintain good convince and
excellence” relationship” influence”
Non-Conscious Characteristics What is a Competency

1. Self Concept: Refers to a person’s
perception of himself or herself and the evaluation Further research using the competency
of that image. People’s evaluation of their self- assessment method – BEI and TAT led to the
concept results from a comparison of themselves definition of a competency as: -
to others in their environment, and an assessment An underlying characteristic of an individual
of where they stand in terms of values held by which is causally related to effective or superior
themselves and others in their environment. performance in a job “ – By Boyatzis 1982
Competence can be motive, traits, values, or
2. Social Role: A person’s perception of a set cognitive or Behavioural skills
of social norms for behaviour that are acceptable Knowledge and skill are generally passive. It
and appropriate in the organisation that he or she is motivation that drives performance.
belongs Therefore, if one wants to do better than one is
likely to be driven to taking calculated risks and
3. Traits: A dispositional or characteristics this is likely to result in innovation due to creative
way in which the person responds to an equivalent behaviour. The intent of wanting to do better and
set of stimulation the taking of calculated risks are in the area of
emotional intelligence.
4. Motive: A recurrent concern for a goal,
which drives, directs and selects behaviour of the
individual

“Intent” “Action” “Outcome”

Personal
Characteristics Behaviour Job Performance
 Motive - conducts careful analysis

 Trait -takes action before being told
 Self-Concept -involves others by explaining
 Knowledge
 Skill
Example: Achievement Motivation
Want to do better  Goal setting Continuous

 Take personal Improvement
responsibility
 Seeks feedback
(Quality,
Productivity,
Sales, Earnings)
Calculated
Risk Taking Innovation
The Importance of Emotional The Case Western Reserve University

Intelligence experiment – late l980s
According to John Kotter of Harvard Business The faculty of the Weatherhead School of
School, ‘because of the furious pace of change in Management (WSOM) decided to dramatically
business today, difficult to manage international change the MBA program to become an outcome-
relationships is not very often due to failed strategy oriented, competency-based and value-added
but due to lack of self control- emotions’. program. ( Boyatzis, Cowen and Kolb 1994 )
WSOM introduced a Managerial Assessment
If soft skills are the distinguishing and development course to develop the soft
characteristics of superior performers, can we skills (Competencies) – in addition to the regular
target the accelerated development of these technical courses
competencies. The introduced self directed learning to learn
the soft skills (competencies) because of the
The Research Question following objectives:-
If freshman take the BEI on entering University - to learn a method for assessing one’s knowledge
and they take similar competency test on graduating and abilities as a regular living process
would they have improved their “employability - to develop and implement plans for acquiring
rating”. new management-related knowledge and abilities
throughout one’s career.

- to be aware of one’s own values and the values facilitated discussion within and among
of others and, stakeholder groups.
- to learn to become personally effective 3. Faculty saw themselves as “managers of
learning” rather than teachers.
4. Liberalizing for the students, getting them
Students had the benefit of three sources to think about issues and situations in novel
of information about their strengths and ways and to develop habits of the mind that
weaknesses: - stretch and expand their capacity to think and
act creatively.
At the beginning of the programme students 5. The new program used state-of-the-art adult
were given the following:- learning technologies.
6. The curriculum change process was led by the
1. Their own views about themselves (students faculty – not imposed.
responses to a questionnaire)
2. The views and reactions of others (peer The Management Assessment and Development
group) course began 2 weeks before the regular MBA
3. Coded assessment instruments and exercises course. Twenty-two criterion competencies were
(BEI feedback) assessed through the critical incidence interview
technique.
Student were orientated to become “Active
Learners” Goal and Action People Management
Management Abilities
• It is the student’s learning responsibility Abilities
1. Efficiency 7. Empathy
to figure out what each feedback about
orientation 8. Persuasiveness
themselves really meant, with the guidance
2. Planning 9. Networking
provided by the :-
3. Initiative 10. Negotiating
4. Attention to 11. Self-confidence
1. course instructor detail 12. Group management
2. faculty 5. Self-control 13. Developing others
3. facilitator. 6. Flexibility 14. Oral communications
• Students have to have a dialogue with the three

voices and seek consensus among them. Analytic Reasoning
Abilities
• The course method and activities were
15. Use of concepts
designed to reinforce the message that the
16. Systems thinking
student is in charge of interpreting and
17. Pattern recognition
integrating all of this information.
18. Theory building
19. Using technology
WSOM’s Programme 20. Quantitative analysis
21. Social objectivity
Seven design principles:- 22. Written
communication
1. The objectives of the new MBA program
reflected the concept of “added value” from The students began the assessment activities
all stakeholders’ perspective. during the two weeks prior to the main course
2. The focus on desired learning outcomes and they spent seven weeks in feedback and

interpretation activities. They then spent 4 to 5 Two/Three -Development of the learning plan
weeks developing a learning plan. – homework, discussions with
faculty, watch prepared material
Components of the personal of faculty – PPT or videos.
development course Other development resources
of the community; students are
encouraged to seek resources in
The course is designed to incorporate five basic their current workplace, etc.
elements:-
The assessment of abilities involve collecting
1. Assessment of abilities, knowledge and values information from three sources:-
(attitude)
2. Feedback and interpretation as to levels of 1. Assessment instruments and exercises
abilities and knowledge areas 2. Self assessment
3. Document action of current capability and 3. Views of others
past performance in these areas
4. Development of a learning plan The assessment exercises and instruments
5. Formation of the Executive Action Team include:-
(EAT)
1. Group discussions (videotaped)
Duration 2. Critical incidence interviews (audio taped)
One week 3. Presentation exercises (videotaped)
- Introductory activities including 4. Learning Styles Inventory (LSI), learning
exercises to help students get to skills profile and Adaptive Style Inventory
know each other. (ASI)
- Formation of the EAT’s 5. Technology Application Questionnaires
6. Personal Orientation Questionnaires on Value
Orientation
Two week -Assessment exercises 7. A Value Survey
8. Written comparative analysis of business core
One week -Lecture and case studies studies
explaining the model of
management used in the course The Executive Action Teams (EAT), groups of
– the 22 abilities, 11 knowledge students were created to provide a psychological
areas, and the associated value safe context. Further each EAT was guided by an
themes are introduced. Preparation industry advisor / executive. The ETA’s meet once
for feedback established. a week for 3 hours. These sessions are largely
Six weeks -Feedback and interpretation feedback sessions and communications sessions
to improve personal effectiveness.
Two weeks -Development of the learning
agenda – goals and objective The learning plans that are formulated during
setting the EAT sessions are the personal action plans.

The goals of the managerial assessment also placed on being aware of one’s values and the
and development course value’s of others.
The theory of self-directed change is that people
Are to learn a method for assessing one’s will initiate a self-perpetuating change process if
knowledge and abilities relevant to management they know they are benefiting from it (Kolb and
and for developing and implementing plans for Boyatzis 1970a, 1970b. Boyatzis, 1982). The
receiving new management – related knowledge diagram below illustrates the objective behind the
and abilities throughout one’s career. Emphasis is self-directed learning emphasis.
An image of current An image of one’s

condition desire – where one
would like to be
Perceived discrepancy between This discrepancy

Real vs Ideal create the tension for
change within
Goal statement
Action plan to achieve the

change (on learning objectives)
Initiatives - Actions
Feedback
The core knowledge areas of the regular MBA program were: -

1. Accounting
2. Labour and HR Policy
3. Management inf o and decision system Modelled on AACSB guidelines (The
4. Managerial Economics American Assembly of Collegiate
5. Banking and Finance School of Business)
6. Marketing
7. Managerial statistics Intellectual sub -themes
8. Operations method in management
9. Organisational Behaviour
10. Policy
11. Operations Research
The three perspective courses were: -

Liberalizing experience
1. Managing in a global economy
2. The history of industrial development One needed to take 2 of these 3
3. Technology Management areas
The objective of the perspective courses is to provide an integrative and liberalizing experience.

and leadership skills

The Benefits of the new curriculum
- The students experiences includes:-
design
- Courage to candidly engage in self-
examination and question belief and
“The course helps students learn about and assumptions previously held about
actually create, or add value through helping themselves.
others learn a method for assessing and developing - Social responsibility to other students
knowledge, abilities and value” – Boyatzis. - Integrity – the need to be honest with oneself
and others
The Executive Action Team experience:-
- Give and receive feedback The programme design provided ample

- Offer help and guidance to each others opportunity to enhance “Soft Skills”
- Communications skills improvement - frank
and open communication To what extent did the graduating
- Learn about the difference in others due to students change as a result of the new
background, culture, gender and other social MBA curriculum.
groups
- Learn about how others learn, interpret and
These are the results reported by Richard E.
act on information
Boyatzis, Ann Baker, David Leonard, Kenneth
- Use of social network
Rhee, and Lorraine Thompson, Innovation in
- Enhancing planning ability
Professional Education, Jossey-Bass Publication,
- Interacting with EAT executive advisor
enables students to improve their managerial 1995 Figure 8.1 page 175 to 201.


Re-Focusing the MBA Program
The primary objective of graduate management Shown below are the typical profiles of entering
education is to prepare people to be outstanding MBA students on the right. Shown on the left is
managers and leaders. This means helping people the expected profile of the graduating students.
develop the ability to use knowledge and make
things happen.
Entering MBA Graduating MBA

Students Students
The
Change
Self Concept
I am smart  I am a lifelong learner
 (Self Esteem)
 Society should use my knowledge Social Role

 I have to be useful to
and skills (Awareness of social purpose)
society
 I can do better
 I should not be seen to be Traits
 I can convince others
smart (Spontaneous reaction)
 I told them what is right  Everybody should know

 I am concerned about the Motives what is right
respect of others (Deep non-conscious drives)  To achieve results,
sometimes hard
decisions have to be
taken
The new programme (MBA programme) caused the desired profile change in the learners.
The Impetus and Implication for Change disappointment, whereas in the for-profit sector,
considerably more latitude exists for change in the
There must be shared vision, values, and a sense short-term.
of inclusive ownership among all stakeholders Effective strategic planning also requires
about the purpose of education. Any strategies leadership. Educators and academics believe in
adopted by a university must be consistent with participatory, democratic processes for decision-
the strengths and interests of its faculty; otherwise, making. Important strategic decisions require the
such strategies are bound to fail. Employability full support of faculty.
must be accepted as a major deliverable of the Without strong leadership, it is often
faculty and other stake holders. difficult, if not impossible to obtain approval for
The key to successful strategic planning in a proposal for change, especially one focused
higher education is to balance the needs of the on significant change to an existing curriculum.
industry, and the vision and values that lie within This may be the reason for the slow change in
the University. An overabundance of one or the institutions of Higher Education.
other in an academic institution is a prescription for

The Conceptual Basis for Self-Directed 2. Showing learners how to direct themselves
Learning and Personal Development through information
3. Relating the topic to the learners’
The learning modules in many universities are experiences.
Pedagogy based 4. Motivating the learner
5. Helping learners overcome inhibitions,
(Pedagogy)
(Andragogy) behaviors, and beliefs about learning.
Classroom
Adult, non-formal
Teaching
Learning
Knowles’ theory of andragogy is an attempt to
• Follow • Offer ideas develop a theory specifically for adult learning.
instructions based on expe- Knowles emphasizes that adults are self-directed
• Receive rience and expect to take responsibility for decisions.
information • Active partici-
Adult learning programs must accommodate this
• Little pation
Learner’s fundamental aspect.
responsibility • Responsible for
Role
for learning learning process Andragogy makes the following assumptions
process • Interdependent about the design of learning:-
• Passive with course
facilitator
1. Adults need to 5. case studies
External: Forces
of society, family, know why they 6. role playing
religion, tradition, From within need to learn 7. simulations
Motiva- etc.) oneself, learner something 8. self-evaluation are
tion For Learner does not sees immediate
Learning see immediate application
2. Adults need most useful
benefit to learn
experientially
Teacher
(controller),
Centered on issues 3. Adults approach
or workplace learning as
Choice of learner has little or
problems expressed
Content no choice
by the Learner problem-
solving
• Sharing and
building on 4. Adults learn best
Objective knowledge and when the topic is
of Learn- Gain facts, experiences of immediate
ing information • Self confidence
– self esteem
value
• Social – role
Instructors adopt a role of facilitator or resource
rather than lecturer or grader.
Andragogy, initially defined as “the art and Andragogy applies to any form of adult learning
science of helping adults learn,” has taken on a and has been used extensively in the design of
broader meaning since M.Knowles, l980, The organizational training programs (especially
modern practice of Adult education. The term for the “soft skill” domain such as management
Andragogy currently defines an alternative to development.
pedagogy and refers to learner-focused education
for people of all ages. A Framework of the Key Steps in
The andragogic model advocates the following Curriculum Design for Employability
considerations: - Improvement
1. Letting learners know why something is This model synthesizes several curriculum
important to learn design principles and adult learning theory that

would be particularly effective for the non-technical program content development for any curriculum
transformation effort for better employability of graduates.
Expert Panel Analysis

 Industry representatives
.BEI and Critical
 Educational + Social
incidents interviews
Key Step One Competency determination institutional rep
 The model profile  Academics
NEEDS Analysis
- Competency gap
Analysis
 Self management Superior vs Average
Key Step Two competencies needed.
 Leadership competencies
needed Learner Analysis
-Learner characteristics –
what they like and dislike
Key Step Three
Design and Development
Concept Analysis
- Subject matter knowledge
Key Step Four Prototype tests Feedback structure – for each
competency area
Finalisation of self instructional

Key Step Five curriculum materials for Task Analysis
implementation To determine the
situations and the
applications of
competencies
Criterion Performance
The standards of performance for
competent behavior, feeling and
thinking
To implement the principles of Andragogy the following materials or modules need to

be developed:-
• Assessment tools to enable learners to receive feedback on their thinking, feeling and behavior
(competencies)
• Assessment tools to enable measurement of social motive profile of the learner – a valid indicator of
their motivation.
• Reading materials and case studies specially designed to motivate reading on
 how effective people think, feel and behave: -
 Entrepreneurs
 Conceptual Leaders  What are their thinking, feeling and behavior
 Functional Leaders  What drives them
 Political Leaders  Why and how they become purpos eful (mission leaders)
 Scientists / Researchers

As students progressively take charge of their

learning and grow, they become more
“employable” in a world that is continuously
evolving. Teacher centered
curriculum
 Employability Life long learning
(in a changing world)
- Teachers Manage learning

Students centered
(Facilitate)
learning
- Students Accountable for
capability
enhancement
As the self-directed learning content increases, the teacher centred activities will reduce.
Conclusion
This research on how unemployable graduates and not quite considered in curriculum design
differ from employable graduate used the PSE in Higher Educational Institutions has now been
(Picture Story Exercise) and the BEI (Behavioural clarified by the levels of capability.Therefore, it is
Event Interview) techniques. There is a need to time now to adopt conscientiously the principles of
develop more efficient methods of administering Andragogy and foster student centered curriculum
the PSE and the BEI particularly in coding the and programs to create the effective citizens of
BEI transcripts and the story’s written by subjects the future.
This process requires careful training and proper
coaching. The use of the results of the PSE and
the BEI has been found to be readily accepted by References
subjects.
Unemployability of graduates can be American Assembly of Collegiate Schools of
eliminated. If unattended unemployability will Business. (1987). Outcome measurement
grow. It is a drag on our investments in education project: Phase II report. St. Louis, MO:
and it can cause discontentment amongst the youth Author.
of our society.
We have the knowledge to correct what is American Assembly of Collegiate Schools of
causing unemployability. The solution requires Business. (1989). Report of the American
strong leadership over a very entranched Assembly of Collegiate Schools of Business
traditioned system – the system of higher education Task Force on Outcome Measurement. St.
curriculum development. Louis, MO: Author.
The role of the Higher Education Institutions
has changed and there is now greater demand to Boyatzis, R.E., (1982). The competent manager:
produce graduates suitable for the economic well A model for effective performance. New York:
being of society. Industry needs, various levels Wiley.
of employee capability to staff organizations at
different levels is now clear. What was unclear

Boyatzis, R.E., (1994a). Stimulating self- Kotter, J. P. (1988). The leadership factor. New
directed learning through the Managerial York: Free Press.
Assessment and Development course Journal
of Management Education, 18(3), 304-323. McClelland, D.C (1984) Motives, Personality and
Society, Selected Papers, 39-50
Boyatzis, R.E., (1994b). Rendering unto
competence the things that are competent. McClelland D.C, R Koetzer J. Weinberger (1989),
American Psychologist, 49(1) 64-66. How do self-attributed and implicit motives
differ, Psychological Review, 690-702
Boyatzis, R.E., Cowen, S. S., & Kolb, D. A. (1991).
Curriculum innovation in higher education: The McClelland D.C (1961), The Achieving Society,
new Weatherhead MBA program. Selections, Princeton, NJ.VanNostrand
8(1), 27-37.
McClleland D.C (1987), Human Motivation,
Boyatzis, R.E., Cowen, S. S., & Kolb, D.A (1992). Borton University Part 3 221-369
Implementing curriculum innovation in higher
education: Year one of the new Weatherhead McClelland, D. C. (1973). Testing for
MBA program. Selections, 9(1), 1-9. competence rather than intelligence. American
Psychologiest, 28(1), 1-40.
Boyatzis, R.E., & Kolb, D. A. (1969). Feedback
and self-directed behavior change. Unpublished McClelland, D. C. (1985). Human motivation.
working paper no. 394-69, Massachusetts Glenview, IL: Scott, Foresman.
Institute of Technology, Sloan School of
Management. McClelland, D. C., & Boyatzis, R. E. (1982)
The leadership motive pattern and long term
Boyatzis, R. E., Renio, A., & Thompson, L. (1990). success in management. Journal of Applied
Developing abilities in an MBA program. Psychology, 67(6), 737-743.
Unpublished manuscript, Case Western
Reserve University, Weatherhead School of Piaget, J. (1980). The equilibration of cognitive
Management. structures: The central problem of intellectual
development. New York: Basic Books.
Knowles, M. S. (1986). Using learning contracts:
Practical approaches to individualizing and Spencer, L. M., Jr., & Spencer, S. M. (1993).
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Bass. performance. New York: Wiley
Kolb, D. A., and Boyatzis, R. E. (1970a). On the Lyle M. Spencer, Jr., Ph.D., David C. McClelland,
dynamics of the helping relationship. Journal Ph.D, Signe M. Spencer (1990). Competency
of Applied Behavioral Science. 6(3), 267-289. Assessment Methods: History and State of the
Art
Kolb, D. A., and Boyatzis, R. E. (1970b). Goal-
setting and self-directed behavior change.
Human Relations, 23(5), 439-457.

APPENDIX 1
Shown below is the coding scheme used to identify behavioural indicators and associated
motives from the Picture Exercise
Motive Code Descriptions
SE Competition with standard of excellence

SI Self-imposed requirement of good performance
Ua Unique accomplishment (inventors, creators)
L+ Long term objectives stated (to be doctor, successful business man)
AI Instrumental activity to compete with standard (boy working very carefully). Conceptual thinking
+F Affective concern over goal attainment (boy wins contest and feels good)
Achievement
-F Feeling negative over failure
Sa Success anticipation
Fa Failure anticipation
Bp Personal block (conditions that prevent performance)
Bw World block (conditions that prevent performance)
H Help (assistance) in striving to achieve goal
Showing power concern through actions: strong and forceful action (assault, attach, accusations,
+P
taking advantage of others’ weakness)
+A Giving help, assistance, advice or support, if it is designed to gain control, influence or assert
Trying to control others through regulating their behaviour or the conditions of their life, or through
+C
seeking information, investigating, checking up
+I Trying to influence, persuade, convince, bribe or make a point (arguing)
E+ Someone does something that arouses strong positive emotion
Power +R Someone is described as having interest in reputation or prestige

+Act Trying to impress others by making news, winning election, creative writing
+F States good feelings on attainment of control
-F States the feeling of failure to attain status of control, reputation etc
Sa Anticipates attainment of control etc
Fa Anticipates failure to attain status, control, reputation etc
Bw States conditions that affect attainment of control, gaining the upper hand etc
+R Concerned over establishing, maintaining or restoring a positive relationship
AFI Visualises positive / negative relationships
AI Compassionate activities - parties, reunion, visits, small talk
Act Activities conducted to attain relationship
Affiliations +F Statement of liking, or the desire to be liked, accepted or forgiven (feeling bad, etc)
-F Statements of negative feelings due to relationship
Sa Anticipates good feeling
Fa Anticipates failure to attain good feelings
Bp States personal ineffectiveness to attain good relationships (feeling)
Bw States world / general condition that prevents attainment of good relationship (feeling)

APPENDIX 2
Job Evaluation Guide
Determining the Size of a Job
In determining job size, ICC Consultants use a validated set of job element scales called the Point
Factor method which is a commonly accepted method of job sizing throughout the world.
The notion of jobs size comes from the fact that jobs are not linear and flat. Jobs are cubic in nature.
This means that the sizes of jobs are determined by three major elements. The measurement process will
have to be able to measure all three factors and their relative value to the job.
Element 3
s
15%
ie
nc
te
pe
Results Creation
m
Element 1
Co
Problem Solving
15%
15%
Element 2
Weber’s Law states that job measurement can be achieved up to an accuracy level of 15%. Two jobs
can be perceived to be different in size if they are at least 15% different. The 15% differential on each
dimension of the job is detectable and therefore categories can be formed. The number pattern to be used
for measurement of job is a 15% gap scale:
57 66 76 87 100 115 132 152 175 200
Principles of Job Evaluation the job description covering the context and
the nature of organisation elements related to
Judgment Must be Consistent to Produce the job.
Reliable Ratings
• On the basis of job information guided
• Job ratings are normally conducted by a by the job rating instrument available, each
panel of 3 to 5 members for effectiveness. individual member of the panel must make
judgments and set the ratings independently
• The superior of the position must be a
member of the panel and he must assist the • When all members have completed rating,
panel by providing added information beyond the judgment made by the various members of

the panel are then discussed, and, where they For example, a General Manager in a start-
differ, the ratings must be reconciled and final up entrepreneurial organisation may have the
judgment must be set through consensus. same job title as the General Manager in a large
diversified conglomerate. However, we know that
• The Evaluation Panel must not be a forum the two jobs are very different in terms of results
where sectional interests are negotiated. The to be achieved (Accountabilities) and resources
panel must arrive at a reasoned consensus on available (Dimensions).
the basis of a common understanding of the In order to accurately and effectively measure
job elements. job size, it is necessary to measure the value of
each job elements (or job factors). The basic job
• The secretary to the panel who is usually elements are:
the Human Resource Division’s representative
on the panel, should record the ratings and the
reasons for the way the ratings have been set. 1. Results Creation (Freedom to Act for
results) - RC
• When more than 5 related positions have
2. Problem Solving - PS
been evaluated and the ratings of each job
is rank ordered, then the panel may make 3. Competency (Knowledge and
reference to previous ratings and make changes experience) - C
to any of the ratings, in order to justify relative
size of each components of the job elements.
Once again the major thought process and
criteria used should be recorded.
• All rating must eventually be tested for

technical quality and external relativity to
Least
ensure accuracy. Noticeable
Value
29 12 25
Fair Comparison RC PS C
Scale for Scale for Scale for
The basis for fair comparison Results
Creation
Problem
Solving
Competency
Job titles may sometimes be quite misleading

and comparing whole job is inaccurate.
The three scales have clear descriptions of varying levels as shown on the following pages.
Job Element 1: Results Creation (Freedom to Act for Results)

This is the element of the job that can be best described as “the accountability for actions and for the
consequence of actions taken”.
The more freedom there is in the job to take actions and the more impact the job has on end results the
greater the Results creation element.
Levels of Results Creation (Freedom to Act)

1600 Undefined
1400 Level 10 Visionary
1216 These jobs may have occasional philosophical guidance from major stakeholders

Levels of Results Creation (Freedom to Act)

1056 Strategic Guidance
920 Level 9 These jobs may have conceptual guidance from the highest level of the enterprise.
800
700 Broad Policy Development
Very general guidance from the highest level of the enterprise or organisation. These jobs have a high
608 Level 8
impact on end results.
528
460 Broad Policy Implementation
These jobs are subject to broad policies and there are general guidelines from the highest level of the
400 Level 7
enterprise or organisation.
350
304 Defined Policy
264 Level 6 At this level of Freedom to act, the jobs are subject to functional policies and goals.
230
200 Principles
These level of jobs are subject to specific policies and they are also subject to general practice of the
175 Level 5
functional area.
152
132 Process / Standards
These jobs are subject to well-defined policies and procedures. Results produced are subject to review by
115 Level 4
Superior.
100
87 Strict Standards
76 Level 3 These jobs are subject to standardised work practices and procedures. Generally supervision over
66 performance is by close review of progress and results.
57 Procedures
50 Level 2 These jobs are supervised closely by instruction and prescription of work routine.
43
38 Routines
33 Level 1 These level of jobs are subject to detailed work routines and there is little or no room for change.
29
Job Element 2: Problem Solving

Problem solving is the application of knowledge required to identify and resolve problems. There are
essentially two dimensions to problem situations:
1. the extent to which the problem situation is covered by set procedures, established standards,
company policies and principles and more generally by guidelines and goals orientation.
2. the extent to which the job encounters similar problem situation, differing situations or situations
requiring constructive thinking, evaluative judgment or situations requiring the development of new
concepts and generalization.
Levels of Problem Solving

1216 Level
Undefined
1056 11
920 This is the highest level where the jobholder is free to develop and apply different organisation philosophies.
Level
Abstractly Defined
10
800
700 This is the highest level where the job holder is free to engage in any form of problem solving constrained only
608 by the general rules of conduct, cultural norms and business philosophy. Jobs of this nature are usually
engaged in adaptive thinking of a very high level and in applying new and imaginative approaches.

Levels of Problem Solving

Level 9 Strategic Guidance
528
These jobs are driven by the need to achieve ultimate goals with very little definition on problem solving other
460
than by extension of broad policies.
400

Level 8 Broad Policy Development
350
This level of jobs engage in problem solving situations with the aim of achieving generally defined objectives
304
and goals. The job holders are concerned about achieving results, and they are guided by the operating
264
philosophy. A large part of these jobs involve adaptive thinking of a high order.
230 Level 7 Broad Policy Implementation
200 These jobs are guided by broad policies. However, the problem solving is directed at achieving specific
175 objectives by adaptive thinking. The “What” and “How” i.e. problem definition has to be worked out.
Level 6 Defined Policy
152
These level of jobs are guided in problem solving by clearly defined principles and available policies. The
132
nature of problems encountered are such that the “what is” is clear, and a certain degree of adaptive thinking is
115
required to determine solutions.
100 Principles
87 These jobs engage in problem solving based largely on standards available or principles set. Where
procedures are available, they are usually unspecified allowing discretion. The nature of the problems
Level 5
76 encountered is usually resolved by applying learned solutions where very little deductive and extrapolative
thinking is required.
66 Process / Standards
Level 4 These jobs solve problems by the application of varied procedures and precedents. The nature of the
57
problem presents issues that require one to search for the answer from among several known alternatives.
50
43 Strict Standards
These jobs solve problems by the application of standard procedures and precedents. The nature of the
33
problem is specific and one has to choose between defined solution alternatives.
Level 3
29
25 Procedures
These level of jobs are usually “told” how to solve their problems and they resolve problem situations
22 Level 2
working with standard instruction.
19
16 Routines
These jobs follow detailed instructions and strict rules of conduct. The job holder is likely to be resolving
14 Level 1 problems engaged in repetitive reaction to problem situations where one has to choose from a given set of
solutions.
12

Job Element 3: Competency
The nature of jobs

Specialized Deep Deep and Broad Deep and Broad Very wide subject areas and
integrative knowledge
Depth of the subject matter
Market Features and Characteristics
Advertisement Promotion
Manufacturing Processes
Statutory Acc. Principles
Maintenance Methods
Product Development
Regulatory Matters
Finance & Control
Sales Techniques
P. of Accounting
HR Management
Cost Accounting
Material Control
Public Relations
Safety & Health
Manufacturing
Distribution
Marketing
Co. SOP
Co. SOP
Safety
HRM
Cost Tax Production Marketing General
Accountant Accountant Manager Manager Manager
Fields of Management
Job points 450 519 677 702 1040
Competency includes every kind of capability, skill and ability that is necessary to produce the key
results of the job at an acceptable level.
It does not matter whether the competency is acquired by formal training in an institute of higher
learning or by working on the job and becoming capable through experience.
It includes know-how, skills and competencies and special experiences accumulated by exposure to job
environment.
Competencies or know-how can be expressed either by the depth (specialization) or breadth
(generalization).
On the next page is shown the Levels of Competency scale.
Job Element 3: Competency (cont’d)

Competency includes every kind of capability, skill and ability that is necessary to produce the key
results of the job at an acceptable level.
Levels of Competency
2112 Exceptional Mastery
1840 Level 11 Unique mastery in a scientific discipline or professional mastery of organisational and institutional
1600 systems.

Levels of Competency
Recognised Authority
1400
1216 Level 10 Professional Mastery
1056 Recognised authority outside one’s organisation in a particular field or mastery of integrative mechanism
in a broad area.
Professional Mastery / Specialist
920 Know-how at a high level
800 An authoritative source of knowledge within the organisation. These jobs require accumulated know-
Level 9 how through extensive experience in a particular field of study. Alternatively, these jobs require broad
700
practical knowledge of a variety of concepts and models necessary to engage in goal directed effort
involving complex problem situations.
Seasoned Professional level of know-how
608
528 Jobs requiring specialist know-how that can be obtained only by years of experience in the relevant field
Level 8 of knowledge. These jobs require extensive experience in having used concepts covering a broad area
460
of knowledge in order to resolve problems.
400 Senior Professional level of know-how
350 At this level jobs require extensive knowledge covering multiple levels of principles and theoretical
Level 7
304 models in a particular field or functional areas..
264 Professional level of know-how
230 This category of know-how ranges from knowledge of principles and concepts to operational knowledge
Level 6
200 of application of principles and concepts.
175 Basic Principles and Theoretical Models (Junior Professional)
152 Jobs at this level require knowledge of basic principles and theoretical model that is normally gained
Level 5
132 through formal study.
Sub-Professional know-how
115 This is the know-how level of sub-professionals. Usually 2 - 3 years of study beyond basic schooling
100 is necessary to acquire the competencies involving the required concepts and theoretical principles.
Level 4
87 Alternatively this level is characterized by several years of working experience to resolve problem
situations.
76 Vocational Skills
66 This category of know-how is usually referred to as vocational skills. Jobs at this level require
Level 3
57 procedural knowledge, which is provided by either job experience or through vocational training.
50 Procedures
43 Jobs at this level require knowledge of work routine and experience in using simple tools, equipment
Level 2
38 and machines.
33 Basic Education
29 The lowest level of know-how, which is largely basic education, and on the job instruction of work
Level 1
25 routines.
Job Evaluation Information 3 Accountability

– The freedom to act designed by
For the purpose of Job Evaluation the following the SOPs, processes for taking action,
are relevant dimensions which are obtained from limits of authority and broad functional
the Job Descriptions:- policies (principles).
1 Knowledge, skills, experience The Job Evaluation is conducted by a Committee

– Know-How guided by an external resource person to establish
2 Problem Solving the standards.
–Nature of problems regularly
encountered in the job
–Freedom to think prescribed by SOPs,
processes, policies, etc.

Job Evaluation is not Capability or the position requires new knowledge of a

Assessment different field.
• Job evaluation is the determination of job size Capability Assessment

based on standard output and performance of Information
the position.
• Job evaluation is correlated with market For the purpose of Capability Assessment the
practice to determine the range of salaries following are strong indicators, which are obtained
being paid for the job (size), low to high. This from a variety of sources:-
range is the rate for the job irrespective of
capacity level of incumbents. 1. Track record on education and executive
• Job evaluation results and related salary development programme attended – the details
analysis are conducted to establish Salary of examination results (CGPA) or course
Structure and Compensation Policy. leaders’ observations are important.
2. Problem Solving – past record on special tasks
undertaken, projects, and specific job-related
Capability critical incidences.
3. Accountability – what level of supervision or
• Capability is a measure of the person’s ability management attained. Individual contributors
(capacity) to deliver results. It is independent who are very successful are not necessarily
of the position the person is currently holding, going to be able to manage a department or
whether high or low, because a highly capable a division. What level of risk assessment
individual can be assigned to a lower position and risk-taking has been experienced by the
or vice versa. individual. What level of results achieved
• Employees are hired usually based on an has been demonstrated i.e. sector head, sub-
assessment of capability, and salary is functional level or ultimate business results
appropriately determined based on capability (revenue, profit).
relative to the job size. Further, employees 4. The sources of information used are
are usually promoted based on an assessment complemented by observations of the direct
of the person’s ability to produce results reporting head – which is usually approved by
(capability). the divisional or ultimate head.
• The key indicator used when assessing 5. Other measures of potential of the incumbents
capability is usually track record – the i.e. valid and reliable psychometric tools.
person’s career track within the company or 6. The processes of capability assessment is
throughout the person’s career. As a result, usually covered at a committee meeting
capability is also referred to as career level. facilitated by an external resources person.
For example, a person who achieves career
progression to the level of Senior Manager Matching Job Rates with
in a large and well-managed organization has Capability Levels
demonstrated capability/ability for that level
of accountability. It is inconceivable that such Many companies seek to establish a
a senior professional will be motivated to compensation policy that is attractive, motivating
work in an entry level position again. Such a and fair. In that regard, the compensation policy is
person would aspire to be a General Manager expected to be internally communicated – low jobs
or a Chief Executive Officer depending on the are priced low and larger jobs are proportionately
size of the position and whether the position priced higher. Further, the job rates are expected to
is within the same industry (technical skills) be adequately competitive to attract and retain the

best candidates available so that the company can Determining the Salary to be Paid to
achieve its long-term strategy and goals. Incumbent
We shall follow the following schematic to
determine the appropriate rates to be paid to • It is important to properly determine the person’s
incumbents. career level to ensure effective compensation.
The extent to which the incumbent meets,
excels or below the job requirement shall form
the basis for remunerating the employee.
Job Person
Major
 Biodata
KRA Supporting KPI
Actions  Academic achievement
1.  Work history
2.  Testimonials
3.  Assessment Center notes (if available)
4.  Psychometric test results
- BEI
5.
- Motive Profiling
Discrepancy Analysis
Job Rating
 Competency Person Career Level
 Problem Solving Rating
 Results Creation
Incumbent
Capability
Report
Job Evaluation Sheet

Results Problem Total Job Market Reference Employee Career
Competencies
Creation Solving Points Grade Name Level
No. Job Title Level Points Level Points Level Points
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

2009 Reza Tehrani, Mahdi Salehi, Hashem Valipour, Mohammad Jahandar Lashky 319
The Survey of the political Costs and Firm Size: Case

from Iran
Reza Tehrani , Mahdi Salehi

Hashem Valipour, Mohammad Jahandar Lashky
Abstract
The political cost is one of the most important costs and payment of companies, and companies sought
to reduce these costs. According to the theory that political expenditures by Watts and Zimmerman has
been presented, Politicians have the power to by using the policies of the distribution of wealth again such
as taxes, aid, the contributions, insurance and etc companies under the influence of. In other words, the
change in currents can cash by taxes, special rules and information pertinent to the political challenges
under the influence of. The aim of this research study is the relationship between the size of the company
and the political costs.
To do research the historical information of all present companies in Tehran stock exchange in the
period of time 2005 to 2007 has been used. In the way of analyze information after making dependent
conversional normal, seeing transmittal charts and with regard to the index R2, logarithmic models have
been selected for the expression of communication.
The results of different patterns show that relation between the size of company and political costs is
meaningful. It means that by increasing the costs of the company as much as political as well as it will
increase. On the other hand because companies’ environment in political activities and many of the cost of
the political support by law, so a big part of the political challenges that the companies will be imposed is
unavoidable and another part of it like celebration relations and the cost for participation in elections and
help and contributions have been impossible to control and it can be with proper management and precise
auditing by considering the long-term works reduced them.
R. Tehrani, , M. Salehi, H. Valipour, M. J. Lashky - The Survey of the political Costs and Firm Size: Case from Iran
Introduction different approaches for collecting accounting

theory. The result of following these approaches
Nowadays’ accounting in developed countries is creating continued crisis in accounting that
has managed key role and its valuable role and the effect of political condition on the process of
capabilities for to achieve organization goals. Also collecting accounting standards added in it.
in Iran by the transition stage of the industrial and One of the aims of financial statements is reflex
move toward scientific management, competitive of the results of management supervisory or their
market and increasing privatization process accounting in front of resources which is under of
important information in decision makings and their authority. The users of financial statements
turning to economic more than before. With peer usually want to evaluate supervisory function or
role and importance of accounting system and management accounting for economic deciding.
need more economic units to it, scientific bed there Whereas preparing financial statements is the duty
need to use accounting for more necessary and this of management department, it may cause to go
feeling of the necessity, researcher to in regard to forward to management profit because of different
the political challenges that in Iran is not known reasons. One of the motives of management
study. Research is one of the pillars of growth and profit is political costs. According to the size of
development in different aspects of economic, company theory there is a probability they by
social and cultural every country. Development growing companies their managers causing to go
process based on regular programming to achieve forward to select the accounting rules in order to
the goals of the predetermined cause the desired relegate the reports of income of present period to
result. The most important part in program collection the coming period. Whereas the economic, social,
is necessity to requirement information, because and cultural environment in Iran is very different
the information is one of the essential resources in comparison with western countries, it may be
for economics and scientific progress in each different the management motives because of it
country. In preparing information should consider too.
to preservation and improvement comparable
features and to be convenient information and
financial reports of economic unities. In other
Research Problem
words, information has been main force and society
former and it can search its important role in large According to political costs theory by Watts and
filed of human essential activities. Accounting Zimmerman, politicians have the authority to use
knowledge has the considerable usage in all part the politics of the distribution of wealth again and
of community because of its categorical effect with mechanisms like taxes, helps, contributions,
on right financial works process. In the recent insurance and etc, affect the companies. Also one
decades, rapid progresses of economic units’ of the effective factors on managers’ wealth is
activities, with information systems complications cash rewards. In addition changes in cash flows
have been intensified the necessity of prepare can affect by tax, specific regulations and related
reliable and relative financial information by information to political costs. So managers are
economic units. One of the most important forced to consider cases that affect on company
necessities of preparing and presenting financial and control them if it is possible.
information with mentioned features is collecting By Watts and Zimmerman research about
the accounting standards and observance them in political costs and the relation of these costs with
action. Usually collecting these standards based the size of company, was confirmed the theory
on political condition, economic situation and the that larger company suffer more political costs
most important accounting theories. Considering than smaller company. In fact they express that
accounting hypothesis, theories, and accounting the amount of political costs strongly depends
methods accomplisher have been followed on the size of company (Millen, 2001, p.15). The

question that is considered in this research is: “Is motive to select the group of accounting standards
there any meaningful relationship between the size which report lower income by tax, political
of accepted companies in Tehran stock market and consideration and legal cramp than selecting
their political costs or not?” accounting standards which report more income.
Most of Iranian companies’ managers do According to Watts and Zimmerman ideas
not know about the costs during the activity in politicians have the authority to affect them by
effective political environment on companies distribution of wealth again method of companies
and suffering political costs from definition and by their tax, regulations and gratuitous helps,
classifying. This research is about to be or not contributions and etc. also some of the people
to be the political costs and its relation with the who has authority proceed to pervade because of
size of new research company and aware all nationalists or limit a company, or in turn cause to
managers and active members of stock market and create stimulates for politicians that suggest these
accounting and auditing specialists. actions in order to solve this pressure of politicians
and other weighty groups. Watts and Zimmerman
suggest that “companies want help from plans and
Review of literature tools like social responsibility advertisement on
media, pervade on government and selecting the
Political costs theory introduced by “Watts accounting rules” in order to report the minimum
and Zimmerman” in 1987 for the first time and value of company’s profit and income. By reporting
the result of above research was expressive that lower incomes and profits, management can
the larger companies (Firouzi 1998). According decrease the probability of different activities and
to basis Watts and Zimmerman research several reduce its expected costs (Millen-2001).
tentative researches have done that were following Belkouei and Karpics (1973) conducted a survey
the testimonials to proof political costs theory. on 23 large American organizations which 7 of
Some of the tentative researches have shown the these 23 organizations were large oil companies. In
relation between social divulgences and the size all these companies there were worries about high
of company and also the relation between social profits. Also Watts and Zimmerman mentioned in
divulgences and the type of industry, Watts and their research that “large companies would like to
Zimmerman’s answer to this question that why commute into oil companies.” Beside the company’s
companies’ measure to social divulgences is “They size the type of the industry can affect political
are beneficiary”. importance strongly. The situation of the companies
In Watts and Zimmerman essay about positive is important because the companies which are
accounting theory and political costs it is said that in an industry usually have the same size, so
positive accounting theory helps us to have better membership in an industry is very important factor.
understanding of different accounting standards Finding the statistical relation between the sizes of
effects on different groups and why different the company and selecting the accounting method
groups want to spend their resources under the can be the result of the company’s size. However
effect of determining standards process. In these can say that membership a company in the special
articles the tax, insurance, managerial munificence industry increase its political importance, but can
costs, gratuitous helps, sport helps, export custom not know determinant factor company’s political
laws, establishing the seminars costs are mentioned situation only the type of industry. There are special
as political costs. industries that include the companies which gain
Because of changes in cash flows new price high profit and general and political concentration
of stock also can be affected by tax, specific themselves, like oil and gas companies or they are
regulations and the information about political special industries that without considering to their
costs. Managers are forced to consider cases that profit people consider and political concentrations
may effect on company. Managers have the higher such as chemical companies.
The companies’ tax is one part of the political 1997 and totally (the average of these three years)
costs. The larger companies have more effective there was the close correlation relation while there
rate of tax than smaller. According to Watts and is not this correlation between the size of company
Zimmerman’s tentative research, larger companies at assets and political costs in each year.
like oil companies have higher effective rate of Blacconiere and Patten (1989) accepted this
tax. Effective rate of tax in this review calculated approach because they survey the chemical
according to scale paid tax on income before industry divulgences. Unlike Belkouei and Karpic,
tax and cash turnover. Companies’ rate of tax is they don’t limit their discussion to high profit and
a little paragon of their political costs because the power of exclusive rather they consider to legal
political process includes variables such as non costs, the costs which suffer to the companies
exclusive, governmental treaties, laws, tariffs and from law and regulations. They allude to this point
export share. Each one of these factors affects that can expect in chemical industry as a result
political process and may increase or decrease the of pain which enter to environment, like India
company’s political costs. tragedy, political costs increase. Also they offer to
So the relation between the size of the company investors that increasing political costs can expect
and political costs means that large companies as outbreak and its relations. One of the way of
suffer more political costs. This result is just decreasing political costs is decreasing divulgence
consideration to payments as political costs and at the time of engender tragedies.
does not affect received profits by large company Kahan (1992) reached to a latent legal snag in the
in this relationship. It means that in comparison of survey of income management voluntary methods
political costs just is considered paid costs as gross except divulgence about chemical companies,
and received profits don’t detract of total political which was discussable in two ways:
costs. General thoughts have mentioned to this
Leftwich and Holthausen (1983) said that the point that the chemical industries’ profit is high
theory of the relation between the company’s size unconscionable. This subject has adjustment with
and selecting accounting rule is derivative from political movement which aimed a lot of high
political process economic theory. This theory income industries because these industries have the
used in Zimmerman’s researches too, but get ability to pay suffered political costs on them. One
testimonials in Zimmerman’s researches decrease of the ways of decreasing this pressure on chemical
the probability that the relation between the size companies will be decreasing reported profit.
of the company and selecting accounting rule is This recent approach is caused to say Kahan
caused difference between the type of industry (1992) that this theory which the chemical
and used accounting rule. It means the difference companies that have high divulgence costs and
caused accounting rules is not caused commitments have done huge investment strongly in recognizing
changes of the type of industry. This difference the incomes will use the method which cause to
does by changes of the company’s size and aware recognizing lower profit. Pay- attention that it
selecting accounting rule. doesn’t take a lot of time that usage of the method
Belkouei and Karpic (1989) recognize this which cause to recognizing low incomes cause
subject that without quest for spending considerable outbreak dangerous and important problems such
social costs and decreasing the value of present as decreasing the stockholders’ penchant to this
profit creating phase and general attracts attention industries.
can be the justifier social costs, performance and In Godfrey and Jones (1999) studying called
divulgence. “the effects of political costs on grade profit” is
Firouzi (1998) have done the research about used as the base of market’s share. (Considering
political costs. The results are expressive that there suspicioning Godfrey and Jones about the size of
is a close relation between the company’s size at company and political costs, primary two factors
sale and political costs in each year during 1995 to –the number of members of labor union employees

and manager gratuities was posed in this research this is exact subject whom Lemman and Kahan
too). Above studying showed that high political (1997) specified for a social positive theory and
costs are those which are under the authority of explanation environmental divulgence. Lemman
governmental laws or they are under the general and Kahan’s activity (1997) need the copiously
strong scrutiny. Godfrey and Jones studying survey because it shows the type of understanding
show that the companies which act in the banking a lot of problem which discussed before. In a lot
department financial, research, fundamental, urban of aspects can not shirk from it yet. In the best
services suffer more political costs. condition, Lemman and Kahan (1997) introduced
Digan and Hallam (1991) during their studying a reason for existence of different views of
notify that the companies which have more market’s companies’ social divulgence which it is researchers
share related to their industry strongly have more couldn’t be successful in providing the tests that
political costs and general scrutiny. In this studying give theme possibility to evaluation validity and
market’s share calculated according to the total of justifiability different theories. But their main
all assets. request is pitch a political costs system for social
Zimmerman has surveyed the relation between divulgence. For doing it they are following to the
rate of tax and company’s income and had studied survey environmental divulgence before and after
its relation with the size of company according introducing a specific environmental law. Also
to sale and reached to this result that the relation they mention to related losing of other tentative
between company’s size and the rate of tax is not results and like before mention to this subject
the same in all industries during the time. that Patten’s legitimating theory (1991) caused
Digan and Gerden (1996) found that the to complete adjustment between political costs
powerful tentative relation between environmental theories. Patten’s discussion and related results
sensitivity of a company shows that it is done by are the same for both Digan and Gerden (1996)
the members of an environmental pressure groups but Lemman and Kahan (1997) believe that these
and positive environmental divulgence level of observations are more right. The related finding
company. Company’s size has more relation with about topics industry’s size and divulgence don’t
divulgence level and the companies that are in the provide an enough base in this field which can have
most sensitive industries do it more. Nonetheless, severance between these two situations (especially
Digan and Gerden (1994) tells this subject with if accounting positive theorists don’t emphasis on
more completely from Torthman (1979) that industry’s size scales which is with high profit and
have testimonials for changing this theory which exclusive behaviors) and have more relation their
have been used social divulgence for giving divulgence scales with social costs.
legitimating to companies’ operations which are Unfortunately, Lemman and Kahan (1997) can’t
working the industries that are disposable to threat introduce the suitable test in this field because their
from existence environment proponent groups. research’s discussion plan lost its relation with
When a industry hurt the bio environment larger Watts and Zimmerman (1978) and Belkouei and
companies will pay more bio costs, unless they Karpic (1989) theory. In this process they face with
could bring testimonials to censure this theorem. social theories that are rejected easily. Lemman and
Of course it is not difficult to supposition finding Kahan (1997) mention to this subject which most
of the size, industry and divulgence too, which in of relative studies to more political costs emphasis
the other studying is used in order to explain such on this subject that the companies decreased their
testimonials. In fact, considering existing finding reported income and exactly mention to this subject
of environmental divulgence and related activities, that Belkouei and Karpic (1989) discussion have
this probability in oil companies is more than other more relation with the beneficiary groups which
companies. Lemman and Meyerza (1991) discuss blame of them because of reported profits and the
that founded the testimonials for Zimmerman and companies use social costs in order to decrease the
Watts’ accounting positive theory. In the same way profits.
Patten (1991) says that strongly include could create on situation which the companies had
legimitation theory as a base for social treaties a correlated operation therein chemical find the
subject. Considering to Setty’s researches (1974) motives to affect on political activities’ result rather
each social institute (including commercial political costs define as developed or limited. In
institutes) work in the society which limited by a other cases such as legitimating theory or be legal
social treaty from that society. Therefore commercial the purpose of companies reaction is decreasing or
institutes can use social divulgence for affecting shirk from political consideration and situation of
on general politics. These divulgences can detect regulations and relative costs. Considering to this
political subject or will be use to create a concept factor person may expect that Lemman and Kahan
of company’s social responsibility. The purpose is (1997) focused on companies’ behavior more than
that put on social and political environment which approve the management law.
has been mentioned in commercial divulgences Panchapaksan and McKinnen (1992) considered
book as Meels (1987) said. seven latent probabilities for clearing social, in
This is attractive that John Tajer and koontz’s addition company’s size discussed about high
research (1999) about Australian BHP divulgence profits and created exclusives too and introduced
in mine tragedy period in Papouya in New Gineh huge social explanations considering this specific
is include huge and developed discussion about features. Market’s share and investment focus
political costs theory which introduce discussion could have close relation with profit value. During
about the legitimating of this approach. In fact discussion about a industry, the number of staffs,
they say that: “legitimating theory about relative the number of stockholders, social responsibility
motives distribution to environmental divulgence divulgence its under covering level can introduce
includes outspread a political frame” because social pressure discussions which some of them
social legitimating theory depends on political will have more relation with increase costs and
and economic factors, rather on the social factors. decreasing profit and some of them don’t have any
Of course there is no way to establishing relation relation.
between legal behaviors and maximizing profit In the recent research by Paksan and Australian
motivation by managers because this behavior is Mckennin (1992) used another scale for testing
introduced as a central factor of political costs offer. size validity. These scales are: “market’s share
Nonetheless can introduce developed discussion (sale proportions of company to sale proportions
of political costs that suggest it Panchapaksan of related industry), industry which is member,
and McKinnen (1992), Diggan and Karol (1993) return on investment (proportion of gross fixed
and Lemman and Kahan (1997). Because it can asset to sale), the number of staffs, the number
create problems for accounting positive theories of stockholders, reporting social responsibility
that are following to make difference themselves (Yearly divulgence level about social responsibility
from other social theory in divulgencene behavior units) and some of news cover (the number of
field. articles and presented news about company in
Nonetheless Lemman and Kahan studies tracts in a year)”
stay only as a method. Before in this discussion The analysis of these factors showed that the
was mentioned to this subject that the Watts and company’s size, market’s share, the number of
Zimmerman’s primary study about predicating on staffs, the number of stockholders, social reporting
selecting accounting method and pressure groups and news cover have the same effect on political
behavior was for shirk that successful quest of costs. Return on investment doesn’t put on group
American electricity company for clean weather because researches shoe that it may suffer a
legal standards has done by its newspaper’s fan. company more political costs according to return
Kahan and others (1979) survey the United and low return, too.
State’s chemical companies behavior which was Darough et al. (1998) was about the negative
unreliable the result legal conditions too and relation between the numbers of company’s staffs

as a political pressure index and profit retouch. Moses believes that whatever the companies’
The results show that the companies which have size is larger manager will have motive and more
more staffs suffer more political pressure. As a powerful want in order to retouch the profit.
result of management this type of units proceeds According to his belief by growing companies
to decreasing profit in order to decreasing entered their answering responsibility get more too and
pressure. managers put on disposable to answering to huge
PanchaPaksan and Mckennin (1992) introduce groups of claimants.
discussion about social responsibility divulgence
and have considered the society for social
cost which has the same relation with that was
The purposes of research
introduced before by Belkouei and Karpic (1989).
Nonetheless this subject is specific that they Political groups suffer the costs to be effective
expound political costs as completely separated on political process which can include the election
with Watts and Zimmerman (1978) idea. While campaign costs and sponsoring the politicians that
the result of these explanations don’t have any usually companies suffer a part of these costs in
difference with others (like the companies which power suitable. Also getting known to the effect of
are proceeded to divulgence and companies process and political discussion on companies cash
selected as main or primary legal regulations flows have special necessity which is one of the
object. essential and important sources of a unit. Increasing
Pourheydari and Hemmati (2004) have done the product price and companies services is one of
research about the effective factors on management the factors that decrease companies’ competition
which in this research had surveyed the effect of power. If it can recognize and control these
liability treaties, political costs, remuneration costs, it can be useful in increasing companies’
plans and ownership in profit retouch by manager. competition power in internal markets and even
About the political costs has been used to yearly international markets. One of the obvious features
sale variable and the number of staffs. The result of each research activity is opening new windows
of research representative that the negative and to readers and introduces them with news.
meaningful relation between companies size To be new the political costs conceptual in Iran
(all sales) and profit retouch which is unlike and more getting know with this type of costs by
the finding western researches. The result is companies’ superior managers and active people in
explanatory that by growing the companies in Iran stock market and professional can be the originator
the political pressure on them doesn’t increase. feature researches about it. Therefore the purposes
Vice versa, the larger companies proceed to profit of this research in primary and secondary purposes
retouch to present better picture from companies’ frame are:
performance because of different reasons. One of
the used variables to survey the political pressure Primary purposes
research was the number of staffs.
About social divulgence suggest that is used The survey the dimension of political costs
advertising war on media as tools for consideration in companies (large and small) and how political
digression of company’s huge profit which these costs take effect on competition power and
advertisement and social divulgence decrease companies process in the future and providing
image of using the exclusive authority more. It existence meaningful relation between company’s
means that it causes showing legal companies’ size and political costs, presentation a pattern for
huge profits. However, advertising war problem this relation.
on media may be accompanied a few political
agreement and jobbery of exclusive.
Secondary purposes The type of research’s

1. Get know and developing conceptual and the
method
types of political costs. This research is following to survey the amount
2. recognizing the types of controllable and of correlation between main variables in small and
survey of solutions increasing competition power large companies; in fact the research’s method is
according to the type of related costs classifying. correlation.
Information Assemblage Method

Research hypotheses
Information which is needed for calculating
Companies’ manager would like to select the variables of this research is assemblage by
group of accounting standards that report low magazines and Tehran stock market’s publishing
income. According to it “Watts and Zimmerman” organization’s yearbook, the reports of inestimable
presented three main hypotheses: and common general societies of accepted
companies in Tehran stock market and by the
1. Gratuity plan hypothesis companies which provided financial information
2. Liability to stockholder’s equity hypothesis of the accepted companies in stock market as the
3. Size hypothesis software packages.
Research’s literature which is the subject of
According to size hypothesis whatever second section of this dissertation is assemblage
companies are larger its manager have more by library studies. Books, dissertation, internal
want to relegate to coming periods. According and foreign magazines which are related to the
to their opinion politicians have the authority to research’s subject are used in writing research
affect companies with using wealth distribution literature.
methods again like company’s taxes, rules and
regulations and gratuitous helps. By watts and
Zimmerman’s research about the relation between
Research methodology
company’s size and political costs this hypothesis
accepted that larger companies suffer more costs Each research should be in an owned domain
than smaller. This research is following to the in order to pre-dominate researcher on subject
relation between political costs and company’s during all phases.
size in Iranian companies (Listed companies in
Tehran stock Exchange as statistical society) and A) Research’s subjective scope includes the
uses base assets volume and the amount of net sale survey of relationship between company’s
as Scale Company’s size. This research includes size and their political costs.
these two hypotheses:
B) Location scope of this research includes the
1. There is a meaningful relation between political accepted companies in Tehran stock market.
costs and company’s assets volume.
2. There is a meaningful relation between political C) Time scope of this research includes the years
costs and the amount of company’s net sale. 2005 to 2007.
Research’s Variables
Independent variable is company’s size in this
research which determine according to the amount

of assets and companies sale. So arrange the Assemblage Information Method

companies according to assets volume and after
that according to the amount of sale and after that To assemblage information about political
by using median index divide the companies into costs and companies’ assets volume is referred
small and large. to the place of keeping financial statements in
Dependent variable is political costs which stock market and needed information introduced
are measured and observed by researches in order by surveying documents and financial statements
to know the effect of independent variable on it. and in some cases by using compact disks (which
Some of the things that were in most of companies includes the information about accepted company’s
in statistical society are: financial statements in stock market) or get from
stock market’s web site.
1. Tax (which is one of the basic and important
things in all selected companies as a statistical Data Analyses Method
society and recognize as the compulsory
political costs. After statistic precise and extracted information
2. Insurance right (these political costs recognize (one time according to the amount of companies’
as the compulsory and important things in assets and political costs and another time
political costs group). according to the amount of sale and political
costs) about large and small companies primarily
3. Help to sport (which is voluntary political is following to the meaningful relationship
costs). between dependent and independent variable that
is reviewable its justification correlation test path.
4. Help to educational area development (which After relation’s justification have been following
is voluntary political costs). to introduce a suitable relation pattern that for this
subject considering to transmittal diagrams and
5. Establishing seminars and conferences costs models nature has been used panel and regression
(which are voluntary political costs). methods.
6. Protecting of bioenvironmental costs (which Statistic Function

is compulsory political costs).
To survey the meaningful coefficient of
7. One in thousands and two in thousands costs correlation has been used T Test (using the T Test
(which is compulsory political costs). and comparison it with critical value in t-student
table) after the relation’s justifications introduce
8. Export custom laws (which are compulsory regression model that primarily spend to survey
political costs). political costs (dependent variable) normal by
Kolmogorov-Smironov Test.
Titled political costs things are very common Don’t be normal dependent variable cause to
things in surveyed companies. Other political costs use suitable changes to normalize it. By going
can classify as the other political costs because on defray to survey suitable patterns by using
of unimportant price and infrequency them in all transmittal diagrams, these diagrams show the
companies (There were these political costs in primary idea about the type of relation how, also
some of the surveyed companies). can recognize data outlier if exist or not. The
The relation between company’s size and important pattern such as line, logarithmic, second
political costs is: grade and third … tested to survey relation that
seems to logarithmic patterns is more suitable than
Political costs = f (company’s size) other models to say relation. According to models
nature has been used panel analysis to estimate regression analysis. Other description statistic
model and finally has use Fisher (F) Test and indexes such as variance, skewness, elongation,
statistic for survey meaningful models. minimum and maximum is calculated in Table 1
for related variables:
Results Of The Study
Survey Of Normality
In this section primarily defray to description
reviewed variables description statistics such as One of the most important regression models
mean, median, variance and other description pre hypotheses are remains. Normality of
statistics index, usually clear variables distribution. dependent can be guarantor remain normality. So
After that has reviewed one of the most important it is better to test the dependent variable before
regression analysis pre hypothesis means normal normality process model (this method is more
dependent variable (political costs). Don’t be advantage than survey remain normality). Null
normal dependent variable cause to use suitable hypothesis and alternative hypothesis writes like
changes to normalize it. By going on defray to this to survey normality:
survey suitable patterns by using transmittal
diagrams, these diagrams show the primary idea H0: The distribution of data has normal
about the type of relation how, also can recognize distribution.
data outlier if exist or not. The important pattern
such as line, logarithmic, second grade and third … H1: The distribution of data doesn’t have normal
tested to survey relation that seems to logarithmic distribution.
patterns is more suitable than other models to say
relation. According to models nature has been used By using Kolomogorov-Smironov Test is
panel analysis to estimate model. Also to survey defrauded to test above theory. The amount of
the companies’ size has been used regression meaningful level of this test is 0.000. Whereas
analysis and divining analysis methods in large this number is less than 0.05, null hypothesis is
and small companies.
Table 1 Descriptive Analyses
N
Valid Mean Median Variance Skewness Kurtosis Minimum Maximum
Total assets 822 6.3E+011 2.1E+011 2.2E+024 5.666 38.691 4E+009 1E+013
Net Sale 826 4.1E+011 1.5E+011 9.1E+023 6.437 52.270 2E+008 1E+013
Total political costs 818 1.4E+010 5.8E+009 8.9E+020 6.161 48.388 28571244 3E+011
Total assets log 824 26.1610 26.0918 1.918 .333 .693 22.07 32.02
Net Sale Log 826 25.7911 25.7656 1.833 -.200 1.774 19.07 29.97
Total political costs log 818 22.4846 22.4897 1.639 -.067 1.061 17.17 26.55
Description Analyses rejected in %95 confident’s level then. One of the

usual solutions to normalize data is using suitable
In Table 1 description statistics calculated for changes. Logarithmic change considering data
reviewed variable. Mean and median calculated as distribution (skewed to right) can be a suitable
the most important central indexes. Comparative change. The amount of probability is increased
conformity of these two indexes in changed to 0.21 after logarithmic change, so data are
variable is representative complete symmetry of normalized. Table 2 and Graph 1 show the results
these variables. of testing the hypotheses.
The symmetry distribution used variable will
be one of the advantages of a distribution to

Table 2.One-Sample Kolmogorov-Smirnov Test

Total political costs Total political costs Log
N 818 818
Normal Parameters Mean 1.4E+010 22.4846
Std. Deviation 3.0E+010 1.28041
Most Extreme Absolute .322 .037
Differences Positive .291 .037
Negative -.322 -.028
Kolmogorov-Smirnov Z 9.212 1.063
Asymp. Sig. (2-tailed) .000 .209
a. Test distribution is Normal.
b. Calculated from data.
600
500
400
F requenc y
300
200
100
Mean =1.38E 10
S td. Dev. =2.99E 10
N =818
0
0.0E 0 1.0E 11 2.0E 11 3.0E 11 4.0E 11
G raph 1 T otal politic al c os ts
Normal
100
80
F requenc y
60
40
20
Mean =22.48
S td. Dev. =1.28
N =818
0
17.50 20.00 22.50 25.00 27.50
G raph 2 T otal politic al c os ts log
Transmittal Diagrams drawn against total of assets and net sale. Line
pattern as the most important pattern can’t be
By using transmittal diagram can recognize the most suitable pattern because it doesn’t show
primary pattern idea between variables. Also this the changes of this model. The suitable pattern is
diagram will show the data outlier. In bottom recognized by using statistical indexes means the
diagrams the logarithm of total political costs are amount of R2 and F.
Total politic al cos ts log
27.50
25.00
22.50
20.00
17.50
0.0E 0 2.0E 12 4.0E 12 6.0E 12 8.0E 12 1.0E 13 1.2E 13 1.4E 13
G raph 3 T otal as s ets
T otal politic al c os ts log
27.50
25.00
22.50
20.00
17.50
0.0E 0 2.0E 12 4.0E 12 6.0E 12 8.0E 12 1.0E 13 1.2E 13
G raph 4 Net s ale

Recognizing Model model. In regression analysis the most important

index is coefficient of determination or the value
In selecting model in statistical discussion two of R2 to evaluation of attention. For the total of
aspects are considered: assets variable the value of R2 for logarithmic
1. The attention of model model is higher than other models considerably.
2. The simplicity of model The value of R2 is equal to 0.4 and nearest value
It means that when attention of model doesn’t of R2 to this model is related to third grade model
have sensible difference will select the model which the value of it is 0.26. So the logarithmic
which includes more simplicity, but the first model is suitable model undoubtedly.
precedence of selecting model is high attention
Curve Fit
Case Processing Sumary
N
Total Cases 1059
Excluded Cases a 247
Forecasted Cases 0
Newly Created Cases 0
a. Cases with a missing value in any
variable are excluded from the analysis.
Table Dependent Variable: Total political costs logarithm

Model Summary Parameter Estimates
Equation R
F DF1 DF2 Sig. Constant b1 b2 b3
Square
Linear 0.118 108.439 1 810 0.000 22.227 2.91E-013
Logarithmic 0.403 546.107 1 810 0.000 7.121 0.587
Inverse 0.221 230.412 1 810 0.000 22.775 -3E+010
Quadratic 0.225 117.161 2 809 0.000 22.049 9.10E-013

Cubic 0.261 95.095 3 808 0.000 21.896 1.52E-012 -6E-026- 1.12E-038
S 0.235 248.720 1 810 0.000 3.125 -1E+009 3E-025
Growth 0.109 98.931 1 810 0.000 3.102 1.26E-014

Exponential 0.109 98.931 1 810 0.000 22.248 1.26E-014
Note: Independent variable is total assets
Also for the second model means net sale the value of R2 of logarithmic model sensibility is higher
than other models. The value of R2 in this model is 0.64. So it is needed to use logarithmic of sale instead
of sale.
Curve Fit
Case Processing Sumary

N
Total Cases 1059
Excluded Cases a 244
Forecasted Cases 0
Newly Created Cases 0
a. Cases with a missing value in any
variable are excluded from the analysis.
Table Dependent Variables: Total costs Logarithm
Model Summary Parameter Estimates

Equation
R
F DF1 DF2 Sig. Constant b1 b2 b3
Square
Linear 0.233 246.682 1 813 0.000 22.208 6.40E-013
Logarithmic 0.642 1455.139 1 813 0.000 3.209 0747
Inverse 0.080 70.562 1 813 0.000 22.518 -2E+009

Quadratic 0.325 195.258 2 812 0.000 21.995 1.47E-012 -1E-025
5.79E-038
-8E-025

Cubic 0.431 204.533 3 811 0.000 21.714 3.06E-012

S 0.094 84.024 1 813 0.000 3.113 -9E+007
Growth 0.213 219.611 1 813 0.000 3.099 2.75E-014
Exponential 0.213 219.611 1 813 0.000 22.184 2.75E-014
Note: Independent variable is net sale
Estimation model’s parameters of R2 of model is equal to 0.41 which in activity

is considerable value. The only worrying sign
A) Total of assets in this model is the amount of Wattson Camera
As it said in abstract and according to the data Statistic that the value of it is 0.35. This value
nature can use panel analysis to fit the model. The shows remaining autocorrelation. So must do to
reviewed model is: solve autocorrelation. One of the ways to solve
autocorrelation is using auto regressive or first
Lnyit=B0+B1Lnxit+eit grade AR.
I=1, …, n
T=1, … ,T Variables Entered/Removed b
Model Variables Variables
Meaningful model in zero hypothesis and
alternative hypothesis is: Entered Removed Method
H0= model is not meaningful. 1 Total assets log a 0.00 Enter
H1= model is meaningful.
The amount of related responsibility to F statistic a. All requested variables entered
is equal to 0.000. This amount which is lower than b. Dependent Variable: Total political costs log
0.05 shows that the null hypothesis is reject in
confidence level of %0.95. It means that the value

Dependent Variable: LY
Method: Pooled Least Squares
Sample:2005-2007
Included observations: 3
Total panel (unbalanced) observations 814
White Heteroskedasticity-Consistent Standard Errors & Covariance
Cross sections without valid observations dropped
Prob. t-Statistic td. Error Coefficient Variable
0.0000 8.4697 0.8293 7.0242 C
0.0000 18.4819 0.0319 0.5903 LX1
22.4716 Mean dependent variance 0.4148 R-squared
1.2665 S.D. dependent variance 0.4141 Adjusted R-squared
763.1338 Sum squared 0.9694 S.E. of regression
0.3498 Durbin-Watson 575.5667 F-statistic
0.0000 Prob (F-statistic)
By adding AR (1) part, have been improved the amount of Wattson Camera Statistic (the amount of this
statistic can be expressive of naught autocorrelation of remaining if it be near to number 2.

Sample: 2005-2007
Convergence achieved after 7 iteration(s)

Prob. t-Statistic Std. Error Coefficient Variable
0.0000 7.6182 2.7265 20.7708 C
0.0000 9.0893 0.0539 0.4903 LX1
0.0000 36.5456 0.0254 0.9277 AR(1)
0.0000 Prob(F-statistic)
This model is desirable model. The value of R2 in this model is 0.83. This model can be written like this:
Lnyit=20.77+0.49 Lnxit+ (0.9277AR (1))

model between total sale and total political costs.
B) The amount of sale The value of R2 is equal to 0.64 but in this model
Meaningful model is confirmed such as the the amount of Wattson Camera Statistic is low and
previous model because the probability of F is its amount is 0.25. Perforce should use the AR (1)
equal to 0.000. It means that there is a meaningful part in this model.
Variables Entered/Removed b
Model Variables Variables
Entered Removed Method
1 Net Sale Log a Enter
a. All requested variables entered
b. Dependent Variable: Total political costs log
Sample: 2005-2007
0.0000 4.8195 0.6658 3.2088
0.0000 28.6234 0.0261 0.7470 LX2

The amount of probability in the model within AR is 0.000 which shows the meaningful model.
Sample: 2005-2007
0.1221 1.5489 2.7561 4.2690 C
0.0000 7.2309 0.1006 0.7274 LX2
0.0000 25.6493 0.0342 0.8759 AR(1)
The value of R2 increases to 0.92. It means that there is a very powerful relation between discussed
variable and independent variable. Estimated model is:
Lnyit=4.26+0.72 Lnx2it+ [0.87 AR (1)]

Multi Models H1= there is meaningful model H1: they

are not zero at the same time.
After fitting the model lonely in previous part it
is needed that to estimate bottom multi model: The amount of F probability is equal to 0.000.
This is as rejecting zero hypothesis or meaningful
Lnyit= B0+ B1Lnx1it + B2Lnx2it+ eit model. The amount of Wattsan Camera Statistic is
equal to 0.25 which shows the autocorrelation of
The advantage of said model in comparison remaining.
with simple line models is that it can calculate
the net effect of each one by controlling other Variables Entered/Removed b
variables. Variables Variables
The null hypothesis and alternative hypothesis Model Entered Removed Method
in this model for meaningful model is: Net sale log
Enter
H0= there is not meaningful model H0: Total assets log
B1=B2=0 a. All requested variables entered

Sample: 2005-2007


0.0000 4.8932 0.7153 3.4999 C

0.0806 -1.7495 0.0384 -0.0673 LX1
0.0000 21.3689 0.0376 0.8040 LX2



So by increasing AR part can increase the amount of Wattson Camera Statistic and get a valid model.
Sample: 2005-2007
0.0540 1.9316 2.6926 5.2012 C
0.3752 -0.8877 0.0555 -0.0493 LX1
0.0000 6.9690 0.1067 0.7433 LX2
0.0000 26.2374 0.0334 0.8762 AR(1)
The value of R2 is equal to AR part and Fitting the multi model for each year
increase to 0.92 and the model is meaningful, but
X1 variable is not meaningful. It seems that the X1 Previous said model can estimate by using
and X2 behavior is the same at relation with Y, but regression analysis for each year. Considering to
the value of X2relation with Y is more intensive that data in this model is as periodic so doesn’t
than X1 with Y. so in presence X2 (sale) variable have autocorrelation problem. In bottom table has
X1 (total assets) is not meaningful. The estimated brought meaningful model and amount of R2 and
model can be written like this: estimate parameters.
Lnyit=5.2-0.049 Lnx1+0.74 Lnx2+ (0.87 AR)
A. Regression
Variables Entered/Removed Model Summary

Year Model R RSquare Adjusted R Std. Error of
Year Model Variables Entered Variables Method Square Square the Estimate
Removed
2004 1 Total assets log, . Enter 2004 1 .796 a .633 .631 .75846
Net Sale log 2005 1 .792 a .625 .625 .73937
2005 1 Total assets log, . Enter
Net Sale log 2006 1 .815 a .661 .661 .76098
2006 1 Total assets log, . Enter
Net Sale log a. Predictors: (Constant), Total assets log, Net Sale
log
a. All requested variables entered

Anova
Year Model Sum of df Mean Square F Sig.
Squares
2004 1 Regression 325.695 2 162.847 283.082 .000 a
Residual 188.687 328 .575
Total 514.382 330
2005 1 Regression 248.027 2 124.013 226.851 .000 a
Residual 147.055 269 .547
Total 395.082 271

2005 1 Regression 238.278 2 119.139 205.735 .000 a
Residual 120.451 208 .579
Total 358.729 210
a. Predictors: (Constant), total assets log, Net sale log
Coefficients
Unstandardized Coefficients Standardized Coefficients

Year Model B Std. Error Beta t. Sig.
2004 1 (Constant) 3.348 .845 3.962 .000
total assets log -.125 .057 -.135 -2.187 .029
, Net sale log .864 .059 .906 14.657 .000
2005 1 (Constant) 3.752 .924 4.059 .000
total assets log -.098 .062 -.110 -1.568 .118
, Net sale log .826 .065 .883 12.639 .000
2006 1 (Constant) 4.153 1.005 4.133 .000
total assets log -.011 .061 -.012 -.187 .852
, Net sale log .727 .059 .825 12.349 .000
a. Dependent Variable: Total political costs log
For each year can write the model like this:
Lnyit=3.34 – 0.125 Lnx1+0.864Lnx2

Year 2005
(0.000) (0.029) (0.000)
Meaningful meaningful meaningful
Year 2006 Lnyit=3.75 – 0.098 Lnx1+0.826Lnx2

(0.000) (0.118) (0.000)
meaningful without meaning meaningful
Year 2007 Lnyit=4.15 – 0.011 Lnx1+0.727Lnx2

(0.000) (0.852) (0.000)
meaningful without meaning meaningful
Estimate models for small and large D2. Median

companies Cumu-
Valid
Frequency Percent lative
Percent
Percent
To dividing companies into small and large Valid .00 413 39.0 50.0 50.0
and survey the amount of effective sale and total 1.00 413 39.0 50.0 100.0
Total 826 78.0 100.0
assets in political costs have been used superstition Missing System 233 22.0
(figurative) variables. Total 1059 100.0
This variable use if considered the type of

Statistics relation in two or multi level, so D1 and D2 define
N like this:
Valid Missing Mean Median D1= 0 if the company is small (according to total
Total d
assets 822
237 633313520217 214260762829 assets)
Net sale 826 233 412687441000 154824970679 1 if the company is large (according to total
assets)
D2=0 if the company is small (according to total
sale)
D1. Median 1 if the company is large (according to total sale)
Cumu- Variables Variables
Valid Model Method
Frequency Percent lative Entered Removed
Percent
Percent D1med.x1,
Valid .00 411 38.8 50.0 50.0 Total assets log . Enter
1.00 411 38.8 50.0 100.0 , D1. a
Total 822 77.6 100.0 median
Missing System 237 22.4
Total 1059 100.0 a. All requested variables entered.
b. Dependent Variable: total political costs log
Sample: 2005-2007
0.0000 10.4349 2.3804 24.8397 C
0.7024 -0.3823 0.0819 -0.0313 LX1
0.0756 -1.7809 3.1048 -5.5293 D1
0.0766 1.7746 0.1196 0.2123 LX1LD1
0.0000 37.6489 0.0245 0.9241 AR(1)

So multi lonely models are estimated like this:

Lnyit=24.8 – 0.7 Lnx1-5.52D1+0.21Lnx1D1+ [0.92AR (1)]
Sample: 2005-2007
470 1.8240 4.1737 7.6130 C
0.0003 3.6849 0.1598 0.5890 LX2
0.0451 -2.0087 4.4949 -9.0289 D2
0.0451 29.4187 0.1744 0.3503 X2D2
0.0000 37.6489 0.0302 0.8894 AR(1)
Lnyit=7.61+ 0.58 Lnx1-9.02D2+0.35Lnx2D2+ [0.89AR (1)]
Conclusion A) Total of assets

In this section considering to done analysis,
The research based on this hypothesis that get results and finally reject null hypothesis can
there is a correlation between political costs say that there is a meaningful relation between
and company’s size. It means that by increasing company’s size (assets volume) and political costs.
company’s size the political costs increase too and In fact this result is explanatory grace number one
by decreasing companies’ size their political costs hypothesis. Meantime by comparative comparison
decrease too. Considering done analysis and get purposes can know this consonant deduction with
result which say spacious can say that there is a get result in done research by Ayazi (2006) which
meaningful relation between company’s size and is “there is a correlation between political costs and
political costs. While cannot say that the only factor assets in large and small companies. According to
that is determinant company’s size is political costs it accept that assets volume affect all companies’
(with scales sale evaluation or company’s assets) political costs. It means that political costs are a
and is undeniable the effect of other factors such function of companies’ assets volume and there is
as total politics dominant on market complex and correlation between company’s size and political
the type of industry on political costs. costs”.
With regard to the results of this study the
authors came to conclusions in the four areas B) The amount of sale
which namely as follows: Get results according to done analysis about
the model which is based on the amount of sale (as
an independent variable) is explanatory existence coefficients. It means that whatever political costs
meaningful relation between company’s size and are function of increasing assets volume (growing
political costs. In this section after rejecting zero of companies) but regression model and coefficient
hypotheses, number two hypothesis is graced of correlation don’t have meaningful difference
based on existence meaningful relation between between dependent and independent variables in
political costs and the amount of companies’ net small and large companies. While get results of
sale. This deduction is similar to the result of model analysis which is based on the amount of
Firouzi’s research (1998). In this research has sales as a company size index is explanatory of
shown that there is a close correlation between existence meaningful difference between models
company’s size at sale and political costs in each and small and large companies’ coefficient. It
one of sections 1995 to 1997 and total relation means that notwithstanding meaningful relation
too. between dependent and independent variable in
small and large companies, severity of relation and
C) Multi models the amount of correlation is different with them.
After fitting the model as alone and introduce In fact severity of this relation in large companies
above results it is needed to introduce multi is more than smaller. Whatever in Ayazi study
models in order to calculate the net effect of each (2006) is not used superstition variable to dividing
independent variable (assets volume and sale). companies into small and large but introduced
Considering rejecting null hypothesis, results are results in this research are explanatory that
explanatory meaningful multi model. It seems to despite establishing meaningful relation between
be same the X1 and X2 behavior in relation with Y. small and large companies has been considered
but X! is not meaningful and notwithstanding two differences between models and small and large
independent variables have same behavior of the companies’ coefficients.
amount of X2 relation with Y (sale and political
costs) is stronger than X1 with Y (assets volume Suggestion for decreasing political
and political costs). So in presence X2, X1 is not costs
meaningful. Done analysis in seventh part of
section 4 which have done severance each year get Now, after the appearing close correlation
us to above result. Introduced result in this section between company’s size (especially at sale) and
is similar to said result by Rahim Firouzi (1998). political costs introduce this question that what
In his research during grace existence meaningful solutions should we take to control and decrease
relation between each one of sale and assets this type of costs and go toward more efflorescence
variables with political costs are mentioned to this country’s trade units. The considerable point is the
subject that severity of relation and correlation large part of country political costs such as tax,
between assets and political costs in above period insurance, urban toll, education toll and … suffer
was not in the same size and viewed severity about to companies with legal bankroll and its suffering
sale and political costs. is inescapable from companies, but another part of
said costs like the cost of establishing celebrations,
D) The results by separating companies into election costs, managerial munificence and help
small and large to election is controllable and can validate and
To introduce the model which includes small decrease them by correct management doing exact
and large companies at the same time has used auditing.
superstition (figurative) variables. Introduced
analysis of model and related tables that its Suggestion for future researches
dependent variable are companies’ assets volume
show that there is not meaningful difference During writing this research and survey the
between models and small and large companies’ relation between company’s size and political

costs and studying several essays about research References

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2009 José G. Vargas-Hernández, Mohammad Reza Noruzi 343
Atenquique’s environmental and economic development

shrinkage in Globalization era
José G. Vargas-Hernández, (M.B.A.; Ph.D.)
Mohammad Reza Noruzi, (E.M.B.A, M.A)
Abstract
This paper focuses on the effects the transfer of ownership from a state-owned Paper Mill Company
to a corporate private ownership has had on environmental and economic shrinkage in Atenquique. This
transfer was the result of the ongoing economic process of globalization, after the industrial boom of
the paper mills during the second half of the last century. The paper also focuses on how the employees
of this Paper Mill Company live and how they have been affected by globalization and how they feel
about their paper mill’s new corporate owners. The methodology used was descriptive and exploratory. A
sample of ten workers at the company who lived in Atenquique was chosen for an interview. After being
inhabited the town of Atenquique developed in terms of population, society and economy. On the other
hand the Industrial Company of Atenquique grew during the period when it was a property of the Mexican
State. After the company’s privatization, the town started to decline and shrink in three above-mentioned
variables. The impact on the environmental and economic development has initiated the shrinking and
declining of Atenquique and the surrounding cities and towns.
J. G. Vargas-Hernández, M. R. Noruzi - Atenquique’s environmental and economic development shrinkage in Globalization era
Introduction
To develop social relationships among the
During the 1990s a period of restructuring in the population the company supported the formation
paper mill companies started in México, a process of clubs and workers, employees and their
that has been characterized by large corporate families’ membership to participate in contests
owned companies consolidating to become larger, of speech, poetry, conferences and theater
more vertically integrated, more transnational, performances. Attendance of famous writers,
less diversified, and leaner. These changes and poets and intellectuals was encouraged as well as
developments were caused by the long term trends the performance of music concerts. Employees
toward economic process of globalization. As the and workers formed the Mariachi Atenquique
economic processes of globalization continue, who used to perform every Sunday evening in
its effects on local communities are uncertain to downtown. Dancing schools received support.
their residents’ perceptions (Brady and Wallace In sum, Atenquique conducted intense social and
2000:91). Global competition and capital mobility cultural activities as part of better life quality. It was
have changed the incentive of new corporate the time when the economic and environmental
owners for community concerns (Miller, 2006). development of Atenquique was at the rise.
A Mexican-based forest products private Compañìa Industrial de Atenquique was
company recently purchased the paper mill in a one of the showcases where the emergence
paper mill town, Atenquique, a small community of economic institutions structured under the
in the Southern region in the State of Jalisco. dominant ideological paradigm of the Mexican
When the paper mill company was founded it was revolutionary State concerned for the welfare of
state-owned and financially supported housing, employees, workers and all the stakeholders. In
schools and other community activities for its fact, the company was public and state-owned
employees and workers. However the state owned enterprise, and concerned about creating sources of
company was sold to a private corporation and employment and welfare for the post-revolutionary
after the transfer of ownership, employees had generations of Mexicans living in the southern
distrust and fear on the new corporate owners. In a region in the State of Jalisco. However, this
similar way, it has been reported already by most situation doesn’t exist anymore. The economic
of the literature about the effects of globalization and environmental development of Atenquique
focusing on how owned corporations are perceived and the surrounding Region of Southern Jalisco
as they take off state-owned companies. is shrinking and the main turning point was the
It has been said that in Atenquique the inhabitants privatization of the Compañìa Industrial de
used to live like a great family. Family meetings Atenquique as a result of undergoing processes of
were characterized by the warm environment of economic globalization.
friendship, the spirit of solidarity at work and
the affinity of aspirations. This unification and Materials and methods
fraternity of Atenquique was the contribution
and worrying of the Compañía Industrial de The methodology used was descriptive and
Atenquique, a paper mill factory, to provide the exploratory. A sample of ten workers at the
township with adequate infrastructure, buildings company who lived in Atequique was chosen for
and installations to promote living together among an interview. The sketch of the interview had five
the workers and their families. For this reason the questions:
company had restaurants, movie theaters, casinos
and reading rooms. The company also offered 1) Since when do you live in Atenquique?
swimming pools, football fields, basketball courts, 2) Since when do you work in Atenquique?
gyms, etc., to foster sports among the population 3) What are the most important changes that you
living in Atenquique (Medina Enriquez, 1988). have lived in Atenquique?

4) What are the most important labor changes that Brief history of the town
you have had in your work?
5) Have these labor changes affected you positively Atenquique was the site of battle of Atenquique
or negatively? in 1858. Before the construction of the paper
All the selected people to be interviewee had company in Atenquique, this village only had
provided valuable information. 50 inhabitants. The village was created in 1946
as the consequence of installation of a paper
Location of the Village of mill named Compañía Industrial de Atenquique,
Atenquique S.A. (CIDASA) as a strategic point to capture
the water of two rivers, Atenquique and Tùxpan,
The village of Atenquique (19°32’N vital for the industry. The Compañìa Industrial
103°30’W), is located South of the State of Jalisco, de Atenquique was inaugurated in October, 1946
at the East foot of the Colima peaks, over the and became the largest in the Southern Region of
middle of the ravine of a precipice at 1030 meters Jalisco. Immediately after the establishment of
above the sea level. The precipice of Atenquique the company, Atenquique had more than 4, 000
is 24 kilometers large, located in the East bank of inhabitants. Since then, the labor force comes from
the Volcano Nevado of Colima together with other the neighboring cities and towns being thankful to
precipices The Plátanos and Arroyo Seco, form this employer.
the Atenquique Basin. The Atenquique basin has On the 16th of October, 1955, an intense storm
a form of long funnel West-East oriented joining of 140 mm that lasting 3 days, suddenly originated
the Túxpan River. Atenquique is located 7 m (11.3 a series of fluxes of rubble and debris devastating
km) west of Túxpan, on Mexico Highway 54. almost the whole Village of Atenquique. On
The Volcán Colima is a decadent volcano and the the 16th of October, 1955, a strong current and
most active in Mexico. Currently it is approaching flooding from the Atenquique Creek caused the
its climactic phase and a major eruption could death of tens of persons and destroyed the church,
occur in the next decade. Volcanic debris flows are a school, business and shops buildings and around
likely to occur in the two major drainages to the 20 homes. The issue was that a slope of high
east and west of the volcano, Rio Túxpan and Rio inclination collapsed near the village which was
Armería respectively. Unfortunately, as a large enough to cover some meters of the church that
lumber-producing town, Atenquique is at high risk today only shows the highest part from the central
for moderate to large lahars because it is near the garden. It also affected the industrial plants and
volcano and at the bottom of a deep canyon. At this killed 23 persons and some people saved their
location the hydraulic radius of the largest model lives in the campanile of the church. The flooding
lahars (108 m3) would be about 75 m and that of left desolation and affected the operations of the
the intermediate flows (107 m3) would be about 40 paper company for 2 Months, railroad and other
m. Atenquique would be inundated and devastated roads were truncated and the material damages
by such mudflows (Sheridan, Michael f., Hubbard, were estimated in 10 thousand million Pesos at that
Bernard, and Hooper, Donald, no dated) The time. This catastrophic event obliged to make new
largest lahars (108 m3) would have a peak depth of plans for Atenquique (Redacción Del Sur, 2005).
about 60 m and a run about 120 km, reaching the The inhabitants helped to repair the damages of
sea. The smallest lahars examined (105 m3) would the Company.
have a peak height of about 7 m and would only After installation of the paper Company in the
reach about 15 km distance. These models should locality of Atenquique, which was only a camping
be helpful for a risk planning at Volcán Colima spot, the population had duplicated in only 20
(Paul and Sheridan, no dated.) Atenquique is a years from 1950 to 1970, consolidating itself as
lumbering center, soda and wood-pulp mills. a pole of regional attraction. Atenquique grew
larger until it reached a peak of 291 households
with a population of 1,645 in 1990 as it is shown El Nevado after the visibility of strong interests
in table 1 that takes account of the larger localities for the forestry wealth existing in the area.
out of 82 in the municipality of Túxpan The lad reform implemented in México
during the 30s and 40s gave shares of communal
Table 1. Population for the years 1990 and 1995 in the land (Ejido) to poor peasants (ejidatarios) of
main localities of the Municipality of Túxpan expropriated land from large states’ private
owners, generally called haciendas. In order to
P o p u l a t i o n exploit their land, the ejidatarios cleared the forest
Name of localities (Year/inhabitants)
and leveled the ground through irrational felling
1990 1995
Cabecera Municipal 25,895 26,219 of large forest surfaces.
Atenquique 1,645 1,237 The large owners of property organized in the
La Higuera 1,479 1,410 enterprise Unión Forestal de Jalisco y Colima in
San Juan Espanatica (El 1940 to maintain control of forest resources and
Pueblito) 908 792
protect against possible risks. Union Forestal
Pozo Santo 868
de Jalisco y Colima was formed on the 14 of
Platanar 582 September, 1940 with the association of the larger
landowners of the Southern Jalisco who controlled
Source: INEGI (200O). the forests not only of the Volcanoes of Colima but
also the Mountains of Sierra del Tigre, El Halo y
For the case of Atenquique, it can be determined la Leona.
that there were 1,645 inhabitants in 1990 while On the 26th of November 1940 the decree
there were only 1,237 in 1995, marking a trend was modified again and on September 7, 1941,
towards a shrinking population. the Compañìa Industrial de Atenquique, S.A.
Comparing the population that had Atenquique (CIDASA) was founded to take advantage of
in 1988 and the Population Atenquique has in forest resources in the Southern Jalisco. The
2007, the results are: decree established the concession for forest
exploitation in the Southern Jalisco for 50 years in
Table 2. Population of Atenquique favor of CIDASA for the elaboration of chemical
celluloses, mechanical past, paper, synthetic fibers
Population
Year Total population and diverse plastic materials.
attending school
The paper company in Atenquique was created
1988 750 3700 by local investors and promoted by a German
2007 139 310 military. The Mexican federal government granted
-611 -3390 one million eighty thousand hectares in a free
concession for a free exploitation during 50 years.
Source: Own estimations after counting and taking a This extension represents 1.7 of the forests in all
census. the Mexican territory.
The Industrial Company of Atenquique, was
The history of the Company a state owned paper mill enterprise. Since the
beginning, the Company had been befitted by
Although the area of the Nevado de Colima was fiscal incentives. The Company diversified its
declared “protected zone” in 1934 and considered productive activities in a conglomerate integrated
national park in the times of President Lázaro by the lumber exploitation cellulose extraction,
Cárdenas, the decree was modified two years later and packing manufacturing.
in 1936 to give opportunity to the company in The 22nd of March, 1945, an industrial forest
Atenquique to exploit the forest. The 3rd of August exploitation unit was created in favor of CIDASA
of 1936, by decree was created the National Park with a concession for exploitation of timber on a

surface of 225,000 acres. This area was distributed There was a world crisis of paper in 1954 that
in 17 municipalities in the Southern region of benefited the expansion of CIDASA. Because of
Jalisco, with an annual production varying between that the forest exploitation was consolidated as
60 and 70 percent of the global production of the the main economic activity given the potential
State. On the 27th of March, in 1945 the Industrial and magnitude. In 1963 and 64 the CIDASA plant
Unit of Forest Exploitation (Unidad Industrial was modernized and amplified. Between 1964 and
de Explotación Forestal or UIEF) was created by 1968 the second forestry inventory took place. As
decree to consolidate control of forests adoption an immediate consequence of these agreements,
a legal regime. In 1945 it the Dirección Técnica the exploitation of the forest resources was
Forestal (Technical Forestry Direction) was created accelerated. By 1969 the modernization of the
with employers paid by CIDASA, thus, being the plant was already consolidated incorporating new
organization in charge of technical surveillance of techniques and processes.
exploitation on the payroll who takes advantage of In 1971, CIDASA became a parastatal enterprise
the forests. Between 1946 and 1948, the first forest due to financial problems. In 1972, another decree
inventory named General Project of Ordination widened the uses of the exploited lumber by the
was carried out. UIEFA (Unidad Industrial de Explotación Forestal
de Atequinque). At the beginning, it was allowed to
Figure 1. Partial view of Atenquique be used for the elaboration of cellulose, cardboard
and paper. Later, it would be used for wood, triplay
and other products. Later, a manufacturing plant of
triplay was installed although the Oyameles were
scarce after a fierce exploitation.
Relationships between inhabitants of
neighboring municipalities, more specifically
between the cities of Túxpan and Cd. Guzman
were considered familiar communion because
the company was “the heritage of our fathers”.
General wages were at the rank between 150 and
160 pesos ( 15-16 US Dollars) per day, although
some workers earned more than 300 pesos (30
US Dollars) justified by the high productivity and
personal qualifications.
GIDUSA was founded in 1980 and has been
the only one producer that integrates vertically
the whole productive process of cardboard and
packing from the lumber exploitation, cellulose,
manufactured paper and products. After the
Mexican economic and financial crisis of 1982, the
economic policy addressed the problem gradually
dismantling the State, selling and privatizing
public enterprises, merging, transferring, canceling
and settling down major companies and taking out
from the parastatal sector’s minor companies. After
the end of the exclusive concession to Atenquique
Source: José Vargas in 1990, the Company was sold to the Durango
Group.
Under the ongoing structural reforms and the Industrial Company of Atenquique closed the
privatization programs, the Industrial Company doors. It transcended that the Company had taken
of Atenquique, a conglomerate producing paper out equipment of the plant, which in turn had
and the most important in Latin America, was motivated protests of employees.
sold to the is the Grupo Industrial Durango. The Under the argument that the Company was
firm provided 65 percent of packing of cardboard operating with high costs, the plant was shut down
utilized by the Mexican export sector, 80 percent and 900 employees were fired. It was quite difficult
of Mexican packing utilized by the Maquila to think that an Industrial Group like this had
(in bound industry) sector and 40 percent of the economic difficulties. Actually, the main reason to
packing consumed in the country. In 1987, the close Atenquique was its high cost of manpower
government sold the conglomerate to the Grupo (Milenio, 2001).
Industrial Durango, S.A. de C.V. (GIDUSA) that There were two different versions of the
belongs to the Rincón Arredondo family. company closing: The workers argued that the
The company was an economic empire in the ambition of shareholders and managers from the
southern region of Jalisco because it used resources Grupo Durango was the main cause. The Union
conceded by decree that belonged to Ejidatarios strategy was to avoid the definitive closing down
(Holders of one right to exploit a plot of land) of the plant.
and small property owners. GIDUSA is the major The second version argues that a weakness was
lumber Company and the major manufacturer of the traditional collective contract of labor signed 55
brown papers and packing of cardboard in Latin years ago with an addendum of benevolent clauses
America. It also owns 26 manufacturing plants in that benefited the employees and workers as the
México and 5 more in United States. Nowadays, result of negotiations between the labor union in
the Industrial Company of Atenquique is one of one side and in the other, the representatives of
the subsidiaries of Grupo Industrial Durango. the state and the company. However, it was argued
Also, Grupo Durango owns Productora e that higher labor costs were the result of the lack
Importadora de Papel (PIPSA), that controls 90 of flexibility to change labor culture. The owners
percent of the newspaper paper in the national argued that in Atenquique the oldest and least
market. In 1998, Bancomext gave 80 million competitive labor contract in the national paper
US Dollars to GIDUSA in order to pay its debts mill industry exists. The firm declared that the
to the banks after shopping PIPSA. The federal collective labor contract includes clauses, terms
government remitted their debts for the acquisition and benefits difficult to understand (Milenio, 200l)
of PIPSA, although it was sold off at half its value in an economy of high competitiveness and open
(Proceso, 1999). borders to imports.
The problem initiated the third week of April, The company argued that the lack of profitability
when 97 workers out of 650 were fired because was due to high labor costs. Therefore the origin
their contract was rescinded without any reason of the conflict was to eliminate the collective
and later another 30 workers more. On the 21st of contract and to hire personnel under a new scheme
April, after the Company stopped production due to of labor conditions designed to lower the labor
maintenance, it declares that it is not competitive. costs. However, the Company accepted that the
At that time, the workers went on strike outside main problem was the age of workers, who were
the facilities of the Company waiting a solution older than 35 years old. The threat was to locate the
for the conflict. plant to a place where the Company could achieve
The firm shut down operations on the 26 of higher profitability. The message was clear: to
April, 2001 firing employees and workers. The suspend the labor contracts that threatened the
company of paper Kraft was closed due to the principles of productive efficiency. The closing
increase of production costs, and more specifically of Atenquique meant that labor rights achieved
the labor costs. After half a Century of operating, in half a Century can be nullified by management

and fired 650 union workers, 120 employees of had to intervene to reach the agreement after the
trust and 130 eventual workers. workers had to agree on receiving only part of the
The collective contract set a daily production benefits as part of the deal to settle the collective
limit of 240 tons of paper while before the strike labor contract.
the production was more of 350 tons. The labor conflict in the paper GIDUSA
During the visit of the Governor of the State of plant was part of the strategy of the Company to
Jalisco to Tamazula de Gordiano, a neighboring overcome the labor collective contracts to reduce
city to Atenquique, Guillermo Legarret González, labor costs. All the workers and employers were
and General Secretary of the National Union of fired ending the collective labor contract that had
Paper industries exposed this situation of the been enforced for 55 years, with an estimated cost
workers at GIDUSA. The Governor dialogued of 160 million pesos. Once settled this collective
with the workers of the firm and offered support labor relation, Atenquique could open the plant
to solve the conflict (Comunicación Social (2001). without the heavy burden of the payment of labor
During the labor conflict, the Municipal President benefits.
of Túxpan, Tranqilino Rúa Laureano, affirmed On the 3rd of September, 2001, GIDUSA
that the workers had his moral support to find out declared it was ready to open again (El Financiero,
the way out of the conflict. 2001) investing 50 million dollars (Rodriguez,
On May 16, 2001, The State Congressman 2001). The Company was named Compañía
Ramón León Morales submitted an agreement Papelera de Atenquique S.A. de C.V. The new
point to the Permanent Commission of the company began operations in September 2001
Congress which was turned to the Social Welfare with around 50 percent of the labor force. Since
and Labor Commission. The mandate of this point then management of the firm has been requesting
of agreement was to find a solution to maintain new attitudes toward the multifunctional job
the source of labor and respect the labor and assignments, supported by programs of training
contractual rights of employees and workers. and productivity. Overall, salaries are lower
However, after having several meetings than before. Starting on February 2007, the firm
between the managers and the employers to settle changed its name again to ATENSA, S.A. de C.V.,
down the amount to be paid to the fired workers Empaques de Carton Titàn, S.A. de C.V.
as liquidation, they did not reach any agreement.
After the paper plant closed and fired all the
workers and employers, it was announced that Results and discussion
the Economic Promotion Secretary of the Jalisco
State Government would sustain the economic Reviewing the data from the individuals living
reactivation programs to create employment in the in Atenquique and working at the company reveals
Southern Jalisco after the closing of the GIDUSA that 90 percent of them began living and working
plant. there before the crisis. Regarding the question
In meetings between the Secretary of Labor, “what are the most important changes?” from
leaders of the Union, and representatives of the those interviewee who had lived in Atenquique,
Village of Atenquique, the Company accepted it is quite interesting to find that 100 percent
to pay for maintenance of primary services. reported that these changes are related to facts
They also agreed to review the collective labor of the Company’s cycle life, such as change of
contract to settle benefits to workers in order to ownership in 1987 when it was privatized and
reduce the costs of paper production. Also, the sold to the Grupo Durango. The older interviewee
Company agreed to sign a new contract hiring commented that they started to work in the
all the employees. The Company and workers Company or other companies clustered such as
accepted the commitment, although the Company Unión Forestal de Jalisco y Colima, Aserraderos
decided not to accept it. The Secretary of Labor Tècnicos, etc.
Another important change commented was the One of the interviewee captures the situation
closure of the Section XI of the Union Workers stating that during that time supervision was
in the year 2001, when most of the workers difficult because the operative personnel with
were fired. In order to cancel the workers Union, Union membership were lazy and negligent.
the Company closed operations and declared When the new Company started in September
bankruptcy. Only part of the union workers were 2001, after the declared bankruptcy and crisis of
hired under contract, just to find that after the the former Company, all the personnel with union
end of this contract they would be transferred to membership were fired, some of them were hired
other clustered company with the same terms and but most of the personnel were new hires.
conditions of a new contract. The responses to the last question “have
Answers to question 4: “what are the most these labor changes affected you positively or
important changes they have had in their work?” negatively?” answers can be also analyzed in
implied explicitly the time when the interviewee terms of their personal job experiences at the
began to work for the Company and the required company, more participation of workers, earning
competencies to for a good performance and more money, more labor options, learning more,
higher productivity at work. Other answers and the opportunity to have a job. Most of them
reported that the most important changes for the declared that the labor changes at the company have
employees and workers who lived in Atenquique favored them because they have received more
were the adjustment and adaptation to the work, training. One of the respondents concluded that he
job promotions in the company, changes in the has been more motivated by all the events caused
information and data systems, personnel reduction by the globalization changes, commercial treaties,
and new hires. and unemployment have caused that people value
It is interesting to find that all the interviewee the sources of jobs more and the struggles for the
agreed that the turning point was marked on company to survive in the Southern Region of
September 2001 when after the crisis, the Union Jalisco.
was eliminated and the new named company Other interviewee reported that labor changes
began operations again hiring workers without have benefited him because he has achieved
experience and without fringe benefits and job promotions in rank and salaries. Furthermore,
requirements. The pressures were higher on other interviewee declared that although the
efficiency, productivity, with less resources and labor changes are more stressful and with more
new challenges. The employers kept the same pressure, however, he perceived that the changes
wages while the workers have lower salaries and have been positive. He also argued that because of
fewer fringe benefits than when the company was the devaluation of the acquisitive power of wages,
owned by the Mexican State. he needs to achieve the goals to keep the job. In
They also agreed that there’s been more pressure general terms the employed people at the Company
and the labor environment and labor climate are perceived that since they started to work they have
tense and stressful in contrast to the times when improved attitude and productivity of personnel
the company was owned by the Mexican State. which is positive. Personnel have squired more
Employees and workers had a more relaxed abilities and became multifunctional: a mechanic
environment, less pressure on assignments and now knows welding, painting, etc. Before, he
more personnel assigned to perform the same worked always with a partner, and now he works
duties. Now under the new management the stress by himself.
increases when the employees and workers are Among the negative impacts of the labor
required to take care of resources and some fringe changes at the company reported by all the
benefits such as tires for cars, gas bonuses, profit interviewee persons, are that they work under
sharing, etc., have disappeared. more pressure, more time than the ordinary labor
day of eight hours, without receiving overtime

payment or negotiation of worked hours in amounts to a total of 750 thousand pesos per
exchange of more flexible time when required day or 22’800,000 per month.
for personal problems such as health attention, 650 workers plus 300 employees were
etc. Other effects are the lower salaries and less affected by not earning their salaries with
employees and workers. An interviewee declared an impact on the living standards of 4, 750
as the negative effect the job pressure and stress inhabitants. It was estimated that 4 out of 10
when achieving productivity goals, better results families of the municipality of Túxpan depend
with less costs. on the Atenquique worker’s income. More
Another negative aspect reported by an than 600 families were directly damaged in
interviewee was that labor environment is heavy their income. The immediate impact on local
and stressful. The managers of the company are economy of Túxpan was the falling down
obliged to have profits alongside pressing and 60% of sales and consequently less than this
obliging personnel to get better performance. He percentage, although it was not estimated, on
states that “it has been managed psychologically the falling down of sales in the regional market
to make us believe that we are the owners of of Cd. Guzman.
progress and we are responsible of good results”. It An study of the State Legislatura concluded
is a scaling upwards objective, always improving that the multiplication effects of the salaries
productivity. spill over were estimated around 800,000
pesos per month only in the municipality of
Túxpan, but should consider as an impact on
A. Economic impact Mazamitla, Tecalitlán, Tamazula de Gordiano,
Tolimán, Zapotiltic, Zapotlàn el Grande and
Once the “economic motor of Southern Jalisco other locations in the State of Colima, limiting
for more than 55 years closed the doors, the labor consumption and eroding the living conditions.
conflict was a social and economic conflict not The economic effects of the labor conflict
only in the region of South of Jalisco, but also at were visible at the Tianguis (the street market)
the level of the State of Jalisco started. The labor on Sunday, where fewer customers than before
conflict had not only an economic impact, it had had gone to buy. The earned wages as the direct
an affective implications. 95% of the workers of economic sustainability of families and also
the Company in Atenquique were from Túxpan, indirectly were dependent of the labor conflict.
a municipality that had 33 thousand inhabitants. For example, as a consequence of the labor
The main economic activity of Tùxpan is the conflict, it was estimated a reduction of around
agriculture of sugar cane and vegetables. 40 percent in income of restaurants.
From March 1995 to December 2000, Seniority average of workers and employers
investments in the Southern region of Jalisco was around 20 years of service who had a
added 55 million US Dollars, which represents legitimate aspiration to achieve pension. Most
98 % of the total in the State of Jalisco. (Secretaría of these workers had not any other opportunity
de Promoción Económica del Gobierno del to be employed or to start their own business
Estado de Jalisco, 1995-2001). because of the backward economic development
The company provided more than 1,000 direct of the region. For this condition the region has
employments and more than 4, 000 indirect been fiscal favored.
employments which had an economic impact The social impact in the analysis of the
not only in Atenquique but the neighboring State Legislature implied that the closing of the
cities of Túxpan and Cd. Guzmàn and the towns Company could origin familiar disintegration,
of Zapotiltic and Tecalitlàn. It was calculated health, nutrition, education, migration and
that the economic spill over was around 150 criminal problems. The Economic Promotion
pesos daily per employee as an average which Secretary announced that they have a diagnostic
to find solutions and economic alternatives to In this way, Atenquique raised its production to
the problems derived after firing the workers. more than one million cubic meters of lumber,
The municipal President of Túxpan suggested five times more than the capacity of regeneration
that some corrective measures were taken in order of the forest. This caused an ecological debacle of
to attract more investments to the municipality the forest.
just to avoid being highly dependent on one After 50 years of forest exploitation the
Company. Korean entrepreneurs involved in the outcomes are the secondary vegetation and
metal mechanics industry pretended to establish deforested areas utilized for agriculture and cattle,
a plant in the municipality of Túxpan. It was infrastructure and commercial exploitation. The
viewed as an alternative to create employment, company subutilized the forest resources not
but unfortunately, the negotiations went wrong. having any planning of byproducts derived from
In Fact, the municipal President Rúa Laureano lumber. The Company exploited the pine for
had bet to the Korean investment which should manufacturing paper and the holm oak for the
have generated 3,000 employments in the short furniture industry, but never exploited hundred
term and 10,000 in the long term, although of tons of shaving that were spoiled. Besides, the
women were to be employed. This plant could interests have been for other local communities
interrupt the trend toward migration of young who have taken advantage. There is not other form
generation that leaves behind towns without of getting away but to maintain a client relationship
young men. with the lumber industry that manages the forest.
Many owners of forest decided to exploit
B. Environmental impact the resources on their own springing up and
proliferating sawmills around Cd. Guzman, where
Starting the second half of the past Century, more than 25 are operating and exploiting with no
the environmental degradation on the area has reason the forests, argues García de Alba, (2004).
been significant and has reached to alarming This irrational exploitation of forests is the cause
dimensions and has surpassed the natural capacity that hills collide originating in a sudden manner
of natural regeneration of forest communities. The the fluxes of rubble and debris. After the natural
most serious problem of the Southern Region of forest disappears, the roots of the trees can not
Jalisco has been the irrational deforestation which retain and compact the ground. Because the high
has started since the beginning of the CIDASA, slope of the hills, the water erodes the ground and
today GIDUSA. The Federal Government also cause the removing of materials.
modified the limits to shrinking the protected area, Several systems of forest management had been
from 2,300 meters above the sea level to 3,000 implemented according to the needs, such as the
meters. Besides the limits were never well defined Mexican Method of organizing irregular forests
which have always been confusing. (Método Mexicano de Ordenación de Bosques
Thus, the Company took advantage of the Irregulares or MMOBI), Forestry Development
National Park and ruined the forest resources of Method (Método de Desarrollo Silvícola or MDS),
the Nevado of Colima`s area brutally. When the Jalisco Coastal Plan (Plan Costa de Jalisco), Integral
Company started to exploit the forest, it had the Management Plan for the Region of Atenquique
capacity to transform around 200 thousand cubic (Plan de Manejo Integral para la Región de
meters of lumber per year, which represented an Atenquique or PMIFRA), Forestry Conservation
enormous quantity of falling trees. and Development (Sistema de Conservación y
The abundant ecological resource supply de Desarrollo Silvícola, or SICODESI), Integral
without almost any restrictions motivated that the Management System (Sistema de Manejo
company overexploited more than 230 thousand Integral or SIMANIN). However, the results of
cubic meters of lumber annually, above the implementing these plans are not positive.
sustainable capacity of regeneration of forests.

After the earthquake of Armería on 21 Gobierno del Estado de Jalisco (2004) “Modelo de
January 2003; the geomorphology dynamics of ordenamiento ecológico” Secretaría del Medio
the Atenquique basin has been accelerated. This Ambiente para el Desarrollo Sustentable.
dynamics can generate flows of detritus in the Guadalajara, Jal.
short term as it had occurred in October 1995 that
had destroyed a great part of Atenquique. It is INEGI (200O). Censo de Población. Instituto
necessary to incorporate in the urban development nacional de Estadística, Geografía e
plans the risks by flows of detritus in the locality Informática. Aguascalientes, Aguascalientes.
of Atenquique. Natural phenomena, such as the
crawling of hills and solifuction when de materials Medina Enriquez, José (1988) Atenquique una
suddenly and fast split apart as flood, cause these aportación a su historia. ¡Historia para qué?.
natural disasters. Mèxico, D.F. Siglo XXI Editores. Páginas 171
The other area of high landslide concentration a la 180.
was along a 6-km stretch of the Barranca de
Atenquique, a deep, steep-sided canyon cut Milenio Diario (2001). “Nocault a Atenquique”.
into the eastern flank of Nevado de Colima. On Milenio Diario Mayo 2.
the south flank of Volcàn de Fuego and along
several smaller canyons south of the Barranca de Miller, Carold D. (2006) “Fear and Loathing
Atenquique, moderate landslide concentrations in a Paper Mill Town: Local Perceptions
evidently involved similar materials to those along of Globalization”, The Journal of Regional
the Barranca de Atenquique. Analysis and Policy (JRAP) 36(2): 171-181.
GIDUSA spill over the sewage on the river
Túxpan polluting the running waters pitting at risk Paul, Yvonne and Sheridan, Michael F.(s.f.)
any forms of living. “Estimated lahar hazard zones at Volcán
Colima, México”. Department of Geology,
References SUNY at Buffalo, Buffalo, NY 14260;
mfs@acsu.buffalo.edu
Brady, David, and Michael Wallace. 2000.
“Spatialization, foreign direct investment, and Proceso (1999) “Atenquique en crisis”. Revista
labor outcomes in the American states”, 1978- Proceso. noviembre 7.
1996. Social Forces 79(1): 67-99.
Rivera, Ramiro (2001). Nota. Gaceta Universitaria.
Comunicación Social (2001). “Plantean al 4 de Junio del 2001 (6).
Gobernador el problema del cierre de la
papelera de Atenquique. Boletín del Gobierno Redacción del Sur, (2005) “A 50 años de la tragedia
del Estado de Jalisco, 101/2001 del 7 de de Atenquique”, Periódico El Sur, Domingo
Mayo. 16 de Octubre.
El Financiero (2001) “Gidusa, lista para la Rodríguez, Luis Ángel (2001). “Invertirá Gidusa
reapertura de Atenquique”, El Financiero 3 de 50 mdd para reabrir la planta de Atenquique”,
septiembre del 2001, p. 53. El Occidental. 14 de septiembre del 2001, p.
28.
García de Alba, Ricardo (2004). “Cuenca de
Zapotlán. Deforestación y deterioro ambiental”, Saucedo Girón Ricardo, Hernández Hernández
IV Taller internacional de rehabilitación de la Cristina1 y Macías Vázquez José Luís (s.f.) El
laguna de Zapotlán. Ciudad Guzmán, Centro lahar de Atenquique disparado por una lluvia
Universitario del Sur.13-15 Octubre. extraordinaria el 16 de octubre
de 1955 en el complejo volcánico de Colima, Suárez Plascencia Carlos, Núñez Cornú

México. Mimeo, No publicado. Francisco y Díaz Torres José de Jesús ()
Caracterización geomorfológico de la
Sheridan, Michael f., Hubbard, Bernard, and Cuenca de Atenquique del complejo volcánico
Hooper, Donald (s.f.) Hazard zones demarking Volcán Nevado de Colima, como insumo para
inundation limits for debris flows and debris la evaluación de riesgos por flujos de Detritus.
avalanches at Volcan Colima, Mexico. Mimeo, no publicado.
Department of Geology, SUNY at Buffalo,
Buffalo, NY 14260; mfs@acsu.buffalo.edu.

2009 Sanjay Kumar, Neeraj Parashar, Abid Haleem 355
Analytical Hierarchy Process Applied to Vendor

Selection Problem: Small Scale, Medium Scale and Large
Scale Industries
Sanjay Kumar, Neeraj Parashar,

Dr. Abid Haleem
Abstract
Vendor selection is an important process for an effective inventory management. This paper deals with
a brief review of the literature regarding AHP technique and its relevancy to its application in vendor
selection process. Vendor selection is a complicated process. This process needs evaluation of multiple
criteria and various constraints associated with them.
This paper has been developed based upon the views of various experts. A well researched methodology
has been adopted for the synthesis of priorities and the measurement of consistencies. A consistency ratio
has also been calculated. Industries has been classifies into small scale, medium scale and large scale.
Various criteria for vendor selection process as received from the expert have been identified. These criteria
have been compared using average matrix, priority matrix and overall priority matrix.
After analysis of the results we found that for large scale industries, vendor reliability, product quality
and vendor experience are the top three vendor selection problems that needs to be taken up on priority for
effective vendor selection.
S. Kumar, N. Parashar, A. Haleem - Analytical Hierarchy Process Applied to Vendor Selection Problem
Introduction • Multiple criteria – both qualitative and

quantitative
This paper endeavors to investigate the problem • Conflicts amongst criteria – conflicting
of vendor selection using Analytical Hierarchy objectives of the criteria
Process (AHP) in Small-scale industries (SS), • Involvement of many alternatives – due to
Medium-scale industries (MS) and Large-scale fierce competition
industries (LS) under different criteria for the • Internal and external constraints imposed on
same. In India, industries having investment in the buying process
plant and machinery less than rupees ten million
are called small-scale industries (Singh et al, Objectives & Issues
2003). Similarly, industries having investments
between ten million and one thousand million in In modern era of industrialization and
plant and machinery are considered as medium globalization, every organization has to ensure that
scale industries (Karandikar, 1999), whereas for their product must meet the international standards
large scale industries, investments in plant and and quality requirements to remain competent in
machinery is more than one thousand million has this rapidly changing industrial environment. To
been considered as criteria (Singh et al, 2005). achieve this, it is a necessary requirement that
Decision criteria used for vendor selection can vendor from which the organization is getting
be different depending on the size of a buyer the supply of raw material or any other kind of
organisation. Large companies use a different set necessary inputs should be selected correctly. This
of criteria and a formal approach when selecting multi criteria decision making problem is now a
suppliers compared to small and medium sized part of day to day affair of all the organizations.
enterprises (Pearson et. al., 1995). The main objective of the paper is to rate vendors
AHP makes the selection process very (large scale, medium scale and small scale) with
transparent. It also reveals the relative merits of respect to various criteria. Here in this paper we
alternative solutions for a Multi Criteria Decision are presenting an easy to understand approach
Making (MCDM) problem. (Drake, P.R., 1998). for solving this problem. For this, a questionnaire
AHP approach is a subjective methodology (Cheng based study has been adopted and views of experts
and Li, 2001); information and the priority weights from industry and academia have been taken.
of elements may be obtained from a decision-
maker of the company using direct questioning or Methodology
a questionnaire method. It is generally agreed in
the literature that the following makes the supplier Problem of selection of vendor has been
selection decision making process difficult and/or dealt with by using questionnaire based study. A
complicated (de Boer, 1998, Murlidharan et.al., structured questionnaire was framed and all the
2001): criteria are rated by the professional of various
fields. The framework adopted for this study is as
shown in figure1.
Selection of Rating of Criteria by Final

Criteria from using questionnaire Development Synthesis of Measurement Decision
literature and filled by experts of Hierarchy Priorities of consistency Making i.e.
experts. from industry and Selection of
academia Vendor
Selection of Vendor Using AHP
Figure 1: Framework of the study

Analytical Hierarchy Process: A S.No. Preference Definition

weights/
Explanation
Brief Review level of
importance
The foundation of the Analytic Hierarchy 4 7 Very strongly An activity is
preferred strongly favoured
Process (AHP) is a set of axioms that carefully over another and
its
delimits the scope of the problem environment dominance
(Saaty 1986). It is based on the well- defined demonstrated in
practice
mathematical structure of consistent matrices and
5 9 Extremely The evidence
their associated eigenvector’s ability to generate preferred favouring one
true or approximate weights, Merkin, (1979); Saaty activity over
another is
(1980, 1994). The AHP methodology compares of the highest
criteria, or alternatives with respect to a criterion, degree possible
of affirmation
in a natural, pair wise mode. To do so, the AHP
6 2,4,6,8 Intermediates Used to represent
uses a fundamental scale of absolute numbers values compromise
that has been proven in practice and validated by between the
preferences listed
physical and decision problem experiments. The above
fundamental scale has been shown to be a scale 7 Recipro- Reciprocals for inverse comparison
that captures individual preferences with respect cals
to quantitative and qualitative attributes just
as well or better than other scales (Saaty 1980, Based on the ratings obtained through the
1994). It converts individual preferences into ratio questionnaire, matrices are formed and the
scale weights that can be combined into a linear priorities are synthesized using the methodology
additive weight for each alternative. The resultant of AHP. Following are the steps used in this
can be used to compare and rank the alternatives process:
and, hence, assist the decision maker in making a
choice. • Synthesis of priorities for all the criteria and
In this study, all the criteria have been rated measurement of Consistency Ratio (CR).
from 1 to 9 versus all other criteria as well as • Prioritizing of small scale, medium scale and
versus small scale, medium scale and large scale large scale industries as against all the criteria
industries, accordingly as stated in the Table 1 of vendor selection separately.
(Crowe et al., 1998; Saaty, 2000; Hafeez et al., • Synthesis of overall priority matrix of
2002) small scale, medium scale and large scale
industries.
Table 1: Scale of Preference between Two Elements
S.No. Preference Definition Explanation Synthesis of Priorities and the
weights/ Measurement of Consistency
level of
importance
1 1 Equally prefe- Two activities The pair-wise comparisons of the criteria of
rred contribute equally vendor selection problem generate a matrix of
to the objective
2 3 Moderately Experience and
relative rankings for each level of the hierarchy.
preferred judgment slightly The number of matrices depends on the number
favour one activi-
ty over another of elements at each level. The number of elements
3 5 Strongly pre- Experience and
at each level decides the order of every matrix
ferred judgment stron- of the next higher level. After all matrices are
gly or essentially
favour one activi- developed, eigenvectors or the relative weights
ty over another (the degree of relative importance amongst the
elements) and the maximum eigenvalue (λmax)
for each matrix are calculated. The λmax value matrix has occurred and the evaluation process
is an important validating parameter in AHP. It should therefore be reviewed, reconsidered and
is used for calculating the consistency ratio CR improved. An acceptable consistency ratio helps
(Saaty, 2000) of the estimated vector in order to to ensure decision-maker reliability in determining
validate whether the pair-wise comparison matrix the priorities of a set of criteria.
provides a completely consistent evaluation. The
consistency ratio is calculated as per the following Prioritizing of Small Scale, Medium Scale
steps: and Large Scale Industries
Step 1 Calculate the eigenvector or the relative The pair wise comparison of all criteria
weights and λmax for each matrix of order n separately for each type of industries is executed
Step 2 Compute the consistency index for each in this step. For each criterion, a priority matrix is
matrix of order n by the formulae: obtained for small scale, medium scale and large-
CI = (λmax -n)/ (n-1) scale industries by following the same procedure
Step 3 The consistency ratio is then calculated as stated in previous step 3.2.1.
using the formulae:
CR = CI/RI Synthesis of Overall Priority Matrix
where Random Consistency Index (RI) varies After the synthesis of priority matrices for the
depending upon the order of matrix. Tables 2 criteria of vendor selection as well as for the type
shows the value of the Random Consistency of industry in 3.2.1 and 3.2.2 for every criteria, an
Index (RI) for matrices of order 1 to 10 obtained overall priority matrix is synthesized. This priority
by approximating random indices using a sample matrix is obtained by multiplying the priority
size of 500 (Saaty, 2000). matrix obtained for each criterion for various types
of industry with the priority matrix obtained by
Table 2: Average random index (RI) based on Matrix the comparison of criteria itself. The matrix thus
Size (Saaty, 2000) synthesized will give the overall priority matrix
S. Size of Matrix (n) Random Consistency Index for small-scale, medium-scale and large-scale
No. (RI)
1 1 0 industries using the criteria of vendor selection as
2 2 0 criteria for the selection of type of industry.
3 3 0.52
4 4 0.89 Vendor Selection Using AHP
5 5 1.11
6 6 1.25
7 7 1.35 Evaluation and selection of vendors is a typical
8 8 1.40 multiple criteria decision making (MCDM)
9 9 1.45 problem involving multiple criteria that can be
10 10 1.49 both qualitative and quantitative (Sonmez, M.,
The acceptable CR range varies according to the 2006). Vendor Selection problem involves tangible
size of matrix i.e. 0.05 for a 3 by 3 matrix, 0.08 for and intangible criteria. These criteria may vary
a 4 by 4 matrix and 0.1 for all larger matrices, n>= depending on the type of product being considered
5 (Saaty, 2000, Cheng and Li, 2001). If the value and include many judgmental factors (Sarkis,
of CR is equal to, or less than that value, it implies Alluri, 2002), (Jayaraman, Srivastava, Benton,
that the evaluation within the matrix is acceptable 1999). The various criteria that are important for
or indicates a good level of consistency in the vendor selection, as evident in literature and from
comparative judgments represented in that matrix. discussions with experts, are price, transportation
In contrast, if CR is more than the acceptable cost, quality, quality certification, lead time, buffer
value, inconsistency of judgments within that stock needed, goodwill and reliability of the

vendor, experience of the vendor in the same field most extensively used MCDM methods because
etc as shown in figure 2. (Weber et al, 1991; Bajaj of ease with which it handles the multi criteria.
et al, 2005). The problem is how to select vendors The criteria based on which the vendor selection
who can perform optimally on the desired criteria. problem has been solved in this paper have been
AHP (Analytical Hierarchy Process) is one of the tabulated in Table 3 with their used abbreviations.
Price of Transportation
Product Cost
Buffer Stock Quality

Required Certification
Lead Time Vendor Selection Quality of

Required Process Product
Goodwill of the
Experience of Vendor
the Vendor Reliability of the
Vendor
Figure 2.Criteria for Vendor Selection Process
Table 3.Criteria and Abbreviations Used
S.No. Criteria Abbreviation Used
1 Price of product PP
2 Transportation ease and cost TC
3 Quality certification of the vendor (ISO, ISI certification) QC
4 Quality of product (based on rejection rate) QP
5 Goodwill of the vendor GW
6 Reliability of the vendor RV
7 Experience of the vendor in the same field EV
8 Lead time LT
9 Buffer stock of Inventory required BS
After the ratings have been obtained through the questionnaire, the average matrix for these ratings has
been shown in table 4.
Table 4.The Average Matrix for the Criteria of Vendor Selection

Criteria PP TC QC QP GW RV EV LT BS
PP 1 8 0.2 0.125 3 0.143 0.5 2 2
TC 0.125 1 0.143 0.125 0.2 0.143 0.2 0.333 0.333
QC 5 7 1 0.2 0.333 0.333 0.25 0.5 0.25
QP 8 8 5 1 1 1 1 3 3
GW 0.333 5 3 1 1 0.5 1 0.167 0.2
RV 7 7 3 1 2 1 2 3 3
EV 2 5 4 1 1 0.5 1 2 3
LT 0.5 3 5 0.333 6 0.333 0.5 1 1
BS 0.5 3 4 0.333 5 0.333 0.333 1 1
The maximum value of eigen vector for the The responses being taken over from a wide
above matrix, λmax = 12.63 range of experts from various fields, the consistency
Consistency index, C.I. = (λmax -n)/ (n-1) = ratio is found to be greater than the desired value.
0.45 The pair-wise comparison of all the criteria
Random Index for the matrix of order 9, R.I. of vendor selection problem generates a priority
= 1.45 matrix as given in the table 5.
Consistency Ratio, C.R. = C.I./ R.I. = 0.3,
which is greater than 0.1.
Table 5. The Priority Matrix for the Criteria of Vendor Selection

S.No. Criteria Priorities Rank
1 PP 0.089 VI
2 TC 0.020 IX
3 QC 0.070 VIII
4 QP 0.196 II
5 GW 0.086 VII
6 RV 0.203 I
7 EV 0.136 III
8 LT 0.106 IV
9 BS 0.093 V
The above table 5 shows that Reliability of the faster and cheaper than those of competitors will
Vendor (RV), Quality of the Product (QP) and the create long-term competitive advantage (Singh et
Experience of the Vendor in the same field (EV) al, 2005). So, in this environment, vendor selection
are top three in the vendor selection problem. is an important MCDM problem to be taken care
The globalization of market after the economic of. So, we are here prioritizing the type of industry
reforms have led to drastic changes in the approach best suitable for this MCDM problem. As done in
of small, medium and large scale organizations the case of synthesizing a priority matrix for the
for formulating their strategies and priorities for criteria of vendor selection, the priority matrices
investments and developing competencies. In for these criteria have been obtained for SMEs and
such a dynamic environment, organizations that Large scale organizations.
are able to continually build new strategic assets

Table 6. The Priority Matrices for the Criteria of Vendor Selection for Small Scale, Medium Scale and Large Scale
Organizations
PP TC QC
Priority Priority Priority
Scale SS MS LS Scale SS MS LS Scale SS MS LS
Matrix Matrix Matrix
SS 1 3 4 0.608 SS 1 0.333 0.2 0.104 SS 1 0.2 0.143 0.111
MS 0.333 1 3 0.274 MS 3 1 0.25 0.231 MS 5 1 0.2 0.444
LS 0.25 0.333 1 0.121 LS 5 4 1 0.665 LS 7 5 1 0.444
QP GW RV
SS 1 0.2 0.143 0.072 SS 1 0.167 0.2 0.084 SS 1 0.167 0.167 0.076
MS 5 1 0.2 0.232 MS 6 1 0.25 0.288 MS 6 1 0.25 0.277
LS 7 5 1 0.696 LS 5 4 1 0.627 LS 6 4 1 0.647
EV LT BS
SS 1 0.143 0.143 0.067 SS 1 5 7 0.696 SS 1 5 5 0.571
MS 7 1 0.2 0.270 MS 0.2 1 5 0.232 MS 0.2 1 4 0.184
LS 7 4 1 0.663 LS 0.143 0.2 1 0.072 LS 0.2 0.25 1 0.094
PP TC QC QP GW RV EV LT BS
SS 0.608 0.104 0.111 0.072 0.084 0.076 0.067 0.696 0.571
MS 0.274 0.231 0.444 0.232 0.288 0.277 0.270 0.232 0.184
LS 0.121 0.665 0.444 0.696 0.627 0.647 0.663 0.072 0.094
From the priority matrices for the criteria of Conclusion

TC, QP, GW, RV and EV, we obtain that large scale
organization are best suitable, priority matrices for The expert views as obtained through a
Qc medium scale and large scale both are equally questionnaire and then quantifying the obtained
good whereas for the criteria of PP, LT, BS, small subjective views, using Analytical Hierarchy
scale organizations are preferable. Process helped to conclude the above findings. It
suggests that while large scale industries are the
Table7: Overall Priority Matrix best alternative solution for the vendor selection
S.No. Type of Priorities Rank problem, reliability of the vendor, product quality
Industry and the vendor experience are the top three
1 SS 0.236 III
2 MS 0.265 II
problems in the vendor selection problem.
3 LS 0.483 I
The overall priority matrix suggests that large References

scale industries are the best suitable alternative.
Bajaj, P.K., Mahanti, N.C., Verma, R., 2005,
Findings Selection of Vendors Using AHP Based on Fuzzy
Preference Programming, Intelligence Based
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2009 Sara Bocaneanu 363
Implementing Enterprise 2.0 knowledge sharing tools in

a Eastern European consultancy
Sara Bocaneanu
Abstract
Enterprise 2.0 technologies are being introduced to support cutting-edge knowledge management in
many companies. They are however, poorly known in Eastern European countries. This article presents
a case study of the implementation of three major Enterprise 2.0 tools in a Eastern European consultancy
firm. The tools include social bookmarking, wikis and social authoring, and the article examines how
the software was introduced, benefits sought, actual usage and difficulties encountered. Conclusions are
offered as recommendations for further implementation.
S. Bocaneanu - Implementing Enterprise 2.0 knowledge sharing tools in a Eastern European consultancy
Enterprise 2.0 technologies were defined by makes it much easier to introduce information
Andrew McAfee as “social software used in the flows based on computerized technologies.
context of activities in an enterprise” (1), software The status of the information flows before the
characterized by the SLATES acronym: Search, introduction of the Enterprise 2.0 technologies
Links, Authoring, Tagging, Extensions, Signaling. was mostly emails and documents available to
These technologies are making a slow inroad into individual users (thus emails sent were lost to new
enterprises everywhere; but they are particularly team members) and numerous meetings. Very
poorly known and used in Eastern European often a document was sent back and forth by email
companies. In fact, not many case studies are among many participants to obtain participation
available in general. In order to fill this gap, in the final result. If the document was edited by
Andrew McAfee, the proponent of the Enterprise more than one person at the same time, the main
2.0 concept, created a website (2) to invite the author was tasked with integrating the changes - a
participants in online communities from different time-consuming process. Information relating to
companies to share their own experiences. The business development, the business network and
website has been active since June 2007, but to date potential clients were shared primarily through
(February 2009) it only contains 20 case studies discussions, and often the same information was
which are sometimes quite hastily sketched. shared redundantly and inefficiently.
The following case study is based on the We will now focus on three of the technologies
author’s own observation of the usage of these which were introduced, the manner in which they
technologies in a small management consultancy were used, the degree of uptake, costs, and benefits
firm in Romania, and presents usage of three and challenges encountered by the users.
Enterprise 2.0 software examples: social
bookmarking, wikis and collaborative authoring. Social bookmarking
We examine how the software was introduced,
how it was used, and the critical factors in its The first Enterprise 2.0 technology introduced
success or failure. to the firm was social bookmarking, through the
The company we present in this case study has usage of the free and accessible platform - del.
been present on the Romanian market for three icio.us.
years and offers business consulting services - The decision to introduce the platform was
starting with feasibility studies and up to specialized based on the following:
services for real estate developers interested in the
sustainability of their buildings. As some of the • The consultants spend a considerable amount
services offered are new on the Romanian market, of time searching for information on the
a good deal of innovation is necessary for business internet.
development. Furthermore, the knowledge of • Information, once found and assessed as
the team and efficient collaboration represent valuable to the firm’s activity, can very easily
the main competitive advantage of the firm. The be lost and should be easily found again.
firm’s consultants (a team of six, with another (Very often team member said: I know I found
six persons providing support and administrative relevant information somewhere, but I can’t
roles) use a personal computer with high-speed remember what website that was.)
Internet access most of the time, often even during • Every consultant regularly reads news and
meetings to support note-taking. As the work is other information that might yield results
often provided to foreign investors and the firm useful for future activity. If the information
occasionally employs MBA interns from other cannot easily be recovered when it can actually
countries, the language used in English. As part of be used, the value of the regular updating is
the firm’s sustainability agenda, the team has an greatly diminished.
objective to use as little paper as possible, which

• The company has several areas of interest that • When a team collaborates in research, it is
are very well-defined, and thus it is necessary necessary for the members to define before
to collect valuable and useful information on starting the work which terms will be used to
these topics to support business development. tag the webpages that will be found.
• It is important that every person joining the
firm be able to quickly read through the best The interface is very simple. In the main part of
information sources already identified by the page, there is a list of the pages saved, together
colleagues. with the tags which characterize each of them.
• The consultants have observed that they waste On the right hand side, there is a tag could which
time looking for information they know they shows, by category, all the tags used and indicate,
have already found or that has been found by through the size of the font, the frequency with
other colleagues. which the tag has been used.
It is very simple the then see the pages saved
Because the del.icio.us platform does not by the entire group by searching for a predefined
require any cash investment and is very well- tag or tag combination. There might appear some
developed, the firm decided to use this platform to difficulties in this search if the tags are used by
save webpages with useful information, to organize other platform users who are not part of the group;
these by the use of freely-attributed tags, and to however, for the purposes of this firm, this resulted
share information with colleagues. This platform not so much in difficulties but in a new source of
is not designed for enterprise use, and therefore information that had been selected and quality-
if does not offer the option of limited-access checked.
groups. In other words, any page, once saved, can Another great benefit of the system is the
be visualized by anyone. This was not considered elimination of links sent via email. Such information
to be a deterrent by the firm in question, as the is very often lost, as the receiving person does not
information was public from the beginning. have time to read the page when the link was sent,
At the launch of the project, it was necessary to and thus valuable information does not reach the
agree on some common conventions in the tagging intended receiver. The alternative solution offered
system. This is necessary for any group that wants by del.icio.us is tagging specific pages as “for
to implement free tagging, but the conventions are someone”. These pages appear in the “Links for
very simple and their primary role is to facilitate you” section, as seen in the next sample. Each
cooperation and avoid redundancy. The main receiver can then choose to save pages which
conventions were: were sent to him or her and tag them as they see
fit. Many users here employ “action tags”, such
• For tags containing multiple words, an as “to read”. In any case, all the pages ever sent
underscore character was used to unite them by a colleague remain visible in the “Links for
(example: green_building); this was necessary you” section, and the process for sending links is
because the platform interprets the space through the same interface that allows the saving
between the words as a separator between of the own pages, through the simple addition of a
tags. new tag: for:colleague.
• Each tag begins with a lowercase character, The system was launched in June 2006; at an
unless the tag in question is an acronym (in evaluation two years later, the degree of utilization
which case, all characters will be uppercase: differs widely from one consultant to another
CEE) - some consultants have up to 100 pages saved,
• Words in the tag are used in the singular, others over 1000. This means that the system is
unless it is imperative that they be used in the used only at a medium level. The team continues
plural. to send a good amount of interesting links by
email.
Wiki as usual after an event there should have been a

meeting to evaluate and draw learning points and
Starting in June 2007, the firm introduced a to allocate tasks for the follow-up of the meeting.
wiki system, a type of intranet page that can be It was practically impossible for all colleagues to
edited by multiple persons in a dynamic manner. be in the office for the meeting within the next
The initial software used was MediaWiki (the few days, so the event organizer used the wiki
same that is used by Wikipedia), but - although instead to organize the meeting. In less than 24
the usage was active and enthusiastic - difficulties hours, the dedicated page was completed by
were encountered due to the fact that this system detailed observations and commentaries from all
uses code to format the text, not a WYSIWYG team members, and the final result was much more
system (What you see is what you get, system useful than the usual meeting.
that is used by most modern word processors,
including Microsoft Word, and which is familiar The main reasons for the success of this method
to most software users). Therefore, it was decided were:
to try another system. After an intermediary time
using Drupal - a system that was not liked at all by • The relevancy of the discussion. The page
the participants and due to which the system was was created as soon as the event had taken
poorly used for some time - the final choice rested place; when the team members came to work
upon the MindTouch DekiWiki system, which is the following day, they were greeted by a
simple to use and does not require training. notification about the new wiki page, and thus
The initial page contains both technical the ideas and thoughts they would have had
information regarding the usage of the system anyway were collected on the page. Results
and indications on how to best use the platform to were much poorer when the wiki was used to
communicate, collaborate and share knowledge. generate ideas.
The system allows both the hierarchical navigation • The page was pre-populated with ideas and
of content and the usage of tags to define the content personal opinions by the organizer of the event.
on each page. Furthermore, it is very simple to Some of these were rather controversial in
observe which content was recently modified and nature. This contributed very much to creating
who contributed to the changes. a lively discussion through the “shared space”
of the wiki. If the page had been left blank and
Here are some of the usage scenarios the members of the team had been asked to
encountered: write their ideas, the results would have been
poorer.
Project management • Participants in the discussion very quickly
started to sign their contribution, using
To organize a recent conference, the wiki was formulas like: “Gh. M.: I think that... “. This
used to share knowledge, to save and access files offered participants in the discussion the
that must be used by multiple persons, to note opportunity to follow the unfolding of ideas
procedures and modify them, to share response between people they know and encouraged
formulas and email texts which were used on a participants to take responsibility, eliminating
repeated basis. some of the negative effects of anonymity.
• The initial project manager took the initiative
To replace evaluation meetings to define tasks. Some of these were allocate
from the beginning to some persons, others
One of the most interesting usage cases of the were then taken on by participants in the
wiki was encountered about two months after discussion. This fact contributed to motivating
the launch. The firm had organized an event, and the team members to actively participate in

the discussion, as those who did not actively As a directory of team members
participate were allocated tasks and those who
participated actively could choose their own Each team member has a personal page that
tasks. lists contact details, work experience and areas of
• The final result was that each team member knowledge. This page also contains information
took less than 20 minutes to read the comments about conferences in which team members
and contribute, whereas if this had been a participated, and they use the page to easily shared
traditional meeting, if would have taken 1 -1.5 knowledge gathered.
hours of everyone’s time.
Collaborative authoring
To generate real-time shared lists
Though wikis allow multiple persons to
Some teams use wiki pages to list necessary generate content in a collaborative way, they
office supplies, to keep lists of books necessary also necessitate coordination between them, as
for the team or for a list of the events that would the content cannot be edited at the same time.
be of interest to the members, as they come up in Therefore, other solutions for generating text in
the press. real time appeared. In other words, these solutions
allow multiple people to view in their web browser
To aid the initial process of orientations an interface very similar to a text editor, with the
and training for colleagues unique characteristic of collaborative real-time
support. Changes made by each person appear on
When the wiki is used in training new the other person’s screen real-time.
colleagues and contains the essential information
they will need (starting with the technical The best-used of these systems is Google Docs,
details necessary to configure email accounts and it is used in the following ways by this firm:
to information regarding contact details of the
people in the company who can help in different • To allow the client to have access at any time
situations), newcomers are involved in using these to the document being prepared for him. Thus,
tools from the very beginning. Furthermore, they the client has the option to offer his own views
can participate in editing those sections that seem at any stage in the project, greatly increasing
insufficiently clear or that are outdated. Thus, the his chances of being happy with the end
wiki can be a handbook that is always updated and result.
re-formulated to be better understood by its users. • To allow a team to perform research together,
In a short while, those who have knowledge that without having to assign a part of the research
is requested observe that it is easier to write the to each individual member. In this case, each
information on the wiki rather than be disturbed has the opportunity to see at any moment
again and again to repeat for each new person the information gathered and written up by
joining the team. O solution that is successfully his colleagues, and thus redundancy will be
used by some people is to delegate the task of minimized. The teams that collaborate in this
writing up the content on the wiki to the person way discover that they can coordinate their
who first asked: thus, the more valuable time of work quite well without needing a project
a manager or senior colleague is used in the best coordinator to divide the tasks and put together
way possible, and the information received by one the pieces produced by each participant.
person becomes accessible to many in the future. • To maintain various documents and texts in
a collaborative way, without the necessity of
sending the document repeatedly by email to
multiple people and then consolidating their
contributions. In this way were prepared some the team, and when the benefits are clear both at a
press releases, texts for the website, emails for personal and an organizational level.
partners and responses to difficult situations.
References
Conclusions
McAfee, Andrew; Enterprise 2.0: the Dawn
Based on these case studies, we maintain of Emergent Collaboration. MIT Sloan
that Enterprise 2.0 tools can be successfully Management Review, Vol. 47, no. 3, 2006
implemented in a Eastern European country. The
tools seem to be better received when they can Cases 2.0, http://www.socialtext.net/cases2/index.
readily be integrated into existing work practices, cgi , retrieved February 28, 2009.
when there is a strong champion of the system in

2009 Jim Tanoos 369
Manufacturing The Politics of American Industry
Jim Tanoos
J. Tanoos - Manufacturing The Politics of American Industry

“We were in a hurry to enter the U.S. governor, went on a trade mission to Europe in
market,” says executive Akira Kyuji of Suzuki September 2008 in efforts to network and build
Manufacturing of America, charged with picking relationships with current and potential foreign
an ideal location for an all-terrain-vehicle factory, suitors. The delegation made visits to countries in
in early 2007. “But it was very important to hire southern and Western Europe in efforts to network
local people and train them the Suzuki way.” and tout Georgia’s economic advantages and
(Swibel) Rome, Georgia’s Chamber of Commerce positive manufacturing environment. Perdue held
took proactive steps to lure this recent “big catch” talks with EFACEC Group, a power substations
of foreign investment to their area. When Suzuki manufacturer in Portugal that recently invested
Manufacturing, based in Tokyo, Japan, was $100 million to construct a manufacturing facility
meticulously deciding upon which community to in Georgia, as well as Pirelli Tire in Italy, a company
set up a US manufacturing facility, contemplating operating its US manufacturing headquarters in
where they would eventually assemble a new Rome, Georgia. (Williams) The governor has
line of their all-terrain vehicles, they realized taken 16 international missions since he took
that many cities were offering tax breaks as an office in 2003 in efforts to strengthen relationships
incentive to bring them to their towns. Rome, with current international investors and cultivate
like many communities, offered up tax incentives, relationships with potential partners. According
but the town has also passed legislation that to the Bureau of Economic Analysis, it appears as
eliminates property taxes on any inventory in a if Governor Perdue’s efforts are bearing fruit, as
factory, a reduction of up to 60% on factory land. the total employment of foreign-owned businesses
In addition, the hospitality committee of Rome, increased from 192,600 in 2004 to 197,600 in
GA decided that an additional way to entice 2005 (BEA).
Suzuki would be to send instructors from Rome’s In October of 2008, it was announced that
Coosa Valley Technical College to the Suzuki Korean carmaker Kia began shipping 3,500 tons
manufacturing plant in Tokyo in order to film their of automobile-making equipment to an assembly
assembly operations. Then, based on that footage, plant in Georgia, in order to create two sizeable
the instructors would generate a 2+ hour “certified presses which will be designed to create panels
manufacturing specialist” program, tailored to for Kia automobiles. The $1.2 billion facility is
Suzuki’s specifications. (Swibel) As a result of this under construction in West Point, GA and was a
novel show of innovation and respect, Suzuki’s direct result of collaboration between the Georgia
executives were greatly impressed and decided Department of Economic Development, The
to set up operations in Rome. Today, Suzuki Georgia Ports Authority, the Georgia Dept of
employs 360 local workers at the plant. Suzuki is Transportation, and leaders in state gov’t. The plant
not the only foreign corporation to locate in Rome, will consist of 2,200 acres, will produce 300,000
as ten foreign manufacturers from Austria, Italy, vehicles annually, will employ approximately
Japan, South Korea and Switzerland have invested 2,500 workers, and will begin production in 2009.
a combined $309 million in factories in Rome, The Technical College System of Georgia is also
creating 1,007 nonunion jobs (Swibel). Rome, part of the equation, providing workforce training
GA’s officials have been proactive and innovative program for employees. Essentially, the entire
in their methodologies of attracting Suzuki and community will benefit as a result of Kia setting
other international multinational manufacturing up operations there. “This is a great example of
companies. how Georgia’s strengths enable our successes in
While the city of Rome’s local political economic development,” said Governor Sonny
activism has proactively taking steps to improve Perdue. “From our ports to our highways to
the business climate, the state of Georgia has also QuickStart’s workforce training, Georgia has all
seen unprecedented leadership from Gov. Sonny the advantages that global companies look for in
Perdue as well. A state delegation, lead by the a place to create new jobs and new investment.”

2009 Jim Tanoos 371
(Office of Governor, 2008) The lawmakers in supply chain management and proximity to
Georgia have made it clear to foreign direct vendors, tax incentives, a modern infrastructure
investment and international manufacturers- “We (or location near ports, railways, interstates, or
are open for business!” airports), and even the presence of being located
in a large market next to the purchasing power of
Politics and Manufacturing-The Americans. The macro business environment in
beginning which an international operation chooses to locate
is an underestimated piece of the puzzle and can
1992 presidential candidate Ross Perot be strategically inwardly developed by a state or
described the negative effects of passing NAFTA community.
as the “giant sucking sound”. This phrase came When discussing his thoughts on the trading
to explain his theory that jobs, particularly in with other countries and assessing the Ricardian
traditional industry such as steel, would shift model from a present day standpoint, Thomas
southward to Mexico if the free-trade agreement Friedman stated. “There will be an overall gain in
got the go-ahead. NAFTA went into effect in trade and overall income levels should rise in each
January of 1994, and since then, there has actually trading country. I come down where the great
been a movement of manufacturing facilities majority of economist come down…That Ricardo
to Mexico, where corporations were able to pay is still right and that more American individuals
their employees a much lower rate than they could will be better off if we don’t erect barriers to
in the US, where employees were increasingly outsourcing ,supply chaining, and off shoring than
demanding health care, pensions, and organizations if we do.” (Friedman1, 2007)
were saddled with strict overtime payment laws America’s history of international trade and
and environmental regulations, which increased attracting FDI has coincided with its national
the cost to make an item. policies that have encouraged or restricted the
David Ricardo, the English political economist flow of global investment, along with a strong
who first introduced the idea of comparative US and world economy that facilitates capital
advantage, is widely credited with modern investments. President Benjamin Harrison signed
economic theory. The passage of NAFTA and the into law an extremely protective import tax in
economic boom that followed for all 3 countries US history in the late 19th century, named the
revolved around key aspects of Ricardo’s ideas in McKinley Tariff (after the congressman and future
that even if a nation would be able to make all president William McKinley). Subsequently,
products better and cheaper than another nation, it foreign manufacturers were essentially unable
still would make the most sense for that country to to sell goods in the US, and consumer prices in
specialize in those products it could construct most America skyrocketed out of control, leading to
efficiently. When taxes and tariffs were finally the worst economic downturn up until that point.
lifted for goods traded in North America, Ricardo’s After trade restrictions were eased, “globalization”
model of un-restricted competition took shape. was fast on the rise up until the breakout of World
Following the Ricardo model of comparative War I, when trading came to a halt. At the end of
advantage, political leaders today must find ways World War I, the US was a net creditor nation for
it can provide comparative advantage factors in the first time, but in the years after that war, for
hopes of luring lucrative foreign investment to its the first time the country saw an inward flow of
area, as opposed to another state or another area of FDI as both the US and Europe began to prosper
the world. These comparative advantages might leading into the roaring 1920s. After the collapse
overlap and might vary from state to state, but of the banking system during the depression and
those factors that might tip the scales in favor of devaluation of the dollar, foreign investment in
one area might include a more skilled workforce and out of the country was virtually nonexistent,
through employee training or vocational education, until the World War II ensued and the US began

building war machines for Europe. Since the places in the world to invest. A.T. Kearney, a global
end of World War II, various national isolationist strategic management consulting firm, found that
political agendas have shifted the public sentiment senior executives were increasingly interested
regarding the merits of free trade, including Cold in putting capital into developing countries,
War doctrines that kept Communist areas of the apparently due to less regulations and lower wages
world off-limits for any trading. Recent hostilities for employees. The study found that many global
toward worldwide economic partnerships include executives indicated that the reason they would
anti-globalization protestors at WTO conventions not invest in the US was that there were better
and the inclusion anti-NAFTA jargon during options elsewhere. The study revealed that 52%
recent stump speeches. However no matter what of executives planned to increase investments in
the national policies and public feelings regarding the US, 44% planned no change, and 4% planned
international trade and the inclusion of foreign decreases in their US capital inflows. The low
investment into the country, each individual state value of the dollar apparently was a factor in the
has its own choice to embrace the idea of the relative attractiveness of possible US investments.
global marketplace or to shun it. States that do The study found that the top destination was
embrace globalization then must decide how and China, followed by India, the US, the UK, Hong
where it will best compete in attracting that foreign Kong, Brazil, and Singapore. (Kearney 2007) Of
investment- where its comparative advantages lie. course, low-wages in a given country provides a
huge competitive advantage when an executive
The American Manufacturing looks for a location for a production facility. In
Economy the hyper-competitive international marketplace,
communities and states face increasing rivalries
The makeup of the American economy has from across the globe in attracting and luring
changed dramatically during the past 50 years, inflows of capital and investment.
and the change has accelerated after the passage of Even when health insurance is provided by
NAFTA. 50 years ago 1/3 of all Americans were Chinese subsidiaries, “The fact that health
employed in manufacturing, whereas currently insurance in China is so much cheaper because of
only about 1/10 of American workers are employed their low wages, their much more limited health
in factories. (Hagenbaugh, 2002) The US is service offerings, and no malpractice lawsuits,
already losing the comparative advantage battle certainly makes China an attractive place to
when competing against other countries versus expand and add employees” (Friedman4, 2007)
wages and environmental standards, which can Concerns over the post-NAFTA trend of “off
be attributed to manufacturing operations shifting shoring” have lead many Americans to come to
to underdeveloped countries over the last few conclusion that if specific actions aren’t taken by
generations. Increasingly, public pressure is being government officials, they will not be better off
directed towards state governments and statewide than their parents’ generation. In 2004, pressure
officials as the angst toward manufacturing job from voters forced policymakers to introduce
losses is being channeled to lawmakers who are the legislation to impede contractors from sending
most ambitious and successful in trying to offset any jobs overseas in 30 states, from just 8 states
this job loss by bringing foreign manufacturers to the preceding year. (Greenblatt, 2004) This
their respective states. heavy-handed, quick trigger approach has hurt the
The business climates for international bottom line of the organizations its policies rule
investment in various part of the world are not against, and stands in the way of the Ricardian
equal. In deciding where to set up operations, model, although it does help the specific groups
there are many factors that are assessed when trying and factions that are negatively affected by the
to select an ideal locale. A recent 2007 survey of proposed transfer of jobs. It is a fact that many
top global executives shed some light on the best cheaper, low-cost products like toys and textiles

2009 Jim Tanoos 373
are now made in China or in another lesser- to offshore jobs to another location. But, if state
developed country, and Americans know this and lawmakers are able to put together a tax incentive
are quite worried of the implications. If American package that lures an outside manufacturing firm
companies can improve their supply-chains and to a state and hundreds of jobs ultimately locate to
produce low-cost, basic goods in another country that state, the community is likely to embrace that
and profit off of this comparative advantage, then methodology, as this is seen as a positive net benefit
the company and all stakeholders will benefit. for the region, particularly if part of the incentive
Nike has consistently increased shareholder value package includes worker training and education.
and has become a world-class leader in athletic A happy voter tends to re-elect an officeholder.
goods by using this strategy. Thus, when weighing the net benefits of either
A Wal-Mart spokesperson Wal-Mart insists “We giving a massive corporate tax break to a pre-
are much better off if we can purchase merchandise existing company versus providing tax incentives
made in the United States, I spent two years going to a company that brings new capital investments
around this country trying to talk people into and jobs to an area, this is a no-brainer decision for
manufacturing here. We would pay more to buy it a government official.
here because the manufacturing facilities in those
towns would be able to create jobs for all those The Selection Process
people who shopped in our stores, but for the most
part people in this country have just abandoned the Increasingly, global executives are carefully
manufacturing process. They say, “I want to sell weighing all options when assessing the business
to you, but I don’t want the responsibility for the climate for best possible assembly sites. Those key
buildings and employees and health care, I want decision-makers must weigh an array of factors
to source it somewhere else, so we were forced to when deciding where might be the best location to
source merchandise in other places of the world.” set up new factory. As they decide among their
(Friedman5, 2007) alternatives and look to the best possible settings
The shift of the production of more basic, that create the best matches with its resources,
cheaper goods such as shoes and toys to developing increasingly, they have communicated with state
countries does not mean that America will be lawmakers in their bargaining process.
void of all manufacturing operations. Advanced Each individual state must do what it can
manufacturing and more technologically complex to compete in other areas to make up for the
products which require more training and/or a more production costs that are lost in labor-rates. World-
educated workforce are still viable, and important class manufacturing in the 21st century will decide
option for products to be made in America. to locate in those areas that most appropriately
Many voters have demanded knee-jerk link their workforce and business climate to the
reactions to counter manufacturing job loss, such best interests of the international organization.
as coercing lawmakers to put up walls in the form As the state of Georgia and several of its local
of tariffs and trade barriers, in efforts to prevent communities have proved, when the right mix
companies from offshoring job duties. And many of comparative advantages can be presented, a
voters want to force politicians to sign off on foreign manufacturer can be enticed to invest in
legislation that forbids outsourcing of any kind. and hire in that community.
Similar populist mindset facilitated the McKinley One of the biggest reasons that any foreign
Tariff in the late 19th century. Although only company would set up operations and produce a
several governors have taken action and signed off good in America is to develop a better foothold
on the legislation to halt contractors from sending or simply get better access to the vast American
jobs overseas, pressure is mounting to at least market. While much attention has paid to American
create an economic friendly, favorable tax climate companies going offshore to China, little attention
that penalizes current companies if they decide is paid to huge amount of offshore investment

coming into America every year, because foreigners development and retraining should groom
want access to American markets and labor, just employees for potential jobs of the future, which
like we want access to theirs. (Friedman2, 2007) should include developing partnerships between
Americans are more likely to embrace a company the state and Illinois technical colleges. Whitley
and buy a product if they know that it was literally also recommended touting Chicago’s O’Hare
“made in America”. With this factor being a needed Airport as a key ingredient to its comparative
ingredient to provide an incentive for international advantages as well as linking companies to global
operations to produce their products in the US, business and bringing international companies to
that ingredient is constant among each state. It is Illinois.
those other factors, such as tax climate, education “We must expand our ability to be part of the
of workforce, infrastructure, amount of union- global economy.” Whitley added that nurturing
labor, and level of across-the-board commitment creativity in the entrepreneurial sector to establish
to that possible international suitor which makes a better environment that facilities R&D would
the difference when a foreign manufacturer is benefit the statewide economy. “Agriculture,
deciding where to locate. transportation, energy production, health care,
Some states have been more proactive and financial markets, hospitality, professional services
innovative in their attempts to create a pleasant and, yes, manufacturing are fundamental to our
business climate for manufacturing industry than state’s economic well being. Education, research,
others. Those states that most efficiently focus electronics, technology, international trade,
their capital, resources, and leaders aimed at doing healthcare, and the pursuit of alternative energy
good business with multinationals tend to have sources and efficiencies are keys to tomorrow’s
the best results. On the other hand, states that do jobs.” (Whitley 2008)
not appreciate the challenges that come with a According to the Bureau of Economic
proactive approach get bypassed, such as the state Analysis, it appears as if Illinois is lagging behind
of Illinois. in its international economic progress, as the total
Illinois Chamber president and CEO Doug employment of foreign-owned businesses dropped
Whitley made a strong statement regarding past from 325,800 in 2000 to 261,800 in 2005 and
statewide policies that have thwarted efforts to according to the US Bureau of Economic Analysis,
attract foreign business. “We can’t tax our way and the Gross Property, Plant, and Equipment for
to prosperity. Yet that appears the choice preferred foreign manufacturing in Illinois shrank from
by the elected leaders in the governor’s office, the $19.34 billion in 2002 to $18.64 billion in 2005.
office of Cook County Board president and the It is unclear what reasons preclude a state’s
mayor of Chicago, each of whom has sought to citizens from demanding a greater stake in the
raise taxes and the costs of doing business in their global marketplace, or what reasons keep a
jurisdictions. (Whitley 2008) lawmaker in a state from reaching out to executives
The state of Illinois has fallen far behind other and governments from outside of the country. One
Midwest states, even Michigan, in securing and answer is simple apathy and lack of vision, while
attracting international manufacturing investment. another theory consists of trepidation of outside
The Illinois Chamber of Commerce weighed in cultures or from organizations from outside of the
and gave their interpretations of the problems state.
plaguing the state during the past generation “Sure, there is fear, and that fear is good because
which have contributed to the failures of state that stimulates us to change and explore and find
policy in positioning the state as a destination for ways to do better,” as Thomas Friedman used
foreign investment. Illinois Chamber president the construction of the railroad line crossing the
and CEO Doug Whitley gave his “prescription” country into California in the 1800s as an example,
for dealing with Illinois’ economic challenges in when many residents believed that factories would
a recent write-up. He indicated that workforce appear on the west coast and wipe out those already

2009 Jim Tanoos 375
in operation. “It happened when we connected Categories that were analyzed when determining
New York and California.” “The way to succeed is level of overall manufacturing climate included
not by stopping the railroad line from connecting corporate and property taxes and percentage of area
you, but by upgrading your skills and making the population with college degrees and appropriate
investment in those practices that will enable you training.
and your society to claim your slice of the bigger An additional compare and contrast report is
but more complex pie.” (Friedman3, 2007) put out by Site Selection magazine, which lists
The battles between states to secure and attract the best areas for expansion planning and potential
FDI and foreign manufacturing have become plant locations, compiled based on research and
fiercer, as the stakes continue to be raised. surveys of real-estate moguls. According to
Subsequently, there has been an increased emphasis the Indianapolis Star, the magazine delivers the
on comparing and contrasting a manufacturing results of the information to 44,000 executives of
work environment in one state versus another, fast-growing firms. Based on results included in
as competition to retain jobs and lure additional its November 2008 issue, North Carolina ranked
jobs becomes an area that the public might judge a first, followed by Tennessee, Alabama and Texas.
governor in an election. (Spalding, 2008)
Another method of comparing progress in
Comparing and Contrasting overall attractiveness to international industry
Manufacturing Destinations from state to state has been developed by
Illinois. The Illinois Chamber Foundation
An informational account that was recently created a benchmarking device entitled “Illinois
released is the 2008 National Manufacturing and Economic Competitiveness Scorecard” which
Logistics Report Card, created from a Ball State serves to compare various aspects of its industry
team by researching the business climate for environment versus other states. The data that
manufacturing across various states. Increasingly, gets plugged into the scorecard is researched and
expanding manufacturing organizations from compiled by GrowthEconomics, and it was found
around the world look at these ratings as an easy- that the state ranked 49th of 50 states in regulatory
to-read snapshot of best vs. worst destinations environment, which might allow for future tweaks
for possible locations. Productive competition in policy in order to enhance the state’s weak
between the states to do well in these reports helps foreign investment, especially as compared to
facilitate the improvement of various statewide other Midwest states. (Whitley 2008)
business environments and in turn enhances the With the massive amount of investment
country’s manufacturing attractiveness vies a vi entering the US up for grabs, competition has risen
other countries at the same time. According to the between governors and communities in efforts to
Ball State report, the state of Missouri ranked #1 entice this foreign capital, particularly when such
and received an A. international capital can be used as political capital
“It is clear that Missouri is on the right track during re-elections. And the recent rise of report
when it comes to providing the economic climate cards and informational accounts that detail the
companies are looking for,” says Chris Chung, chief progress of a state in luring foreign investment and
operating officer for The Missouri Partnership. creating a positive business climate has prompted
“The Missouri Partnership was designed to serve governors and state lawmakers to take action, or
as the lead business recruitment and marketing else get left behind for the world to see.
organization for the State of Missouri. As we Increasingly, politicians are going on the
continue to cultivate economic growth within offensive and taking an approach that proactively
Missouri, we will use information like this, as a addresses the issue, before citizens take their
tool to revitalize Missouri as the state with Real frustrations to the ballot box. One of the hottest
People and Real Opportunity.” (Johnson 2008) areas of angst during the past generation has been

the outsourcing, or off-shoring of manufacturing infrastructure upgrading, and modernization of

jobs to China, primarily due to the comparative the region.
advantage of their low wage workers and the Another model for providing a local
limited benefits they require. comparative advantage in attracting international
business has been the Spartanburg-Greenville
Early Success Stories region of South Carolina, an area that by 2003
had already attracted direct foreign investment
The early success stories for states that used from more than 215 companies in 18 countries.
tax incentives and other “carrots” to entice foreign Rosabeth Moss Kanter pointed out in an article
manufacturing were in the South. South Carolina entitled “Thriving Locally in the Global Economy”
dangled $130 million in incentives to attract a that the four key success factors that allowed the
BMW factory in 1992. (Venable,1996) In 1993, area to thrive in the emerging global market were:
Alabama put forth a $300 million incentive visionary leadership, a friendly business climate, a
package to attract Mercedes, which computed to commitment to training, and a spirit of collaboration
$200,000 for each of the 1,500 jobs-18 times the among businesses and between business and local
amount Tennessee paid to entice Nissan in 1980 government (Kanter, 2003). Helping matters was
and four times the amount Kentucky offered to the decision that the South Carolina State Board
lure Toyota in 1985, and 3 times the amount South for Technical and Comprehensive Education
Carolina offered BMW in 1992 to get them to when they announced that technical workforce
locate there. (Applebome,1993) development for managers and staff would be
Alabama’s aggressive approach by state offered for any organization that locates in the
lawmakers to allure Mercedes was too good for state. Part of the training consists of pre-developed
company executives to look past, and they jumped instruction guides and coursework (designed and
at the chance. The incentives were all inclusive, created by the SC State Board after researching
and were directed towards training, infrastructure foreign plants), based on the manufacturing skill
upgrades, and plant development. “This kind of sets required at the factory. (Garten) BMW has
opportunity comes once in a lifetime,” said Prof. chosen this area for their only North American
Mac R. Holmes of Troy State University. Holmes factory due to the positive manufacturing business
performed an impact study and found that the climate that the area has provided.
net effect of total jobs in the area could climb The ever-active 3,000- member Chamber of
to 17,000 in 10 years. “Not only are there the Commerce in Spartanburg-Greenville takes a
returns in terms of money, but the symbolism may proactive approach to mixing it up with potential
be as important as the direct economic impact.” suitors. The organization holds a monthly
(Applebom, 1993) manufacturers’ conference that helps to facilitate
Alabama proved in this instance it was worker’s skill sets with the best potential corporate
worthy of a world-class production facility that hiring needs, while also marketing resumes
could compete with the best of ‘em. Rather than to various manufacturing firms. Additional
becoming complacent, Alabama parlayed this “big activities spearheaded by the Greenville Chamber
catch” as a model for future global manufacturing of Commerce include employee screenings,
lures. In that first Mercedes partnership, the exchanges of best-practice ideas, and encouraging
state put together a comprehensive marketing possible companies to locate to the region. (Kanter,
package that was seen as benefiting the entire 2003) The results are apparent, and the region has
community, because although the price for benefited from the energetic organization.
landing Mercedes was quite high in this case, the The Spartanburg-Greenville strategy of training
public came to embrace the tactics that included its workforce in the field of manufacturing has
a massive incentive package, due to the fact that enabled the community to market its personnel
it was supplemented by worker training along, as a key ingredient to a successful partnership

2009 Jim Tanoos 377
with potential multinational organizations. This to improving their education in manufacturing,

comparative advantage allows prospective this provides a huge competitive advantage in
companies to save money by avoiding training costs the eyes of a potential company deciding where
while also providing confidence that the workers to set up operations. The modern skills needed
are dedicated in their craft and a good fit for the in today’s manufacturing, which includes
work needed. The motivation of a workforce can innovation, productivity, and competitiveness,
be underscored by the various proactive training can be demonstrated for those who achieve this
aptitude techniques now available for factory certification.
personnel. The concept of lean manufacturing has
One major factor that international operations recently emerged and a certification for this theory
look for when deciding to locate to a community of production is now available as a means of
is the US is the education of its workforce, and providing a tool for the workforce to market itself.
whether that education (or lack thereof) coincides Lean manufacturing is the assembling practice
with the skill sets needed by the multinational that takes into account the financial loss or waste
operation. As communities look to make of any resources that don’t directly contribute to of
themselves more marketable to the foreign resources for any means other than the creation of
manufacturer, increasingly, certifications and value-added for a product. Gaining prestige has been
retraining are essential. the Lean Manufacturing Certification assessment,
a measurement for manufacturing supervisors that
The Value of Workforce Training allows them to look at their company’s production
results stack up to best practices and models of
One particular type of qualification that labor efficiency. An executive would be able to apply
forces in various communities are aspiring to a lean manufacturing assessment and scoring
achieve, in efforts to claim the best credentials system based on an evaluation of hundreds of
necessary in consideration of workforce training, lean manufacturing criteria in the plant and after
is the Manufacturing Skills Standard Council’s the results are identified, an assessment and action
Production Technician certification. The MSSC plan are recommended to increase efficiencies and
is a national organization that focuses on the performance. A Lean Manufacturing Certificate
core knowledge and skills needed by production is ultimately awarded, along with an objective
workers in the nation’s advanced manufacturing action plan for various teams of workers in order
sector, and attainment of the industry credential to apply lean principles to that area. (LMC,
demonstrates that workers have mastered the 2008) The model has been tailored to American-
skills needed in the high-growth, technical jobs style advanced manufacturing processes, where
of the 21st century. (IN, September 2007) The advances and improvements by trained workers on
certification is awarded after a worker passes the floor are able to drastically upgrade assembly
four modules- Quality/Continuous Improvement, and production and ultimately improve the bottom
Manufacturing Processes and Production, line.
Maintenance Awareness, and Safety. (MSSC, An additional piece of manufacturing
2008) This industrial training has credibility, as it documentation that is beneficial for production
comes from a nationally recognized organization workers is the American Society for Quality
that provides certification for production workers (ASQ) certification. There are 14 various ASQ
across the country. A local workforce can establish applications to manufacturing that can be pursued
itself in the eyes of a MNC if they see that the in order for a worker to specialize in a specific area.
training and dedication of the potential employees For each type of certification, a minimum amount
is committed to modern training in the skill sets of education and experience in that manufacturing
necessary to excel in advanced manufacturing. area is required. If a plant manager is serious
If a high number of employees are committed about educating his staff for their particular

field or enhancing his area in hopes of receiving classes and credits are on par around the state,
additional capital investment from the corporation so the workforce can be more mobile,” says Bill
in that part of the factory, this would provide the LaFayette, Ph.D., and vice president, economic
workforce training that is marketable. The various analysis, for the Columbus (Ohio) Chamber.
types of ASQ manufacturing certifications are: (Sowinski, 2008)
As Princeton economist Alan Blinder said, “it
• Biomedical Auditor is clear that the US and other rich nations will have
• Calibration Technician to transform their educational systems so as to
• HACCP Auditor produce workers for the jobs that will actually exist
• Manager of Quality/Organizational in their societies. In the future, how we education
Excellence our children may prove to be more important than
• Quality Inspector how much we educate them.” (Friedman6, 2007)
• Quality Auditor The shift in the number of manufacturing
• Quality Engineer employment positions in the US during the past
• Quality Improvement Associate generation to a decreased number of jobs with more
• Quality Process Analyst productivity has been seen by many economists
• Quality Technician as a good modification of resources, as long as
• Reliability Engineer efficiencies in production are increased and overall
• Six Sigma Black Belt education of workers rises. Those low-cost goods
• Six Sigma Green Belt that are made in Chinese factories help the US
• Software Quality Engineer (ASQ, 2008) economy and the US consumer, and the high-tech
manufacturing operations that remain or are built
More than ever, workforce development and in the US lift our overall standard of living.
training is seen by a potential foreign producer “It’s good for us to displace low-wage, manual
as an important comparative advantage that will kinds of labor with higher-skill, higher-tech,
separate one community’s attractiveness from higher-education-content labor,” says Federal
another. Reserve Bank of St. Louis President William
As mentioned, those Technical Colleges within Poole, who compares what’s happening with the
a community can also serve as an integral partner decline in agricultural employment of the early
in retraining and educating a workforce to allow 20th century. (Hagenbaugh, 2002)
them to be qualified and serve as a vital means “It’s an ongoing process, but it obviously means
of creating attractive community for a foreign that people who fall behind in the accumulation of
manufacturer setting up operations. Increasingly, skills find their incomes advance more slowly, and
the development of skills associated with they suffer a greater risk of unemployment,” he
manufacturing to meet the needs of the operations says. (Hagenbaugh, 2002)
will set apart one community versus another Education and workforce training are seen
workforce that might not be as qualified. as important assessment factors when many
“There’s an initiative at the state level, the multinational organizations select a location to do
Ohio Skills Bank, to align public colleges and business. When the US and Europe have similar
universities as well as secondary education types of personnel capabilities, often the US is
providers with economic development priorities. seen as a more viable choice due to tax incentives
The goal is to make sure the state’s workforce has and increasingly, the lower average wage.
the skills that employers really need now and in the The average hourly manufacturing wage in
future. And, transportation and logistics is one of Europe is 16 percent higher than in the United
the main focus sectors of this initiative, especially States. (Naim, 2008) This allows for a great
in the Columbus region,” says LaFayette. “Part opportunity in luring investment in manufacturing
of the plan includes making sure university facilities in the US, where industry can find less

2009 Jim Tanoos 379
socialistic economies. Partly as a result of the weak Rendell has used his time in office to
dollar as compared to the euro, in 2008, German improve relations with many of its international
company ThyssenKrupp announced a $3.7 billion companies, and recently the state was given a
investment in a steel factory to be constructed keynote speaking opportunity in May 2006 during
in Alabama. France’s Alstom, a manufacturer the WindEnergy conference in Germany, which
of high-speed trains and turbines, is building is an international trade show for wind energy
a major factory in Tennessee. Other European manufacturers. While thousands of companies
companies like Italy’s Fiat have decided to reenter attended the event, the state of Pennsylvania was
the U.S. market after a 13-year hiatus, and BMW the only American speaker. Several months later,
is substantially expanding its manufacturing the state announced a partnership with Germany
presence. Recently, the market value of Spain’s in a memorandum of understanding (MOU) with
Banco Santander surpassed the value of Citigroup, Germany’s Ministry of Economic Affairs and
the standard bearer of the U.S. banking industry. Energy for North Rhine- Westphalia. This latest
(Naim, 2008) alliance is sowing the seeds for possible future
partnerships with international organizations.
The Successful Manufacturing Pennsylvania Environmental Protection Secretary
“Ambassadors” Kathleen A. McGinty said, “This MOU gives
us an important opportunity to attract still more
It has become increasingly important for a foreign manufacturers and investors looking to set
governor to serve as an ambassador that can best up business in our state.” DCED Secretary Dennis
take advantage of the weak dollar to help bring Yablonsky added, “Governor Rendell’s direct
economic activity specifically to his community. involvement in this project is a clear example of
The federal government can create favorable, his continued dedication to bringing more jobs and
across-the-board corporate tax rates, attempt to new opportunities to the state.” (Young, 2006)
deregulate, and make sure the EPA doesn’t overly A unique tactic of obtaining a comparative
burden industry across the country, but national advantage for his state has been an approach by
politicians aren’t in the habit of courting specific former New Mexico governor Bill Richardson.
multinational companies. While Congress is busy He has not only developed a specific trade
with its own legislation, the job of marketing a organization to deal specifically with Japanese
workforce and region solely rests in the hands of trade and commerce, but he’s recruited and hired
the governors. a seasoned manufacturing recruiter who has a
Pennsylvania governor Ed Rendell has taken history of developing ties with Japan to head the
steps to reach out and sell his state as a worthwhile operation. Hideji Kurihara, former director of
destination for foreign industry. Through time the North Carolina/Japan Office, has experience
and effort in building relationships in Europe, connecting various Japanese manufacturing
the governor has positioned his state as a global operations to American communities, including
destination for industry. He has been proactive in several manufacturing firms- a Honda supplier
focusing and developing relationships in alternative plant that landed 500 jobs, a pharmaceutical
energies. Governor Rendell provided the guidance manufacturing factory that landed 300 jobs, and a
to attract Gamesa Corp., a wind-energy company Toyota plant that landed 950 jobs- to N Carolina.
based on Spain, which is the second largest wind Richardson’s recent trade mission to Japan allowed
energy company in the world. Gamesa decided him time to set up the operation, which will work
to locate its manufacturing facilities in several in conjunction with the Economic Development
Pennsylvania counties and its headquarters in Department of New Mexico. The New Mexico
Philadelphia, Gamesa has invested $84 million Legislature provided $180,000 to support the
into the state and will create 1,000 jobs in five development of the partnership as well as creating
years. the Office of International Trade, which officially

started in July of 2005. The visibility and 2,500 of the SUV’s built at the plant (Applebome,
credibility of the new New Mexico/Japan office 1993).
was enhanced when the state sponsored a “New As a result of the increasing number of lucrative
Mexico Day” at the World Expo in Japan later in statewide tax incentive packages, resistance was
July of 2005. put up in 1995 with the new governor of Alabama,
“This is a tremendous opportunity to attract Fob James. He was skeptical of the massive
significant foreign expansion to New Mexico and financial incentives given to Mercedes-Benz and
to open the Japanese markets to our companies,” thought that other ideas such as waiving the state’s
said Richardson. “We continue to globally send 5% corporate income tax might be better ideas.
the message that New Mexico is open for business, “You can pay more than something is worth if this
and we will continue to aggressively pursue insane bidding war goes unchecked. Sometimes
opportunities to diversify investments and attract the best deal is the one you walk away from,”
new businesses.” (Shipley, 2005) said Chris Bence, executive liaison to Governor
Although Detroit has shed many factory jobs James at the time. (Buckner Powers, Mary 1995)
related to its Big 3 automakers in the past generation, However, that sentiment never gained much
statistics indicate that total manufacturing jobs for public support, as jobs began flowing into the state
US auto companies has not dramatically dropped in never before seen rates. Several years later, in
from its high-point, and in fact is close to its high 1997, an incentive package was put together to lure
of 1 million workers. Union-heavy areas have Trico Steel, a joint venture of Sumitomo Metals,
been avoided, particularly with the shift to states British Steel and LTV Steel, and subsequently the
in the South. The South started to dramatically company decided to build a $450 million mill in
increase the new automobile manufacturing Decatur, Alabama near the Tennessee river to offset
operations in the early 1990s. From 1990-1992, 9 transportation costs and hire 300 employees.
of the top 12 states for new manufacturing plants By 2002, another major foreign manufacturing
were in the South, and the southeast US added plant was announced to be locating in Alabama.
23,000 manufacturing jobs while the northeast and Hyundai, the 7th largest in the world carmaker
west coast lost 450,000 during that timeframe. In from South Korea, made the decision to build a
addition, Ohio and Indiana based plants have been $1 billion manufacturing plant in Montgomery. A
strategically selected near non-union locales. The company statement indicated that Hyundai selected
proliferation of foreign auto plants located away Montgomery for its first U.S. plant because of “its
from traditionally-union heavy areas underscores high-quality work force, its strategic location in
the notion that US manufacturing still can be cost- proximity to American population centers, the
effective and profitable. superb automotive parts supply chain available
As mentioned, Alabama seems to be on the in the region and the commitment shown by the
cutting edge when it comes to landing foreign state of Alabama and the city of Montgomery,
production. Mitsubishi began assembling which provided the best environment for the new
CD’s and microchips in Mobile, Alabama, plant.” The plant will bring 2,000 jobs to the
and Mercedes-Benz started to make SUV’s in Montgomery area. Hyundai Motor Co. President
Tuscaloosa, Alabama. Much of the credit goes to Don Jin Kim said Alabama’s incentive package
former Alabama governor James Folsom, who was “is not the main factor for our selection or the
largely credited with enticing Mercedes-Benze to decision-making process. Incentives are good, but
build its first US factory in Alabama, with $300 in the long run, incentives are just a portion on the
million worth of state subsidies, 92.2 million tip of the iceberg. The most important thing is the
to upgrade the factory-area infrastructure, $60 people —the attitude of people or dedication or
million in training for employees and vendors, and commitment of the state and the local government
$77.5 million in water, gas, sewer, and electrical officials.” (PM 2002)
upgrades. In addition, the state agreed to buy

2009 Jim Tanoos 381
“On behalf of Hyundai Motor Company, I “What Randy has put together, and the
wish to thank Governor Don Siegelman and the legislators in Kentucky, it made things happen at
state and local officials who have shown such lightning speed. That’s what America should be
commitment to Hyundai,” Hyundai Automotive about,” said Schneider at the ceremony. “Now
Group Chairman Mong Koo Chung said (PM, with all the economic incentives that Kentucky has
2002) put together at such a rapid pace, those incentives
In the 2008, Alabama received an “A” from the have allowed us to offset the low-cost of labor in
national manufacturing and logistics report card, China and bring manufacturing back to America,
and was awarded high marks in including property and that’s something we are very, very proud of.”
taxes, corporate taxes, and percentage of the Schneider added: “We are hopeful the Federal
population who are college graduates. (Cooper, Government will assist programs like this that
2008) The report illustrated the state’s willingness spur job creation in America.” (Campbell, 2008)
to provide a climate that allowed for production In January of 2008, Wisconsin governor
prosperity. Jim Doyle unveiled the Next Generation
Manufacturing plan, which focused on making
Domestic Manufacturing Models the state’s manufacturing organizations more
competitive and provided motivations for other
Several cases of scooping up American manufacturing companies to set up operations
manufacturing operations might serve as models there. One part of the plan will invest $750,000
for similar sized communities as they look to into expanding lean manufacturing techniques to
outside of US borders to find investment and jobs. make current manufacturers more competitive.
Oftentimes, a region can garner a good reputation Another key part of the plan involves creating
for being friendly to manufacturing while it looks new tax credits to be utilized for worker retraining
to improve the overall statewide climate for factory and technical colleges, while another aspect of
production. the plan supplies $1.2 million for Wisconsin
The Kentucky Economic Development Finance Manufacturing Partnerships. “Wisconsin is home
Authority, along with the help of governor Steve to the best manufacturing companies in the world,”
Beshear, signed off a $48 million tax incentive Governor Doyle said. “To remain competitive, our
package to entice Integrity Automotive LLC, manufacturers must continue to become leaner and
(Lane Report, 2008) which subsequently built more efficient. This plan will build on our success,
an $84 million production plan on a Franklin, Ky helping Wisconsin manufacturers modernize and
industrial park to assemble low-speed electric access the support they need to compete in the
vehicles, creating 4,000 jobs. An additional global economy.” (Hozeny, 2008)
aspect of Kentucky’s courtship with Integrity Nebraska Governor Dave Heineman has
Automotive involved the passage of an executive gone beyond straightforward tax abatements in
order allowing the use of electrical vehicles his efforts to market his state for international
on roads. Also, Franklin prepared $76 million production of goods. In 2005, he signed into law
towards industrial revenue bonds to aid with the the Nebraska Advantage Act, which provided
construction of the plant. sales tax support on manufacturing machinery
“We wanted to come to a place where the and equipment. “Despite the reliable strength of
community would support us,” said Integrity Nebraska’s work force, our manufacturers have
Spokesperson Randall Waldman at the event. had to overcome an unfair advantage enjoyed by
“There is nothing more important than to have a many of their competitors in neighboring states,”
community come together behind a project that said Gov. Heineman. “It is time we helped our
will bring a lot of jobs to the area.” (Campbell, manufacturers compete on more even footing, and
2008) the Nebraska Advantage accomplishes that aim.”
In addition to this Act, the governor approved a

$15 million bill that gave retraining and education developed by Perruci in 1994, a study was done
to upgrade the skills of those in related industries. on manufacturing workers displaced by 3 plant
(Expansion, 2005) closings in Lafayette, IN in 1989. As a result of the
The state of Washington has also taken a lead factory shutdowns, women were unemployed for
in creating an attractive business climate for 25 weeks versus just 22 weeks of unemployment
manufacturing. Starting in 1995, the state enacted for men. In addition, the write-up indicated that
new legislation that eliminates a sales or use tax women were more likely to become depressed as
of up to 8.2% for machinery and equipment used a result of the layoffs, and were more likely to be
in manufacturing, provided tax exemptions to reemployed in the service sector at a lower salary.
building construction costs in poor areas, allows (Dept of Labor 2008) Plant closings in America
breaks of up to $2 million per year for high-tech do tend to cause a greater hardship on families,
research organizations, and awards tax breaks and the manufacturing sector’s economic viability
toward capital in pilot scale manufacturing seems particularly vulnerable to those that rely on
facilities. As a result, companies expanded or built the income to support the family.
manufacturing facilities creating 7,200 jobs in the
next year and Intel committed capital investments Rust Belt Tightening
including a computer manufacturing complex,
employing 500 workers initially. Intel spokesman The state of Michigan, perhaps more than any
Tom Waldrop gave credit to state lawmakers and other, has seen its economy affected by decreasing
their desire to improve the tax climate and indicated American manufacturing and hesitations from
that the incentives “have positioned Washington international manufacturing who are scared away
to compete on its other merits, including its direct from strong union areas. Japanese carmakers
access to Pacific Rim markets, skilled work force, have set up operations in the South to avoid heavy
major public and private research institutions, union areas. Kentucky got the ball rolling in 1985
strong transportation infrastructure and excellent as it dangled a $147 million incentive package to
quality of life.” (Venable) Washington governor Toyota to set up operations in the state. Although
Mike Lowry at the time added that the initial that figure seemed extraordinarily lofty at the time,
manufacturing investments brought about by the economic impact throughout the state in the
the new legislation would position the state very decade after has vindicated the lawmakers who
nicely for both new and existing manufacturers were forward enough to propose the incentives
and high-tech research companies. to Toyota in the first place. Charles Haywood,
director of the Center for Business and Economic
The Effect of Plant Layoffs Research at the University of Kentucky, said the
plant, which was expected to bring 3,000 jobs,
Decreases in manufacturing employment in the would bring a total of 6,000 by 1995 and indicated
US have a dramatic impact on the family, and have that Toyota would cost the state $305.2 million by
the most downside for women. It was found that 2005 but will produce $993.4 million in additional
for blue-collar sectors, the period of unemployment state revenues. (Applebom, 1993) This early
for women versus that of men after a loss of job partnership became a success story also due to the
is longer, and in addition, females are less apt fact that the area was not a heavy-union region.
to be reemployed than males. (Congressional Many foreign manufacturers, although they don’t
Budget Office, 1993; Perrucci, et al., 1988) For outwardly express this concern, want to avoid
the second quarter of 2008, of the Americans filing areas with high union memberships.
for unemployment, manufacturing jobs accounted The state of Michigan has come to understand
for 22% of job loss. 52% were women, even this phenomenon and has tried to adjust its
though only 46% of the labor force is consisted tactics to bring an attractive business climate
of women. (Dept of Labor 2008) In an article to manufacturing operations, in spite of its

2009 Jim Tanoos 383
traditionally pro-union workforce. In 2005, property tax on business machinery, equipment,

Michigan Governor Jennifer Granholm has signed and inventories. This year is the last for Ohio’s
new legislation that has attempted to stem the business property tax; next year is the last for
tide of decreasing factory employment including the corporation profits tax. And, Ohio’s personal
$600 million in tax cuts. Other provisions of the income tax rates are falling by 21 percent across
legislation included: the board.”
“Between 2005 and 2007, Ohio’s per capita
• provide a 100 percent personal property tax state tax burden has already fallen to 38th in the
credit for equipment directly related to jobs nation, from 27th, according to the Federation for
“insourced” from other states or countries in Tax Administrators. When the new tax cuts are
2007 and 2008 by any manufacturing or high- phased in, Ohio’s business taxes will be the lowest
tech business, creating an incentive to bring in the Midwest.” (Sowinsk, 2008)
jobs to Michigan Combined with a weak dollar and renewed
• give struggling manufacturers an immediate interest by foreign investors in the U.S., economic
15 percent refundable personal property tax developers also can leverage the benefits of
credit beginning in 2006 foreign-trade zones to attract jobs and investment,
and to facilitate maintenance and expansion of their
The governor said, “As our manufacturers existing industrial base. (Clapp, 2008) The state
struggle to adapt to a global economy, we must of Michigan has also been at the forefront of US
all do everything we can to help them compete foreign trade zones, another rising developmental
and to protect Michigan jobs,” said Granholm. initiative designed to increase US attractiveness to
“This legislation provides needed incentives for international capital. According to an article in the
Michigan companies to invest in their facilities, Grand Rapids Business Journal from June 2008,
create new jobs, and consolidate operations here.” the state of Michigan is one of the top states in total
(Watson, 2005) merchandise handled, which reached $491 billion
As the race to create a pro-business economic in 2006, a 20% increase from the previous year.
environment intensifies, governors are forced to Through a Foreign Trade Zone, a manufacturing
be innovative and proactive in creating a friendly company based in America is able to import
environment for business, and in the process foreign-made materials into the zone and use these
create favorable climates for foreign business parts to assemble a final product without paying
as well. The competition between governors to any duty. Merchandise can essentially be made
increase their rankings on these report cards has without any customs duty and only if products
encouraged them to do more and more. To do are transferred into the US but if it is exported to
nothing will now gain attention. another country, no Customs duty is applied. The
A recent writeup in World Trade magazine stated concept originated to help facilitate foreign trade,
that Ohio state lawmakers “also recognize the role and today there are 230 Foreign-Trade Zones
of logistics in the larger economic development across America. National Association of Foreign
picture. Ohio is in the midst of a major tax reform, Trade Zones president William Berry believes that
which along with numerous other advantages, foreign trade zones are an extremely useful tool
is helping the state become more competitive for US manufacturing and said “By eliminating
against others that it often goes head-to-head with, disincentives to manufacture in the United States,
including Illinois, Indiana, Wisconsin, Michigan, FTZs help level the playing field and encourage
and Minnesota, explains Matt McCollister, vice companies to establish or keep their operations in
president, economic development, Columbus the United States.” (Emrich, 2008)
Chamber. “ Battle Creek-Calhourn-Kalamazoon inland
“By 2010, Ohio will be one of only two states Port Development Corp said the foreign trade
without a general tax on corporation profits or a zone serving the cities has a 50,000 square foot

Customs Cargo Center warehouse that’s open to federal policy shifts, in efforts to increase business
the public, and contains a number of subzones, environment attractiveness throughout the US.
which are FTZs established for a company, which The net investment by foreigners in US businesses
Michigan has several. Another foreign trade zone and real estate grew to $100 billion in 2004, double
in Michigan includes nine loading docks, two rail that of the previous year, according to the US
spurs for inbound and outbound shipments, and Dept of Commerce. In addition, manufacturing
electronic security. (Emrich, 2008) represented a vast portion of investments,
Another hot FTZ is in Northern Ohio, FTZ 181. including $72 billion from Switzerland and
A combination of four commercial airports, an $71billion from the UK. Overall, 40% of all FDI-
array of Lake Eerie ports, 3 Class 1 railroads, and related employment was from the manufacturing
thousands of acres of warehouse space, combined sector, including an average salary per worker of
with a revamped state tax structure which has around $63,000. (Jackson, 2008)
lowered capital investment taxes, has made this As capital pours into the US from outside
FTZ very attractive. In 2007, over $2.7 billion of economies at never seen-before rates, the race by
merchandise came through this FTZ and provided various states (and those communities within) to
an economic cash-cow for Ohio. Ron DeBarr, land these investment flows has greatly intensified.
president and CEO of the Northeast Ohio Trade While the federal government has created a
and Economic Consortium (NEOTEC), grantee of level playing field between the states, it is those
FTZ 181, said “The FTZ program helps to level states which have the most attractive business
the playing field with foreign competition by environment for foreign manufacturing operations
offering a variety of benefits including deferral, as compared to other states that stand the most to
reduction or elimination of duties; elimination of gain.
drawback; weekly entry to reduce merchandise
processing fees; and direct delivery which reduces
transit times.” (Clapp, 2008) References
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www.expansionmanagement.com/cmd/ IdeaStream (October 13, 2008) Summit Officials
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Flat 3.0: A Brief History of the Twenty-first news/14874/
Century. Disc 3 7, 3:40 Farrar, Straus, and
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taf?p=1,5,1,201 Articles/Feature_Article/BNP_GUID_9-5-
2006_A_10000000000000455244
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Star website: http://www.indystar.com/
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& Certified Lean Manufacturer, R Michael
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rmdonovan.com/lean_certification.htm October 20, 2008.
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Pg. 8 Granholm Signs Manufacturing Tax Cuts
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on September 12, 2008 from the Georgia Michigan Portal https://www.michigan.gov/
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2009 Jim Tanoos 387
Whitley, Doug (2008) A prescription to fix Young, Charlie (September 9, 2006)

Illinois’ economic scorecard Retrieved on Governor RENDELL ANNOUNCES
October 2, 2008 from the Business Ledger AGREEMENT WITH GERMANY’S
website: http://www.thebusinessledger. LEADING INDUSTRIAL STATE TO
com/Home/Archives/InTheNews/tabid/85/ SHARE ALTERNATIVE ENERGY
mid/393/newsid393/482/Default.aspx OPPORTUNITIES

Impact Assessment Of Corporate Culture On

Employee Job Performance
Olu Ojo
Abstract
This research study assesses empirically the impact of corporate culture on employee job performance
as well as organisational productivity using Nigerian banking industry as the case study. We try to ascertain
if organizational culture affects employee job performance, and to formulate recommendations regarding
corporate culture and employee job performance. In order to achieve the above objectives, the following
research questions were asked: Does corporate culture have any effect on employee job performance? And
in what way does corporate culture impacts employee job performance? Two hypotheses were advanced:
(i) There is no positive relationship between organizational culture and employee job performance, and
(ii) There is no positive relationship between corporate culture and organizational productivity in Nigerian
banking industry. The study uses survey research method. The case study companies were selected using
stratified and simple random sampling techniques; while our respondents were selected using simple random
sampling technique. The findings of this study are that a large number of respondents (57.7%) strongly
agree that corporate culture has effect on employee job performance, and that 48.7% of the employees also
agree that corporate culture determines the productivity level of the organization. These findings made us
to accept our two alternative hypotheses and reject the null hypotheses because in both cases the calculated
values of chi-square are greater than the tabulated values.

2009 Olu Ojo 389
Introduction the fact that there is no agreement on the precise

nature of the relationship between corporate
Organization development is concerned with culture and performance.
the analysis and diagnosis of the factor that Despite the plethora of studies on corporate
determine organizational effectiveness, and the culture in the last few decades, there is no widely
planning and delivery of programmes to increase accepted causal relationship between corporate
that effectiveness. culture and performance. The empirical evidences
Organizations want to obtain the commitment emerging from various studies about the effect
of their employees. Management would like its of corporate culture on performance have so far
employees to identify with the values, norms yielded mixed results that are inconclusive and
and artefacts of the organization, hence the need contradictory.
for organizational culture. Management needs to Because of these contradictory results, the
explain and imbibe its culture in its employees; question of whether corporate culture improves or
this will enable the employee to get familiar with worsens employee’s performance is still worthy of
the organizational system. During this process further research such as the one being undertaken
of explanation, the employee learns about the in this study. In addition, despite the existence of
organizational culture and decides whether he these studies, very little attention has been given to
can cope with it or not. This means that each the banking industry. This means that the impact
organization is a learning environment. It is the of corporate culture on employee’s performance
proper understanding of the organizational culture in the banking industry has not received adequate
that the performance of the employee in the research attention in Nigeria. Thus, there is a
organization. Performance is the extent to which major gap in the relevant literature on Nigeria,
an individual is carrying out assignment or task. It which has to be covered by research. This research
refers to the degree of accomplishment of the task attempts to fill this gap by studying the situation of
that makes up an employee’s job (Cascio, 2006). the Nigerian banking industry and providing more
Job performance is the net effect of an employee’s empirical evidence on the effects of corporate
effort as modified by abilities and roles or task culture on employee job performance based on
perceptions (Jones, 2003). individual bank-level data.
The culture of the organization should be
developed to support continuous improvement, Literature Review
improve employees’ style of performing their job
and thus develop quality awareness. Organizational culture has been defined as
To operate successfully across cultures, it the “normative glue” that holds an organization
is important to be able to recognize cultural together (Tichy, 1982). Forehand and von
differences and be adaptable (Deter, Schroeder, Gilmer (1964) suggest that culture is the set of
and Mauriel, 2000). Organisational culture finds characteristics that describe an organization and
expression through the thoughts, intentions, distinguish it from others. Schein (1990), in a
actions and interpretations of members of the more comprehensive fashion, defines culture as
organization (Hallett, 2003). values and behaviors that are believed to lead to
Academic interest in corporate culture is success and are thus taught to new members.
evidenced by the level of attention it has received Central to the culture definition is the idea that
over the last few decades. The relationship between culture must be learned and shared (Titiev, 1959).
corporate culture and performance has been the The culture of a group can be defined as: “A
subject of abundant research in several fields, pattern of shared basic assumptions that the
including strategic management, organisational group learned as it solved its problems of external
behaviour, and industrial organizations. While this adaptation and internal integration, that has
topic is rich in studies, many researchers concur on worked well enough to be considered valid and
O. Ojo - Impact Assessment Of Corporate Culture On Employee Job Performance

therefore, to be taught to new members as the When we walk around an organization, there
correct way to perceive, think, and feel in relation are elements of the organization’s culture that are
to those problems. (Schein, 1990).” ‘on the surface’ and are relatively easily visible. We
In other words, as groups evolve over time, they can see many cultural symbols (e.g., whether your
face two basic challenges: integrating individuals office is on a floor close to the top or the bottom
into an effective whole, and adapting effectively of the building, how big your office is), artefacts
to the external environment in order to survive. As (e.g., computers), and patterns of behaviour (e.g.,
groups find solutions to these problems over time, how and where people interact, how they behave
they engage in a kind of collective learning that in formal and informal meetings).
creates the set of shared assumptions and beliefs Equally important, but the less visible aspects
we call “culture.” of culture are norms, values and basic assumptions
Morgan (1997) describes culture as “an active people make.
living phenomenon through which people jointly Another way of conceptualizing organizational
creates and recreates the worlds in which they culture is in terms of its ‘hard’ and its ‘soft’ sides.
live.” As we see in Figure 2, organizational culture is
For Morgan, the three basic questions for ‘supported’ by both social/psychological aspects
cultural analysts are: (e.g., stories, symbols, rituals) and by some more
concrete elements such as power structures,
• What are the shared frames of reference that hierarchical structure and control systems (e.g.,
make organization possible? financial, measurement and reward systems).
• Where do they come from?
• How are they created, communicated, and Figure 2: Hard and Soft Model of Organisational
sustained Concept
There are many ways to visualize the

concept of organizational culture. One popular RIT
UA
LS
ARTEFACTS RIT
ES
conceptualization is the onion model. If you cut PATTERNS OF BEHAVIOR
RE
LS
an onion in half and look at it, you will see many

BO
W
AR
NORMS
M
DS
SY
layers. An organization’s culture can be visually VALUES

RE
represented in this way (as illustrated in Figure

LTU
ASSUMPTIONS
1).
CU
Figure 1: The Onion Model of Organisational Culture
Power
Symbols Structures Source: Organizational Cultural Analysis: The
Importance of Organizational Culture
Stories Org’al Copyright©1999, 2000 Holistic Management Pty.
Culture
Myths Estructures
Ltd...
Ritual Control
Routines Systems Organizational culture has been linked to
Soft Hard
economic performance and organization viability/
success (Denison & Mishra, 1995; Pothukuchi,
Source: Organizational Cultural Analysis: The Damanpour, Choi, Chen, and Park 2002; Sorensen,
Importance of Organizational Culture 2002; Devis, 2007). For example, organizations
Copyright©1999, 2000 Holistic Management Pty. dedicated to continuous improvement, with
Ltd... visionary leaders who ‘walk their talk’ and focus

2009 Olu Ojo 391
on a set of core values, have been shown to be more them and to interact with other employees who
financially successful in the long-term ( Kotter & know the culture and believe in it.
Heskett, 1992). Organizational culture has also People are constantly surrounded by culture.
been shown to be important for successful new It forms the background (often invisible) of
product/process innovation and organizational our work-lives, colouring everything in an
change (Plakhotnik and Tonette, 2005; Umiker, organization. Organizational culture also provides
1999). a powerful mechanism for controlling behaviour
‘Culture is one of the most precious things by influencing how we attach meaning to our
a company has, so they must work harder on it world and how we interpret events.
than anything else,’ says Herb. Various studies
indicate that companies with strong cultures Objectives Of The Study
are more likely to be successful, but only under
a particular set of conditions. The effect of The primary objective of this study is to assess
organizational culture depends partly in its the impact of corporate culture on employee job
strength. Corporate culture strength refers to how performance.
widely and deeply employees hold the company’s In line with this primary objective, the
dominant values and assumptions. In a strong secondary objectives are as follows:
organizational culture, most employees across all
subunits hold the dominant values. These values i. To ascertain if organizational culture affects
are also institutionalized through well-established employee job performance.
artefacts, thereby making it difficult for those ii. To determine empirically the relationship
values to change. Furthermore, strong cultures between corporate culture and employee job
tend to be long-lasting; some can be traced back performance.
to company founder’s values and assumptions. In iii. To formulate recommendations regarding
contrast, companies have weak culture when the corporate culture and employee job
dominant values are short-lived and held mainly performance.
by a few people at the top of the organization.
A strong corporate culture potentially increases Research Questions
a company’s success by serving three important
functions: This research study is poised towards providing
i. Control System: Organizational culture is answers to the following questions:
a deeply embedded form of social control that
influences employee decision and behaviour. i. Does corporate culture have any effect on
Culture is pervasive and operates unconsciously. employee job performance?
ii. Social glue: Organizational culture ii. In what way does corporate culture impacts
is the ‘social glue’ that bonds people together employee job performance?
and makes them feels part of the organization
experience. Employees are motivated to internalize Research Hypotheses
the organization’s dominant culture because this
helps fulfil their need for social identity. This In order to answer the research questions and
social glue is increasingly important as a way to achieve the objectives of the study, the following
attract new staff and retain top performers. hypotheses are advanced and will be tested in the
iii. Sense-making: Organizational culture assists course of this study.
the sense-making process. It helps employees
understand what goes on and why things happen Hypothesis 1
in the company. Corporate culture also makes it H0: There is no positive relationship
easier for them to understand what is expected of between corporate culture and employee

job performance in Nigerian banking industry could not permit or allow for a greater sample
H1 There is a positive relationship between size.
corporate culture and employee job performance Every research work has a framework for
in Nigerian banking industry. collecting data. Its function is to ensure that
Hypothesis 2 the required data are collected accurately and
H0 There is no positive relationship between economically. Primary method of data collection
corporate culture and organizational productivity was used in this study. The primary data consists
in Nigerian banking industry. of a number of items in structured questionnaire
H1 There is a positive relationship between that was administered to the respondents. The
corporate culture and organizational productivity decision to structure the questionnaire is predicated
in Nigerian banking industry. on the need to reduce variability in the meanings
possessed by the questions as a way of ensuring
Methodology comparability of responses. The questionnaire
is titled “Corporate Culture and Employee Job
The term methodology is a system of explicit Performance Questionnaire.” However, only 78
rules and procedures in which research is based out of 100 respondents returned their questionnaire
and against which claims of knowledge are and were used for final analysis in this study.
evaluated (Ojo, 2003). Therefore, this section One important way of ensuring that we have
focuses on the research techniques adopted and used the right instrument and have taken correct
used for this study with the aim of achieving the measurement is that our outcome must be in
research objectives. consonance with two major criteria for measuring
In this study, survey research design is adopted. quality known as validity and reliability (Ojo,
Survey research design was chosen because 2003).
the sampled elements and the variables that are To ensure the validity and reliability of the
being studied are simply being observed as they questionnaire used for the study, even number of
are without making any attempt to control or experts were consulted to look at the questionnaire
manipulate them. items in relation to its ability to achieve the stated
The theoretical population of the study consists objectives of the research, level of coverage,
of the entire workers of the banks in Lagos State, comprehensibility, logicality and suitability for
Nigeria. The choice of Lagos State stems from prospective respondents. A pilot test which took
the fact that the Headquarter Offices of Nigerian the form of test-retest method was conducted at
banks are located in Lagos State and that there is the branches of selected banks in Sango-Ota, Ogun
concentration of banks in Lagos State with over State where 10 workers from each of the bank
25 percent of the branches of these banks in Lagos branches were selected using purposive random
State alone. For effective coverage and lower cost, sampling technique. The choice of Sango-Ota
stratified sampling technique was used to select for the pilot study was informed by the fact that
the participating banks. Nigerian banks were it is the city where the researcher is living with
stratified into two strata based on the year they a fair concentration of the branches of the banks
were established. Thus we have ‘old’ generation studied.
banks and ‘new’ generation banks. Two banks Data collected from the questionnaire were
were selected from each stratum. Employees analysed, summarised, and interpreted accordingly
in selected banks were divided into three strata: with the aid of descriptive statistical techniques
management staff, senior staff, and junior staff. A such as total score and simple percentage. Chi-
simple random sampling technique was used to square was used to measure the discrepancies
select a total of 100 employees that constituted our existing between the observed and expected
sample size. It should be pointed out that limited frequency and to proof the level of significance in
financial resources at the researcher’s disposal testing stated hypotheses.

2009 Olu Ojo 393
The formula of chi-square is: The respondents were asked if organizational

culture has effect on employee job performance.
x2 = ∑ (O – E)2 Their responses are shown in the table below:
E Table 5: Does Organisational Culture Has Effect on

Employee Job Performance?
Organizational culture has effect on employee job
Data Presentation And Analysis performance
Cumula-
Fre- Valid Per-
Percent tive Per-
Table 1: Sex Distribution of Respondents quency cent
cent
Respondent sex Strongly
1 1.3 1.3 1.3
Valid Per- Cumulative Valid Disagree
Frequency Percent
cent Percent Disagree 1 1.3 1.3 2.6
Male 58 74.4 74.4 74.4 Undecided 3 3.8 3.8 6.4
Valid
Female 20 25.6 25.6 100.0 Agree 28 35.9 35.9 42.3
Total 78 100.0 100.0 Strongly Agree 45 57.7 57.7 100.0
Total 78 100.0 100.0
Source: Field Survey, 2008
Source: Field Survey, 2008
The table above shows that 58 (74.4%) of the
respondents are male while 20 (25.6%) of the The table above shows that 57.7% of the
respondents are female. respondents strongly agree and 35.9% of the
This information was sought about respondents’ respondents agree that organizational culture has
number of years of working in the organisation as effect on employee job performance. Also, we
it will help to show how much the respondents have 3.8% of the respondents who are undecided,
know about the organization and its activities. 1.3% of the respondents who strongly disagree
and 1.3% of the respondents who disagree that
Table 4: Respondents Number of Years of Working in organizational culture has effect on employee job
the Organization performance.
Respondent number of years of working in The respondents were asked if organizational
the organization culture determines the productivity level of the
Frequency Percent Valid Per- Cumulative organization. Their responses are shown in the
cent Percent
table below:
B e l o w 39 50.0 50.0 50.0
5yrs
Valid 6-10yrs 21 26.9 26.9 76.9 Table 6: Does Organisation Culture Determine the
11-15yrs 7 9.0 9.0 85.9 Productivity Level of the Organisation?
16-20yrs 11 14.1 14.1 100.0 Organizational culture determines the productivity
Total 78 100.0 100.0 level of the organization
Source: Field Survey, 2008 Fre- Valid Cumulative
Percent
quency Percent Percent
Disagree 1 1.3 1.3 1.3
This table shows that 50.0% of the respondents Valid
Undecided 4 5.1 5.1 6.4
have worked in the organization for less than 5yrs
Agree 35 44.9 44.9 51.3
while 26.9% of the respondents have worked in
Strongly
the organization for 6-10yrs, 14.1% have worked Agree
38 48.7 48.7 100.0
in the organization for 16-20yrs and 9.0% of the Total 78 100.0 100.0
respondents have worked in the organization for
11-15yrs. Source: Field Survey, 2008

From the table above, we can see that 48.7% of Table 8: Any Positive Relationship Between
the respondents strongly agree that organizational Organisational Culture and Organisational
culture determines the productivity level of the Productivity?
organization and then followed by 44.9% of There is a positive relationship between organizational
the respondents who also agree, 5.1% of the of culture and organizational productivity
Cumula-
the respondents are undecided and 1.3% of the
Fre- Valid Per- tive Per-
respondents only disagree that organizational quency Percent cent cent
culture determines the productivity level of the Valid Strongly
3 3.8 3.8 3.8
organization. Disagree
Disagree 6 7.7 7.7 11.5
In this study, the researcher also sought to
Undecided 6 7.7 7.7 19.2
know the respondents view on if there is a positive
Agree 40 51.3 51.3 70.5
relationship between organizational culture and Strongly
employee job performance. Their responses are Agree
23 29.5 29.5 100.0
shown in the table below: Total 78 100.0 100.0
Table 7: Is There a Positive Relationship Between Source: Field Survey, 2008

Organisational Culture and Employee Job
performance? This table reveals that 51.3% of the
There is a positive relationship between respondents agree and 29.5% of the respondents
organizational culture and employee job performance strongly agree that there is a positive relationship
Cumula-
Fre- Valid Per- between organizational culture and organizational
Percent tive Per-
quency cent
cent
productivity. On the other hand, we have 7.7%
Strongly of the respondents who are undecided, 7.7% of
2 2.6 2.6 2.6
Valid Disagree the respondents who disagree and 3.8% of the
Disagree 6 7.7 7.7 10.3 respondents who strongly disagree that there is
Undecided 9 11.5 11.5 21.8 a positive relationship between organizational
Agree 38 48.7 48.7 70.5 culture and organizational productivity.
Strongly
23 29.5 29.5 100.0
Agree
Total 78 100.0 100.0 Testing Of Hypotheses
Source: Field Survey, 2008 Hypotheses testing are very crucial in a research
work because until a hypothesis has been tested
From the table above, 48.7% of the respondents and checked against available data, it is nothing
agree, 29.5% of the respondents strongly agree, more than a guess. There are various statistical
11.5% of the respondents are undecided, 7.7% tools that can be use for testing of hypotheses but
of the respondents disagree and 2.6% of the this research work will be limited to the use of chi-
respondents strongly disagree that there is a square (x2) statistical tool.
positive relationship between organizational The chi-square test is used in goodness of fit
culture and employee job performance. to assess whether a particular set of observation
The researcher sought to know the respondents is sufficiently reliable for the purpose for which it
view on if there is a positive relationship between is been collected. Chi-square involves calculating
organizational culture and organizational the probability that an observed value randomly
productivity. Their responses are shown in the picked from the population equals a normal curve
table below: frequency of the hypothetical population. Hence,
the observed and expected set of frequencies will
be compared and arranged in single columns.

2009 Olu Ojo 395
Chi-square (x2) is calculated using this Hypothesis 2

formula: H0 There is no positive relationship
x2 = ∑ (O – E) 2 between organizational culture
E and organizational
Where: ∑ = Summation productivity.
O = Observed frequency H1 There is a positive relationship
E = Expected frequency between organizational culture
Hypothesis 1 and organizational
H0 There is no positive relationship productivity.
between organizational culture
and employee job performance
H1 There is a positive relationship Table 10: Test of Hypothesis Two
Ob-
between organizational culture served Expect- Residual (O – E)2 (O – E)2
ed (E) (O – E) E
and employee job performance (O)
Strongly 3 15.6 -12.6 158.76 10.18
Disagree
Disagree 6 15.6 -9.6 92.16 5.91
Table 9: Test of Hypothesis One Undecided 6 15.6 -9.6 92.16 5.91

Ob- Agree 40 15.6 24.4 595.36 38.16
Expect- Residual (O – E) 2
served (O – E)2
ed (E) (O – E) E Strongly
(O) 23 15.6 7.4 54.76 3.51
Agree
Strongly
2 15.6 -13.6 184.96 11.86 Total 78 78 63.67
Disagree
Disagree 6 15.6 -9.6 921.16 5.91
Undecided 9 15.6 -6.6 43.56 2.79 Decision rule: Reject H0, where x2 calculated is
Agree 38 15.6 22.4 501.76 32.16 greater than x2 tabulated, otherwise, accept H1.
Strongly
23 15.6 7.4 54.76 3.51
Agree
Calculated (x2) = ∑ (O – E) 2 = 63.67
Total 78 78 56.23
E
Decision rule: Reject H0, where x2 calculated is Degree of freedom “d.o.f” = n – 1
greater than x tabulated, otherwise, accept H1.
2
Where n = number of rows
Therefore, d.o.f = 5 – 1
Calculated (x2) = ∑ (O – E) = 56.23 =4
E Tabulated (x2) = At 0.05% level of significance,
Degree of freedom “d.o.f” = n – 1 the tabulated value of x2 for 4 degrees of freedom
Where n = number of rows is 9.488
Therefore, d.o.f = 5 – 1 Decision: Since the calculated
=4 x2 is greater than the tabulated
Tabulated (x ) = At 0.05% level of significance,
2
x2, we reject the null hypotheses
the tabulated value of x2 for 4 degrees of freedom (H0) and accept the alternative
is 9.488 hypotheses (H1).
Decision: Since the calculated x2 is greater This indicates that there is a positive relationship
than the tabulated x2, we reject the between organizational culture and organizational
null hypothesis (H0) and accept productivity.
the alternative hypothesis (H1).
This indicates that there is a positive relationship Empirical Findings
between organizational culture and employee job
performance. Based on analysed data, the findings in this
study include the followings:

(i) A large number of respondents (57.7%) culture in order to improve their employees’ job
strongly agree that corporate culture has effect performance.
on employee job performance. Every individual has different culture and
(ii) 48.7% of the employees also agree that beliefs that he works with and when he joins an
corporate culture determines the productivity organization that has a completely different culture
level of the organization. and beliefs from his own, he should be allowed
(iii) This study further reveals that there is a to internalize himself first with the organization’s
positive relationship between corporate culture and values to know whether he can cope
culture and employee job performance. This with them or not. It is the ability of the employee
is evidenced in the first hypothesis tested in to cope with the organizations culture that will
which the calculated value of chi-square 56.23 determine how he will perform on his job.
is greater than the tabulated value of 9.488. In cases where an organizational culture must
(iv) There is also a positive relationship between be changed, employees must first of all be notified
organizational culture and corporate culture and made to learn the modification of the old
and organizational productivity. This also culture as this will affect their performance.
came from the second hypothesis in which the Organizational culture of must be binding on
calculated value of chi-square 63.67 is greater all member and staff of the company as this will
than the tabulated value of 9.488 which made encourage uniformity among members of the
us to accept alternative hypothesis two and organization and thus enhance commitment and
reject null hypothesis two. group efficiency.
Conclusion
References
In this study, the researcher tried to look at
the impact of corporate culture on employee job Cascio, W. F. (2006) Managing Human Resources:
performance with evidence from Nigerian banking Productivity, Quality of Life, Profits. McGraw-
industry. Hill Irwin.
Questionnaires were administered to
respondents who were randomly selected from Denison, D.R. and A.K. Mishra (1995) Toward
sampled banks to find out their opinions and views a Theory of Organizational Culture and
on whether corporate culture has an impact on Effectiveness, Organization Science, 6 (2), pp.
employee job performance. 204-223
What we deduced from this study is that
corporate culture is very important in every Devis, L. (2007) Organizational Culture
organization and that it has positive impact on and its Importance, http://www.
employee job performance. Besides, corporate organizationalculturecenter.com/ Accessed on
culture affects the level of organisational 3rd January, 2009.
productivity in a positive way.
This study shows that there is a positive Forehand, G. A. & B. von Gilmer, (1964)
relationship between organizational culture and Environmental Variations in Studies of
employee job performance. Organizational Behaviour, Psychological
Bulletin, 62, pp. 361-382.
Recommendations
Hallett, T. (2003) Symbolic Power and
The following recommendations are made to Organizational Culture, Sociological Theory,
the management of case study banks and other Vol. 21, No. 2. pp. 128-149.
organizations that are interested in modifying their

2009 Olu Ojo 397
Jones, G. R. (2003) Organisational Theory, Design, Schein, E. H. (1990) Organizational Culture,

and Change, Upper Saddle River: Prentice American Psychologist, 43 (2), 109-119.
Hall
Sorensen J.B. (2002) “The Strength of Corporate
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Culture and Performance, New York: Free
Press Performance”. Administrative Science Quarterly,
Vol. 47, No. 1. pp. 70- 91.
Marcoulides, G.A. and R. H. Heck (1993)
Organizational Culture and Performance: Tichy, N. M. (1982) Managing Change
Proposing and Testing a Model, Organization Strategically: The Technical, Political, and
Science, Vol. 4, No. 2. pp. 209-225. Cultural Keys, Organizational Dynamics
(Autumn), pp. 59-80.
Morgan, G. (1997) Images of Organization,
Thousand Oaks: Sage Publications. Titiev, M. (1959) Introduction to Cultural
Anthropology, New York: Henry Holt &
Ojo, Olu (2003) Fundamentals of Research Company.
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Umikeer, W. (1999) Organisational Culture: The
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of the AHRD 1994-2005 Proceedings, Florida
International University, USA.

Financial Distress Prediction in Emerging Market:

Empirical Evidences from Iran
Mahdi Salehi , Bizhan Abedini
Abstract
In this article the ability of financial ratios for prediction of financial distress of the listed companies in
Tehran Stock Exchange (TES) was investigated. For this reason, the multiple regression models were used
and a model was presented for prediction of financial distress in listed companies in TES. The assessment
of the model was done by utilizing the data of two groups. The first group contained 30 companies which
don’t have any financial distress, and the second group, similarly, contained 30 companies which have
financial distress. The presented model was according to five the ratios, namely; ratios indicate liquidity,
profitability, managing of debt and managing of property.
The statistical results of the model indicate the validity of that model and the selected ratios. The results
of the test of the ability of model prediction indicate the reality that the model designed four years before
financial distress in companies; present a correct prediction about the financial distress.

2009 Mahdi Salehi, Bizhan Abedini 399
Introduction move that endangers seriously the progress of

the company’s growth is regarded as breaking
The role of accounting information in control.
distinguishing between companies with The current study is about predicting the
financial distress (bankrupt companies), and breaking of the control of the company according
companies without financial distress (non- to accounting data. When these data one can
bankrupt companies) had been one of the predict an issue, in this case, we can suggest a
controversial issues in recent decades around the model that-according to it –inform the shareholders
world. Several experimental researches about and other claimants about breaking the control
bankruptcy prediction carried out by Beaver in the company. Lack of know ledge about the
(1966), Altman (1968), and Blum (1974) company’s of situation of the company, can yield
indicate that with using accounting information great damages for every claimant of the company.
it can pinpoint companies that will be about to By predicting any collapse in the company, we
face financial distress. The studies carried out can collapse. So, the goal of this investigation is to
mostly had been relied on multi-variable models present a model for predicting the financial distress
for prediction of financial distress in companies. according to the accounting data in admitted
Also one-variable model has been used for companies in TSE.
prediction of financial distress in companies.
The financial distress and finally bankruptcy Review of the literature
can cause some great damages to shareholders,
virtual investors, creditors, managers, employers, Beaver (1966) compared the financial ratios
suppliers of early materials and clients. One of 79 failed firms with the ratios of 79 matched
of the inherent factors of financial distress and firms up to five years before the 79 firms actually
finally the bankruptcy of the companies is lack failed. “Cash flow to total debt” had the highest
of existing of control by different claimants. discriminatory power of the ratios examined. Five
The company shareholders may have no say years before failure, an optimal prediction criterion
in the management of the company. Use the (i.e., cutoff value) based on the single accounting
different kinds of destructive operations such as ratio misclassified only 22 per cent of the validation;
supplying their own share in the market or using one year prior to failure the criterion misclassified
of the right of expressing their views against the only 13 per cent of the validation sample. This
management. When carried out their operations, is impressive given that a random classification
the share price decreases and the company would produce a 50 per cent error in the sample.
from the point of view of view of financial However, Beavers, used a frequency rate for the
power – encounters this snag and regards as firm sample that was substantially higher than one
mismanagement. Being not commensurate with would observe in reality He (1968a) examined
the financial ratio of the company- according to these results further and reported that non-liquid
financial cases, it can be fulfilled by breaking the asset measures (e.g., cash flow to total debt, net
control by unsatisfied shareholders and finally income to total assets, and total debt to total
lead to financial distress and bankruptcy of assets) seemed to perform better than liquid asset
the company. Other groups like creditors with measures, apparently because they represent more
doing - can also cause halt the progress of the “permanent aspects” of the firm.
company. Security prices also convey information about
Exclusion of extension of refund period financial distress. Beaver (1986b) reported that,
and exclusion of payment of loan in the future on average, common stock return data had a lead-
are activities that can seriously disrupt the time of about two and a-half years in discerning
financial holidays of the company and cause failure versus non-failure status. That lead-time ran
heavy losses to in the company. Generally any slightly ahead of the lead times of the accounting
M. Salehi, B. Abedini - Financial Distress Prediction in Emerging Market: Empirical Evidences from Iran
ratios in the assessment of financial distress debt figured prominently in the various statistical
as part of an overall evaluation of prospective formulas, especially those that applied to the
security returns. More recently, Aharony et al., industrial sector.
(1980) evaluated a rule that estimated bankruptcy Another study of interest is Altman et al., (1977).
probabilities using quarterly security return data. This research apparently forms the underpinnings
Consistent with Beaver’s, their results indicated: of the credit risk reports by Zeta Services, Inc.,
“That a solvency deterioration signal using capital The variables identified in the Zeta model were
market data is available some two years before the retained earnings to total assets, leverage (based
bankruptcy event.” on market values), earnings variability, return on
Most of the recent studies have adopted a total assets, fixed charge coverage, current ratio,
multiple-variable approach to the prediction of and asset size. Adjustments to those variables were
financial distress by combining accounting and made on the basis of footnote disclosures (e.g.,
non-accounting data in a variety of statistical information about unconsolidated subsidiaries and
formulas. Altman’s (1968) model is perhaps the leases). The model improved upon the Altman Z
best known of the early studies. He developed score model classifying 91 per cent of a validation
an equation that optimally combined five ratios sample one year before the filling; and five years
reflecting accounting and market data, namely, earlier, 77 per cent of the validation sample was
liquidity, profitability, financial leverage, solvency, classified correctly .Having the greatest weight
and sales activity (i.e., sales to total assets). The in the equation were variables “retained earnings
discriminate-function criterion (commonly known to assets” (explains 25 per cent of the difference
as a Z score) predicted 24 of 25 failed firms not used between failed and non-failed firms) and
in developing the model (the validation sample), “stability of earnings” (explains 20 per cent of the
one year ahead of the event. For a second sample difference).
of 66 non-failed firms with temporary earnings Several financial distress prediction studies
difficulties, the Altman Z-score criterion was in attempt to compare empirically the forecast
error in only 14 of 66 cases. accuracy of models already in the literature:
Early studies using multiple variable statistical Moyer (1977); Collins (1980); Hamer (1983);
techniques subsequent to Altman include Deakin and Zmijewski (1983). Zmijewski made a
(1972) and Blum (1974). Subsequent research comprehensive analysis of 13 financial distress
also includes investigations of the characteristics models. Eleven of those were exact replications
of failing firms in special sectors: Altman (1973) of the models appearing in the previous research.
on the railroad industry; Edmister and Schlarbaum However, the statistical formulas of those models
(1974), Sinkey (1975, 1977); Martin (1977); were such that they were also similar to many other
Santomero and Vinso (1977); Pettway and Sinkey financial distress models that are not specifically
(1980) on the banking industry, Altman (1977a) examined in the study. For example, the variables
on savings and loan institutions, Altman and Loris contained in the 13 models encompassed the
(1976) on the over-the-counter broker-dealer variables examined in Beaver (1966), Altman
industry; Edmister (1972) on small-business (1968); Wilcox (1971); Blum (1974); Libby
failures, Schipper (1977) and Shrieves and Stevens (1975); Altman et al., (1977); Vinso (1979);
(1979) on the educational entities; and Pinches and Aharony et al., (1980); Dambolena and Khoury
Trieschmann (1974) on the insurance industry. (1980); Ohlson (1980); Emery and Cogger (1982);
Whether the predictive value of accounting Zavgren (1982); and Zmijewski (1983). The 13
information was based on samples of industrials models were tested on a sample of firms that have
or on non-industrials, the misclassification rates been traded on either the AMEX or NYSE. The
were low. Hence the explanatory variables had sample consists of 72 bankrupt and 3,573 non-
significant predictive power. Ratios based on bankrupt firms. An analysis of the variables,
accounting earnings, reported cash flow, and book one at a time, indicated that accounting rate of

return measures were most useful in classifying Several studies focus on models to predict bank
bankruptcy; they were followed by the financial financial distress. Such models are used primarily
leverage and fixed payment coverage measures. as early warning systems for federal and state
The single-variable analysis indicated that, on bank regulators. The objective is to develop
average, bankrupt firms had lower rates of return, classification rules based on comparisons of banks
lower liquid-asset composition, lower liquidity with “criticized” loans and banks with un-criticized
position, and lower fixed payment coverage than loans, “problem” banks and non-problem banks,
do non-bankrupt firms. However, the degree of and failed banks and non-failed banks. Consistent
financial leverage was greater for bankrupt firms. with the general research on financial distress, the
Finally, the dispersion of those characteristics studies use accounting data to predict the group
tended to be higher for the bankrupt firms than for (population) to which a given bank is likely to
non-bankrupt firms, in part due to the fact that as belong.
firms moved closer to bankruptcy they take on more Sinkey (1979) developed a model based on
unusual characteristics. This could be due in part these variables: operating expenses to operating
to the choice of accounting techniques. Schaefer, income and investments to assets. The model
(1982) reported that potentially failing firms made predicted 15 to 16 bank failures in the validation
many more income increasing accounting changes sample one year before failure, and 14 of 16
than did firms in general. The more recent research failures two years before failure. The model also
has made use of probit analysis and adopted works well in classifying non-problem banks as
realistic chronological updating procedures (i.e., such. Noteworthy was Sinkey’s finding that the
re-estimating the model on chronological yearly 2-variable (accounting) model appeared to signal
sub-samples). The analyses indicated that the a “red flag” (on average) approximately 66 weeks
models based on financial statement data, stock ahead of the data of the examiner’s on-site review
return data, and liquidity statistics, all predicted that led to the bank’s being placed in the FDIC
well and that models using primarily financial problem bank list. Pettway and Sinkey (1980)
statement data did appear to have some predictive followed up that research with an analysis of
advantage. Some of the models outperformed the market and accounting-based screening models,
naïve model (i.e., predicting all non-bankrupt) on the assumption that market prices might detect
when the cost of incorrectly predicting that a firm aspects of financial distress earlier than accounting-
would go bankrupt was significantly greater than based information.
the cost of incorrectly predicting a non-bankrupt All of the above -mentioned studies have been
firm. Additionally, the correlations among the carried out in Western countries. In Iran we cannot
alternative probability specifications (e.g., probit) find any considerable research on this issue. In
were quite high. Thus it appears that most of the Table 1 the carried out researches about prediction
extant financial distress prediction models produce of bankruptcy while using the accounting data has
reasonably similar probabilities of bankruptcy. been summarized.
Table 1. Researches on bankruptcy carried out
Results The used variables Methods Study

The ratio of cash flows to the The separate test of every ratio
The ratio of cash flows to the
total debts is the best barometer which are yielded from accounting
collection of debts. The ratio of
of prediction of bankruptcy. data (financial cases) comparison
cash flows to the collection of
The level of prediction error for of 79 bankrupt companies with
assets. The ratio of cash flows to
one up to five years had been 79 non-bankrupt companies on Beaver(1966)
the specific value and the ratio of
one by one: 13%, 9%, 23%, the basis of the size and type of
cash flows to the sale.
24% and 25% industry.
Results The used variables Methods Study

The results indicated that until The ratio of net benefit of working
two years before bankruptcy, capital to the total assets .The ratio
these ratios predicted carefully of horded profit to the total assets. Using of multi-variable model
the level of bankruptcy of The ratio of the “before interest according to 33 bankrupt and 33
companies. The most principal and tax” profit to the total assets. Altman
non-bankrupt companies in five
changes in the used ratio The ratio of merchant value of the (1968)
years before bankruptcy.
have happened between the company to the office value of the
second and third years before total debt and the ratio of sale to
bankruptcy. the total assets.
The two models of the ratio of The model of linear analysis with
The ratio of cash flows to sale,
cash flows to the total assets using the step by step method for Norton and
The ratio of cash flows to the total
and the ratio of cash flows to the four years before bankruptcy. Smith
assets. The ratio of cash flows to
total debts are the best models The example models have been
the specific value, The ratio of (1979)
for prediction of bankruptcy, in designed on the basis of the size
cash flows to the total assets ,etc.
three years before bankruptcy. and the type of industry.
The ratio of the total debts to the
total assets, The ratio of working Using of logarithmic symbol
The accounting digits are able to capital to the total assets. The ratio with using of four factors on
predict the bankruptcy until two of current debts to the current the possibility of bankruptcy,
years before bankruptcy, and assets. The ratio of the net benefit presenting of some models for
the prediction of bankruptcy in Ohison
to the total assets. The ratio of prediction of bankruptcy for one,
one year before bankruptcy, has funds which are yielded from the two, and one or two years before (1980)
a greater accuracy. operation to the total debts and bankruptcy.
etc.
The ratio of the operational cash 60 bankrupt and 230 non-bankrupt
The results indication that the flows to the total debts. The ratio companies on the basis of five years
variables of the form of the cash of the operational cash flows to before bankruptcy, the analysis of
the current debts. The ratio of net a one- variable according to three Casey and
flows have the higher power in benefit of the working capital to ratios which are related to the form Bartczak
comparison with the variables the total assets, The ratio of net of cash flows and six ratios which (1985)
of promissory digit. benefit to the total assets. The ratio are related to the promissory goods
of debts to the total assets and etc. of financial cases.
The operational cash flows
resulting from sale. The ratio of The comparison of the ratios of the
The ratios of the form of cash in cash coverage .The ratio of the form of cash flows with the ratios of
flows and promissory digits are Gahlon and
current assets to the current debts. promissory digits for 60 bankrupt
able to predict the bankruptcy Vigeland
The ratio of the “ before interest and 204 non-bankrupt companies
in five years before bankruptcy. (1988)
and tax” profit to the total assets in five years before bankruptcy.
and etc.
The investigation of the ability of

The ratio of the operational cash prediction of the models on the
The accounting data have great flows to the current debts. The basis of two groups of companies:
significance in prediction of ratio of the operational cash flows Gilbert et al.,
The first group contains of 52
the bankruptcy, and the ratio to the total debts .The ratio of cash bankrupt and 208 non- bankrupt (1990)
of the form of cash flows – flows to the total debts, The ratio companies, and the second group
meanwhile- also has a great of “before interest and tax” profit
significance. to the total assets .The ratio of sale is like the first group with using of
to the total assets ,and etc. 14 ratios and also the step by step
statistical method.
The investigation of the carried out studies about different financial ratio and different methods of
the value of data of financial cases of prediction of research. In this research some ratios that a high
financial distress (bankruptcy) indicates that the unity of views about them has been used.
accounting data are able to predict the financial
distress in the companies. We must however Research Methodology
consider this point that there is no high unity (of
views) about the kind of the financial ratios which The current research was carried out on the
are used in prediction of financial distresses and admitted companies in Tehran Stock Exchange
that the yielded results have been according to and comprised 60 companies and two groups. The

first group contains 30 productive companies faced data before the last year data (t-1) and till three
the financial distress on the basis of the rules of the years before the last year (t-3) have been used
Stock Exchange, because of being harmful of their for prediction of the financial distress in admitted
symbol had been closed for at least two years and companies in Tehran Stock Exchange.
had not been opened until the end of December As we pointed out in the “a review to the
2007. For predicting the companies situation for previous studies” section, in the previous studies
the next period (T+1) the most commensurate very significant ratios and barometers have
method is testing the ratios of the financial cases in been found by researchers (ratio) prepared for
the (T) period. But because of existing limitation investigation and evaluation. Finally, the variables
in the data of this research, the companies which have been divided in five standard ratios that
are related to the first group has been selected these abovementioned ratios had been indicated
from all companies that since 1995. Besides, liquidity, being lucrative, administration of debt
because existing of limitation about research data and administration of asset. The ratio selection
(limitation of the number of damaging companies had been on the basis of their popularity in the
and distressed companies of the first group) and literature and their virtual relationship with the
thanks to the existing difference in the size and the current study and the possibility of availability to
type of the industry, they haven’t been completely them, according to the financial cases of the Iranian
homogeneous. companies. The calculation of some of the ratios
About selection of the second group (the such as the ratio of the forms of cash flows for the
companies that don’t have any financial distress) previous years had not been possible according to
- due to lack of limitation about the number of the existing data. Consequently we can not find
the companies of this group –we have tried to the abovementioned ratios in the model.
select carefully the companies that don’t have any From 22 primary ratios – after necessary
financial distress. The second group contains of investigation – five ratios that were expected to
the similar example of the productive company in present the best prediction about the financial
industry that has been selected haphazardly from distress together – have been selected. These five
the admitted active companies in TSE (except the ratios are: The ratio of the working capital to the
companies that have their symbol closed because total assets (WC/TA). The ratio of the current
of being harmful). The criterion of activity of assets to the current liabilities (CA/CL).The ratio
the companies has been determined according to of the profit before interest and tax to the total
the monthly continuous exchange of their share assets (PBIT/TA), The ratio of total equity to the
(except the cases that the closing of the symbol total assets (TE/TA); and The ratio of the sale to
of the company is for establishment of assembly total assets (S/TA).
of presenting the new data). The example of the The ratio of the working capital to the total
second group has been selected in such a way assets is a ratio of liquid assets of the company
that all of that all of the industries (on the basis with regard to the total carried out investment
of grouping of TSE) are in it. The selection of the that often being low can causal problems for the
number of the second group companies – that is on companies. The working capital explains the
the basis of every years from 1995 onward – had difference between the current assets and debts.
been commensurate with the number of the first On the basis of Haldeman, Altman and Narayanan
group companies in each year. research, this ratio is the best scale for evaluation
The required data have been selected according of the ability of the liquidity of the company.
to the published financial cases of the admitted Another significant ratio used here is the
companies in Tehran Stock Exchange for every ratio of the current assets to the current debts.
year (T up to T-3). The last year data (T) have been Being low, the curntre ratio in comparison with
used for determination of the model which has the average industry can indicate the liquidity
been used for prediction of financial distress. The problems in the company. The significance of the
ability of liquidity in continuation of the activity Where:

of the company and its relationship with lucrative Z1=the financial distress in the company
and levering power of the company has caused the B0=the width from the source
usability of the current ratio in addition to the ratio WCTA=the ratio of the working capital to the total
of the working capital to the total assets in model assets
prediction in the current study. CACL=the ratio of the current assets to the current
The ratio of the “before interest and tax” profit debts
to the total debts indicates the real fruition of the PBTA=the ratio of the profit before interest and
independent assets of the company from any type tax to the total assets
of benefit and tax. Since the continuation of the TETA=the ratio of the salary of shareholders to
activity of the company is on the basis of the power the total assets
of being lucrative of its assets, consequently, this STA= the ratio of the sale to the total assets
ratio is the best barometer in relationship with BJ=the factor of independent variables
the prediction of financial distress and finally the J=from 1 up to 5
bankruptcy. Besides, the lack of payment power in E= a section of the error
a bankrupt company happens when the collection
of debts is more than the ordinary value of the The model analysis
company – according to the determined value and
thanks to the power of having lucrative assets in Before evaluating the power of model
the company. This ratio also contains the cash prediction, it is necessary to extract the model
flows in a long term period. factors. The model factors have been calculated
The ratio of the salary of the shareholders to according last year which is related to the data of
the total assets is one of the ratios that measure two groups (60 companies). In Table 2 the average
the levering power of the company. Being low of of every one of the variables and the test of their
the abovementioned ratio in the companies can being meaningful has been pointed out.
yield problems for them in acquisition of the loan
and new credits, and increase the possibility of Table2. The average of every one of the variables and
bankruptcy and liquidity distress. the test of their being meaningful
The ratio of sale to the total assets or the ratio (P – The t The average The average The
Value) ratio of the group of the group variables
of turning of the total assets is a standard financial which which has
ratio that explains the ability of the assets of the doesn’t have the financial
any financial distress
company in establishment of the sale. This ratio distress
is typically the recommender of the activity of the 0.0167 6.07 0.6 -31.6 WCTA
company. In relationship with the ratio of sale to 0.0036 9.202 108.4 79.91 CACL
0.0000 28.735 30.5 -26.4 PBTA
the total debts, we shouldn’t forget that there are
0.0034 9.328 28.6 -26.6 TETA
many differences between the ratios of turning
0.0021 10.337 96.6 62.3 STA
of the assets in different industries. About this,
we have been tried to select the industries that
whose turnover assets (according to the average Table 2 indicates that all of CACL, STA, PBTA
of industry) is more or less similar to each other. and TETA variables had been meaningful in the
According to the above mentioned variables, a five- surface of 1% and also the WCTA variable is
variable model has been designed for prediction of meaningful in the surface of 2%. So we can say
bankruptcy. This abovementioned model is: that there is a meaningful difference between
the variables of the two groups. The meaningful
Z1=B0+B1WCTA+B2CACL+B3PBTA+B4TET difference between the two groups is – by itself
A+B5STA+e –a confirmer of the informational content of the
accounting digits for distinguishing between the

companies which have the financial distress and As we can see in table 3, the factors of variables
the companies which don’t have any financial except the CACL variable are all meaningful and
distress. significant in prediction. In previous sections, it is
According to the external ratios for the last year, said that every one of the pointed out variables in
every one of the symbol companies (containing model – except the two first variables – indicate
the companies which have the financial distress being beneficial in administration of debts and
and the companies which don’t have any financial administration of assets. The two first variables
distress) has been summarized on the regression indicate the liquidity of the company and we may
model in Table 3. be able to know the reason for of the CACL
variable in usage not being meaningful – from
Table 3. The results yielded from the analysis of the the ratio of WCTA. In other words, pointing to a
Regression Model variable is enough for liquidity.
Z1=B0+B1WCTA+B2CACL+B3PBTA+B4TET The factor of determination of the model (0.729)
A+B5STA+e and the factor of the modified determination (0.704)
The inde- The as- The T The P and also the F amount indicate that the model
pendent sessment amount amount has a high prediction power. So for prediction of
the liquidity distress we can rely on the assessed
variable
model.
The fixed -1.24 *** 0.000
amount -0.01423 -4.006 0.000
The test of the ability of the model
WCTA 0.003724 *** 0.246
prediction
CACL 0.01952 -5.154 0.000
PBTA 0.01231 1.172 0.012
The data of the financial cases of sample
TETA 0.006371 *** 4.419 0.009 companies till three years before the financial
STA **2.608 distress have been used in testing the ability of
*** 2.708 the model prediction. The numbers of companies
The determined fac- 0.729 in the two groups were thirty calculated according
tor (R2) 0.704 to the financial cases of the model. In Table 4
The determined and 29.017 the results of the test of the ability of the model
modified factor 0.000 prediction according to the data of one year before
The F amount 1.618 the financial distress has been presented.
The P amount
Durbin – Watson
***: Meaning in the surface of one percent
**: Meaning in the surface of two percent
Table 4. The results of the test for the ability of the model prediction according to the data of the year before the
financial distress
The The The percent The number

The predicted The real The number
predicted percent on of predictions predictions
The second
The first group N Wrong Right Right
group
The first group (which has The error of
2 28 30 7 93 28
the financial distress) type one
The second group (which
The error of
29 1 don’t have the financial 30 3 97 29
type two
distress)
60 5 95 57 The total
The results indicate that the model has divided accurately 77% of the companies which have the
95% of the sample total accurately. The error of financial distress. The error of type two is 10%
type one was only 7% and the error of type two that – in comparison with the one previous year
was only 3% that the yielded results-according to – has increased by 7% but yet we can say that the
the data of the financial cases in one year before prediction of the model has a high accuracy.
the financial distress – which confirms of the high The power of model prediction has been
power of the model for prediction of the financial investigated according to the data of three years
distress in admitted companies in TSE. before the financial distress. In table 6 the results
Table 5. The results of the test of the ability of model prediction according to the data of two
years before the financial distress
The The The The The percent The number

The real
predicted predicted number percent of predictions of prediction
The second The first N Wrong Right Right
group group
The first group(which has The error of
7 23 30 23 77 23
financial distress) type one
The second group (which The error of
27 3 doesn’t have any financial 30 10 90 27 type two
distress)
60 17 83 50 The total
The model of prediction of the financial distress of the test of the ability of the prediction model
has been evaluated according to the data of the has been pointed out according to the data of three
financial cases in two years before the financial years before the financial distress. The results of
distress. The power of the model prediction has the test indicate that – according to the accounting
been decreased according to the data of two years data of three years before the financial distress –
before the financial distress in comparison with we can predict the financial distress in companies.
one year before the distress. The results of the test As we can see in table 6, 93% of the predictions
of the ability of the model prediction have been have been accurate and the level of error – in
pointed out in table 5, according to the data of two relationship with the companies that have the
years before the financial distress. The decrease in financial distress – has been only 7%. The error of
the ability of prediction model is understandable type two has increased to a low amount (it reached
since the occurrence of the financial distress had to 13%, while it was 10%) but yet we can say that
been far away and for this reason, the barometers the model has a high power about prediction.
are less clear nevertheless, the model has realized
Table 6. the results of the test of the ability of the model prediction, according to the data of three years before the
financial distress
The The number The percent The percent of The number

The predicted The real
predicted predictions of predictions
The second The first N Wrong Right Right
group group
The first group(which ha S 30 The error of
2 28 7 93 28
the financial distress) type one
The second group (which The error of
26 4 doesn’t have any 30 13 87 26 type two
financial distress)
60 5 95 57 The total

Discussion and Conclusion term, and an incompatible financial structure

reflect on of the financial mismanagement
The results yielding from the current study in a company. So, we should interpret and
indicate that the accounting data can predict the generalize the results of this research with due
financial cases have a high predicting power. Also, consideration to this limitation.
the finding of the research is the confirmer of this 2- Although taking samples of the research has
point that until three years before the financial been carried out incidentally and with the
distress, we can predict the financial distress supposition of their normal distribution, yet
in the companies. The results of this research the generalization of their results is only possible
are compatible with the findings of Western to the organizations that their characteristics are
researchers, such as Altman, Beaver, Laitinin, homogeneous and homologous and compatible
Gilberte, Lee and Blum. with the characteristic of the selected sample
The results which are related to the ability of the society.
model prediction, are indicative of this point that 3- The differences the temporal period of the
with the distant time of occurrence of the financial companies of the first group (the companies
distress, the ability of the model prediction which have the financial distress) can lead to
decreases and this matter had been resulted from the limitation of generalization of the research
decreasing of clearness of the barometers of the results although some attempt tries has been
prediction of the financial distress (the calculated made for decreasing these differences.
variables according to the accounting data). The
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Institutions in the Commercial Banking
Short-Sea Transport and Economic Development in

Penang
Chang Kah Loon, (MPhil)

2009 Chang Kah Loon 411
Sea transport or simply shipping is essential This study of short-sea transport has two main
to the functioning not just of modern society objectives: to show the importance of short-sea
generally, but of the global economy in particular. transport to the economic development of Penang
For international trade, sea transport remains the and to investigate the potential of improving short-
most economical mode of transportation that moves sea transport services in the state of Penang.
all kinds of goods around the world. For example,
shipping makes possible the bulk movements of
raw materials and primary commodities to sites Research Statement
of manufacturing, and manufactured products
to their markets. Moreover, the movement of Despite its relatively small size, Malaysia is an
forms of fuel and energy, especially petroleum important trading nation, with exports and imports
and natural gas, is also largely dependent on playing an important role in its traditionally open
shipping. Without effective and economical sea economy. Over the years, the types, amounts and
transport, therefore, the viability and efficiency of monetary value of goods exported and imported
the world economy would be adversely affected. have changed and varied. However, although
Indeed, economic growth has become closely sea transport has contributed significantly to
related to developments and improvements in sea Malaysia’s economic development, the links
transportation (Tirschwell 2004). between changes in the sea transport or shipping
In recent times, developments and advancements sector and the evolving patterns of economic
in sea transportation have had profound impacts development within the area served have not been
upon international trade. To take an important much studied. Even less well understood is the role
example, the conversion of merchandising from and influence of short-sea transport in view of the
break-bulk shipping to containerization now growing market tendency to increase the capacity
permits goods dispatched from their point of origin of deploying vessels as the search for economies
to reach their intended destination more efficiently, of scale moves sea transport operators to look to
and with much less risk of damage to the goods. larger containerships.
There are also clear benefits to exporters and It is expected that the shipping industry’s need
importers when sea transportation costs less while to maximize the utilization of larger vessels will
facilitating ‘Just-In-Time’ stock management. in turn reduce the number of port calls on major or
Presently, traders can expect relatively safe, easy trunk routes. Consequently, there will be a greater
and economical access to international markets need and enhanced role for short-sea transport
through a combination of deep-sea and short-sea that plies between small or off-line ports and
shipping that utilizes container transshipment transshipment hub port within a particular region.
opportunities. In other words, the short-sea shipping sector does
Within the very broad area of sea transportation, not operate in isolation but as an integral part of a
short-sea shipping – also called short-haul sea variety of shipping services within fully integrated
transport – has become increasingly important global transport networks.
because most trunk or deep-sea vessels do not call Not surprisingly, then, short-sea shipping has
at small or “off-line” ports. At such ports, the depth received increasing attention from governments
may be insufficient to accommodate large vessels, in the Asian region. For instance, the government
or the cargo amounts are too limited to justify the of Malaysia has sought to expand the nation’s
use of large vessels. Instead, “feeder operators” port capacity and to upgrade port equipment
provide separate short-sea shipping services that and facilities. In addition, niche ports have been
mediate between small ports and large vessels. established at Port Klang and Port of Tanjung
Since small ports greatly outnumber major ports in Pelepas (PTP), the designated “load center for
the world, short-sea transport is an indispensable Malaysia and transshipment hubs for the region.”
part of the growth in sea transportation. Even so, the government recognizes the need
C. K. Loon - Short-Sea Transport and Economic Development in Penang

to develop and improve the overall short-sea to short-sea shipping services, as well as factors
transport system in the country. that are “internal” to the shipping sector.
The attention paid to short-sea shipping is The discussion of “external” factors will cover
particularly important for Penang. Short-sea a range of issues, including the following:
transport or shipping, operated by feeder operators,
typically carries cargo from Penang port and i. The growth in trade and demand for
delivers the cargo at a transshipment port, like shipping
Port Klang or PTP or Singapore. Under normal Growth in trade, and especially exports, and
circumstances, the short-sea cargo must wait for one the growth in shipping are closely related. Over
to two days before being transshipped onto a trunk the years, Malaysia’s export trade has grown
or deep-sea vessel. A separate shipping line, the considerably. As an example, export movement
Main Line Operator (MLO) that carries the cargo from Southern Thailand through Malaysia’s
to its intended final destination, operates the deep- seaports has increased, too, with an appreciable
sea vessel. Without short-sea transport operators impact on Penang-based shipping. Containerized
to serve between Penang – a relatively small port cargo from Southern Thailand is sent to Penang
with relatively limited cargo volumes – and the Port by rail or road and then exported. In this
transshipment hubs, the cargo cannot be moved. connection, the thesis will investigate the
Even when the MLOs have secured transport connections between increased trade and the rise
contracts, their trunk or deep-sea containerships in demand for good sea transportation services
cannot or do not intend to call at Penang because and networks.
their ships’ sizes, the port’s shallow drafts and the
cargoes’ low volumes. ii. Penang as a feeder port
In short, the level of economic growth of Penang Penang’s export containers are largely
is related to the development of sea transport too. dependent on short-sea shipping to carry them
However, functioning of sea transport or shipping to designated transshipment ports for onward
at Penang cannot be performed smoothly and conveyance by externally-bound deep-sea vessels.
effectively without the integration of deep-sea This is mostly because deep-sea vessels or
and short-sea shipping. Since export cargoes from mother vessels do not usually call at Penang due
Penang require short-sea shipping for its deep- to relatively limited container volumes and the
sea vessel connection at transshipment port, a limitation of depth required to serve large container
large proportion of export cargo movement from vessels. In addition, the existing North Butterworth
Penang is directly dependent on efficient short-sea Container Terminal (NBCT), which does not have
transport. “Free Zone Status”, is not in the position to attract
This relationship between short-sea vessels – deep-sea vessels for transshipment of cargo.
also known as “feeder vessels” – and the trunk or Hence, Penang’s role as a feeder port influences
deep-sea containerships – also termed “mother developments of short-sea shipping.
vessel” – is basic to an understanding of the role
and importance of short-sea shipping. For a state iii. High charter-hire cost for container vessel
like Penang, a gateway to the Northern Region Although there is a high demand for shipping,
of Peninsular Malaysia, maintaining viable and the shipping operators find that the present charter-
regularly improved short-sea shipping services hire cost for container vessel has risen quite
should, therefore, would be critical to managing considerably. For example, the cost of a charter-
effectively economic growth. hire 500 TEU-capacity vessel has risen from about
This thesis plans to investigate various factors USD5,000 per day to USD10,000 per day over the
associated with the development of short-sea past few years. As such, an operator may choose
shipping services in Penang. In doing so, the thesis to terminate its service even though it is capable of
will focus on structural matters that are “external” filling a vessel to capacity.

iv. High fuel or bunker price mother vessels at transshipment ports is crucially
This is another important factor affecting the dependent on a commitment to meeting the window
smooth operation shipping service, including short- vessel berth at every designated port within the
sea shipping. The operators have experienced high short-sea routes. Thus, the performance of a port
fuel or bunker prices which, if unchecked, threaten in supporting short-sea shipping operations has an
the economic viability of short-sea shipping. immediate and significant impact in terms of the
costs and quality of operations.
v. Cargo weight and affect load factor
Almost one-third of the Penang export volume viii. Major shipping policy and trunk or deep-sea
comes from Southern Thailand, most of it in the shipping
form of heavy cargo (bearing about 24 tons per Global sea-borne trade has vastly expanded
container compared to 14 tons per container, the in volume. With that, however, most shipping
latter being the standard weight for determining lines and main line operators have emphasized
vessel capacity). Since vessels cannot be over- the development of large capacity deep-sea and
laden with cargo, the typical feeder vessel may have mother vessels to serve their trunk route trade, in
to carry less cargo in order to ensure its stability order for their operations to achieve economies
for smooth sailing. In short, instead of having 500 of scale. Presently, some vessels can load up to
TEUs based on 14 ton eachs, an operator may be 8000 TEUs. Consequently, there is a “knock-on”
forced to accept less cargo booking (for instance, demand for short-sea transport to serve smaller or
300 TEU per vessel) to accommodate the heavy off-line ports, like Penang. Yet major shipping and
cargo from Southern Thailand. But this reduction official policies have been slow to recognize this
in TEUs, that is, vessel utilization, does not help to development.
reduce the high charter-hire and bunker costs. The thesis will also pay attention to “internal”
factors, that is, more technical factors related to the
vi. Expansion of non-sea modes of transport state and operation of short-sea transport services.
Rail service now serves as an alternative In the relevant parts of the thesis, the technical
to short-sea transport as far as transshipment meanings and significance of these “internal”
movement between Penang and Port Klang is factors will be duly made clear. The following
concerned. Rail service for container movement “internal” factors will be considered:
was not popular in Penang in the past, but it has
become significant since last year as the export i. Ship frequency and fixed-day sailing
movement from Penang occasionally rose beyond schedule
the capacity of short-sea shipping and feeder The above are very important to vessel
vessels. Road transport is sometimes used to move operators and exporters or their planners. The
cargo from Penang to Port Klang, Port of Tanjung vessel operator needs is constrained by ship
Pelepas (PTP) and Singapore. However, this mode frequency and the maintenance of fixed-day
is unpopular with exporters due to various reasons sailing schedules and must strive to ensure smooth
including cumbersome documentation processes and cost-effective vessel turn-around. On the
and high costs. Thus short-sea shipping must other hand, an exporter’s shipment or production
contend with competition from rail service in the planning is based on a vessel’s sailing schedule
immediate future. and exporters prefer more frequent vessel calls for
flexible planning.
vii. Port performances and “turn-around” time
Apart from high charter-hire cost, determined ii. Connectivity between feeder and mother vessels
on a per-day basis, short-sea shipping involves Apart from some direct-call vessels, a very
short journeys that are time sensitive. In particular, high percentage of container movements from
a shipment’s connectivity between feeder and Penang involve transshipment at Port Klang,

PTP and Singapore. Hence, it is critical for ex- Literature review

Penang shipment planning to achieve smooth
connection with the intended mother vessel at the
transshipment port. If the transshipment process or In general, an understanding of transportation
connectivity fails at any time, the operator would requires an understanding of its relation to the
incur additional costs for the re-nomination of an economy, including patterns of consumption and
alternative mother vessel. production (Faulks 1992, Sloman 2003). Globally,
sea transport plays a critical role in facilitating the
iii. Stowage of containers for multi-port calling processes of matching the supply of goods with
Stowage planning should be perfect at all their demand. As Bell, Bowen and Fawcett (1984)
times. Otherwise, there would be wasteful extra suggested, manufactured goods are not worth their
space onboard that would necessitate extra (“land monetary value to a trader unless the goods can
and reshift”) work at the next port of call. In such be made available to the latter’s customer. To the
a situation, the vessel’s turn-around time will be extent that governments intervene in international
affected leading to vessel delay and a probable trade, often by subsidizing their export sector
misconnection with the intended mother vessel. (Sloman 2003), official support for sea transport
Again, extra work and time would burden the development becomes an issue in economic
operator financially. development for countries, such as Malaysia,
that depend very much on external trade for
iv. Schedule recovery, network design and deep-sea their growth. Sea transport, by linking traders of
vessel deviation different countries, and producers and consumers
Especially in the even of vessel delay or behind in different locations, is both a necessity and
its window schedule, some immediate action like catalyst of trade-based economic growth (Bell,
port omission and “cut & sail” may need to be Bowen and Fawcett 1984).
taken place in order to ensure vessel comes back In particular, it has been suggested by Button
to its window schedule or so-called for schedule (1993) that the demand for sea transport services
integrity. The moment the operator conduct port reflects the long-term business cycles experienced
omission or even cut & sail exercise, there be by trading nations as sea transport bridges
extra costs to pay for shifting of containers to production and consumption. For many countries,
other alternative vessel. However, if the operator moreover, Sloman (2003) observes, certain raw
does not carry out the move, they may have to face materials, capital equipments and intermediate
another version of consequences such as losing products that are necessary for development
of confidence of customer and extra burden if no can only be shipped from abroad. From another
cargo support. perspective, Ball et al (2002) found that as many
Network design refers to routing of a short-sea companies strive for better quality and lower-cost
shipping within the region, for example vessel products to improve their global competitiveness,
calls Penang – Port Klang – PTP – Singapore – they have shifted their production lines to lower-
Penang. Flexibility to schedule of a short-sea cost countries through acquisitions and mergers
shipping is equally essential, because short-sea occasionally. This trend of relocation has opened
transport operator may stand in need of scheduling up more opportunities for shipping to play a role in
its vessel to induce additional call at certain port meeting ideal production objectives, opening new
to meet the requirement of the main line operator’s markets and attaining global economies of scale.
deep-sea vessel deviation. In non-economic ways, organized sea transport
can also move food and relief supplies and other
forms of emergency aid efficiently.
Thus, transport, including the important modes
of sea transport, fulfills the needs of distributing

raw materials and exporting or importing finished and integrations, the providers of transport and
products. In this basic way, sea transport connect logistics services constantly re-evaluate their
areas of the world that are fortunate enough to strategies to derive competitive advantages from
possess sources of desirable raw materials like different combinations of modes and routes. Here,
crude oil, iron ore and coal with places (like Japan) operators and users take into account such factors
that have few local sources and must import large as transit time, cost, and frequency when judging
quantities of those materials to feed their industrial the efficiency of transport services (UNCTAD/
development (Faulks 1992). In conveying raw RMT 2001).
materials from their places of origin to their places One result has been the development and
of application (manufacturing sites, for example) deployment of newer and bigger containerships to
shipping or sea transport helps to balance supply take advantage of the benefits of containerization.
with demand and resource with use. Other than But containerization has benefited not just deep-
that, shipping also allows two-way transfer of sea shipping but short-sea operations, too. While
goods between countries that produce a surplus deep-sea operators concentrate on handling of
with those that are in need of those goods. Thus rising cargo volume and mother vessels call at
shipping may be said to contain the seeds of world transshipment hub ports, short-sea operations meet
trade. the requirement of traders for higher frequency
It is not surprising, therefore, that economists and shorter vessel transit time. In summary, short-
have long been concerned with assessing the sea shipping offers better returns by serving more
interdependent links between changes in transport, destinations, improving cargo transshipments and
including sea transport, and the pattern of economic saving time and cost (Notteboom 2002). As current
development (Button 1993). Indeed, Button trends lead most shipping lines to introduce larger
(1993) argued that transport provided an “initial tonnage or capacity vessels to handle increasing
experience” of business for many industrialists cargo volumes, short-sea networks must develop,
in the developed countries. Although its potential too, to connect to transshipment hub ports (Hartnoll
multiplier effects for third world countries are likely 2002). Hence, as global shipping networks grow
to be substantially less today, given the growth rapidly, the share of transshipment in world
of international trade and tied development aid, container traffic has also risen significantly.
nonetheless transport can still facilitate economic Consequently, while global container carriers
expansion. Economic development may, therefore, and deep-sea operators feature critically in the
be seen as a complex process with an important competition among ports, it is also crucial for them
role played by sea transport and shipping. to be selective in their choice of transshipment ports
Within the modern shipping sector, the (Lirn et al, 2004). This is because the processes
conversion of merchandising from break-bulk of container transshipment need the integration
shipping to containerized shipping has had a of deep-sea and short-sea and shipping services.
tremendous impact in the organization of sea (These services may, of course, be inter-modal,
modes of cargo movement. Containerized cargo that is, supplemented or partially replaced by non-
may be transported from the port of loading to sea modes of transport.) At the same time, the
its intended destination in the same condition. adoption of new technologies can reduce the time
Significantly, containerization is also a method needed to transfer containers between inter-modal
of transporting merchandise in a unitized form connections and speed up the transshipment of
thereby permitting an inter-modal transport cargo to and from short-sea vessels so as to make
system and network to evolve that can combine these transport services competitive in costs and
different modes of transport, including rail, road, time (Tirschwell (2004). As traders demand more
short-sea and deep-sea shipping (Branch 1989). rapid transit for the shipping of cargo, in order
Based on their expectations of efficient, rapid, and to replenish stores while reducing inventory and
reliable transport supported by logistical systems warehousing costs, it is probable that the role of

short-sea shipping will expand to accommodate shipping sector in Penang and its relation to the
those needs (Tirschwell 2004). state’s overall economic development. In doing so,
Further, it is likely that short-sea shipping could the thesis will combine qualitative and quantitative
be fully integrated into door-to-door transport analyses to pose and answer the following related
services, as noted by the European Commission questions:
(1999). In fact, the more highly developed it
is, the more likely freight inter-modality will 1. How has short-sea shipping developed within
benefit short-sea shipping. In practice, though, the larger framework of sea transport in
such modal integration is only possible when Malaysia?
the individual modes, including shipping, are 2. Specifically for Penang’s overall development,
regularly developed to meet customers’ service what is the role that is played by short-sea
requirements. But, at least in overall transport shipping?
planning, short sea shipping should be regarded 3. How is the present short-sea shipping industry
as an integral component of comprehensive structured in terms of firms, types of services
inter-modal approaches that attract higher cargo and range of operations?
volumes, enhance networks and provide genuine 4. What are the key issues, external and internal
door-to-door services. factors affecting the prospects for growth in
To that extent, it is important to analyze the the industry in the foreseeable future?
prospects or problems facing the expansion of short 5. Can we anticipate a likely expansion of short-
sea shipping in a growing economy. This thesis sea shipping in terms of the firms involved,
plans to conduct such an analysis for the case of human resources deployed or required and the
Penang. In this region, already a number of short- industry’s contribution to trade and growth in
sea transport operators provide services that link the state of Penang?
Penang to Port Klang, PTP and Singapore. As such, 6. Which are the important areas within short-sea
short-sea operators perform the function of linking shipping to which government policy should
deep-sea operators to the port of Penang even pay particular attention?
when the latter’s large vessels cannot physically
perform effective vessel-turn-around for the long- These questions are based on a methodological
haul or deep-sea routes. But while this function approach that is exploratory and explanatory. It is
is performed by the existing short-sea shipping not an approach that is oriented towards formulating
network, its scope for expansion is constrained and testing hypotheses. Fundamentally, this thesis
by policy and practical matters, by “external” and hopes to map out how the short-sea industry works
“internal” factors. It is a major objective of this and to identify the kinds of issues that short-sea
thesis to investigate these constraints on the further shipping services must address. In addition it
development of Penang-based short-sea shipping plans to analyze the problems and prospects that
services. In this manner, it is hoped that the thesis the services face in the foreseeable future.
will contribute to a clearer understanding of the To this end, the methodological approach to be
economic growth of Penang and the development adopted comprises the following components:
of short-sea shipping.
To provide an account of the rise and
Methodology and sources of data development of short-sea shipping.
There has been very little research on sea This account will be based on archival research
transport in general and short-sea transport in directed mainly at primary documents, both from
particular in Malaysia. Hence, this thesis plans government and industry sources. Part of the
to provide a relatively new study of the field by information required will be qualitative, tracing
undertaking an investigation of the short-sea the recent development of short-sea shipping. But

part of the information will be statistical, including industry journals and periodicals, company reports,
data on trade and cargo volumes, establishment of newspapers and magazines, official statements.
firms and value of services provided. The use of On the whole, it is planned that the thesis will
quantitative information here will be mostly to be able to provide an updated appraisal of the state
trace the trends in short-sea shipping in Malaysia and directions of growth of short-sea shipping
and Penang. in ways that show the dynamic and changing
opportunities and contributions of the sector.
To provide an explanation of the structure of
the industry and constraints upon it. Indicative References
The researcher plans to interview various Ball, D. A., McCulloch, W. H., Frantz, P. L.,
‘players’ in short-sea shipping. They include: Geringer, J. M. and Minor, M. S. (2002)
officers in relevant port authorities (especially the International Business: The Challenge of
Penang Port Authority), key representatives of Global Competition. New York: McGraw-Hill
industry organizations (such as the International Irwin.
Ship-Owners’ Association, North Malaysia
Shipping Agents’ Association, Chartered Institute Bell, G., Bowen, P. and Fawcett, P. (1984) The
of Logistics & Transport in Malaysia), local Business of Transport. Plymouth: Macdonald
managers of selected shipping lines (covering & Evans.
deep-sea and short-sea transport), and traders
and exporters. Given the small field of interested Branch, A. E. (1989) Elements of Shipping.
parties, it is not feasible to carry out any kind London: Chapman and Hall.
of systematic survey. Instead, the research will
stress in-depth discussions that benefit from the Button, K. J. (1993) Transport Economics.
experiences of the ‘players’ in short-sea shipping. Aldershot: Edward Elgar.
To offer an analysis of the problems and European Commission (1999) The Development
prospects short-sea shipping faces. of Short-Sea Shipping in Europe: A Dynamic
Alternative in a Sustainable Transport Chain.
Part of the analysis will be drawn from the Second Two-yearly Progress Report. Brussels:
interviews mentioned above. Part of it will be European Commision
based on the researcher’s own evaluation of
such matters as trends in charter-hire cost, fuel Faulks, R. W. (1992) Principles of Transport.
and bunker prices, changes in cargo weight, Essex: McGraw-Hill.
competition from non-sea modes transport, port
development and deep-sea containerships, and the Harnoll, T. A. (2002) “The Impact of Multiple Hub
efficiency of networks of connectivity between Ports on Feeder Operations.” Paper presented
feeder vessels and mother vessels. In addition, the at the Conference on Ports & Logistics 2002,
researcher hopes to evaluate government measures Portsworld, Johor, Malaysia, 24-25 September
related to the performance of the Penang Port, the 2002.
likelihood of Penang Port’s being granted Free
Zone status, and government policies that may Lirn, T. C., Thanopoulou, H. A., Beynon, M. J. and
enhance or constrain the expansion of short-sea Beresford, A. K. C. (2004) “An Application of
shipping services in the state. AHP on Transhipment Port Selection: A Global
The researcher will mainly consult the Perspective” Maritime Economics & Logistics.
following sources of documented, published Cardiff University. Cardiff, UK.
and/or unpublished information: port statistics,

Notteboom, T. E. (2002) “The Interdependence Tirscwell, P. (2004) “Time is right for short-sea
between Liner Shipping Networks and shipping.” The Journal of Commerce. 20
Intermodal Networks.” Paper presented at the April.
Conference on IAME Panama 2002 - Maritime
Economics: Setting the foundations for Port United Nations Conference on Trade &
and Shipping Policies. IAME, Panama City, Development (UNCTAD) (2001) “Review of
Panama, 13-15 November 2002. Regional Developments: East Asia.” In Review
of Maritime Transport (Chapter VII). New
Sloman, J. (2003) Economics. Essex: Prentice York and Geneva: UNCTAD, pp 87-104
Hall.

2009 Ooi Seng Kong 419
The Functioning Process of Logistics: A case of Licensed

Manufacturing Warehouse (LMW) in Malaysia
Ooi Seng Kong, (MSc)
O. S. Kong - The Functioning Process of Logistics: A case of Licensed Manufacturing Warehouse (LMW) in Malaysia
The main purpose of this study is to identify any problems that are likely to be encountered
the License Manufacturing Warehouse (LMW) by the manufacturers operating in a Customs
operator in the state of Penang, i.e. whether they are territory such as within Principal Customs Area of
fully conversant or aware of the facilities provided Malaysia. The principal Customs Area consists of
by the Royal Customs Department. In analyzing the Federation of Malaysia excluding the island of
the understanding of the facilities provided, data Langkawi, Labuan and Free Zone.
was collected and gather which was obtained In prevailing Customs controlled environment
from various industrials. Data was also gathered the investing manufacturer will have to consider,
through questionnaires that were distributed to among other thing, the existence of high tariff walls,
selected respondents. import and export restrictions and the taxation of
Since establishment of Free Trade Zone locally manufactured goods. In the circumstances,
(FTZ) in 1972 and currently was name as Free the potential manufacturer may be excused if he
Industrial Zone, the Government decided to adopted the view that he will be operating under
launch the License Manufacturing Warehouse constraints imposed by Customs, Sales Tax and
(LMW) system. The proposal to implement the Excise legislation. What is important to the users
LMW system was based on the same policy as is the availability of facilitation’s and exemptions
that governing the establishment of the FTZ’s in under prevailing Customs and Sales Tax laws to
Malaysia, namely to provide exemption facilities meet the requirement of his day-to-day operations.
and other incentives for export-manufacturers on Therefore the latest information on Customs and
an automatic basis but with a slight modification, Sales tax procedures for obtaining facilitation’s
whereas FTZ’s were more or less permanent in and exemption are pertinent to the manufacturer.
terms of locality, area and permitted activities. The primary function of the Customs is the
However the LMW manufacturer has a choice enforcement of the provisions of Customs, Sales
of location. The final decision on the location of tax and Excise laws whose basic object is the
the factory site would invariably be dictated by collection of revenue and protection of the same.
factors like, the availability of labour, cost of land It must be acknowledged that exemption facilities
and building and other supporting services. In the and incentives related to tax relief must necessarily
LMW system the export-manufacturer had the operate within the framework of existing revenue
best of both choices of location as well as facilities laws and not outside of them.
for his operation that were more or less identical to The future economic well being of nations
that available in the FTZ. is dependent undeniably on the development
The necessary legislation for the of trade and industry as it has been up till now.
implementation of the LMW system was enacted Trade and Industry cannot however develop and
in 1973 by amending the relevant provision in the function in an insulated environment on the basis
Customs Act 1975. The amendment permitted of protectionism and self-sufficiency. There has to
a manufacturer to acquire LMW status for his be economic co-operation transfer of technology
manufacturing operation by having the factory effective utilization of resources, investments in
bonded by Customs. The bonding or licensing industry and finally international trade through
of the premises allowed LMW manufacturers to procurement of oversea markets.
import or purchase their raw materials tax-free All this can take place at a much-accelerated
and export their finished goods without duties. rate if Customs procedures are oriented towards
The facilities provided by the Royal facilitating trade and industry. More importantly
Customs Department are very important for the facility must be provided through efficient
manufacturers in Malaysia, whether foreign or Customs procedures.
local and the kind of incentives and facilities Since the Government has provided the facilities
available are very relevant before investing in to the Licensee but still not fully conversant or
any activity in Malaysia. The purpose is to avoid aware of the facilities provided due to lack of

awareness result in the delay of their operation in 3. Express Handling Unit

particular matters related to import & export and Express Handling Unit is a facility that
thereby incur higher operation cost. enables fast and direct release of goods imported
This lack of awareness also results in licensee’s by air. Under item 172 of the Customs Duties
flout the rules and regulations administered by (Exemption) Order 1988, goods that are imported
the department and occasionally penalized and by any person using air courier service through the
blacklisted. Complete knowledge of Customs laws Kuala Lumpur International Airport, Sepang air
and facilities are essential to the manufacturer so as cargo, as general rule goods are normally released
to plan any manufacturing activity and expansion within one day. Under this facility the goods
of business. imported are not exceeding RM200.00 of the total
The objective of this research is to evaluate value per consignment, exempted from pay import
the effectiveness of the facilities granted to the duty and need not be declared in Customs Form 1.
Licensed Manufacturing Warehouse manufacturers Category of goods is free sample that are imported
that would like to discuss are as follows:- for testing or exhibition.
1. Direct Release System 4. Export Mobile Examination Team

This facility was introduced is to help the This facility provides speedy clearance
manufacturers and the trading communities to of goods for export from the premises of the
get their import consignments released without manufacturers. Goods which are normally
physical examination but subject to condition required to be examined at the place of export for
imposed by the Director General of Customs. the purpose of duty drawback facility and etc, can
The purpose of this facility is to avoid any delay now be done at the premises of the manufacturers,
faced by the users on the process of clearance and this facility is to avoid inconvenience of having to
also to avoid port congestion. It is only allowed repack or replacing goods which may be damaged
if: as a result of Customs examination at the place
of export. The condition imposed by the Customs
• The declaration are completed Department is a follow:-
• Declaration is as per in manifest
• Supporting documents are all in order • Application must be made to the controlling
• The consignment are not suspicious in nature Customs stations by the exporters / importers.
• Those importers are under License • It is limited to the goods, which are not subject
Manufacturing Warehouse or Free Industrial to export duty.
Zone • The goods must be loaded in full Container
• Consignment that consign to public bonded Load (FCL).
warehouse • The importers / exporters must have good
record with the Customs Department.
2. Selected Release System • Located within 25km from the Customs
This facility given by the Customs department station.
base on certain type of consignment that are
released without physical examinations and it The mobile examination team was established
only allowed based on the criteria as follows: at certain Customs station as an additional facility
to ease congestion at the ports entry points and
• The background of the importers. it only available at Penang port, Port Klang and
• The importers are importing homogeneous Johor Bahru.
goods. The objective of the Mobile Examination Team
• Value of the goods imported. is to overcome the difficulties of doing examination
• Upon application by the importer. at the port or entry points. It is also in line with the
Just in Time (JIT) delivery requirement and as an • Customs Act 1967

additional facility to the Direct Release System. • Application of Warehouse License-Public and
In case of imports, the goods are release after Private.
Customs duties and taxes are paid based on the • License Manufacturing Warehouse.
information declared in the Customs Declaration • Duty Free Shop License.
Form 1 and the containers are seals with Customs • Inland Clearance Depot License.
seal. In the case of export, the declaration can be • Excise Act 1976.
prepared in advance for the mobile examination • Manufacturing License.
team to verify that the goods are loaded into the • Warehouse License
container for export and sealed. • Sales Tax Act 1972.
• Manufacturer’s License.
5. Pre-Clearance • Service Tax Act 1975.
This facilities is to allow import declaration • Service Tax License.
being carried out 14 days before the arrival of
the vessel provided that the importer fulfilled the 8. Establishment of Licensed Warehouse
condition as follow:- The establishment of the license warehouse
(public and private) is to allow the trading
• Customs duties and taxes can be paid 14 days communities to carry out various activities in
before the arrival of goods. the warehouse before export or re-export their
• The conveyance manifest has been submitted goods. The activities that allow by the Customs
to the respective Customs stations. Department are;-
• The port operator confirm the estimated time
of arrival of the vessel. • Storage
• Other shipping document must be accompanied • Customs survey
such as Commercial invoice, AP (Approved • Bulk breaking
Permit) if require, Packing List and Delivery • Re-packing
order, etc. • Consolidation
• The consignment is not subject to Customs • Labeling
examination. • De-vending
6. Release of Export Goods without Customs 9. Facilities that allowed Licensed

Declaration Manufacturing Warehouse (LMW) to
This facility was announced by the Ministry carry out day-to-day activities
of Finance in 1998 Budget, which is to simplify Importation of machinery, spare parts,
export procedures and to facilitate the exporter to equipment, tools and accessories use directly
export their goods without declaration of Form in the production is given full relief of duties.
2. However, the form shall be submitted to the To ensure this exemption is granted automatically
Customs station not later than 7 days after the at the point of entry with minimal of Customs
departure of the vessel. control and documentation, the Importer must
declare in Customs Form 1 with proper supporting
7. One-Stop Licensing Centre documents and claim exemption under the Customs
This facility was introduced is to centralized Duties Order Exemption Order 1988 and Sales
the application, processing and issuing the Tax Exemption Order 1988.
license under the various acts, this will help the
applicant save time in their submission of any
application form and seek advise pertaining to the
Customs Rules and Regulations, e.g. like:-

10. Importation of raw materials from overseas attached with the approval. During importation
or Free Industrial Zone the licensee can claim tax exemption under item
Raw materials use directly in the production 51 of Customs Duties Exemption Order and item
of finish goods for the purpose of export or local 55 of Sales Tax Exemption order and declare in
sales are given full tax relief, the importer must Customs Form 1.
declare in Customs Form 1, and attach with
proper document and claim exemption under the 14. Purchase from Sales Tax License
relevant act. Company
This facility allowed the licensee to purchase
11. Import through Public Bonded Warehouse their raw materials or packing materials from any
This facility is allowed for LMW licensee that local Sales Tax license suppliers without paying
faced constraint in warehouse space, the goods any Sales Tax for use directly in the production.
will be transferred directly from the entry point to Exemption of the duties is claim under Item 28
the public bonded warehouse by using Customs Sales Tax Exemption Order and the licensee must
Form 8 and the movement of goods in container chop and sign the invoice and delivery order as a
or truck must be seal by Customs department. proved of receipt before it could be submitted to
All the bonded truck or open lorry must obtained the Customs Department.
approval from state Director of Customs before
allow carrying the goods. 15. Export of Finish Goods through Public
On movement of the goods from public bonded Bonded Warehouse
warehouse to the LMW premises, the Customs This facility allowed the licensee to
Department allowed the licensee to take partial transfer their finish goods to the public
or full load delivery as they wish. It must be bonded warehouse for temporarily storage due to
declared in Customs Form 9 for partial delivery constraint of space. Approval must be obtained
and Customs Form 1 for full load delivery and before the goods are allowed to move to the
claim exemption. bonded warehouse. The movement of the goods
from LMW to the bonded warehouse is under
12. Re-import of Rejected Finish goods for Appendix GPB-2 and proforma invoice. However
Reprocessing for export direct from bonded warehouse is by
This facility allows the exporters to re-import using Customs Form 2 without Customs seal.
their good from overseas or Free Industrial
Zone due to quality problem for the purpose of 16. Export of Finish Goods from LMW
reprocessing and re-exports to the consignee. premises through Third Party
First of all the consignor must obtained approval This facility allowed the trading company
in writing from State Director of Customs before to export direct the goods that are purchased
the goods allow into the LMW premises. Duty from LMW Company without paying any taxes
exemption claims under item 69 of Customs (if applicable) for the purpose of save time and
Duties Exemption Order and Item 75 of Sales Tax cost but approval must be obtained from the
Exemption Order and declare in Customs Form 1. nearest Customs Department. Export declaration
in Customs Form 2 and must endorse by the
13. Re-import of Machinery or Spare Parts licensee.
after repaired
This facility allowed the licensee to send the 17. Export of Finish Goods through third party
machine or spare parts to oversea for repair and from Principal Customs Area (PCA).
re-import after it is repaired. Before sending the This facility allowed the trading company
licensee must obtained approval fro State Director to export the goods purchased from LMW
Of Customs and declares in Customs Form 2 Company without paying any taxes but approval
must be obtained fro the nearest Customs Nevertheless, the licensee should take full
Department. The movements of goods from LMW responsibility to understand the requirement of
premises to principal Customs Area premises that LMW rules and regulations and it facilities, if
are approved by the Customs will be declare in difficulties occurred, they should refer it back to
Customs Form 9. Tax exemption is claim under the LMW Customs division for further advise on
Item 165 Customs Duties Order and Item 77 Sales the rules and regulation and the facilities provided
Tax Exemption Order. However the exportation is very important, in order to have smooth
must be carried out in between six months from operation.
the approved date. Through the analysis carry out on various
Export from PCA will be declare in Customs industrials, few recommendations had been
Form 2 and must be endorsed by LMW licensee. proposed in order to overcome the problems
Since the Customs Department had granted faced by the License Manufacturing Warehouse
a lot of facilities to facilitate the LMW licensee, is to attend courses pertaining to LMW rules &
however, still lot of the licensee still not aware of regulation, which may organize by the Royal
the facility provided, even though the survey carry Customs Department or private institution.
out from various industrials like:- Electronic, However, the Royal Customs Department
Garments, Assembly Plants and other Industry. should introduce or implement a kind of special
It was discovered the result collected shown 60% license to the person in charge of a LMW
out of 26 questionnaires rated it as good but it had company; the purpose is to upgrade the standard
spent a lot of times to explain to the respondents and knowledge of person in charge. Those holding
about the function and benefit of the facilities this license shall go through yearly examination
provided. pertaining to LMW rules & regulation when they
It shows that a lot of the respondents are not renew the license. Beside that Royal Customs
aware on the actual facilities that they can enjoy Department shall carry out the dialogue or seminar
and always refer or follow the advise from the regularly to the licensee base on the nature of the
appointed forwarding agent. business.

2009 Rakesh Tej Kumar Kalahasthi, P. Radha Krishna 425
Cell Based Reporting For Effective Custom Reports And

Analytics
Rakesh Tej Kumar Kalahasthi, P. Radha Krishna
Abstract:
Business Intelligence (BI) deals with increasing the competitive advantage of a business, by intelligent
use of available data for decision making and synthesizing useful knowledge from collections of data.
Microsoft Excel is one of the most commonly used BI tools and it is ubiquitous as well as well understood.
Excel PivotTables enables access and analyze SAP NetWeaver BI data. SAP BI 7.0 release introduced a
new dimension tool, called Cell Based Reporting (CBR), for developing workbooks using Excel. This
feature facilitates seamless integration of Excel with BI and produces a dynamic view of the reports for
the desired selection parameters to the user. In this we study the CBR features of SAP BI and focus on
development of CBR based financial analysis reports for the business. This study shows that CBR based
reporting guarantees the increase in performance of reports by integration of Excel with SAP BI.
R. T. Kumar Kalahasthi, P. R. Krishna - Cell Based Reporting For Effective Custom Reports And Analytics
Introduction retained earnings are frequently considered for

decision making.
Enterprises success depends on the effective The CBR approach presented in this paper
use of information that was collected through for developing custom based reporting facilitates
various operational systems. Recent developments reduction in the turnaround time in developing
in information technology made business reports as well as operational cost. The rest of the
analytics with better insights of the data resulting paper is organized as follows. Section 2 presents
in improved decision-making. Moreover, the SAP BI CBR capabilities, Section 3 describes
business intelligence (BI) systems are now better Case study, Section 4 presents the discussion, the
integrated with transactional systems. Deployment paper concludes with Section 5.
of BI tools is directly linked with the company’s
ongoing advancement, along with changing Sap Bi Cell Based Reporting (Cbr)
business requirements and an ever-increasing
amount of data which defines the ability to create SAP NetWeaver Business Intelligence [4]
and distribute the desired reports. In today’s encompasses data-warehousing capabilities, which
competitive environment businesses need quick allows a user to work with powerful analysis and
business actions and thereby necessitates use of planning tools. It is useful to integrate data and
sophisticated and easy-to-use BI tools in order to transform it into more constructive manner to aid
generate required reports quickly and analyze the decision-making and provide actionable results by
data effectively. accessing timely business information.
BI technology has coalesced in the last The SAP BI component, which is a part of
decade around the use of data warehouse and the SAP NetWeaver platform, enables solutions
[2] Online Analytical Processing (OLAP). The for company-wide data warehousing, ad-hoc
analytical processor can store lots of historical querying and reporting, analysis, and distribution
data and tends to give summarized reports. Data of actionable insights. It also supports on- the-
Warehouse is a conventional approach to collect fly reporting capabilities to create, distribute,
respective business data into a repository, where and print Web and spreadsheet-based reports in
it is organized and validated to provide analyzed multiple formats.
data through reports for decision making. [3] Just CBR [5] [6] [7] has the capability of developing
in a sentence it can be said as “Faster BI means the report through BEx in customized format.
better business decisions” It provides seamless integration with Excel
This paper addresses on-the-fly BI reporting and Intuitive Navigation for end users. CBR
capability through CBR provided by SAP BI 7.0. has a Design Mode to enable easy building of
CBR triumph over the [1] pivot tables which can BI applications and allows direct use of Excel
access and analyze SAP NetWeaver BI data in a Formulas and formatting options. This feature
static format. The CBR gives a dynamic approach also has a tight integration with BI Planning.
for viewing the data. We considered financial Data binding in the Business Explorer (BEx)
statements of a chemical industry to show the Analyzer is provided by queries, query views, or
viability of this technology under BI Platform. InfoProviders. BI data can thus be analyzed in
Financial statements deal with the information different ways and inserted in a Microsoft Excel
about the financial position, performance and workbook. Using the open dialog, business experts
changes in financial position of an enterprise that can select queries, query views, or InfoProviders or
is useful in making economic decisions. Financial call the BEx Query Designer to create new queries.
report is usually been made after a month, quarter The layout and interaction of the workbooks can
or the completion of one year depending on the be adapted to suit user requirements. Formatting
requisite. The reports such as balance sheet, income and formula functions from Microsoft Excel can
statement, cash flow statement and statement of also be used. The workbooks that are created can

be saved in favorites or made available to other

new dimensional tool given by SAP in BI 7.0
users using the role concept. Workbooks can which is called Cell Based Reporting. Here
also be precalculated and sent by e-mail to make the MS Excel is integrated with the BI 7.0
them available to other user groups. Information where the data can be inserted through the cell
broadcasting functions are used for this purpose. based formulae in any format. The data can be
viewed by the end user dynamically with the
Case Study desired selection parameters at any instance.
A global giant in the chemicals industry makes Methodology

products essential to everyday living.Their products,
found in consumer and industrial applications, are Consider the 2 types of reports as shown in
manufactured in North America, Europe and Asia. Figure.1 which client requires viewing for their
They are one of the world’s largest producers of entire organizational structure.
acetyl products, which are intermediate chemicals 1) 10 day Management summary
for nearly all major industries, as well as a leading 2) 5 day Detailed
global producer of high performance engineered The Management summary reports are for top
polymers that are used in a variety of high-value management people and detailed reports are for
end-use applications. Initially, for managing their Item level people in the organization. Usually 5 day
financial data, they used Hyperion HFM (Hyperion reports are generated after the first 5 working days
Financial Management) system for their financial of the current month to view the reports of previous
transactions. month similarly 10 day reports are generated after
the first 10 working days of the current month to
Table.1 Different Modules implemented view the reports of previous month. For example,
Area Module Scope to view reports of February, it takes first 5 or 10
Logistics- MM, PP, SAP R/3 Transactional system. working days (depending on the type of report) in
QM, FICO, SD etc.,
March to generate the reports.
Customer Relationship
Customer Relations SAP CRM Management system. Steps involved in generation of 5 day reports:
Analytic System • Operational data coming from SAP R/3 system
Data Warehouse SAP BI for detailed and is pulled into SEM Business Consolidations
Summarized Reports.
Planning, Budgeting Planning and
System (BCS) for consolidations. Here the
SAP SEM
and Forecasting Consolidation system. data is consolidated.
Financial Management HFM Exclusive for financial • The consolidated data is send to BI system to
management report in
Report Hyperion generate BEx reports.
The 5 day reports are for Item level
The Table.1 gives the information of people and so there are no planning reports
in this cycle.
different technologies available for the entire
process. After the system is enhanced from
Operational SEM BCS for BEx Reports in
Hyperion to SAP BI, the data is pulled from System Consolidations BI
BI for all the required reports. The end users
are comfortable to see the report in Hyperion
format rather than the SAP BI BEx format. So
BPS for
the requirement from their end has demanded Planning and
to use their earlier formats, but here the data Forecasting of
data
should not come from Hyperion system, but
it should be from SAP BI and SEM BCS Figure.1 Block Diagram of the Reports
system. This situation leads to find out the
Steps involved in generation of 10 day The figure 2 gives the report on a custom
reports: format for Trade working capital report developed
• Operational data coming from SAP R/3 through the CBR.
system is pulled into SEM BCS system
for consolidations, here the data gets Example
consolidated. Consider the most usable report for the client
• The consolidated data is send to Business “Trade working capital” (TWC). Under normal
Planning and Simulation (BPS) system to circumstances this report takes 5 man days to
Plan and forecast data. develop in BEx in order to complete that report.
• The planned data comes back to SEM BCS For the same report, CBR takes 2 man hours to
for consolidation and moves to BI system for complete with high performance. This report
BEx reporting. (previously in Hyperion format) has 13 rows and
The 10 day reports are for top management 6 columns, developing such a format in BEx could
people. So this cycle reports contain planning, involve around 300 Cell Editors which occupies
forecasting and budgeting. complex calculations and definitely hits the
Customer yearns for the existing report performance of the report.
formats as their users are very much comfortable. Firstly, the query developed in BI should
So the BI data is inserted into the corresponding be drilled down to the pertinent level, which is
cells of Hyperion report format. considered as Dataprovider_1. This provider is
MS Excel is very much integrated with BI in called into the specific cell of Hyperion format
Netweaver, by which the data can be inserted into taken as another worksheet using below excel
any desired format with excel formula mode as formulae as shown in Figure.3:
explained below. BexGetData (“Dataprovider_1”,
$G$9,$B9).
A. Excel Formula Mode Here, Dataprovider_1 is the default name
A Seamless integration of native Excel formatting given for the query drilled in the first worksheet.
and formulas The above formula pulls value into BW report
a. Cells of the result set are described via an and appears in the Hyperion format Excel. The
Excel formula (BexGetData) remaining process involves dragging the cells
b. Excel formatting options can be fully in excel, automatically data is pulled from the
leveraged for BEx workbooks (e.g., blank Dataprovider_1.
lines, fonts, etc.)
c. Combining Excel formulae and Excel
formatting allows the design of high-end
formatted solution workbooks as shown in
Figure 2.
Figure.3 Excel integration
Every Cell of the query result set is automatically

interpreted as an Excel Formula.
Figure.2 TWC report

B. BExGetData
Table.2 Cost Analysis
BexAnalyzer offers the Excel function No. of No. of hours* Total no of Total
“BexGetData“. This allows access to every Amount
reports reports*cost/report in M $
cell of the result set of an arbitrary data
BEx
provider. The below are options available in 84 3days*8hours*84reports*50$ 0.1008
technique M$
excel integrated BI.
0.02352
a. The context menu of the analysis grid offers CBR 84 4hours*84reports*70$ M$
the option “Convert to Formula“. This converts Savings for Client:
the data of each cell into a well defined Excel 0.1008 M $-0.02352 M $ =0.07728 M $.
formula.
b. The selection parameters of the formula are The advantages of CBR are
derived from the key rows and columns of the • SAP BI data can easily embed into MS Excel.
respective cell. • Business users can utilize their Excel know-
c. By using this option, the Analysis Grid Item how and use Excel functionality on top of BI
can be deleted and Drag & Drop can be data. SAP NetWeaver 7.0 provides enhanced
disabled. The number format of the data cells navigation features such as Drag & Drop.
is set to standard. • SAP NetWeaver 7.0 provides additional
functionality such as a design mode and
This enables the end-user in having full leverages Excel formatting and formula
flexibility of using Excel Formatting and Formulae features.
on the data and the approach for the solution gives • SAP BI Planning is completely integrated
as desired by the user. • SAP BI data has to be easily distributable.
Hence, BEx Analyzer workbooks can be pre-
Discussions calculated and distributed through Information
Broadcasting
Though the developer cost for CBR is high on • Saves time and cost for the development
an hourly basis to the client but, it saves huge man effort.
hours and operating cost in their business run. The
performance of the reports touch base their desire The CBR has MS Excel dependency and
and complicated reports are developed in very less requirement of skilled resource. Because of these,
time. the customer is able to use the custom excel formats
Cost Analysis which have completely replaced the standard BEx
For Trade working capital report the total report formats. The end-user is comfortable in
estimate without cell based report could be reformatting the workbook and adds further Excel
5days*8hours*50$/resource= 0.002 M $. calculations. Every cell of the query result set is
By using CBR technique the cost for the client automatically interpreted as an Excel formula due
was reduced to 2hour*70$/resource=0.00014 M $. to which rate of dependencies increases.
Hence from the observation the difference between This work describes how business experts
2000$-140$=0.00186 M $ is saved for one report can run complex analyses on BI data and use
and similarly for the remaining 83 reports. Microsoft Excel functions at the same time. Here,
Consider average time per report out of 84 the BEx Analyzer is a design and analysis tool
reports based on complexity as 3 man days if built into Microsoft Excel which is available for
developed in BEx but if the same is developed in this purpose. With the BEx Analyzer, BI data can
CBR it will take 4 man hours per report as shown be presented and analyzed interactively in the
in Table .2. Considering the difference Microsoft Excel environment.
Conclusions The Need for Speed: Faster BI Means

BetterBusiness Decisions New business
CBR is a high performance tool released as intelligence tools enable users to leverage data
add on in SAP Netweaver for BI. The proposed in more productive ways- An exclusive report
solution takes the report format specified by the from Business Week Research Services.
user and pulls the financial data from SAP BI
and SEM BCS systems and generates analytical SAP Gives Business Intelligence, Chapter 10,
reports in the desired format. This article gives http://media.techtarget.com/searchSAP/
how this technique is implemented for a chemical downloads/netweaver_for_dummies_Ch10.
industry to view data in effective custom reporting pdf
formats through BEx Analyzer. CBR has a positive
influence in different factors of business such as EClassEric Schemer, Markus Ulke (2006)
time, cost and manpower which moved SAP BI a “Seamless Integration of SAP NetWeaver BI
step ahead in the current competitive world. and Excel with the SAP Business Explorer
Analyzer”, SAP Contribution 31 October
Bibliography 2006.
Amyn Rajan, ‘etal’ (2008) “Connecting to SAP Thomas Zurek (2008) “Native Excel 2007 On Top
NetWeaver BI with Microsoft Excel 2007 Of Netweaver BI 7.0”, SAP AG, 29 January
PivotTables and ODBO”, 04 September 2008. 2008.
R. Kimball (1996), “The Data Warehouse Toolkit”, Enhancement package 1 for SAP NetWeaver 7.0,
John Wiley & Sons, Inc., New York (1996). Product Management SAP NetWeaver BI
October, 2008.

College of Management
Shri Vaishno Mata Devi University
Katra, India
Call For Research Papers

The College of Management of Shri Mata Vaishno Devi University, Katra, J&K, India has been
publishing “Arth Anvesan”-- A Bi-annual Refereed Journal with ISSN 0973-8193 since 2006, to stimulate
academic research into the different areas of Economics and Business Administration with the coverage of
various aspects of Business and Economic The journal throws light on the effective management practices
and empirical analysis with the embrace of multitude of themes linked with each other in one or the other
way.
We invite conceptual, theoretical and empirical research papers, articles, case studies with solutions &
book reviews, related to different facets of Economics and Management from academicians, practitioners
& research scholars. The publication of the submission is subject to the approval of the Advisory board.
The material sent for publication should be an original work which has not been previously published or
submitted for publication elsewhere. Manuscript submitted for publication must be in English.
Research article manuscript may be sent by e-mail accompanied by a scanned copy of submission form
completely filled and signature by the authors concerned. Manuscript can be addressed to:
The Managing Editor, Arth Anvesan

College of Management
Shri Mata Vaishno Devi University
Katra-182301
Jammu & Kashmir (India)
Email: - arthanvesan@rediffmail.com or suparn329@yahoo.co.in
For latest copy of the journal and Guidelines for Contributors please check the website http://smvdu.ac.in/
ejournals/ArthAnvesan.pdf .
SRRNet
Social Responsibility
Research Network
www.socialresponsibility.biz
Social Responsibility Research Network
Who are we?
We are an international network of scholars who share similar interests in aspects of social
responsibility. Currently we have about 500 members and membership is free.
Network officers:
Chair of the Network: Professor Dr. David Crowther, De Montfort University, Leicester Business
School, The Gateway, Leicester LE1 9BH, UK davideacrowther@aol.com
Vice Chair: Professor Dr. Güler Aras, Yildiz Technical University, Institute of Social Science,
Yildiz Besiktas 34349, Istanbul, TURKEY guleraras@aol.com
What do we do?
Conferences
2008 7th conference CSR and SMEs
Durham, UK
2009 8th conference CSR and NGOs
Pretoria, South Africa
2010 9th conference CSR and Global Governance
Zagreb, Croatia
2011 10th conference CSR and the New Economy
New Orleans, USA
Publications
Social Responsibility Journal
The official refereed journal of the Network; published 4 times per year by Emerald.
Discussion Papers in Social Responsibility
An opportunity for early publication of articles. Published when necessary by SRRNet.
The Newsletter
Published 3 times per year and containing news and opinion pieces. Sent to all members.
Research Book Series: Issues in Corporate Behaviour and Sustainability
Books published in association with the conferences and given to all conference delegates.
Full details of all of our activities can be found from our website – www.socialresponsibility.biz
If you share our aims then please join us. We look forward to hearing from you.
Isles Internationale Université
School of Doctoral Studies
(European Union)
Approved by Charter of The Ministry of Education of the British Isles to act as a chartered
University outside of the United Kingdom; with Full Accreditation granted from the Académie
Européenne d’Informatisation; established in Brussels, Belgium by Order of the King of
Belgium Albert II, with full recognition from The Ministry of Justice and Research of the Belgian Crown:
The Isles Internationale Université (European Union) has been commended to host the School of Doctoral Studies (EU)
in Brussels, Belgium, aiming to accomplish three fundamental missions:
• Development and enhancement of elite doctoral studies’ programmes, with cutting edge standards on academic and
scientific research;
• Enforcement of EU analogue quality standards on academic programmes developed by tuition institutions outside the
EU area: (a) By evaluating academic methodology applied on learning programmes; (b) By providing full coaching
and tutoring support to tuition institutions worldwide to upgrade, assure and maintain academic methodology quality
levels on their way towards excellence; and (3) By awarding EUASC Seal (EU Analogue Standards Certification) at
corresponding quality levels achieved at each evaluation point; and
• Ensuring academic EU Analogue Standard by performing: (a) Academic Validation on degrees earned by students at
recognised and/or certified tuition institutions located outside the EU area; (b) Double Degree awarding on degrees
earned by students at recognised and/or certified tuition institutions located elsewhere the EU area; and (c) Degrees
awarding on studies programmes developed by tuition institutions, once certification at higher quality levels on applied
academic methodology has been achieved and after collaboration agreement has been executed for these purposes .
In order to achieve its missions, the Isles Internationale Université has gathered some of the best minds in Europe, who
have developed sate-of-the-art doctoral academic programmes, elite research methodology and cutting edge technological
tools, and who act as permanent Faculty Members to strictly enforce this toolkit’s proper application on daily basis.
Doctoral Studies
The School of Doctoral Studies of the EU’s academic structure includes four Departments (Business Management and
Economics, Engineering and Technology, Science and Social Science) which host 37 Disciplines, offering PhD studies on
practically every main field of human knowledge.
Over 355 PhD students are involved in more than 116 cutting edge research projects, most of them being currently
developed in collaboration with 12 other universities in the EU area and elsewhere; 94% of these students are engaged on
programmes designed to undertake pure research assignment and 6% are required to undertake a research assignment and
pursue theoretical studies in the form of seminars or courses.
Studies towards a doctoral degree are worth 240 higher education credits (ECTS credits) and require an average of four
years of full-time study. The research is intended to lead to a scholarly thesis; writing it will take up most of a student’s
time and all theses are publicly defended. Every doctoral student receives a studies grant for partial or total coverage on
full programme’s term costs, as well as individual tutoring. Currently, slightly over 72% of all programmes’ full term
costs are covered by studies grants.
Science students spend a great deal of time in the laboratory. Some departments may require that the thesis be part of an
ongoing project within the department. In the fields of technology and natural science, researchers often work as part of a
team. If research findings are reproduced in academic journals the thesis may be a compilation of the published articles.
Forward inquiries to: admin@iiuedu.eu

Who are we?
The Universidad del Valle de México (UVM) is one of the largest and most prestigious universities in
Mexico. Founded in 1960 and accredited by the Federacion de Instituciones Mexicanas Particulares de
Educacion Superior, UVM enrolls students at 32 campuses throughout Mexico.
Universidad del Valle de México was founded by a Group of entrepreneurs and

academics, led by Mr. Jose Ortega in response to the professional requirements
of the Mexican labor market, aiming to provide education with quality:
High School
Undergraduate
Undergraduate for working adults
Graduate
Continuing Education
UVM’s mission is to be an institution that fully educates with an equilibrium

between sciences and technology, ethics and culture, according to the social needs,
in search of truth and welfare. The institutional philosophy and educational model
seek to educate in human values, updated knowledge and the acquisition of skills
that teach the student to competitively adapt to the labor market.
UVM alumni are distinguished by their abilities, knowledge, attitudes, and social skills
that are shaped by the identity subjects.
UVM is the only global university in Mexico

Because of its prestige and quality the UVM is part of Laureate International Universities, the
most important network of universities in the world which is integrated by 24 well-known private
universities in:
Spain, Switzerland, France, Costa Rica, Panama, Honduras, Ecuador, Chile, Peru, Brazil, England,
Chipre, China, Canada, US, Germany and Mexico.
UVM has 35 campuses throughout Mexico offering 38 undergraduate degree programs in Arts
and Humanities, Social Sciences, Economic and Management Sciences, and Engineering; 11
undergraduate degree programs for working adults and 28 graduate programs. UVM has more than
100,000 students and more than 9,000 employees (teachers and staff).
UVM opens its door to the world

UVM students have access to international qualified academic opportunities through programs
offered by Laureate International Universities
Summer courses
Semester academic exchanges
Double degree
Graduate studies
Recognitions:
Through its history, UVM has received recognitions that prove its excellence:
• Academic Excellence - Secretaría de Educación Pública (SEP).
• Affiliation - Asociación Nacional de Universidades e Instituciones

de Educación Superior (ANUIES).
• Academic Quality Certification - Federación de Instituciones

Mexicanas Particulares de Educación Superior (FIMPES).
• Second private university in the country holding the highest figure

of academic programs accredited by Consejo para la Acreditación
de la Educación Superior, A.C. (COPAES).
• National Registree of Scientific and Technologic Institutions and

Enterprises (RENIECYT) - CONACYT.
• According to the Reader´s Digest Intelligent Decision Markers (IDM) Guia Universitaria 2008,
UVM is one of the best upper education institutions in the country, from a range of over 100
public and private universities.
UVM’s faculty training programs

UVM’s commitment with its students and with the country is to enhance its academic quality and
prepare successful professionals; therefore, it invests in constant training and specialization of its
teachers through the Centre for Academic Excellence (CAE).
2008 Year of academic strengthening

UVM trained more than 3.000 teachers and staff in different areas of knowledge between January
and September of this year. It also started a program of specialization with postgraduate and
doctorate courses, as well as an English program. UVM has identified important public and private
upper education institutions in Mexico and abroad, to perform together development and training
programs.
Teacher training and professional development

Nearly 2.000 UVM teachers all over the country took the Institutional Teaching and Pedagogy
Program with a focus on the correct implementation of the educational model, which underlies the
students’ principles: learn to learn, learn to be, learn to do, and learn to undertake.
Also, more than 400 teachers of the 35 campuses took 12 seminars in areas such as: Industrial
Engineering, Mechatronic, Animation, Marketing, Management, Communication, Law, Psychology,
Health Sciences and Hospitality.
140 academic leaders of the 6 regions in which UVM has classified its campuses in 15 states of
Mexico and Mexico City, are enrolled in the Diplomat in Leadership for Academic Management.
Postgraduate Studies in prestigious institutions

A priority for UVM is to have teachers with postgraduate studies; thus, Walden University, a prestigious
on-line upper education institution accredited in the US, has offered scholarships for Master degrees
in Education, Management, Information Technologies, Psychology and Systems Engineering.
Sports at UVM go beyond boundaries

UVM considers Sports an important part of the student’s education. This has allowed some of its
students to excel at national and international events. Maria del Rosario Espinoza and Guillermo
Perez were both Tae Kwon Do gold medal winners in the Olympic Games of Beijing, China.
UVM supports young leaders of projects with social impact

From creating eco-tourism opportunities to developing a
national hotline to combat domestic abuse, young people
in Mexico are using their energy and creativity to improve
their communities – and country. To support their efforts,
Universidad del Valle de Mexico (UVM), joined the
Sylvan/Laureate Foundation and the International
Youth Foundation in 2006 in creating “Premio UVM
por el Desarrollo Social” (UVM Prize for Social
Development). Its goal: to celebrate and support
outstanding young Mexican social entrepreneurs.
Premio UVM has adapted the YouthActionNet® Global Fellowship model to provide a tailor-
made, culturally-relevant, and Spanish-language centered leadership development experience for 15
young Mexican leaders, ages 18-29, annually. The Premio UVM fellowship strengthens the project
management and communications skills of young Mexican leaders, while connecting them to their
peers and experts to create a national network of youth leaders affecting positive change.
Student Development
Responsible of the education that students receive, UVM sets special emphasis on the students’
integral education and the continuous improvement of its faculty. This way, it responds to the
expectations and trust of Mexican families and prepares good successful professionals with a global
vision, who will acquire the skills and knowledge that the labor market requires.
The student development area at UVM has important national and international projects as:
Institutional Fair of Entrepreneurs UVM

Congress Simulation.
United Nations Simulation Model.
Congresses.
Student Councils.

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Business Intelligence Journal

August, 2009 Vol.2 No.2

Business Intelligence Journal

Editorial Note 255

Rakesh Tej Kumar Kalahasthi, P. Radha Krishna

Business Intelligence Journal - January, 2009 Vol.2 No.1

EDITORIAL NOTE Business Intelligence Journal

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Business Inteligence Journal

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

INFORMATION FOR CONTRIBUTORS

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

A Survey of the Effect of Consumers’ Perceived Risk on

Mansour Samadi, (Ph.D.), Ali Yaghoob-Nejadi, (M.A.)

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Introduction Iran, located in Middle East, is stated to have

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

• Total number of purchases:

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

• Positive shopping experience: In the collected sample, 77% of the respondents

Table 4. Paired Sample Test

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Hypothesis 2 Table 6. Results of Regression Analysis (model

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Table 8. Correlation Results of Future purchasing Preference for Risk-reduction Strategies

Table 9. Results of Regression Analysis (model

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Available: http://www.gvu.gatech.edu/gvu/ of Computer-Mediated Communication.

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

M. Samadi, A. Yaghoob-Nejadi - Perceived Risk on Purchase Intention in E-Shopping

Impact Of Atm On Customer Satisfaction

Sultan Singh, Ms. Komal, (Ph.D.)

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Introduction The Indian ATM industry has seen explosive

Automated teller machines (ATMs) were the ATM Networks

S. Singh, Ms. Komal - Impact Of Atm On Customer Satisfaction

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

• HDFC Bank was among the first to receive

S. Singh, Ms. Komal - Impact Of Atm On Customer Satisfaction

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

The present paper entitled “Impact of ATM Table-1

efficiency of facilities provided and the example 80%

of others using the ATM of the same bank. 70%

Material Customer Satisfaction 50%

Material customer satisfaction level has been 10%

reasonability of the fee charged, frequency with

S. Singh, Ms. Komal - Impact Of Atm On Customer Satisfaction

have rated as 3, 2, & 1 respectively.

Frequency of problems faced a) SBI

faced by the customer in the three banks. use this

Business Intelligence Journal - August, 2009 Vol. 2 No. 2

Table-3 depicts the responses of the users Prob- Post Pur- % of

S. Singh, Ms. Komal - Impact Of Atm On Customer Satisfaction