IHART Volume 9

ISSN 2150-6906
nternational Handbook of Academic Research and Teaching
2010 Proceedings
Volume 9
Published by: Intellectbase International Consortium .
0
INTELLECTBASE INTERNATIONAL CONSORTIUM
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AcademicConference,
Conference,Las
Sydney,
Vegas,
NSW,
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Dec. 17-19,
8-9, 2010
2009
Intellectual Perspectives & Multi-Disciplinary Foundations
Conference Proceedings
Spring 2010
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EXECUTIVE EDITORIAL BOARD (EEB) AND REVIEWERS TASK PANEL (RTP)
Dr. David White Dr. Dennis Taylor

Roosevelt University, USA RMIT University, Australia
Dr. Danka Radulovic Dr. Harrison C. Hartman
University of Belgrade, Serbia University of Georgia, USA
Dr. Sloan T. Letman, III Dr. Sushil Misra
American Intercontinental University, USA Concordia University, Canada
Dr. Jiri Strouhal Dr. Avis Smith
University of Economics-Prague, Czech Republic New York City College of Technology, USA
Dr. Joel Jolayemi Dr. Smaragda Papadopoulou
Tennessee State University, USA University of Ioannina, Greece
Dr. Xuefeng Wang Dr. Burnette Hamil
Taiyun Normal University, China Mississippi State University, USA
Dr. Jeanne Kuhler Dr. Alejandro Flores Castro
Auburn University, USA Universidad de Pacifico, Peru
Dr. Babalola J. Ogunkola Dr. Robert Robertson
Olabisi Onabanjo University, Nigeria Southern Utah University, USA
Dr. Debra Shiflett Dr. Sonal Chawla
American Intercontinental University, USA Panjab University, India
Dr. Cheaseth Seng Dr. Jianjun Yin
RMIT University, Australia Jackson State Univerrsity, USA
Dr. R. Ivan Blanco Dr. Shikha Vyas-Doorgapersad
Texas State University – San Marcos, USA North-West University, South Africa
Dr. Tahir Husain Dr. James D. Williams
Memorial University of Newfoundland, Canada Kutztown University, USA
Dr. Jifu Wang Dr. Tehmina Khan
University of Houston Victoria, USA RMIT University, Australia
Dr. Janet Forney Dr. Werner Heyns
Piedmont College, USA Savell Bird & Axon, UK
Dr. Adnan Bahour Dr. Mike Thomas
Zagazig University, Egypt Humboldt State University, USA
Dr. Rodney Davis Dr. William Ebomoyi
Troy University, USA Chicago State University, USA
6
EXECUTIVE EDITORIAL BOARD (EEB) AND REVIEWERS TASK PANEL (RTP) (Continued)
Dr. Mumbi Kariuki Dr. Khalid Alrawi

Nipissing University, Canada Al-Ain University of Science and Technology, UAE
Dr. Mohsen Naser-Tavakolian Dr. Joselina Cheng
San Francisco State University, USA University of Central Oklahoma, USA
Dr. Rafiuddin Ahmed Dr. Natalie Housel
James Cook University, Australia Tennessee State University, USA
Dr. Regina Schaefer Dr. Nitya Karmakar
University of La Verne, USA University of Western Sydney, Australia
Dr. Ademola Olatoye Dr. Anita King
Olabisi Onabanjo University, Nigeria University of South Alabama, USA
Dr. Dana Tesone Dr. Lloyd V. Dempster
University of Central Florida, USA Texas A & M University - Kingsville, USA
Dr. Farhad Simyar Dr. Bijesh Tolia
Chicago State University, USA Chicago State University, USA
Dr. John O'Shaughnessy Dr. John Elson
San Francisco State University, USA National University, USA
Dr. Stephen Kariuki Dr. Demi Chung
Nipissing University, Canada University of Sydney, Australia
Dr. Rose Mary Newton Dr. James (Jim) Robbins
University of Alabama, USA Trinity Washington University, USA
Dr. Mahmoud Al-Dalahmeh Dr. Jeffrey (Jeff) Kim
University of Wollongong, Australia University of Washington, USA
Dr. Shahnawaz Muhammed Dr. Dorothea Gaulden
Fayetteville State University, USA Sensible Solutions, USA
Dr. Brett Sims Dr. Gerald Marquis
Grambling State University, USA Tennessee State University, USA
Dr. Frank Tsui Ms. Katherine Leslie
Southern Polytechnic State University, USA American Intercontinental University, USA
Dr. John Tures Dr. David Davis
LaGrange College, USA The University of West Florida, USA
Dr. Mary Montgomery Dr. Peter Ross
Jacksonville State University, USA Mercer University, USA
Dr. Frank Cheng Dr. Van Reidhead
Central Michigan University, USA University of Texas-Pan American, USA
Dr. Vera Lim Mei-Lin Dr. Denise Richardson
The University of Sydney, Australia Bluefield State College, USA
Dr. Robin Latimer Dr. Reza Vaghefi
Lamar University, USA University of North Florida, USA
Ms. Alison Duggins Dr. Jeffrey Siekpe
American Intercontinental University, USA Tennessee State University, USA
Dr. Michael Alexander Dr. Greg Gibbs

University of Arkansas at Monticello, USA St. Bonaventure University, USA
Dr. Kehinde Alebiosu Dr. Mike Rippy
Olabisi Onabanjo University, Nigeria Troy University, USA
Dr. Gina Pipoli de Azambuja Dr. Steven Watts
Universidad de Pacifico, Peru Pepperdine University, USA
Dr. Andy Ju An Wang Dr. Ada Anyamene
Southern Polytechnic State University, USA Nnamdi Azikiwe University, Nigeria
Dr. Edilberto Raynes Dr. Nancy Miller
Tennessee State University, USA Governors State University, USA
Dr. Dobrivoje Radovanovic Dr. David F. Summers
University of Belgrade, Serbia University of Houston-Victoria, USA
Dr. George Romeo Dr. Robert Kitahara
Rowan University, USA Troy University – Southeast Region, USA
Dr. William Root Dr. Brandon Hamilton
Augusta State University, USA Hamilton's Solutions, USA
Dr. Natalie Weathers Dr. William Cheng
Philadelphia University, USA Troy University, USA
Dr. Linwei Niu Dr. Taida Kelly
Claflin University, USA Governors State University, USA
Dr. Nesa L’Abbe Wu Dr. Denise de la Rosa
Eastern Michigan University, USA Grand Valley State University, USA
Dr. Rena Ellzy Dr. Kimberly Johnson
Tennessee State University, USA Auburn University Montgomery, USA
Dr. Kathleen Quinn Dr. Sameer Vaidya
Louisiana State University, USA Texas Wesleyan University, USA
Dr. Josephine Ebomoyi Dr. Pamela Guimond
Northwestern Memorial Hospital, USA Governors State University, USA
Dr. Douglas Main Dr. Vivian Kirby
Eastern New Mexico University, USA Kennesaw State University, USA
Dr. Sonya Webb Dr. Randall Allen
Montgomery Public Schools, USA Southern Utah University, USA
Dr. Angela Williams Dr. Claudine Jaenichen
Alabama A&M University, USA Chapman University, USA
Dr. Carolyn Spillers Jewell Dr. Richard Dane Holt
Fayetteville State University, USA Eastern New Mexico University, USA
Dr. Kingsley Harbor Dr. Barbara-Leigh Tonelli
Jacksonville State University, USA Coastline Community College, USA
Dr. Joan Popkin Dr. William J. Carnes
Tennessee State University, USA Metropolitan State College of Denver, USA
8
Dr. Chris Myers Dr. Faith Anyachebelu

Texas A & M University – Commerce, USA Nnamdi Azikiwe University, Nigeria
Dr. Kevin Barksdale Dr. Donna Cooner
Union University, USA Colorado State University, USA
Dr. Michael Campbell Dr. Kenton Fleming
Florida A&M University, USA Southern Polytechnic State University, USA
Dr. Thomas Griffin Dr. Zoran Ilic
Nova Southeastern University, USA University of Belgrade, Serbia
Dr. James N. Holm Dr. Edilberto A. Raynes
University of Houston-Victoria, USA Tennessee State University, USA
Dr. Richard Dane Holt Dr. Cerissa Stevenson
Veterans' Administration, USA Colorado State University, USA
Dr. Rhonda Holt Dr. Donna Stringer
New Mexico Christian Children's Home, USA University of Houston-Victoria, USA
Dr. Yu-Wen Huang Dr. Lesley M. Mace
Spalding University, USA Auburn University Montgomery, USA
Dr. Christian V. Fugar Dr. Cynthia Summers
Dillard University, USA University of Houston-Victoria, USA
Dr. John M. Kagochi Dr. Barbara-Leigh Tonelli
University of Houston-Victoria, USA Coastline Community College, USA
Dr. Yong-Gyo Lee Dr. Rehana Whatley
University of Houston-Victoria, USA Oakwood University, USA
Dr. George Mansour Dr. Jianjun Yin
DeVry College of NY, USA Jackson State University, USA
Dr. Peter Miller Dr. Carolyn S. Payne
Indiana Wesleyan University, USA Nova Southeastern University, USA
Dr. Ted Mitchell Dr. Veronica Paz
University of Nevada, USA Nova Southeastern University, USA
Dr. Alma Mintu-Wimsatt Dr. Terence Perkins
Texas A & M University – Commerce, USA Veterans' Administration, USA
Dr. Liz Mulig Dr. Dev Prasad
University of Houston-Victoria, USA University of Massachusetts Lowell, USA
Dr. Robert R. O'Connell Jr. Dr. Kong-Cheng Wong
JSA Healthcare Corporation, USA Governors State University, USA
Dr. P.N. Okorji Dr. Azene Zenebe
Nnamdi Azikiwe University, Nigeria Bowie State University, USA
Dr. James Ellzy Dr. Sandra Davis
Tennessee State University, USA The University of West Florida, USA
Dr. Padmini Banerjee Dr. Yvonne Ellis
Delaware State University, USA Columbus State University, USA
Dr. Aditi Mitra Dr. Elizabeth Kunnu

University of Colorado, USA Tennessee State University, USA
Dr. Myna German Dr. Brian A. Griffith
Delaware State University, USA Vanderbilt University, USA
Dr. Robin Oatis-Ballew Mr. Corey Teague
Tennessee State University, USA Middle Tennessee State University, USA
Dr. Dirk C. Gibson Dr. Joseph K. Mintah
University of New Mexico, USA Azusa Pacific University, USA
Dr. Susan McGrath-Champ Dr. Raymond R. Fletcher
University of Sydney, Australia Virginia State University, USA
Dr. Bruce Thomas Dr. Yvette Bolen
Athens State University, USA Athens State University, USA
Dr. William Seffens Dr. Svetlana Peltsverger
Clark Atlanta University, USA Southern Polytechnic State University, USA
Dr. Kathy Weldon Dr. Caroline Howard
Lamar University, USA TUI University, USA
Dr. Shahram Amiri Dr. Philip H. Siegel
Stetson University, USA Augusta State University, USA
Dr. Virgil Freeman Dr. William A. Brown
Northwest Missouri State University, USA Jackson State University, USA
Dr. Larry K. Bright Dr. M. N. Tripathi
University of South Dakota, USA Xavier Institute of Management – Bhubaneswar, India
Dr. Barbara Mescher Dr. Ronald De Vera Barredo
University of Sydney, Australia Tennessee State University, USA
Dr. Jennifer G. Bailey Dr. Samir T. Ishak
Bowie State University, USA Grand Valley State University, USA
Dr. Julia Williams Dr. Stacie E. Putman-Yoquelet
University of Minnesota Duluth, USA Tennessee State University, USA
Mr. Prawet Ueatrongchit Dr. Curtis C. Howell
University of the Thai Chamber of Commerce, Thailand Georgia Southwestern University, USA
Dr. Stephen Szygenda Dr. E. Kevin Buell
Southern Methodist University, USA Augustana College, USA
Dr. Kiattisak Phongkusolchit Dr. Simon S. Mak
University of Tennessee at Martin, USA Southern Methodist University, USA
Dr. Reza Varjavand Dr. Ibrahim Kargbo
Saint Xavier University, USA Coppin State University, USA
Dr. Stephynie C. Perkins Mrs. Donnette Bagot-Allen
University of North Florida, USA Judy Piece – Monteserrat, USA
Dr. Robert Robertson Dr. Michael D. Jones
Saint Leo University, USA Kirkwood Community College, USA
10
Dr. Kim Riordan Dr. Eileen J. Colon

University of Minnesota Duluth, USA Western Carolina University, USA
Mrs. Patcharee Chantanabubpha Mr. Jeff Eyanson
University of the Thai Chamber of Commerce, Thailand Azusa Pacific University, USA
Dr. Neslon C. Modeste Dr. Eleni Coukos Elder
Tennessee State University, USA Tennessee State University, USA
Mr. Wayne Brown Dr. Brian Heshizer
Florida Institute of Technology, USA Georgia Southwestern University, USA
Dr. Tina Y. Cardenas Dr. Thomas K. Vogel
Paine College, USA Stetson University, USA
Dr. Ramprasad Unni Dr. Hisham M. Haddad
Portland State University, USA Kennesaw State University, USA
Intellectbase International Consortium and the Conference Program Committee express their sincere thanks to the following sponsors:
 The Ellzy Foundation  The King Foundation
 Tennessee State University (TSU)  International Institute of Academic Research (IIAR)
PREFACE
Intellectbase International Consortium (IIC) is a professional and academic organization dedicated to advancing and
encouraging quantitative and qualitative, including hybrid and triangulation, research practices. This volume contains articles
presented at the Spring Sydney, NSW Australia, March 8-9, 2010.
The conference provides an open forum for Academics, Scientists, Researchers, Engineers and Practitioners from a wide
range of research disciplines. It is the eigth volume produced in a unique, peer-reviewed multi-disciplinary format and
intellectual foundation (See back cover of the proceedings).
Intellectbase International Consortium is responsible for publishing innovative and refereed research work on the following hard
and soft systems related themes – Business, Education, Science, Technology, Management, Administration, Political and
Social (BESTMAPS). The scope of the proceeding (IHART) includes: literature reviews and critiques, data collection and
analysis, data evaluation and merging, research design and development, hypothesis-based creativity and reliable data
interpretation.
The theme of the proceeding is related to pedagogy, research methodologies, organizational practice, ethics, accounting,
management, leadership, policy and political issues, health-care systems, engineering, social psychology, eBusiness,
marketing, technology and information science. Intellectbase International Consortium promotes broader intellectual resources
and exchange of ideas among global research professionals through a collaborative process.
To accomplish research collaboration, knowledge sharing and transfer, Intellectbase is dedicated to publishing a range of
refereed academic Journals, book chapters and conference proceedings, as well as sponsoring several annual academic
conferences globally.
Senior, Middle and Junior level scholars are invited to participate and contribute one or several article(s) to the Intellectbase
International conferences. Intellectbase welcomes and encourages the active participation of all researchers seeking to
broaden their horizons and share experiences on new research challenges, research findings and state-of-the-art solutions.
SCOPE & MISSION
 Build and stimulate intellectual interrelationships among individuals and institutions who have interest in the research
discipline.
 Promote the collaboration of a diverse group of intellectuals and professionals worldwide.
 Bring together researchers, practitioners, academicians, and scientists across research disciplines globally - Australia,
Europe, Africa, North America, South America and Asia.
 Support governmental, organizational and professional research that will enhance the overall knowledge, innovation
and creativity.
 Present resources and incentives to existing and new-coming scholars who are or planning to become effective
researchers or experts in a global research setting.
 Promote and publish professional and scholarly journals, handbook, book chapters and other forms of refereed
publications in diversified research disciplines.
 Plan, organize, promote, and present educational prospects - conferences, workshops, colloquiums, conventions —
for global researchers.
6
LIST OF AUTHORS
Last Name First Name Institution State Country
Adsavakulchai S. University of the Thai Chamber of Commerce Thailand
Allen Kay University of Central Florida FL USA
Arroyo Luis Gladstone City Council QLD Australia
Ashikin N. Universiti Putra Malaysia Malaysia
Azizan Noor Azlinna University of Malaya Malaysia
Dian Jayanti Kurniasari Komp Griya Bandun Asri I Indonesia
Downing George Franklin Pierce University NH USA
Ellzy James A. Tennessee State University TN USA
Fatahian Vahid A. Universiti Putra Malaysia Malaysia
Ferrer Mario CQ University QLD Australia
Ghanwat Deepali S. Tennessee State University TN USA
Ghazali Zulkipli Universiti Teknologi PETRONAS Malaysia
Gillett Pat Southern Cross University QLD Australia
Halawa Abdelhadi Millersville University PA USA
Halib Mohammed Universiti Teknologi PETRONAS Malaysia
Hayati Neuneung Ratna Widyatama University Indonesia
Huang Eva University of Sydney NSW Australia
Huy Le Van Danang University Vietnam
Irawati Muchlis Tanti Widyatama University Indonesia
Ishak Norzamri bin Multimedia University Malaysia
Ismail Mohd Razi Universiti Putra Malaysia Malaysia
Kadir Mohd Rizuan Abd Universiti Tenaga Nasional Malaysia
Kamssu Aurore J. Tennessee State University TN USA
Khan Tehmina RMIT University VIC Australia
King David Tennessee State University TN USA
Kumar Gulshan Global B-School India
Lai Fong-Woon Universiti Teknologi PETRONAS Malaysia
Li L University of the Thai Chamber of Commerce Thailand
i
LIST OF AUTHORS (CONTINUED)
Last Name First Name Institution State Country
Marquis Gerald P. Tennessee State University TN USA
Maute Manfred F. York University ON Canada
Medhekar Anita CQ University QLD Australia
Mobini Saeid Hassanzadeh Universiti Putra Malaysia Malaysia
Muchiri Michael CQ University QLD Australia
Niemi Paul R. Franklin Pierce University NH USA
Nordin Shahrina Md Universiti Teknologi PETRONAS Malaysia
Ortiz Norma University of Puerto Rico-Mayagüez Campus PR USA
Phangsai P. University of the Thai Chamber of Commerce Thailand
Pongwattana T. University of the Thai Chamber of Commerce Thailand
Radovanovic Dobrivoje University of Belgrade Serbia
Radulovic Danka University of Belgrade Serbia
Ramli Juliana Anis Bte Universiti Tenaga Nasional Malaysia
Rojjanathavorn J. University of the Thai Chamber of Commerce Thailand
Samad M. Fazilah Abdul University of Malaya Malaysia
Santa Ricardo Charles Darwin University QLD Australia
Saud H. Mohd Universiti Putra Malaysia Malaysia
Shamshiri Katrin University Putra Malaysia Malaysia

Xavier University & OH & USA &
Shriberg Arthur
Southern Cross University QLD Australia
Stewart Trae University of Central Florida FL USA
Sopajitwattana P. University of the Thai Chamber of Commerce Thailand
Surbaini Khairul Nizam Universiti Tenaga Nasional Malaysia
Thanh Truong Ba Danang University Vietnam
Thomas Melanie Southern Cross University QLD Australia
Toan Nguyen Manh Danang University Vietnam
Wachirathamrojn J. University of the Thai Chamber of Commerce Thailand
White Nathaniel Franklin Pierce University NH USA
ii
LIST OF INSTITUTIONS, STATES AND COUNTRIES
Institution State Country
Charles Darwin University QLD Australia
CQ University QLD Australia
Danang University Vietnam
Franklin Pierce University NH USA
Gladstone City Council QLD Australia
Global B-School India
Komp Griya Bandun Asri I Indonesia
Millersville University PA USA
Multimedia University Malaysia
RMIT University VIC Australia
Southern Cross University QLD Australia
Tennessee State University TN USA
Universiti Teknologi PETRONAS Malaysia
Universiti Tenaga Nasional Malaysia
University of Belgrade Serbia
University of Central Florida FL USA
University of Malaya Malaysia
University of Puerto Rico-Mayagüez Campus PR USA
University of Sydney NSW Australia
University of the Thai Chamber of Commerce Thailand
University Putra Malaysia Malaysia
Widyatama University Indonesia
Xavier University OH USA
York University ON Canada
iii
INTELLECTBASE INTERNATIONAL CONSORTIUM
Intellectual Perspectives & Multi-Disciplinary Foundations
B E S T M A P S
EDUCATION
BUSINESS SCIENCE
MULTI-DISCIPLINARY
SOCIAL FOUNDATIONS TECHNOLOGY

&
PERSPECTIVES
POLITICAL MANAGEMENT
ADMINISTRATION
A Commitment to Academic Excellence.
www.intellectbase.org
TABLE OF CONTENT
LIST OF AUTHORS .............................................................................................................................................. I
LIST OF INSTITUTIONS, STATES AND COUNTRIES ...................................................................................... III
SECTION 1: BUSINESS & MANAGEMENT
Undergraduates Selection Towards Islamic Banking: How Does Gender Affect their Selection
Norzamri Bin Ishak, Mohd Rizuan Abd Kadir, Khairul Nizam Surbaini and Juliana Anis Bte. Ramli ............................. 2
Mayagüez Downtown Revitalization Case

Norma Ortiz ................................................................................................................................................................ 11
Using Potency Index to Calculate Provincial Competitiveness Index (PCI) in Vietnam

Truong Ba Thanh, Nguyen Manh Toan and Le Van Huy ............................................................................................ 24
Taxing Higher Education—HECS/Fee-HECS-HELP Repayments as a Tax and its Effects on the

Progressive Tax Rate
Eva Huang.................................................................................................................................................................. 33
A Conceptual Framework for Value Enhancing Enterprise Risk Management

Fong-Woon Lai, Noor Azlinna Azizan and M. Fazilah Abdul Samad .......................................................................... 41
Plant Turnaround Maintenance in Malaysian Petrochemical Industries: A Study on Organizational Size

and Structuring Processes
Mohammed Halib, Zulkipli Ghazali and Shahrina Md Nordin...................................................................................... 55
Management System using 7-S‘s McKinsey model Case study in Ceramic in Thailand
S. Adsavakulchai and P. Sopajitwattana .................................................................................................................... 68
The Impact of Culture on a Small Business – Do Hofstede‘s Factors Apply?

Arthur Shriberg, Melanie Thomas and Pat Gillett ....................................................................................................... 74
Examining Key Factors when Attracting and Retaining Skilled and Professional Migrants to Regional
Areas: The Case of the Australian Central Queensland Region
Mario Ferrer, Anita Medhekar, Luis Arroyo, Michael Muchiri and Ricardo Santa ....................................................... 81
Bankruptcy Risk Analysis of Property Sector Listed Companies in Indonesia Stock Exchange Using
Altman Z-Score
Tanti Irawati Muchlis and Kurniasari Dian Jayanti ...................................................................................................... 92
Financial Statement Report and its Effect on Stock Price (Case Study on Banking Industry)
Neuneung Ratna Hayati ........................................................................................................................................... 107
Impact of Outsourcing on Enrollment in Technology Fields at Universities in the United States

Aurore J. Kamssu and Deepali S Ghanwat .............................................................................................................. 113
Online Disclosure on Audit Committees: Comparison between New York Stock Exchange Foreign Issuers
Tehmina Khan .......................................................................................................................................................... 121
Cost Efficiency and Economies of Scale in the Supply Chain of Water for Industry in Thailand
J. Wachirathamrojn, S. Adsavakulchai and L. Li....................................................................................................... 131
Impact of Indian Culture on Work-Ethos

Wg Cdr G. Kumar ..................................................................................................................................................... 137
SECTION 2: EDUCATION, SOCIAL & ADMINISTRATION
Accessibility and Educational Relevance of a New Model of Graduate Business Education: The Practicing
Manager‘s Perspective of Experiential Learning MBAs
Manfred F. Maute ..................................................................................................................................................... 148
Effects of Proficiency Level and Social Background on Strategy Use in Listening Comprehension Tasks
Katrin Shamshiri ....................................................................................................................................................... 154
The Teaching of Mathematics in Franklin Pierce University‘s Individual and Community Intergrated
Curriculum
Paul R. Niemi, George Downing and Nathaniel White .............................................................................................. 162
Business School Students: Clients or Products?

Gerald P. Marquis..................................................................................................................................................... 167
Latent Dimensions of Criminal Behavior

Danka Radulovic and Dobrivoje Radovanovic .......................................................................................................... 175
SECTION 3: SCIENCE & TECHNOLOGY

Infrared Pen Development for Virtual Smart Board
T. Pongwattana, P. Phangsai, J. Rojjanathavorn and S. Adsavakulchai .................................................................. 184
Effects of Deficit Fertigation on Growth and Physiological Responses of Melon through Partial Root
System
Vahid A. Fatahian, Mohd Razi Ismail, N. Ashikin, H. Mohd Saud and Saeid Hassanzadeh Mobini.......................... 191
SECTION 4: ABSTRACTS
Development of Teacher Efficacy for the Sustainability of Teacher Professionals through Pre-Internship
Service-learning
Trae Stewart and Kay Allen ...................................................................................................................................... 202
Effects of Globalization on the Rising Rates of Obesity and Overweight in Developing Countries
Abdelhadi Halawa ..................................................................................................................................................... 203
The Discernment in Cloud Computing Communication (C3): The Unaddressed Seven Systems
Security - CIA4V
James A. Ellzy and David King ................................................................................................................................. 204
SECTION 1
BUSINESS & MANAGEMENT

UNDERGRADUATES SELECTION TOWARDS ISLAMIC BANKING:

HOW DOES GENDER AFFECT THEIR SELECTION
Norzamri Bin Ishak1, Mohd Rizuan Abd Kadir2, Khairul Nizam Surbaini3
and Juliana Anis Bte. Ramli4
Multymedia University1, Malaysia and University Tenaga Nasional2,3,4, Malaysia
ABSTRACT
Islamic banking is no longer regarded as a banking to fulfill Islamic need or as a secondary banking, but moreover as a bank to
compete to be primary banking. Thus, to plan an appropriate marketing strategy for attracting new customers is very
importance, especially for Islamic banking in dual banking environment. Therefore, it is vital for Islamic banks to identify the
selection criteria to convene their customers‟ needs. The study focuses on examining the bank selection criteria being
employed by undergraduates since they are the potential Islamic banking customers. The purpose of this paper is to examine
the main factors that influence undergraduates in selecting their bank preference and how gander and religious of these groups
affect their selecting criteria in dual banking environment. This study presents primary data collected by self-administered
questionnaires involving a sample of 250 undergraduates at UNITEN. The criteria are analyzed using factor analysis with
varimax rotation, to cluster the criteria into several variables. The result shows that religious factor and bank appearance
played significant role is selection process for undergraduates. We also found encouraging result that religious factor is among
important criteria choose by Muslim undergraduates in selecting their bank.
Keywords: Bank Selection Decision, Islamic Bank, Syariah Compliant Products and Services.
1.0 INTRODUCTION
In Quran, Al Baqarah, part of verse 275 stated that ‗…but Allah has permitted trade but forbidden riba (interest)….‟. In Islam,
riba (interest) is strictly prohibited and this principle must be applied in every aspect of Muslim life. Gerrard et. al. (1997) further
stated that Islamic financing is based upon the principle that the use of interest is prohibited. Due to this prohibition, Muslims
cannot receive or pay interest, thus they are unable to conduct business with conventional banks. According to Jaffe (2002), to
serve in Muslim market, Islamic financial institutions have developed a range of halal interest-free financing instruments that
conform to Shariah ruling, and therefore are acceptable to their clients.
According to Saeed (1996), the emerging of Islamic financial institutions was started with the establishment of Islamic
Development Bank (IDB) on 1973. IDB was aimed to foster economic development and social progress of Muslim countries.
The first major collective step taken by Muslim countries is to promote Islamic financial system. As a Muslim country and as to
fulfillment of religious needs, Malaysia also initiated Islamic financing to realize Malaysian needs. According to Aziz (2008)
Malaysia has developed over more than two decades, a comprehensive Islamic financial system that operates in parallel with
the conventional financial system.
In Malaysia, the establishment of Bank Islam Malaysia Berhad (BIMB) as the first Islamic bank in 1983 had open a new path to
Malaysian Financial System especially in banking system towards the introductions of new products and services that based
on al-Quran and Sunnah (Rizuan et. at., 2008). Since then, Malaysian Islamic financial system has grown tremendously.
According to Zamani (2007), Malaysian Islamic banking system shown strong performance in 2006 with higher profitability, and
has remained well capitalized. In year 2006, Islamic banking assets has reached about USD34 billion or 13 percent in terms of
market share.
The same conclusion was drawn by Haron and Wan Azmi (2006) as they claimed that the Islamic banking sector has shown a
tremendous increase in growth by 19% per annum from year 2000 to 2004. This shows that Islamic products and services
have made a strong impact to the Malaysian people. The awareness given by Muslims toward the Islamic Banking makes it
become more significance. Today, Islamic banking is no longer regarded as a business entity striving only to fulfill the religious
obligation for Muslim community; rather, Islamic banking has become one of the most important players in service industry
(Wilson, 1995).
2
N. B. Ishak, M. R. A. Kadir, K. N. Surbaini and J. A. B. Ramli Volume 9 – Spring 2010
As an important player in finance industry, it is very important for Islamic institution to winning over customers. Dasuki and
Abdullah (2007) claimed that this necessitates Islamic banks to really understand the perceptions of their customers towards
them in terms of service quality to secure customers‘ allegiance. Therefore, Islamic banking products and services should
continued to strengthen their position in the market and able to compete with other conventional banking instruments,
especially in the dual banking environment system.
The bank selection criteria have been has been given substantial attention by many researchers (For example: Evans (1979),
Ross (1989), Hegazy (1995), Almossawi (2001), Dasuki and Abdullah (2007), Rizuan et.al (2008)). According to Almossawi
(2001), with the growing of competitiveness in the bank industry and services offered by banks, it has become increasingly
important that banks identify the factors that determine the basis upon which customers chose between providers of financial
services.
This paper is designed to identify the bank selection criteria among undergraduates‘ in dual banking environment. Specifically,
the study was designed to determine how gender and religious affecting the selection criteria in a dual banking environment.
The finding of this research hopefully can help us to determine the future bank direction in providing their services.
Almossawi (2001) argued that undergraduates are crucial because they constitute a sizeable market segment, tend to be good
savers and are potential bank customers, who will have one when they complete their education.
This study is divided into five sections. Section one is an introduction to the study. Section two discuss a finding review of
previous research which relevant to Islamic banking selection and perceptions. Section three highlights the methodology uses
in our research. Section four present the study findings and section five embrace our conclusions and suggestions for future
research.
2.0 LITERATURE REVIEW

Haniffa and Hudaib (2007) describe Islamic banking as a system of banking which is consistent with the principles of Islamic
law (Shari‘ah Islami‘iah). The Shari‘ah governs every aspect of a Muslim‘s life, viz. spiritual, economic, political and social, and
faithful execution of duties and obligations based on the Shari‘ah is recognised as a form of worship. The Shari‘ah is concerned
with promoting justice and welfare in society (al-adl and al-ihsan) and seeking God‘s blessings (barakah), with the ultimate aim
of achieving success in this world and hereafter (al-falah).
According to Jaffe (2002), Islamic finance was designed to meet the Muslim needs and it was strictly following Islamic principle
which is halal Interest-free. There are numbers of Islamic financial products are available; the most widely recognized is profit-
and-loss sharing instruments agreement. Metwally (1994), identified three significant differences tools between Islamic financial
and conventional financial: Musharaka (Partnership), Mudarabah or Quiradh (Investment with no participation in management)
and Murabaha (Resale Contract). The financier of the venture is known as the Rabb-ul-mal, and the entrepreneur responsible
for the management and execution of the project is referred to as the Mudarib. The parties achieve their returns by sharing in
the profits of the venture, which are divided on a proportional basis (Hussain et. el., 2006).
Under a Mudaraba agreement, the parties must decide on a rate for sharing of the profits prior to the commencement of the
business activity. After the business is completed the financier receives the principal and the pre-agreed share of the profit
(Metwally 1994, Gafoor, A.L.M., 1996 and Usmani, M.T., 1998). Musharaka is a joint partnership formed for conducting
business in which all partners share the profit according to a specific ratio while the loss is shared according to the ratio of the
contribution. (Lewis et. al. 2001, Metwally 1993, Usmani, M.T., 1998 and Haron et. all., 1994). Murabaha is financing where the
bank purchases for a client certain commodities and the client promises to buy the goods from the bank on a pre-agreed profit
basis (Metwally, 1994).
There are numerous literatures on customers‘ preference towards financial products and services criteria. Metawa and
Almossawi (1998) claimed that the customers‘ preferences towards banking criteria have been heavily investigated over the
past two decades. Among the areas studied and attributes found are availability of credit, relatives' advice and
recommendations, friends' advice and recommendation, convenient location, variety of bank services, the quality of services,
availability of ATM, adequate bank hours, return on investment, friendliness of personnel, understanding financial needs,
special services for women, and bank name.
According to Erol et.al. (1990) the bank customers did not differentiate between the services offered by conventional banks and
Islamic banks. However, Metawa and Almossawi (1998) reveals that adherence to Islamic tenets is the main motivating factor
3
for customers to preferring Islamic banks in Bahrain. They results also indicate that bank employees and bank equipment play
an important role towards customers preferences. While, Naser et al. (1999) stressed that a large majority of customers‘ were
satisfied with the Islamic bank‘s name and image and with the bank‘s ability to provide confidentiality. Their findings also
indicate that a large majority of the respondents patronage with the Islamic finance because of its reputation. The study by
Haron et. al. (1994) shown that Muslims and non-Muslims who preferred commercial banks have a common perception in
selecting their banks. This means that, the Islamic bank should not rely on the religion factor as a strategy in its effort to attract
more customers.
Erol and El-Bdour (1989), found that interpersonal contact and individual effort played an important role in terms of attracting
individuals to utilize financing services. Religious motivation did not appear to be a primary criterion. El-Bdour et al. (1990),
point out that customers rely heavily on criteria like the bank‘s reputation and image and the confidentiality of the bank when
choosing a bank. Hegazy (1995) studied on bank selection criteria for both Islamic banks and commercial banks. He concluded
that the most important factor attributes for Islamic banks was the advice and recommendations made by relatives and friends.
Dusuki, A.W. and Abdullah N.I.(2006) found that the customer satisfaction often depends on the quality of services provided by
Islamic banks.
Rizuan,M et.al.(2008) argued that the criteria used for bank selection should be based on respondents profile. Since our
respondents are undergraduates, we believe that we need to detail out the selected criteria. Based on literature, we have
identified twenty seven criteria in banking selection, including three criteria specifically mention about Islamic principles. We
hope by separating Islamic principle, we can get a true picture of undergraduates‘ selection, both Muslims and non-Muslims on
these criteria.
According to Al-Islam organization website (2009), there are psychologically significant different between male and female.
Male has a greater preference for physical exercise, hunting, tasks involving movement, than a female. The sentiments of man
are challenging and war-like, while the sentiments of woman are peaceable and convivial. Man is more aggressive and
quarrelsome, and woman is quieter and calmer. A woman refrains from taking drastic action, both with regard to others and
with regard to her, and this is the reason for the smaller number of suicides in women than in man. In this study, we want the
see how the differences stated affect their selection criteria.
3.0 METHODOLOGY
A sample of 250 undergraduates UNITEN students from College of Business and Accounting (COBA) was chosen based on
random sampling technique. We choose UNITEN and COBA because of higher respondents‘ rates. Moreover, we observed
that there are fair population of Male and female undergraduates, and Muslim and non-Muslim undergraduates at this collage.
They are come from all over Malaysia. In addition, these undergraduates are business students and hope that they have a
general idea on the question to be asked. By chosen these undergraduates, we hope at least we can get closer result to the
whole population. From 250 questionnaires distributed, 72 have been returned by male undergraduates and 163 female
undergraduates.
Data collection was obtained from questionnaires designed based on the review of the literatures. All of the criteria have been
applied from the previous studies, including three specific Islamic principle criteria. We have identified twenty seven criteria to
be used. In our judgment based on the literature review, these were the most suitable criteria. Others researcher whose
studied on undergraduates such as Gerrard and Cunningham (2001) studied on Singapore‘s undergraduates used 20 criteria,
and Almossawi (2001) studied on Jordan‘s college students used 30 criteria.
We used exploratory factor analysis with varimax rotation to analyze the data. This method had been commonly used by other
researchers such as Rizuan,M et.al. (2008), Haron et al. (1994), Gerrard and Cunningham (1997, 2001); Almossawi (2001),
Dusuki and Abdullah and Mohd Dali et.al. (2008). Factor analysis will be used to cluster the criteria and consequently group the
independent variables into smaller factors. Mohd Dali et. al. (2008) claimed that the main applications of factor analytic
techniques are: (1) to reduce the number of variables and (2) to detect structure in the relationships between variables, that is
to classify variables. Therefore, factor analysis is applied as a data reduction or structure detection method.
The questionnaire was divided into two sections. Section A, based on the demographic profile, a set designed to gather
information about the sample‘s personal, demographics and education background of the respondents. Section B comprises
the twenty-seven selections bank criteria including three specific criteria on Islamic principles. The five-point Likert scales
ranking from very important (scale 1) to not important at all (scale 5) was used to measure the Muslin and non-Muslim
undergraduates selections criteria.
4
4.0 FINDINGS AND DISCUSSION

This finding is based on 235 respondents of undergraduate students, 72 male respondents and 163 female respondents. From
Table 1 it shows that the highest percentage on age is below 22 for both groups. 50 percent of the respondents are male-
Muslim and 59% are female-Muslim. In term of CGPA result, 58 percent of Male respondents obtained below 3.00 but for
female respondents 59% obtained above 3.00. 57 percent of male respondents come from East Malaysia, and 48% of female
respondents come from west Malaysia. Majority of male respondents have both bank accounts (Islamic and conventional) and
majority of female respondents have only conventional account.
Table 1: Profile of Respondents

Male Female
N = 72 (%) N = 163 (%)
Age
Below 22 52 72% 125 77%
Above 22 22 28% 38 23%
Race
Malay (Muslim) 36 50% 95 59%
Non-Malay 36 50% 67 41%
CGPA
2.00 – 2.49 24 33% 39 24%
2.50 – 2.99 18 25% 28 17%
3.00 – 3.49 13 18% 55 34%
3.50 Above 17 24% 41 25%
Origin
North 5 7% 30 18%
South 13 18% 25 15%
East 41 57% 29 18%
West 13 18% 79 48%
Account types
Islamic 5 7% 17 10%
Conventional 16 22% 106 65%
Both 51 71% 33 20%
We run the exploratory factor analysis with varimax rotation to analyze the data. Table 2 showed that the KMO Measurement
of Sampling Adequacy (MSA) Test is 0.714, which is higher than 0.6. This indicates that the factor analysis is enabling to be
further analyzed. Furthermore the Bartlett‘s Test of Sphericity is significant at 0.00 level. It means that there are
intercorrelations among the variables.
Table 2: KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .714
Bartlett's Test of Sphericity Approx. Chi-Square 3502.746
df 351.000
Sig. .000
The result of factor analysis with a varimax rotation appears in Table 3. The analysis produced eight factor groups. From the
eight factor groups, we have decided to titles each factor group as described below. The items grouped under Factor 1 could
be called ‗transaction'. Examples of criteria under this group are several bank branches, availability of ATM in several locations,
24-hours availability of internet services, employer uses the same bank and ease of opening an account. We named Factor 2
as ‗religious factors‘ and the criteria under this grouping are providing Islamic facilities, providing wide range of Islamic facilities
and providing Islamic bank account.
Factor 3 is seen as a ‗convenience‘ and the criteria are adequate number of tellers, convenient ATM locations and convenient
location of the main branch. Factor 4 we named as ‗bank appearance‘ which relate to external appearance of the bank, bank
reputation and staff appearance and attire. Factor 5 is a ‗financial benefits‘ grouping consisting of providing credit card with no
annual fees and paid high interest rates on saving accounts. Factor 6 relates to ‗charges and confidentiality‘, particularly on low
5
services charges and confidentiality of bank. Factors 7 is name as ‗people influences‘, relates to criteria of recommendation by
relatives and recommendation by friends. Finally, Factor 8 can be titled as ‗personal and product pleasant‘, this relating to
convenient in bank manager and ease of obtaining loans.
The criteria listed in Table 3 include only those which had factor loadings of 0.50 and above and for which the Cronbach alphas
for each of the groupings were 0.60 and above. The eight factor groups accounted for 79.56 per cent of total variance. A few
factors which had been remove because had factor loadings less than 0.50 are available parking space nearby, saving are
guaranteed by government, giving a wide range of facilities and friendliness of bank personal.
Table 3: Factor groups of the bank selection criteria

Factor 1 (Transaction) – Cronbach alpha (0.8453)
Several bank branches 0.747
Availability of ATM in several locations 0.715
24-hours availability of internet services 0.658
Employer uses the same bank 0.622
Ease of opening an account 0.595
Percentage of Variance 35.930
Factor 2 (Religious factor) – Cronbach alpha (0.8835)

Providing Islamic facilities 0.921
Providing wide range of Islamic facilities 0.835
Providing Islamic bank account 0.758
Factor 3 (Convenience) – Cronbach alpha (0.7644)

Adequate number of tellers 0.724
Convenient ATM locations 0.536
Convenient location of the main branch 0.526
Factor 4 (Bank appearances) – Cronbach alpha (0.7747)

External appearance of the bank 0.790
Bank reputation 0.595
Staff appearance and attire 0.594
Factor 5 (Financial benefits) – Cronbach alpha (0.6606)

Providing credit card with no annual fees 0.744
Paid high interest rates on saving accounts 0.579
Factor 6 (Charges and confidentiality) – Cronbach alpha (0.8140)

Low services charges 0.814
Confidentiality of bank 0.540
Low interest rates on loans 0.512
Factor 7 (People influences) – Cronbach alpha (0.7639)

Recommendation by relatives 0.931
Recommendation by friends 0.565
Factor 8 (Personnel and product pleasant) – Cronbach alpha (0.6888)

Convenient in bank manager 0.610
Ease of obtaining loans 0.576
6
We further analyse the data by ranked the various bank selection criteria in relation to the eight factor groups. The result is
shown in Table 4. From the result, we have found a few interesting issues. First, male undergraduates preferred charges and
convenience banking, but female undergraduates prefer bank appearances and bank personnel. This result might due to
physiology different between these groups. As for male undergraduates, they have psychically strength and tend to discover
the best bank criteria to suite them. Thus, they choose bank charges and convenience banking as their most preferred factors.
For female undergraduates, as physiologically like to be protected, they choose bank appearances and personnel as their main
factors.
Another interesting issue was the people influence ranked last for both groups. This means that for undergraduates,
recommendation by other is not importance. People might recommend to them the bank suite to them, but they have their own
choices. This might due to the knowledge they gained in the university. This result consistence with Gerrard and Cunningham
(2001), but contradicts with Hegazy (1995). Hegazy (1995) found that the most important factor attributes for Islamic banks
was the advice and recommendations made by relatives and friends.
Table 4: Bank selection criteria: A comparison of Male and Female undergraduates

Male Female
n = 72 n = 163
Rank Mean Rank Mean Sig.
Charges and confidentiality 1 4.0238 3 3.6802 .185
Convenience 2 3.9810 4 3.5684 .240
Religious factors 3 3.6024 5 3.2597 .024*
Financial benefits 4 3.5076 7 3.0289 .271
Transaction 5 3.2683 6 3.1646 .001*
Bank appearances 6 3.5000 1 3.9363 .398
Personnel and product pleasant 7 3.1667 2 3.8582 .001*
People influences 8 2.7619 8 2.8994 .002*
In table 5 and table 6, we detailed out how religion affect gander selection criteria. The most interesting finding from the table
was the different between male-Muslim most preference and male non-Muslim most preference. Male-Muslim choose religious
factor as their main preference. This result might explain why there was a tremendous increment in the Islamic banking. As for
male non-Muslim, they ranked Islamic religious factor as second least important. This means that Islamic banking is not totally
rejected by the Male non-Muslim. The lower ranked given by them might due to the misunderstanding of Islamic concept.
For male non-Muslim, they perceived convenience as the first preference, but third for the male-Muslim. Charges and
confidentiality are both among the important factors for both groups. People influence was ranked as the least important for
both groups. This means that, for both groups, they like to make a decision on their owned. People might advice them about
the bank product, but at the end, these groups will make their own decision.
As for female-Muslim, they ranked bank appearance as their first factor and religious as second factors. From the individual
means, it was also shown that the bank appearance plays an importance role in selecting their most preference criteria for
female-Muslim. In Malaysia, most of our female-Muslims are still strongly behold the religious value. Female-Muslims in
Malaysia are still preferred to stay at home, as this is the best way to protect their self. Therefore, their choices of banking are
very limited compare to male-Muslim. This might be the reason on why they choose the bank appearance as their main
preference factor. Instead of limited choices, female-Muslim still choose religious factor as their second most preference factor.
For female non-Muslim, they ranked personnel and product pleasant as their first preference. Based on the individual means,
female non-Muslims choose convenience in bank manager as their most important factor. This might due to the female
physiology, which is like to be protected. By knowing someone inside the bank, especially the manager, they feel secure and
easily made transactions with the bank. However, for religious factor, they ranked it as the least important. This might indicate
the failure of Islamic bank to disseminate information about the Islamic banking to this group. As for the people influence factor,
both female groups ranked it either as the least important or among least important factor.
7

Male Male
Muslim non-Muslim
n = 36 n = 36
Religious factors 1 4.2808 7 2.9240 .004*
Charges and confidentiality 2 4.1964 2 3.8511 .263
Convenience 3 4.0329 1 3.9291 .018*
Financial benefits 4 3.6518 4 3.3634 .223
Bank appearances 5 3.5595 3 3.4405 .858
Transaction 6 3.4226 6 3.1141 .737
Personnel and product pleasant 7 3.0179 5 3.3154 .260
People influences 8 2.8304 8 2.6938 .227

Female Female
Muslim non-Muslim
n = 95 n = 67
Bank appearances 1 3.9123 3 3.4060
Religious factors 2 3.8247 8 2.5072
Convenience 3 3.7274 4 3.3962
Personnel and product pleasant 4 3.7095 1 4.1267
Charges and confidentiality 5 3.6228 2 3.8079
Transaction 6 3.2807 5 3.0472
Financial benefits 7 3.1474 6 2.9061
People influences 8 2.9553 7 2.8633
5.0 LIMITION OF FINDINGS

All the information gathered for this study was obtained from UNITEN undergraduates at Muadzam Shah Campus, Pahang.
Therefore, the sample is limited to only one university. The number of respondents also is small which are only 235
respondents, consists of 72 Male and respondents and 163 female respondents. It is suggested that more university should be
involve with more respondents in both groups.
6.0 CONCLUSION
At the first place, Islamic banking was established to fulfill the need of Islamic religion, an interest free banking system.
However, with the beauty of the system and the acceptance by the Muslims society, it becomes a significant banking. Today,
the era of Islamic banking which regarded as a financial instrument to fulfill Islamic obligation was no longer exist. Islamic
banking at once was considered as a secondary banking but now is competed to be the primary banking in Malaysia. Research
about selection criteria in banking sector is very important especially for Islamic banking to place their self as a primary banking
in Malaysia.
The purpose of this study was to determine on how undergraduates‘ gander and religious affect their preferred selections in
dual banking environment in Malaysia. As a reflection to these findings, we have come out with three vital conclusions. First, as
the physiologically different between male and female, they choose differently the selection criteria as to suit they need. Male
undergraduates preferred charges and convenience banking, but female undergraduates prefer bank appearances and bank
personnel.
Secondly, the religious factor was ranked the most important factor for male-Muslim, and second most important factor for
female-Muslim. However, for male non-Muslim, it was ranked seven and as least important for female non-Muslim. This
indicates that the future of Islamic banking is bright as Muslim perceived this as an important factor, but for non-Muslim, it was
8
among the least important. As a Muslim, we believe that Islamic system is the best system to suite in every aspect of our life,
but not for the non-Muslim. Thus, the rejection by the non-Muslim for religious factor, although not totally, is a huge losses. In
one aspect, Islamic banking failed to attract the young non-Muslim customers, and in another wider aspect, we failed to
disseminate information about the beauty of Islamic system to the non-Muslim.
Lastly, we found people influence was ranked either least important or among least important for all groups. This means that
the young consumers are making their own decision in preferring their banking. Even though, all the banks have set up their
own consultant to influence consumers, but with this finding, the bank can only consult the consumers about the services.
People will hear, but will make their own decision based on their own judgment.
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Kuala Lumpur, (2006).
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Marketing, Vol. 25 No. 3, p.p 142-160, (2007).
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Ghannadian, F.F. and Goswami,G., ‗Developing economy banking: The case of Islamic banks‘, International Journal of Social
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10
N. Ortiz Volume 9 – Spring 2010
MAYAGÜEZ DOWNTOWN REVITALIZATION CASE
Norma Ortiz
University of Puerto Rico-Mayagüez Campus, USA
ABSTRACT
Mayagüez is a college town west of Puerto Rico. Despite of having the University of Puerto Rico, Mayagüez Campus near
downtown, its‟ economy is weak. Merchants are struggling with decreasing sales and store closings due to, among other
reasons, inability to attract and retain loyal customers. There are about 13,500 students and 3,000 professors and
administrative personnel at the University of Puerto Rico in Mayagüez. UPRM college community is a potential market for
Mayagüez downtown. A random sample of the College Community was chosen and a questionnaire was distributed on line
between them. The main purpose of this study is to obtain information related with the desired downtown retail mix for the
College Community at UPRM. Economic relationships between city and suburb, demographic trends, retailing mix of
businesses, infrastructure, symbolic landscapes, and government policy and planning are fundamental aspects of downtown
revitalization (Atibise & Meligrana, 2001). Literature review was focused on downtown revitalization cases. Downtowns
research in Austin, Texas, Frederick in Maryland, Wisconsin and Clemson City in South Carolina were studied. Findings
associated with Mayagüez Downtown research aroused a desired retail mix for the UPRM community. This research is
oriented to identify effective revival strategies that can be extended to other downtowns in Puerto Rico. The main idea is to
develop a downtown revitalization model to provide guidance in the urban economic development plan.
Keywords: Downtown, Revitalization, Strategy, Retail Mix, College Community.
INTRODUCTION
Mayagüez was founded in the year of 1760 and its population is over 100,000. Its economy turns around its port and industries
like India and Medalla beers brewery, and other manufacturing companies. Mayagüez is a college town. The University of
Puerto Rico has an important campus specializing in Engineering and Agronomy near downtown with approximately 13,500
students and 3000 other related personnel. There are also other campuses near the downtown like, Catholic University and
Antillian College University. Inter-American University has one of its main campuses in the near town of San Germán,
approximately 20 minutes from Mayagüez.
It is located near the geographical center of the west coast of Puerto Rico about 2 hours driving from San Juan. Its land area is
201.06 km2 (78 sq mi). The city's terrain includes; coast plains, river valleys, marshland, hills and mountains. Of its multiple
rivers and streams, the two most important are the Río Yagüez, which flows from the Central Mountain Range through
downtown until it empties into the Mona Passage; and the Río Guanajibo, which flows through several neighborhoods in the
southern portion of the municipality until it empties in the Mona Passage as well.
Although the city has seen its share of natural disasters, it faced a major economic downturn due to the closure of its textile
factories and tuna industry, which were the principal industries of the city for the greater part of the 20th century. Over 11,000
permanent jobs in these two industries were lost in the city during the 1990s, and because of this, Mayagüez became the US
jurisdiction with the second largest number of industrial job losses during the time period, second only to Flint, Michigan. Once
being the third city in population and importance in Puerto Rico, population numbers for it have been relatively stagnant, and it
has actually lost population in recent years (Wikipedia, La Enciclopedia Libre., n.d.).
The economic situation of Mayagüez downtown is deplorable. There are a lot of business closings and the existing ones are
experiencing profit decreasing, due to traffic jam, lack of parking, poor retail mix offerings and a decrease of downtown
residents. Because of this situation it is difficult to attract and retain new customers.
However, due to ancillary infrastructure developments and a renewed effort to repopulate the city's Guanajibo Industrial Park,
the local economy has seen a slow turn for the better. In 2005 Winston-Salem Industries was the first industry to move into the
11
park in many years. In July 2007, Honeywell opened a customer support service center for its aerospace and information
technology divisions in the city. Other industries, such as Lockheed, are expected to follow suit in 2009.
Mayagüez is facing a new challenge to revive its downtown because of the Central American Games to be held in 2010.It is
expected that around 10,000 people will arrive to Mayagüez for the games. Forty countries are going to take part with 4,965
athletes participating in thirty nine events (Wikipedia, La Enciclopedia Libre., n.d.). Central American Games represent an
opportunity for downtown commerce. The Mayor of the city, Jose Guillermo Rodriguez and downtown merchants are interested
in Downtown revival.
The College Community of the University of Puerto Rico at Mayagüez is a potential market for Mayagüez downtown. If there
were an attractive retail mix, do they be captivated to visit and make their purchases there?
This research is focused on identify the expected retail mix for Mayagüez College Community at UPR. Findings will benefit
individuals with an interest in starting a business. The information can provide a first step for these individuals and help them
study and learn more about what types of stores are expected by the community college to be in Mayagüez downtown.
Property owners can also utilize this same information to help them market their empty storefronts by sharing the information
from the analysis with potential businesses that are interested in a downtown location.
LITERATURE REVIEW
Economic relationships between city and suburb, demographic trends, retailing mix of businesses, infrastructure, symbolic
landscapes, and government policy and planning are fundamental aspects of downtown revitalization (Atibise & Meligrana,
2001). Most of the reported research is drawn from the United States, but supporting evidence is also obtained from Canadian,
European and Australian research.
Researchers have focused on a wide variety of specific issues with respect to the renewal of downtown areas including, for
example: planning efforts and strategies, case studies, and political analysis.
Downtown is considered the central city, is an incorporated place, usually the oldest municipal government with the suburbs
consisting of newer units of government. It is also viewed as the central business district. It is a geographic term used to
identify the commercial core or economic ‗heart‘ of the city. This area usually contains the highest density, market rents and
service functions of commercial and office activities (Atibise & Meligrana, 2001). Clearly the trend over the post-WWII decades
has witnessed a rapid decline in central city population growth and a corresponding boom in suburb residential growth. In 1950
more than half of Americans that lived in metropolitan areas were central city residents, but by 1990 this proportion declined to
less than a third (Atibise & Meligrana, 2001). This population trends has implications for the economic development of the
Central Business District. An issue regarding downtown revival is the effective retailing mix and its outcome in attracting and
retaining customers. Wisconsin and Houston Retail Mix cases were examined as an example to obtain information related to
their retailing mix strategies (Atibise & Meligrana, 2001).
Downtown Houston has been transformed over the past twenty years and, as a result, presently touts a large office market,
several arts and cultural venues, sporting and entertainment facilities, and growing residential interest. However, even with new
visitor draws, light rail and streetscape improvements, retail has continued to struggle. As a very important missing piece of the
puzzle, the development of retail is critical considering that all other economic drivers are supported by it. With the rediscovery
of downtown as a place to live, work and play, there are significant retail opportunities to be capitalized upon for residents,
workers and visitors alike. Residential growth will eventually bring more retail but, at the same time, residential development is
inhibited by the lack of goods and services (Atibise & Meligrana, 2001). Houston downtown has a built-in consumer base of
140,000 workers that represents a significantly underserved market with regard to goods and services. Additionally, with all of
the wonderful amenities that attract visitors to the new downtown Houston, retail is crucial to keep them coming back. Street-
level retail that is open days and weekends is the ―glue‖ that helps bind a downtown together and activates its streets in an
engaging and positive way.
On the other hand, the retail mix analysis is a useful tool for helping communities focus on potential niches. For example, a
group of entrepreneurs in the City of Murphysboro, Illinois (population 9,166) identified a niche for antiques. Over a period of
time, these entrepreneurs converted a group of empty storefronts in the downtown into antique shops. These businesses
created a niche and developed a successful marketing effort. As a result, collectors travel from throughout the Midwest to visit
the antique shops.
12
An interesting case related retailing mix research was made by City of Frederick Economic Development in Maryland
(Downtown Frederick Revitalization, n.d.). They conducted a research to gain an understanding from the public about retail
issues and preferences in downtown. Topics explored through this initiative included general preferences of consumers and
downtown patrons, including the most and least-liked aspects of Downtown Frederick and preferred additions to Downtown‘s
retail offerings; the topic of business ownership and preferences related to the appropriateness of national and regional
retailers in Downtown; and the topic of first-floor retail and the impact of continuous retail storefronts on pedestrian foot traffic.
Research was conducted on both regulations and incentives used by other communities to achieve the desired mix of chain
and independent retail, as well as first-floor retail requirements. A survey was conducted in Frederick downtown to know the
preferences and opinions of customers. This research was of especial interest because Frederick downtown customer‘s
research answers were similar to Mayagüez Downtown customer‘s responses.
Frederick customer‘s answers were summarized as follow:
 Downtown‘s historic setting and ambiance, as well as the pedestrian-friendly/ walk able area were respondents‘ favorite
things about Downtown Frederick.
 Traffic and parking were respondents‘ least-liked things about Downtown.
 A grocery store and a book store made the top of the list as retail that should be added to the downtown mix.
 Respondents were closely split between a preference for mix of local retail with regional and national chains and a
preference for only independent retail.
There are two lines of thought that provide the framework for decision-making on the topics of chains in Downtown Frederick.
The first line of thought is that Downtown is a unique place that is a shopping destination for both local and regional shoppers
as well as tourists. The locally-owned, independent and eclectic retail and restaurant offerings are what make Downtown
unique. There also is a growing desire among consumers to purchase from local, independent businesses. Therefore, there
should be a concerted effort to maintain that uniqueness, and provide a niche of local shopping options, by regulating the
number and types of chains in Downtown, if any. Another benefit to shopping locally-owned businesses is that more dollars are
kept in the local economy longer. The second line of thought is to focus on design, function and appearance rather than
ownership. This theory presumes that a vibrant downtown has a mix of uses and ownership types. Chains can act as
pedestrian magnets much like anchor tenants in a typical suburban mall, increasing overall foot traffic in downtown. Moreover,
the market should be the driving factor behind the retail mix of downtown – if chains are drawn to Downtown it is because there
is a strong Downtown market, and this strength is a positive thing for all businesses.
Clemson case was studied because of their similarities with Mayagüez downtown. It is an example of dedication and interest
from all involved sectors to improve downtown situation. The Clemson case is like a mirror to Mayagüez downtown because of
its initial problems and the taken steps to be on the edge. The City of Clemson in South Carolina is a distinctive small town
adjacent to Clemson University. This relationship attracts thousands of students to the City of Clemson daily, for shopping,
dining, and entertainment needs. In the late 1980s several of the well-known old brick storefronts of downtown had
disappeared under heavy coats of paint, wood and aluminum facades. Crosswalks were faded, worn, and practically non-
existent. Citizen surveys indicated concerns with the impression left by the area, especially the bleak appearance coupled with
increased vandalism, trash and litter problems. Walking is the primary means of access to the restaurants and retail
establishments within the corridor for both students and visitors, and there were many potential pedestrian and vehicle conflicts
to be addressed (Yilmaz, n.d.) Recognizing downtown Clemson as a major component of the city‘s image, citizens, merchants,
and local government officials jointly established the Downtown Development Corporation with the mission to improve the
downtown business area for businesses, patrons, and pedestrians. An Appearance Review Board was established along with
performance standards and design guidelines for the downtown area and for other major corridors in the city. As part of the
initial efforts, a resource team presented a detailed report outlining the strengths and weaknesses of the downtown business
district and the necessary revitalization steps. In general terms, the major recommendations of the report included:
 Improve the physical appearance of downtown, including unification of design and streetscape improvements, providing
more green spaces, and alleviating trash and litter;
 Improve pedestrian safety, including installing brick surfaced pedestrian crosswalks, mandatory ―stop for pedestrian in
crosswalk‖ warning signs, enforcement of existing on-street parking regulations, enforcement of motorist yielding to
pedestrians, and advancing ADA accessibility;
 Identify a retail mix that meets all existing markets using input from the focus groups, market data, and retail market
feasibility studies;
 Investigate the possibility of extending the university parking shuttle system route to include stops within the downtown
area.
13
Although it seemed to be an ambitious program, these recommendations had the backing of City officials, the University, and
the Chamber of Commerce. The first two phases of improvements took place during 1990 and 1991 and cost approximately
$500,000. The City matched a $250,000 grant from the South Carolina Governor's Office with $220,000 in public funds and the
remainder $30,000 came from donations by residents, students, and alumni. Thirty trees and fourteen outdoor benches were
private gifts. In addition, a $2.25 million dollar, low interest, revolving loan pool was established by the local banks to expedite
building renovations in accordance with the development plans that were approved by the Appearance Review Board.
Since then, improvements have expanded beyond the downtown boundaries into the adjacent areas. Projects have included
the beautification of the area through the extension of streetscape improvements, realignment of streets, installation of mast-
arm signals, decorative pedestrian crossings, and landscaping. In the early 1990s a complementary unified entrance to
downtown Clemson and the University‘s campus was created, and the city improvements were mirrored on the university
property directly across from downtown as an alumni class project. Also during this time, private downtown merchants invested
extensive facade improvements.
The City of Clemson was able to identify the need for revitalizing downtown and providing a safe pedestrian environment for
local patrons. After the revitalization effort was completed, downtown Clemson reduced the amount of pedestrian and vehicle
conflicts, slowed traffic through the downtown area, and significantly increased the awareness of pedestrian safety via design
and regulation in its revived aesthetic and economic corridor.
Today downtown is an attractive, safe, and pedestrian friendly urban space. A healthy mix of clothiers, music stores,
bookstores, florists, banks, restaurants, and coffee houses provide numerous shopping options, personal services, and dining
opportunities for residents, students, and tourists. The pedestrian improvements support the economic revitalization effort and
also increase the safety and comfort of pedestrians in downtown Clemson, SC.
The Clemson case was studied because of their similarities with Mayagüez downtown. It is an example of dedication and
interest from all involved sectors to improve downtown situation. The Clemson case is like a reflect to Mayagüez downtown
because of its initial problems and the taken steps to be on the edge.
RESEARCH METHODOLOGY
The College of Business Administration of the University of Puerto Rico-Mayagüez Campus is concerned with the depressed
condition of Mayagüez downtown located near the University Campus. A gap is perceived between what the College
community wants to satisfy their needs and downtown merchant‘s offerings. A research is ongoing during first semester 2009 -
2010 to know the opinion of students, professors, and administrative and clerical personnel about businesses, services and
entertainment they would like to be located at Mayagüez downtown.
The objectives of the study were focused on determining which characteristics they weighted when going shopping. Questions
were made related product assortment, price, customer service, promotion and advertising, exterior design, location and
parking. Another fundamental aspect of the research was to identify the expected retail mix for UPRM community and how they
conceived the new business sector in Mayagüez downtown (Ortiz, 2008).
Specific objectives:
1. What type of business or services desire the college community to be located downtown Mayagüez?
2. How do they conceptualize the route of new businesses downtown?
3. Which services would they prefer to be offered in order for the route to become appealing for the Community College?
METHOD OF STUDY
A qualitative research method was used to identify the college community‘s opinion related to downtown Mayagüez. Qualitative
research gathers an in-depth understanding of human behavior and the reasons that govern such behavior. Survey,
observation, and in-depth interviews through focal groups were the research strategies used to help us know the opinion of
students, professors, and administrative and clerical personnel about businesses, services, and entertainment they would like
to be located at downtown Mayagüez. The data for the focal groups was recorded through a video recording, and two different
focal groups were interviewed; one of students and the other of clerical and administrative personnel.
The primary method used for the research was a survey designed to contact the college community. A questionnaire was
provided to the college community through a sample selection. The people surveyed were students, professors, clerical and
14
administrative personnel. We identified a group of items and the content of the questionnaire which was validated online and
face to face with a sample of the target market. The recommendations were evaluated and the pertinent changes were made to
the final questionnaire. The validated questionnaire was administered online through www.uprm.edu to the college community
for a period of two weeks.
SAMPLE DESIGN
Probability sampling was used to select the respondents using Cluster Sampling. Each cluster is a small scale representation
of the total population of students, professors, and administrative and clerical personnel. With these three clusters we took a
representative sample of the college community.
Sample Size
The population of our study consisted of 13,000 students, 742 professors, and clerical and administrative personnel of 1,340
according to the Office of the UPRM Register . Using the online sample size calculator found on
http://www.surveysystem.com/sscalc.htm provided by Creative Research Systems, the following formulas were used to
calculate sample size.
ss =( Z 2 * (p) * (1-p))/ c 2
Where:
Z = Z value (e.g. 1.96 for 95% confidence level)

p = percentage picking a choice, expressed as decimal
(.5 used for sample size needed)
c = confidence interval, expressed as decimal
(e.g., .04 = ±4)
Correction for Finite Population:

New ss= (1+ ss-1)/pop
Where: pop = population
The sample size designs with a confidence level of 95%, and a confidence interval of 7 according to Creative Systems
Research are the following:
Sample size (Confidence Interval 7, Confidence Level 95%)

Students Professors Administrative& Clerical
Population 13,000 742 1340
Sample Size 193 155 171
FINDINGS
There were 1,120 questionnaires responses, fifty nine percent were female and forty one percent were male. Eighty six percent
86% were students, 6% professors and 6% administrative and clerical personnel. Of the respondents 957 were students, 74
were professors and 74 were administrative and clerical personnel. Thirty six percent (36%) of students were in their first and
second academic year, 26% were in third, 15% in fourth and 21% were graduate students. As part of our findings we obtained
that the approximated annual income of 68% of our respondents was below $10,000. Also, 31% of our respondents live at the
town of Mayagüez, but there was representation from the 78 towns of Puerto Rico. Eighty two percent of our respondents are
from ages 18 to 24.
Regarding the name of Ruta Colegial to be appropriate 84 percent of our respondents said yes. Of those that said No (11%),
Maybe (5%) or Indifferent (0%) the following names were suggested: Paseo Colegial, Ruta Comercial, El Centro, Ruta
Estudiantil, Ruta del Tarzan, among others.
15
Three primary aspects covered in the UPRM community survey were: (1)the most important characteristics they look for when
shopping, (2) their expected downtown retail mix and (3) how do they conceive a new business route to differentiate downtown.
In the study we found that the most preferred place for shopping by the college community of UPR-Mayagüez is Mayagüez
Mall, followed by Western Plaza. In third place came other commercial centers. Fourth, fifth and last place were Internet, others
and Downtown accordingly. It is important to notice that out of all Downtown was the least preferred place for shopping.
For the UPRM community, product assortment (97%) and Customer Service (97%) are the most important characteristic
downtown retailers should have when they shop, followed by price (96%), parking (95%) and location (93%). There is a gap
between what the UPRM community wants and what they find In Mayagüez downtown at this moment. There is only one
surfing shop focused on youth, the others are discount stores. There is neither product assortment nor parking in the downtown
area (Ortiz). Another serious problem related with location is persistent traffic jam in the city center. To attract UPRM
community, which represents a potential market of 16,000 customers to Mayagüez downtown, there should be an eye-catching
concept, new retailers with better product assortment, good customer service, accessible prices and an improved location.
Which is the expected retail mix Mayagüez downtown should have to attract the UPRM community?
This survey showed that the UPRM community would like to have more restaurants (91%), mini markets (86%), internet café
(84%), school supply (82%), Movie theater (81%), Electronics shop (81%), Games Room and theater (71%) and cloth and
shoes for men (68%). This information is especially important for downtown merchants and new entrepreneurs. The question
is, if there were this retailing mix in the Mayagüez downtown, would the UPRM community be attracted to the downtown area?
Sadly, I have to say maybe not. Why not? Because customers want to have a new and creative retail formats, supplemented
with product assortment, accessible price, parking spaces available and a good location. An integrative strategy is needed to
be developed and implemented.
Another issue that should be considered is the declining image that downtowns have been showing in the last decades. The
following is a summary of downtown problems faced by small downtowns in United States (Robertson 270-283):
(1)Attracting new development, (8) Vacant/ underused office space,

(2) Attracting people to downtown evening/weekends, (9) Preservation of older buildings,
(3) Competition from suburban Malls, (10) Unattractive building facades,
(4) Vacant/underused retail space, (11) Crime (real or perceived),
(5) Parking, (12) Traffic circulation,
(6) Shortage of suitable housing, (13) Organization/Cooperation of downtown interest.
(7) Image,
The above problems related downtowns are applicable to Mayagüez downtown and for many others in Puerto Rico and United
States (Robertson 270-283). The question is, can downtowns survive to this uncertain environment? Are downtown still
important for the community? Should we give up downtown revitalization? How the University of Puerto Rico, Mayagüez
Campus can contribute to search solutions for downtown problems in Puerto Rico?
CONCLUSION
Mayagüez downtown has a differentiation opportunity to attract University of Puerto Rico, Mayagüez community. As a result of
this research we identified the UPRM community expected retail mix for Mayagüez downtown. Also, the most important
characteristics they weighted when shopping. The concern related with obsolescence downtown image as a place unwanted to
visit is dealt with a new business concept, called ―RUTA COLEGIAL‖. Ruta Colegial (College Route) is a unique concept
proposed by UPRM students to concentrate the desired retail mix, services and recreation in a place like the Main Street. The
retail mix should include a balanced number of locally independent retailers and international chains as suggested in the
Frederick case (Frederick Economic Development). This fact imposed the need to develop well delineated criteria to select the
adequate place for the College Route in Mayagüez downtown. A public policy is also needed to make it attractive for investors
and new entrepreneurs. Retail Management students are taking part of the College Route design. They are going to participate
in a contest to present the best concept during a special activity on December 10, 2009. There will be a committee composed
by the City Major, downtown merchants, and local media to select the best concept. Administrators also made suggestions to
the College Route design. They participated in a focus group, where they had the opportunity to give their opinions and
recommendations. Among other recommendations made by students to differentiate Mayagüez downtown is the creation of a
historic places directory for visitors and tourist, a wall containing the Mayagüez most important historic events, and a promotion
plan for cultural events.
16
Mayagüez Revitalization Model

1. A model to revitalize Mayagüez Downtown should take in consideration each of the relevant development factors such as:
a. Retail mix
b. Historic Buildings
c. Government Offices
d. Transportation
e. Get together squares
f. Downtown special offerings
g. Hospitals and related services
h. Adequate atmosphere
i. A plan to rebuilt and maintain downtown buildings front
2. A public policy committed to support the implementation of the developed differentiation concept.
3. Prioritized the infrastructure projects needed to achieve the desired objectives
4. Design an Integrative Downtown Marketing Communications Plan
For Mayagüez downtown there is the opportunity to re think the retail mix, improve transportation and design more amenities in
order to attract UPRM market. To revitalize Mayagüez downtown like others in Puerto Rico it is necessary to identify the unique
attributes of the city and developed a unified concept under which all the revitalization initiatives are covered.
WORKS CITED
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January,2001, 1-16.
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17
APPENDIX
1. List from 1 to 5 (5 most preferable, 1 least preferable) Where do you prefer to go shopping?
Establishment % of Sum Very Desirable & Desirable
Restaurants 91%
Mini Market 86%
Internet Café 84%
Bookstore 82%
Pharmacy 82%
School Supply 82%
Movie theater 81%
Electronics Shop 81%
Games Room 71%
2. Choose the order of importance of each characteristic when shopping:

Characteristic % of Sum of Very Important and Important
Type of Merchandise 97%
Customer Service 97%
Price 96%
Parking 95%
Location 93%
Services Offered 92%
Store Exterior 66%
Store layout 59%
Advertisement and Promotion 56%
3. What mix of stores would you like to find at Ruta Colegial?

Establishment % of Sum Very Desirable & Desirable
Restaurants 91%
Mini Market 86%
Internet Café 84%
Bookstore 82%
Pharmacy 82%
School Supply 82%
Movie theater 81%
Electronics Shop 81%
Games Room 71%
Men Clothing and shoe store 68%
Gym 68%
Women Clothing and shoe store 66%
Museum 60%
Beauty Salon/Barber shop 59%
Others 57%
Laundry 54%
Sports Goods Store 47%
Kids Clothing and shoe store 29%
Pets Store 28%
18
4. Where would you prefer Ruta Colegial to be located?
5. Would you consider opening up your own business at Ruta Colegial?
6. What type of Business would you develop?

Type of Business Frequency
Internet Cafe 26
Restaurant 20
Food 20
Clothing 8
Electronics 5
Coffee Shop 5
Bookshop 4
Entertainment 4
Bakery 3
Women Accessories 2
Ice cream Shop 2
Medical Office 2
Confectioner’s shop 2
Ball Room 2
Beauty Salon 2
19
7. Do you consider the name Ruta Colegial to be appropriate?
8. If the answer is No, which do you suggest? :_____________________

Suggestion Frequency
Paseo Colegial 4
Ruta Comercial 2
El Centro 2
Ruta Estudiantil 1
Urban Maya Main Street 1
Ruta del Tarzan 1
Ciudad Universitaria 1
Pueblo Colegial 1
Villa Colegial / Avenida Colegial 1
9. Sex
20
10. Age
11. Choose from the following:
12. Refer to question 11, if the answer is student choose academic year:
21
13. Approximated annual income:
14. Town of residence:
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23
USING POTENCY INDEX TO CALCULATE PROVINCIAL COMPETITIVENESS

INDEX (PCI) IN VIETNAM
Truong Ba Thanh, Nguyen Manh Toan and Le Van Huy

Danang University, Vietnam
ABSTRACT
The evaluation of quality differences in provincial economic governance through separate sub-indices and „‟stated-importance‟‟
has showed the ineffectiveness in many situations. Therefore, the establishment of discriminant analysis and subgroup to
evaluate differences in governance quality based on 10 sub-indices and the finding of the role of “derived-importance‟‟ in
creating differences through potency index has an important meaning in calculating Provincial Competitiveness Index. This
study aims to compare the Provincial Competitiveness Index based on two approaches: „‟stated-importance‟‟ and „‟derived-
importance‟‟. The „‟stated-importance‟‟ approach is based on the weights (through given weights), while the „‟derived-
importance‟‟ uses potency index. This research created a methodology for how to evaluate a „‟derived-importance‟‟ with the
desire of contributing to the methodology exchanges in calculating provincial index (PCI) in Vietnam.
Keywords: Provincial Competitiveness Index - PCI, Potency Index, Derived-Importance, Vietnam
INTRODUCTION
In the past few years, Vietnam has achieved great success in attracting investment and developing business enterprises. The
investment environment has showed remarkable improvements and become an attractive business destination for domestic
and international investors. In order to attain important achievements, there is not only the reform effort of the Government, the
Ministries… but also the important role of the government of provinces and cities. The positive point having breakthrough in the
organization and management of the Government over the past years was the decentralization of licensing and managing
investment activities which are based on provincial competitiveness index (PCI) to provide provinces with favorable conditions
to promote creativity and competition so that they can enhance quality in economic governance, speed up administration
reform, and create a friendly and attractive investment environment (Vu Tien Loc, 2007). The above index has become a
familiar and reliable index to evaluate business environment of provinces and cities as well as allowed an analysis and
comparison of the dynamic and improvement of business environment in Vietnam (Le Dang Doanh, 2007). Decisions of
provincial leaders have a measurable role and meaning in whether the province will become wealthy, whether the capital
investment and trade will increase, whether more new jobs will be created, and whether people‘s living standards will be
improved. According to the results of the calculation, when PCI increases by one point in the provinces which are in the
average position (median), the corresponding growth norms show that there are 8 new businesses are registered, new
investment per capita increased by 2.5%, the average profit per enterprise increased by 4.2 million VND (approximately 253
USD), GDP per capita increased by 1% (www.vibonline.com.vn). In the report of Provincial Competitiveness Index of Vietnam
(in the years of 2006, 2007, 2008) on the evaluation of economic governance encouraging the development of private sector,
the research group employed the round weighted sub-indices method (page 10 of the report). However, in order to evaluate
exactly the impact of separate sub-indices on the common results of provincial competitiveness index, the research suggests a
method which is based on the ―motive‖ sub-indices (potency index) rather than weights (through given weights) in the research
of VNCI with the desire of contributing to the methodology exchanges in calculating provincial index (PCI) in Vietnam.
RESEARCH METHODOLOGY
Provincial competitiveness index is built up according to the measurement and evaluation of the economic governance practice
in 64 provinces/cities basing on the survey of private sector. The index offers provincial leaders related information about the
impacts of policies they offered on business activities of the private sector. Furthermore, the index provides provincial officers
with useful information, and helps them to identify areas and manners to implement economic governance reforms effectively.
Several provinces/cities which have similar natural conditions but different provincial economic governance methods have
created dissimilar results in the perception of economic sectors.
24
T. B. Thanh, N. M. Toan and L. V. Huy Volume 9 – Spring 2010
Since the 2006 report, ten sub-indices were taken into account included (1) Private Sector Development Services, (2)
Transparency and Access to Information, (3) Labor and Training, (4) Pro-activity of Provincial Leadership, (5) Time Costs and
Regulatory Compliance, (6) Legal Institutions, (7) State-owned Enterprises (SOE) Bias and Competition Environment, (8)
Informal Charges, (9) Land Access and Security of Tenure, (10) Entry Costs.
- Entry Costs: A measure of: i) the time it takes a firm to register and acquire land; ii) the time to receive all the necessary
licenses needed to start a business; iii) the number of licenses required to operate a business; and iv) the perceived
degree of difficulty to obtain all licenses/permits.
- Land Access and Security of Tenure: A measure combining two dimensions of the land problems confronting
entrepreneurs: how easy it is to access land and the security of tenure once land is acquired.
- Transparency and Access to Information: A measure of whether firms have access to the proper planning and legal
documents necessary to run their businesses, whether those documents are equitably available, whether new policies and
laws are communicated to firms and predictably implemented, and the business utility of the provincial webpage.
- Time Costs and Regulatory Compliance: A measure of how much time firms waste on bureaucratic compliance, as well as
how often and for how long firms must shut their operations down for inspections by local regulatory agencies.
- Informal Charges: A measure of how much firms pay in informal charges, how much of an obstacle those extra fees pose
for their business operations, whether payment of those extra fees results in expected results or "services," and whether
provincial officials use compliance with local regulations to extract rents.
- SOE Bias and Competition Environment: A measure focusing on the perceived bias of provincial governments toward
state-owned enterprises, equitized firms, and other provincial champions in terms of incentives, policy, and access to
capital.
- Pro-activity of Provincial Leadership: A measure of the creativity and cleverness of provinces in implementing central
policy, designing their own initiatives for private sector development, and working within sometimes unclear national
regulatory frameworks to assist and interpret in favor of local private firms.
- Private Sector Development Services: A measure of provincial services for private sector trade promotion, provision of
regulatory information to firms, business partner matchmaking, provision of industrial zones or industrial clusters, and
technological services for firms.
- Labor and Training: A measure of the efforts by provincial authorities to promote vocational training and skills development
for local industries and to assist in the placement of local labor.
- Legal Institutions: A measure of the private sector's confidence in provincial legal institutions; whether firms regard
provincial legal institutions as an effective vehicle for dispute resolution, or as an avenue for lodging appeals against
corrupt official behavior.
Stated-importance Approach (Weights of Sub-indices)

According to the policy research report – VNCI, issue 13 on Provincial Competitiveness Index of Vietnam in 2008 which is
about the evaluation of economic governance quality to impulse the development of private economic sector, the research
suggested weights of sub-indices as follows:
Table 1: Weights of Sub-indices

Sub-indices Weights Types of weights
1. Private Sector Development Services 15% High
2. Transparency and Access to Information 15% High
3. Labor and Training 15% High
4. Pro-activity of Provincial Leadership 15% High
5. Time Costs and Regulatory Compliance 10% Average
6. Legal Institutions 10% Average
7. SOE Bias and Competition Environment 5% Low
8. Informal Charges 5% Low
9. Land Access and Security of Tenure 5% Low
10. Entry Costs 5% Low
25
According to VNCI‘s method, there are 3 groups of sub-indices including the highest weight class of 15 percent, medium weight
class of 10 percent, and the lowest weight class of 5 percent. The method VNCI used is based on given ―stated-importance‖
(weights). Therefore, the establishment of discriminant analysis and subgroup to evaluate differences in governance quality
based on 10 sub-indices, and the finding of the role of ―derived-importance‘‘ in creating differences through potency index have
an important meaning in calculating provincial competitiveness index. The strength of ―derived-importance‖ is the ―inner‖ impact
of each sub-index on the ultimate results of PCI. Theoretically and practically, ―derived-importance‖ (potency index) will present
more ―truthfully‖ and ―realistic‖ than the use of weights to evaluate over periods.
Derived-importance Approach (Potency Index)

However, the evaluation of quality differences in provincial economic governance through separate sub-indices and ‗‘stated-
importance‘‘ has showed the ineffectiveness in many situations (Truong Ba Thanh, 2000). Simultaneously, if basing on
provincial index to compare, the exactitude is just relative. As a result, the establishment of discriminant method and subgroup
method to evaluate the differences in quality of economic governance, as well as the finding of the role of indices creating
differences play an important role in planning and macro governing at national level in general and at provincial level in
particular.
The discriminant analysis helps us to find the core elements which sub-index of PCI and have close relationships with them.
The sub-index has an inter-relationship with core elements through the following recurring linear function: Fi = ailxl + ...+ aikxk, in
which, Fi: core element i, k: the number of sub-indices in the analysis, aik: coefficient of the sub-index k and the core element i,
xk: sub-index k. This analysis eliminates similar criteria (existing in the mentioned inter-relationship) in the considered financial
criteria.
Discriminant analysis assists the verification of differences in the perception towards sub-indices, and the finding of
discrimination among groups (Hair et al., 2006; Truong Ba Thanh et al., 2008). In other words, discriminant analysis allows
researchers to calibrate sub-indices which create ―differences‖ among groups based on provincial competitiveness index of
provinces/cities based on potency index through data of research years. Research data is used on the basis of average point
of 10 indices evaluating provincial competitiveness which is researched from 2006 to 2008. Discriminant analysis allows
confirming whether there is discrimination among sub-indices of provinces. If there is a discriminant group called i, there will be
i-1 function called Ui allowing us to identify discrimination among groups. Then, the discriminant function is Ui= bi1x1 + ...+ bikxk
(is the value of index i and bki is the coefficient of sub-index k with the discriminant function Ui ) and cutting scores are
calculated according to the following formulation with ni is the size of group sample i and ni is the central point of
ni z i1  ni1z i
corresponding group i: CSi  .
ni  ni1
Suppose that there are 3 discriminant groups, function Ui will present the discrimination among 3 groups as can be seen in
Figure 1. More specifically, in this case there will be 3 areas which have different provincial competitiveness index, specific
characteristics of each area will be explained in the results analysis. At the same time, discriminant analysis allows to calibrate
sub-indices ―creating differences‖ among groups based on Provincial Competitiveness Index (PCI) of provinces/cities.
On the basis of discriminant function, cluster analysis allows us to dispose provincial competitiveness into groups according to
the evaluation of given sub-indices. It is supposed that in this situation, there are 2 discriminant clusters; U equation will be the
function which shows the separation between 2 clusters as shown in figure 1 with bk being parameter of financial figure k for U
function. The graph of discriminant function between cluster 1 and 2 can be presented by the figure 1:
26
Figure 1: Graph on Discriminant Function between Cluster 1 and Cluster 2

F1
G
* G1
* G2
F2
More specifically, in this case, there are two areas, one of which corresponds to sub-indices which have important status (in
respect of core elements determined by factor analysis). Important criteria for the discriminant function are shown in Figure 2.
Discriminant function allows for the classification of sub-index in compliance with important criteria (low, average or high
status).
Figure 2: Graph on Discriminant Function

G1 G G2
(Cutting Score 1) (Cutting Score 2)
Discrimina
nt function
Low Average High (U)
RESULT ANALYSIS
Discriminant Analysis
According to the principle of homogeneous analysis and discrimination among groups of analysed data, Bartlett verification
using Varimax rotation based on data of 10 provincial competitiveness sub-indices in 2008 affirmed the existence of three main
factor groups (Approx. Chi-square of Bartlett =247,924; degrees of freedom 45 and significance = 0,000 <0,05) and the
relationship between sub-indices with the principal component is more than 0,5 so that it satisfies conditions to implement
group analysis and discriminant analysis.
Discriminant analysis allows to confirm the existence of differences (discriminations) among three business groups on the basis
of 10 above indices. Stepwise method and Wilk‘s Lambda shows the existence of differences in competitiveness of 64
provinces/cities in Vietnam.
27
Table 2: Canonical Discriminant Function Coefficients

Discriminant function
Sub-indices
1 2
1. Entry Costs (X1) -,361 1,415
2. Land Access and Security of Tenure (X2) ,219 ,698
3. Transparency and Access to Information (X3) ,518 ,345
4. Time Costs and Regulatory Compliance (X4) -,398 ,754
5. Informal Charges (X5) ,124 ,395
6. SOE Bias and Competition Environment (X6) -,150 -,512
7. Pro-activity of Provincial Leadership (X7) ,486 -,171
8. Private Sector Development policies (X8) ,349 ,614
9. Labor and Training (X9) ,784 -,898
10. Legal Institutions (X10) ,716 -,226
Coefficient -9,878 -17,221
With two discriminant functions in the implement process, there is the existence of discriminant criteria to compare and arrange
competitiveness groups. Two discriminant functions can be defined as follows:
U1 = -9,878-0,361*X1+0,219*X2+0,518*X3-0,398*X4+0,124*X5-0,15*X6 +0,486*X7+0,349* X8+0,784X9+0,716X10

U2 =-17,222+1,415*X1+0,698*X2+0,345*X3+0,754*X4+0,395*X5-0,512*X6-0,171*X7+0,614* X8-0,898X9-0,226X10
Therefore, there is the existence of U1 and U2 in the discrimination of responses. Eigenvalue of the first function (U1) is 6,056
making up 97,5% of variance value and the second function (U2) only makes up 2,5% of variance value. As a result, variables
(having the same coefficients in the first function) explain up to 97,5% the discrimination among groups of provinces, cities in
competitiveness index.
Calculate Potency Index

Table 3: Potency Index
The First Discriminant Function The Second Discriminant Function
Sub- Potency
indices Squared Relative Potency Squared Relative Potency Index
Loading Loading
Loading Eigenvalue Value Loading Eigenvalue Value
X1 0.502 0.252 0.975 0.246 0.178 0.032 0.025 0.001 0.246
X2 0.494 0.244 0.975 0.238 -0.182 0.033 0.025 0.001 0.239

X3 0.456 0.208 0.975 0.203 0.233 0.054 0.025 0.001 0.204
X4 0.383 0.147 0.975 0.143 0.370 0.137 0.025 0.003 0.146
X5 0.292 0.085 0.975 0.083 -0.036 0.001 0.025 0.000 0.083
X6 0.135 0.018 0.975 0.018 -0.009 0.000 0.025 0.000 0.018
X7 0.146 0.021 0.975 0.021 0.414 0.171 0.025 0.004 0.025
X8 0.056 0.003 0.975 0.003 0.349 0.122 0.025 0.003 0.006
X9 0.183 0.034 0.975 0.033 0.214 0.046 0.025 0.001 0.034
X10 0.133 0.018 0.975 0.017 0.205 0.042 0.025 0.001 0.018
Through calculating potency index, the results of provincial competitiveness index ranking are adjusted to the results in Table
4.
28
Table 4: Comparison Between PCI Calculated on the Basis of Stated-Importance (VNCI, 2008) và PCI on the Basis of
Derived-Importance (Potency Index)
SEQ SEQ SEQ
. Weights Potency index . Weights Potency index . Weights Potency index
1 Da Nang 72.18 Da Nang 74.83 22 Can Tho 56.32 Tien Giang 53.84 43 Nghe An 48.46 Quang Ninh 44.58
2 Binh Duong 71.76 Binh Duong 73.21 23 Ninh Binh 56.14 Can Tho 53.44 44 Hoa Binh 48.35 Nam Dinh 44.41
3 Vinh Phuc 69.37 Vinh Phuc 72.44 24 Hau Giang 55.36 Ha Nam 52.94 45 Ha Giang 48.18 Ha Giang 43.61
4 Vinh Long 66.97 Vinh Long 67.38 25 Tra Vinh 55.17 Hau Giang 52.66 46 Lam Dong 48.10 Ha Tinh 43.01
5 Dong Thap 66.64 Dong Thap 67.12 26 Ha Nam 55.13 Ha Noi 52.52 47 Ninh Thuan 47.82 Ninh Thuan 42.97
6 Long An 63.99 Long An 62.57 27 Quang Ninh 54.70 Dak Lak 51.94 48 Hai Phong 47.68 Lam Dong 42.95
7 Ben Tre 62.42 Lao Cai 61.91 28 Thai Binh 54.27 Soc Trang 51.83 49 Ha Tinh 47.48 Hai Phong 42.84
8 Lao Cai 61.22 An Giang 61.66 29 Soc Trang 54.24 Tra Vinh 51.73 50 Bac Giang 47.44 Nghe An 42.72
9 An Giang 61.12 TP HCM 61.32 30 Hai Duong 54.07 Quang Ngai 51.24 51 Son La 46.60 Thai Nguyen 42.23
10 Hue 60.71 Ben Tre 61.19 31 Ha Noi 53.74 Thai Binh 51.07 52 Thanh Hoa 46.22 Ha Tay 41.51
11 Binh Dinh 60.67 Hue 60.86 32 Binh Phuoc 53.71 Hai Duong 49.14 53 Thai Nguyên 46.03 Son La 40.83
12 BRVT 60.51 Binh Dinh 59.42 33 Dak Lak 53.33 Khanh Hoa 48.88 54 Lang Son 45.63 Lang Son 40.20
13 TP HCM 60.15 BRVT 59.35 34 Phu Tho 52.49 Phu Tho 48.70 55 Ha Tay 45.09 Tay Ninh 39.92
14 Quang Nam 59.97 Dong Nai 58.44 35 Kien Giang 52.25 Phu Yen 48.59 56 Tay Ninh 45.09 Thanh Hoa 39.90
15 Dong Nai 59.62 Ca Mau 58.41 36 Khanh Hoa 52.12 Binh Phuoc 48.38 57 Quang Binh 44.17 Lai Chau 39.41
16 Bac Ninh 59.57 Quang Nam 58.13 37 Tuyen Quang 52.00 Gia Lai 47.37 58 Lai Chau 43.95 Quang Binh 37.56
17 Binh Thuan 58.75 Bac Ninh 57.72 38 Gia Lai 51.82 Tuyen Quang 47.13 59 Kon Tum 41.94 Dak Nong 36.96
18 Ca Mau 58.64 Binh Thuan 56.67 39 Phu Yen 51.24 Kien Giang 46.73 60 Cao Bang 41.02 Kon Tum 36.16
19 Yen Bai 57.79 Ninh Binh 55.50 40 Quang Tri 50.72 Quang Tri 45.73 61 Dak Nong 41.01 Cao Bang 35.40
20 Hung Yen 57.53 Yen Bai 54.65 41 Quang Ngai 50.05 Hoa Binh 45.04 62 Bac Liêu 40.92 Bac Lieu 35.16
21 Tien Giang 57.27 Hung Yen 54.12 42 Nam Dinh 49.52 Bac Giang 44.68 63 Bac Can 39.78 Bac Can 34.10
29.1
64 Dien Bien 36.39 Dien Bien 5
CONTRIBUTION AND IMPLICATION OF THE RESEARCH

Private economic sector has played an important role in contributing economic value to Vietnamese socio - economic
development. With the same macro governance policies, different management methods of provincial governments have
created differences in perception of businesses, and investors. The research has built a methodology of analyzing, evaluating,
synthesizing sub-indices in order to figure out factors which create differences in management at provincial level so that it can
be grounds for planners to position, communicate in doing local marketing. The calculation of the above indices is based on
―stated-importance‘‘ (weights), the contribution of the research is that it presents a calculation method which is based on
―derived-importance‘‘ (potency index) in order to examine the impact of each index on provincial competitiveness index (PCI).
On this basis, the research has established a methodology in the principle of grouping in order to affirm some differences from
the conclusion of VNCI on the arrangement of provincial competitiveness index, scores and order which are presented in the
Table 4, 5 and 6.
Regarding the result analysis of the project, importance of sub-indices need to be based on derived-importance (potency index)
instead of the stated-importance (given weights) which are 5%, 10%, 15% calculated according to factor analysis method using
data of the year 2008 like now. The research has established the methodology of measuring the impacts of each sub-index on
PCI in provincial competitive research. Through this research, it can be seen that potency index shows the ―inner‖ influence of
each sub-index rather than using ―weights‖ of previous researches.
Simultaneously, the research has affirmed that there are differences in economic governance quality of provincial
governments, and that there are three discriminant groups through evaluating synthetically affecting factors. From the research
results, provinces/cities in the same group can cooperate with each other in order to make a suitable communication policy in
attracting investment. With respect to provinces/cities in the group having good PCI, they will plan communication strategies
which emphasize the success in economic governance.
29
Table 5: Provincial Competitiveness Index Calculated on the Basis Potency Index

X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 PCI
City/Province
0.006 0.018 0.146 0.025 0.034 0.018 0.246 0.204 0.239 0.083 (Potency Index)
Da Nang 9.36 5.52 7.92 5.93 6.58 7.9 7.4 6.3 8.4 6.55 74.8286
Binh Duong 8.5 7.74 7.72 6.25 6.98 8.08 8.45 6.14 6.76 6.24 73.2127
Vinh Phu 8.37 6.47 7.39 4.99 7.94 8.17 8.23 5.95 7.37 5.5 72.4370
Vinh Long 8.59 7.35 7.45 6.25 7.1 7.93 6.94 4.39 7.93 5.16 67.3828
Dong Thap 7.96 8.05 7.21 5.48 7.33 7.85 7.52 4.6 6.78 6.39 67.1195
Long An 8.2 7.59 7.22 6.02 7.02 7.89 6.95 4.08 5.92 6.37 62.5675
Lao Cai 8.51 7.14 7.04 3.8 6.59 8.29 7.81 5.21 4.63 5.12 61.9133
An Giang 7.64 7.33 7 4.62 6.65 7.32 7.63 4.87 4.9 5.44 61.6622
TP HCM 8.11 5.36 6.98 5.07 6.19 6.86 6.64 6.35 5.19 4.07 61.3197
Ben Tre 7.97 7.38 6.78 6.4 7.36 6.75 6.92 3.8 6.04 5.97 61.1887
TT Hue 7.45 5.18 6.86 5.44 6.71 7.55 6.03 4.76 6.27 5.94 60.8551
Binh Dinh 9.03 7.21 7.18 5.62 7.02 8.21 7.11 4.53 5.14 3.39 59.4221
BRVT 8.52 6.51 6.89 5.67 7.23 6.79 6.09 5.17 5.33 5.11 59.3485
Dong Nai 8.18 6.45 6.8 6.27 7.2 7.09 5.89 4.67 6.02 3.81 58.4378
Ca Mau 8.4 7.12 7.07 4.77 6.63 7.31 6.28 4.6 5.74 3.6 58.4097
Quang Nam 8.99 6.41 6.75 5.51 7.05 8.09 7.14 3.76 4.85 5.45 58.1287
Bac Ninh 8.69 7.38 6.41 5.62 7.2 7.55 6.6 3.67 5.55 5.2 57.7237
Binh Thuan 7.78 7.19 7.67 5.23 6.35 7.39 6.27 3.65 4.77 5.6 56.6744
Ninh Binh 8.63 6.47 5.76 4.86 6.55 7.7 6.04 4.14 5.89 3.85 55.4966
Yen Bai 8.67 6.7 5.77 5.9 7.68 8.45 6.6 3.31 4.75 5.48 54.6469
Hung Yen 7.47 7.65 6.68 5.98 8.3 7.81 6.61 3.79 3.72 4.74 54.1180
Tien Giang 9.13 6.64 6.74 5.99 6.86 7.53 5.64 4.09 4.63 4.56 53.8372
Can Tho 8.55 6.92 6.41 5.72 6.15 7.02 4.56 4.05 5.79 5.08 53.4359
Ha Nam 8.74 6.92 7.15 4.26 6.83 7.54 6 3.68 4.29 4.18 52.9431
Hau Giang 8.72 7.21 6.09 5.49 6.12 6.96 6.95 3.09 4 5.16 52.6619
Ha Noi 8.08 4.73 6.6 5.27 6.37 7.08 4.7 5.62 4.79 2.79 52.5205
Dak Lak 7.58 6.22 6.34 4.63 6.49 7.34 6.34 3.7 4.13 4.11 51.9425
Soc Trang 8.51 8.01 3.65 5.6 6.77 7.35 6.45 3.68 4.94 5.23 51.8279
Tra Vinh 8.85 8.01 5.69 4.64 6.45 7.79 4.95 3.37 5.3 6 51.7342
Quang Nam 8.34 6.74 5.53 5.61 6.86 8.11 6.06 3.22 4.31 5.4 51.2414
Thai Binh 7.52 7.16 6.36 5.55 6.97 7.78 5.93 3.21 4.21 4.44 51.0666
Hai Duong 7.81 6.91 6.38 6.36 7.6 7.52 5.07 3.26 3.99 4.73 49.1394
Khanh Hoa 8.26 5.88 6.4 5.5 6.66 7.25 4.83 3.68 4.5 3.49 48.8831
Phu Tho 7.54 6.91 6.44 4.49 7 8.07 5.6 2.67 3.61 5.78 48.7018
Phu Yen 9 6.95 5.92 4.49 5.73 8.11 4.01 3.52 6.02 2.64 48.5891
Binh Phuoc 7.21 7.54 5.99 6.52 6.32 7.31 5.22 2.57 3.86 6.55 48.3757
Gia Lai 8.24 6.29 5.79 4.72 6.96 7.58 5.71 2.77 2.98 6.7 47.3714
Tuyen Quan 8.83 5.5 6.69 5.32 6.67 7.08 3.93 3.37 4.16 5.41 47.1347
Kien Giang 8.21 6.79 5.81 6.01 6.95 6.88 5.91 2.36 2.78 6.54 46.7267
Quang Tri 9.02 5.81 5.3 5.8 6.51 7.81 4.85 2.34 4.37 5.05 45.7346
Hoa Binh 7.82 6.68 4.16 5.48 6.63 7.61 5.25 3.63 3.99 2.95 45.0440
Bac Giang 6.31 6.61 6.35 4.65 6.6 6.91 4.89 2.85 3.79 2.76 44.6820
Quang Ngai 8.53 5.6 6.28 6.04 6.42 7.73 4.91 2.78 3.2 4.11 44.5819
Nam Dinh 8.26 6.8 5.31 5.72 6.3 7.48 4.11 3.33 4.02 4.23 44.4131
Ha Giang 8.26 6.37 5.07 4.66 6.43 8.77 5.82 2.37 2.83 4.48 43.6083
Ha Tinh 8.5 6.55 6.65 4.73 5.85 7.57 5.12 2.14 3.29 2.72 43.0136
Ninh Thuan 7.87 6.9 5.8 4.79 6.65 6.56 3.74 2.53 4.1 4.8 42.9661
Lam Dong 7.79 6.56 5.35 4.97 7 7.47 4.63 2.78 3.06 5 42.9507
Hai Phong 8 5.43 6.3 5.58 5.97 7.1 4.43 2.83 3.28 3.58 42.8398
Nghe An 8.73 5.51 6.48 6.04 6.29 7.24 4.51 2.01 3.57 3.69 42.7182
Thai Nguyen 8.42 5.65 3.38 4.81 6.15 7.6 4.02 2.67 4.94 4.78 42.2285
Ha Tay 7.68 6.03 4.33 4.41 6.92 7.39 5.38 3.4 2.51 3.24 41.5124
Son La 8.43 7.13 5.45 4.16 6.85 7.52 3.72 3.3 2.79 4.59 40.8298
Lang Son 8.42 5.53 5.58 4.69 6.81 7.2 2.95 2.72 4.02 4.04 40.1981
Tay Ninh 7.28 7.17 4.15 5.99 6.96 6.56 4.27 3.21 3.21 2.85 39.9211
Thanh Hoa 7.77 6.67 5.54 5.92 6.47 7.92 4.83 2.22 2.45 3.34 39.8989
Lai Chau 8.79 6.54 3.9 3.48 6.06 7.57 5.53 1.99 2.36 5.32 39.4110
Quang Binh 8.02 6.13 6.17 4.96 6.34 6.85 3.25 1.53 3.18 4.37 37.5649
Dak Nong 7.92 6.03 2.99 3.79 7.14 6.69 5.05 1.55 3.02 4.4 36.9601
Kon Tum 7.91 6.83 5.15 3.62 6.15 7.61 3.42 2.2 2.7 3.87 36.1551
Cao Bang 8.11 6.22 4.67 4.35 6.52 7.59 3.57 1.79 3.26 2.5 35.3951
Bac Lieu 7.02 7.47 4.45 4.61 6.46 5.99 3.35 1.4 3.37 4 35.1612
Bac Can 8.16 5.98 4.33 4.52 5.7 6.74 2.32 1.7 4.29 3.01 34.0956
Dien Bien 9.17 6.11 4.11 2.85 6.12 6.44 2.51 1.56 1.84 4.57 29.1508
30
Table 6: Provincial Competitiveness Index Calculated on the Basis of Weights Method (VNCI, issue 13, 2008)
X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 PCI
City/Province
0.05 0.05 0.15 0.10 0.05 0.05 0.15 0.15 0.15 0.10 (Weight Index)
Da Nang 9.36 5.52 7.92 5.93 6.58 7.90 7.40 6.30 8.40 6.55 72.18
Binh Duong 8.50 7.74 7.72 6.25 6.98 8.08 8.45 6.14 6.76 6.24 71.76
Vinh Phuc 8.37 6.47 7.39 4.99 7.94 8.17 8.23 5.95 7.37 5.50 69.37
Vinh Long 8.59 7.35 7.45 6.25 7.10 7.93 6.94 4.39 7.93 5.16 66.97
Dong Thap 7.96 8.05 7.21 5.48 7.33 7.85 7.52 4.60 6.78 6.39 66.64
Long An 8.20 7.59 7.22 6.02 7.02 7.89 6.95 4.08 5.92 6.37 63.99
Ben Tre 7.97 7.38 6.78 6.40 7.36 6.75 6.92 3.80 6.04 5.97 62.42
Lao Cai 8.51 7.14 7.04 3.80 6.59 8.29 7.81 5.21 4.63 5.12 61.22
An Giang 7.64 7.33 7.00 4.62 6.65 7.32 7.63 4.87 4.90 5.44 61.12
TT-Hue 7.45 5.18 6.86 5.44 6.71 7.55 6.03 4.76 6.27 5.94 60.71
Binh Dinh 9.03 7.21 7.18 5.62 7.02 8.21 7.11 4.53 5.14 3.39 60.67
BRVT 8.52 6.51 6.89 5.67 7.23 6.79 6.09 5.17 5.33 5.11 60.51
HCMC 8.11 5.36 6.98 5.07 6.19 6.86 6.64 6.35 5.19 4.07 60.15
Quang Nam 8.99 6.41 6.75 5.51 7.05 8.09 7.14 3.76 4.85 5.45 59.97
Dong Nai 8.18 6.45 6.80 6.27 7.20 7.09 5.89 4.67 6.02 3.81 59.62
Bac Ninh 8.69 7.38 6.41 5.62 7.20 7.55 6.60 3.67 5.55 5.20 59.57
Binh Thuan 7.78 7.19 7.67 5.23 6.35 7.39 6.27 3.65 4.77 5.60 58.75
Ca Mau 8.40 7.12 7.07 4.77 6.63 7.31 6.28 4.60 5.74 3.60 58.64
Yen Bai 8.67 6.70 5.77 5.90 7.68 8.45 6.60 3.31 4.75 5.48 57.79
Hung Yen 7.47 7.65 6.68 5.98 8.30 7.81 6.61 3.79 3.72 4.74 57.53
Tien Giang 9.13 6.64 6.74 5.99 6.86 7.53 5.64 4.09 4.63 4.56 57.27
Can Tho 8.55 6.92 6.41 5.72 6.15 7.02 4.56 4.05 5.79 5.08 56.32
Ninh Binh 8.63 6.47 5.76 4.86 6.55 7.70 6.04 4.14 5.89 3.85 56.14
Hau Giang 8.72 7.21 6.09 5.49 6.12 6.96 6.95 3.09 4.00 5.16 55.36
Tra Vinh 8.85 8.01 5.69 4.64 6.45 7.79 4.95 3.37 5.30 6.00 55.17
Ha Nam 8.74 6.92 7.15 4.26 6.83 7.54 6.00 3.68 4.29 4.18 55.13
Quang Ninh 8.34 6.74 5.53 5.61 6.86 8.11 6.06 3.22 4.31 5.40 54.70
Thai Binh 7.52 7.16 6.36 5.55 6.97 7.78 5.93 3.21 4.21 4.44 54.27
Soc Trang 8.51 8.01 3.65 5.60 6.77 7.35 6.45 3.68 4.94 5.23 54.24
Hai Duong 7.81 6.91 6.38 6.36 7.60 7.52 5.07 3.26 3.99 4.73 54.07
Ha Noi 8.08 4.73 6.60 5.27 6.37 7.08 4.70 5.62 4.79 2.79 53.74
Binh Phuoc 7.21 7.54 5.99 6.52 6.32 7.31 5.22 2.57 3.86 6.55 53.71
Dak Lak 7.58 6.22 6.34 4.63 6.49 7.34 6.34 3.70 4.13 4.11 53.33
Phu Tho 7.54 6.91 6.44 4.49 7.00 8.07 5.60 2.67 3.61 5.78 52.49
Kien Giang 8.21 6.79 5.81 6.01 6.95 6.88 5.91 2.36 2.78 6.54 52.25
Khanh Hoa 8.26 5.88 6.40 5.50 6.66 7.25 4.83 3.68 4.50 3.49 52.12
Tuyen Quang 8.83 5.50 6.69 5.32 6.67 7.08 3.93 3.37 4.16 5.41 52.00
Gia Lai 8.24 6.29 5.79 4.72 6.96 7.58 5.71 2.77 2.98 6.70 51.82
Phu Yen 9.00 6.95 5.92 4.49 5.73 8.11 4.01 3.52 6.02 2.64 51.24
Quang Tri 9.02 5.81 5.30 5.80 6.51 7.81 4.85 2.34 4.37 5.05 50.72
Quang Ngai 8.53 5.60 6.28 6.04 6.42 7.73 4.91 2.78 3.20 4.11 50.05
Nam Dinh 8.26 6.80 5.31 5.72 6.30 7.48 4.11 3.33 4.02 4.23 49.52
Nghe An 8.73 5.51 6.48 6.04 6.29 7.24 4.51 2.01 3.57 3.69 48.46
Hoa Binh 7.82 6.68 4.16 5.48 6.63 7.61 5.25 3.63 3.99 2.95 48.35
Ha Giang 8.26 6.37 5.07 4.66 6.43 8.77 5.82 2.37 2.83 4.48 48.18
Lam Dong 7.79 6.56 5.35 4.97 7.00 7.47 4.63 2.78 3.06 5.00 48.10
Ninh Thuan 7.87 6.90 5.80 4.79 6.65 6.56 3.74 2.53 4.10 4.80 47.82
Hai Phong 8.00 5.43 6.30 5.58 5.97 7.10 4.43 2.83 3.28 3.58 47.68
Ha Tinh 8.50 6.55 6.65 4.73 5.85 7.57 5.12 2.14 3.29 2.72 47.48
Bac Giang 6.31 6.61 6.35 4.65 6.60 6.91 4.89 2.85 3.79 2.76 47.44
Son La 8.43 7.13 5.45 4.16 6.85 7.52 3.72 3.30 2.79 4.59 46.60
Thanh Hoa 7.77 6.67 5.54 5.92 6.47 7.92 4.83 2.22 2.45 3.34 46.22
Thai Nguyen 8.42 5.65 3.38 4.81 6.15 7.60 4.02 2.67 4.94 4.78 46.03
Lang Son 8.42 5.53 5.58 4.69 6.81 7.20 2.95 2.72 4.02 4.04 45.63
Ha Tay 7.68 6.03 4.33 4.41 6.92 7.39 5.38 3.40 2.51 3.24 45.09
Tay Ninh 7.28 7.17 4.15 5.99 6.96 6.56 4.27 3.21 3.21 2.85 45.09
Quang Binh 8.02 6.13 6.17 4.96 6.34 6.85 3.25 1.53 3.18 4.37 44.17
Lai Chau 8.79 6.54 3.90 3.48 6.06 7.57 5.53 1.99 2.36 5.32 43.95
Kon Tum 7.91 6.83 5.15 3.62 6.15 7.61 3.42 2.20 2.70 3.87 41.94
Cao Bang 8.11 6.22 4.67 4.35 6.52 7.59 3.57 1.79 3.26 2.50 41.02
Dak Nong 7.92 6.03 2.99 3.79 7.14 6.69 5.05 1.55 3.02 4.40 41.01
Bac Lieu 7.02 7.47 4.45 4.61 6.46 5.99 3.35 1.40 3.37 4.00 40.92
Bac Kan 8.16 5.98 4.33 4.52 5.70 6.74 2.32 1.70 4.29 3.01 39.78
Dien Bien 9.17 6.11 4.11 2.85 6.12 6.44 2.51 1.56 1.84 4.57 36.39
31
LIMITATION AND FUTURE RESEARCH ORIENTAION

Apart from the research‘s contribution, limitation of the research is the use of data base (secondary data) which was collected
from the project of Vietnam Competitiveness Initiative. Therefore, some information related to the research of satisfaction and
belief of businesses in government‘s policies in private economic sector was not collected. The research will be more
successful if it mentions the relationship between Provincial Competitiveness Index (PCI), Customer Satisfaction Index (CSI)
and Customer Confidence Index (CCI) in Vietnam.
CONCLUSION
The use of potency index in the research about the impact of sub-indices on provincial competitiveness index with the desire of
discussing with author group in establishing ―derived-importance‖ (potency index) originating from ―inner‖ of each index instead
of using ―stated-importance‖ (weights). Since Provincial Competitiveness Index evaluates the practice of economic
governance of provincial governments of Vietnam in order to provide local governments with useful information to calibrate
areas and manners of implementing necessary reforms to govern the economy effectively, especially with localities where
private economic sector has played an important role and become an exact measurement of the activeness of each locality as
well as economic reform programs in Vietnam (Vu Huy Thai, 2007). Thus, there must be an exact evaluation which can reflect
the impacts of affecting factors at time of conducting the research.
REFERENCES
Report of Policy research – VNCI (2007) “The Vietnam Provincial Competitiveness Index 2007: Measuring economic
governance for private sector development”, Issue 12, page 119.
Hair, J. F, Anderson, R. E., Tatham, R. L., Black, W. C. (2006) “Multivariate Data Analysis”, Prentice Hall, New Jersey, 928 p.
Le Dang Doanh (2007) „‟Nang luc canh tranh cap tinh 2007: Chuyen nhung cham‟‟,
http://vneconomy.vn/PrintPage.aspx?NewsID=64716
VNCI Policy Paper # (2006) „‟The Vietnam Provincial Competitiveness Index 2006: Measuring Economic Governance For
Private Sector Development‟‟, p. 112
VNCI Policy Paper # (2008) „‟The Vietnam Provincial Competitiveness Index 2008: Measuring Economic Governance For
Private Sector Development‟‟, p. 128
Truong Ba Thanh (2000) ―An application of the Factor Discriminant de Method In Determining Financial Positions of Business‖
in the Conference “Socio-Economic Strategies For central Vietnam at the dawn of the Twenty-First Century”.
Truong Ba Thanh, Nguyen Manh Toan, Le Van Huy (2008) ‗‘Research on the International Economic Integration Ability of
Vietnamese Machinery Industry: Financial Capacity Approach‘‘ in the International Symposium “Overseas Investment of
Japanese Machine Industry and Its Role in Strengthening International Division of Labor in Northeast and Southeast Asia‟‟,
February 26th, pp. 30-51.
Vu Duy Thai (2007) “Some thoughts on Provincial competitiveness index 2007”.
Vu Tien Loc (2007) “The opening speech of Chairman of Vietnam Chamber of Commerce & Industry in the Conference
announcing the 2007 Provincial competitiveness index (Ha Noi, November 08, 2007) Vietnam Provincial competitiveness
index 2005 (PCI). http://www.vnci.org/sites/default/files/VNCI_No13_PCI%2008%20Full%20report.pdf
www.vibonline.com.vn (http://www.vibonline.com.vn/vi-VN/Forum/TopicDetail.aspx?TopicID=1852)
32
E. Huang Volume 9 – Spring 2010
TAXING HIGHER EDUCATION—HECS/FEE-HECS-HELP REPAYMENTS AS

A TAX AND ITS EFFECTS ON THE PROGRESSIVE TAX RATE
Eva Huang
The University of Sydney, Australia
ABSTRACT
Australia‟s higher education sector receives its funding from both the Commonwealth and state governments. This paper looks
at the HECS-HELP scheme. It is generally perceived that the HECS-HELP scheme is an important part of higher education
funding in Australia, that it is a way for individuals to contribute to their education through obtaining and repaying a loan to
government.
This paper takes a contrasting view. Through microeconomic analysis, it proves that HECS-HELP repayments constitute a tax
on people who have received higher education (target population). The HECS-HELP repayment thresholds and rates distort
the effective marginal tax rate for the target population. This paper only analyses the effects of HECS-HELP repayments on the
nominal marginal tax rate and ignores effects of welfare benefits, offsets, etc.
Analysis would be performed by treating higher education as a publicly provided private good where the government has a
natural monopoly. A tax framework is adopted. The paper also tests the HECS-HELP repayments according to Adam Smith‟s
tax principles, especially that of equality and conclude it does not meet this principle.
The HECS-HELP scheme is a nationally operated income related charge for higher education. Australia had the first of its kind
internationally in 19891. This paper proves that this is not a scheme where individuals contribute to their higher education, as
government perceived it to be. However, the repayment is a tax levied on people who have received higher education. This
paper also shows intuitively that people who received higher education do not necessarily earn more income. Therefore, this is
a tax that distorts the tax system, and contributes to horizontal inequity, where people who earn the same income are
discriminated according to their education level.
This paper proposes to abolish nationally operated income related charge for higher education and increase the nominal
marginal tax rate to fund higher education as it is a good that is most efficiently provided by the government as a natural
monopoly.
However, if government persists with the policy of charging for higher education, a more equitable way would be to introduce
HECS-HELP repayment schedules that are in line with the nominal marginal tax rate. This will avoid inequalities within each
bracket.
Keywords: Nationally Operated Income Related Charge, Higher Education, Tax, Micro-Economic Analysis.
INTRODUCTION
Australia‘s higher education sector receives its funding from both the Commonwealth and state governments. This paper looks
at the HECS-HELP scheme. It is generally perceived that the HECS-HELP scheme is an important part of higher education
funding in Australia, that it is a way for individuals to contribute to their education through obtaining and repaying a loan to
government.
This paper takes a contrasting view. Through microeconomic analysis, it proves that HECS-HELP repayments constitute a tax
on people who have received higher education (target population). The HECS-HELP repayment thresholds and rates distort
the effective marginal tax rate for the target population. This paper only analyses the effects of HECS-HELP repayments on the
nominal marginal tax rate and ignores effects of welfare benefits, offsets, etc.
Analysis would be performed by treating higher education as a publicly provided private good where the government has a
natural monopoly. A tax framework would be adopted. The paper also tests the HECS-HELP repayments according to Adam
Smith‘s tax principles, especially that of equality and conclude it does not meet this principle.
33
Taxing Higher Education—HECS/Fee-HECS-HELP Repayments as a Tax and its Effects on the Progressive Tax Rate
HIGHER EDUCATION AS A PUBLICLY PROVIDED PRIVATE GOOD

Higher Education is not a pure public good. Pure public goods are perfectly non-rival and non-excludable2. It is not desirable to
exclude anyone from the benefits. If provided privately, there will be underconsumption and/or undersupply. It is also not
feasible to exclude anyone from the benefits of the good. There will be a free rider problem. If provided privately, they will be
undersupplied. These underconsumption and undersupply are the two basic forms of market failure associated with public
goods3. Governments often charge user fees on public goods or goods that resemble public goods. This is viewed as an
equitable means to raise revenue. However, it introduces distortion if the good is non-rival. Depending on the level of the fee,
under consumption or supply may occur.
Higher education exhibits qualities of a public good, however, there is a high marginal cost in providing an additional unit.
Therefore it resembles that of a publicly provided private good. It is not non-rival. Therefore introducing a user fee to raise tax
does not introduce a distortion similar to Figure 6.1 in Stiglitz4. Therefore government has a natural monopoly, as it could only
provide the desirable supply to the economy. Similar graphs to Figure 6.3 in Stigliz could also be drawn for higher education5.
Therefore in Australia, Higher education is publicly funded through government grants and government upfront payments of
HECS-HELP and there is a repayment of HECS-HELP debt.
HIGHER EDUCATION FUNDING IN AUSTRALIA

Higher education funding has been an important and controversial policy topic. Australia introduced the world‘s first nationally
operated income related charge for higher education in 19896. Policy intent by the then Labor government was that students
should contribute a proportion of their higher education for the following reasons7:
1. Government was not prepared to expand the system through providing additional taxpayer resources to meet additional
demand for university places
2. Government strongly held a view that ―free‖ higher education was very regressive economic policy because higher
education is financed from general tax revenue, and therefore the majority of higher education resources are provided
by average taxpayers without higher education, who have a much lower lifetime income than those received by
graduates.
Although Chapman8 supported the second issue, data from the Australian Bureau of Statistics indicates only 38.1% of the
working age population has tertiary education qualifications, but tables 1 and 2 do not show a necessary correlation between
high education levels and high income.
Table 1 is adapted from Australian Bureau of Statistics (ABS) data on gross individual income from the 2006 census. Table 2 is
adapted from ABS 2006 social trend data for the 2005 year, as that is the last year social trend data was collected for the 16-
64 age group as a whole. The 16-64 age group in this paper is taken to represent the working age population.
Table 1: Education outcome versus income levels using 2006 census data on income and 2005 social trend data on higher
education.
Equivalent Annual Number of Persons earning above Medium income Estimate Persons
Income Persons medium income with Higher education
Negative Income 77,826
No Income 1,062,674 1,140,500
($1-$7,799) 1,103,113 2,243,613
($7,800-$12,999) 2,220,044 4,463,657
($13,000-$20,799) 2,063,609 6,527,266
($20,800-$31,199) 2,171,002 8,698,268
($31,200-$41,599) 1,692,280
($41,600-$51,999) 1,257,550
($52,000-$67,599) 1,230,053
($67,600-$83,199) 675,681
($83,200-$103,999) 395,580
($104,000 or more) 551,753
Not Stated 1,416,911
Total 15,918,076 7,959,038 ($20,800-$31,199) 6,064,787
34
Table 2: Percentage of population with non-school educational qualifications of all persons aged 15-64 years for 2005 using
2006 Social Trend data.
Of all aged 15–64 51.5
Bachelor degree or above 19.6
Advanced diploma and diploma or below 30.7
Bachelor degree or above of aged 15-64 38.1
Tables 1 and 2 thus show that the correlation between high income levels and higher education referred to in the government‘s
policy intention to introduce HECS may be a myth.
Higher education funding includes both direct government grants and government upfront payments of HECS-HELP
components and other funding arrangements such as scholarships. Therefore, in substance, the government has already paid
the HECS-HELP component as government expenditure for higher education. HECS-HELP repayment in this paper is thus
treated not as income related loan repayment, as perceived9, but as a tax on people who has received higher education.
CURRENT HECS-HELP POLICY

Higher education now is funded under the Higher Education Support Act 2003. The Higher Education Support Act 2003 sets
out the details of Australian Government funding and its associated legislative requirements10.
Eligibility for public funding is determined by the Table (A, B or C) to which a provider is allocated within a Schedule of the
Higher Education Support Act 2003.
Providers listed in Table A of HESA are eligible for all Australian Government grants and their students can receive all forms of
assistance.
Providers listed in Table B are eligible for some grants for particular purposes as outlined under Section 41-10 of HESA.
Students at Table B institutions can receive FEE-HELP assistance for tuition fees or HECS-HELP assistance for their student
contribution amounts if enrolled in a National Priority place.
The application of HESA to Table C providers is outlined in Section 5-1 of HESA. There are also a number of private higher
education providers which have been approved by the Australian Government to offer FEE-HELP for their students. Public and
private higher education providers11, that receive funding from the Australian Government include: universities, other self-
accrediting higher education institutions and non-self-accrediting providers. While universities are generally established under
state and territory legislation, they are self-accrediting, autonomous bodies and operate in accordance with the requirements
for Australian Government funding. Non-self-accrediting higher education providers on the other hand, are accredited by state
and territory authorities. They are mainly private providers of varying sizes, and include theological colleges and other
providers that offer courses in areas such as business, information technology, natural therapies, hospitality, health, law and
accounting.
In 2005, the Australian Government introduced the Higher Education Loan Programme (HELP)12 to replace the Higher
Education Contribution Scheme (HECS) and other previous income-contingent loan programmes for tuition fees. HELP
includes HECS-HELP for eligible domestic students studying in Commonwealth supported places, FEE-HELP for eligible
domestic fee-paying students (including undergraduate fee-paying students previously not eligible for loans) and OS-HELP for
eligible Commonwealth supported students wishing to study part of their course overseas.
HECS-HELP is a loan available to eligible students enrolled in Commonwealth supported places13. A HECS-HELP loan will
cover all or part of the student contribution amount. When a student receives a loan, the government pays the loan amount
directly to the higher education provider (provider) on the student‘s behalf. A HECS-HELP debt is recorded for the student with
the Tax Office against his/her Tax File Number. The direct credit nature makes the programme represent that of a government
expenditure, not loan. HECS-HELP being administered by the ATO makes it a tax administratively as the Tax Administration
Act 1953 only allows it to administer tax issues or issues of the tax law.
HECS-HELP is provided to domestic students who have met the entry requirements to university. FEE-HELP is for
undergraduate students who did not meet the entry requirements or for post-graduate students. Students who are eligible for
HECS-HELP14 and choose to pay their student contribution up-front to their provider receive a 20% discount for payments of
35
$500 or more. There is no loan fee for HECS-HELP. Students can take out a FEE-HELP loan for the total of their tuition fees,
up to a lifetime limit of $80,000 in 2007 and $100,000 for courses in medicine, dentistry and veterinary science. A 20% loan fee
applies to FEE-HELP loans for undergraduate courses, however there is no loan fee for FEE-HELP loans for postgraduate
courses of study. A 20% loan fee also applies to OS-HELP loans. In the 2009 budget, the current government plans to abolish
domestic full-fee paying undergraduate places.
Students who incur a HELP debt are required to make repayments when their income exceeds the minimum threshold for
compulsory repayment, which is at $43,151 in 2009-10. Students also have the option of making voluntary repayments and
receiving a 10% bonus for repayments of $500 or more.
The income-contingent repayment arrangements under HELP mean that some people may never repay their HELP debt.
Where a HELP debt is never repaid the Australian Government meets the cost; this is referred to as the ‗debt not expected to
be repaid‘. The loan arrangements for HELP involve deferral costs which are also met by the Australian Government (e.g. there
is no real interest charged on HELP debts, HELP debts are indexed only in line with the Consumer Price Index to maintain their
real value). Since 2005-06 the ‗fair value‘ of outstanding HELP debts has been calculated to reflect debt not expected to be
repaid and deferral costs. It is estimated that of the total $10,423 million (m) debt outstanding at 30 June 2006, $2,501m, is
unlikely to be repaid (table 12.36). These upfront government payments, expectations of non-payment and payment of deferral
costs by government all reflect that higher education is provided by government from government expenditure. HECS-HELP
repayments are not contributions to higher education by individuals, but a tax.
Table 3: Higher Education Loan Programme (Help) debt

2001-02 2002-03 2003-04 2004-05 2005-06
$'000 $'000 $'000 $'000 $'000
Total HELP debt at 30 June 8 061 921 9 093 866 10 208 045 11 511 874 12 924 579
Estimate of HELP debt not expected to be
1 572 075 2 018 998 2 890 459 2 375 237 2 501 158
repaid(a)
Total HELP debt estimated to be repaid 6 489 846 7 074 868 7 317 586 9 136 637 10 423 421
HELP fair value at 30 June 2006(b) - - - - 8 184 600
- nil or rounded to zero (including null cells)
(a) The estimated provision for the amount of HELP debt not expected to be repaid is determined by a preliminary actuarial assessment.
(b) The estimate of fair value reflects accumulated debt not expected to be repaid and accumulated deferral cost and accumulated value
of bonuses for voluntary repayments.
Source: Department of Education, Science and Training, Annual Reports.
Table 3 represents HECS-Help debt levels that reflect government expenditure on higher education.
TAX ECONOMIC ANALYSIS

Governments fund expenditure through the tax system. There are many different types of taxes in each tax system, income
tax, capital gains tax, value added tax, etc. However, these are ways to levy tax, it does not change that they are all ways to
receive revenue by the government. Just like tax expenditures are expenditures, repayments of government loans can be
viewed as a tax. In the case of HECS-HELP repayments, the recovery of higher education expenditure is a tax on people who
have received higher education.
This paper assumes a closed economy to make Calculations of effective marginal tax rate, average tax rate due to HECS-
HELP repayments. It assumes there are only domestic students studying in domestic universities. Therefore the resident
individual tax rates are used. Calculations are performed using 2009-10 threshhold rates. Same inferences can be drawn when
analysis are performed when the international sector is introduced, by using non-resident individual tax rates. Calculations
would be performed by incorporating the rates from Tables 3 and 4.
Table 3 is adapted from the 2009-10 resident tax rate table applying from 1 July 2009 appearing on the website of the
Australian Taxation Office (ATO)15. These are the nominal marginal tax rates in Australia.
36
Table 4: 2009-10 Individual Resident Income Tax Rates

Taxable income Tax on this income
$1 – $6,000 Nil
$6,001 – $35,000 15c for each $1 over $6,000
$35,001 – $80,000 $4,350 plus 30c for each $1 over $35,000
$80,001 – $180,000 $17,850 plus 38c for each $1 over $80,000
$180,001 and over $55,850 plus 45c for each $1 over $180,000
The above rates do not include the Medicare levy of 1.5% as the liability of Medicare Levy for an individual is calculated based
on his/her household income.
Table 4 is adapted from the 2009-10 Higher Education Loan Programme (HELP) and HECS repayment thresholds table
applying from 1 July 2009 appearing on the website of the Australian Taxation Office (ATO)16. For ease of calculation, this
paper takes HRI to equal to taxable income and ignores the definition.
Table 5: 2009-10 HECS-HELP repayment income threshold rates

HELP repayment income (HRI*) Repayment rate
Below $43,151 Nil
$43,151–$48,066 4% of HRI
$48,067–$52,980 4.5% of HRI
$52,981–$55,764 5% of HRI
$55,765–$59,943 5.5% of HRI
$59,944–$64,919 6% of HRI
$64,920–$68,336 6.5% of HRI
$68,337–$75,203 7% of HRI
$75,204–$80,136 7.5% of HRI
$80,137 and above 8% of HRI
From 1 July 2009 *HRI will be the sum of, taxable income plus any total net investment loss (which includes net rental
losses), total reportable fringe benefits amounts, reportable super contributions and exempt foreign employment income.
Table 5 combines the rates from tables 3 and 4.
Table 6: Combined nominal tax rate and HECS-HELP repayment schedule

$1-$6,000 Nil
$6,001-$35,000 15c for each $1 over $6,000
$35,001-$48,066 $4,350 plus 30c for each $1 over $35,000 + 4% of HRI
$48,067–$52,980 $4,350 plus 30c for each $1 over $35,000 + 4.5% of HRI
$52,981–$55,764 $4,350 plus 30c for each $1 over $35,000 + 5% of HRI
$80,001 – $80,136 $17,850 plus 38c for each $1 over $80,000 +7.5% of HRI
$80,137 - $180,000 $17,850 plus 38c for each $1 over $80,000 +8% of HRI
$180,001 and over $55,850 plus 45c for each $1 over $180,000+8% of HRI
37
Calculation of the average tax rate (ATR)17 assuming that the measure of income is sufficiently well correlated with the pre-tax
living standards of individuals gives an indication of the distributional or equity merits of a tax system. A system is said to be
progressive, proportional or regressive as the ATR rises, remains constant or falls with income.
Calculation of effective marginal tax rate (EMTR)18 is an efficiency measure. Along with equity, progressivity/ regressivity,
efficiency is another important factor when analysing taxes and benefits. Taxes can give rise to efficiency costs if there are
behavioural responses to changes in relative prices and wage rates induced by the system.
In the case of HECS-HELP repayments, the repayment is an additional cost, therefore change to income induced by the
system on those who have received higher education.
In the following calculations, T = tax payments, C = government cash benefits, Y = Income HR=HECS-HELP repayment. This
paper ignores C in the analysis.
ATR FROM 2009-10 NOMINAL MARGINAL TAX RATES

ATR = (T-C)/Y
Calculate ATR for the higher number of each nominal marginal tax rate bracket, and assume $200,000 is the highest individual
income level.
Table 7: ATR with nominal marginal tax rate

Y T ATR
$6,000 $0 0.00
$35,000 $4,350 0.12
$80,000 $17,850 0.22
$180,000 $55,850 0.31
$200,000 $64,850 0.32
This reflects that based on nominal marginal tax rates, the Australian tax system is progressive.
EMTR AND ATR AFTER HECS-HELP REPAYMENT

Calculate EMTR and ATR for the higher number of each tax rate bracket in table 5, and assume $200,000 is the highest
individual income level.
EMTR = Δ(T+HR-C)/ ΔY
ATR = (T+HR-C)/Y
38
Table 8: ATR and EMTR with HECS-HELP repayment

Y T T+HR EMTR ATR
$6,000 $0 $0 0.00 0.00
$35,000 $4,350 $4,350 0.15 0.12
$48,066 $8,270 $10,192 0.45 0.21
$52,980 $9,744 $12,128 0.39 0.23
$55,764 $10,579 $13,367 0.45 0.24
$59,943 $11,833 $15,130 0.42 0.25
$64,919 $13,326 $17,221 0.42 0.27
$68,336 $14,351 $18,793 0.46 0.28
$75,203 $16,411 $21,675 0.42 0.29
$80,000 $17,850 $23,850 0.45 0.30
$80,136 $17,902 $23,912 0.46 0.30
$180,000 $55,850 $70,250 0.46 0.39
$200,000 $64,850 $80,850 0.53 0.40
Table 7 shows that HECS-HELP repayments adds to the EMTR for those who has received higher education. The ATR still
shows progressivity, but EMTR fluctuates, increases when the nominal marginal tax rate moves to the next bracket, then
decreases within the bracket. The reason for this fluctuation is that the HECS-HELP repayment schedule does not move at the
same rate as nominal marginal tax rate brackets.
EVALUATION OF TAX POLICY USING ADAM SMITH’S FOUR MAXIMS

Adam Smith in his Wealth of Nations19 set out the four maxims for good tax policy, equality, certainty, levied in a timely manner
and they should be taken out only to the extent that is necessary for public expenditure. Many people in Australia choose to
use the four criteria: Equity, Simplicity, Certainty and Neutrality from the Asprey Report20 to evaluate Australian tax policy.
However, those criteria are used to evaluate a tax system, and that of the law in the system. This paper chooses Adam Smith‘s
principle as they are more suitable for economic analysis. Equality in the form of horizontal equity would be the focus.
As the above analysis on tax rates reflect, HECS-HELP repayments act not as repayment of loan, but as a tax on people who
have received higher education. Comparing Table 7 with the nominal marginal tax rate, a person earning $55,764 pa without
higher education has a marginal tax rate of 0.30, but the person who received higher education has an EMTR of 0.45, when
the same person earns $59,943, the EMTR drops to 0.42. This example reflects that HECS-HELP repayment distorts the tax
system.
CONCLUSION
The HECS-HELP scheme is a nationally operated income related charge for higher education, Australia had the first of its kind
internationally in 198921. This paper proves that this is not a scheme where individuals contribute to their higher education, as
government perceived it to be. However, the repayment is a tax levied on people who have received higher education. This
paper also shows intuitively that people who received higher education do not necessarily earn more income. Therefore, this is
a tax that distorts the tax system, and contributes to horizontal inequity, where people who earn the same income are
discriminated according to their education level.
This paper proposes to abolish nationally operated income related charge for higher education and increase the nominal
marginal tax rate to fund higher education as it is a good that is most efficiently provided by the government as a natural
monopoly.
However, if government persists with the policy of charging for higher education, a more equitable way would be to introduce
HECS-HELP repayment schedules that are in line with the nominal marginal tax rate. This will avoid inequalities within each
bracket.
39
REFERENCES
1. Beer G and Chapman B, Discussion Paper No. 484, HECS System Changes: Impact on Students, The Australian National
University Centre for Economic Policy Research Discussion Paper, December 2004.
2. Stiglitz (2006) pp132-133
3. Id, p129.
4. Id, p130.
5. Id, p137.
7. Ibid.
8. Chapman B , ‗Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education‘,
The Economic Journal, (1997) Vol. 107 (442), 738-751.
9. Such as in the models prepared by KPMG and Econtech for Universities Australia, KPMG & Econtech, Advisory,
Economic Modelling of Improved Funding and Reform Arrangements for Universities, March 2009.
10. http://www.goingtouni.gov.au/Main/Quickfind/PayingForYourStudiesHELPLoans/HECSHELP.htm.
11. Year Book Australia, 2008,
http://www.abs.gov.au/ausstats/abs@.nsf/0/4877088F04C1899ACA2573D200107E48?opendocument
12. Feature Article 2, Higher Education Loan Programme,
http://www.abs.gov.au/ausstats/abs@.nsf/0/C985243592C594D6CA2573D2001081D5?opendocument
13. http://www.goingtouni.gov.au/Main/Quickfind/PayingForYourStudiesHELPLoans/HECSHELP.htm
14. Feature Article 2, Higher Education Loan Programme,
http://www.abs.gov.au/ausstats/abs@.nsf/0/C985243592C594D6CA2573D2001081D5?opendocument
15. http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm
16. http://www.ato.gov.au/individuals/content.asp?doc=/content/8356.htm
17. Apps P, LAWS 6257, Public Policy course readings, 2009, p147.
18. Ibid.
19. Smith A, Book v, Part 2, ―Of Taxes‖, The Wealth of Nations, 1776, Penguin Books, England, 1999, vol 2, pp415 – 418.
20. Report into the Australian Taxation System, 1975
40
F.-W. Lai, N. A. Azizan and M. F. A. Samad Volume 9 – Spring 2010
A CONCEPTUAL FRAMEWORK FOR VALUE ENHANCING ENTERPRISE

RISK MANAGEMENT
Fong-Woon Lai1, Noor Azlinna Azizan2 and M. Fazilah Abdul Samad3

Universiti Teknologi PETRONAS1, Malaysia and University of Malaya2,3, Malaysia
A CONCEPTUAL FRAMEWORK FOR VALUE ENHANCING ENTERPRISE

RISK MANAGEMENT
Fong-Woon Lai1, Noor Azlinna Azizan2 and M. Fazilah Abdul Samad3

Universiti Teknologi PETRONAS1, Malaysia and University of Malaya2,3, Malaysia
ABSTRACT
Enterprise risk management (ERM) is a new management concept fast ascending the corporate agenda globally. Its relevancy
and popularity as a management technique are abetted by the changing business practices and burgeoning regulatory
requirements on risk management. The shift in paradigm in heightened risk awareness in the wake of several high profile and
deep impact corporate governance scandal and financial mismanagement cases as well as increased terrorist threat on the
physical assets of organizations has compelled firms to be more pro-active in addressing risk issues. ERM is defined as the
process of identifying and analyzing risk from an integrated, company-wide perspective. It is a structured and disciplined
approach in aligning strategy, processes, people, technology and knowledge with a purpose of evaluating and managing the
uncertainties the enterprise faces as it creates value. It focuses risk management function from primarily defensive to
increasingly offensive and strategic in nature. However, the neo-classical finance theory (NCFT) postulates that firm-specific
risk is irrelevant and that only the covariance of the firm‟s asset returns to the market portfolio which is measured by the beta in
the capital asset pricing model (CAPM) matters. This suggests that implementation of ERM is of no value to firms. This notion
is in stark contrast to the phenomena of increased acceptance of ERM by industry practitioners. As such, we propose an ERM
framework to theorize a model capturing the causal relationships of the risk that strategically associated with firms‟ business
performance and cost of capital. We highlight the notion of managing firms‟ unsystematic (specific) risk via an enterprise risk
management framework that leads to the enhancement of shareholders‟ value. The mechanism through which firms‟ value
enhancement takes place is by developing a strategic conceptualization of risk premium.
Keywords: Enterprise Risk Management, Value Proposition, Strategic Risk Premium
INTRODUCTION
Until recently, risk management in its many forms is not regarded by managers as a management discipline (Thompson, 2003).
The meaning and application of risk management are often misunderstood at many levels of management. What has inclined
to transpire is that the paradigm and execution of risk management initiatives by risk managers are strongly influenced by the
biasness of the managers‘ individual expertise and perspectives.
This biasness comes in the areas of financial markets, occupational health and safety, insurance, project management,
technology, and political risk management. There is nothing wrong with these approaches of risk management. But the
weakness lies with the fact that their focus is limited and lacks an integrated framework.
Hence, establishing a common framework for all types of operational risks will tremendously enhance the acceptance of risk
management as an effective management tool throughout organizations (Thompson, 2003).
41
DETERMINANTS OF TRADITIONAL RISK MANAGEMENT

Due to a lack of academic literature regarding the determinants of enterprise risk management (ERM), Liebenberg and Hoyt
(2003) looked to the literature that deals with determinants of traditional risk management activities such as hedging and
corporate insurance demand.
According to Liebenberg and Hoyt (2003), demand for corporate insurance by firms with well-diversified shareholders is not
driven by risk aversion. Since these shareholders are able to costlessly diversify idiosyncratic risk, insurance purchases at
actuarially unfair rates reduce stockholder wealth.
However, when viewed as part of the firm‘s financing policy, corporate insurance may increase firm value through its effect on
reducing (i) agency cost, (ii) expected bankruptcy costs, (iii) the firm‘s tax liabilities, and (iv) the costs of regulatory scrutiny.
Corporate hedging, on the other hand, reduces expected bankruptcy costs by reducing the probability of financial distress.
Hedging literature also suggest that this form of risk management potentially mitigates incentive conflicts, reduces expected
taxes, and improves the firm‘s ability to take advantage of attractive investment opportunities (Smith and Stulz, 1985).
However, according to Liebenberg and Hoyt (2003), the traditional risk management approach has been characterized as a
highly disaggregated method of managing firm risk in which various categories of risk are managed in separate units within the
firm.
VALUE MAXIMIZATION THEORIES OF CORPORATE RISK MANAGEMENT

Justification for corporate risk management can easily be accepted with the intuition that shareholders are risk-averse and their
interests are well served if firms manage risk on their behalf. The efficacy of this application of risk management in corporate
environment is also backed by finance literature. For instance, studies in the 1980s and 1990s by Smith & Stulz (1985), Mayers
& Smith (1982), Amit & Wernerfelt (1990), Froot, Scharfstein & Stein (1993), Tufano (1996), Cummins et al. (1998), saw an
emerging paradigm on the role of risk in determining corporate value.
Literature on corporate risk management link the rationale for such initiatives in ensuring business performance to the following
hypotheses: (i) profit maximization (Andrews, 1980; Porter, 1980) (ii) financial distress cost (Wall & Pringle, 1989; Bettis, 1983),
(iii) lowering tax burden (Nance, Smith, and Smithson, 1993), (iv) costly external financing (Smithson, 1993; Ahmed, Beatty,
and Takeda, 1997), (v) informational asymmetries (Froot, Scharfstin, and Stein, 1993; Healy & Palepu, 1995), (vi) agency cost
(Tufano, 1998; Cummins 1998).
MANAGING RISK INDIVIDUALLY VIS-À-VIS INTEGRATED APPROACH

Meagher and O‘Neil (2000) pointed out that the current risk management approaches are fragmented, treating risks as
disparate and easily compartmentalized. Bierc (2003) supported this argument by saying that risk is typically viewed as
something to be avoided or mitigated – and to be separated, categorized and addressed in silo. Bierc (2003) continued to
argue that risk management has often been practiced to merely comply with the many new rules and regulations, which has
failed to add any sustainable value.
To meet the needs of future business, Meagher and O‘Neil (2000) advocated that risk management process should be one that
improves the linkage of risk and opportunity and positions it as a source of competitive advantage. The process should seek a
wider concept and understanding of risks that present themselves within the setting of an organization. The undertaking of
these risks then should be lined up with corporate strategies, objectives, and goals (IAAS, 2008).
In addition, the risk management approach should be positive and proactive, value-based and broadly focused, embedded in
processes, integrated in strategy and total operations, and continuous. Miller (1992) cautioned that corporate risk management
is not limited to the assessment of exposure to losses and application of appropriate financial risk management practices. He
pointed out that financial and strategic responses are interrelated in such a way that decision making in either area to the
exclusion of the other would be suboptimal.
OPERATIONAL DEFINITION OF ENTERPRISE RISK MANAGEMENT (ERM)

Chapman (2003) defined ERM as the process of identifying and analyzing risk from an integrated, company-wide perspective.
42
Meagher and O‘Neil (2000) on the other hand, described enterprise-wide risk management (EWRM) as a structured and
disciplined approach in aligning strategy, processes, people, technology and knowledge with a purpose of evaluating and
managing the uncertainties the enterprise faces as it creates value.
Stoke (2004) viewed enterprise-wide risk management (ERM) to become an essential element of modern business as the
focus for corporate risk management is shifting from operational hazards and pure financial risks to a much more strategic view
of threats to business success and an appetite for upside risk. Stoke added that by combining this with a more holistic, top-
down approach to risk strategy and appetite, companies can focus their attention on most significant threats to business
objectives and achieve even greater value from risk management.
Liebenberg and Hoyt (2003) concurred that unlike the traditional ―silo-based‖ approach to corporate risk management, ERM
enables firms to benefit from an integrated approach in managing risk that shifts the focus of risk management function from
primarily defensive to increasingly offensive and strategic.
In a nutshell, the concept of ERM entails a paradigm shift which dictates that the focus of risk management has to be shifted
from the conventional operational hazards and pure financial risks to a much more strategic view of threats to business
success. A robust and dynamic risk management framework should also promote an appetite for upside risk.
Process of Enterprise Risk Management

The framework for business risk management process traditionally will not run away from the following basic steps: evaluating,
identifying, measuring, treating, and monitoring risk. The Committee of Sponsoring Organizations of the Treadway
Commission‘s (COSO) ERM‘s model consists of 8 components: internal environment, objective setting, event identification, risk
assessment, risk response, control activities, information and communication, and monitoring (COSO, 2004; Chapman, 2003).
In comparison, the Arthur Andersen Business Risk Management Process (BRMP) develops a risk management framework that
comprises 7 elements: (i) establish the business risk management process, (ii) assess business risks, (iii) develop business
risk management strategies, (iv) design/implement risk management capabilities, (v) monitor risk management performance,
(vi) continuously improve risk management capabilities, (vii) information for decision making (Meagher and O‘Neil, 2000).
To ensure successful enterprise-wide risk management process implementation, Meagher and O‘Neil (2000) emphasized the
following 4 dimensions: (i) moving away from fragmented approach, towards an integrated and systematic framework that
gives credibility to the risk management role within the business; (ii) identifying risk management goals and linking them to
enterprise‘s strategies; (iii) delegating responsibility for risks and making managers accountable to the board for continuously
improving the management of those risks; (iv) do not only manage individual risks, but be able to systematically pool them and
assess risk as a portfolio for the enterprise as a whole.
In comparison to the old silo-approach of risk management, ERM proponents argue that an integrated approach of risk
management increases firm value by reducing inefficiencies inherent in the traditional approach, improving capital efficiency,
stabilizing earnings, and reducing the expected costs of external capital and regulatory scrutiny (Liebenberg and Hoyt 2003).
Bierc (2003) introduced the concept of strategy risk management (SRM). According to Bierc, SRM should be developed and
pursued with substantial regard to the key drivers that would impact success and value of a corporation. It should keep an
organization focused on the things that drive success, providing tools that effectively measure ―execution‖.
THE CONCEPT OF ERM

Based on the argument taken from the value maximization theory of corporate risk management, we posit that implementation
of ERM program by firms can create value for shareholders.
The conceptual framework is such that ERM implementation will lead to some tangible and intangible benefits to the firm.
These benefits include outcomes like optimizing risk/return profile of the company, reducing earning volatility (Lam, 2003),
strengthening management‘s confidence in business operations and risk monitoring, creating smooth governance procedures,
enriching corporate reputation, improving clarity of organization-wide decision making and chain of command, encouraging
corporate entrepreneurship, and boosting enterprise‘s profitability (Crouhy et al.,2006; Bailey et al., 2004; Belmont, 2004; Lam,
2003; Bettis, 1983). These benefits derived from ERM implementation, in turn, will define the distinctive competitiveness of the
firm.
This causal relationship is depicted by the arrow A in the path diagram in Figure 1.
43
ERM Challenges CSFs of Effective

Implementation*
B C
ERM ERM
Implementation Benefits
A
Intensity
D E
Lower Cost Business

of Capital Performance
Shareholder value creation
Figure 1: Path Diagram of Conceptual Framework. Solid arrows indicate causal relationships. Dotted arrows indicate
moderating effects. * indicates moderating factors
However, our ERM framework reckons that any potential challenges that may be faced by the firm either before or during the
implementation process will affect its commitment and intensity level for its planned ERM program. These challenges can be in
the areas of finance, people, information, infrastructure, structure, and priorities. These challenges become a moderating factor
to the intensity and commitment levels of ERM practices by the firm. The influence of this moderating factor is represented by
the dotted arrow B in Figure 1.
Similarly, the outcome and efficacy of such an ERM program will depend on the effective implementation of it. The effective
implementation, in turn, hinges on the extent the firm pays attention to some critical success factors (CSFs) during
implementation phase of such a program. Since ERM program is relatively new in the corporate management history,
particularly in the area of business performance improvement techniques, implementing ERM program can be seen as
equivalent to instituting a corporate change management program which requires a substantial amount of mindset and
paradigm shift within the organization concerned to ensure the program achieves its intended purposes. In the same context, it
follows that implementing ERM program can also be regarded as a business process re-engineering (BPR) agenda of the firm.
According to Khong and Richardson (2003), ―BPR is the fundamental rethinking and radical redesign of the business
processes to achieve dramatic improvements in critical measures of performance such as cost, quality, service and speed‖.
They emphasized that BPR projects must be implemented appropriately so that dramatic improvement could be achieved and
its implementation process must be monitored closely. Al-Mashari and Zairi claimed that BPR implementation process is
complex. They categorized the implementation process into five dimensions namely, Change of Management System and
Culture, Management Competence, Organizational Structure, BPR Project Management, IT Infrastructure. Each dimension
consists of various critical success factors (Al-Mashari and Zairi quoted by Khong and Richardson, 2003).
In the context of our ERM framework, these BPR‘s critical success factors become the second moderating factor in influencing
the outcomes of the ERM program. This relationship is indicated by the dotted arrow C as in Figure 1.
All the tangible and intangible benefits as a result of ERM program implementation will then lead to lower cost of capital as
shown by arrow D and contribute to improved business performance such as improve price-to-earning ratio of share price as
depicted by arrow E. The lowering of cost of capital is due to risk premium reduction as a result of the firm lowering its
idiosyncratic or unsystematic risk profile1. The improving price-to-earning ratio of the firm‘s share prices on the other hand,
happens because investors are willing to pay a higher price for the company‘s share at a given level of earning-per-share
(EPS) due to the firm‘s perceived lower risk profile. These two causal relationships represent the value creation from ERM
program.
1 Discussion of the research model on the interaction between a risk premium framework and the firm‘s unsystematic risk is presented in the later part of this chapter.
44
REBUTTAL OF THE RISK MANAGEMENT IRRELEVANCE PROPOSITION: SYSTEMATIC

VERSUS UNSYSTEMATIC RISKS
The classical finance theory (CFT) advocates two primary risk management tools for investors in their wealth investment,
namely, (i) diversification2 and (ii) asset allocation3. These two concepts of investors‘ risk management tools were first studied
and popularized by Harry Markowitz (Belmont, 2004).
Harry Markowitz in 1952 extended his work by introducing a Model of Portfolio Theory. He theorized a relationship between risk
and return. Markowitz‘s model of portfolio theory emphasizes on risk return trade-off in terms of mean-variance efficient
portfolio, hence the introduction of the Efficient Frontier of various assets combination and weight. An efficient frontier of an
investment domain (Figure 2) represents a set of ―efficient portfolios‖ that maximize expected returns at a given level of
portfolio risk, or that minimize portfolio risk for a given expected return (Belmont, 2004).
Efficient Frontier
Expected
Return
Variance of Return
Figure 2: The Efficient Frontier (Source: Belmont (2004), pp.22).
However, Markowitz (1952) posited that there are as many efficient portfolios that lie on the efficient frontier as there are
investor risk preferences. Nonetheless, by referring to this efficient frontier and based on their risk preferences, investors can
construct risk-return efficient portfolios that offer them the optimal return (Belmont, 2004); that is, a diversified portfolio of
securities that provide investors with the highest level of return for a given level of risk (Chatterjee et al., 1999). Essentially,
Markowitz‘s model of portfolio theory also stipulates that investors can only get a higher return but accepting a higher level of
risk along the ―efficient frontier‖ (Chatterjee et al., 1999).
Applying these two powerful options of diversification and asset allocation advocated by the CFT, neo-classical financial theory
(NCFT) (i.e. Modern Portfolio Theory and CAPM) on the other hand, postulates that any internal risk management effort
undertaken by the firm to reduce its firm-specific risk will be of no value to shareholders because shareholders can easily
employ the above two risk management options, and arguably at a cheaper cost, to attain the same purpose and effect through
building an investment portfolios. This argument holds true unless firm-specific risk management can prove to result in the
increase of the present value of the firm‘s cash flow. As such, internal risk management by the firm should focus only on
reducing its systematic risk by such ways of hedging or buying insurance (Belmont, 2004).
This conclusion of NCFT somehow runs counter to the initial value proposition of corporate risk management by the CFT. For
instance, Markowitz‘s model of portfolio theory would suggest that if managers could find ways to minimize the firm‘s cash
flows volatility, or ―total risk‖4, then they could create value for shareholders as long as the stabilized cash flows would not
come at the expense of their expected value. NCFT such as CAPM, which extended Markowitz‘s portfolio theory,
demonstrated that in equilibrium, the ―market portfolio‖ is the only one efficient portfolio that applies to all investors, regardless
of their risk preferences. Hence, therein gives rise to the notion of beta. Thus, according to CAPM, beta risk is the only risk that
investors should be concerned about in equilibrium (Chatterjee et al., 1999).
Notwithstanding so, it is worth noting that according to another school of thought, i.e. the classic efficient market theory, even
the management of systematic risk is futile. This is because it will not add value to shareholders since the costs of such
activities like hedging and buying insurance policies will completely offset the value of eliminating such systematic risk. Hence,
a zero sum game ensued for shareholders (Belmont, 2004; Doherty, 2000a).
2 Diversification of portfolio means the exercise of distributing portfolio holding across a greater number of assets (i.e. to include more than one asset type in the investment
holding such as combining stocks, bonds, money market instruments, commodities, real estate and etc in order to reduce exposure to risk).
3 Asset allocation, on the other hand, entails the decision of determining the amount of wealth being invested across asset classes.
4 ―Total risk is defined as the standard deviation in a firm‘s returns over some specifies time period-say, 150 trading days‖ (Chatterjee et al., 1999:564). In the concept of
portfolio risk, total risk is the sum of systematic (market) risk and unsystematic (firm-specific) risk.
45
Recent Challenges to CAPM

Chatterjee et al. (1999) highlighted that CAPM‘s theoretical veracity has been questioned by many scholars owing to its
simplifying assumptions which do not conform to reality. For instance, they cited examples such as Kadlec & McConnel (1994),
Levy (1978) and Merton (1987) who doubted that investors are fully diversified as assumed by CAPM; Roll and Ross (1994)
who claimed the impossibility to construct a fully diversified portfolio; Teece (1984) who referred to CAPM‘s static equilibrium
as a ―fictitious state‖; Grossman & Stiglitz (1980), Stein (1988, 1989) who rejected CAPM‘s perfect market assumption from
economic of information point of view on the premise of information asymmetries that exist in the markets; Arrow (1974) who
stressed that the reason why markets fail and organizations form is because markets do not distribute information thoroughly,
albeit efficiently. Due to these asymmetries, Chatterjee et al. (1999) noted that it has created principal-agent problems which
prompted agency theorists championing the setting up of a proper governance mechanism within corporate structure.
Besides, CAPM‘s predictive validity has also been challenged. Fama & French (2004) and Chatterjee et al. (1999) cited
examples of Reinganum (1981); Lakonishok and Shapiro (1986); Merton (1987); Bhandari (1988); Chan, Hamao and
Lakonishok (1991), who doubted the predictive ability of beta. These authors provided empirical evidence which indicated that
investors concern more than just beta. In addition, Chatterjee et al. (1999) also highlighted other studies; such as Levy (1978);
Basu (1983); Merton (1987); Bhandari (1998) which suggested that the predictive power of non-market (firm-specific) factors
(i.e. earnings-to-price ratio; leverage) are better than beta alone when it comes to predicting stock returns.
In conclusion, in determining a firm‘s risk premium, investors are concerned with more than just the covariance of the firm‘s
earnings with that of market portfolio, or beta. Other state variables (i.e. inflation) as previously cited and firm-specific elements
are as just relevant and important in deciding a firm‘s share prices and in estimating long-term returns (Fama & French, 2004;
Chatterjee et al., 1999). The growing recognition of firm-specific measures in asset pricing, nonetheless, has posed ―a
challenge to CAPM because of their atheoretical nature‖ (Chatterjee et al., 1999: 558). Fama and French label these
measures as ―empirical anomalies‖ because they are not given any ―special standing in asset-pricing theory‖ (Fama & French
quoted by Chatterjee et al., 1999: 558). Notwithstanding so, these measures are given due recognition by authors like Fama,
French, Lakonishok, Haugen, DeBondt, and others in estimating a firm‘s risk premium (Fama & French, 2004; Chatterjee et al.,
1999).
Unsystematic Risk and Risk Premium: CAMP Modification

CAPM‘s theoretical framework clearly indicates that there is no favorable risk pricing effect for reduction in unsystematic risk,
hence implying that any deliberate effort on the part of the firms to manage their unsystematic risk is futile. However, assuming
if there would be a positive effect on managing unsystematic risk, how would this notion impact the variables in the CAPM
formula then? It should follow that variable r, representing the required rate of return for an asset or a project, should be
reduced due to the lower risk profile (either perceived or otherwise). A lowered r, which is also used for discounting firms‘
expected cash flows, should yield a higher firm value as follows:
Firm value = ∑ E(CFt) / (1 + rt) t
Where ∑ E(CFt) is the sum of all expected cash flows, t is the time period, and r is the discount rate.
And according to NCFT, on the basis of maximizing shareholders‘ wealth, the appropriate firm-decision rule is for managers to
pursue all investment opportunities that will yield a positive net present value (NPV) (Belmont, 2004).
In CAPM‘s formula E(r) = Rf + βmi [ E(Rm) - Rf ], the reduction of expected return, E(r), should be determined by the risk
premium term, or βmi [ E(Rm) - Rf ]. But since the return on a risk-free asset (Rf) and the expected return on the market [ E(Rm) ]
are exogeneous, we cannot alter the meaning of their representation in the formula, hence they will not contribute to the notion
of risk pricing reduction. The other variable, then, is the beta (βmi). Beta measures the covariance of an asset‘s return to that of
the market, or in other words, the measurement for the systematic risk. So if we want this variable to accommodate the positive
effect of managing unsystematic risk, we ought to change the definition of beta to include that of unsystematic risk. But this
approach of accommodating unsystematic risk measurement in the risk premium term of CAPM formula will probably not go
down well with the convention. Ruling out this possibility, it only leaves us with one option. That is, to include an addition
variable, i.e. µ, in the risk premium term. This variable should take a negative value so that it can have diminishing effect on
the term βmi [ E(Rm) - Rf ] such that βmi [ E(Rm) - Rf ] - µ. Thus, the modified CAPM formula that recognize the effect of
managing a firm‘s unsystematic risk should look like this:
46
E(Ri) = Rf + βmi [ E(Rm) - Rf ] - µ
Conceptually, it should be noted in the above formula that the effect of unsystematic risk does not come in the form of a reward
for bearing them. This is not the same as in the case of systematic risk. But rather, the reward comes in the nature of its
successful reduction or elimination. This notion runs counter to the concept of market risk in asset pricing. Whereas investors
are being rewarded for bearing market risk because it is not diversifiable. Nonetheless, the notion of unsystematic risk
management does not suggest that firms to be rewarded for bearing unsystematic risks. This is because those risks are
diversifiable. However, the notion suggests that firms to be rewarded for their ability to reduce those unique risks that they face.
It is postulated that investors would welcome such a reduction in firms‘ specific risks, hence would demand a relatively lower
risk premium for their investment. In this context, the challenge would emerge in the area of firms‘ valuation. The measurability
of firms‘ value enhancement as a result of this unsystematic risk management would hinge on the market‘s ability to identify
and quantify the reduction of each firm-specific risk for a reward (i.e. the reduction in discount rate).
A STRATEGIC CONCEPTUALIZATION OF RISK PREMIUM: THE CLS MODEL

To begin with, we may describe the apparent contradictory conclusions of neo-classical financial theory (NCFT) that sits on one
camp and classical/strategy theory on the other by drawing reference to some anecdotal evidences of the practices of
corporate risk management in the real world. Risk management in the context of NCFT would only mean diversification, asset
allocation and to a certain extent, the hedging or transfer of risk (Belmont, 2004). However, Belmont (2004: 21) also pointed out
that, in the real world realm, corporate risk management activities include ―a logical and systematic method of establishing the
context, identifying, analyzing, evaluating, mitigating, monitoring and communicating risk associated with any financial activity,
function or process in a way that will enable organizations to minimize financial losses and maximize financial opportunities‖.
In comparison, a stark distinction of the concept of ERM to the notion of risk management by NCFT is the management of
unsystematic risk or firm-specific risk. Apart from managing systematic risks, our ERM framework also highlights the
importance for managing unsystematic risk with the belief that it will lead to an enhanced shareholders‘ value. This concept
blends well with the value enhancing notion as postulated by strategy theory.
Hence, to bridge the gap of the seemingly contradicting conclusions regarding unsystematic risk management between modern
financial theory and strategy research, it requires a model that fits well within the two disciplines. This model will serve as the
value enhancing transmission mechanism of enterprise risk management. And one such model is related to the risk premium of
the firm.
To this end, our framework attempts to theorize a model capturing the causal relationships of the risk that is strategically
associated with firms‘ business performance and cost of capital. We highlight the notion of managing firms‘ unsystematic
(specific) risk via an enterprise risk management framework that leads to the enhancement of shareholders‘ value. The
mechanism through which firms‘ value enhancement takes place is by developing a strategic conceptualization of risk
premium.
The focus is on the adaptation of a model called ―a dynamic framework of a firm‘s risk premium‖ developed by Chatterjee,
Lubatkin, and Schulze (1999) which will reconcile and fill-in the gap between modern financial theory and strategy theory.
We refer to this risk premium model developed by Chatterjee et al. (1999) as the CLS risk premium model.
The CLS Risk Premium Model

The CLS model was developed based on the assumption that investors do care about firm-specific risk. This is owing to the
fact most investors are not as fully diversified and markets are not as perfect as CAPM assumes. The interactions among
constructs in the CLS risk premium model take reference from information economics, resource-based view of the firm, and the
industry structural view of strategy (Chatterjee et al., 1999). The information economics highlights the existence of information
asymmetries in the market and notices that the belief among market participants to be heterogeneous. The resource-based
view of the firm provides explanation that the asymmetries that happen in the resources markets are caused by the
characteristics of the resources in which they are lumpy, heterogeneous, and to be acquired with a cost. The industry structural
view of strategy on the other hand, sees asymmetries in market power distribution in the input and output markets (Chatterjee
et al., 1999).
47
In developing the CLS risk premium model, Chatterjee et al. (1999) postulated that investors are exposed to various classes of
firm-specific risk in a world of partial diversification and imperfect markets. And this notion forms the core of the CLS model. In
other words, CLS model makes extension to the CAPM notion where apart from recognizing the sensitivity of a firm‘s expected
returns to macroeconomic uncertainties, CLS risk premium model also gives inclusion to the sensitivity of a firm‘s expected
returns to three additional classes of firm-specific risks. This is the part where CAPM has omitted.
CLS model categorizes these three classes of unsystematic risk as tactical, strategic, and normative risk. As Chatterjee et al.
(1999) pointed out that, tactical risk exists mainly in information asymmetries, whilst strategic risk comes from imperfections in
the resource and output markets, and finally normative risk presents itself in the forces that define institutional norms.
Tactical Risk
The nature of tactical risk lies with the uncertainty in firm‘s expected earnings. It is based on the assumption that investors are
averse to earnings surprises owing to information asymmetries. Hence, investors will request lower risk premium from firms
who can stabilize earnings.
Firms can employ three strategies to manage tactical risk. That is, the use of financial tactics, hedges, and real options.
Chatterjee et al. (1999) pointed out that financial tactics include earnings management, governance, and liquidity.
Tactical
risk L
H
I
Macro- G N Norma-
economic Risk tive
risk premium risk
K
Strategic J M
risk
Figure 3: The CLS Risk Premium Model
The use of financial tactics has a direct link to risk premium as depicted by arrow H in Figure 3. Whereas the use of hedges
and real options present indirect relationship between firm-specific actions and macro-economic risk to the firm‘s risk premium
as indicated by arrow I in Figure 3.
Strategic Risk
The nature of strategic risk is due to the uncertain performance outcomes from the firm‘s committed resources. It is caused
mainly by imperfections in resource and output markets (Chatterjee et al., 1999). Since firms‘ survival in the marketplace
hinges on how well the firms formulate strategy in committing and deploying their scarce yet precious resources to stay
competitive, it follows then that risks exist if the goal to attain and sustain such competitive advantage from the committed
resources cannot be achieved.
Thus CLS model defines strategic risk as ―the probability that a firm can isolate its earnings from macroeconomic and industry-
specific disturbances‖ (Chatterjee et al., 1999:560). This risk is represented by arrows J and K in Figure 3.
The concept of earnings isolation can find its core in strategy literature such as those of Barney (1991) and Rumelt (1984). As
pointed out by Chtterjee at al. (1999), strategy literature provides good accounts for various determinants of strategic risk.
These include the firm-structure view, resource-based view, knowledge-based view, and strategic options view.
For instance, Porter (1980) analyzed strategic risk from the firm-structure view. He categorized strategic risk in his ―five forces‖
analysis of market rivalry. Chatterjee at al. (1999) postulated that firms that are able to flex their market power to stabilize and
enhance their cash flows by leveraging and sustaining their structural advantages will enjoy lower risk premiums.
The resource-based view (RBV) of strategic risk argues that a firm may keep its resource-based advantages from the
knowledge of its rivals. This is because valuable resources are sometimes intangible and tacit, coupled with the fact that their
distribution is not homogeneous. The nature of these advantages hence, enables a firm to keep them invisible from the
48
detection of competitors. As a result, it will help cripple competitors‘ effort to strategize against the firm (Barney, 1991; Connor,
1991).
Chatterjee at al. (1999) deduced the fourth determinant of strategic risk from strategic options literature such as that of
Sanchez (1993). Chatterjee et al. (1999) explained that strategic options might have originated from ―real‖ options, which are
contingent in nature, but later turned to its form when firm committed its resources to the contracts due to changes in market
conditions. According to Raynor (2008), strategic options are fundamentally different from growth options in that their focus is
not to create possible avenue for new growth, but to create the opportunity to redirect strategy in the existing business model.
Chatterjee et al. (1999: 561) reckoned that strategic options are investments that are difficult to undo once committed. Firms
undertake such commitment in order to ―mitigate specific sources of macroeconomic and industry-specific disturbances risk‖.
Miller (1998) noted that the use of strategic options is due to the unavailability of other type of options, like hedges.
Nonetheless, Raynor (2008) pointed out that to manage strategic risk effectively a firm has to establish a portfolio of strategic
options so that it can create ―strategic flexibility‖ without compromising the need to commit.
Normative Risk and Dynamic Forces

CLS model posits that risk premium advantages attained through active management of tactical and strategic risks are
temporary. Due to competitive forces, any previous advantages will be imitated by competitors and will be neutralized after
some time. At this point, the ability of tactical and strategic risk management to reduce risk premium will diminish and they will
become ―nothing more than a source of variance about some baseline level of firm-specific risk‖ (Chatterjee et al., 1999: 562).
Tactical and strategic actions will then lose its uniqueness and differentiating factor but become institutionalized and pre-
requisites for firm to stay in the industry (Chatterjee et al., 1999; Scott, 1995; Hamel & Prahalad, 1994). This relationship is
presented by arrows L and M in Figure 3.
Normative risk, thus, is defined as the risk premium (or penalty) that a firm is subjected to if it fails to comply with its institutional
norms or rules that it is expected to follow (Graf, 2004; Chatterjee et al., 1999). These norms represent the common
expectations of the firm‘s stakeholders (i.e. investors, regulators, interest groups) with regards to its behavior (Graf, 2004). CLS
model stresses that complying to pre-requisite norms will not yield firms any reward but will be slapped with higher risk
premium if firms fail to observe them. This is owing to investors having to bear additional risk without the promise of higher
return (Chatterjee et al., 1999). Financial accounting literature such as Jones (1996) provided indirect support for this assertion.
Jones noted consistent evidence that the incremental information provided by going-concern audit opinions had an influence
on investors‘ reaction (Jones quoted by Chatterjee et al., 1999). This relationship is depicted by arrow N in Figure 3.
As such, firms have to ensure their proper compliances to institutional norms and industry rules so to avoid penalty charged
onto their risk premium.
Conclusion: CLS Risk Premium Model

CLS risk premium model highlights the notion that there are dynamic relationships between unsystematic risk (i.e. tactical,
strategic, and normative risks) and a firm‘s risk premium. Thus, firm-specific activities and skills derived from the active
management of those risks will influence a firm‘s risk premium. This argument is well supported by the current theories of
strategy (Graf, 2004).
However, this assertion is apparently inconsistent with CAPM which does not acknowledge such a relationship. CAPM defines
that all firm-specific activities, which are measured by the variance of the error term in the market model, as unsystematic risk.
And this unsystematic risk is not correlated with risk premium. Thus, it is irrelevant (Belmont, 2004; Chatterjee et al., 1999).
Nonetheless, as has been discussed earlier, the theory of CAPM has been subjected to much challenges of late. This is
especially with the beta being doubted by many studies to be a reliable proxy of a firm‘s risk premium (Chatterjee et al., 1999).
The concept of CSL model, on the other hand, takes a multivariate approach. The constructs of the model include
macroeconomic, tactical, strategic, and normative risks, all of which are omitted by CAPM. Besides, CSL model also pays due
recognition to the dynamic of the continuous interplay between elements of the firm‘s activities and market forces (Chatterjee et
al., 1999). This approach of conceptual assertion not only comes in tandem with the studies of strategic management, but also
offers to connect the former with the theories in financial economics in providing a solid and robust conceptual framework for
enterprise risk management (ERM). This linkage of theories from the two disciplines (i.e. strategic management and financial
economics) enables the building of a new theory postulating that ERM can lead to improved business performance and
enhanced shareholders value. In effect, Chatterjee et al. (1999: 563) suggested building ―a more conceptually complete asset
49
pricing model‖ with the combination of contributions from the empirical discovery of financial economics as well as the
conceptual description of strategic management.
Risk premium is a crucial element for firms. It has a profound impact on firms‘ cost of capital. Firms with risky profiles in the
eyes of investors will suffer from incurring higher costs when raising capital. This comes in the form of either selling equity at
lower prices or issuing bond/debt with higher coupon/interest rates (Chatterjee et al., 1999). Firms encountering this situation
will face an unfavorable strategic opportunity set (Copeland et al., 2005). Besides, higher capital costs will return lower present
value when discounting firm‘s future earnings. As such it can become a source of competitive disadvantage when a firm faces
its rivals in accessing capital markets (Belmont, 2004; Chatterjee et al., 1999).
THE THEORETICAL FRAMEWORK

From the discussion thus far, we postulate that a dynamic ERM framework will enhance shareholders value through enhanced
business performance and the reduction of the firms‘ cost of capital.
We hence theorize that a firm‘s commitment and implementation intensity of its ERM program will be determined by the
various challenges faced during such implementation process. The success of such ERM implementation, thus the amount of
benefits received, in turn, is affected by how well the corporations manage some critical success factors hinging on the
effective implementation of the ERM program.
We further theorize that in the event of corporations successfully implementing the ERM program, the benefits received from
such effective execution will have a long-term positive impact in creating value for the corporations‘ shareholders. This value
creation process is achieved via a two-pronged process.
Firstly, shareholders‘ value is created by way of lowering the corporations‘ cost of capital which takes place through a dynamic
framework of risk premium reduction mechanism (CLS risk premium model) as discussed earlier.
ERM Program
Challenges
CSFs of
Implementation
ERM ERM
Implementation Benefits
Intensity
Tactical risk
Macroeconomic risk Risk premium Normative risk
Strategic risk
Dynamic model of a firm’s risk premium
Lower Cost of Business  Solid arrows indicate causal relationships

Capital Performance  Dotted arrows indicate moderating effects
 * indicates moderating factors
Shareholders value creation
Figure 4: Theoretical framework‟s diagram

Note that Fig 4 is reproduced from Figure 1 with the inclusion of the dynamic model of a firm‟s risk premium which works as the
transmission mechanism of the value-enhancing effect of ERM framework.
Secondly, the value is created by means of a generic improvement of business performance. This improvement encompasses
all functional areas such as finance, operations, marketing, human resources, and governance.
50
The final result of this two-pronged value creation process is the higher return of share prices for shareholders. These
theoretical relationships are depicted by Figure 4.
In addition, the CSFs for effective implementation of ERM program posited within this theoretical framework can in turn, serve
as predictors for having a successful ERM program for the firms.
The Analytic: Structural Equation Model for Path Analysis

The estimation of the multiple interrelated dependence relationships as per our ERM framework discussed preciously involves
the incorporation of latent and manifest variables. According to Hair et al. (1998: 585), a latent variable is a ―hypothesized and
unobserved concept that can only be approximated by observable or measurable variables‖. On the other hand, the manifest or
the observed variables are gathered ―from respondents through various data collection methods (e.g., surveys, tests,
observations)‖.
For instance, all the variables shown in figure 4 namely, ERM Program Challenges, ERM Implementation Intensity, CSFs of
Implementation, ERM Benefits, Dynamic Framework of Firm‟s Risk Premium, Lower Cost of Capital, and Business
Performance are latent variables. These latent variables or observed concepts in turn, will be individually measured by another
set of manifest variables respectively. These manifest variables are presented as statements in survey questionnaires to be
answered by respondents.
As far as data analysis procedure is concerned, we can address these multiple issues (as per the multiple causal relationships
in the ERM framework) simultaneously with a single multivariate technique. Since the development of our ERM framework
mentioned above embodies theoretical issues, we ought to rigorously test its theoretical soundness.
To this end, we propose employing structural equation modeling (SEM) for the analysis. SEM is a path model whose analytical
procedure is an extension of several multivariate techniques such as multiple regression and factor analysis. SEM enables the
comprehensive examination of ―a series of dependence relationships simultaneously‖ (Hair et al., 1998: 578). The primary
purpose of setting up a structural equation model for path analysis is to validate theory by testing the total, direct, and indirect
effects of latent and manifest factors (variables). The path analysis also allows investigation for the effect of mediation
(intervention) that exists among variables (Anderson & Gerbing, 1988; Hair et al., 1998; Chin, 1998; Hoe, 2008).
SEM consists of measurement model or confirmatory factor analysis (CFA) and structural model (Hoe, 2008). Measurement
model in SEM refers to the process of specifying indicators for each construct and the assessment of the each construct‘s
reliability in estimating the causal relationship. Structural model, on the other hand, refers to the set of one or more
dependence relationships linking the hypothesized model‘s constructs (Hair et al., 1998). SEM‘s statistical supremacy, namely
its ability to detect and reject a poor model, is derived from the fact that it combines both measurement and structural models
into a simultaneous statistical test to estimate a series of separate, but interdependent, multiple regression equations (Hoe,
2008; Chin, 1998; Hair et al., 1998). In applying SEM, a researcher will ―draw upon theory, prior experience, and the research
objectives to distinguish which independent variables predict each dependent variable‖ (Hair et al., 1998: 584). According to
Hair et al. (1998), in a structural model, some independent variables become dependent variables in subsequent relationships.
Hoe (2008: 76) noted that SEM is especially effective in inferential data analysis and the testing of hypothesis ―where the
pattern of inter-relationships among the study constructs are specified a priori and grounded in established theory‖. Besides,
according to Chin (1998: 7), SEM offers researchers with great flexibility to ―(a) model relationships among multiple predictor
and criterion variables, (b) construct unobservable latent variables, (c) model errors in measurements for observed variables,
and (d) statistically test a priori substantive/theoretical and measurement assumptions against empirical data (i.e., confirmatory
analysis)‖.
Path Diagram
Figure 5 depicts a pictorial portrayal of the relationships among all concepts/constructs in our ERM framework. This pictorial
portrayal is termed as a path diagram. It serves as the basis for a path analysis to empirically estimate the strength of each
relationship (represented by each path) depicted in the diagram (Hair et al., 1998).
Referring to the causal relationships path diagram in Figure 5, one independent variable of ERM challenges (X1) predicts the
dependent variable ERM intensity (Y1) [arrow A]. Likewise, dependent variable of ERM benefits (Y2) is predicted by two
51
independent variables of ERM intensity (Y1) [arrow B] and implementation CSFs (X2) [arrow C]. Lastly, dependent variable
shareholders value (Y3) is predicted by variable ERM benefits (Y2) [arrow D].
X2
Implementation
CSFs
Y2 D
ERM Y3
Benefits Shareholders
Value
B
Y1
ERM
Intensity
X1
ERM
Challenges
Figure 5: Path Diagram of ERM Relationships
Mathematically, these causal relationships can be stated in the following equations:
Y1 = b1X1 - path A
Y2 = b2Y1 + b3X2 - path B and C
Y3 = b4Y2 - path D
where
Y1, Y2, and Y3 are endogeneous variables; whereas
X1 and X2 are exogeneous variables; and
bi in all equations are the coefficients for the strength of causal relationships among constructs Yi and Xi .
CONCLUSION
We can conclude from the discussion earlier that the views of modern financial theory (neo-classical finance theory) and that of
strategy theory are somehow contradicting when it comes to corporate risk management; in this context the efficacy of ERM. In
effect, the argument made by modern financial theory also runs contrary to that of classical theory (i.e. Markowitz) in this
respect. Nevertheless, as Bettis (1983: 409) aptly put it: ―To alter either result is to disrupt significantly the logical structure of
the underlying discipline‖. But then, how can one provide plausible and sensible explanations in an effort to describe this
discrepancy and to even reconcile the difference? Therefore, it will be of great interest and significance to attempt to provide a
theoretical linkage among the three schools of thought, namely the classical finance theory, neo-classical finance theory, and
strategy theory. Our ERM framework, hence, endeavors to provide such linkage.
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54
M. Halib, Z. Ghazali and S. M. Nordin Volume 9 – Spring 2010
PLANT TURNAROUND MAINTENANCE IN MALAYSIAN

PETROCHEMICAL INDUSTRIES: A STUDY ON ORGANIZATIONAL
SIZE AND STRUCTURING PROCESSES
Mohammed Halib, Zulkipli Ghazali and Shahrina Md Nordin

Universiti Teknologi PETRONAS, Malaysia
ABSTRACT
Plant turnaround maintenance, a crucial asset management in petrochemical industries is carried out to revitalize, maintain,
and improve the plant facilities for optimal and efficient performance. Large organizational resources comprising plant and
maintenance personnel, technicians, craftsmen, skilled and specialist contractors and enormous magnitude of inter-related
activities marked the complexity of the turnaround maintenance setting. The establishment of the appropriate configuration of
organizational size and structuring processes are critical in organizing and managing the resources to ensure the success of
the turnaround maintenance event. This paper discusses the relationship of organizational size and structuring processes in
plant turnaround maintenance of 30 petrochemical companies in Malaysia. Six hypotheses were tested using bi-variate
Pearson product-moment correlation. The test results provide the evidence that organizational size influences the
organizational structuring processes of turnaround maintenance. The organizations of the turnaround maintenance are
featured by high levels of centralization and formalization denoting the organization‟s low level of tolerance on the variability of
the behavior and performance of the organizational members.
Keywords: Plant Turnaround Maintenance, Organizational Size, Organizational Structuring Processes, Formalization,
Centralization, Petrochemical Industries, Malaysia
1. INTRODUCTION
Malaysia is well endowed with natural resources including oil and natural gas reserves. The exploitation of the petroleum-
based resources has contributed significantly to the economic development of the country and created significant employment
opportunities. The petrochemical companies are primarily found in the East Coast of Peninsula Malaysia (state of Terengganu)
and East Malaysia (states of Sabah and Sarawak) to take the opportunity of the availability of oil and natural gas reserves.
These companies include manufacturers of petroleum-based products, liquefied natural gas, and manufacturers of fertilizer and
nitrogen compound. Huge investments are made by local and foreign-owned companies in oil refineries, natural gas
processing plants, and industrial petrochemical units.
The oil refineries are featured by large industrial complexes utilizing a broad range of technical equipment ranging from cooling
towers and crystallizers to transformers and storage tanks. These refineries convert the crude oil into a variety of gasoline,
diesel, asphalt, naphtha, kerosene, and liquefied petroleum gas. Plant configurations depend on the range of crude oil gravity
being processed and the nature of the final products. These refineries also produce and supply the feedstock to the
downstream petrochemical plants that are operating at various locations in Terengganu, Pahang, Johor, Sarawak, and the
Federal Territory of Labuan. The natural gas processing plants, on the other hand, purify and convert raw natural gas into
residential, commercial and industrial fuel gas, and also recovers natural gas liquids (NGL) such as ethane, propane, butanes
and pentanes. Similarly, the petrochemical plants are also situated in integrated complexes to take advantage of centralized
utilities, efficient storage services, and transportation network. In the petrochemical plants, the feedstock from the oil refineries
is converted into fertilizers and other intermediate and final products. Ethylene, fertilizer, and methanol are normally produced
by the bigger plants while the production of basic chemicals such as acetylene, butadiene, sulfuric acid, nitric acid, chlorine,
ethylene oxide, and ethylene glycol are carried out by the smaller ones.
The refineries and plants, which are normally designed to last 25 to 30 years, demand constant maintenance and upkeep.
Apart of the routine maintenance, these facilities are periodically shut down for major planned overhaul and improvement work,
commonly known as turnaround maintenance. The primary objective of plant turnaround maintenance is to revitalize, maintain,
and improve the plants to ensure optimal and efficient performance. In comparison to the accrued knowledge on turnaround
maintenance from the engineering perspective, rather limited knowledge is available with respect to the management and
organization of one of the most important and critical activity in plant management. The organizational aspects of plant
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Plant Turnaround Maintenance in Malaysian Petrochemical Industries: A Study on Organizational Size and Structuring Processes
turnaround maintenance are a little understood subject in management and other social science circles. The dearth in
knowledge regarding turnaround maintenance stood in stark contrast to the mushrooming of plants in the manufacturing
sectors of the fast-expanding Malaysian economy. Indeed, the voluminous studies in practically all aspects of management and
business have failed to attract turnaround maintenance as a topic worthy of research enquiry. It is the latter situation that
constitutes the driving force behind the present study.
2. OBJECTIVES OF THE STUDY

The primary aim of this study is to provide a narrative background understanding on some of the organizational aspects of
plant turnaround management and more specifically to ascertain the relationship of organizational size and structuring process
of plant turnaround maintenance in the Malaysian petrochemical industries.
3. PLANT TURNAROUND MAINTENANCE

Plant turnaround maintenance or simply ‗turnaround‘ in technical circles is a multi-facetted process comprising three broad
elements of engineering, business, and organization (Lenahan, 1999; Levitt, 2004). The event is normally carried out during a
planned plant shutdown and covers activities such as inspection, overhaul, modification, and the installation of new parts or
equipments. Taking advantage of the plant shutdown, preventive maintenance, corrective maintenance, and plant cleaning are
also carried out. The turnaround event is duration driven and the frequency is largely determined by variables such as plant
technology, the required level of plant reliability, and the legal requirements associated with the operation. In Malaysia, the
event must comply with the statutory requirements of the Department of Safety and Health (DOSH) and the Department of
Environment (DOE). The duration of turnaround event is short and utilizes large manpower resources that include engineers,
technicians, craftsmen, skilled and specialist contractors, and other plant and maintenance personnel. The enormous
magnitude of inter-related activities of the turnaround event requires stringent control and coordination. Depending on the size
and complexity of the turnaround tasks, substantial effort and time are allocated for planning and work scheduling.
Plant turnaround maintenance activities, from the engineering point of view, involved the replacement, repair, or refurbishment
of worn, damaged or malfunctioning plant parts. It is not uncommon for plant turnaround events to include project works such
as the installation of new parts or equipment. Other activities which could not be performed when the plant is in operation are
also carried out during the shutdown period. These include tests and inspections, preventive maintenance, corrective
maintenance, and major plant cleaning. The scope of work involved in turnaround exhibits considerable variations among
plants. It is dependent upon, among others, the age and type of plant technology. Perhaps, the most distinctive aspect of
turnaround is that the scope of work remains uncertain until the actual activities begin. Despite a series of inspections and
assessments that were carried out prior to the turnaround event, the actual condition of the equipments simply could not be
determined until they are actually opened and inspected. Consequently, the situation harbors risk of uncertainties with respect
to increase of the work scope leading to the lengthening of the turnaround period and cost escalation. The monetary loss due
to production stoppage is often huge if the planned duration of the shutdown is exceeded.
Viewing from the business perspective, plant turnaround maintenance affects a company‘s business operations in more ways
than one. The successful implementation of the plant turnaround maintenance contributes to the profitability of the company
(Lenahan, 1999; Murthy et al., 2002). There are a number of facets to this connection that will serve to set the turnaround
maintenance in a business context. Firstly, assets are critical for business success in the fiercely competitive global economy
(Murthy et al., 2002). Rapid changes in technology have resulted in equipment becoming more complex and expensive.
Businesses incur heavy losses when their equipment is not in full operation, hence, the need for availability and reliability of
assets. Financially, the turnaround event is expensive to execute and it is not uncommon for the activity to be funded by the
company‘s retained earnings. Furthermore, as the event entails plant shutdown, loss of production is unavoidable. Company‘s
revenues are negatively affected and consequently its profits. As a matter of fact, the event has negative impact on the profits
of the company in the year the turnaround maintenance is performed. Secondly, plant turnaround maintenance also has a
peculiar impact to the business of a company. The event poses potential hazard to plant reliability, safety, and harbors the risk
of cost overruns and schedule slippage due to technical uncertainties. In addition, the turnaround maintenance requires a large
number of personnel (maintenance and support) and requires other costly resources in large quantities such as spare parts,
machines, tools, and equipment. These requirements reach the highest level at the peak of the implementation stage.
Cumulatively, the event drains off a company‘s resources. Therefore, plant turnaround maintenance is very much a business
process and is increasingly explored as an area that can be enhanced to increase productivity and sustain competitiveness of
the company. Plant turnaround maintenance is considered as a value adding investment. Due to the huge turnover of the
operation and massive capital investment of the assets, it is increasingly regarded as one of the business strategies of a
company in the highly competitive business environment. How asset and maintenance management makes good business
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sense has, of late, become an important management issue that has drawn attention from various parties of business and
industries (Liyanage and Kumar, 2003).
Plant turnaround is an event that demands huge manpower from internal and external sources on a temporary basis to execute
the maintenance activities. This is essential due to the large amount of work that needs to be carried out in the face of extreme
time constraints. The turnaround organization brings together groups of personnel who are mostly unfamiliar with each others‘
skills but have to work interdependently in complex tasks. Plant turnaround involves large volumes of maintenance work that
can be classified into three major categories. The first category known as major tasks requires engineering inputs such as
overhauling of large boilers and air compressors, re-traying of large distillation column, replacing refractory linings of cement
kiln, and replacing catalysts. Small tasks, the second category, include cleaning and inspection of machines and equipments.
The third category of tasks known as bulk work is carried out where the overhaul of large number of small items such as
valves, pumps, and motors are performed. All the above activities require large number of human resource, since they have to
be completed within a very short duration of between 10 to 14 days. Also, as stated earlier, the turnaround event may involve
project work that can only be implemented when there is a complete shutdown of the plant. Projects refer to work packages
that are implemented to improve the plant performance or fulfill statutory requirements. Project work increases the complexity
of the turnaround maintenance and places further demand on organizational resources especially manpower. Hundreds or
even thousands of maintenance man-hours are required depending on the volume of work and the window of opportunity
available. Adding to the complexity, the event consists of multiplicity of inter-related activities, performed at the same time, in
the same place, and at times on different levels of the plant. Area congestions increase the chances of potential accidents,
conflicts, errors, and confusion that are greater compared to normal maintenance environment. These depictions imply that
manpower is the most important input to the turnaround maintenance organization. Undeniably, to contend with the
organizational environment and context, turnaround activities require efficient organization, coordination, and control to ensure
its successful implementation. This is attainable through the appropriate organizational structure and structuring processes.
The demand placed on management functions in plant turnaround maintenance such as planning, organizing, and controlling is
overwhelming in comparison with those found in ―normal‖ business operations. Essentially, at least three major aspects of the
organization and management of turnaround maintenance differentiate it from ongoing business operations. Firstly, turnaround
maintenance is usually carried out with the singular objective of restoring plant reliability and production processes and the
result is realizable in a short time period. On the contrary, ongoing business operations often have multiple objectives and
some will only be realized in the future. Secondly, the manpower requirement for turnaround maintenance varies greatly from
ongoing business operations. Initially, a turnaround event requires only a few key personnel for a short period to identify and
finalize the scope of work of the turnaround. The requirement and number of personnel steadily increases as the event
progresses to the planning and preparation stage. The number of personnel reaches its peak during the execution stage,
whereby the manpower requirement may reach to a level of 1,000 or more depending on plant size, plant technology, and the
scope of work. Subsequently, the number of personnel tapers off at the tail end (termination stage) of the turnaround event.
Such a scenario differs greatly from ongoing business operations where the manpower requirement is relatively stable due to
the consistent level of activities over a considerable period of time. Finally, the temporary nature of the turnaround maintenance
organization is another distinct feature in comparison to ongoing business operations. In the organization of turnaround
maintenance a team is assembled for the planning, preparing, and executing the event. Depending on the size of the
turnaround, the team may consist of plant personnel, hired specialists and skilled tradesmen. The majority of the personnel
involved may be sourced from contractors. The team is disbanded after the successful completion of the turnaround event.
However, some of the larger concerns retain a few key personnel to plan and prepare for the next cycle of turnaround event.
The temporary nature of the organization is certainly not the case for ongoing business operations that place heavy reliance on
relatively permanent and stable organizations.
It must be borne in mind that turnaround maintenance, first and foremost, is an engineering activity responding to technological
demand. The turnaround maintenance event moves through a predetermined life cycle. The actual execution of the turnaround
maintenance is relatively short in duration and represents a segment of a four-phase cycle. The turnaround maintenance cycle
starts with the initiation phase, followed by planning and preparation phase, the execution phase, and finally the termination
phase. Each phase of the turnaround features a specific set of critical issues and activities that depend on the complexity of the
plant technology and size of the turnaround event. Even though the time span of the execution phase is relatively short, it
comprises the highest level of activities in the turnaround maintenance cycle. It is featured by the performance of voluminous
tasks by large number of specialists and tradesmen from various engineering disciplines. As such, control and coordination of
the workforce and work activities are crucial. Literally, the planning and preparation that were carried out in the earlier phase
are put to a reality test during the execution phase. The plant turnaround maintenance activities require efficient organization,
coordination, and control to ensure its successful implementation. Successful implementation of turnaround maintenance
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ensures availability and reliability of equipment and assets (Lenahan, 1999), and thus profitability of the company (Murthy et al,
2002).
4. ORGANIZATIONAL SIZE AND STRUCTURING PROCESS

Size, an essential characteristic of all organization, has been measured in many ways (Ford et al., 1988). These include the
number of employees, number of products or services, volume of total sales, revenue, assets, profits, and the number of
divisions found in the organization (Burton and Obel, 2004). Other proposed measurements of organizational size include the
use of physical, fiscal, input, and output dimensions (Kimberly in Burton and Obel, 2004). As such, size of the plant turnaround
maintenance is determined by the total number of workers employed to execute the work, the total cost involved, and the
planning duration for the turnaround event. These measures are adopted in this study. Obviously, size of the plant turnaround
maintenance influences turnaround maintenance organizations in more ways than one. Indeed, size has been considered as
one of the major contingency factors in many organizational studies and a determinant in the organizational structuring
processes (Pugh et al., 1968; Child, 1973; and Marsh and Mannari, 1981).
In relation to plant turnaround maintenance, Levitt (2004) states that ―a shutdown is a melting pot in accelerated time, which
means that people will be operating at or near their limits‖. His statement implies that human resource issues are crucial in
plant turnaround maintenance and that the necessary priority needs to be accorded in managing and organizing the human
aspect in this fast-track task-oriented undertaking. Lawrence and Lorsch (1967), and Miller and Friesen in Miller (1987)
suggested that all organizations must be structured to effectively handle the contingencies posed by their environment to attain
favorable performance. Structural dimensions advanced by researchers include centralization, standardization, formalization,
specialization (Pugh et al, 1968; Walton, 1981), uncertainty reduction, differentiation, and integration (Lawrence and Lorsch,
1986; Miller and Friesen, 1987). However, the two most studied dimensions are centralization and formalization.
Centralization refers to the degree to which power is concentrated in organization. The higher the degree of centralization, the
less widespread is decision making power with regard to policy and task performance. On the contrary, a low degree of
centralization exists if power is delegated to people at the lower end of the organizational hierarchy, a situation known as
decentralization (Wetzel and Buch, 2000). Formalization, in turn, refers to the extent where rules, procedures, instructions, and
communications are established which prescribes acceptable or expected action of the employees for the purpose of
controlling their behavior (Hall et al, 1967; Pugh et al, 1968; Child, 1972; Walton, 1981; Ford et al, 1988; Miller and Salkind,
2002). It is illustrated by job descriptions, codified and written rules and policies, and written communication. Documentation
requirements reflected in an organization‘s budgeting processes, planning and control systems are some of the means of
formalization. One of the facts about business organization is that it has a certain level of formalization in its management
process. Formalization reflects the demand placed on predictability and compliance to standards and specifications in the work
activities (Child, 1985). Similarly, formalization is established in turnaround maintenance organization. The level of
formalization reflects the extent to which work and activities in the turnaround maintenance organizations are controlled by the
management through indirect mechanisms such as rules, regulations, procedures, and documentation. As a matter of fact, the
level of formalization in the turnaround organization reflects the way top management manages their relations with the
members of the turnaround organization that includes plant-based personnel and external contractors. It is the contention of
this study that the appropriate organizing of the human resource in the form of structuring processes such as centralization and
formalization are pertinent. Nevertheless, depending on the size of the turnaround event, the level of centralization and
formalization are different among the various companies in the petrochemical industries.
5. RESEARH HYPOTHESIS
In view of the preceding discussion, two general hypotheses are put forth that outline the expected relationships between the
organizational size and structuring processes of turnaround maintenance. The cost of the turnaround event, number of external
temporary workers employed for the turnaround maintenance and the planning duration for the turnaround event are expected
to positively correlate with the level of formalization and centralization in the organization of the turnaround maintenance. The
following hypothesis is suggested.
Hypothesis 1: There is a relationship between size and the level of formalization in the organization of plant turnaround
maintenance.
The organization of plant turnaround maintenance is a combined effort of plant personnel, turnaround personnel, technical
personnel, specialists, and contractors. Depending on the size, the workers strength can exceed one thousand personnel. The
increase in size generates greater propensity for a more formalized pattern of administrative control due to the need to cope
58
with the increased complexity and greater possibility of internal confusion. In such a situation, management turns to rules,
procedures, job descriptions, and other devices that formalize behavior. Furthermore, the greater specialization of the
personnel involved in the turnaround leads to a higher degree of differentiation. Hence, there is greater need for coordination
by formal means and greater use of formal communication. As such, the following sub-hypotheses are put forth:
Hypothesis 1a: The level of formalization is positively related to the cost of plant turnaround maintenance event.
Hypothesis 1b: The level of formalization is positively related to the planning lead time of the turnaround maintenance.
Hypothesis 1c: The level of formalization is positively related to the number of workforce employed for the turnaround
maintenance.
The high volume of tasks of the plant turnaround maintenance has to be completed within a short window of opportunity.
Conformity and coordination in the execution of the turnaround maintenance activities are important. Hence, centralization of
authority is mandatory. Furthermore, the plant turnaround maintenance is a costly event and is a drain on company‘s
resources. It involves large costs that include labor, material, and the loss of revenue during the plant shutdown. Therefore, it is
absolutely necessary that the turnaround is aligned with business goals of the company. Therefore, decision-making authority
on the operations, budget, recruitment of personnel, and buying decisions (material, equipment, specialists, and services) are
concentrated at the top of the hierarchy. Due to the nature of their responsibilities and their perspective from the top, higher
level managers have broader consideration to the interests of the whole organization. Therefore, the following hypothesis is
suggested.
Hypothesis 2: There is a relationship between size and the level of centralization in the organization of plant turnaround
maintenance.
As stated earlier, the high volume of tasks has to be completed in a short time span. Hence, large number of employees and
external temporary workers supplied by contractors are required to implement and complete the tasks on time. As such, the
following sub-hypotheses are suggested.
Hypothesis 2a: The level of centralization is positively related to the cost of the turnaround maintenance event.
Hypothesis 2b: The level of centralization is positively related to the planning lead time of the turnaround maintenance.
Hypothesis 2c: The level of centralization is positively related to the number of workforce employed for the turnaround
maintenance.
6. RESEARCH METHODOLOGY
The primary method employed in the data collection is the questionnaire-aided sample survey. The unit of analysis of the
present study is the organization of the petrochemical industries. A total of 60 questionnaires were distributed to the
petrochemical companies. A total of 30 companies responded to the questionnaire, notching a 50.0 percent response rate. The
respondents are engineers from the maintenance department who are involved and experienced in the turnaround
maintenance of the companies. Size of the plant turnaround maintenance is determined by the total cost of the event, the
planning duration, and the total number of workers employed to execute the turnaround maintenance work.
6.1 Total Cost of Turnaround Maintenance Event

Cost of turnaround maintenance generally include turnaround planning and management; local labor that covers companies‘
plant personnel; contractors; specialists; spare parts and materials to repair defects or replacement; equipment purchase and
hire; logistics that include temporary stores, workshop, accommodation, mess room, changing rooms, and site offices; utilities,
and other contingencies. In the present study, the cost is categorized as ‗large-scale‘ (more than RM 5,000,000), ‗medium
scale‘ (RM 500,001 to RM 5,000,000), and ‗small scale‘ (RM 500,000 or less).
6.2 Planning Duration of Turnaround Maintenance

The complexities associated with turnaround maintenance require substantial effort and time on planning and preparation to
ensure smooth execution and timely completion. In fact, planning is the major phase of the turnaround maintenance process.
Stretching the planning duration of the turnaround to two or three years is not uncommon in industrial circles. Nevertheless, the
59
duration of planning differs amongst the companies. The present study uses five categories of planning duration is established,
namely, Category 1 (six months or less), Category 2 (seven months to 12 months), Category 3 (13 months to 18 months),
Category 4 (19 months to 24 months), and Category 5 (25 months and more).
6.3 Number of Workforce for Turnaround Maintenance Event

Plant turnaround maintenance involves voluminous maintenance work that requires large number of personnel since the work
has to be completed within a very short duration. In addition, it is quite common for a turnaround event to include new projects
that can only be implemented when there is complete shutdown of the plant adding further demand on human resource.
Hundreds, even thousands of maintenance man-hours is required depending on the volume of the work. In the present study,
the number of workforce is measured by the total number of workers involved in the execution of the turnaround work.
6.4 The Level of Formalization

In measuring the level of formalization, 19 statements are used for the turnaround maintenance organization. The scale is
adapted from Duffuaa and Ben Daya (2004). The respondents are required to indicate the level of formalization of their
turnaround maintenance organization in a possible range of scores from 1 (SDA-Strongly Disagree) to 5 (SA-Strongly Agree).
The index was determined by averaging the scores of individual respondent to each of the statements. High scores refer to a
high level of formalization and vice versa.
6.5 The Level of Centralization

The scale employed to measure the level of centralization is adopted from Kelly (1997) and Lenahan (1999). The scale
consists of 13 activities that are related to the allocation of personnel, financial expenditures, and procurement. The
respondents are required to indicate the level of hierarchy where decisions are made for each of the 13 activities in their
organization of turnaround maintenance. A decision made by the Managing Director/Chief Executive Officer/ General Manager
will obtain a score of 5, a decision taken by the turnaround manager/engineer is given a score of 4, a decision taken by the
area engineer/coordinator is given a score of 3, a decision taken by the supervisor is given a score of 2, and a score of 1 for a
decision made by the tradesmen/technicians at the work level. The centralization scale for each turnaround maintenance
organization of the petrochemical industries is represented by the mean response across all 13 activities where 1 indicates a
low level of centralization and 5 shows a high level centralization.
7. SALIENT CHARACTERISTICS OF SAMPLE COMPANIES

The 30 petrochemical companies covered in the study differ not only in the plant technology employed in conducting their
business operations but also in other prevailing characteristics that include, among others, the size of manpower, the number
of years in operation, the frequency of the turnaround, duration of the turnaround event, costs of the turnaround, planning
duration for the turnaround event, organizational structure and structuring processes of the turnaround.
7.1 Overall Size of the Companies

An established indicator of organizational size is the total number of employees in the organization (Hall and Tolbert, 2005).
The size of companies in the petroleum-based sector covered in the study ranges from small (<100 employees) to large
(>1000 employees). A total of 22 companies (73.3 percent) employ 500 or less people. There are two companies (6.7 percent)
that employ less than 100 people. On the larger end, two companies (6.7 percent) have between 700 and 900 people, five
companies (16.7 percent) employ in the range of 900 to 1100 employees, and one company (3.3 percent) has more than 1100
employees.
7.2 Number of Years in Operations

The plants used by the petrochemical companies have been in operation between two to 40 years. The majority (70.0 percent)
of the companies in the petroleum-based sector have been in operation for less than 20 years. The remaining 30.0 percent of
the companies started their operations more than 20 years ago. The majority of these plants were established since the Fourth
Malaysia Plan (1981-1985). The latter groups of plants (more than 20 years) reflect the ageing facilities and assets used in
conducting their manufacturing activities.
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7.3 Scope of Work of Turnaround Maintenance

The primary aim of plant turnaround maintenance is to revitalize the plant efficiency and reliability. Since the plant is shutdown
for turnaround maintenance, the companies take the opportunity to carry out other works as well. The typical work scope of
turnaround maintenance include maintenance of facilities for statutory inspection, plant preventive maintenance, plant
corrective maintenance, plant cleaning, safety and quality initiatives, and project works for plant replacement or plant
improvement. Table 1 summarized the work scope of turnaround maintenance based on the multiple responses gathered from
the survey.
It is observed that among these companies, maintenance work that is organized for the purpose of meeting the requirements of
statutory inspection enforced by DOSH and DOE is ranked first. This is followed by the project or plant improvement works that
can only be implemented during plant shutdown. Following that, corrective maintenance work and work related to safety and
quality initiatives ranked third and fourth respectively. Preventive maintenance is ranked fifth among the work scope of
turnaround maintenance in the petrochemical industries and finally the plant cleaning work is ranked sixth.
The survey highlights the components of turnaround maintenance work that include of major plant overhaul (corrective
maintenance), capital projects and modifications as put forth by Kelly (1997). The project and plant improvement components
of the turnaround maintenance increase the complexity of the turnaround event. They place high demand on organizational
resources that increases the complexity of the management and organization of the event. Hence, it is discernible that the
turnaround events among the petroleum-based industries are indeed complex.
Table 1: Work Scope of Turnaround Maintenance of the Companies (n=30)

Work Scope of Number of Companies
Rank
Turnaround Maintenance (Frequency)
Statutory Inspection requirements (DOSH, DOE) 28 (93.3%) 1
Preventive Maintenance 17 (56.7%) 5
Corrective Maintenance 20 (66.7%) 3
Plant Cleaning 12 (40.0%) 6
Safety and Quality Initiatives 19 (63.3%) 4
Project or Plant Improvement 26 (86.7%) 2
Source: Survey data
7.4 Frequency of Turnaround Maintenance

The petrochemical industries utilize multi-million dollar facilities and assets to conduct their business. These facilities demand
continuous maintenance and upkeep for optimal performance. The survey data unveils the various frequency of turnaround
maintenance adopted by the companies. It was found that 15 companies (50.0 percent) implement their turnaround
maintenance once in three years. There are eight companies (26.7 percent) that plan their turnarounds once in five years or
longer intervals. These are large petrochemical plants, refineries and natural gas processing plants. However, the survey data
shows that there are companies in the petrochemical industries that perform the event more often. For instance, five
companies (16.7 percent) planned their turnaround once a year and two others (6.7 percent) carried out the event once in two
years.
7.5 Duration of Turnaround Maintenance Event

The duration of the turnaround maintenance event is dependent upon the work scope. The latter is almost always constrained
by the demands on the production and the availability of sufficient funds to finance the event. In view of these constraints, the
shutdown period must allow for a minimum scope of turnaround maintenance work to be performed on the plant facilities to
ensure the continuous optimal and efficient plant performance. Based on the information gathered from the survey, the mean
duration of turnaround among the petrochemical companies is 24 days. The range of duration of turnaround maintenance
among these companies is 26 days with a minimum of 14 days to a maximum of 40 days. The survey data reveals that there
are 12 companies (40 percent) that allocate 11 to 20 days and another 12 companies (40 percent) carry out the event between
21 and 30 days. Six other companies (20 percent) implement the events between 31 and 40 days.
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7.6 Contractors in Turnaround Maintenance Organization

Depending on the size of the turnaround event, a large portion of the turnaround maintenance tasks is outsourced to
contractors. Outsourcing is a common method of acquiring large number of temporary human resource for the turnaround
maintenance activities, notably in large scale turnaround undertakings. All the companies included in the present study
reported the use of contractors to execute their turnaround maintenance activities. However, the level of usage of these
external workers is highly dependent on the scale of the turnaround activities. On the average, the companies recorded
employing 1110 external workers. The minimum number recorded is 65 workers while the maximum is 3000 workers.
It is evident from the survey that the majority of the companies engaged large number of external workers. Close to one-half
(46.7 percent) of the companies used more than 1000 temporary external workers. It is reported that 10 companies (33.0
percent) used less than 600 workers including three companies (10.0%) that engaged less than 200 workers. Another six
companies (20.0 percent) employed in between 600 to 1000 external workers.
The turnaround managers that were interviewed during the course of the study concurred with the view that due to the cyclical
nature of the turnaround event, contractors provide the organizational flexibility in organizing the manpower for turnaround
without the necessity of large sum of investment in permanent employment. The need for specialized services and flexibility in
the number of employees required during turnaround event constitutes the main motivation for employing contractors for
turnaround events (Abraham and Taylor, 1990; Kochan et al.,1992; and Blake and Uzzi, 1993) .
7.7 Size of Turnaround Maintenance

Organizational size is one of the pertinent characteristics of temporary organizations such as plant turnaround maintenance.
Size exerts influence on the management of the organizational resources particularly the structuring processes of the
organization. The three variables denoting organizational size are cost, planning duration, and the total number of employees
for the turnaround event.
7.7.1 Cost of Turnaround Maintenance Event

The cost associated with plant turnaround maintenance event can be divided into four major categories that includes (1)
administrative and overheads, (2) labor, (3) equipment, fabrication, and materials, and (4) contingency. Cost of services
includes, among others, the cost of turnaround planning and management, cost of labor that covers companies‘ plant
personnel, contractors, and specialists. The cost of materials include spare parts and materials to repair defects or
replacement, equipment purchases and hire, logistics that consists of temporary stores, workshop, accommodation, mess
rooms, changing rooms, site offices, utilities, and other contingencies. The total cost is directly linked to the size of the
turnaround event. Large events are portrayed with more extensive cost profile due to the extensive volume of maintenance
work.
The costs are divided and identified according to the three major phases of turnaround namely planning and preparation,
execution, and termination. The cost details demonstrate some of the core functions of turnaround maintenance management
that include planning, organizing, and controlling. It is explicitly clear that large proportion of the cost is focused on organizing
resources (human resource and materials) of the turnaround maintenance activities. In the present study, the costs of the
turnaround maintenance are classified into three categories namely small scale (less than RM500,000), medium scale
(RM500,000 up to RM5,000,000) and large scale (more than RM5,000,000). The mean value of total cost of the turnaround is
RM30,677,000. The data reveals that the minimum cost recorded is RM1,500,000 and the maximum is RM90,000,000. Results
of the survey shows that large scale turnaround events are carried out by the majority (about 92.3 percent) of the petroleum-
based companies. Only two companies (7.7 percent) in this sector perform medium scale turnaround. None of the companies
covered in the survey perform small scale turnaround events.
7.7.2 Planning Duration of Turnaround Maintenance

The complexities associated with turnaround maintenance and possibilities of consequential monetary loss due to duration
overrun have placed planning and preparation a precondition to ensure smooth execution and timely completion. In fact,
planning is the major phase of the turnaround maintenance process. Stretching the planning duration to two or three years is
not exceptional in the petrochemical industries. Nevertheless, the duration of planning for the turnaround maintenance differs
among the companies.
The survey data indicates that the mean duration of planning of the turnaround event is 15 months. The data also reveals that
the minimum duration of planning is 1.5 months and the maximum is 36 months. Large turnaround events require longer
62
planning duration of more than 12 months. As examples, MLNG Sdn Bhd and PETRONAS Penapisan (Melaka) Sdn Bhd
allocate an average of 15 months for the planning and preparation of their turnaround maintenance. Results of the survey
indicate that most of the petrochemical companies (46.7 percent) allocate between 13 and 18 months of planning for their
turnaround events. Eight companies (26.7 percent) require seven to 12 months, while four companies (13.3 percent) require
less than six months for the planning work. There are four companies (13.3 percent) that require longer duration of planning
that include three companies (10.0 percent) with 19 to 24 months planning and one company (3.3 percent) that requires more
than two years planning for its turnaround event.
7.7.3 Total Number of Employees for Turnaround Maintenance

Turnaround maintenance involves voluminous maintenance work that requires large number of manpower. In addition, it is
quite normal for a turnaround event to include new projects that can only be implemented when there is complete shutdown of
the plant. Depending on the volume of work, thousands of maintenance man-hours are required for the event. On the average,
the companies recorded employing 1199 workers. The minimum number of workers reported is 85 and the maximum is 3500
workers.
Analysis on the results of the survey illustrates the presence of certain degree of variations in the number of workforce required
for the turnaround maintenance activities among the petroleum-based companies. It reveals that 20 companies (66.7 percent)
in the petroleum-based sector used more than 600 workers to implement the turnaround activities. There are eight companies
(about 26.6 percent) that employed between 200 and 600 workers to execute their turnaround maintenance activities. On the
other extreme, only two companies (6.7 percent) require 100 or less employees to execute the event.
7.8 Levels of Formalization and Centralization

The results of the survey revealed that all the companies have documented and established work procedures, quality system,
safety plan, work specifications and mechanisms of performance control. The overall mean value for the level of formalization
in the turnaround maintenance organization, on a scale of 1 to 5 is 4.33 (Std. Dev. 0.44). Overall, the result indicates a high
level of formalization in the turnaround organization among the petrochemical companies.
Managing and organizing the resources for turnaround require the clear role of decision making authority in committing the
resources is reflected by the level of centralization in the organizational structuring process among the turnaround maintenance
organizations. The centralization that is being considered here is the distribution of authority to commit the organization‘s
resources for implementing the turnaround maintenance activities. Analysis of the survey data reveals that the overall mean
value for the level of centralization in the turnaround maintenance organization on a scale of 1 to 5 is 3.78 (Std. Dev. 0.45)
demonstrating a high level of centralization in the turnaround organization among the companies in the petrochemical
industries. The high level of centralization reflects the authority to commit organizational resources such as human resource,
funds, machines, and materials is concentrated or confined to a few key persons or group of senior managers of the
turnaround maintenance organization. For instance, in MLNG Sdn Bhd, the authority rests on a group of senior managers or
the policy team and the turnaround manager.
8. CORRELATIONAL ANALYSIS AND DISCUSSION

The proposed hypotheses are tested using bivariate Pearson product-moment correlation. The results of the analysis are
illustrated in Table 2 below.
63
Table 2: Correlation between Organizational Size and Structuring Processes

Organizational Size Level of centralization Level of formalization
Pearson Correlation .078 .724**
Cost (log) of turnaround
Sig. (1-tailed) .352 .001
maintenance
n 26 26
Pearson Correlation .118 .343*
Number of employees (log) for
Sig. (1-tailed) .267 .032
turnaround maintenance
n 30 30
Pearson Correlation .471** .512**
Planning duration in months Sig. (1-tailed) .004 .002
n 30 30
** Correlation is significant at the 0.01 level (1-tailed).
* Correlation is significant at the 0.05 level (1-tailed).
8.1 Organizational Size and Formalization

The size-formalization relationship in the organization of turnaround maintenance is evident from the bivariate Pearson
product-moment correlation coefficients. The level of formalization is positively related with the cost of the turnaround
maintenance event. The correlation coefficient (r) is 0.724 (n=26) with a significant level of p=0.001 < 0.01 (1-tailed) indicating
a significantly strong relationship. The coefficient of determination (r2) is 0.524, which shows that about 52.4 percent of the
variation in the level of formalization is explained by the variation in the cost of the turnaround maintenance event. Hence,
Hypothesis 1a is supported.
Similarly, formalization is positively related to the number of employees for turnaround. The bivariate analysis shows correlation
coefficient (r) is 0.343 (n=30), with a significant level of p=0.032 < 0.05 (1-tailed). It shows that 11.8 percent of the variation in
the level of formalization is explained by the variation in the number of employees of the turnaround maintenance. Hence, the
Hypothesis 1b is supported but the statistics signifies a weak relationship.
Likewise, formalization is positively related to the planning duration of the turnaround maintenance. The bivariate analysis
shows correlation coefficient (r) is 0.512 (n=30), with a significant level of p=0.002 < 0.01 (1-tailed). It illustrates that 26.2
percent of the variation in the level of formalization is explained by the variation in the planning duration of the turnaround
maintenance. As such, Hypothesis 1c is supported and the relationship is moderate. The survey data reported variations in the
turnaround planning duration among the companies in the petroleum-based industries. The planning duration depends on the
complexity of the turnaround maintenance works and the risk involved in the turnaround. By and large, plant turnaround
maintenance that is complex and holds the potential of high risk requires more comprehensive planning and longer time than a
plant turnaround that is comparatively less complex and has lower potential of risk. The complexity and risk that influence the
duration of planning are closely related to the size of the turnaround maintenance event. Hence, size explains the variations in
the duration of planning of turnaround maintenance.
The finding that the level of formalization is related to organizational size of the turnaround is consistent with formalization-size
relationship advocated by Pugh et al, (1968), Child (1972), and Marsh and Mannari (1981). As an example, as the number of
employees for the turnaround increases, the need for control and coordination through formal written communication, rules,
procedures, and written instructions grows. The findings from the present study hold that increase in the size of the
organization is accompanied by increase in the level of formalization; greater reliance on formal standard procedures,
operating systems and documentation.
In ensuring the turnaround event is completed on time, large volumes of documents are generated for planning and organizing
for the event which include turnaround objectives, key dates of the turnaround event, work schedule, working pattern (working
hours and number of shifts), work scope, turnaround maintenance organizational charts, procedures to conduct post
turnaround analysis to capture lessons learned of every event of the turnaround maintenance, measuring the plant turnaround
performance, establishing the procedures to handle the unexpected during the turnaround such as emergent work, and
procedures for planning the procurement of long delivery, prefabrication items and services. For instance, in MLNG Sdn Bhd
64
and PETRONAS Gas Berhad, these documents are the foundation upon which all other aspects of the turnaround event rest,
such as safety, quality, duration, cost, resource profile, material and equipment requirements. Work specification, work
scheduling, and resource scheduling are documented and communicated to all the stakeholders of the turnaround event. The
stakeholders include higher level management of the companies, sales and marketing managers, plant managers, engineers,
safety officers, supervisors, workers, contractors, and government authorities namely DOSH and DOE.
Furthermore, in order to complete the turnaround work within the approved plant turnaround financial budget, the total cost of
the turnaround maintenance event are clearly budgeted and documented and a formal cost estimate for the plant turnaround
maintenance event is prepared. Daily reports that measure the progress of the event are produced to control the turnaround
execution against work schedule and budgeted costs.
Essentially, rules, policies, procedures, standards, and specifications shape the level of formalization in the turnaround
maintenance organization and act as impersonal devices for managing the organizational resources. Shenhav (1995) pointed
out that organizations featured by high level of engineering activities were prevailed by systems and standards that serve as
basis of formal structuring processes. Turnaround maintenance organization is a case in point. As a matter of fact, the
prevailing high level of formalization is established as a management strategy in organizing, coordinating and controlling the
organizational resources for achieving high level of performance. It also indicates the tendency of the management to depend
on self management (Hodgson, 2004) and relying less on personnel supervision, in particular with organization that has large
number of specialized personnel such as turnaround maintenance.
8.2 Organizational Size and Centralization

The statistical analysis shown in Table 2 does not reveal any significant relationship of centralization and cost of turnaround
maintenance. Likewise, there is no significant relationship between centralization and the number of employees for turnaround
maintenance. Hence, Hypotheses 2a and 2b are not supported. However, the level of centralization is positively related to the
planning duration of the turnaround maintenance. The bivariate analysis shows correlation coefficient (r) is 0.471 (n=30), with a
significant level of p=0.004 < 0.01 (1-tailed). It illustrates that 22.2 percent of the variation in the level of centralization is
explained by the variation in the planning duration of the turnaround maintenance. The Hypothesis 2c is supported and the
relationship is moderate.
Roup (2004) claimed that ―turnaround is a top-down intuitive process‖. In today‘s highly competitive business environment, the
challenges in managing and organizing a plant turnaround are not the same as managing other business processes. Roup
(2004) stressed that turnaround manager or the plant manager has to consider economic issues with emphasis on reliability
and cost control, business issues, stakeholders that include community relations, environmental compliance, and statutory
compliance. For instance, in the case of turnaround maintenance of MLNG Sdn Bhd, the focus is given on business issues like
production optimization and yield improvement to meet the international customers‘ demand without neglecting cost control,
safety and environmental concerns. The focus and priority of the senior managers towards the turnaround maintenance
provide the evidence that highly centralized and top-down process of the turnaround maintenance management and
organization is necessary.
The high total costs and potential negative implications on the business operations draw intense top management attention to
the turnaround maintenance. Therefore, high level of centralization is not uncommon in turnaround organization. Furthermore,
the turnaround activities are carried out in a very short duration that allow very little time and opportunity for deliberation,
discussion, or getting consensus. Centralization of authority in the decision-making avoids delays that are caused by debate or
deliberation. Fast and accurate decision making are imperative and as such, it is common for turnaround organization having
one person to be in overall control of the event. The complexity of the turnaround environment demands speed and high level
of coordination that compels the turnaround organizations to centralize their structure. Adding to the complexity is the need to
manage a number of internal and external interfaces or stakeholders of the turnaround. Therefore it is pertinent that the
management holds effective means of control of the turnaround organization to ensure that the demands and requirements of
these stakeholders are satisfied. Furthermore, as the turnaround manager or the maintenance manager has the overall
business view of the company, his decisions are made in integrated manner with consideration of the engineering,
management, and business perspectives. The large capital expenditure and other large associated incidental costs of the
event attract serious shareholders‘ and the top management attentions. In order to have an effective means of control of the
event, it is a common feature to have a group of senior managers (steering committee) or a turnaround manager to be
responsible for the turnaround event. This leads to high centralization in the structuring process.
65
9. CONCLUSION
The aforementioned discussion has provided some evidence to the variations in the organizational size and structuring
processes of the turnaround maintenance organizations. It is discernable that depending on the size of the turnaround event,
the structuring processes of the turnaround maintenance vary across the industries. It is obvious that the companies managed
and organized the necessary turnaround organizational resources differently in accomplishing the turnaround events. Indeed
the findings of this study support the views put forth by numerous organizational scholars that size is one of the major
determinants of organizational structuring processes (Pugh et al., 1968; Child, 1973; and Marsh and Mannari, 1981).
Plant turnaround maintenance activities are compressed events that have very low tolerance for schedule slippage or duration
overrun. Therefore, planning is done meticulously and normally takes a long period. The temporary nature of the turnaround
maintenance organization creates greater challenge to integration and coordination. Hence, high level of centralization and
formalization are seen in the turnaround maintenance organization.
Overall, the organizations of the turnaround maintenance are featured by high level of centralization and formalization. It
signifies the organization‘s low level of tolerance on the variability of the behavior and performance of the organizational
members. This is necessary to ensure work process, input, and output of the turnaround maintenance meet the statutory
requirements and stipulated standards imposed upon the operations. High level of centralization implies that the inherent
characteristics of the turnaround maintenance demand centralized decision making to facilitate organizing, coordination and
control of organizational resources. For all intents and purposes, integrating appropriate structuring processes such as
formalization and centralization facilitate the implementation of the turnaround maintenance activities. It seems plausible to
conclude, based on the findings of the present study that the turnaround maintenance managers can depend heavily on written
procedures and rules for coordination and control and simultaneously centralized the authority for decision making.
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Management System Using 7-S’s McKinsey Model Case Study in Ceramic in Thailand
MANAGEMENT SYSTEM USING 7-S’S MCKINSEY MODEL CASE STUDY

IN CERAMIC IN THAILAND
S. Adsavakulchai and P. Sopajitwattana

University of the Thai Chamber of Commerce, Thailand
ABSTRACT
Currently, Ceramic Industry in Thailand is unsystematic management system that led to less competitive in foreign countries.
The main objective of this study is to develop as a way of thinking more broadly about the problems of organizing effectively in
the SME ceramic industries. The McKinsey 7-S Model is a widely chosen strategy to a variety of activities that views culture as
a function of seven variables: strategy, structure, systems, style, staff, skills and shared values. Almost the ceramic industries
in Thailand especially in souvenir products are SME. As a result, using the McKinsey 7-S model are: these SME ceramic
industries do not have the strategy for systematic action and structure; do not have the organization structure and maintains a
harmony between the authority-responsibility relationships. In addition, these comprises several systems including forecasting,
tracking, communication, accounting and financing, quality assurance, Enterprise Resource Planning and CRM. The
leadership approach of the control management styles involved with the way the organization operates and collectively works
to achieve its company‟s goods and services. Some have special skills to sustain the distinctive capabilities of an organization.
Almost the staff is labor–intensive in the enterprise and some concerns the values that are shared by the concept of wisdom.
Keywords: The McKinsey 7-S Model, SME Ceramic Industries, Souvenir Products, Competitiveness
1. INTRODUCTION
Originally developed as a way of thinking more broadly about the problems of organizing effectively, the 7-S framework
provides a tool for judging the "do ability" of strategies. The McKinsey 7-S Model is viewing the interrelationship of strategy
formulation and implementation. It helps to focus managers` attention on the importance of linking the chosen strategy to a
variety of activities that can affect the implementation of that strategy (Waterman, R.,et al,1980). The framework suggests that
it is not enough to think about strategy implementation as a matter only of strategy and structure, as has been the traditional
view. The conventional wisdom used to be that if you first get the strategy right, the right organization follows. And when most
people in Western cultures think about organization, they think structure. To find in practice, however, that these notions are
too limiting. To think comprehensively about a new strategy and the problems with carrying it out, a manager must think of his
company as a unique culture and must think about the ability of the company to get anything really fundamental (i.e., not
tactical) accomplished as a matter of moving the whole culture (Pascale, R.T. and Athos, A.G., 1980). The McKinsey 7-S
Framework should be thought of as a set of seven compasses as following strategy, structure, system, style, staff, skills and
share: values as showed in figure 1.
Previously, technology sources for the ceramic industry in Thailand can be divided into three types; i.e. local experience,
imported turnkey machines and multinational companies. Technology transfer from experience is widespread in small- to
medium-sized factories. However, because of limitations in funding and personnel, technology from experience has yielded
only modest improvement. Secondly, very popular among medium- to large-sized industry is technology transfer by turnkey
imported machines. Although very convenient to start production, in the long run turnkey machines inevitably lead to high-level
technology dependence and costly import of machine know-how (S. Wada, T. Hattori and K. Yokohama, 2001).
Generally, Thai technical staff could proceed, maintain and adjust production plans without assistance from technology owners
(Statistics from www.customs.go.th). Some industry could replace original parts with local ones (Seawong P., et al, 2000).
However, most of the industries struggles maintain product quality to specifications, not to mention quality improvement.
Finally, some 'advanced' technology could be transferred to Thailand via geographical movement of multinational companies.
This know-how is hardly ingrained locally because it moves with the factories from one country to another (Peters, T. and
Waterman, R.,1982)
68
S. Adsavakulchai and P. Sopajitwattana Volume 9 – Spring 2010
Figure 1: The McKinsey 7-S Framework
The overall technological capability of Thai ceramic industry has been improved at an unsatisfactorily slow rate. The size of the
conventional ceramic household sector has stayed rather constant but its competitiveness has seriously decreased. Thus, the
main objective of this study is to develop as a way of thinking more broadly about the problems of organizing effectively in the
SME ceramic industries.
2. MATERIAL AND METHODOLOGY

In this study, to do the experimental design; using criteria selection to do the representative of ceramic industries i.e.
geography divided into 5 parts (northern, northeastern, central part, west and south), questionnaires is the tool to define the
parameters of running a business, field observation and in-depth interview. The steps of this study as following:
1. To interview the managers about the strategy management policy.

2. To concern with the organization structure.
3. To find out the existing all the systems in supply chain i.e. procurement, order processing, production, warehouse
management, transportation, etc.
4. To study the leaderships of ceramics industries managers.
5. To survey all the staff‘s skill especially in production process.
6. To interview the academic background for all staff.
7. To develop the concept of wisdom in ceramics industries
3. RESULTS AND DISCUSSION

In this study, there are 34 industries (10%) as a representative of ceramic industries in Thailand. As a result from
questionnaire, the 7 factors are to organize a company in a holistic and effective way. Together these factors determine the
way in which a corporation operates as following:
1. Strategy: A strategic business unit is a significant organization segment that is analyzed to develop organizational
strategy. In ceramic industries (souvenir products) are SME. Then almost companies do not the strategic policy. Due to
all owners operate with experiences with no direction as shown in Figure 2.
From Fig. 2, almost the ceramic industries in Thailand demonstrated in Fig. 2.1. Thus, to do the strategy implementation
each department Fig. 2.2-2.3 till the whole organization that leads to high potential and competitiveness Fig. 2.4.
69
Figure 2: Strategic Implementation
2 Structure: Organizational Culture: the dominant values and beliefs, and norms, which develop over time and become
relatively enduring features of organizational life. There are 2 types of organization structure as following:
2.1 Flat structure: a flat organisation especially in the ceramic industries in Thailand will have relatively few layers or
just one layer of management. This means that the ―Chain of Command‖ from top to bottom is short. Due to the
small number of management layers, flat organisations as shown in Fig. 3.
Manager
Procurement Production Accounting Warehouse

management
Figure 3: Flat organization structure
2.2 Hierarchical structure: are ranked at various levels within the organisation, each level is one above the other. At
each stage in the chain, one person has a number of workers directly under them, within their span of control as
shown in Fig. 4.
Most ceramic industries in Thailand are flat structured.
Manager
Sales department Research & Purchasing Production

development
IT department
Accounting Human Resource
Logistics
Figure 4: Hierarchical organization structure
70
3 Systems: there are 7 systems development in the ceramic industries as following table:
Table 1: 7 systems development in the ceramic industries in Thailand

System Development Guideline Benefits
Forecasting system  Customer database  Decreased stock
development  Customer satisfaction
Tracking system  Using RFID for tracking the  To find out the problem for better
origin of the products. solving
Internal communication  Real time communication  Fast problem solving
 Systematic meeting  Reduced cost
scheduling
Accounting and Financial  Accounting Information  Reduced cost
System  Value-added
 Target costing
Operation performance  Develop operation planning  Reduced production process
 Reduced loss
 Reduced energy
Enterprise Resource Planning (ERP)  Develop each module of  Planning efficiency
ERP  Control resources efficiency
 Marketing response
CRM  Questionnaire  Customer satisfaction
4. Style: Management Style: more a matter of what managers do than what they say; How do a company‘s managers
spend their time? What are they focusing attention on? Symbolism – the creation and maintenance (or sometimes
deconstruction) of meaning is a fundamental responsibility of managers. Leadership theory has moved to behavioral
approaches, to contingency and situational models. Leadership at the executive level is different from leadership at mid-
management, which is different than first line leadership. There are four categories and there are times when each
approach is appropriate and times when it would not be as following:
4.1. Structural Leaders focus on structure, strategy, environment; focus on implementation, experimentation,
adaptation
4.2. Human Resource Leaders believe in people and communicate that belief; they are visible and accessible; they
empower, increase participation, support, share information, and move decision making down into the
organization
4.3. Political leaders clarify what they want and what they can get; they assess the distribution of power and interests;
they build linkages to other stakeholders; use persuasion first, then negotiation and coercion only if necessary
4.4. Symbolic leaders view organizations as a stage or theater to play certain roles and give impressions; these
leaders use symbols to capture attention; they try to frame experience by providing plausible interpretations of
experiences; finally they discover and communicate a vision
Most of the producers are small- to medium- sized industries (SMIs), the managers are Structural Leaders.
5. Staff :The people/human resource management – processes used to develop managers, socialization processes, ways
of shaping basic values of management cadre, ways of introducing young recruits to the company, ways of helping to
manage the careers of employees as shown in table 2:
71
Table 2: The ways of helping to manage the careers of employees

Ways Guideline
5.1 Recruitment  Not focus only local staff but also to do the collaboration
with academic sector for the students to gain more experience
during summer with the real sector in ceramic industry.
5.2 Develop the incentive system and working environment  Awards system
 Staff development
 Improve working environment
 Initiative working happiness
5.3 Establish special technical training center by government  Encourage industries to do staff development
5.4 Develop knowledge management  To develop the knowledge-based system for transfer
knowledge and experience from generation to generation
5.5 Create the attitude  Encourage worker to train and develop evaluation system
6. Skills: The distinctive competences – what the company does best, ways of expanding or shifting competences. Thai
workers are notable in their manual skill, possessing high potential for product and technology development
7. Share Values: Guiding concepts, fundamental ideas around which a business is built – must be simple, usually stated
at abstract level, have great meaning inside the organization even though outsiders may not see or understand them as
shown in Fig. 5.
Figure 5: Ceramic industry is the local wisdom
From Fig. 5: one of the ceramic factories announces that all workers are not labor but they are local wisdom from generation to
generation.
4. CONCLUSION AND RECOMMENDATION

The 7-S Model is a valuable tool to initiate change processes and to give them direction. A helpful application is to determine
the current state of each element and to compare this with the ideal state. Based in this it is possible to develop action plans to
achieve the intended state. Effective organizations achieve a fit between these seven elements. This criterion is the origin of
the other name of the model: In change processes, many organizations focus their efforts on the hard S‘s, Strategy, Structure
and Systems. They care less for the soft S‘s, Skills, Staff, Style and Shared Values. The most successful companies work hard
at these soft S‘s. The soft factors can make or break a successful change process, since new structures and strategies are
difficult to build upon inappropriate cultures and values. These problems often come up in the dissatisfying results of
spectacular mega-mergers. The lack of success and synergies in such mergers is often based in a clash of completely different
cultures, values, and styles, which make it difficult to establish effective common systems and structures. Formal and informal
procedures support the strategy and structure. (Systems are more powerful than they are given credit). If one element changes
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then this affects all the others. For example, a change in HR-systems like internal career plans and management training will
have an impact on organizational culture (management style) and thus will affect structures, processes, and finally
characteristic competences of the organization.
When they are not, the company is not really organized even if its structure looks right. If a 7-S analysis suggests that strategy
implementation will be difficult, managers either can search for other strategic options, or go ahead but concentrate special
attention on the problems of execution suggested by the framework.
REFERENCE
1. Seawong P., Leudtaharn J. and Sujirote K. (2000): Technical Survey of Structural Ceramics Collaboration, Internal
report, National Metal & Materials Technology Center, Thailand
2. Pascale, R.T. and Athos, A.G. (1980): The art of Japanese Management, Penguin Business.
3. Peters T., Waterman, R. (1982): In Search of Excellence, New York, London: Harper & Row.
4. Wada S., T. Hattori and Yokohama K., (2001): Sintering of Si3N4 Ceramics in Air Atmosphere Furnace, J. Cer. Soc.
Japan, 109 [11] 281-83.
5. Statistics from www.customs.go.th
6. Waterman, R. Jr., Peters, T. and Phillips, J.R. (1980): Structure Is Not Organization in Business Horizons, 23,3 14-26
73
The Impact of Culture on a Small Business – Do Hofstede’s Factors Apply?
THE IMPACT OF CULTURE ON A SMALL BUSINESS –

DO HOFSTEDE’S FACTORS APPLY?
Arthur Shriberg, Melanie Thomas and Pat Gillett

Southern Cross University, Australia and Xavier University, USA
ABSTRACT
This article discusses the needs of a Vice President of Sales in a Mid-American family-owned company who has no
international experience, but must prepare to meet and work with sales people who will represent her company in India, Brazil,
and Sweden. First, I review the basis of understanding cultural differences from a historical and anthropological perspective.
Then, I utilize Hofstede‟s (2001) model of analyzing cultures based on five dimensions. Next, I connect diversity and
multiculturalism using the diversity wheel by Gardenswartz and Rowe (1994) as a tool for analysis. Hoopes (1979) also
provides a useful model for the Vice President to analyze her own process of communicating with people from other cultures.
Finally, I provide information and baseline advice to our mythical Vice President about both negative behaviors to avoid and
positive behaviors that will help her build effective multicultural relationships. I close using Abbas (1997), providing specific
suggestions to maximize the likelihood that she can leverage cultural differences to provide a business advantage.
INTRODUCTION
Imagine the following fictional scenario: ACME Incorporated is an organization based in Cincinnati, Ohio selling computer
peripherals. The company started as a small family-owned store in 1997 and grew rapidly in the age of the technology boom.
They now have offices in five locations across the country and have recently expanded operations to three other countries. The
company‟s newly hired Vice President of Sales, Alana, is getting ready to host her first international sales meeting for her
counterparts in the other three countries – India, Brazil, and Sweden. Alana has often heard people talk about cultural
differences getting in the way of communications with people in other countries and is worried about her sales meeting. She
has lived and worked in Cincinnati all her life and has rarely interacted with people from other countries. Alana is now faced
with the task of preparing herself and her team for an impending visit from people from cultures about which she has limited
knowledge. Alana is well-read and proactive, and wants to use this opportunity to build a bond with the overseas teams that will
be strong enough for them to work together on the company‟s aggressive growth plans.
This may be a fictional situation, but scenarios similar to this are being played out across the country with increasing frequency.
In today‘s multicultural society, it doesn‘t matter if you are a not-for-profit healthcare provider in the northeast or a graduate
student developing your professional/or personal path – you are part of the interconnected global economy. The challenges
brought on by this dynamic require companies and individuals to: strategize about how they will compete in international
markets and work with overseas operations; necessitate government agencies to debate over how they will effectively serve
growing minority and immigrant populations; call for hospitals and health organizations to consider the patient care implications
introduced by different religious beliefs and practices; compel managers and leaders to understand how to attract, motivate,
and retain Baby Boomer, Generation X, and Millennial talent; and entail individuals with self-reflecting and leadership skills to
thrive in the increasingly multicultural world. Often, we think about cultural differences as ―barriers‖ to achieving business or
personal goals, but these very differences, if approached effectively, can be leveraged to create better outcomes than one
could expect with homogenous teams. One reason for this potential benefit is that diverse groups can come up with better,
more creative ideas than homogenous groups, which are more likely to get caught up in group-think. Another, more subtle
reason is that when people extend themselves to understand and appreciate those different from them, it goes a long way in
building commitment and loyalty.
In order to think about what steps Alana should take to achieve to her goal of leveraging cultural differences, we need to
understand three elements: culture, individual reactions to culture, and the implications of these on professional and personal
relationships.
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A. Shriberg Volume 9 – Spring 2010
UNDERSTANDING CULTURE
Culture is often defined, historically and anthropologically, as a shared pattern of beliefs, values, norms, attitudes, and
behaviors that are transferred from generation to generation. However, it is increasingly being recognized that culture refers to
commonalities that have developed and continue to evolve in the context of the socio-political environment based on various
dimensions including race, gender, ethnicity, sexuality, religion, etc. In the U.S., the attributes that form the dominant culture
are white skin, Christianity, physical and economic ability, heterosexuality, and English as a primary language. Within a culture,
the population that has one or more of the dominant characteristics also enjoys privilege and access, which means, among
other things, that they do not have to acknowledge their culture as the norm, and that they have access to resources,
connections, and status. Privilege for the dominant group obviously creates a potential for dynamics of domination.
Hofstede (2001) has measured the dominant values of more than 50 countries on five dimensions that can affect people‘s
behaviors in fairly predictable ways. The dimensions are:
 Power distance: the extent to which less powerful members of organizations and institutions accept and expect that
power is distributed unequally.
 Individualism/collectivism: the degree to which individuals are supposed to look after themselves or remain integrated
into groups – usually around family.
 Masculinity / femininity: the distribution of emotional roles between genders (tough – masculine, tender – feminine).
 Uncertainty avoidance: the extent to which a culture programs its members to feel either uncomfortable or comfortable
in unstructured situations. (degree to which society tries to control the uncontrollable).
 Long term/short term orientation: the extent to which a culture programs its members to accept delayed gratification
of their material, social, emotional needs.
According to Hofstede‘s dimensions, the four countries in Alana‘s case are rated with the following values:
Power Individualism Masculinity Uncertainty Long Term

Distance Avoidance Orientation
Brazil 69 38 49 76 65
India 77 48 56 40 61
Sweden 31 71 5 29 33
U.S.A. 40 91 62 46 29
These and other values of global managers can influence their styles of communications greatly. A high score on any
dimension indicates a higher predominance of that dimension. Given the scores in the above table, the cultural values for the
countries highlighted in this case could be:
 Brazil: importance of family, relationship orientation, long term orientation – and loose interpretations of time deadlines
 India: high power distance, importance of family, relationship orientation
 Sweden: collectivism, low power distance, high femininity, very nurturing
 U.S.A.: low power distance, high individualism, importance of personal space, task orientation, high masculinity
While Hofstede‘s model has its limitations and detractors, it is still one of the predominant models for predicting cultural
differences. In real life, a situation where every team member is from a different culture and all the differences are so clearly
manifested may not occur.
CONNECTING DIVERSITY AND MULTICULTURALISM

Diversity is often described as differences in culture. We often think of culture in terms of nationality and ethnicity; however,
because culture refers to groups with shared identity and history, it can also refer to other dimensions of our social identity.
These dimensions can include gender, religion, region of the country in which we live, socioeconomic position, or generation.
For example, you are a part of a culture based on your gender—every society has differences in the ways males and females
are socialized. Therefore, leaders aspiring to be effective in multicultural environments must develop an awareness of the
different dimensions of culture that are and will be most central to their different constituencies of customers or followers.
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As seen in the figure below, Gardenswartz and Rowe (1994) provide an excellent tool, the diversity wheel, for illustrating the
multiple dimensions of diversity that make up each of us as individuals.
The diversity wheel is comprised of four circles, and begins with the first circle, which represents our personality—the internal
aspects of our character and temperament that uniquely define us. The second circle on the wheel represents our physical
attributes, such as gender, race, and ethnicity, which are largely visible to others. The third circle represents our social
characteristics, such as marital status, educational background, economic status, religion, and geography. Finally, the outer
circle represents the organizational aspects of our identity—our position within a work system, seniority, and formal authority.
All individuals are represented by the diversity wheel, and each individual possesses a complex, multicultural identity based on
each of the four circles. This includes white males, often not thought to be included in topics of diversity.
The diversity wheel is valuable that can remind a multicultural leader that, even if her constituencies look physically similar,
they may very well represent diverse cultures, even within the United States. Understanding how dimensions of diversity at
each level affect attitudes, behaviors, and motivations can be tremendously valuable to a leader when she is leading across
cultures.
INDIVIDUAL REACTIONS TO DIFFERENCES

Hoopes (1979) developed a model describing the process by which people learn to communicate with and understand people
of other cultures. According to Hoopes, people can move from their naturally occurring reaction of ethnocentrism (not accepting
of other cultures), to the ideal state of multiculturalism (transcending cultural barriers), by going through several transitional
stages in the process:
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 Ethnocentrism: People in this stage may exhibit intolerant or hostile behavior towards other cultures. Ethnocentrism
often leads to people trying to impose their cultures on others. (―Everyone should do things my way‖)
 Awareness: This is the first step in moving away from ethnocentrism and occurs when individuals acknowledge that
cultures different from their own exist and that behavioral and attitudinal differences may be seen in others as a result of
differing cultures. (―Not everyone does things my way‖)
 Understanding: This stage involves the acquiring of knowledge about different cultures in terms of the details of the
values, customs, etc. associated with those cultures. (―This is what others do when they do things their way‖)
 Acceptance / Respect (tolerance): This is the stage when people accept the validity of other cultures, independent of
any comparisons to their own. This stage is still considered by many to be negative, as people in this stage put up with
other cultures but do not attribute any value to them. (―It is ok for others to do things their way; I‘ll continue to do things
my way‖)
 Appreciating / Valuing: At this stage, people begin to understand the strengths and weaknesses of different cultures,
including their own. (―There are some good things about how others do things‖)
 Selective adoption: People at this stage begin to adopt pieces of other cultures that they think are beneficial. They
being to integrate some aspects of other cultures into their lives. (―I‘d like to do a few things the way others do them‖)
 Multiculturalism: The ideal, ongoing process where a person is constantly learning from new experiences, and is
comfortable with people from other cultures. More importance is given to identities, outlooks, and values than to cultural
considerations alone.
Riddle (1985) developed the Scale for Homophobia to understand attitudes towards gay and lesbian people, which can be
used as a guideline for understanding how people react to all types of differences. Riddle defines two categories of progressive
response levels: negative and positive. The negative levels stem from a belief that the ―different‖ person is less valuable than
oneself, whereas the positive levels grow from the belief that other people are equally valuable.
Negative levels:
 Repulsion: The view that people who are different are strange and aversive and that any effort to make them ―normal‖
is justified.
 Pity: The view that the difference is a less preferred state of being and the people who have to suffer the difference are
objects of pity who need reinforcing of ―normal‖ behaviors.
 Tolerance: The view that the difference is a phase that people will grow out of and must be tolerated while it lasts.
 Acceptance: An understanding that involves making adjustments to accommodate the difference, but not
acknowledging that the identity of the different person is as valuable as one‘s own identity.
Positive levels:
 Support: Behaviors that work to safeguard the interests of those who are different from any unfairness in society, even
if not entirely comfortable with the differences.
 Admiration: Acknowledgement that being different takes courage and appreciation of the strength of character involved
in living the differences.
 Appreciation: The value of diversity and the willingness to confront prejudices and insensitivity towards the differences.
 Nurturance: Attitudes and behaviors that treat differences as indispensable to society and view them with affection and
delight.
The practical implication of ethnocentrism and repulsion being the starting point of most instinctive reactions to differences is
that members of the different group are likely to draw conclusions about others based on what they think is ‗appropriate‘
behavior in their own cultural context. For instance, someone who was acculturated to believe that unwavering eye contact is a
sign of sincerity may mistakenly jump to the assumption of dishonesty when confronted with someone from a country where
lowering of eyes is a sign of respect for superiors.
Even when people do make attempts to be sensitive to these differences, cultural misinformation can pose a significant
problem. Cultural misinformation is the act of applying historical information about a group of people as generalizations to
individuals belonging to that group. Examples include statements like, ―Women are more nurturing than men,‖ ―Indians value
large families,‖ and ―Men have better mechanical ability than women.‖ Such generalizations close the door to understanding
individual differences. Culturally misinformed individuals are likely to reinforce stereotypes about a group by generalizing
commonly held assumptions, but individualizing the deviations from those assumptions. For instance, if they were to meet a
woman with very sound mechanical skills, they would say state, ―Unlike other women, she has excellent mechanical ability,‖
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instead of recognizing that there may be other women out there that may have similar or better mechanical skills than some
men. Such generalizations are also often used to prescribe how most people of a group should behave. Cultural misinformation
feeds into stereotyping, which is the act of labeling others based only on their membership in one group and then labeling
others who are like them in one characteristic as if they are similar in all characteristics. Stereotyping is a part of normal
psychological processes, but, under relevant conditions, can lead to inaccurate assumptions and generalizations about
individuals based on hearsay, opinions, and distorted preconceived ideas.
IMPLICATIONS IN PRACTICE
Abbas (1997) refers to an effect created by globalization that he calls ―dis-location‖ of culture. Abbas speaks of the confusion
created as a result of abstract and imploding cultures and the fact that it is becoming harder to predict what a culture might be,
given that surface appearances may not be an accurate reflection of reality. Every individual is a product of his or her own
unique cultural experiences. These experiences result in assumptions about the individual‘s own reference group (be it race,
gender, ethnicity, etc.) as well as other groups. With no intervention in one direction or the other, the manifestation of these
assumptions may be positive or negative. However, much can be achieved in terms of productivity and efficiency if a conscious
effort is made to control the impact of cultural differences.
While most people are aware of the material tools available to them that facilitate interactions across geographic barriers, they
tend to ignore the cognitive tools that serve the same purpose. People often overlook the fact that the technologies that are
used to bridge physical barriers between people can be used to become better acquainted with the cultures, values, and
assumptions of the diverse groups they are likely to work with. A wealth of information is available in the public domain on
different countries, their values, business etiquette, and cultures that can be easily accessed and used to understand
behaviors.
The behaviors and cultural differences that members bring to a cross-cultural team can be leveraged in a variety of ways.
Successful multicultural leaders have taken steps to understand how their own cultures shape their view of the world and
leverage their understanding of other cultural views or cultural competency to support their effectiveness. For an effective
change in behavior to occur, four essential components must be present: intent, awareness, knowledge, and skill. This requires
commitment and perseverance. The process of becoming multicultural is discussed in detail below.
The first step in becoming multiculturally literate is to increase your recognition of your own cultural influences and biases. We
begin with ourselves. By acknowledging the customs, attitudes, and values that our own culture promotes, we can more easily
accept different cultures‘ central characteristics. You can remain comfortable in your culture, while still being able to engage
fully with cultures different from your own. As with becoming literate in a new language, you do not forget or diminish the
knowledge you have of your first language. As a leader, becoming literate in another cultural enhances your opportunity for
success in all endeavors – personal and professional.
As a second step, great multicultural leaders create environments in their organizations where they encourage teaching and
learning to support others in their own multicultural journeys. These leaders assist others on a one-on-one basis, but they also
consider the organizational structures, policies, and practices that would enhance the overall organizational culture.
Multicultural leaders consider the impact of organizational culture and make sure their organizations uphold teaching and
learning from one another as a central core value. Consider 3M, a global company which invests heavily in teaching and
learning. Their philosophy is that having a diverse global work force can help generate more ideas at 3M. The company
culture is based on investing in their future by investing in their employees. Time is allotted for employees to work on projects
that will contribute to new products or services. Observing the fact that over 60 percent of their sales come from outside the
United States, 3M is committed to employees that understand the needs of ] diverse customers as well as in training and
educating its employees.
The third step of becoming multicultural focuses the leader‘s attention on the organization. As leaders prepare to embark upon
a diversity effort, one important external factor to assess is the climate within their community and business community. They
must asses the formal and informal practices and behaviors of their community in order to calculate how much resistance to
diversity may occur. In addition to helping to calculate risk, such an assessment can reveal areas of opportunity for strategic
community relationship development, revenue stream, and marketing development opportunities.
The fourth step requires multicultural leaders to serve as champions of their organization‘s diversity efforts – weaving
messages and symbols of support into all of their actions. This is critically important to establishing the foundation of support
necessary for a successful diversity effort. Other leaders and individuals in the organization must recognize this foundation of
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support ready to sustain them. This will enable them to move beyond the tendency to avoid the risk associated with embarking
upon a diversity effort. Similarly, it is important that leaders display symbols of their support by committing enough human and
fiscal resources to accomplish the work associated with establishing a diversity effort. Without these symbols, messages of
support appear to be only lip service, and fail to elicit the involvement of the rest of the organization.
Alana‘s effectiveness in her endeavor would depend on her ability to mobilize others, facilitate a vision, and direct her sales
team to work toward a common goal. When leaders are leading others very much like themselves, this may be a fairly natural
and effortless process. However, when they are leading others who differ from them in many ways, their ability to understand
those differences is paramount. To achieve this, leaders must authentically understand the needs, attitudes, and desires of
those they are leading. Equally important is the need for leaders to understand who they are as they lead from a multicultural
framework. This is both the challenge and the opportunity of multicultural leadership.
CULTURALLY COMPETENT ASSUMPTIONS

While careful research (such as the studies mentioned above) can provide much information about the values and behaviors of
most of the population in a given country, it cannot be generalized to apply to the entire population. This suggests that
judgment and common sense play a large role when interacting with and interpreting the behaviors of people who spent most
of their lives in another culture. Most socio-cultural barriers occur in the form of differences in values/behaviors or in language
nuances (translation from one language to another as well as differences in the usage of English language).
One of the key effects of globalization is that what may have been previously perceived as the dominant culture within
geographic boundaries may now become inaccurate as these boundaries grow to be more and more nebulous. Therefore, it
becomes essential to step out into our daily business interactions armed with basic assumptions that will minimize the
problems created by cross-cultural interactions. Some items to consider in this framework are:
 It is not possible for us to get rid of all the stereotypes and biases and, therefore, a realistic goal is to be aware of our
biases so we can recognize and preempt any behavioral impact of such biases.
 Generalizations about a group of people should serve as a context for interactions with members of that group, but
individual differences should be expected and respected.
 It is not possible for us to be aware of the subtleties of every different culture that we are likely to encounter. However,
simply approaching any interactions with the understanding the other parties may be operating under different
assumptions can enhance the quality of the dialogue.
 People, for the most part, are willing to share information about their cultural differences. When in doubt, asking
questions and listening carefully is the best way to reduce ambiguity.
 The person leading or hosting the interaction bears primary responsibility for being sensitive to others‘ needs, but all
participants bear at least some responsibility for cultural sensitivity.
CONCLUSION
In revisiting the simulation to spot opportunities for improvement, two things must be considered. First, we do not suggest that
all differences can be eliminated in the conversation. Second, every player has to make some changes in behavior for the
meeting to be effective. The conversation could come to a satisfactory close if the players each demonstrated a greater
understanding of the needs of the others. In this particular case, Alana, as the leader of the meeting, has the primary
responsibility for making others comfortable and for being culturally sensitive. However, the others must also demonstrate
cultural competency for a multicultural meeting to be fully successful. While there is not one ―right‖ way to do this, operating
under culturally competent assumptions can take interactions in the right direction. Cultural sensitivity is becoming less of an
option and more of a necessity as the world shrinks. In today‘s world, it is appropriate for each one of us to pause for breath
and examine whether or not we, in our daily interactions, are allowing for the cultural differences that others bring to the table.
REFERENCES
Abbas, A. (1997) Hong Kong: Culture and the politics of disappearance. Minneapolis, University of Minnesota Press.
Drever, J. (1952) A dictionary of psychology. Harmondsworth, Middlesex: Penguin.
Held, D. & McGrew, A. (2000). The global transformations reader: An introduction to the globalization debate (pp 1-46).
Cambridge, Polity Press.
Hofstede, G. (2001) Cultures and consequences: Comparing values, behaviors, institutions, and organizations across nations.
California, Sage Publications.
79
House, R.J., Hanges, P.J., Javidan, M., Dorfman, P.W., & Gupta, V. (2004). Culture, leadership, and organizations:
The GLOBE study of 62 societies. Thousand Oaks, CA: SAGE
Komives, S., et al. (2007). Exploring leadership: For college students who want to make a difference. John Wiley & Sons Inc
Riddle, D. (1985). "Homophobia Scale." In Opening Doors to Understanding and Acceptance. ed. K. Obear and A. Reynolds.
Boston: Unpublished essay.
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M. Ferrer, A. Medhekar, L. Arroyo, M. Muchiri and R. Santa Volume 9 – Spring 2010
EXAMINING KEY FACTORS WHEN ATTRACTING AND RETAINING SKILLED AND

PROFESSIONAL MIGRANTS TO REGIONAL AREAS: THE CASE OF THE
AUSTRALIAN CENTRAL QUEENSLAND REGION
Mario Ferrer1, Anita Medhekar2, Luis Arroyo3, Michael Muchiri4 and Ricardo Santa5
CQ University1,2,4, Australia, Gladstone City Council3, Australia and CDU5, Australia
ABSTRACT
Attracting and retaining skilled and professional staff is a global issue requiring urgent attention (Haslam McKenzie 2008).
Consequently, the attraction and retention of professionals to regional and remote areas has received considerable attention
from the Australian, State and Territory governments (DOTARS 2006; LGAQ 2008; Miles, Marshall, Rolfe & Noonan 2004;
SCORD 2004; Wulff & Dharmalingam 2008). Several studies further recognise that a combination of evolving global and
national trends have increased skilled labour shortages (Holland, Sheehan & De Cieri 2007), net migration from regional and
remote areas to metropolitan areas (Miles, Marshall, Rolfe & Noonan 2004) and the inability for regional areas to retain skilled
and professional migrants (Hugo 2004; JSCM 2001; Wulff & Dharmalingam 2008). In the case of attracting and retaining skilled
and professional migrants in regional areas, some studies now concede the importance of examining family and individual
wellbeing factors for migrants (Haslam McKenzie 2008; Wulff & Dharmalingam 2008). Our study extends several recent studies
(LGAQ 2008; Miles, Marshall, Rolfe & Noonan 2004; Wulff & Dharmalingam 2008) and will further examine some implications
of skilled migration for Queensland‟s rural and regional areas, the community relations environment in rural and regional
Queensland and the wellbeing of newly arrived skilled migrants and their families. Unique to our study is the specific focus on
the wellbeing factors of skilled immigrants and their families. The multi-staged research will focus on exploring and examining
the existing migrant settlement programs that enhance community health, happiness and wellbeing in the Australian Central
Queensland region.
Keywords: Skills Shortage, Skills Attraction, Skills Retention, Public Private Partnership, Skilled Migrants Settlement.
INTRODUCTION
Due to the economic downturn that is negatively affecting the world‘s economies including the most prominent ones such as
the United States, the 15-nation Euro-zone and Japan are now in recession, and are forecast to decline by 1.4 per cent by the
International Monetary Fund (IMF 2009) amid the worst financial crisis since the Great Depression. The impact on the
Australian economy is still under the scope of researchers as it is not clear what effects the world‘s financial situation will have
on Australia and particularly on the Australian regional areas such as Central Queensland.
The Institute of International Finance (IIF 2009), a North American association that represents more than 375 of the world's
major banks and financial institutions, projected the world economy would shrink 0.4 per cent in 2009, after 2.0 per cent growth
in 2008. The Central Queensland Region‘s economy is not aloof from this severe recession. Thus, a strategic plan for
employment must be developed to keep the Central Queensland economy healthy, smart and strong, however big the
challenge.
Recession is technically defined as a decline in real Gross Domestic Product (GDP) that lasts for at least six months, creating
a contraction in the business cycle. Many macroeconomic indicators such as the measurement of GDP, investment, industrial
capacity or capacity utilization, business profits, spending, and consequently employment which also affects household income
are impacted negatively during periods of recession. Consequently, governments increase their spending, as has the
Australian government which has initiated the stimulus packages and reduction of taxation, to leverage the Australian
economy.
The Queensland government could take advantage of the world‘s economical situation through the appropriate formation of
innovative public and private partnerships through the development of an appropriate set of policies to improve the
effectiveness of attracting and retaining skilled workers. As research has demonstrated, during tough times there is always
room for innovation. Innovation management is also about improvement of processes or finding a better way to do things
efficiently (Santa 2008).
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Examining Key Factors when Attracting and Retaining Skilled and Professional Migrants to Regional Areas: The Case of the
Australian Central Queensland Region
For a developed country like Australia, attracting and retaining New Arrivals who include (skilled migrants, refugees and
interstate workers) to live and work with families in diverse remote and regional Queensland, and contributing to building
sustainable regions for the future is a challenge. These countries are experiencing skill shortages, ageing populations, low birth
rates, falling consumption and production, and consequently serious implications for the economic sustainability of the region
and global competitiveness. Thus labour market flexibility in terms of mobility is important to attract, retain and for the host
community to welcome new arrivals and recognises the benefits that the migrants make to the region. It's important that new
arrivals to regional areas find it attractive and the host community welcoming so they can settle in with their families. Overall
well-being of the skilled and professional migrants is critical as they contribute to the economic growth and development of the
country and addressing the skill shortage of the economy in remote, rural and regional Queensland, Australia. There is a clear
connection between skill shortages and migrant intake all over the world. Gaps in economic performance and regional
inequalities can be addressed by fostering PPP in attracting and retaining new arrivals/migrants to not only increase
productivity, and narrowing the gaps between region and capital cities for sustaining long-term prosperity but also improving
standard of living and economic growth of the region.
The concept of Public and Private Partnerships (PPP) can be applied to provide strategies to improve migrant workers and
their families overall well-being, as government cannot do this alone. Government needs the partnership from NGO, private
sector businesses, developers, builders, university, local employers and businesses to provide the essential economic, social
and community infrastructure (Medhekar, 2003 and McKenzie, 2007). Government at all three levels, along with the corporate
business sector, trade unions, educational institutions along with the commitment of the host community partnerships play a
key role to take on the joint responsibility to attract and retain professional and skilled migrants if they want their regions to
have industrial and economic sustainability into the future and for the New Arrivals to reach their full potential. Due to
remoteness of the region which results in deficit of infrastructure facilities and lack of easy access to essential services such as
health, education, training, housing, library, community services, employment and career development opportunities, lifestyle,
taxation incentives to attract migrants to remote areas, public utilities, telecommunication facilities, quality of lifestyle (SCORD,
2004) and above all welcoming host community are considered as key infrastructure needs to attract and retain New Arrivals.
LITERATURE REVIEW
Skilled Labour Shortage
The Department of Education, Science and Technology (DEST), defines skills shortages as occurring when employers are
unable to fill or have considerable difficulty in filling vacancies for an occupation, or specialised skill needs within that
occupation, at current levels of remuneration and conditions of employment, and reasonably accessible location(DEST, 2002:
3). The Australian Government‘s National Skills Shortage Strategy currently cites several causes of skill shortage. They include
strong economy with low rates of unemployment; growth of new industries with few ready-skilled tradespeople available;
relocation of new industries into different regions with a different skills base; lack of interest in particular industries among
potential job seekers; location of industry, or project-based work, in rural or regional areas with a small skills base; technology
changes within an industry, especially production, resulting in new methods and therefore skills needs; and changes in
underpinning skills needs to successfully undertake trade training for example, Year 12 maths for technology trades (DEST,
2005).
In a report targeting three Western Australian regions, Tonts et al (2008) ascribe the acute shortage of skilled and unskilled
labour to a range of demographic, social and institutional factors, such as an ageing population, changing education and
training choices on the part of young people, and perhaps in some cases negative perceptions about living in the regions.
Consequently, for many businesses and public sector institutions, difficulties in securing or retaining staff have undermined
productivity, profitability and/or the quality of service delivery. Further, this has constrained local and regional economic growth
which, eventually, will impact on the performance of the State and even Australian economies (Tonts et al 2008, p.1).
Davies and Tonts (2007) explain the high rates of sectoral variability in the nature of skilled labour shortages. They posit that
the sectors most affected include: agriculture, forestry and fisheries; construction; and manufacturing. Furthermore, there is
also a geographical dimension to labour force change in the region, with growing areas experiencing shortages in sectors such
as manufacturing, construction and services, while declining areas face widespread shortages, largely as a result of their
inability to attract and retain workers. Davies and Tonts (2007, p.5) have put forward the key factors that influence skilled
labour markets and the complex nature of their interaction. Of particular importance are:
 Global pressures – including international trading conditions, global economic growth, economic reform, and the growth
of a global labour market.
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 Industry demand – which is influenced by global economic conditions, as well as domestic markets. Quite clearly the
more prosperous local and regional industry, the higher the demand for skilled (and other) labour.
 Government policy – particularly as it relates to economic and employment policy. While in an increasingly globalised
economy, the role of governments in determining growth is diminished, it nevertheless remains an important player
through labour regulations, import-export policy, education and training infrastructure development, and other regional
development policies.
 Labour supply – including a market of suitably skilled workers, the age structure of the population, and labour availability
within particular geographic areas (ranging from local areas to broader global labour markets).
 Characteristics of place – which is often overlooked by economists, but is crucial in determining the geography of labour.
The level of local services and amenity, local economic conditions, location and accessibility, cultural
traits/characteristics, and population structure are all important in shaping labour force trends, locational choices, and
migration patterns. (Davies & Tonts 2007, p.5).
Geography and Extent of Skills Shortage in Australia

While skill shortages are prevalent throughout Australia, their impact is most felt in regional and remote parts of Australia. Too
often the analysis of labour markets overlooks geographical reality and spatial processes. A long tradition of research in the
field of economic geography has emphasised the considerable spatial variations that occur in the economic performance of
regions. The reasons for this are extremely complex, but include: The availability of natural resources; The productivity of local
industries; The use of technology; Levels of capital investment; Accessibility and strategic locational advantages (e.g. access to
markets, proximity to transport etc.); The quality of infrastructure; The educational characteristics of local and regional
populations; The availability of skilled and unskilled labour; Demographic structure; Social conditions and amenity; and
Governance arrangements. Davies and Tonts (2007) emphasise that the spatial unevenness of these attributes means that the
characteristics and performance of regional and local economies vary considerably across geographic space. They posit that
the spatial variations are particularly important for understanding labour markets, since the differing local and regional
conditions lead to geographical differences in demand for labour. In short, labour markets are affected by a range of local and
non-local factors. Thus, local business, and its demand for jobs, is ultimately dependent on intraregional, national and global
labour markets, the demographic structure of labour markets, education, services, transport, lifestyle preferences and
government policy. What this highlights is that local labour markets are, in effect, in competition with one another. In other
words, there is not simply local competition between businesses (and other organisations) for skills, but wider regional
competition.
The outcome of this spatial competition is often a movement of skilled labour from one place to another (Green and Owen,
2003; Green et al, 2004; Green et al, 1998). This can be conceptualised with reference to a simple push-pull model of labour
mobility, where ‗push factors‘ encourage people to leave a particular workplace/location, and ‗pull factors‘ attract people to new
locations/workplaces. For each individual and household, these factors will vary, though some generalisations can be made.
Push factors include: limited career opportunities; low wages; poor working conditions; few training opportunities; low levels of
social and environmental amenity; and high costs of living. Pull factors include: high wages; flexible employment practices;
opportunities for career advancement; and high levels of social and environmental amenity. It is important to recognise that the
mobility of labour is shaped by a range of factors and cannot be regarded as a commodity divorced from its social context.
People make decisions about where they live and work not simply on the basis of the availability of employment or high wages,
but according to complex lifestyle choices centred on, inter alia, family and social networks, service availability, housing, and
environmental conditions (Hugo, 2005).
Where flows of labour from one region to another do occur, they can have significant impacts on local and regional economies.
For those economies that are expanding rapidly, the in-migration of labour can underpin further economic growth and
expansion, population growth, and increasing demand for economic and social infrastructure. By contrast, for those losing
labour, the impacts can include chronic skills shortages, contracting local economies, and inability to pursue new economic
opportunities, and the degradation of social capital and sense of community.
The Role of Immigration in Alleviating Skills Shortages

Davies and Tonts (2007) highlight a short term solution to the problem of skilled labour shortages being migration. They note
that the Commonwealth government has a range of skilled migration programs in place that are aimed at dealing with the
needs of regional areas. However, Davies and Tonts suggest that skilled migration programs pose their own challenges, noting
that while they can help to alleviate problems in the short term; their longer term value is still open to question. Some of the
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critical issues in regard to skilled migration include the willingness of migrants to remain in regional areas in the long term, the
level of inter-regional competition for skilled migrants, and the social match between migrants and their host communities.
Skilled migration has been viewed as a significant part of the skills shortages solution. It appears attractive to industry since it
allows Australian industry to entice workers that have been trained abroad. Skilled immigration provides business with a low
cost and relatively rapid solution to impending specific labour shortages. However, skilled migrants have had some difficulties,
including local conditions that have proven to be unaccommodating of their cultural and language differences (Hawthorne,
1997 and 2001).
Alongside training and education, considerable attention is being given to various migration programs. Australia currently has a
range of measures in place to facilitate the immigration of skilled labour. This includes both permanent migrants, as well as
temporary migrants who are able to stay in the country under a range of different subclasses of visa. The impact of skilled
migration outside of Australia‘s cities has been limited, with 83 per cent of migrants settling in the capital cities. However, the
evidence suggests that those migrants who arrive under the Regional Sponsored Migration Scheme tend to remain within their
initial region and make an important contribution to local employment needs (DIMIA, 2005).
While skilled migration can be a useful means of providing a short term fix to particular skills shortages, it does have limitations:
 It does not resolve the broader structural issues that contributed to the skills
 shortage in the first place;
 Other countries are also in competition for skilled labour, which means that there is a limited global supply. This
increases wage and non-wage (lifestyle) competition for workers;
 At a broader social justice level, the ‗poaching‘ of skilled labour from developing countries further undermines these
economies and the prospects for development;
 The extent to which new migrants are able to adapt to living in rural areas is still to be fully understood
Skilled Labour Attraction and Retention

Attracting and retaining skilled and professional staff is a global issue requiring urgent attention (Haslam McKenzie 2008).
Consequently, the attraction and retention of professionals to regional and remote areas has received considerable attention
from the Australian, State and Territory governments (DOTARS 2006; LGAQ 2008; Miles, Marshall, Rolfe & Noonan 2004;
SCORD 2004; Wulff & Dharmalingam 2008). Several studies further recognise that a combination of evolving global and
national trends have increased skilled labour shortages (Holland, Sheehan & De Cieri 2007), net migration from regional and
remote areas to metropolitan areas (Miles, Marshall, Rolfe & Noonan 2004) and the inability for regional areas to retain skilled
and professional migrants (Hugo 2004; JSCM 2001; Wulff & Dharmalingam 2008). In the case of attracting and retaining skilled
and professional migrants in regional areas, some studies now concede the importance of examining family and individual
wellbeing factors for migrants (Haslam McKenzie 2008; Wulff & Dharmalingam 2008).
Several studies have advanced reasons as to why rural, regional and remote postings are increasingly becoming unattractive
to skilled and professional staff. These include high workloads, professionals' inability to attain an appropriate work/life balance
due to staff shortages and high demand for their services, a drop-off in volunteering, depleted service and sporting clubs,
mental health and youth issues, staff turnover problems and frustrations with government‘s apparent lack of interest (Haslam
McKenzie 2008). In a bid to address skill shortage as well as stem the migration of skilled and professionals from regional and
remote areas, the Australian, State and Territory governments adapted an immigration programme that encourage skilled
international migrants to settle in regional Australia (DIMIA 2005).
This was achieved through the introduction of various visa categories, such as the Regional Sponsored Migration Scheme
(RSMS), that required skilled migrants to locate for at least a minimum of two and up to three years in regional areas outside of
Australia‘s major capital cities (Wulff & Dharmalingam 2008). As noted by Wulff and Dharmalingam (2008, p.147), the success
of that programme depended on not just attracting increasing numbers of settlers but more importantly on retaining them in the
long run in regional Australia. It was imperative that policymakers pursued innovative strategies and ways of encouraging
migrants to remain in regional areas, particularly given the attraction of the large cities with their high concentrations of
overseas-born migrants and associated support services (Wulff & Dharmalingam 2008, p.148).
Hugo, Khoo and McDonald (2006) examine recent initiatives by the Australian and Queensland government that sought to
increase the share of national skilled migration moving to regional areas. They conclude that the deliberate regional recruitment
has combined with a resources boom to significantly increase the numbers of skilled migrants coming to Queensland.
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However, having attracted skilled and professional migrants to rural, regional and remote areas of Australia, all levels of
governments now find themselves faced with the problem of retaining migrants. Miles, Marshall, Rolfe and Noonan (2004) have
highlighted problems related to the retention of overseas professionals that had been attracted to regional Queensland. These
included lack of professional development, cultural support, less diverse culture, activities and lifestyle. Another study focusing
on migrants to regional areas (LGAQ 2008) proposes that Councils, State Government departments and communities should
provide a wide range of services and engagement opportunities to newly arrived individuals and families. These, it was felt,
would enhance the wellbeing of skilled immigrants and their families. The wellbeing factors were especially important in rural
and regional areas where there is relatively little settlement infrastructure and often no resident cultural, linguistic or religious
community to support new arrivals. The LGAQ report (2008) proposed a concerted effort to coordinate both the attraction and
retention of skilled migrants to Queensland, highlighting the need for coordination across the three spheres of government
towards developing a strategy of retention of migrants once they have settled. A contribution from the above studies is the
suggestion that any approach to filling vacancies with overseas workers should be accompanied by support programmes for
the new immigrants to help them settle and remain in regional areas.
Settlement of Migrants
With increasing ageing population and decreasing fertility issues, Australia will continue importing skilled workforce from
overseas specifically in areas of major skills shortage such as Information technology, health and engineering areas. Whilst
more families settle in Regional areas seeking for peaceful lifestyle and remote areas offer high paid jobs many migrants still
prefer to settle and live at Australia' main urban centres. Not surprisingly, the term "Regional and Remote areas" has become
quite misleading and now, has been replaced by "Designated area" in order to provide a more balance concentration of migrant
population.
The Australian Migration Policy is seeking to consciously re-direct all government efforts to support Settlement process of
migrants within designated areas. However, this is not easy task. Some of the Settlement Schemes stemming from the shift in
Migration Policy have failed to balance the distribution of migrants within designated areas due a series of structural issues in
the system.
First of all, temporary skilled migrants are not subject of settlement Migration strategies by Federal Government. Employer
sponsors become "liable" - in general terms - for all sponsored individuals. In 2006, Department of Immigration and Citizenship
spent 30 Billion Dollars on local and global expos to attract workforce from United Kingdom, South Africa and United States.
Furthermore, a total of $32 million is available for the Settlement Grant Program in 2008–09. Of this, approximately $22 million
were invested on Refugees and Permanent Residents settlement across Australia. Meanwhile, no funding was allocated to
assist skilled migrants coming to Regional Areas of Australia when this particular subclass visa recipient grew 16% in
comparison to 2005 (see table 1). This highlights the current Australian settlement programs area is based on the visa status of
the individual rather than the need of the individual for assistance.
Table 1: Migrants by major visa category 2004–05 to 2007–08

Category 2004–05 2005–06 2006–07 2007–08
Humanitarian 13 178 14 144 13 017 13 014
Family 41 740 45 290 50 080 49 870
Skilled 77 880 97 340 97 920 108 540
Temporary Resident 198 273 227 856 265 279 Not available
(Source: www.immi.gov.au, 2009)
The Temporary Resident category of visas includes those in the skilled worker, social and cultural, and international relations
stream, but not short-term visitors and students (See DIAC).
Secondly, While QLD local government are struggling to maintain and develop their core business activities (Rubbish, Roads
and Rates) within amalgamated areas, State Government looks after land Crown matters and Immigration grant visas migrant
settlement seems to be a "grey area" that no government tier owns. As of today, remarkable efforts from community volunteers
are being organised around of "Welcoming committees". Those volunteers based on principles of community cohesion assist
new members of the community with free English classes, institutional advocacy, employment referrals, etc.
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More Migrants are also settling within Regional areas through the State Specific Migration Mechanism (S-MMs), in which a
State Government organisation provides sponsorship to an individual whose skills are in demand in a particular region of that
State. The problem with this subclass is that sponsored individuals come to Australia without work and seeking for work in a
specific area, where presumably those skills are in high demand.
Furthermore, large Industry and businesses seem to provide fairly good settlement packages to migrants which include great
salary packages, entertainment subsidies and company bonuses. On the other hand, small and family size businesses can not
compete with large organisation financially wise. So, they have two options. Some organisations will work in very low cost
effective manner by linking with community based organisations to provide some kind of settlement assistance and services for
the employees and family services. And some others will not provide any assistance at all to their employees.
Some of the most prominent determinants of settlement for migrants within Regional and Remote communities are, family,
culture, educational opportunity for children, health status, Housing, Transport, food availability, leisure activity and weather
conditions. Besides the push effect (disruptive conditions in home country) or full factors (opportunities for betterment)
understanding settlement determinants provides designated areas with an unique opportunity of formulating effective and
sustainable settlement strategies. For instance, "finding a job" is a crucial factor of settlement for the "bread winner" however
the challenge is to create more job opportunities for spouses in Regional areas.
It is also believed that an effective settlement program can actually maximise the full potential of all family members later on.
Hence, the importance of a well coordinated, holistic and effective partnership among key community stakeholders to assist
within newly arrived families within designated areas. An effective settlement strategy requires the ongoing commitment and
involvement of government, industry and community in order to guarantee the sustainability of this strategy (LGAQ, 2008).
However, neither the temporary migrant nor the community in which they live will reap the full benefits of such an arrangement
if the presence of migrant workers leads to social tensions due to their failure to ‗integrate‘. It is thus in everyone‘s interests to
ensure that migrant workers are welcomed and made to feel at home no matter how long their stay. Providing temporary
migrants and their families with some sort of assistance allowing them to participate more fully and comfortably in Australian life
could therefore assist not just the migrants themselves, but also the communities in which they live.
The international experience would suggest that if efforts are not made to assist temporary migrants to live successfully in
Australia for the duration of their stay, then exploitation, isolation and social ostracism may result, potentially leading to
increased racial tension and disharmony (LGAQ, 2008).
Public Private Partnership

The Ministry of Public Affairs in British Columbia (cited in Schaeffer and Loveridge 2002, p. 170) defines PPP in the following
terms: Public-Private Partnerships (PPPs) are arrangements between government and private sector entities for the purpose of
providing public infrastructure, community facilities and related services. Such partnerships are characterised by the sharing of
investment, risk, responsibility and reward between the partners. Public-Private Partnership defines cooperation between the
public sector or government and the private sector. Partnerships are essential for planning and implementing federal, state
and local government infrastructure initiatives in regional economic development. Partnership involves sharing of
responsibilities, planning, developing objectives, financial risks and accountability (Gramlich, 1994, Webb & Pulle 2002).
In this paper, PPP is used as meaning a combination of public service restructuring and risk shifting that is undertaken to
achieve, ‘leveraging public capital for infrastructure and other capital-intensive investments as well as provision of services‘ in
welcoming, attracting and retaining migrants in remote and regional Queensland, Australia to share responsibility in providing
New Arrivals (skilled migrants, refugees and interstate workers) needs and demands in context of job opportunities,
infrastructure facilities, essential services such as health, education schooling , accommodation, community facilities, childcare,
recreation facilities, places of worship, interpretation language skills etc to improve their overall well-being. Given the budgetary
constrains PPP-PFI (private finance initiates) for infrastructure development and service delivery can be adopted at all levels of
Government and private sector for attracting, retaining and improving the overall well-being of the skilled migrants (Morris et al.
2002, pp. 74-76).
Nearly 200,000 skilled and professional migrant workers enter UK each year and work in urban areas of London and South
East because of lack of essential facilities to attract them to stay in regional areas and only one in ten apply to settle
permanently (SWESA, 2005). However, in recent years, the UK has relied heavily on foreign labour as a means of addressing
skills shortages in certain industries and filling positions that local people are reluctant to undertake. Overseas workers have
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helped to fill the UK skills shortage problem in recent years, but with rising unemployment rate of fourteen year high, domestic
employees rebelling against foreign workers, depreciation of the pound, and with 50% tax rate for those earning over
£150,000 – which comes into force in April 2010, many foreign skilled workers are now returning home (SWESA, 2005; Brochu
& Abu-Ayyash 2006). According to HR Director of Spice PIc, Richard Harris‖ Even in the recession we have problems with
skilled labour, mainly in high-voltage connection operations – project engineers, commissioning engineers, sub-engineers –
because they're rare people." (Martindale, 2009) Partnerships is a cost effective way for leveraging on informal community
expertise which are essential in terms of sharing resources, staff, interpreters, accounting and legal firms, municipal
governments, community organisations, to encourage integration for provide affordable housing for immigrants (Bauder , et al.,
2001; Boucher , 2007; Wachsmuth, 2008; Balakrishnan and Wu, 1992; Bryant, 2003).
The Economic growth and development of a country depends on the development of economic and social (health, education,
public utilities, employment opportunities, community services and housing) infrastructure. PPP for overall wellbeing of the
skilled and professional New Arrivals to rural and regional Queensland, Australia and their contribution to the economic growth
and development of the region is very significant. According to the Smith Institute study, the economic contribution to GDP
from migrants is significant for example in UK migrants contributed 10% of GDP, accounting for only 8% in employment
(Montanheiro 2002; Medhekar, 2003).
Infrastructure and support network is critical for the migrant‘s settlement process which removes social and economic barriers
to settlement. Skilled migrants contribute to the society in a productive way and increase the Gross Domestic Product (GDP) of
a country by opening up new markets and create local supply and demand for new goods and services, movement of people,
fill skill shortages in the labour market and bring in cultural diversity. There is a need for improving not only quantity but also
quality of (skilled and professional) migrant intake and provide necessary service delivery to meet the increased demand by the
migrant community to attract and retain them in a particular geographic location.
PPP approach can be used and applied in welcoming, attracting and retaining migrants in remote and regional Queensland,
Australia to share responsibility in providing migrants needs and demands in context of job opportunities, infrastructure
facilities, services such as health, education schooling, accommodation, community facilities, childcare, recreation facilities,
places of worship and interpretation language skills etc (Schaeffer and Loveridge 2002; ACID 2003).
Each region in Queensland is characteristic of its own social, cultural, economic, geographic, political and national endowment
features, which in turn interact with the provision of infrastructure to determine the region‘s economic development path and
differences in performance (Higgins and Savoie 1997; Fujita et al. 1999). It is well recognised that regional Queensland‘s
existing infrastructure is deficient, restricting regional development as well as not being attractive to new arrivals. In the first
three month the Australian economy grew by 0.4% , due to the government‘s fiscal stimulus package resulting in an increase in
infrastructure, consumer spending, first home buyers grant of $21,000 (available to immigrants as well) and an increase in
exports.
This study acknowledges the likelihood of a multi-component nature of key drivers (i.e. health, education, housing, job and
career opportunities and infrastructure), impacting on the design and implementation of settlement programs which are in turn
influenced by government policies. Also, the research considers that effectively implemented settlement programs increase the
probability of attracting and retaining skilled migrants in regional areas (Figure 1).
Figure 1: The interplay between the key drivers for settlement programs that ensure attraction and retention of skilled migrants
Government
Policies
Health
Education
Job Settlement Attraction/

Key factors
Opportunities Programs Retention
Housing
Infrastructure
Public Private
Partnership
Based on the review of the literature and the research model (Figure 1), this research proposes to answer the following
research questions:
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1. What are the key factors of attracting and retaining skilled and professional migrants to the Australian Central
Queensland region
2. Are the existing migrant settlement programs in the Australian Central Queensland region taking into consideration key
factors to attract and retain skilled migrants?
3. Are the existing settlement programs impacting on the attraction and retention of skilled migrants to the Australian
Central Queensland region?
METHODOLOGY
This is a multiphase research project that seeks the development of a framework through thee identification of the initial key
migrant worker and migrant family well-being factors that will assist in the formation or improvement of the existing PPP. This
first stage of the multiphase research project will be focused on the identification of the key family and individual wellbeing
factors when attracting and retaining skilled and professional migrants to the Central Queensland region. Convergent
interviews with members of the CALD (Culturally and Linguistically Diverse) community will be conducted to expand the factors
that emerged from previous research identified in the literature review, and particularly the LGAQ report (2008), which
presented a clear picture of the wellbeing of migrants in Queensland regional and rural areas.
Convergent interviews have been chosen for the first stage of this research as in an in-depth interview technique with a
structured data analysis process (Rao & Perry 2003), due to the lack of research on family wellbeing. Convergent interview is a
technique used to collect, analyse and interpret qualitative information about a person‘s knowledge, opinions, attitudes and
beliefs through using a number of interviews which converge on important issues (Dick 1990; Nair and Riege, 1995).
Converging interviews is a series of in-depth interviews that allows the researchers to refine the questions after each interview,
to converge on the issues in a topic area. The convergent interview process involves conducting a series of long unstructured
interviews, whereby data is collected during each interview, and then analysed and used for the content and process of
subsequent interviews (Dick 1990). That is, the process in itself is structured but the content of each interview only gradually
becomes more structured to allow flexible explorations of the subject matter without determining the answers. Convergent
interviews are useful for the exploration of areas lacking an established theoretical base, as is the case proposed in this
research. As one of the requisites of convergent interviewing is that the interviewee has to be knowledgeable about the
research subject matter and also be able to contribute meaningful information to the exploratory research, we will use the
snowballing technique (Aaker and Day, 1990) to select members of the community that have a recognised leadership role for
this first stage of the research.
In the second stage, data will be gathered through a self administered questionnaire. The questionnaire sections will be
informed by the convergent interviews and the existing literature. The questionnaire will be administered to members of the
CALD community that have migrated in to the Central Queensland region in the last 15 years and members of his/her family.
We will use the drop off and pick up technique, to have control of the questionnaires distributed among the participants. In
addition, a follow up and reminders will be used to attract the interest of the respondents of the questionnaire. Data will be
analysed using descriptive statistics and the main findings will be tabulated to be able to process the third stage of this
research. The third and last stage is open ended interviews with the LAMP - MCROs officers in the regional city councils
covered by this research. The purpose of this third stage is to confirm the findings from the two previous qualitative and
quantitative stages. In addition, this third stage purpose is to expand the description of the key family and individual wellbeing
factors when attracting and retaining skilled and professional migrants to the Central Queensland region. Open-ended
questions will be carefully worded and arranged for the purpose of minimising variation in the questions posed to the
interviewees. This method is often preferred for collecting interviewing data when two or more researchers are involved in the
data collecting process (Patton 1987:112). Truly open-ended questions do not pre-determine the answers and allow room for
the informants to respond in their own terms (Patton 1987:122-3). This refers to using a special kind of questioning technique
called ‗Funnelling‘, which means asking from general to specific, from broad to narrow (Cohen & Manion 1994:277). Thematic
analysis will used to identify factors relevant to the research (Kvale 1996; Sarantakos 2005) and allow the understanding and
catering for the health and wellbeing of newly arrived skilled migrants and their families factors, which is an important and
urgent social issue that transcends across Federal, State and Local Governments. This proposed research therefore intends to
add to the body of information on the experiences and needs of skilled migrants and their families when moving to rural and
regional areas.
CONCLUSIONS
Attracting and retaining skilled and professional migrants is a problem not limited to remote, rural and regional locations in
Australia but it is increasingly a global problem in the developed countries and organisations throughout the world are seeking
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innovative strategies (PPP) to reduce cost in terms of time, money and opportunities. Infrastructure deficit (health, education,
affordable housing, child care services for families, schools, community services, employment opportunities, industries, utilities,
etc) is one of the key reasons why remote and regional Australia/Queensland is not very attractive to the professional and
skilled migrants in spite of the resource, agriculture, mining, tourism and cattle industries.
PPP is important strategy to welcoming, attracting, and retaining new arrivals which will assist the government to make policies
as well as determine the resources available to meet the infrastructure demands in terms of health, education, housing,
community services, interpretation services etc. Although the climate in Queensland may be warm, bright and sunny, the future
of attracting and retaining New Arrivals skilled and professional migrants into the states remote and regional areas faces the
prospect of stormy weather if appropriate and sufficient infrastructure and essential service delivery is not provided thorough
PPP approach.
This research project‘s aim is very significant in determining the key family and individual well-being factors to attract and retain
skilled and professional migrants particularly to Central Queensland region, which has an economy that is unique amongst all
states of Australia, with its comparatively large export-oriented agricultural, natural resource (coal, aluminium, magnesium and
possibility of gold mining next year at Mount Morgan) energy and transport sectors. With its large endowment of rich natural
resources, the Queensland economy has experienced strong growth over the last decade and particularly in the last five years
due to natural resource and mining boom. This has been due in part to the strong pro-development policies of successive
Queensland Governments, who adopted a more strategic whole-of-government approach to infrastructure planning.
Due to the dispersal of population and increasing economic activities across Central Queensland‘s large landmass, as well as
distance from trading partners, mining boom a responsive, timely and efficient emphasis is to be placed on Queensland‘s
Migration Policy in seeking supply of attracting and retaining overseas skilled migrant labour force and their families, which is
critical in underpinning the continued smooth expansion, growth and development of the economy and global competitiveness
of the Central Queensland region in particular. This study will also address the skill shortage problem faced by Central
Queensland mining, medical services, and other industries, as overseas skilled workers will provide significant efficiency gains
to the mining communities in the Central Queensland Economy.
Thus, this project is very significant for Central Queensland regional councils to pursue a skilled migration policy by providing
attractive programs in the community which are not only family oriented but also skill oriented to attract self-reliant, skilled and
professional migrants and promote the well-being of the migrant workers and their families, as these workers directly have a
positive spill-over effect by increasing per capita productivity of workers, and transferring wealth to the Australian residents by
the progressive taxes, (given the ageing population problem) and it also indirectly generates derived demand for local semi-
skilled workers, reduces the dole queue and addresses skill shortage and the infrastructure bottleneck problem. Further,
Central Queensland residents and businesses will also have a positive spill-over effect socially and culturally, as they interact
with people from diverse races, cultures, religions, and languages, living and working in a multicultural environment. Australia
will also gain overall by having highly skilled, educated migrant human capital from linguistically diverse backgrounds.
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Bankruptcy Risk Analysis of Property Sector Listed Companies in Indonesia Stock Exchange using Altman Z-Score
BANKRUPTCY RISK ANALYSIS OF PROPERTY SECTOR LISTED COMPANIES IN

INDONESIA STOCK EXCHANGE USING ALTMAN Z-SCORE
Tanti Irawati Muchlis1 and Kurniasari Dian Jayanti2

Widyatama University1, Indonesia and Komp Griya Bandun Asri I2, Indonesia
ABSTRACT
Early warning system for financial problem that threatened the operation of industry is needed to anticipates financial difficulty
to company. One prediction model commonly used is Altman Z-score which analyze combination of financial ratios on financial
statement to see the different between bankrupt and non-bankrupt companies. In this model, there are 5 financial ratios
indicators that combined to differentiate between bankrupt and non-bankrupt companies, i.e. Working Capital to Total Assets,
Retained Earnings to Total Assets, Earning Before Income Tax to Total Assets, Market Value of Equity to Book Value of
Liabilities and Sales to Total Assets. These financial ratios represent liquidity, profitability, solvability and activity aspects of the
company. The original work of Altman is applied to publicly held manufactures companies. In this study, we use Altman Z-score
to property sector in Indonesia. We analyzed bankruptcy risk of property companies listed at Indonesian Stock Exchange (IDX)
on period of 2004-2008 using Altman Z-score prediction model on their audited financial statements. The result of study of 19
listed property companies show that for 5 (five) consecutive years based on Altman Z-score, only 2 (two) companies, LPCK
and JRPT are fit into healthy companies category. While only one company, BMSR is fit into bankrupt company category for 5
(five) consecutive years and one company, LPKR is fit into grey area.
Keywords: Bankrupt Company, Bankruptcy, Financial Ratio, Altman Z-score, Indonesian Stock Exchange, Property Company
BACKGROUND
The world economy has experienced another global financial crisis that started as financial crisis in USA caused by property
sector that spread to other countries. This crisis has significant impact to business sectors that otherwise is in a growth. This
crisis has threatened business sectors and forced them to run business more effective and efficient to survive otherwise they
could go bankrupt.
In the property sector, bankruptcy risk becomes more urgent to be predicted. This industry needs an early warning system to
detect financial problems that threaten the industry. With early warning of the industry condition it is possible to take
precautions and preventive action to prevent financial crisis.
One of popular prediction models is the Bankruptcy Model developed by Professor Edward I Altman in 1968, who was, at the
time, an Assistant Professor of Finance at New York University. The formula known as Altman Z-Score may be used to predict
the probability that a firm will go into bankruptcy within two years. The Z-score uses multiple corporate income and balance
sheet values to measure the financial health of a company. The Z-score is a linear combination of four or five common
business ratios (http://en.wikipedia.org/wiki/Z-Score_Financial_Analysis_Tool)
This study is conducted to analyze bankruptcy risk using Altman Z-score model of property sector company listed in Indonesia
Stock Exchange (IDX; formerly Jakarta Stock exchange/JSX) in the period of 2004-2008
RESEARCH QUESTION
1. What is the condition of financial ratios of property sector companies listed in IDX in the period 2004-2008?
2. What is the value of Altman Z-score of property sector companies listed in IDX in the period 2004-2008?
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T. I. Muchlis and K. D. Jayanti Volume 9 – Spring 2010
LITERATURE REVIEW
Financial Ratios
One of the most important tools for assessing a company's financial condition or organization in the industry is through the
financial reports. Financial reports show the position of the resources owned by the company during a period of time. In
addition, the financial report also highlighted the company's financial performance is shown with the ability to generate revenue
in the company with the resources owned by the company. Financial reports are assessed and analyzed through the financial
analysis. Financial information contained in the financial statements includes historical data and forecasts in the assessment of
investment analysis. There are many financial ratios that can indicate a company's financial performance, among them is the
liquidity ratios, activity ratios, profitability ratios and solvency ratios.
Financial ratios simplify the information that describes the relationship between specific posts with another post. Financial
ratios are very important in analyzing a company's financial condition. According to Harahap (2004:297) financial ratios are as
follows:
"Financial ratio is the number obtained from comparation of one post of financial reports with the other post that has
relevant and significant relation"
Types of Financial Ratios

According to Lyn M Fraser and Aileen Ormiston (2008:21) and R. Agus Sartono (2001:114) financial ratio analysis can be
divided into:
1. Liquidity Ratio:
the ratio measures a company's ability to meet cash needs to meet short-term financial obligations
2. Activity ratio of activity:
the ratio measures the liquidity of certain assets and efficiency in managing assets to obtain loans.
3. Solvability ratio:
the ratio measures the extent of company‘s debt financing relative to equity and the ability to pay interest and other
obligation. The ratio show company‘s capacity to meet the obligations both short and long term.
4. Ratios Profitability:
the ratio measures company's overall performance and efficiency in managing assets, liabilities and equity; The ratio
measure company's ability to generate profit in relation of sales, assets and their own capital.
Bankruptcy
Knowing the company's financial condition is very important for investors and creditors in making investment and credit
decisions. Problems of financial distress always raise the risk of company's bankruptcy. Rahmat Triaji (1999), states that
bankruptcy is the financial distress so severe that the company is not able to run the operations properly. While financial
distress is a financial or liquidity difficulty that may be the beginning of bankruptcy. According to Ross, Westerfield, and Jaffe
quoted by Lesmana, Rico, and Rudi Surjanto (2003:173) the definition of Financial Distress is:
“Financial distress is a situation where a firm‟s operating cash flows are not sufficient to satisfy current obligations
(such as trade credits or interest expenses) and the firm is forced out to take corrective action.”
The notions of the financial difficulties expressed by the Brigham and Gapenski quoted by Rahmat Triaji (1999) are as follows:
1. Economic Failure:
means that corporate earnings cannot cover the total cost including the cost of capital. Businesses that suffered
economic failure can continue operating as long as the creditor intends to provide additional capital and the owner can
receive a rate of return below market interest rate.
2. Business Failure:
the term was used by Dun & Bradstreet which is the main proposer of failure statistic, to define business that ceased
operations and cause losses to creditors. Thus a business can be classified as a failure, although not through the
normal bankruptcy. Also a business can shut down its operation but is not considered as a failure
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3. Technical Insolvency:
a company can be considered bankrupt if it does not meet its due liabilities. Technical insolvency may indicate a
shortage of temporary liquidity at a time where companies can raise money to meet its obligations and remain alive.
On the other hand, if this is the technical insolvency of the early symptoms of economic failure, then this is a sign to
the financial disaster
4. Insolvency in bankruptcy
a firm is considered as bankruptcy insolvency when the book value of total liabilities exceed the market value of
company assets. This is a more serious condition when compared with the technical insolvency, because in general
this is a sign of economic failure that led to the liquidation of a business. Companies that experienced insolvency in
bankruptcy do not need to go through bankruptcy legal process.
5. Legal bankruptcy
The term bankrupt is used for every company that fails. A company cannot be said to be a bankrupt by law, unless
officially filed charges with the law.
According Sunarto (2006:37) bankruptcy is:
"Bankruptcy or insolvency is a business failure occurs when the duty / corporate debts greater than the fair market
value of assets-assets."
According Muliaman (2003:10) definition bankruptcy in Indonesia refers to Act No.1 of 1998 on amendments to the Bankruptcy
Law, which states:
1. Debtors who have two or more creditors, or not paying at least one debt which has due and cannot be charged, is
declared bankrupt by a competent court, either on his own petition, or request one or more creditors.
2. The application as referred to above, can also be submitted for the public interest. Bankruptcy law basically states how
to resolve disputes that arise when one company cannot meet debt obligations, as well as how to handle disputes
between individuals relating to the business in the run. There are several important criteria:
a) The accounting must be clear. Valuation of assets should be transparent and recognized by the public
(international standard).
b) gradation level based on the dependents debts determine who should take precedence in resolving the debt
problem for example: a bankrupt company, who is entitled to payment in advance and who later.
c) The civil law regulate who is concerned, the regulator of bankruptcy, where a competent court and how, or
processes that must be done to resolve this case.
d) Sanctions authorized by the court if one party said does not meet some actual promise given to a company that
was able to settle his debts.
e) Even if declared bankrupt, the company would still be able to continue while in this case must stipulated
requirements and who should oversee the process. A company that is declared bankrupt need not immediately
stop all its activities, they should be given the opportunity to settle financial and other activities for the sake of the
debt collector.
f) Disputes can be settled through arbitration.
g) The Company declared to be insolvent or bankrupt if within a certain period cannot make payments of principal
and or interest. Bankruptcy can also prompted by business owners as well as by the debt collectors.
From the above explanation can be concluded that bankruptcy in Indonesia is the inability of a firm in continuing operations due
to financial conditions that have experienced a decline and has an obligation or debt that are greater than the value of its
assets. Thus declared bankrupt by a competent court, either on his own petition, or request one or more creditors.
Causes of Bankruptcy
In general, the causes of bankruptcy, according Darsono and Ashari (2004:102) can be divided into two, namely the internal
factors and external factors. The internal factor is the factor that comes from the internal part of corporate management. While
external factors are factors from outside that are directly related to the company's operations or macro economic factors.
Internal factors that could cause the bankruptcy of the company include:
1. Management is not efficient
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This will result in continuing losses that eventually led to the company unable to pay its obligations.
2. Unbalance capital owned by the number of debt-owned receivables
Debt that is too large will result in large interest cost, thus reduce profits could even cause harm. Receivables that are
too large will also be detrimental because the asset is idle too much, so do not generate revenue.
3. Moral hazard by management
Fraud committed by corporate management can result in bankruptcy. This suspicion would lead to losses for
companies that ultimately bankrupted the company. This fraud can take the form of corrupt management, or providing
false information to shareholders or investors.
External factors that can lead to bankruptcy include:
1. Changes in the customer's demand was not anticipated by the company

This results in lost of customers, resulting in a decrease in income. To survive the company must always anticipate
customer needs by creating products that match customer needs.
2. The difficulty because suppliers could no longer supply the raw materials used for production activities.
To anticipate this company should always be in a good relationship with suppliers and does not rely on single supplier
materials so that the risk of raw material shortage can be overcome.
3. Debtor is cheating by avoiding debt payment
Too many accounts given to the debtor's loan term in long period causes many idle assets that do not provide income,
resulting in huge losses for the company. To anticipate this, companies should always monitor the receivables and
condition of the debtor in order to conduct early protection against corporate assets.
4. Relationships are not in harmony with creditors can also be fatal to the company's survival
In Law No.4 of 1998, creditors can propose to bankrupt company. To anticipate this, companies must be able to
manage their debts well, and also maintain good relations with creditors.
5. Competition is increasing tight business
This requires the company to always improve themselves, so they can compete with other companies in meeting
customer needs. The more intense competition requires companies to keep improving products, providing value to
grow better for customers.
6. The condition of global economy
It is also to be anticipated by the company, so as not to lose competitiveness with other countries.
Bankruptcy Prediction Model

Analysis of financial difficulties will help making the decision to determine attitudes toward companies that experienced
financial difficulties. Bankruptcy is a serious problem and costly, therefore it is vital to anticipate the emergence of financial
difficulties that could lead to bankruptcy. The prediction model of companies that experienced financial difficulties and possible
bankruptcy is become important. Business bankruptcy prediction model will provide guidance to the parties involved about
whether the company's financial performance will experience financial difficulties or are not in the future. Management may
make improvements needed as early as possible to avoid bankruptcy when it has developed a system that can provide early
warning.
An indicator that can be used to assess the company's corporate bankruptcy is a formula coined by Edward Altman (1968)
called Altman Z-score. This formula uses the components in the financial statements as a possible predictor of whether or not
the company went bankrupt. Altman was the first person to successfully implement Multiple Discriminant Analysis (MDA) to
develop a prediction model with a high degree of accuracy.
Altman initially use 66 manufacturing firms sample of 35 bankrupt companies and 35 companies that are not bankrupt.
Furthermore he also selected 22 variables (financial ratio) is the potential to be evaluated and grouped into 5 groups, namely
liquidity, profitability, leverage, solvency, and activity. After his study, from 22 variables only 5 were selected which are he
considered as the best combination to predict bankruptcy. Using the sample firms and 5 ratio he formed discriminant function
which is also called the Altman Z-Score as follows:
  1,2 X1 +1,4 X2 + 3,3 X3 +0,6 X4 + 1,0 X5
Where:
X1 = Working capital / Total Assets
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X2 = Retained Earning / Total Assets

X3 = Earnings Before Interest and Taxes / Total Assets
X4 = Market Value Equity / Book Value of Total Debt
X5 = Sales / Total Assets
Z = Overall Index
The cut-off value for the calculated value of Original Z-score, as follows:
Z ≤ 1.81
bankruptcy (the company faced a serious threat of bankruptcy).
1.81 <Z <2.67
Gray area (if the company does not make significant improvement in management and financial structure, firms may be in
danger of bankruptcy within one or two years).
Z ≥ 2.67
No bankruptcy (the company does not experience any problems with the financial conditions).
The ratio of Working Capital to Total Assets used to measure the liquidity of corporate assets relative to total capitalization.
Altman (2000) said the net working capital/total assets ratio, frequently found in studies of corporate problems, is a measure of
the net liquid assets of the firm relative to the total capitalization. Working capital is defined as the difference between current
assets and current liabilities. Ordinarily, a firm experiencing consistent operating losses will have shrinking current assets in
relation to total assets. Working capital to total assets measures a company's ability to meet short term obligations. Indicators
that can be used to detect any problems at the company's liquidity levels are internal indicators such as lack of cash, debt
swells trade, declining capital utilization, the addition of uncontrolled debt and some other indicators
Retained Earnings Ratio to Total Assets used to measure the cumulative profitability. Altman (2000) said retained earnings is
the account which reports the total amount of reinvested earnings and/or losses of a firm over its entire life. Retained earnings
to total assets used to measured cumulative profitability during company operations life. A relatively young firm will probably
show a low ratio because it has not had time to build up its cumulative profits.
The ratio of EBIT to Total Assets used to measure the actual productivity of the assets of the company. Earnings before
interest and taxes to total assets ratio is a measure of the true productivity of the firm‘s assets, independent of any tax or
leverage factors. . Ratio measures the ability of the company in generating profits from the assets used. This ratio is the largest
contributor of the model.
Market Value Ratios Equity to Book value of Total Debt is used to measure how much asset a company can decline in value
before the amount owed is greater than its assets and the company became insolvent.
While last ratio, Sales to Total Assets the capital-turnover ratio is a standard financial ratio illustrating the sales generating
ability of the firm‘s assets. It is used to measure management‘s capacity in dealing with competitive conditions.
In 1983, Altman developed two models namely Model A Z-score and Model B Z-score. Model A Z-score was developed for
manufacturing companies closed (private manufacturer), with variable X4 at this function uses the book value of stockholder's
equity because it does not have a market value of equity. While model B Z-score is developed to predict the bankruptcy of
companies such as non-manufacturing small businesses, retail, sales, wholesaler, and the service sector. This B Z-score
model does not calculate the value of X 5 (sales to total assets) because the constantly changing significantly in the industry.
Rahmat Triaji (1999; 9) said Z-score model is very effective to predict bankruptcy 2 years before the actual occurrence of
bankruptcy and in some cases Z-score models can predict the bankruptcy of 4 or 5 years earlier. Besides bankruptcy can
predict the exact manufacturing company 2 years before the actual bankrupt, Z-score can also be used for:
1. Recheck the candidate company that would be acquired by suppliers and other companies to detect the financial
problems arising from these companies are likely to affect our business.
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2. Measuring levels of a company's financial health through information obtained from financial statements.
Factors Led to the Bankruptcy
Not easy to determine with certainty the factors that led to bankruptcy of a company. Often a company's bankruptcy is the
result of a combination of many factors, which resulted in the emergence of a new factor that accelerates the process of
bankruptcy. It is difficult to determine a fundamental factor that leads to bankruptcy.
However companies must be able to read the signs of the possibility of failing companies in business that could result in
financial distress and possible bankruptcy. Rapid changes between competitors and unstable economic conditions, companies
must pay attention to indicators of difficulties. According to Rico (2003:183) there are some indicators that could drive a
company into difficulties in their business and experiencing financial distress include:
1. Sales or income decreased significantly

2. The decrease earnings or cash flow from operations
3. Stock market prices fell significantly
4. The decrease total assets
5. The high possibility of failure in the high risk industries
6. Young companies generally prone difficulty in the early years of operation, so if it is not supported by strong capital
resources it could be facing serious financial distress and end up in bankruptcy.
7. Cutting a significant dividend.
One of the important aspects of the analysis on the financial statements of each company is useful for predicting survival.
Predict the company's survival is the most important aspect of all aspects of usability analysis conducted by almost all
stakeholders in the company. Because before determining the objectives other than that conducted the analysis, it would have
to be guaranteed or at least there is hope that a company is still able to maintain his life. Predict the importance of the
company's survival because the fact is, there is no party in the company would expect the occurrence of bankruptcy or the
company should be closed.
On the other hand for any reason, the company could face the situation where the company had declared bankruptcy and was
not allowed to continue his efforts. Therefore it would be better if the symptoms and signs of bankruptcy is known much earlier,
so that they can immediately find a solution.
OBJECT AND STUDY METHODS

Object of Study
Objects of this study is companies in the property sector that have been going public and listed on the Indonesia Stock
Exchange/IDX (formerly known as Jakarta Stock Exchange/JSX) in period of 2004-2008.Based on the Indonesian Capital
Market Directory (ICMD) in 2008 there are 39 property companies listed in IDX, but only 19 companies of 39 registered from
2004 to 2008, which we used as research samples.
Study Methods
In this study, we use descriptive method aimed at making description, illustration or pictures systematically and accurately
about the facts, natures and relationship between the phenomena investigated. According to Nazir (2005:89), definition of the
descriptive method is:
“A method in studying the status of a group of people, an object, a set of condition, a system of thought, or a class of
event at present time”
Research using descriptive method of analysis, because this study was conducted to obtain a clear picture of a problem, then
analyze it to get a conclusion. This is done by examining and processing of secondary data which is combined between the
data time series and cross sectional, then in the analysis to a conclusion in accordance with the purpose of research.
Type and Source of Data

1. Data Type
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The data used in this study is quantitative data in the form of a ratio, i.e. the data expressed in figures that show the value of
the variable quantity it represents. The data are a combination of time series and cross sectional.
Data used in this research is secondary data. Secondary data is data collected at a particular time which can describe the
situation or activity at this time. Secondary data used in this research is audited financial statement listed property companies
in the IDX period 2004-2008.
2. Source Data
Sources of data from this study is from the Indonesian Capital Market Directory, JSX annual report, these data have been
published by the BEI (Bursa Efek Indonesia or Indonesia Stock Exchange) through letters of reference-IDX Capital Market.
Apart from the IDX, supporting data was also obtained from ITB JSE corner, and a website (www.jsx.co.id,
www.bapepam.go.id, www.bi.go.id etc.).
3. Variable Operationalization
In determining the variables studied, the authors distinguish between two variables, namely:
1. Independent Variable (X) or (Independent Variable)

Independent variables are variables that independently affect the other dependent variables. In other words, the
independent variable is a variable that exists or occurs before the dependent variable. Independent variables used in
this study consisted of 5 financial ratios calculated from the financial reports on industrial property. Independent
variables in this study are:
X 1 = Working capital / Total Assets
X 2 = Earning Retained / Total Assets
X 3 = Earnings Before Interest and Taxes / Total Assets
X 4 = Market Value Equity / Book Value of Total Debt
X 5 = Sales / Total Assets
2. Dependent Variable
Dependent variable is the variable that is affected by other variables or which become due because of the
independent variables. The dependent variable used in this study is the Z-score which is the total score from the
operation of the independent variables that describe the financial health of the company.
4. Data Analysis
In this study, original model Z-score is used to because the object are property sector companies which already go public
(listed in IDX).
Analysis of data in this study conducted quantitatively using descriptive analysis. Stages of this analysis are as follows:
a. Calculate the ratio of each company use data taken from the balance sheet and income statement using formula as
follow:
Working Capital to Total Assets (X1) = (Current Assets - Current Liabilities) / Total Assets x 100%
Retained Earnings to Total Assets (X2) = Retained Earnings / Total Assets x 100%
EBIT to Total Assets (X3) = EBIT / Total Assets x 100%
Market Value of Equity to Book Value of Liabilities (X4) = Market Value of Equity / Book Value of Liab. x100%
Sales to Total Assets (X5) = Total Sales / Total Assets x100%
b. Calculate the Z-Score of each company in a given year with a model Altman Z-Score using formula as follow:
  1,2 X1 +1,4 X2 + 3,3 X3 +0,6 X4 + 1,0 X5
c. The next step is to conduct a comparison and analysis between the results of calculations with the criteria that if the
bankruptcy is interpreted as follows
1) Z-Score > 2,67
The Company does not experience any problems with the financial condition or it can be said is safe from
bankruptcy
2) 1,8 < Z-Score < 2,67
Gray area (if the company does not make significant improvement in management and financial structure, firms
may be in danger of bankruptcy within one or two years)
3) Z-Score < 1,8
The Company facing a serious threat of bankruptcy
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STUDY RESULTS AND DISCUSSION

1. Condition Working Capital to Total Assets of Listed Property Companies in IDX 2004-2008
Study result for value of Working Capital to Total Assets is shown in Table 1. Negative sign on the value of Working Capital to
Total Assets means that the company has negative net working capital (current debt value is greater than current assets). This
means that potentially cannot repay debts maturing smooth using smooth property companies and companies experiencing
difficulties working capital. While a positive sign means that there is excess of current assets after paying current debts that
have matured for% of total assets. Excess these assets will be used as working capital for company operations.
Based on shown data at the table 1, can be seen that the movement of the variable values Working Capital to Total Assets at
each company is different, there are rise trend companies and also decline trend companies. However, during these 5 years
was stable value. Companies that value trend to increase among others SMDM and the company whose value rises with the
very significant, namely DIVI. While the value tend to fall is BMSR, and companies tend to be stable in value is BIPP, CTRA,
CTRS, DART, GMTD, OMRE, JRPT, KIJA, LPCK, LPKR, MDLN, PWON, PWSI, RBMS, SMRA, and SMDM
Table 1: Working Capital to Total Assets / X 1 (In Percentage)

Listed Property Companies in IDX 2004-2008
No Company 2004 2005 2006 2007 2008 Average
1 BIPP -0.638 -2.249 -40.347 7.115 3.970 -6.430
2 BMSR 20.870 35.634 40.210 -685.633 -1770.173 -471.818
3 CTRA -7.762 6.230 -27.409 0.805 2.445 -5.138
4 CTRS -1.346 4.040 -5.806 1.338 0.850 -0.185
5 DART 6.507 -14.512 -2.684 -1.484 -0.013 -2.437
6 DVTI -1.484 -2.546 -8.901 -15.112 80959.167 16186.225
7 GMTD 4.335 -66.668 78.470 -26.912 17.964 1.438
8 MORE 0.157 -10.138 13.430 5.358 326.148 66.991
9 JRPT 6.880 -1.209 -1.251 -0.653 8.514 2.456
10 KIJA 11.552 -121.895 -2.705 -7.510 6.608 -22.790
11 LPCK 5.615 -6.832 15.356 -3.982 -13.871 -0.743
12 LPKR 0.304 7.105 0.448 0.313 1.806 1.995
13 MDLN 4.773 10.414 -0.969 4.028 27.900 9.229
14 PWON -48.398 -31.972 -1.657 2.916 -0.934 -16.009
15 PWSI -3.896 1.521 5.432 0.962 -28.829 -4.962
16 RBMS -25.131 4.898 -32.457 -18.277 -1.102 -14.414
17 SMRA -3.967 2.094 -0.581 -0.386 4.678 0.368
18 SIIP -12.415 1.043 3.239 -3.600 7.058 -0.935
19 SMDM 1.785 -42.840 -0.572 249.746 1715.029 384.630
Average -2.224 -11.994 1.644 -25.840 4277.222
Max 20.870 35.634 78.470 249.746 80959.167
Min -48.398 -121.895 -40.347 -685.633 -1770.173
Source : Data Calculation
2. Condition Retained Earnings to Total Assets of Listed Property Companies in IDX 2004-2008
Study result for value of Retained Earnings to Total Assets is shown in Table 2. Retained earnings is an account which
reported that there was some profit from re-invested companies or indicate how much revenue the company is not paid in the
form of dividends to shareholders. When the company started losing money, then the value of total retained earnings began to
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decline. Value of negative retained earnings show that the total assets used by the company cannot produce a positive
retained earnings because of losses exceeds the company's retained earnings beginning of the period.
As shown on the table 2, the movement of the variable Retained Earnings to Total Assets value at each company is different,
there is likely to decrease, or fluctuate. However, for 5 consecutive years is likely fairly stable value. Company that has tend of
decline value is DIVI, while KIJA and SMDM have fluctuate values. Other companies tend to have stable values.
Table 2: Retained Earnings to Total Assets / X 1 (In Percentage)

1 BIPP -0.101 -23.299 -13.156 13.654 -33.921 -11.365
2 BMSR -194.910 -22.695 -109.227 20.742 -648.695 -190.957
3 CTRA -56.958 -19.392 -215.248 -1.562 2.445 -58.143
4 CTRS 1.258 4.535 -9.949 0.208 -1.084 -1.006
5 DART 210.639 54.023 -5.665 -0.263 0.072 51.761
6 DVTI -1.251 -1.028 -9.832 161.888 -19037.381 -3777.521
7 GMTD 1.214 2.242 12.303 1.762 0.693 3.643
8 MORE 492.896 125.635 51.603 -87.963 -30.246 110.385
9 JRPT 14.321 14.109 1.555 2.312 2.148 6.889
10 KIJA -20.149 -6330.428 20.619 -0.532 -16.674 -1269.433
11 LPCK 18.912 50.935 -2.679 22.617 3.088 18.575
12 LPKR 0.133 1.852 -0.263 0.360 0.424 0.501
13 MDLN 49.027 -9.384 -7.994 -286.884 -17.223 -54.492
14 PWON 63.266 -176.643 -1.088 -4.268 -7.753 -25.297
15 PWSI -5.105 -8.847 1.504 -8.944 7.870 -2.704
16 RBMS -3.528 85.187 116.110 46.913 -0.312 48.874
17 SMRA 7.684 0.109 0.637 -0.129 -2.074 1.246
18 SIIP 31.131 1.975 1.694 0.130 -3.510 6.284
19 SMDM -18.235 -5082.933 35.130 -590.548 -180.793 -1167.476
Average 31.066 -596.529 -7.050 -37.395 -1050.680
Max 492.896 125.635 116.110 161.888 7.870
Min -194.910 -6330.428 -215.248 -590.548 -19037.381
Source: Data Processing
3. Condition of Earning Before Interest and Taxes to Total Assets of Listed Property Companies in
IDX 2004-2008
Other profitability ratios related to the method of Altman Z-Score is the ratio of Earnings Before Interest and Taxes to Total
Assets, which shows the company's ability to produce profit before interest and tax of total assets are used. This ratio can also
be used as a measure of how much the income level of operational efficiency of the company that later can affect the viability
of the company. Negative sign on the value of Earning Before Interest and Taxes to Total Assets shows that the company
suffered losses from its operational activities.
Movement of the variable value Earnings Before Interest and Taxes to Total Assets of all firms in the property industry in
Indonesia during the years 2004-2008 be seen from Table 3 as follows:
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Table 3: Earnings Before Interest and Taxes to Total Assets / X3 (In Percentage)
1 BIPP 5.410 -22.134 -14.394 14.282 10.357 -1.296
2 BMSR -55.306 -16.471 -55.395 30.145 -64.714 -32.348
3 CTRA -38.787 -41.321 -10.513 0.819 -3.522 -18.665
4 CTRS 1.397 4.868 -9.364 0.155 -1.811 -0.951
5 DART -85.805 59.074 2.555 -0.217 1.332 -4.612
6 DVTI -0.737 2.553 -17.212 37.933 -13227.857 -2641.064
7 GMTD 1.386 2.031 21.222 2.591 0.639 5.574
8 MORE 63.137 140.183 106.928 -74.950 -37.256 39.608
9 JRPT 18.828 11.207 1.975 2.278 2.717 7.401
10 KIJA -19.543 -7851.792 20.316 -0.762 12.699 -1567.816
11 LPCK 34.657 49.068 -20.50713 535.488 44.261 128.593
12 LPKR -0.007 -6.911 -0.367 0.181 -0.326 -1.486
13 MDLN 80.110 -8.803 -18.325 -347.040 -5.749 -59.961
14 PWON 63.747 49.219 5.381 -3.869 3.203 23.536
15 PWSI -5.130 -2.637 6.679 0.755 14.599 2.853
16 RBMS -3.504 -11.223 -131.404 16.965 0.971 -25.639
17 SMRA 7.515 0.123 0.601 0.239 -0.281 1.639
18 SIIP 30.798 1.966 1.829 0.072 -3.163 6.300
19 SMDM 107.110 56.724 46.643 -337.100 -222.031 -69.731
Average 10.804 -399.172 -3.334 -6.423 -709.260
Max 107.110 140.183 106.928 535.488 44.261
Min -85.805 -7851.792 -131.404 -347.040 -13227.857
Source: Data Calculation
Table 3 shown can be seen that the movement of the variable Earnings Before Interest and Taxes to Total Assets at every
company is different. For 5 consecutive years can be seen that the value of the variable Earnings Before Interest and Taxes to
Total Assets tend to be stable. Companies that value was stable variables such as BIPP, BMSR, CTRA, CTRS, DART, GMTD,
OMRE, JRPT, LPKR, PWON,PWSI, RBMS, SMRA, and SIPP. Companies that value decline MDLN, SMDM. While the value
of the variable that tends to decline with very significant that, DIVI and KIJA and company that has value tend to increase is
LPCK.
4. Condition of Market Value of Equity to Book Value of Liabilities of Listed Property Companies in
IDX 2004-2008
The ratio of Market Value of Equity to Book Value of Liabilities is the ratio that is usually used to measure a company's ability to
meet the obligations of the value of their own capital markets. The market value of own capital is obtained by multiplying the
number of ordinary shares outstanding with a market price per share of common stock. Negative value means that companies
cannot afford to pay all debts of the company's equity valued at market prices.
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Table 4: Market Value of Equity to Book Value of Liabilities / X4 (In Percentage)

1 BIPP -4.187 -0.180 0.437 -288.367 -3.256 -59.110
2 BMSR 3.209 5.151 1.870 -8.034 -0.011 0.437
3 CTRA -0.676 5.224 -21.530 1.273 0.188 -3.104
4 CTRS -1.094 -3.908 -3.427 0.000 0.685 -1.549
5 DART 0.382 -1.870 -307.457 -0.289 5.484 -60.750
6 DVTI -0.023 19.565 6.931 2.803 1.570 6.169
7 GMTD -1.657 -26.620 -6.958 -3.35799 -31.43268 -14.005
8 MORE 0.16733 -37.83743 13.18690 -3.42041 0.00000 -5.581
9 JRPT -7.220 -0.205 -1.756 -0.921 -0.254 -2.071
10 KIJA -24.069 -0.104 -0.072 0.212 0.605 -4.686
11 LPCK 24.393 12.997 337.056 -7.962 5.038 74.304
12 LPKR 1887.750 0.432 4.731 0.712 -1.392 378.447
13 MDLN 2077.072 7.239 0.149 19.751 -3.656 420.111
14 PWON -12.968 0.669 12.614 -2.736 -41.532 -8.791
15 PWSI 1.71891 62.27536 9.83105 67.39103 9.93992 30.231
16 RBMS -0.259 -2.297 0.205 35.953 -0.405 6.639
17 SMRA 0.461 1.500 0.855 0.000 -2.856 -0.008
18 SIIP -0.691 0.604 1.082 -0.053 1.451 0.479
19 SMDM 11.082 -0.867 -121.277 0.176 -2.457 -22.669
Average 208.073 2.198 -3.870 -9.835 -3.278
Max 2077.072 62.275 337.056 67.391 9.940
Min -24.06919 -37.83743 -307.45667 -288.36658 -41.53240
Source : Data Calculation
Based on data on table 4, it can be seen that the movement value of the variable Market Value of Equity to Book Value of
Liabilities in each company is different. Some companies tend to be stable variable values for 5 consecutive years such as
BMSR, CTRA, CTRS, DIVI, GMTD, OMRE, JRPT, KIJA, PWON, RBMS, SMRA, and SIPP. Others have tendency to decline
like BIPP, DART, SMDM. While company that have decline significantly is the LPKR and MDLN and fluctuate like PWSI.
Meanwhile, company that have increase value is LPCK.
5. Condition of Sales to Total Assets of Listed Property Companies in IDX 2004-2008

Aspects of activities related to the model of Altman Z-score ratio is Sales to Total Assets. This ratio shows the company's
ability to use total assets to generate sales, also reflects the management efficiency in the use of the overall assets of the
company to generate sales and profits.
Table 5: Market Value of Equity to Book Value of Liabilities / X4 (In Percentage)

1 BIPP 1.928 1.572 -0.391 0.036 -2.166 0.196
2 BMSR -9.185 10.150 123.612 -5144.843 -44.044 -1012.862
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3 CTRA 4.686 6.004 -4.478 0.302 -3.692 0.565

4 CTRS 0.750 3.660 -4.461 0.745 -5.223 -0.906
5 DART 9.909 -4.969 3.528 0.132 -2.194 1.281
6 DVTI -0.832 -0.500 -11.678 -132.542 -9908.571 -2010.825
7 GMTD -1.652 0.648 15.189 0.708 0.018 2.982
8 MORE -8.510 -30.676 -0.290 80.320 -33.951 1.378
9 JRPT 15.513 9.502 1.223 2.183 1.443 5.973
10 KIJA -15.566 -2774.143 6.900 -0.407 1.259 -556.391
11 LPCK 1.985 14.544 -3.076 2.988 8.143 4.917
12 LPKR 0.346 1.632 -0.137 0.404 1.855 0.820
13 MDLN 9.412 32.448 -5.836 57.515 -5.247 17.658
14 PWON -8.800 -4.224 0.159 0.921 0.148 -2.359
15 PWSI 143.411 -6.823 81.355 -45.289 2.584 35.048
16 RBMS 3.492 -24.846 -56.527 5.926 0.933 -14.204
17 SMRA 11.684 1.003 1.196 0.168 1.178 3.046
18 SIIP 16.927 -0.709 4.685 0.015 -4.030 3.378
19 SMDM 7.333 -33.961 -10.887 29.778 -51.870 -11.921
Average 9.623 -147.352 7.373 -270.576 -528.601
Max 143.411 32.448 123.612 80.320 8.143
Min -15.566 -2774.143 -56.527 -5144.843 -9908.571
Source: Data Calculation
Based on data on table 5, can be seen that movement value of variable Sales to Total Assets at each company is different.
However, for 5 consecutive years a lot of companies have value tends to stable, like BIPP, CTRA, CTRS, DART, GMTD,
OMRE, JRPT, LPCK, LPKR, MDLN, PWON, RBMS, SMRA, SIPP, and SMDM. Companies that have tendency to decline are
BMSR and KIJA, while DIVI has decreased significantly. Company with fluctuate value is PWSI.
Value of asset turnover shows that the higher the more effective the company in using assets to generate sales. While sales
turnaround time can cause a slow decline in sales value. In addition, the small value of sales will eventually lead to declining
earnings / profit company.
6. Overall Condition of Listed Property Companies in IDX 2004-2008

Based on the result above, we see the difficulty in liquidity in the year 2004-2008 as capital gains on property industry
fluctuated. The tendency of capital difficult to obtain. It was reasonable because the value of profitability, viewed from retained
earnings and its EBIT for 5 years tend to be negative. Also resulting in difficulties ability of capital return, which reflected the
period of 5 years. The impact is also seen from the market position that is not so attractive and makes this sector tends to
slowdown.
7. Analysis of Altman Z-score Values of Listed Property Companies in IDX 2004-2008

Having obtained the values of financial ratios of each company, we calculate Z-Score and the results as shown in table 6. The
table shows Z-Score values of each company and its tendency, whether it is tends to rise, decline, fluctuate or stable for 5
years. The trend value of Z-Score can be used to predict the company's financial situation on Indonesian property sector will
experience bankruptcy or not, and is also located in the gray area conditions.
In the years 2004-2008, Indonesian property sector in general is experiencing decline in value of Z-Score, only two company
have fit into Nonbankrupt criteria i.e. LPCK and JRPT. On the other hand, BMSR have fit into bankrupt criteria for 5
consecutive years. Meanwhile
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This decline can be influenced by many things, both internal factors such as rising operational costs, availability of raw
materials, lack of qualified human resources, and influenced by external factors such as increasing corporate competition,
instability of political conditions, low power consumer sales, and macroeconomic instability finance, and so on.
The result of Z-Score can be use to determined which company is having financial problem. However further study needed to
conclude whether companies that fit into bankrupt category using Altman Z-Score is really went bankrupt, with the Indonesian
condition and law.
Table 5: Altman Z-Score / Z

1 BIPP 16.360 -106.895 -114.464 -98.200 -12.668 -63.173
2 BMSR -437.598 -30.126 -162.736 -5843.905 -3289.987 -1952.871
3 CTRA -212.771 -146.894 -386.326 2.549 -8.843 -150.457
4 CTRS 4.850 28.577 -58.315 3.153 -11.287 -6.604
5 DART 29.684 247.070 -183.664 -2.905 5.577 19.152
6 DVTI -6.810 15.169 -88.764 202.829 16939.109 3412.306
7 GMTD 8.829 -85.485 192.436 -22.584 5.796 19.798
8 MORE 890.184 572.949 448.846 -285.788 192.135 363.665
9 JRPT 101.620 64.665 7.361 11.601 23.480 41.745
10 KIJA -108.847 -37693.991 99.520 -12.552 28.117 -7537.551
11 LPCK 164.205 247.376 146.161 1792.205 144.906 498.971
12 LPKR 1133.523 -9.797 1.659 2.309 2.703 226.080
13 MDLN 1594.384 7.102 -78.572 -1472.670 -17.044 6.640
14 PWON 224.281 -127.067 21.971 -15.964 -26.176 15.409
15 PWSI 115.692 11.281 117.918 -13.728 33.149 52.862
16 RBMS -43.324 61.879 -366.431 127.227 2.134 -43.703
17 SMRA 42.756 4.976 3.884 0.314 1.249 10.636
18 SIIP 146.831 10.157 17.629 -3.919 -10.043 32.131
19 SMDM 344.059 -7014.806 118.764 -1609.619 1018.879 -1428.544
MAX 1594.384 572.949 448.846 1792.205 16939.109 3412.306
MIN -437.598 -37693.991 -386.326 -5843.905 -3289.987 -7537.551
Average 210.942 -2312.835 -13.848 -381.034 790.589
CONCLUSIONS AND RECOMMENDATIONS

Conclusions
1. Condition of financial ratios of property sector companies listed in IDX in the period 2004-2008 :
a. The average value of variables Working Capital to Total Assets of the years 2004-2008 fluctuates each year. The
company that have maximum and minimum values of this variables is varies.
2004 2005 2006 2007 2008
Max BMSR BMSR GMTD SMDM DVTI
Min PWON KIJA BIPP BMSR BMSR
b. The average value of the variable Retained Earnings to Total Assets of the years 2004-2008 fluctuate each year.
The company that have maximum and minimum values of this variables is varies.
2004 2005 2006 2007 2008
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Max MORE MORE RBMS DVTI PWSI

Min BMSR KIJA CTRA SMDM DVTI
c. The average value of the variable EBIT to Total Assets of the years 2004-2008 tended to decrease each year. This
means that the sector have decrease its capacity to produce profits from its operations. The company MORE which
have 2 years as number one, has decline in the last two years and replace by LPCK that overall have good value of
this variable. While the companies that has minimum value is varies.
2004 2005 2006 2007 2008
Max SMDM MORE MORE LPCK LPCK
Min DART KIJA RBMS MDLN DVTI
d. The average value of the variable Market Value of Equity to Book Value of Liabilities from years 2004-2008 tended
to fluctuate each year. The company PWSI can maintain its position as number one on this variable. While the
companies that has minimum value is varies.
2004 2005 2006 2007 2008
Max MDLN PWSI LPCK PWSI PWSI
Min KIJA MORE DART BIPP PWON
e. The average value of the variable Sales to Total Assets of the years 2004-2008 tended to fluctuate each year. The
company that have maximum and minimum values of this variables is varies.
2004 2005 2006 2007 2008
Max PWSI MDLN BMSR MORE LPCK
Min KIJA KIJA RBMS BMSR DVTI
2. The average value of Altman Z-score of property sector companies listed in IDX in the period 2004-2008 is experiencing
decline. Only two companies fit into Nonbankrupt criteria i.e. LPCK and JRPT. On the other hand, BMSR have fit into
bankrupt criteria for 5 consecutive years. LPKR is fit into grey area. The result of Z-Score can be use to determined
which company is having financial problem. However further study needed to conclude whether companies that fit into
bankrupt category using Altman Z-Score is really went bankrupt, with the Indonesian condition and law.
Suggestions
1. The result of Z-Score can be use to determined which company is having financial problem.
2. Further study needed to conclude whether companies that fit into bankrupt category using Altman Z-Score is really went
bankrupt, with the Indonesian condition and law.
BIBLIOGRAPHY
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N. R. Hayati Volume 9 – Spring 2010
FINANCIAL STATEMENT REPORT AND ITS EFFECT ON STOCK PRICE

(CASE STUDY ON BANKING INDUSTRY)
Neuneung Ratna Hayati

Widyatama University, Indonesia
ABSTRACT
Financial statement reporting is one tool that can be used by all stakeholders to evaluate the company performance. This
research was conducted to test whether there is a difference between the stock price, 15 days before and after the
announcement of financial statements- which took place at banking industry. Research method used is the comparative
method with descriptive and ex-post facto design. Purposive sampling with testing instruments signed-rank Wilcoxon test are
used in this research. From the test results, it obtained that there is no significant difference between the stock prices before
and after the announcement of financial statements
Keywords: Financial Statement Report, Stock Price
INTRODUCTION
Financial statements (or financial reports) are formal records of the financial activities of a business, person, or other entity
(www.wikipedia.com). The objective of financial statements is to provide information about the financial position, performance
and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions (IASB).
Financial statement reports are used by investors to assess viability of investing in a business and financial analysis to make
decision for their investment. In order to fulfill the principles of openness and in accordance with Article 86 paragraph 1 of Law
Number 8 Year 1985 concerning Capital Market, issuers and public companies must submit regular reports to Bapepam and
submit the report to the community. This research was conducted to test whether there is a difference between the stock price,
15 days before and after the announcement of financial statements- which took place at banking industry.
RESEARCH OBJECTIVES
a. To study the effect of financial statement report to stock price fluctuation
b. To study the important of financial statement report for public company
HYPOTHESIS
The hypothesis is: there is a significant differences on stock price before and after financial statement report.
METHODOLOGY
a. Object of this study is the change of stock prices before and after the announcement of the bank's financial statements
that have been listed its shares on the Indonesia Stock Exchange. The study period starting from the year 2006 sd
2008.
b. Research methods used by authors in this research is descriptive and comparative. According to Sugiyono (2004: 11),
comparative research is a study that is comparing. Here, variables are still the same as independent research, but to
sample more than one, or in a different time. The descriptive research according Sugiyono (2004: 11) is the research
conducted to determine the value of independent variables, whether one variable or more without making comparisons
or connect with other variables. Research methods are used to illustrate stock prices before and after the announcement
of financial statements. In this study, data analysis will be done based on ex post facto design. In the ex post facto
design, the researcher did not manipulate or control the research variables. This method is also intended to see and
examine the relationship between two variables or more, where the variables have been previously reviewed by another
party treatment.
c. In this study there are two independent variables, namely:
1. Stock price before the announcement of financial statements
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2. Stock price after the announcement of financial statements

d. Testing with Wilcoxon signed-rank test is used when the data distribution is not normal and the sample used is less than
30. Requirement that is needed is at least the data should form an ordinal, and the samples must be connected / paired
(Douglas A. Lind, et al, 1999).
HYPOTHESIS TEST
The Hypothesis concerns to the difference of variance between stock prices before and after the announcement of financial
statements.
The Hypothesis
H0: There is no significant differences of variance between stock prices before and after the announcement of financial
statement reports.
Ha: There is significant differences of variance between stock prices before and after the announcement of financial statement
reports.
RESULTS
Strategic decision-making include monitoring and evaluation that shall be taken by all stakeholder, requires the information that
potential to reduce the uncertainty with related to the risk. Financial Statement is one of available source and can be used for
public area. Taking advantage of the financial statements, investors are expected to predict the amount, time, and cash flow
uncertainty.
Announcement of the Annual Financial Report has a function in informing the company performance which clearly and quickly
get a reaction from the market. Time delivery of Annual Financial Report will give a good impression and or bad to all
stakeholder.
During 2005 until 2008, the condition of the banking sector in Indonesia shows stable growth, although it must be admitted that
global financial crisis negatively have impact to the economy of Indonesia as its influence. Total banking assets at the end of
2008 compared with the previous year still grew 16.3%, total loans increased 29.5% and third-party funds increased 16.1%.
Similarly, the condition of banking profitability and capital which is maintained at a high level, ie 2.3% (Return on Assets) and
16.2% (Capital Adequacy Ratio). On the other hand, banking gross NPLs fell to just 3.8%, although still in note to the potential
worsening of banking performance in the future (Bank Indonesia, 2009).
Some changing happen in Banking industry such as merger and acquisition. In this study, analysis base on the announcement
of financial statements that impact to reaction on the stock price movement. Financial statements used are annual financial
reports for banks that go public in Indonesia Stock Exchange. Data from the daily stock price for each bank is collected for the
period of 15 days before and 15 days after the announcement of financial statements. What is meant by "day" in this study
were trading days, ie days when the stock trades executed on the exchange - if there are no special events Monday through
Friday while the share price used is the stock price is at the time of closing the daily trading (closing price ). For this study, the
author uses the financial reporting 4 period (Year 2005, 2006, 2007 and 2008), that included eighteen (18) for the bank has
obtained the completeness of data.
After the data on stock prices before and after the announcement of the financial statements of each bank acquired, then the
author will process data in accordance with the proposed hypothesis, as follows:
108
2006
No
(Good News) (Bad News)
1 1897.5 1,303.75
2 1880.5 1,266.88
3 1875.5 1,263.75
4 1877.5 1,291.88
5 1877.5 1,291.25
6 1843.5 1,275.00
7 1883 1,243.75
8 1884.5 1,259.38
9 1845.5 1,265.63
10 1870.5 1,245.63
11 1876.5 1,245.63
12 1854.5 1,237.50
13 1861 1,258.75
14 1880 1,230.63
15 2363.2 1,257.50
16 2320.9 1,291.63
17 1914.4 1,320.00
18 1911.5 1,350.00
19 1901.4 1,339.75
20 1940.9 1,319.00
21 1913.7 1,233.25
22 1875.1 1,216.00
23 1811.6 1,228.88
24 1787 1,225.13
25 1787.3 1,258.88
26 1851.3 1,292.63
27 1871.6 1,317.63
28 1847.6 1,281.38
29 1857.8 1,245.75
30 1885.7 1,260.75
From data above, statistic result as follow :
Ranks
N Mean Rank Sum of Ranks

sdh_2006 - sblm_2006 Negativ e Ranks 6a 8.50 51.00
Positiv e Ranks 9b 7.67 69.00
Ties 0c
Total 15
a. sdh_2006 < sblm_2006
b. sdh_2006 > sblm_2006
c. sdh_2006 = sblm_2006
From the results above it is seen that the 30 data, the data have a different 7 negative, 19 positive labeled data, and there is
the same 4 (ties). In wilcoxon test, which used a disparate number of the smallest, so in this case differentiated taken the
negative is taken from the 58.1 sum of ranks. By looking at the table for Wilcoxon n (number of data) = 30, one-tailed test and
significance level of 5% is obtained statistical table wilcoxon as follow :
Test St at isticsb
sdh_2006 -
sblm_2006
Z -.511a
Asy mp. Sig. (2-t ailed) .609
a. Based on negativ e ranks.
b. Wilcoxon Signed Ranks Test
109
Calculation of output is -0511, while the statistical tables can be seen in table z with α = 5% then the area of the normal curve
is 50% - 5% = 0:45. in table z, to obtain large numbers of z 0:45 table around -1645. therefore the output z <z table (-0511 <-
1645), the Ho accepted or in other words there is no significant difference between the sample variance of stock prices before
and after the announcement of financial statements.
2007
No
1 2516.6 1,497.00
2 2500.4 1,501.38
3 2570.2 1,481.00
4 2524.7 1,404.63
5 2551.8 1,429.00
6 2516.4 1,468.38
7 2632 1,505.00
8 2601 1,545.50
9 2651.6 1,550.63
10 2545.6 1,568.88
11 2599.1 1,558.38
12 2669 1,557.25
13 2582.2 1,562.63
14 2607.2 1,532.00
15 2156.3 1,317.50
16 2064.2 1,274.38
17 2466 1,462.38
18 2473.5 1,459.63
19 2590.9 1,434.13
20 2543.9 1,431.88
21 2559.5 1,437.88
22 2617 1,415.88
23 2599.4 1,375.00
24 2556.7 1,328.25
25 2580.1 1,383.25
26 2568.2 1,374.75
27 2405.6 1,326.00
28 2441.4 1,253.00
29 2332.2 1,317.00
30 2364.2 1,356.50
Ranks

sdh_2007 - sblm_2007 Negativ e Ranks 12a 8.58 103.00
Positiv e Ranks 3b 5.67 17.00
Ties 0c
Total 15
a. sdh_2007 < sblm_2007
b. sdh_2007 > sblm_2007
c. sdh_2007 = sblm_2007
From the results above it is seen that the 15 data, the data has 12 different negative, 3 positive labeled data, and not have the
same (ties). In wilcoxon test, which used a disparate number of the smallest, so in this case differentiated taken the positive is
taken from the 17 sum of these numbers ranks.dari obtained wilcoxon test statistic (T) is 17. By looking at the table for
Wilcoxon n (number of data) = 15, one-tailed test and significance level of 5% is obtained statistical table wilcoxon.
110
Test St at isticsb
sdh_2007 -
sblm_2007
Z -2.442a
a. Based on positiv e ranks.
Calculation of output is -.2422, while the statistical tables can be seen in table z with α = 5% then the area of the normal curve
is 50% - 5% = 0:45. in table z, to obtain large numbers of z 0:45 table around -1645. therefore the output z> z table (-.2442> -
1.645), the Hi accepted, or in other words, there are significant differences between the sample variance stock price before and
after the announcement of financial statements.
2008
No
1 1698 674.00
2 1691.8 669.63
3 1704.1 662.88
4 1721 653.75
5 1702.9 681.63
6 1711.4 649.13
7 1739.4 661.63
8 1719.3 654.75
9 1737.5 653.75
10 1620.3 639.50
11 1654.8 617.88
12 1664.1 648.75
13 1621.9 585.00
14 1574.8 568.25
15 1476.8 985.63
16 1566.5 1,062.00
17 1788.3 700.88
18 1770.3 708.13
19 1719.2 700.63
20 1650.7 702.00
21 1656.7 710.13
22 1667.2 712.13
23 1681.7 718.25
24 1703.5 694.63
25 1690.5 692.88
26 1689 661.38
27 1692 613.88
28 1665.8 567.00
29 1662.9 572.50
30 1644.9 563.13
111
Ran ks

sdh_2008 - sblm _2008 Negativ e Ranks 5a 5. 60 28. 00
Positiv e R anks 9b 8. 56 77. 00
Ties 1c
Tot al 15
a. sdh_2008 < sblm _2008
b. sdh_2008 > sblm _2008
c. sdh_2008 = sblm _2008
From the results above it is seen that the 15 data, the data have a different 5 negative, 9 positive labeled data, and there are 1
the same data (ties). In wilcoxon test, which used a disparate number of the smallest, so in this case differentiated taken the
positive is taken from the 28 sum of these numbers ranks.dari obtained wilcoxon test statistic (T) is 28. By looking at the table
for Wilcoxon n (number of data) = 15, one-tailed test and significance level of 5% is obtained statistical table wilcoxon
Test Statisticsb
sdh_2008 -
sblm_2008
Z -1.538a
a. Based on negativ e ranks.
Authors may imply that the announcement of financial statements is not the only accounting information originating from within
the company that must be considered before making decisions in stock trading. Calculation of output is -1.538, while the
statistical tables can be seen in table z with α = 5% then the area of the normal curve is 50% - 5% = 0:45. in table z, to obtain
large numbers of z 0:45 table around -1.645. therefore the output z> z table (-. 1.538 <-1.645), then H0 is accepted, or in other
words there is no significant difference between the sample variance of stock prices before and after the announcement of
financial statements.
RECOMMENDATION
1. Financial statements report is one of the available relevant information, especially for stock that is considered very
important for investors. Under conditions of high uncertainty of the company's activities, the financial statements are main
indicator to estimate more precisely and more rational about the company's prospects in the future.
2. By using the charge approach of the information contained in the company's financial statements, the existence of
information and events surrounding the annual financial statements will quickly get a reaction from the market. Issuers are
late in delivering the Annual Financial Report will give a bad impression to the investors who invested funds in the issuer's
activities. The delay in the annual financial statements will change the belief of investors that can be seen from the
reaction of capital markets. The delay in the delivery of financial statements can reacted by changes in the market with
stock prices of late convey the issuer's financial statements.
REFERENCES
The Framework for the Preparation and Presentation on Financial Presentation. International Accounting Standards Board.
Accessed 24 June 2007.
www.bi.go.id
www.bapepam.go.id
www.wikipedia.com
www.idx.co.id
112
A. J. Kamssu and D. S. Ghanwat Volume 9 – Spring 2010
IMPACT OF OUTSOURCING ON ENROLLMENT IN TECHNOLOGY

FIELDS AT UNIVERSITIES IN THE UNITED STATES
Aurore J. Kamssu and Deepali S Ghanwat

Tennessee State University, USA
ABSTRACT
This research paper deals with the issue of how outsourcing is affecting the students‟ interest in the IT field. The current
recession, the dotcom bubble and outsourcing have caused a number of people to be unemployed in the US. Outsourcing has
become one of the major reasons for unemployment in the US as many IT jobs are being shifted offshore. As the number of IT
jobs in the US is declining it is having an impact on the number of students enrolling in IT fields is decreasing in universities in
the US. The current study deals with the impact of offshore outsourcing on student enrollments in IT related fields. We analyze
and present several studies on how outsourcing is affecting IT enrollment. Research suggests that outsourcing is having a
negative impact on IT enrollment. This research paper confirms this assumption that the interest in IT as a field of study for a
career is declining with outsourcing on the rise; students are opting for other majors.
INTRODUCTION
In the last few years Information Technology has progressed very fast. In today‘s world, IT is seen as one of the most important
element for any kind of business industry; but it comes with a high cost. About ten years ago a degree in IT seemed to be
glamorous because of the high demand, high pay and the intense use of new technology. Research into the technology skills
gap and the decline in the conferment of computer sciences (CS), Information systems (IS) and Information technology (IT)
degrees is of particular interest to academics, employers, and anyone who may have an interest in an CS, IS or IT-related
career. Information professionals serve three vital functions in our modern workforce: 1) they provide support to business
operations, 2) they facilitate faster and better decision making capabilities via advanced decision support systems (DSS), and
3) they provide their employers with strategic competitive advantage (Outsourcing America, 2008). As businesses face a
shortage of qualified information professionals; the ability to provide these three vital business functions is threatened.
IT jobs are still in great demand; however, lately it seems as if a major percentage of IT business is being outsourced to foreign
countries, mainly China and India, in order to cut costs. The IT job market is not what it used to be in the US. Enrollment in IT
fields has been said to follow a downward trend or so it is supposed. With the current recession affecting the whole economy,
the effect of offshore outsourcing has become more noticeable with the layoffs taking place in different sectors as well as with
IT jobs. But how is outsourcing affecting: American economy, IT jobs and University enrollment in IS/IT fields? This research
paper will hopefully put further light on these questions.
TREND IN THE US EMPLOYMENT AND THE IS/IT JOB MARKET

Data was collected from the U.S. Department of Labor, Bureau of Labor Statistics showing the number of employees that were
on non-farm payrolls during the years 1995 to 2013. That data is presented in Appendix 1 on Table 1. Figure 1, generated from
the data collected shows that non-farm employment increased from the mid-nineties to the early 2000s and by the year 2003,
the job market took a dive. The US job market was expected to be recovering slowly thru 2013. This trend in the US
employment seems to be in line with the IT Job market, which experience the dot.com bubble in the early 2000s and the big
burst thereafter as presented in Figure 2. The number of IT jobs in figure 2 was a publication of the U.S. Department of Labor
from July 12, 2004.
113
Figure 1: Actual U.S. Employees from1995-2004 and forecast from 2005-2013. Source: Bureau of Labor Statistics.
Figure 2: Number of IT jobs from 2000-2004. Source: Bureau of Labor Statistics.
However, it is very uncertain whether the IT job market with follow the same path; especially with the growing popularity of
outsourcing within IT companies. Figure 3 seems to support the presumption that the IT Job market has been following the
overall trends. The unemployment rate rose from 2000 to 2002 both for IT occupations and for all jobs. And in 2003 the
unemployment rate dropped in the IT sectors as well as for the market as a whole. The IT job market seems to be performing
better that average because as figure 3 shows throughout the 7 years presented, unemployment is always lower in IT
occupations than in all occupations together. Appendix 2 also presents the projection of for computer and other occupations
done by the bureau of Labor and Statistics.
Figure 3: Unemployment in the United States. Source: Bureau of Labor Statistics.
114
Computer occupations including computer specialists and computer and information systems managers are predicted to grow
on average faster than the overall job market. In the span of ten years going of 2002-2012, 2004-2014, and 2006-2016, the
overall job market is expected to grow 14.8%, 13.0% and 10.4% respectively; for computer specialists and the growth rates are
forecasted to be 35.8%, 31.4% and 25.2% respectively; finally when it comes to computers and information systems manager
the growth is set to be around 36.1%, 25.9% and 16.4%. These rates are diminishing, signaling market saturation or taking into
account the labor market down turn like the one we are currently facing in the United State.
For Americans and the United States this is a time of great economic unease and increasing insecurity. Due to the ongoing
recession a large number of people have been laid off and jobs are being shifted offshore to places such as India and China.
This is making the IT field less desirable and not so glamorous due to changing international conditions. The growing practice
of outsourcing our advanced and high tech IT jobs is also affecting IT enrollment in universities as IT is one field where there
are a large number of job losses in a recession. Everybody wants to cut costs by outsourcing resulting in a large number of laid
off and unemployed people.
OFFSHORE OUTSOURCING
Outsourcing has been growing rapidly in recent years and it spans across IT, operations and call centers. Offshore IT
outsourcing is becoming more common for business processes in retail, banking, financial services, insurance, and telecom
industries. Many big firms are involved in some form of offshore outsourcing to India, Singapore, Hong Kong, China, The
Philippines, Vietnam, Thailand, Hungary, South Africa, Malaysia, Russia and more. This among other thing has contributed to
unemployment in the US; which has created resentment from many Americans. The primary attractions are lower costs,
technical expertise, and faster completion times. While the expected benefits of lower costs and faster completion times appear
attainable, the effect on the risk of project completion and quality of the finished product remain less certain. Many believe that
offshore outsourcing makes companies profitable; because those companies save money by paying less for the labor overseas
(in salary, retirement benefits, insurance, etc…) than they would have in the U.S.
Outsourcing is not just about jobs. Its potential impact is not only on our quality of life but also on our national competitiveness
and national security. Offshore outsourcing leads to new challenges, risks and uncertainties (Knapp, Sharma, & King, 2007); it
creates a dependency on foreign countries. Outsourcing to some countries specially China put companies at great risk
because some Chinese manufacturers are not aware of the international standards of safety; which leads to frequent products
recalls and affect the company‘s reputation (Canning, 2008).
A good part of America‘s job creation has been in technology more so in IT with government and private support for developing
the most highly skilled workforce and the most innovative. The IT field depends on careful partnership among publicly funded
research, leading edge universities, the private sector and the most productive workers in the world. Outsourcing is taking
away the workforce that has been a key part of the winning combination. Once we lose the high tech jobs why would our most
capable minds study engineering, computer science, biotechnology or any of the other promising fields that will create national
competitiveness in the future?
Research firms such as Forrester, Gartner, and McKinsey, who predict that IT offshore outsourcing will grow rapidly over the
next five to 10 years (Pfannenstein and Tsai, 2004). Forrester forecast that outsourcing of IT jobs to other countries was
already huge and would increase steadily. Forrester first forecast that 590,000 US jobs would be outsourced by 2005 and that
this number would smell to 3.3 million in 2015; two years later Forrester increased its projections, saying that the number of
outsourced jobs would reach 830000 in 2005 and 3.4 million by 2015 (Pollacia & Lomerson, 2006).
There seems to be some surprising changes in technology outsourcing. Although offshore outsourcing still offers long-term
cost benefits, there seems to be a decline since 2008 in outsourcing to China and Southeast Asia, two major outsourcing
destinations, in part because of supply-chain and shipping expenses, taxes, and the cost of complying with government
regulations, in addition to various recalls of product and dissatisfaction of Americans about products coming from those
locations. In addition, some companies have been reconsidering sending work to India, the principal outsourcing destination for
years, because of a major local accounting fraud investigation and a large terrorist attack in Mumbai in November 2008.
Increasingly rigorous tax laws and higher wages in India and China have also made these countries less attractive
destinations. With wages rising sharply in India and the dollar's value sliding against the Indian rupee, The CEO of Assembla,
Andy Singleton, reported that "there has been a 30% change in cost over the last year," and Assembla, is now hiring more
Americans compare to three years ago as the costs were so low in India (King, 2008).
115
The 2008 version of an annual study by the Brown-Wilson Group, an outsourcing research firm, indicated US firms may
gradually return previously outsourced jobs to the United States because of political instability abroad, unemployment and
falling salaries at home, and the increased cost of doing business in other countries. In addition, King (2008) argued that while
India is still a great place for many companies to cut costs on high-tech workers, experts predict that the saving is likely to
evaporate in 5 to 10 years. Which creates a niche of opportunities for the U.S., with domestic outsourcing, in addition to other
locations such as Central and Eastern Europe, Latin America and China.
The IT profession is one of the areas most affected and more people are shifting towards other professions. It is imperative to
consider offshore IT outsourcing and how it affects CS, CIS and MIS enrollment in universities.
STUDENT JOB CONCERNS

The study showed that students base their major choice on the basis of job availability, genuine interest, difficulty of the
curriculum and the opinions of family and friends. Students as well as IS professionals and managers believe that IS are having
a negative outlook about the future of IS job market; therefore enrollment in IS field appears to be diminishing. The number of
students majoring in computing degrees has fluctuated greatly over the last twenty-five years. The employment wage
attractiveness has a direct effect on the students interested in an area of study. In other words, if students see potential
employment and wage growth opportunity, they will be drawn to that specific field. The same was true for the IT field, in the
early 2000 especially because of to the high wages compared to other professions.
Some of the reasons why students are discouraged from majoring in CIS/MIS might be: the dot-com bust, the outsourcing of IT
jobs, and the volatility of IT stocks. If students see an increase in unemployment and reduction in wages in a particular field,
they may be less likely to study and subsequently seek employment in that field .This effect may lag for students already
enrolled as they may not wish to change or may not be aware of the job market.
Panko (2008) conducted a research in 2000-2001 at the University of Hawaii analyzed enrollment of students both in general
business and IS. Current figures to indicate that student majors in Computer Information Systems (CIS) or Management
Information Systems (MIS) have been declining. The research suggested that students have low prospects about the future of
IS careers and professions. There has been a reduction in the number of majors and electives in IT/IS Programs. Since the
dotcom burst, students have been afraid to pursue careers in computer related fields; they fill that there are fewer employment
opportunities. To make matters worse, outsourcing IT jobs to countries outside the US if further damaging the IT job market in
the US. Therefore beliefs about career prospects are causing them to focus on other branches of study. It can be argued that
to increase enrollment in computer related fields, universities need to address the issue of outsourcing and students concerns
about starting a career in the IT field. As jobs get moved offshore to overseas countries, the available positions IT/IS hiring
companies can offer fresh graduates will continue to fall.
Figure 4: United States Computer Science graduates 1966-2003 Source: Bureau of Labor Statistics.
A study was conducted by Davis and Leone (2005) in twenty universities comparing enrollments in computer related fields from
2000/2001 to 2005/2006. The student population ranging from just over 5,000 to 50,000 and the total number of student at all
116
20 universities was 335,017. More than 65% of administrators at those universities had concerns for offshore outsourcing.
They argue that offshore outsourcing is one of the causes for reduced student enrollments in IT/IS college programs. For
instance, almost all the administrators have experienced a reduction in student enrollments ranging from 40% to 75%.
However, about 31% of them believe that offshore outsourcing will be beneficial in the long-run. Although there is a reduction in
job position, motivated and devoted students will still major in computer related fields creating a selection of highly qualified
IS/IT professionals with better job titles and great salaries.
As offshore outsourcing is targeting low level programming jobs, or those jobs that are repetitive in nature. High level design or
programming jobs are less likely to be sent overseas. Either the high level jobs are expensive to outsource, or the needed skills
needed are not readily available overseas. Work activities that require sophistication lack an enabling environment for offshore
workers to innovate and grow. It was further argued that U.S. IT/IS workers can concentrate on these areas of complexity so as
to ensure future employability. Sophisticated work which involves an understanding of business processes cannot be
outsourced offshore.
RESEARCH DESIGN
From the existing literature and after discussions with students and some IT professionals, the model presented on figure 5
was developed to map the major determinants of offshore outsourcing as well as the repercussions of outsourcing in different
sector of our society.
Figure 5: Research Model of IS/IT Offshore Outsourcing.
Labor costs: Competitive advantage:

Salaries, Benefits, Insurance… (Price & quality of Goods &
services)
Offshore
Foreign Government Policies: Local National Security:
Currency Value, Taxation… Outsourcing (Terrorism, privacy concerns
Foreign Country Safety: Bargaining Power:

Political Stability, Crime… Foreign country dependency
New Majors Graduation

Rate
IS/IT Enrollment
It has been noted that safety is a major outsourcing-related concern in areas with political instability or high crime rates, such
as parts of Latin America and Africa. Safety will affect data-protection procedures, disaster management, insurance costs, and
hazardous-duty bonus pay for employees, all of which could hurt outsourcing businesses and their customers. Given the trends
and history of student enrollment it can be hypothesized that student enrollment in the IS field is going to fall as outsourcing IT
jobs is on the rise.
CONCLUSION
Because of outsourcing unemployment in computer related fields has risen particularly among new graduates. Students
believe that the outsourcing of IT jobs will devastate the job market. It is a fact that Enrollment will decrease with outsourcing
especially in these recessionary times. More and more people are opting for safer options and if the IS programs don‘t address
the issue of outsourcing enrollment in IT is likely to decline. Outsourcing is here to stay, what is left to do is to find solutions to
alleviate or reduce its negative impact or turn them into benefits. To do so there is to identify academic issues resulting from
offshore outsourcing; and to develop curriculum-related strategies for coping with reduced enrollments in Computer related
programs, therefore, preparing graduates for higher-level jobs instead of training them for the usual entry-level positions which
have for most been outsourced.
117
We can be hopeful that outsourcing trends will change because of factors such as the global economic downturn and
saturation in traditional outsourcing destinations. Leading to a gradual rise in tech employment and the increase in enrollment
in the tech and IS field. With more jobs moving back to the US we can certainly hope for better job prospects for Americans.
REFERENCES
Canning, Kathie (2008). ―Risky business: U.S. retailers and manufacturers need to weigh the pros and cons carefully before
doing business with China.‖ Private Label Buyer, Vol. 22, No. 4, pgs 18-19.
Davis.G.&Leone.G. (2005). ―Case Study: Decline in CIS/IT Degree Enrollment at a Medium-Sized University.‖ Journal of
Business & Economics Research, Vol 3, No 3. Pgs 27-34.
King, Rachael (2008). ―Outsourcing at Home; With Indian wages rising and the rupee strengthening against the dollar, some IT
services companies are opening facilities in the U.S. (CEO Guide to Emerging Outsourcing Hubs).‖ Business Week
Online, April 8, 2008.
Knapp .K .. Sharma . S. & King. K.(2007). ―Macro-Economic and Social Impacts of Offshore Outsourcing of Information
Technology: Practitioner and Academic Perspectives.‖ International Journal of E-Business Research, Vol. 3, No 4; pgs
112-132
Panko Raymond R. (2008). ―IT employment prospects: beyond the dotcom bubble.‖ European Journal of Information Systems
Vol. 17, pgs 182–197.
Pfannenstein, L., and Tsai, R. (2004). Offshore outsourcing: Current and future effects on American IT industry. Information
Systems Management, Vol. 21 No 4, pgs. 72-80.
Pollacia.Lissa &Lomerson William. L. (2006). ―Analysis of Factors Affecting Declining CIS Enrollment.” Issues in Information
Systems: Vol. 7, No 1, pgs 220–225.
U.S. Department of Labor. (2004). Table CES5000000001. National employment, hours and earnings: 1994–2004. U.S. Web
Site: http://www.bls.gov/webapps/legacy/cesbtab1.htm
118
APPENDIX 1
Number of IT jobs from 2000-2004. Source: Bureau of Labor Statistics
119
APPENDIX 2
Comparison of Three occupational projections for computer occupations (Source: Bureau of Labor Statistics).
120
T. Khan Volume 9 – Spring 2010
ONLINE DISCLOSURE ON AUDIT COMMITTEES: COMPARISON BETWEEN

NEW YORK STOCK EXCHANGE FOREIGN ISSUERS
Tehmina Khan
RMIT University, Australia
ABSTRACT
Internet financial reporting (IFR) has gained tremendous momentum in recent years. It has been described as a medium that
offers additional net benefits of providing financial reports. Yet, at the same time the level of reporting has been varied and non
uniform. NYSE has mandated the disclosure on audit committees and audit committee charters for foreign issuers in its listing
rules. The focus in this paper is corporate governance and more specifically online disclosure on audit committees and charters
by foreign companies listed on the New York Stock Exchange (NYSE). The study looked at two hundred companies‟ websites
(from a population of four hundred and sixty) from forty one countries selected at random from the 2008 list of non U.S.
companies listed on the NYSE. The two variables studied for disclosure on the companies‟ websites are existence of audit
committee (mandatory for foreign companies listed on the NYSE) and existence of the audit committee charter (mandatory for
companies listed on the NYSE). The companies were also analysed based on sub classifications of regions, industries and
economic development groups. It was found that out of the total sample analysed only 58 percent of the companies had
information on audit committees and 56 percent disclosed the audit committee charters. This is a low percentage considering
that the two elements investigated are mandatory for foreign companies listed on the New York stock exchange. This finding
also implies a broad gap between the financial reporting requirements and actual disclosure on companies‟ websites. This
would have a negative impact on informed decision making of users who rely on corporate governance information presented
on companies‟ websites.
Keywords: Internet Financial Reporting (IFR), Audit Committees, Audit Committee Charters, Disclosure, Regulation,
Reporting Gap
INTRODUCTION
Grove (1997, p.53) coined the term ‗inflection point‘ which he defined as ―a change in business environment that has the
potential to alter the way a company operates‖. King (2001) has pointed out that the most important affects on cost
management practices have been in the areas of information communication and transaction processing. This would imply that
companies which are using the Internet for accounting and financial information presentation may see additional benefits over
additional costs by providing financial reports on a website. In the past few years, this new marketing application of the Internet
has been referred to as Internet financial reporting (IFR).
According to King (2001) the Internet is an inflection point that has an impact that has not yet been fully determined. The
impact being referred to by King (2001) encompasses different elements including impact on financial reporting access. The
user, from any part of the world, can access this information, so long as there is Internet access. Another impact is on the
dependence on information on companies‘ websites for informed decision making. An increasing number of companies are
now using the Internet as their primary source of financial reporting as compared to paper based traditional sources. These
result in an implied expectation of information required by the user which also needs to abide by all the characteristics exhibited
by the traditional hard copy financial reports.
Litan and Wilson (2000) have proposed that utilising the Internet capabilities more efficiently should generate financial reporting
that is forward- looking, describing not only historical cost based elements, but also providing a more accurate picture of the
organisation's current and future prospects. Litan and Wilson (2000) have also proposed that companies need to focus on the
information needs of users, not just on a pure cost versus benefit analysis for the company. This view takes the expectations
from IFR beyond even those from the hard copy financial reports. The minimum level of IFR that needs to be demonstrated by
companies‘ at least should equal the mandatory, regulatory requirements that are compulsory, that have to be enforced by the
companies.
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Online Disclosure on Audit Committees: Comparison Between New York Stock Exchange Foreign Issuers
ONLINE CORPORATE GOVERNANCE DISCLOSURES

As far as inclusion of corporate governance disclosure in IFR is concerned Radner (2002) has made an insightful statement,
―To remain credible, companies need to make this information readily accessible and focus their efforts on providing a clear,
concise message in the most transparent manner possible.‖ Radebaugh, Gray and Black (2006) have pointed out that large
companies now have major sections primarily on corporate governance on their websites. Corporate Governance includes
directors‘ information, information on governance committees, Articles of incorporation, committee charters and the other
elements mentioned under the umbrella of corporate governance.
The regulators and monitoring bodies are encouraging better disclosure on corporate governance on the Internet but as
Abdelsalam, Bryant and Street (2007) have stated ―despite its growing importance as a source of corporate information to
investors, the content, usability, and perceived credibility of the information provided on corporate websites varies greatly. This
point of view is also supported by Radner (2002) who has pointed out that most companies are disclosing corporate
governance policies and practices at various levels from meeting the minimum requirements to having mini sites just devoted
to Corporate Governance. An important point to note here is that Radner (2002) has described the spectrum of disclosure on
corporate governance policies from meeting the minimum requirements to beyond. The issue raised in this paper is ―Do
companies disclose even the minimum, considering that minimum implies the mandatory regulatory and listing requirements (of
the NYSE); information on the audit committee and the audit committee charter?‖
An independent global survey by the International Federation of Accountants (IFAC) on Corporate Governance found that
respondents are in support of more informative disclosure on companies‘ websites. In regards to audit committees the
response was the disclosure of information that would demonstrate an ―increased awareness, commitment and competence of
the audit committees‖ (IFAC p 22).
NYSE (2006) has stressed that corporate compliance ensures that listed companies adhere to standards of accountability and
transparency, including enhanced governance requirements for configuration of corporate boards, director independence and
financial competency on audit committees (NYSE 2006). NYSE (2006) has highlighted the importance of more and better
quality disclosure of the corporate governance information presented on companies‘ websites.
The Importance of the Audit Committee and Charters

The key corporate governance initiatives that have focused on the existence of audit committees have included:
· The Bosch Committee: The recommendations incorporated in the Corporate Practices and Conduct (Bosch 1995) also
included committees of the Board.
· The Cadbury Committee: that was formed by the London Stock Exchange, the accounting profession and the Financial
Reporting Council had a particular focus on the audit committee with non executive members.
· The Business Roundtable consisting of the Chief Executives of the top U.S. corporations: also focused on the
responsibilities of the audit committee of the Board.
· International Federation of Accountants (IFAC): released a discussion paper in 2003 titled ―rebuilding public confidence
in financial reporting- An international perspective, which apart from other recommendations, also included a focus on
the audit function.
· The Australian Stock Exchange Governance Principles: recommends companies to make publicly available, for example
in the corporate governance section on the company‘s website, the Audit committee charter (Tenniswood 2008).
The U.S. SEC re emphasized the formation of audit committees in the 70‘s with a major condition of requiring all public
companies to disclose information about the their audit committees and their charters ( DeZoort 2008). The New York Stock
Exchange mandated the existence of audit committees from 1978 (DeZoort 2008).
There are three mandatory items that are required by the NYSE for foreign issuers to disclose in relation to corporate
governance one of which is that listed companies must have an audit committee that satisfies the requirements of Rule A-3
under the Exchange Act‘ (303 A.06). This condition is divided into two disclosure items: existence of an audit committee and
existence of an audit committee charter (NYSE 2002).
Firth and Rui (2007) have even suggested that audit committees may be considered to be a substitute for high quality auditors.
This is pointing towards the increasing importance of the role of the audit committees in the oversight and monitoring of
business reporting as well as strategic decision making.
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According to CPA (2004) an audit committee is a very important component of effective corporate governance structure. A
similar point is made by Kent and Stewart (2008) who have suggested that the existence of an audit committee would point
towards good corporate governance and high quality financial reporting.
According to the NYSE (2002) ―Given the importance of corporate governance, each listed company‘s website must include its
corporate governance guidelines, the charters of its most important committees (including at least the audit, Compensation and
nominating committees) and the company‘s code of business conduct and ethics.
Role of the Audit Committees

Nolan (2008) has suggested that recently companies have placed a greater demand on audit committees for creating value
rather than preserving it. Keinath & Walo (2008) have pointed out that the Sarbanes Oxley Act (2002) has increased the
authority of the audit committees in the process of overseeing financial reporting. They have also pointed out that the NYSE
requires audit committees to monitor compliance with legal and regulatory requirements and to evaluate the risk management
policies of the company (NYSE 2004).
The importance of risk management at top level is emphasized by Beasley, Branson & Hancock (2008) who have pointed out
that stakeholders are demanding more from directors in overseeing and evaluating the company‘s risk management
processes. Their sample of NASDAQ 100 companies in 2002 had 70 % of the audit committees monitoring risk management
and ensuring compliance with legal and regulatory requirements.
At the same time the Community Banker (2008) has quoted a survey conducted by Crowe Chizek and Company. The survey
found that 70 percent of audit committee members stated that enterprise risk management is a major challenge and that the
degree of difficulty of this task ranks higher than overseeing financial reporting. They also found that less than 25 percent of the
senior executives rated their company‘s risk management policies and procedures as excellent.
Cowap (2008, p 14) has described the audit committee as ―a beacon helping guide the enterprise through challenging times
and contributing towards achieving successful outcomes that protect and enhance reputation‖.
The International Federation of Accountants (2004) have conducted a study of 27 companies from 12 countries to determine
the wrongs and rights of corporate governance practices. One of the major ―rights‖ of sound corporate governance identified is
―Enterprise risk management‖ (IFAC 2004).
Another role of the audit committee relates to the hiring and changing of the external auditors as well as major communications
with them (Keinath & Walo 2008). The committee is also responsible for reviewing and approving related party transactions
(Keinath & Walo 2008).
Online Disclosure on Audit Committee Charter: The Gap

Details on the roles and responsibilities of the audit committee are described by the companies in the audit committee charters.
The importance of the presence of the audit committee charter as part of the corporate governance section on companies‘
websites for viewing by the users cannot be under stated. It is important to have access to this information in order to
determine to some extent the effectiveness and efficacy of the audit committees.
The entity theory emphasizes the concept of ―stewardship" or ―accountability" where the business is concerned about its
survival and the business projects financial information to equity holders in order to meet legal requirements and to maintain a
good relationship with them in case more funds are needed in the future (Paton 1962). Therefore this theory relates to the
company itself, shedding light on why companies may present their financial reports on their websites. If companies present
information on their websites on audit committees and charters they would be following regulation and as described earlier
meet the information needs of stakeholders who have been emphasizing better disclosure on audit committees.
On the other hand Capture theorists argue that while the purpose in fact or origin of regulation is to protect the public interest
(and information needs), this process is not achieved because, in the process of regulation, the regulated comes to control or
dominate the regulator (Posner 1974).In the context of this paper NYSE has very clear regulatory requirement on audit
committees‘ information disclosure. So the extreme situation presented by Posner (1974) does not exist in this case. The point
though relates to the rigour of the enforcement of rules and recommendations and the gap between de jure (regulation) versus
de facto (practice) disclosure.
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In relation to the Capture theory the implication would be that companies may not have a need to dominate or control the
regulator if they can get away with not putting the rules and recommendations into practice in relation to IFR.. This enhances
the concept that there may be a gap between de jure and de facto accounting and that regulators may not have the resources
to minimize the gap. In the context of the Internet, this gap may be varied for different types of companies.
METHODOLOGY
The sample of companies studied was derived from the January 2008 NYSE list of foreign issuers.
The two variables studied for disclosure on the companies‘ websites are:
· Existence of audit committee (mandatory for foreign companies listed on the NYSE), and
· Existence of the audit committee charter (mandatory for companies listed on the NYSE)
The disclosure of the two variables was also analysed on the basis of sub classifications including: countries, regions,
industries and economic development. The point of this was to analyse the significance of the impact of these classifications on
disclosure.
The study looked at two hundred companies (from a population of four hundred and sixty) from forty one countries selected at
random from the 2008 list of non U.S. companies listed on the NYSE. The sample represents a confidence interval of 5 and
confidence level of 95%.The companies were also analysed based on sub classifications of forty one countries, twenty one
industries, eight regions and two economic development classifications (developing and developed).
FINDINGS
Table 1 provides the significance of the factors in relation to influence on disclosure based on two tests: Pearson‘s Chi square
and ANOVA.
Table 1: Significance tests of differences between corporate governance items

(Pearson Chi Square and ANOVA results)
Impacting factor Test Value signif. Test value significance
Pearson Chi Square One way ANOVA F:
Country AuditComm 54.6 0.154 AuditComm 1.285 0.133
Charter 66.75 0.019 Charter 1.714 0.008
Region AuditComm 10.718 0.253 AuditComm 1.280 0.256
Charter 0.011 Charter 2.636 0.009
Industry AuditComm 21.542 0.366 AuditComm 1.080 0.374
Charter 0.812 Charter 0.692 0.831
Economic AuditComm 8.268 0.004 AuditComm 8.538 0.004
develop Charter 12.66 0.000 Charter 13.387 0.000
As demonstrated in Table 1 both tests are consistent in projecting that Country and Region have a significant influence on
disclosure on Audit committee charters. Economic development on the other hand is a discerning factor for both the variables
audit committees and audit committees‘ charters.
The implication here is that in spite of listing on U.S. stock exchanges being an important influence on IFR (Debreceny, Gray
and Rahman 2002) other factors such as country/ region of origin still have a more dominating influence. This is also in spite of
the two variables in this study being a compulsory requirement for corporate governance disclosure by the NYSE for foreign
listed companies.
Overall Comparison
Table 2 provides an overall comparison of the percentage of total companies with disclosure in relation to the three elements.
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Table 2: International Comparison of CG Disclosures Summary

Corporate Governance Companies Countries total=44 % with Industries total =21 % with Regions
Disclosure item total=200 disclosure (companies represent disclosure (industries with total=8 % with disclosure
(% with at least 50% of the population at least one company with regions represented by
disclosure) from each country; some disclosure) one or more companies
countries only had < or = 2 with disclosure
companies listed on the NYSE)
Existence of 58% 75% 90.4% 100%
AuditCom
2.Existence of 51.5% 63.6% 90.4% 100%
Audit Committee
Charter
As described earlier, 200 companies‘ websites were analysed for disclosure on the corporate governance items. Keeping in
mind that the two variables are mandatory disclosure items under NYSE listing the percentage of companies with disclosure on
the first variable, is just above 50 percent. It is also observable that companies may disclose information on the audit
committee without a detailed Audit committee charter as represented by the decrease in percentage of companies with
disclosure on Audit committee charters. Twelve percent of the companies with information on audit committees failed to
disclose information on audit committee charters.
Corporate Governance Disclosure by Country

The percentage of companies with disclosure for the forty four countries that the companies belonged to are presented in Table
3.
Table 3: International comparison of Corporate Governance disclosure by country

Country ( number of companies) Existence of Audit Committee Existence of Audit Committee Charter
Argentina (4) 0% 0%
Australia (9) 67% 67%
Austria (1) 0% 0%
Bahamas (2) 50% 50%
Belgium (1) 100% 100%
Bermuda (9) 89% 89%
Brazil (8) 50% 25%
Canada (24) 67% 67%
Cayman Islands (2) 100% 100%
Chile (10) 60% 60%
China (9) 56% 33%
Denmark (1) 100% 100%
Dom Republic (1) 0% 0%
Finland (3) 100% 100%
France (9) 44% 44%
Germany (9) 89% 78%
Greece (9) 33% 33%
Guernsey ( 1) 100% 100%
Hong Kong (4) 100% 100%
Hungary (1) 100% 100%
India (3) 33% 33%
Indonesia (1) 0% 0%
Ireland (2) 100% 100%
Israel (2) 50% 50%
Italy (4) 50% 50%
Japan (7) 71% 57%
South Korea (3) 33% 0%
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Table 3: International comparison of Corporate Governance disclosure by country (Continued)

Luxembourg (1) 0% 0%
Mexico (9) 33% 22%
Netherlands (6) 83% 67%
New Zealand (2) 0% 0%
Norway (2) 50% 0%
Panama (2) 50% 50%
Peru (1) 0% 0%
Philippines (1) 0% 0%
Portugal (2) 50% 50%
Puerto Rico (2) 50% 50%
RussianFedn (3) 33% 0%
Spain (4) 75% 75%
South Africa (4) 50% 50%
Switzerland (5) 100% 100%
Taiwan (3) 33% 33%
Turkey (1) 0% 0%
U.K. (17) 41% 295
Venezuela (1) 0% 0%
The companies with no disclosure on either of the two variables are presented in bold. They belong to Argentina, Austria,
Dominican Republic, Indonesia, Luxembourg, New Zealand, Peru, Philippines, Turkey and Venezuela.
Corporate Governance Disclosure by Region

Table 4 provides the percentage of companies with disclosure based on regional classification. The companies are grouped
into nine regions.
Table 4: International Comparison of Corporate Governance Disclosure by regions

Country Groups Audit Committ
Committ Charter
European Union 67 64.1% 58.2%
Asia 32 53.1% 41.9%
Oceania 11 54.5% 54.5%
Central & South America 41 41.5% 34.1%
Caribbean 14 78.5% 78.5%
Russianfed 3 33.3% 0%
Africa 6 66.6% 66.6%
North Americas 24 66.6% 66.6%
Europe 2 50% 0%
NYSE has prescribed that the foreign company must disclose details of the audit committee. The percentage of companies
with the highest level of disclosure on audit committees and committee charters were the Caribbean companies. The
percentage of the Russian Federation companies with disclosure on this item ranked the lowest followed by the Central and
South American companies.
The Asian, Oceania and European companies had similar percentage of companies with disclosure on their audit committees
with around half of the companies providing this disclosure. The two European companies that belong to a country that is not a
member of the European Union originate from Norway. The European Union, African and North American (Canadian)
companies had a higher percentage of companies with the disclosure equal to or more than 64% of the companies disclosing
the differences.
126
The Oceania, North American, African and the Caribbean companies had the Audit committee Charters if they had information
on the Audit committee. For all other regions the companies with charter disclosure were less than the companies with audit
committee disclosure. The Russian Federation and the Norwegian companies provided disclosure on their audit committees
but did not provide details on the audit committee charter.
Corporate Governance Disclosure by Industry

Oyler et al (2003), Debreceny et al (2002), Lymer (1997), Brennan and Hourigan (1998), and Ismail (2002) found a significant
association between industry type and the extent of financial disclosure on the internet. On the other hand Craven and Marston
(1999) found no relationship between industrial classification and internet financial reporting.
The companies were classified into 21 industry groups and are presented in Table 5 together with percentage of companies
with disclosure from each industry.
Table 5: International Comparison of Corporate Governance Disclosure by industries

Industry groups Existence of Audit Existence of Audit
(number of companies) Committee Committee Charter
Banking (30) 63% 60%
Telecommunications (48) 46% 44%
Retail (7) 57% 43%
Insurance (8) 63% 63%
Financial (7) 57% 29%
Engineering (10) 70% 70%
Crude Oil (18) 67% 56%
Diversified (6) 83% 83%
Construction (3) 33.3% 33.3%
Media (4) 25% 25%
Hotels (3) 33.3% 33.3%
Manufacturing (26) 54% 50%
Energy & Chemicals (7) 86% 57.1%
Airlines (1) 0% 0%
Pharmaceuticals (7) 100% 57.1%
I.T. (2) 50% 50%
Transport (5) 60%` 60%
Agriculture (3) 67% 67%
Utilities (4) 25% 25%
Auction (1) 100% 100%
Table 6 shows a significant impact of industry classification on the disclosure of information on Audit committee. For the
purpose of this table, the industries have been grouped into two types: service and production. This generalized classification
may have eliminated the problem of limitations on the statistical analysis due to largely unequal samples. Based on table 6
results, it can be inferred that industry origin has an impact on the level of corporate governance disclosure by companies on
their websites.
Table 6: Significance tests of impact of industry with broader classification

(Service and production)
variable value significance
Existence of Audit Committee 5.195 0.023
Existence of Audit Committee Charter 1.963 0.161
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Corporate Governance Disclosure by Economic Development

The development of a country is measured with statistical indexes such as income per person, life expectancy, literacy and
other measures. Developing countries are countries which have not achieved a significant degree of industrialization relative to
their populations (Wikipedia 2008). It is assumed that less economic development would have a negative impact on IFR,
supported by the findings by Debreceny, Gray and Rahman (2002) and demonstrated in Table 7.
Table 7: International Comparison of Corporate Governance Disclosure by economic development

Economic development type Existence of Audit Existence of Audit
(number of companies) Committee Committee Charter
Developing (57) 42% 31.5%
Developed ( 143) 64.3% 59.4%
It can be observed in Table 7 that there is a clear gap between the percentage of companies with disclosure in relation to all
the items between the developing and the developed countries. This is in spite of the companies being multinationals and
being listed on the NYSE. The larger gap exists regarding Committee Charters. Kimber, Lipton & O‘Neill (2005) have pointed
out that developing countries are facing an increasing pressure to adopt Anglo-American rules based approach to corporate
governance. This is going to take time due to various reasons including family and government (partial) ownerships of
multinational corporations such as the ones listed on the NYSE.
RECOMMENDATIONS
According to DeZoort and Salterio ( 2001) there is a strong support for audit committees that comprise entirely of independent
directors and have adequate knowledge of risk management, financial reporting and related party transactions as well as a
thorough understanding of their responsibilities. The blue Ribbon Committee on Improving the Effectiveness of Corporate
Audit Committees and the National Association of Corporate Directors‘ Blue Ribbon Commision on Audit Commitees have
emphasized the importance of audit committee member‘s accounting experience and knowledge, termed as financial literacy
and sophistication (DeZoort and Salterio 2001). Gazzaway ( 2008) has referred to this point as being equipped through
knowing the accounting complexities and challenges by virtue of industry, geography or business practices.
Based on these comments and the findings of this study the following recommendations are made in relation to disclosure on
audit committees by companies on companies‘ websites:
· All companies that are required by law or other regulation ought to provide information on audit committees and audit
committee charters on their websites. This may appear like a simple concept but as Kimber, Lipton & O‘Neill (2005)
have pointed out the adoption of Anglo-American models of corporate governance by developing countries would take
time. Adequate training of audit committee members in these regions would also encourage better implementation of
audit committees‘ roles and responsibilities, which in turn would result in increased disclosure since disclosure can only
occur if there is an event or system to disclose.
· The second recommendation relates to the point mentioned above: Additional disclosure on the experience and
qualifications of the members of the audit committees so that a judgement can be made in relation to the financial
literacy and competency of the members.
· Information regarding communication between the audit committee members and the CFO for example in the form of
number of meetings held would be a useful indicator of quality of decision making by the audit committee based on
information provided by the CFO.
CONCLUSION
This paper presented a fundamental analysis of the disclosure on audit committees and audit committee charters by foreign
companies listed on the NYSE on their websites. The point made was the lack of implementation of regulatory requirements by
some companies when Internet Financial Reporting (IFR) is being looked at. It is important for informed decision making that all
necessary information is provided by companies, especially if it is mandatory. Audit committees play a critical role in numerous
functions of the organization such as risk management, selection and communication with external auditor, overseeing related
party transactions and monitoring financial reporting implementation and compliance. Due to this, users and regulators are
demanding more detailed information on specific aspects of audit committee information. At this point the fundamental
disclosures as required by the NYSE for foreign listed companies seem to be lacking for a large number of multinationals. This
is due to the dominating influence of country/ region/ industry origin over regulatory requirements. A more strict approach to
128
compliance needs to be addressed by regulators in relation to IFR if the gap between de jure and de facto online corporate
governance disclosure is expected to be narrowed or even eliminated.
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J. Wachirathamrojn, S. Adsavakulchai and L. Li Volume 9 – Spring 2010
COST EFFICIENCY AND ECONOMIES OF SCALE IN THE SUPPLY CHAIN OF

WATER FOR INDUSTRY IN THAILAND
J. Wachirathamrojn1, S. Adsavakulchai2 and L. Li3

University of the Thai Chamber of Commerce1,2, Thailand and Chinese Academy of Sciences3, China
ABSTRACT
The availability of water resources in Thailand is important for agricultural and industrials. The economies efficiency in the
supply chain of water for industry is based on the economic theory of demand and supply. The demand of water for industry
illustrates the impact of infrastructures investment and water cost. In the economic perspective, cost efficiency and economies
of scale in the water for industry can be estimated from the total cost of the resources supply and from the demand function.
The main objective in this study is to analyze the applicability of econometric analysis to the supply chain evaluation of water
for industry. The preliminary result is to estimate a variable cost function using a model approach to assessing the water for
industry in Thailand to improve its operating cost efficiency. On the going research, to develop a stochastic cost frontier model
to measure the efficiency estimation is a stochastic frontier production function models.
Keywords: Water for Industry, Thailand, A Stochastic Cost Frontier Model
1. INTRODUCTION AND BACKGROUND

Thailand possesses abundant water resources but demand has begun to outstrip supply. Water demand and deficits are
expected to increase. Water use and water resource are considered to achieve on supply chain of necessary resource. Eastern
Water Resources Development and Management Public Company Limited was founded by the Provincial Waterworks
Authority (PWA) on October 15, 1992 to be responsible for the development and management of main water pipeline systems
in the Eastern Seaboard by supplying raw water to industrial estates, factories and waterworks authorities through the
company‘s main raw water pipelines in Chonburi, Rayong, and Chachoengsao.
In 2007, the company and its subsidiaries recorded a total net profit of 440.68 million baht, representing a 13% decrease from
2006. Total revenue was 2,430.13 million Baht, increasing by 29.20 million Baht, or approximately 1.2%, from 2006. Revenue
from each business is shown below.
Figure 1: The Revenue Structure in 2007 and 2006
Form Figure 1, the revenue from raw water business totaled 1,538 million baht, rising by 182 million Baht or 13% and
corresponding to an increase of 5% in the quantity of raw water sold.
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2. RESEARCH OBJECTIVES
The main objectives of this study are as following:
1. To Evaluate The Supply Chain of Water for Industry System.

- The Water Supply Evaluation
- The Water Demand Evaluation
2. To Analyze Cost efficiency and Economies of Scale
3. To develop Stochastic Frontier Production Models
3. METHODOLOGY
In this study we use datasets from the supply chain of water for industry surveys to examine the production costs of water
supply systems. Preliminary data are collected from the cost in the supply chain of water for using Regression Analysis is one
of the statistical analyses among parameters into the logistics cost model.
3.1.The Water Supply Evaluation

The total of budget were used for providing clean water to each service areas, developing an integrated framework and a
responsible institution for water resource management, improving water basin in each region, building a network for water
allocation from each reservoirs, and providing a warning system as well as instructing precautionary and remedy measures in
times of any natural disasters. The five main reservoirs (Nong Pla Lai, Dokkrai, Khlong Yai, Prasae, and Nong Kho) in the
eastern region had a combined water volume of 450 million cubic meters (as of September 2007), or at 82.61% of their
combined capacity as shown in Table 1.
Table 1: Total of water distribution capacity and water consumption during 2000-2007
Water Supply Evaluation 2000 2001 2002 2003 2004 2005 2006 2007
Total water consumption 103.97 116.10 140.03 156.52 177.65 190.10 199.36 211.20
Capacity of water distribution 263.00 263.00 328.00 328.00 343.00 423.00 423.00 473.00
Ratios of water distribution capacity

2.53 2.27 2.34 2.10 1.93 2.23 2.12 2.24
and water Consumption
(Unit : Million cubic meter / year)
3.2.The Water Demand Evaluation

Demand is estimated to be growing about 9 percent a year, but the investment program of the water supply has increased
supplies about 6 percent a year. The demand of water in the raw water for industry service areas was approximately 210
million cubic meters. Chonburi and Rayong provinces were the areas where the demand was high, at approximately 201 million
cubic meters. The demand for water in these two provinces is expected to increase to 413 million cubic meters by the year
2016. In other words, the demand is anticipated to double in the next ten year as shown in Table 2 and Figure 4.
Table 2: Total of forecasted water for industry demand in service areas during 2008-2017
Forecasted Water Demand 2008 2009 2010 2011 2012 2016 2017
Eastern Seaboard Areas 221.50 238.40 265.30 290.30 308.00 389.85 414.80
All service Areas 230.00 247.60 274.80 300.00 319.40 413.82 440.30
(Unit : Million cubic meter / year)
2008 – 2012 : Water Demand Growth approx. 8.6% per year
2013 – 2017 : Water Demand Growth approx. 6.4% per year
*Source : Water Demand & Forecast for 5 years (latest revise in Q4/2008)
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Figure 4: The Demand and Supply of Water

(DK : Dokkrai , NPL : Nong Pla Lai and NK : Nong Kho - Reservoirs)
However, the demand and supply of water as shown in Figure 4 is growing demand of water use for domestic consumption,
agricultural and industrial development.
3.3.The Supply Chain of Water for Industry System

A supply chain is defined as a set of interaction among suppliers, manufacturers, distributors, and retailers that facilitates the
transformation of raw materials into final products. The supply chain of water for industry may include raw water from natural
resources, conveyance system as open channel and pipeline network, pumping station as manufacturer plant, raw water
production processors, and storage in reservoir as warehouse and transport facilitators, distributors, and retailers. Raw water
from natural resources is the upstream supply chain of water as shown in Figure 5.
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Figure 5: The Supply Chain of Water for Industry

At present, the Thai government encourages the private sector to provide water to industry as well as to the municipalities. A
private company had been engaged to supply water to the industrial sector in the eastern part of Thailand. All industries use
water in either their main or secondary activities, including those uses characteristic of the domestic sector, such as in office
buildings. Industrial estates take either ground water or surface water and treat it to supply factories in their estates. The supply
chain of water for industry allocates water sources and manages raw water pipelines networks for adequate consumption and
industrial use. This paper is important to emphasize the pipelines network linking as the water grid line in Eastern Seaboard of
Thailand. Water resources development for Eastern Seaboard is invested by Royal Thai Government.
3.4.Cost Analysis
3.4.1. Description
Logistics cost
In this study, logistics cost consists of four costs that are administrative cost, transportation cost, inventory cost and warehouse
cost. There are several parameters related to each cost as following:
Logistics cost model

In this study, using SPSS is a tool for logistics cost model. Regression Analysis is one of the statistical analyses among
parameters. Stepwise analysis is one of the statistical methods for parameter selection into the logistics cost model.
3.4.2. Estimation Results

The results from regression analysis from each cost as following:
1. Administrative cost consists of labor cost, electricity, number of labor and office supplier. The results from regression
analysis of administrative cost as shown in Eq. 1
AC = f (labor, electricity, number of labor, office supplier) (1)
From equation 1, the correlation among parameters with coefficient of correlation ( R  0.99 ).
2. Transportation cost consists of labor cost, fuel cost, and number of labor, interest rate and exchange rate. The results
from regression analysis of administrative cost as shown in Eq. 2.
TC = f (fuel cost) (2)
From equation 2, the correlation among parameters with coefficient of correlation ( R  0.99 ).
3. Inventory cost consists of average inventory cost and interest rate.

From the model, the parameters that related to inventory cost as shown in Eq. 3.
IC = f (inventory cost, interest rate) (3)
From equation 3, the correlation among parameters with coefficient of correlation (R = 1.0).
4. Warehouse cost consists of depreciation cost of buildings and equipment and labor cost
From the model, the parameters that related to warehouse cost as shown in Eq. 4.
WC = f (depreciation cost of buildings and equipment, labor cost) (4)
From equation 4, the correlation among parameters with coefficient of correlation (R = 1.0).
5. Total logistics cost

From Eq. 1 to Eq. 4, the total logistics cost is the summary of each cost as shown in Eq. 5.
TLC = AC + TC + IC + WC (5)
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To conclude, the results are the total logistics cost depend on administrative cost. This is because of the advertising and
public relations expenses as shown in Figure 7.
Figure 7: Total Logistics Cost of Water for Industry
4. CONCLUSIONS AND RECOMMENDATION

Key risk factors that may affect cost efficiency and economies of scale in the supply chain of water for industry in Thailand
include:
4.1. Investment in businesses that fail to achieve their goals. Over the years, the company has expanded its operations from
raw water to also include tap water, drinking water, and pipe and equipment businesses.
4.2. Conflicts with communities concerning the use of water resources. Most of the construction projects are major pipeline
projects such as that from Prasae to Khlong Yai, one of the company‘s main raw water resources.
4.3. Inadequacy of water resources to meet water consumption demand. At the beginning of 2007 the water volume in the
main reservoirs was 40 million cubic meter higher than in 2006. The projection in 2007 indicated that there would be
sufficient water for consumption throughout 2007.
4.4. Increased cost due to rising energy costs. Pumping water from newly developed water resources and the rising cost of
energy due to a higher Ft rate resulted in higher costs than anticipated.
4.5. Policies of the government and related agencies. Uncertainty in the policies of government agencies could affect the
company‘s operations. Furthermore, the company‘s business is in line with a cabinet resolution to promote industrial
investment and tourism in the Eastern Seaboard.
4.6. Damage to pipeline systems. The company‘s pipeline system may face the problem of corrosion or construction of other
infrastructure in the areas where the pipelines are laid that may lead to breaking or leaking.
It can be concluded that the increase was due to the administrative cost that went up by 284 million Baht or 108% from the
provision for diminution in value of inventories from the drinking water business and pipe business as well the advertising and
public relations expenses. The cost of service business decreased, corresponding with the decrease in revenue from the area
where the project to reduce water losses was implemented. Interest payable is increased by 99 million Baht or 106% due to the
completion of Bangpakong-Chonburi project. On the going research, to improve develop logistic network that results in cost
savings, convenient zonal distributions, and responsive supply chain management operations.
REFERENCES
1. Aigner, D.J., Lovell, C.A.K. and Schmidt, P. (1977). Formulation and Estimation of Stochastic Frontier Production Function
Models. Journal of Econometrics 6(1), 21-37.
135
2. Meeusen, W. and van den Broeck, J. (1977). Efficiency Estimation from Cobb-Douglas Production Functions with
Composed Error. International Economic Review 18(2), 435-444.
3. Antonioli, B. and Filippini, M. (2001). The use of a variable cost functions in the regulation of the Italian water industry.
Utilities Policy 10, 181-187.
4. Chang S-Y, Brill E D, Jr., Hopkins L D, 1982, "Use of Mathematical Models to Generate Alternative Solutions to Water
Resources Planning Problems", Water Resources Research 18 58-64
5. Garcia, S. and Thomas, A. (2001). The Structure of Municipal Water Supply Costs: Application to a Panel of French Local
Communities. Journal of Productivity Analysis 16, 5-29.
6. Kim, H.Y. and Clark, R.M. (1988). Economies of Scale and Scope in Water Supply. Regional Science and Urban
Economics 18, 479-502.
7. Montginoul, M. & Rieu, T. (2001). Implementation issues related to different water pricing reforms: application to the
Charente river Basin in France and irrigation management agencies in Morocco. In: Conference Pricing water. Economics,
Environment and Society. Sintra, 6 and 7 September 1999.
8. Varela-Ortega, C., Sumpsi, M. J., Garrido, A., Blanco, M. & Iglesias, E. (1998). Water pricing policies, public decision
making and farmers' response: implications for water policy. Agricultural Economics 19 (1-2), 193-202.
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G. Kumar Volume 9 – Spring 2010
IMPACT OF INDIAN CULTURE ON WORK-ETHOS
Wg Cdr G. Kumar
Global B-School, India
“Such an historical concept … cannot be defined according to the formula genus proximum,
differentia specifica, but it must be gradually put together out of the individual parts which are taken
from historical reality to make it up.”
--Max Weber, ‗The Protestant Ethic and the Spirit of Capitalism‘ (New York: Scribner's Press, 1958), p. 47.
ABSTRACT
With the advent of Industrialisation, man gradually ceased to be an economic entity; he/she merely became a productive
resource -- mechanisation further reduced his/her status to that of a substitutable resource who could be trained to perform
simplistic but highly structured activities, and his/her productivity came to be measured not by the final product‟s attributes but
by the number of stipulated actions that he/she completed almost mechanistically. Thus, no part of the finished product or
service is identifiable with the excellence of a particular worker‟s labours or with his/her knowledge and/or skills in large
complex organisations.
Less and less number of men are now self-employed, and the number of those who work for monolithic business entities is
ever increasing. In the result, even work has lost its status as a source of pride for the worker. He/she works merely out of
necessity to earn the means for buying economic goods and services; moreso, the worker is not emotionally attached to any
particular work-place because businesses have largely become impersonal. And the only pride that he/she may derive from
work is when the employing organisation commands prestige in the Society.
Organisational prestige springs from several factors, including its Corporate Culture. This culture or value-system may or may
not match the value system of the cross-cultural Global Worker employed by Multi-National Corporations. This Paper is an
attempt to make Indian worker aware of the pride and reward that are intrinsic to work, and by adopting this Indic work-ethos a
worker, too, can not only satisfy his/her psychic needs but also become motivated to unleash the Power of Excellence in
Management.
This paper interprets the term „economic work‟ as a socio-economic Duty -- based on cultural beliefs of World‟s major religions.
„HRD‟ is also defined in consonance with such societal beliefs as will integrate the Global worker and his/her cultural values
with the purposive-rational orientation of modern business entities -- this approach is new to cross-cultural management
thought.
INTRODUCTION
The difference between ‗right‘ and ‗wrong‘ rests within our inner selves -- moreso our outer and inner selves are inseparable
during our conscious waking hours; thus, our beliefs & values do create a unique underlying spirit that can transform our
physical-cum-psychic energies in a way that is most conducive for harnessing our maximum potential for productive processes
of our socio-economic life.
It isn‘t easy to imagine a life without beliefs. For example, how does a ‗confessioner‘ know that God has really forgiven
him/her? It depends on his/her belief! Our real Life has, in fact, many ‗taken-for-granted‘ areas like Euclid‘s intuitive Theorem
(or the reiterative logic of the first available solution in modern mathematics) that we simply believe in as true (or the best
solution) -- until one day we socio-culturally become competent to question their underlying basis.
Most of the times we are able to live our lives smoothly because our beliefs provide us with inner strength -- even if they are
apparently based on myths; myths sometimes provide us with a temporary rationale. Or else, we may lose our sanity trying
incessantly to find the elusive cause behind every phenomenon that we come across in our daily lives. At the same time, it
must not be lost sight of that what science claimed to be the truth yesterday, is often found to be false today -- if that which was
unconfirmed or unknown at a particular stage of our knowledge is not subsequently confirmed or found, then science will not
progress.
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We also believe in many things because most of the issues in life have two sides – almost every idea has its opposites or
alternatives (perfect or imperfect substitutes) and we are faced with the problem of choice or trade off or optimisation; this
choice often is NOT this 'or' that, but this 'and' that. That is to say, Life is based on trade-offs/compromises. Though our
knowledge may assure us what is right and what is wrong, yet our environment does not offer clear choices -- we often make
merely an ‗optimum‘ compromise. Machiavelli called it ―virtu‖ and contrasted it with virtue. We may call it economic rationality or
wisdom -- but all this is based on beliefs only!
Moreso, the conflict may sometimes not be between the two clearly opposites like ‗right‘ and ‗wrong‘, but between shades of
two rights or degrees of two wrongs -- for example between ‗right‘ and ‗less right‘, or between ‗wrong‘ and ‗more wrong‘, or
even between ‗bad‘ and ‗worse‘. At times, the situation may be such as to demand that one suppresses his/her personal or
universal ethics in the interest of a notionally larger interest. The practical way to work through the realities of life is to have
courage of conscience but, at the same time, to be flexible and individually accountable to oneself as well as to others. Thus,
pursuance of moral values demands blending of at least three perspectives: character, accountability, and compromise -- after
all, taking all obstacles into account the shortest line between any two points may sometimes be a crooked one!
Life is a churning process that brings forth both poison and nectar; it is poison first and nectar the next, i.e. failures preceding
successes. Such experiences are almost normal in an R & D environment that requires a Hero who can rise from the ashes or,
at least, keep the embers burning till help arrives! Heroism demands courage -- courage to go beyond the ‗rational‘ to the
―ideal‖. Therefore, the process of self-development is dominated by a continuous search for a set of beliefs and a set of ideals
to live with and live for. Beliefs and ideals give meaning to life and make it worth living!
However, the reason for not questioning these beliefs is NOT that we are afraid to ask but that it is simply convenient to believe
in their efficacy, at least for the time being. On the other hand, we ought not to allow these healthy beliefs to degenerate into
rituals or dogmas (cultural yokes) by becoming afraid to question these when we are intellectually and socio-culturally
competent to raise such questions. Otherwise, it will take a major movement (like the Renaissance) to throw off this yoke.
In Ethics we speak in terms of ‗values‘, but in Economics we weigh mutual ‗interests‘ -- the latter is a Pavlovian motivation (a
weighted or reinforced response to environmental stimulus) and the resultant repeated successes reinforce the same
response. In economics, the assumption of a ‗rational man‘ refers to the expectation that certain responses will be repeated.
As per zeitgeist, the time is ripe to suggest that we may revisit our Cultural heritage to find an ideal meaning for the term
‗economic work‘. Why? Let‘s find out together. However, during this process let us not lose sight of the fact that in a Global
enterprise an individual‘s ethical values might sometimes conflict with those of his/her Organisation due to a variety of factors --
including the cultural differences themselves; and further that even the value systems of Business Managers and
Scientists/Engineers may differ. Hence, I have considered religious scriptures of more than three religions and also every
civilised Society‘s desire for fairness, justice, minimisation of sufferings and enough mutually exchangeable production to
improve the quality of life of all its members.
In the Homo sapiens‘ race for economic, industrial & military wealth and power the importance of Research, Design &
Development is well recognised. However, before Industrial Revolutioni the development of Science & Technology was sparse
and sporadic.
Renaissanceii changed, inter alia, the West‘s attitude towards work, wealth and scientific inquiry. Similarly in the East, such
countries as adapted a reinterpreted Confucian philosophy (e.g. Japan and South Korea) developed faster than those who
continued to stick to the traditional view of Confucius. Compared to non-Confucian countries, South Korea achieved within its
first three plan-periods much moreiii than what India failed to achieve even during the first half century of its five-year planning
(including the intervening no-plan periods).
Why does India, with the fourth largest contingent of scientists and engineers in the world, fall in the category of countries that
have the lowest per capita income? Can Indian Culture, if it is reinterpreted, act as a saviour and free us from the bondage of
the retrograde pronouncements made on our scriptures by the ‗pandas‘ and the 19th or early 20th century international
researchers? Can our Cultural heritage – if rediscovered, reinterpreted and holistically integrated (with grey areas explained
and parables reduced to logic in a way that is not only readily intelligible to the mildly dogmatic individuals but is also
considered as an invigorating exercise by the intellectuals) -- goad us into achieving excellence in our socio-economic duty that
is ‗work‘ or economic work? An effort to put together individual parts of our Scriptures, assimilate & synthesise their ancient
knowledge, and to reinterpret the same with modern logical techniques – albeit in parables, shall create a new Gestalt that will
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be equivalent to a Thesis by itself because it will, thereby, create new knowledge. In this book it would be my humble effort to
do so. Amen!
From the biographies of 20 eminent scientists (from Archimedes to Einstein) I have found that at least 18 of them had an
abiding faith in God -- besides excellence, hard work & commitment in their areas of interest. They also enjoyed an inner sense
of peace, tranquility with the outside world and aesthetics (a sense of proportion) -- how can one observe Nature, including our
ethereal Knowledge-Base, and discover its Laws if he/she is not in communion with Nature? Therefore, introducing the pith and
substance of the following paras into the Training Programme of young scientists and engineers may help in integrating them
better into an RDD (Research, Design & Development) environment -- especially the purposive-rational style of market-
oriented R &D organisations.
The knowledge of self and others, being a key structural realignment for any RDD environment, takes the pride of place not
only at the end of this research-work but also at its beginning.
2. It is not surprising that in the West pre-Renaissance and post-Renaissance polaristic attitudes towards ‗work‘ stemmed from
one and the same source, viz. the Bible—albeit with emphasis being placed on different parts of this Scripture. Let us examine
these differences:
(a) God said to Adams in the Garden of Eden:

―Because you have listened to your wife and eaten from the tree which I forbade you, accursed shall be the ground on
your account, with labour you shall win your food from it all the days of your life … You shall gain your bread by the
sweat of your brow until you return to the ground -- for from it you were taken.‖ [emphasis added]
--Genesis 3.17-19iv
Hence, work came to be regarded as a curse; and the cleverest of men invented the feudal system to garner the
cleanest of work:
―Who first invented work and bound the free
And holiday rejoicing spirit down?‖ [Emphasis added]
--Charles Lamb (1775-1834) in Workv
―Which of us … is to do the hard and dirty work for the rest … and for what pay? Who is to do the pleasant and clean
work, and for what pay?‖ [Emphasis added]
--John Ruskin (1819-1900) in Sesame and Liliesvi
(b) However, Lord Christ did also say -- albeit in a parable (Luke 19.11-27vii):
‗A man of noble birth … called ten of his servants and gave them a pound each saying, ―Trade with this while I am away‖
… [On his return as the King, he] sent for his servants to whom he had given the money, to see what profit each had
made. The first came and said, ―Your pound, Sir, has made ten more‖. ―Well done‖ he [King] replied ―You are a good
servant. You have shown yourself trustworthy in a very small matter, and you shall have charge of ten cities‖. The
second came and said, ―Your pound, Sir, has made five more‖, and he also was told, ―You, too, take charge of five
cities‖. The third came and said, ―Here is your pound, Sir; I kept it put away in a handkerchief ….‖ …Turning to his
attendants he [King] said, ―Take the pound from him and give it to the man with ten … the man who has [,] will always
be given more; but the man who has not will forfeit even what he has‖. [parentheses and emphasis added]
―Being lazy will make you poor, but hard work will make you rich.‖
--Proverbs 10.4viii
Renaissance emphasized the portions cited in sub-para (b) above. The Protestant religion, coupled with Calvinismix,
emphasised these very aspects of Bible and, thereby, radically changed the work-ethos of the ‗faithful‘. Historically,
Protestantism played an important role in giving a fillip to hard work, discovery, invention, innovation and industrial
revolutionx -- the beginning of mass economic development.
3. Were we, too, to reinterpret the composite Indian Culture in a way that emphasises hard work and excellence in ‗economic
work‘, then the objective of this book would have largely been achieved. Since the focus of my research is Human Resource
Development, let us first take a holistic look at the Indic concepts of Man, God, Parmatman, Atman, Life, Karma, Man‘s Mission
in Life, Maya, ‗Work‘ &c:-
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(a) God: He can be perceived through the Law of Elimination इति न, इति न (iti na, iti naxi) -- neither this, nor that. However,
one can eliminate only that which he/she can perceive (with or without the aid of technical devices) through his/her own
five senses of sight, sound, touch, smell and taste. But God cannot be perceived through these biological senses and,
thus, His existence can neither be proved nor objectively disproved by the use of these outer five senses alone --
because God is subtle and is not made of the gross matter of which the mortals are made (men are made in His ‗image‟
but are not of the same origin as He Himself):
―[M]en on earth can understand earthly things and nothing else‖ says the Bible (2 Esdras 4.21xii) [parentheses added]
―No vision can grasp Him … He is above all comprehension.‖

--Sura VII. 103 (Koran)xiii
So, we add to our 3-Dimensional plane a 4th Dimension (i.e. Time) before starting the aforesaid elimination process;
now God is that which is not eliminable over Time-- He is the eternal Truth. The rest all else is maya (including our solar
system itself) because all else has a temporal life – howsoever long may it be! God is that which binds together and
regulates in an orderly way all that is ‗maya‘.
One may argue as to why, then, Hindus depict God in only three Dimensions, or why do Christians say that ‗God made
man in His own image‘? The answer lies in the psychological fact that one can better follow a role-model whose image,
at least, one can conjure up in his/her mind – that‘s why even the Brahmakumars chose to focus on, at least a ‗point‘
(which, by definition, has some length & breadth) than the concept of an unseen ‗force‘. Moreso, ‗image‘ in the above
saying does not necessarily mean ‗a being with limbs characteristic of Homo sapiens‘ -- it may mean the purity of
character [please refer to the parable of initial properties of the air cocooned in the balloon (infra)].
Besides, in Hinduism the above practice -- when stretched to the extent of worshipping stones (e.g. ‗thakurs‘ that bear
no human figure at all) conveys a subtle message, viz.:
God lies within one‘s own perception and, thus, need not live outside of man himself; moreso, man is God‘s self-made
abode. And if man can see Him in a stone (or better still, within himself) then why can he not see Him in one‘s fellow
beings? [This is a subtle message to religious fanatics who are ignorant of the true nature of religion.]
(b) Parmatman, Jeev-atman and sooksham-sharir: For ease of understanding let us dwell upon a parable:-
Fill some air into a balloon and leave the balloon in the surrounding air-- though the properties of the air inside and
outside the balloon were initially the same, yet these two sets of air are now separately identifiable. Similarly, a jeev-
atman is identifiable separately from the whole or param (Supreme) Atman.
Gradually, that part of the air which is cocooned inside the balloon starts stagnatingxiv and the properties of these two
portions of the erstwhile same air also tend to become different -- unless there is a path for their communion, e.g.
sushumna ‗nadi‘ (infra).
At this stage pierce the balloon, and let the cocooned part get a whiff of fresh air. Now, the part gets purified by the
whole (‗moksha‘) and you can no longer identify the two portions separately. As a parable, we may say that the
separated part of air has achieved Moksha, i.e. he/she has inextricably mingled with the unbounded whole and, thus,
freed himself/herself from the cycle of births and deaths. In this sense, the concept of Atman goes beyond the concept
of ‗Spirit‘.
The concept of ‗sooksham-sharir‘ is linked to astral travel; it is not our body-matter that goes astral travelling but our
Spirit or the sooksham-sharir or the temporarily non-transformable part of that bodily energy which is indestructible
(energy is indestructible according to the First Law of Thermodynamics). It is the sooksham-sharir that is sometimes
visible after the gross body-matter has ‗died‘ [please refer ‗Life & Death‘ (infra)]. And the so-called ghosts are either this
sooksham-sharir or the relational metaphysical leftovers that are similar to the temporary existence of inherent relations
between the surgically removed human organ and the remaining organs, or is an apparition of the natural phenomenon
of our retina projecting onto our cerebral screen certain images or movie (during our dreamy state, our mind projects
onto the same cerebral screen garbage-images from the un-wiped memory-space -- which is normally occupied by
dynamic cognitive memory during our waking state). However, apparitioned state freakily works in a reverse direction --
that is to say, the affected individual‘s retina is projecting images from the aforesaid cerebral space onto a thin film of dry
fog (pictures are projectable on dry-fog screen) outside his/her body.
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(c) Life: The controversy accompanying ‗euthanasia‘ proves our inability to identify a single substance within our anatomy,
the existence or non-existence of which can singularly (by itself alone) pronounce death. It is so because the properties
of life and death are carried in one and the same substance-- a circulating fluid called ‗blood‘:
God forbade Noah from eating ‗the flesh with the life which is [flowing] blood, still in it‘ says the Genesis 9.4-5xv
[parentheses added]
From its very inception every living creature carries within itself the seeds of life and death or the life-giving (+) and life-
taking (-) forcesxvi. As long as the residue of these two forces is positive, growth occurs; when these forces equalise
each-other, stagnation is witnessed. And decay begins when the life-taking forces get the better of the life-giving ones.
These three states are depicted simultaneously in Hindu scriptures in one and the same deity, namely Lord Shiva. And
the holy Ganges flowing from His ‗jattas‘ (hair) symbolises the fluid that circulates and carries generative forces
(‗Bismillah ur Rahman neer Rahim‘).
―On the fifth day you commanded the seventh part, where the water was collected, to bring forth living things …‖
[emphasis added]
--2 Esdras 6.47-48xvii
―It is He who has created man from water …‖ [emphasis added]

--Sura XXV.54xviii
One can liken the life-giving energy to amino acidsxix and, to some extent, to the stem cells; and the life-taking force is
somewhat similar to the blackholes which presumably act as cosmic scavengers by converting matter into energy and
then storing it in a stable formxx (a method of storing energy that may support inter-Galactic voyages). Just as deathly
forces are released when an atom of matter (or gas) is split, so are dangerous substances released when we try to fuse
two opposing energies (e.g. life-giving and life-taking forces) together into a single atom -- the continuing failure of
super-cyclotrons to replicate the ‗Big Bang‘ is an example.
Before the amino acids can be activated into a life-giving force, it is necessary to completely deactivate and destroy
those dangerous substances which automatically get created when these two opposing forces or energies fuse together
into a single molecule -- in Hindu mythology Lord Shiva is depicted as the deactivator and destroyer of the poisons that
arose out of ‗sagar-manthan‘ (the mythological churning of the sea probably occurred in the area that is now marked by
Bermuda Triangle) and because of the sucking in of this poison His throat is symbolically shown as blue (the colour of
our veins).
(d) Man: It is the only species amongst the 84 lacsxxi species on earth, which can taint his actions with intentions other than
the pure Natural instincts or ‗nishkam karma‘. And it is the only species which is capable of giving more to this World
than what he/she takes from the environment; it is also the only species that can discover and master the Laws of
Nature. And Man is the only one who can turn these discoveries to either his advantage or to his disadvantage --
moreso, he is the one who alone can follow one or more of the paths to Moksha.
(e) Maya: All matter – whether living or non-living – is ‗maya‘ (untruth, non-eternal or waste or mere dust):
―Dust you are, to dust you shall return.‖ --Genesis 3.19xxii
(f) Karma: In its simplistic form, ‗nishkam karma‘ is the behaviour that stems from our animal instincts-- that is to say, it is
untainted by motives, unattached to the mirage of human temptations and is unblemished by ego. Nishkam karma is
one of the paths to Moksha. It is an action guided purely by our central ‗nadi‘ (sushumna nadi that is active when both
our nostrils are flowing together, e.g. when we take a deep breath) – this nadi is active in every new born baby and
communicates directly with the vast store of knowledge that lies in our space (ether); on one end of sushumna is a lotus
whose petals serve as antennae for communion with the said space. However, man‘s ‗apkarma‘ (evil actions) destroy
the communicative aspect of sushumnaxxiii.
To understand nishkam karma, let Lord Krishna illumine us (vide The Bhagvad Gitaxxiv):
―By not originating any action [karma] a man does not get actionless. [In fact] [n]onesoever is actionless even for a
moment[,] [e]veryone, being helpless, is forced to work by the qualities born of the Prakriti [nature] … Perform your
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prescribed duty [.] [I]ndeed action is superior to inaction [;] [m]aintenance of the body itself may not come about from
inaction … he is a thief who feeds himself without offering them [the society] what he received from them [.] He who
does not turn over this wheel [--] thus set in motion, is a man of sinful life and he lives in vain. By work alone Janaka and
others obtained perfection … With an eye to the maintenance of the world [including its social order] you ought to
perform action [.] Whatever a great one does, the common man does, too. Whatever the [great one] makes
authoritative, the people follow it. [For example] there is nothing in the three worlds [‗Trilok‘] that is to be done as duty by
me [--] there is nothing obtained or to be obtained [by Me] yet I do engage in action. For, if I do not work alertly [then]
men all around the world will follow my example.‖ [parentheses and emphasis added]
--The Bhagvad Gita 3,4,5,7,12,20,21 & 22xxv
Lord Krishna further enjoins that the ―enlightened should act [without attachment to karmafal (fruits of action)] with a
view to the maintenance of the social order ….‖ [parentheses added]
--The Bhagvad Gita 3.25xxvi
Krishna exhorts Arjuna that while performing action the latter should surrender all actions to God (Krishna Himself) and,
thus, be free from expectations, ego and mental fever (anger, depression etc.)
--The Bhagvad Gita 3.30xxvii
Krishna assures Arjuna:

―Men whoever abide in this teaching of mine with faith and without carping [shall be] freed from the bondage of action
[karmafal].‖ [parentheses and emphasis added]
--The Bhagvad Gita 3.31xxviii
―Therefore, unattached, do your duty that is to be done meticulously; because a man doing his duty without attachment
attains the supreme‖ (meets with Parmatman -- in other words, he/she attains Moksha) [emphasis added]
-- The Bhagvad Gita 3.19xxix
However, Krishna also cautions that no wise man should unsettle the minds of ignorant men attached to action (The
Bhagvad Gita 3.26) -- probably because the men referred to here are „dummies‟; we shall presently revert to this issue.
Overemphasis by pandas on ‗destiny‘ -- without understanding its nature and scope -- coupled with the expectation of
attaining Moksha through mere discourses or meditation (sans nishkam karma) virtually led the Indian society to a life of
feudalistic inaction. Moreso, if we confuse Destiny with the fruit of involuntary action -- that is to say, if our present
actions (not results) are interpreted as entirely dictated by our past karmas, then the ‗karma theory‘ degenerates into a
vicious circle. This confusion – created by the pandas -- prevented the Western scholars from capturing the spirit of
Indian work-ethos.
Destiny merely lays down our core personality, i.e. the way different individuals react to the same stimulus or set of
stimuli; in terms of analogy from the world of electronic computing, the planetary position at the time and place of our
birth determines the hardware circuitry within our brain. This etched circuitry makes different individuals perceive the
same stimuli in different ways; thereafter, it is completely left to us individually to voluntarily choose to react to the
environmental stimuli either in a crude way (i.e. go by the default settings in this circuitry) or to meet this challenge in a
trained manner -- like an accomplished expert who is pre-trained to appropriately re-configure and tweak this circuitry.
Thus, by our actions we can shape our reactions to destiny and, in turn, improve our future (karmafalxxx).
At this stage, it may be necessary to clear two doubts of the ―faithfuls‖:-

i) Why do evil men prosper but sufferings is the lot of noble ones? Firstly, these evil men are probably dummiesxxxi-- a
sub-category of maya (supra); their role is merely to funnel the fires of temptation within us. Secondly, just as the
diamond-cutter chisels and grinds a raw diamond in order to bring out its intrinsic beauty, so does man need be
rubbed onto the roughs-of-life so as to bring forth the best in him – because the best in us is akin to God‟s image.
ii) Why did Lord Jesus Christ and Guru Teg Bahadur (9th Sikh Guru) undergo torture, especially when they performed
their karma in an unattached manner? Firstly, they had transposed unto themselves the fruits of apkarmas (evil
actions) committed by others prior to these others having become the ―faithfuls‖. Secondly, it was a way to show to
the common man that the fruits of karma cannot be escaped. Thirdly, it demonstrated the indestructibility of Atman
(Moksha does not ‗destroy‘ atman -- it merely ends its exile from Parmatman). Fourthly, it was a way to instill
courage amongst the ‗faithful but feeble minded‘ and, at the same time, it exposed the futility of actions of those
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who were aggressively evil. Fifthly, it demonstrates that a mind fused in God‘s Name effectively mediates the effect
of physical comforts (or lack of the same) on the body in which such mind dwells.
The use of Karma Theory for changing our work-ethos has been rare because the predictability of results of our 'karmas'
is low -- in the sense that both the format and timing of these results are unknown; this limits the degree by which Karma
Theory exerts an influence upon those people who learn only by seeing the cause-result relationship in actions. The
following factors are also important in determining the degree to which an individual may subscribe to the Theory of
Karma:
i) Personality type of the individual concerned;

ii) His/her own perception about the format and timings of the results of his/her known 'karmas', and
iii) Availability of reliable sources for seeking intellectual Help about the likely format & timings of the results of karmas.
(g) Work: Work is important for the maintenance of a cohesive social order. Work does not, therefore, divide the Society
into ‗classes-by-birth‘. On the contrary, our scriptures exhort everyone to perform his/her socio-economic duty
meticulously/excellently:
- ―… unattached do your duty that is to be done, meticulously.xxxii‖
Krishna, however, cautions us against meddling with another‘s duty even if we could have done that duty in a better
manner (please also see supra about not disturbing the ignorant men attached to work):
―Better is one‘s [own] duty though defective, than the duty of others well performed.‖ [parentheses added]
-- The Bhagvad Gita 3.19 & 35xxxiii
―Earn your living

With your own efforts,
Thus you will obtain happiness.‖
--5th Guru, Suhi Rag (Adi Granth)xxxiv
―… let there be amongst you traffic and trade by mutual goodwill …‖

--Sura IV.30 (Koran)xxxv
In short, therefore, ‗work‘ is a socio-economic duty well performed to:
i) achieve Moksha through nishkam karma or karma yoga (supra);

ii) to maintain a social order, and sustain life on earth;
iii) to give back to Prakriti (Nature) more than what we have taken;
iv) to be a role-model for the ignorant.
(h) Man‘s Mission in Life: The prime aim of man is to attain Moksha by one or more of the following paths:-
i) tapasya (corporeal penance);

ii) yoga (union of mind, body and spirit through the posturing of body, controlling of breath and repeating a cycle of
exertion, tension and relaxation);
iii) understanding, discussing and reflecting upon Upanishads (Advaita or Samkhyaxxxvi system);
iv) Nishkam karma or karma yoga.
(i) Religion: Its two prime roles are:-
i) As a centripetal conformist force to bring about social cohesion and order by self-regulation-- that is to say, without
any complex and incomprehensible statutory legal framework of substantive, procedural & penal Laws and their
associated institutions like the investigative agencies, policing, judiciary, jails etc.
ii) As a differentiating centrifugal force for appropriate enlightenment -- ultimately leading to Moksha of the spiritually
more developed individuals.
However, in both these roles the pith and substance of religion remains the same, viz.:
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‗O Being, if thou knoweth the purpose of Life, pursue it; if thou possesseth the ability to discern good from evil, then
follow your intellect; if thou hath a conscience free from ego, ill-will, self-aggrandisement and vindictiveness, then obey
thy conscience; and if thou art not blessed with any of the above, then follow the example of those who hath these
assets.‘
4. Work, thus, not only comes naturally to all of us but is also essential for the maintenance of our social order; and if devoid of
lust, anger, greed, egoism and nepotism the ‗work‘ itself can uplift our souls. So, work can increase our happiness -- both within
and without; moreso, it can help us achieve Moksha. Hence, work is the most natural and expedient path not only to a cohesive
and self-regulated individual personality and social order, but also for an improved Quality of Life and Moksha.
Every man has the potential, if properly inspired and trained, to excel in his socially assigned duty – usually called economic
workxxxvii. Hence, the development of right attitude towards work ought to be one of the prime tasks of the science and art of
Human Resource Development -- a term for which, as per K Rameshxxxviii, there is ―as yet no consensus definition‖. For the
purpose of this Thesis, we define HRD as:
‗The process of acquisition of knowledge and skills that will help us achieve mastery over self, of knowing one‘s prime socio-
economic duty and being well prepared to perform the said duty excellently in cohesion with the rest of the economic workers.‘
At this stage, someone might ask, ―Do evil men, too, not strive for excellence?‖ Yes, they do, but with an apparition so far as
the purpose of their ‗work‘ is concerned, viz. noble men perform economic work in a manner that requires minimal control over
their actions, but the evil one‘s important aim is to obtain power over others.
―Know that the self is the master of the chariot and the body is the chariot.
Know that the intellect is the charioteer and the mind the reins.
The senses are said to be the horses and objects [temptations] for them.
The wise men call him the enjoyer who is in union with the body, senses and the mind [i.e. in control of his/her body, mind and
senses].‖ [parentheses added]
--Katha Upanishad III.3.4xxxix
The ideal socio-economic order requires self-regulated and self-driven men enthused with Protestantism or reinterpreted
Confucianism or with Karma Yoga (Nishkam Karma) as aforesaid.
Gunnar Myrdalxl had identified certain traits in the traditional Indian culture, viz.: efficiency, diligence, orderliness, punctuality,
frugality, scrupulous honesty, rationality in decisions to act, preparedness for change, alertness to opportunities, energetic
enterprise, integrity, self-reliance, cooperativeness, and willingness to take the long-term view.
If we no longer find the above traits in us, it is primarily because of failure of our screening system (socio-cultural foundations
that filter and firewall) and the result of our willingness to stoop to the lowest level of human behaviour to subserve the ends of
our personal aggrandisement at the cost of Society.
In pointing this finger I am, however, reminded of the caution once sounded by the great Spanish Philosopher Blaise Pascalxli:
―It is dangerous to show man too often that he is equal to beasts, without showing him his greatness. It is also dangerous to
show him too frequently his greatness, without his baseness. It is yet more dangerous to leave him ignorant of both. But it is
desirable to show him [the] two together.‖ [parentheses and emphasis added]
5. Where to begin? Going by the wisdom of Gita, and observations of Gunnar Myrdal and Blaise Pascal we have begun
introspection. Even the Questionnaire (a longish one that was designed for my Research work) was found by Scientists and
Engineers who filled up the same, as leading them to introspection. And they requested for its blank copies -- for their personal
record.
CONCLUSION
When economic work (especially working for another entity) is viewed as 'Dharma', its effect upon worker's personality
(including his/her attitude, response to stimuli, predictability of his/her socio-economic behavioural pattern, and his/her sources
of satisfaction) and on the work-group's characteristics can be profound.
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Having culled from our religious scriptures the right attitude towards work, the next logical step is to investigate the additional
traits that must be developed in the scientists and engineers engaged in any Research, Design & Development (RDD)
environment -- by influencing internal environment like organisational structure and mediating processes. The traits as well as
the factors influencing these traits are likely to be different for the three levels of scientists and engineers in any RDD
environment; for the purpose of this research, these levels are classified as: Techno-Administrator, Project-Leader, and Team-
Members or Facilitators.
END-NOTES/ BIBLIOGRAPHY/ REFERENCES:

i Industrial Revolution: A period in the late 18th and early 19th centuries when major changes in agriculture, manufacturing,
mining, and transportation had a profound effect on the socioeconomic and cultural conditions in Europe. ―[T]he liberating
spirit that prompted fresh inquiry where before [the] medievalists had relied on ancient pronouncements … Copernican
revolution brought out the scientist in Renaissance man.‖ [parentheses added] -- Kolasa, Blair J. ‗Introduction to
Behavioural Science for Business‟ (Wiley, New York, 1991, 5th edn) page 32.
ii Renaissance thinkers sought out learning from ancient texts-- typically written in Latin or ancient Greek. Scholars scoured
Europe's monasteries searching for works of classical antiquity which had fallen into obscurity. In such texts they found a
desire to improve and perfect their worldly knowledge; an entirely different sentiment to the transcendental spirituality
stressed by medieval Christianity.
iii Choi, Dr. Hyung Sup. ‗Bases for Science and Technology in Developing Countries‟, translated by Dr. Chong-Ouk Lee
(Asian Productivity Organisation, Tokyo, 1983) pages 84, 110-111. Srinivasan, M. ‗Management of Science & Technology:
Problems and Prospects‟ (Affiliated East-West Press, 1989), page vii (Preface). ‗Statistical Outline of India: 1988-89‟ (Tata
Services Ltd‘s Department of Economics and Statistics, Mumbai) page 17.
iv ‗The New English Bible (The New testament)‘ (Oxford University Press and Cambridge University Press, Oxford, 1970)
page 4.
v ‗The Penguin Dictionary of Quotations‟ (The English Language Book Society and Penguin Books, 1964), page 228.
vi ‗The Penguin Dictionary of Quotations‟ (ibid) page 302.
vii ‗The New English Bible‟ (ibid), page 100.
viii ‗Good News Bible‟ (The Biblical Society of India, Bangluru, 1977), page 628.
ix Calvinism: This term refers, inter alia, to the doctrines and practices of Reformed Churches, of which Calvin was an early
leader.
x Akhilesh, K.B. et al (Eds.) ‗Human Resource Management 2000‟ (Wiley Eastern, 1990), page 7. Salmon, Jean-Jaques.
‗What is Technology? …‘ in S. Bhattacharya, et al (Eds), ‗Techniques to Technology‟ (Orient Longman, Hyderabad, 1990)
page 267.
xi ‗The Brihadaranyaka Upanishad and Shankracharya‟s Commentary‟, translated by Swami Madhavananda (Advaita
Ashram, Kolkatta, 1965) page ix (Preface).
xii The New English Bible (ibid) pages 24-25.
xiii Ali, A Yusuf. ‗The Holy Koran: Text, Translation and Commentary‟ (Amana Corp., Brentwood, USA, 1983).
xiv ―Janam janam ki man ko mal lagi …‖, ‗Adi Granth‘, page 651. Cited in Lahori, Lajwanti. ‗The Concept of Sikhism‟ (New
Delhi, Munshiram Manoharlal Publishers, 1985) page 48. The ‗Adi Granth‘, like the Testament, is a scripture authored by
the Guru Himself.
xv ‗The New English Bible‟ (The Old Testament) ibid, page 9. Also see: Leviticus 19.26 therein.
xvi On DNA and RNA, please see Article on ‗Cancer‘: http://creativegb.joeuser.com
xvii ‗The New English Bible‟ (Apocrypha) ibid, page 30.
xviii ‗The Holy Koran‟ (ibid).
xix Patai, Saul (Ed.) ‗The Chemistry of Amino Group‟ (Inter-Science Publishers, London, 1968).
xx This type of energy can power inter-Galactic voyages of the future.
xxi ―One wanders through eighty-four lacs of different births‖ –5th Guru, ―Gauri Rag‖ in ‗Adi Granth‟. Quoted in: Singh,
Harbans. „The Message of Sikhism‟ (Delhi Gurudvara Prabandhak Committee, Delhi, 1968) page 86.
xxii ‗The New English Bible‟ (ibid) page 4. Kahan Singh Nabha in his ‗Gurshabad Ratnakar Mahan Kosh‘ says that the gross
body of man is composed of 5 gross elements, 5 subtle elements, 5 ‗pranas‘, 5 sense organs, 5 action organs, ‗mun‘ (ego)
and ‗budhi‘ (intellect). At death, the gross body of 5 elements (dust) is separated from the rest -- Quoted in ‗The Concept of
Sikhism‟ (ibid), page 45 (Notes).
xxiii Every book on ‗Yoga‘ depicts a man sitting in ‗lotus posture‘ -- it shows three nadis emanating from his head. Sushumna
nadi begins from the lotus-point, and its petals act as antennae for communication with the ethereal storehouse of
knowledge.
xxiv Gunaji, N.V. ‗Geeta‟ (Phoenix, Mumbai, 1957) pages 133-139.
xxv Geeta (ibid) page 139.
145
xxvi Geeta (ibid) page 141.

xxvii ‗Geeta‟ (ibid) page 141
xxviii ‗Geeta‟ (ibid) page 137
xxix ‗Geeta‟ (ibid) page 139
xxx The essence of Gita is: ―Do not pine for what is not yours (i.e. what you have not rightfully earned by noble karmas); what
is yours shall necessarily be given to you by Me; and what you are receiving now is that you have already earned-- so,
continue to perform noble actions and leave their fruit to be determined by Me.‖
xxxi Soulless creatures whose secondary role is to interpose whenever any individual who has mastered the control over
himself, does not choose the action whose repercussion is destined to fall on a third individual. For example, if X is
destined to die a violent death and Y is chosen as the most likely actor to cause that violent incident -- albeit with
consequent repercussions upon Y himself; and Y voluntarily chooses not to be the causal factor, in that situation the
dummy intervenes and causes the violent incident leading to X‘s death.
xxxii Supra.
xxxiii ‗Geeta‟ (ibid) page 142.
xxxiv ‗The Message of Sikhism‟ (ibid) page 133.
xxxv ‗The Holy Koran‟ (ibid) page 189. See also ―… to men is allotted what they earn, and to women what they earn …‖ --Sura
IV 32, in ‗The Holy Koran‟ (ibid) page 189.

xxxvi Advaita school is based on Upanishads, and emphasises complete identity between brahman and atman. Shankaracharya
is its supreme teacher. Samkhya school divides all things into those which have consciousness (‗chetna‘) and those which
do not possess chetna-- the latter are objects for chetna‘s use.
xxxvii Moddie, A.D. (Ed.) ‗The Concept of Work in Indian Society‟ (Manohar Publications, New Delhi, 1990). It describes, at
pages 209 & 221, the attempts made by Don Super, Friedman and Havinghurst to gather empirically the reasons why
people work, viz.: to regulate pattern of life, to identify with the group and fix patterns of association, to maintain contact
with reality and gather meaningful life-experiences, to serve God, to fulfill oneself through service to society, and to sustain
life. A moment‘s reflection would show that some of these are not causes but ‗effects‘ of work.
xxxviii Ramesh, K. in ‗Human Resource Management‘ says at page 34 *cited in JP Kern, et al (Eds.) ‗Human Resources
Management 2000‟ (ASQC Quality Press, New York, 1987), page 9] that HRD is omnibusly defined as: ―the umbrella term
covering the many forms and techniques to maximise the contribution of the human resources of the enterprise towards
the joint objective of meeting the goals of management and satisfying the overall needs of the people who work in the
company at all levels‖. HRD was functionally defined by Lippitt in 1978 as depending upon: (i) work itself which generates
a higher degree of responsibility for employees, (ii) individual‘s personal and professional growth, (iii) improved quality of
output as a result of increased responsibility, and (iv) organisation as an open system -- quoted in MS Saiyadain, ‗Human
Resources Management‟ (Tata McGraw-Hill Publishing Company, New Delhi, 1988) page 233.
xxxix ‗Geeta‟ (ibid) page 5 -- Upanishad is not a part of Bhagvad Geeta.
xl Cited in Ramesh, K. ‗Human Resource Management in India‘ in Human Resource Management 2000 (ibid) p.36
xli Quoted in Sudhi, Dr. Padma. ‗Aesthetic Theories of India‟ (Bhandarkar Oriental Research Institute, Pune, 1983) page xiv
(Preface)
146
SECTION 2
147
EDUCATION,
SOCIAL & ADMINISTRATION
Accessibility and Educational Relevance of a New Model of Graduate Business Education: The Practicing Manager’s Perspective of Experiential Learning MBAs
ACCESSIBILITY AND EDUCATIONAL RELEVANCE OF A NEW MODEL OF

GRADUATE BUSINESS EDUCATION: THE PRACTICING MANAGER’S
PERSPECTIVE OF EXPERIENTIAL LEARNING MBAS
Manfred F. Maute
York University, Canada
ABSTRACT
Even as recent university graduates with little managerial experience continue to be drawn to MBA programs by the promise of
high salaries and fast-track careers, practicing managers find traditional, full-time MBAs to be increasingly inaccessible and
educationally irrelevant to their needs (Pfeffer & Fong, 2002). Alternative models of graduate business education would seem
to have much to offer to managers who choose to continue working while they study and seek more from an MBA than the
traditional emphasis on theory, analytical techniques and business functions (Mintzberg, 2004). Experienced-based learning
engages concrete experience to promote deep and effective learning through reflective observation, abstract conceptualization
and active experimentation Kolb, 1984). However, despite enhancing learning outcomes, developing critical thinking skills and
increasing student engagement and satisfaction (Laditka & Houck, 2006; Smith, 2001; Weinstein, 1998; Li et al., 2007),
experiential learning appears to have had little effect on the style of teaching and learning practiced in many MBA programs.
Using depth interviews conducted among recent graduates, this study examines practicing managers‟ experience in a new
experiential learning MBA, assesses perceptions of quality, satisfaction and value, and identifies changes that can enhance the
accessibility and educational relevance of this new model of graduate business education.
Keywords: Graduate Business Education, MBA, Experiential Learning, Accessibility, Educational Relevance
BACKGROUND
In 2001, 112,000 MBA degrees were awarded in the United States, a thirty-five fold increase in fifty years, and double the
number of MBA graduates in 1986 (Conway & Howard, 2001). Whereas MBA‘s represented only 11% of all U.S. graduate
students in 1971, the MBA now accounts for one out of every four U.S. graduate degrees. The number of MBA programs has
grown even more rapidly. There were 341 accredited MBA programs in the United States in 2001 (U.S. News and World
Report, 2002), and almost three times as many other master‘s degrees in business, many unaccredited.
Graduate business education was largely a U.S. phenomenon fifty years ago with American business schools graduating 98%
of all MBA‘s. Today, there are more than 250 universities in the MBA Roundtable Information Clearinghouse database and a
third of the more than 500 MBA programs offered by these institutions are located outside of the United States. Among 947
AACSB accredited business schools, 658 American, 123 European, 57 Asian, and 32 Canadian universities granted MBA
degrees in 2005 (AACSB, 2006).
The number of practicing managers seeking graduate business education has grown even more rapidly than degree granting
institutions and specialized MBA programs. One in three MBA students now works while studying and 75 % of new MBA
programs accommodate the needs of students who work full-time (Canadian Business Online, 2006). In most instances, this
accommodation is limited to scheduling (e.g., weekend and evening classes) and delivery (e.g., distance education), an
approach that improves accessibility modestly, but does not fully exploit the capacity of experienced managers to learn in new
and different ways.
Criticisms of MBA Programs

Despite unprecedented growth in programs and graduates, critics remain dismissive of the educational relevance and career
value of graduate business education. Leavitt referred to MBA graduates as ―critters with lop-sided brains, icy hearts, and
shrunken souls‖ (1989: p. 39), while Mintzberg scorned MBA‘s as a ―menace‖ (2004: p. 31) with little patience for learning the
practice of management. Pfeffer and Fong (2002) concluded that the primary goal of MBA programs was not to educate
students about management, but to enhance the careers and salaries of graduates.
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M. F. Maute Volume 9 – Spring 2010
The empirical evidence suggests that there are few economic gains associated with an MBA degree. Companies and
economies where graduate business education is more prominent do not perform better (Abernathy & Hayes, 1980). Grey
(2002), in fact, has argued that the reverse may be true. An MBA degree has little effect on job offers, promotion and the
likelihood of ascending to senior management (Weinstein & Srinivasan, 1974; Pfeifer, 1977; Dreher et al., 1985; O‘Reilly &
Chatman, 1994). Salary is related to possession of an MBA degree only among graduates of the most prestigious MBA
programs, an effect attributed more so to the quality of admissions rather than the business education that students receive
(Dugan et al., 1999). The fact that consulting firms routinely ‗train up‘ the business knowledge of non-MBA‘s in three to four
weeks and that these new hires perform as well as, or better than MBA‘s implies that graduate business education teaches
some students very little about management (see Leonhardt, 2000).
Experiential Learning
The premise of experienced-based learning is that individuals learn most effectively with, and from others, while engaged in
real world problem solving (see Raelin, 1997; Weinstein, 1998). Kolb‘s model of experiential learning (1984) describes a
‗cyclical learning process‘ that engages concrete experience to promote deep and effective learning through reflective
observation, abstract conceptualization and active experimentation. Experiential learning has been shown to produce superior
retention of information, develop critical thinking skills, promote the transfer of knowledge from one learning domain to another
and increase student involvement and satisfaction (Laditka & Houck, 2006; Smith, 2001; Weinstein, 1998; Li et al., 2007).
Despite these advantages, experiential learning has had little effect on the style of teaching and learning practiced in many
MBA programs.
Mintzberg (2004) advocated three changes to transcend the focus on theory, analytical technique and functional curricula that
remain the hallmark of the full-time MBA. First, admission to graduate business education should be restricted to practicing
managers who integrate education and managerial practice by working while they study. Second, learning should be based on
the exploration of students‘ own experience, with insights derived from this experience refined through critical reflection and
discussion. Third, functionally organized curricula should be replaced by the exploration of issues that arise in students‘
managerial practice through ―facilitated discussions‖ led by teachers who serve as guides and coaches more so than as
knowledge experts.
This study examines the appeal of the experiential learning model of graduate business education by probing the experience of
recent graduates of a new MBA program that seeks to deliver accessible, educationally relevant graduate business education
to practicing managers. Motivations for enrolling in the new MBA program are investigated, evaluations of skill development,
satisfaction and value are probed and changes that recent graduates believe will further enhance the accessibility and
educational relevance of the experiential learning model of graduate business education for practicing managers are identified.
METHODS
Qualitative research seeks to understand how individuals view the world and construct meanings out of their experiences
(Strauss & Corbin, 1998). In the interpretive research tradition, depth interviews were conducted with eight recent graduates to
examine their experiences in, and evaluations of, a new experiential learning MBA program. Participants were chosen
purposively to ensure breadth in educational background, work experience and representation from public and private sector
employers of varying sizes in different industries. Interviews were taped recorded and transcribed, and an open coding process
was used to identify themes through iterative reading of interview transcripts (see Hay & Hodgkinson, 2005).
RESULTS
Alternative Models of Graduate Business Education
As might be expected for a decision of this importance, participants evaluated different models of graduate business education
prior to enrolling in the new MBA program. Despite generally favorable views of full-time MBA programs, employment emerged
as the primary barrier to graduate business education for practicing managers. Distance MBA‘s overcome employment and
geographic barriers to access by offering self-paced, technologically mediated learning, but this model of graduate business
education found little favor among participants who expressed concerns about the academic reputations of distance programs
and the limited opportunities for direct interaction with instructors and student peers.
The appeal of an MBA that could be completed in two years with face-to-face classroom interaction, a manageable number of
courses and competitive fees was readily apparent. When presented with features that matched their needs in a new and
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unproven MBA program, the same reservations about academic reputation that sidelined the distance model of graduate
business education were not immediately apparent.
Benefits and Skill Building

Motivations for pursuing graduate business education were examined by probing the hard skills (e.g., functional knowledge)
and extrinsic benefits (e.g., promotion) that graduates expected to receive from successfully completing an MBA (Simpson et
al., 2005). Despite different personal and professional backgrounds, common motivations for seeking graduate business
education were apparent. The key benefits sought were hard skills in strategy, marketing and finance, and extrinsic benefits
associated with career advancement and professional mobility (see Dacko, 2001).
Participants who described themselves as ‗senior managers‘ and ‗entrepreneurs‘ were inclined to view graduate business
education as offering the strategic perspective necessary to achieve leadership of their current organizations. Among middle
managers employed in private sector organizations, the MBA degree was perceived as a means to enhance functional
knowledge in preparation for more demanding responsibilities within and beyond their current organizations. Public sector
managers also enrolled in the MBA program with the goal of upgrading hard skills. However, among these participants the
MBA was seen more as a means of securing future job opportunities and higher salaries with private sector employers than as
a guarantee of upward career mobility within their current organizations.
Analytical, strategic and leadership skills (see Porter & McKibben, 1988) were viewed as highly important and satisfaction with
efforts to build these managerial skill sets was generally high. Decision making, risk taking and planning/organizing skills were
viewed as less important and the cultivation of these skills was assessed less favorably. The preponderance of group tasks,
which were often dominated by more experienced students, diminished chances for less assertive students to cultivate
individual decision-making skills. In addition, by permitting specialization, group activities allowed students to focus on skills
where they were already proficient, hampering the development of broader skill sets. The bias towards the study of large
organizations in mature industries was seen to ignore opportunities to develop entrepreneurial and risk taking skills. In the view
of most participants, efforts to develop planning/organizing skills were almost completely absent from the new MBA program.
Accessibility and Educational Relevance

Geographically remote and reluctant to interrupt their careers, participants were grateful for the access to graduate business
education provided by a new MBA program. Initially, questions about accessibility were seen as largely unrelated to
educational relevance, and as having surprisingly little effect on the quality of the student experience in the MBA program. It
was not until the end of the first year of study when academic difficulties emerged for some students that educational relevance
took on greater importance and questions about who should be admitted and permitted to continue in the program became
largely inseparable from concerns about the style of teaching and learning.
Some participants construed the admission of inexperienced and less qualified students to mean that the new MBA program
was more committed to achieving enrolment and financial goals than delivering rigorous, educationally relevant graduate
business education for practicing managers. The uncompromising view among these participants was that inexperience
undermined the quality of the student cohort, diminished the educational relevance of their own graduate business educations
and threatened the academic reputation of the new MBA program. In their view, the program should not be accessible to
inexperienced managers and students who could not meet academic standards should be denied the opportunity to continue
in, and graduate from the program.
Others remarked on how accessibility enhanced the diversity of the student cohort, made it possible to consider management
issues from many different perspectives and led, paradoxically, to the development of a powerful shared identity and set of
values that emphasized cooperation and collective success for the cohort as a whole. The success achieved by several
students who were helped in their struggle to master complex and unfamiliar subject matter by the encouragement and
assistance of experienced and technically accomplished peers was noted by these participants as evidence of the power of
values and training to transform academic performance. While it was acknowledged that students should remain accountable
for their academic performance once enrolled, ‗training up‘ applicants who lacked foundational knowledge was seen as a way
to capture the value derived from a diversity without sacrificing the educational relevance of the learning experience or the
academic reputation of the MBA program.
Every participant agreed that intense class room sessions were an unavoidable concession to the need to combine graduate
business education with full-time work. Demands before, during and after these sessions appear to have been extraordinary.
150
While most students adapted and developed creative strategies for dealing with these demands, the comparatively short two
year duration of the MBA program was cited as an important factor in sustaining individual effort and commitment.
The capacity to cope with a very heavy work load emerged as a source of considerable pride for some of the participants, but
briskly paced classroom sessions running continuously from early morning to late at night and a style of teaching that featured
expert instructors and standard lecture and case method pedagogy were acknowledged to have an adverse effect on learning.
Several participants observed that an emphasis on quantity over quality of learning left little time to grasp the meaning of
complex ideas or bring personal experiences and insights to bear on discussions about the practice of management.
Opportunities for critical reflection were further compromised by the tendency to schedule formal examinations often quite
literally within hours of the completion of a course.
Like many full-time MBA programs, the curriculum was dominated by a functional structure better suited to organizing
management knowledge than reflecting critically about personal experience (see Gosling & Mintzberg, 2004). Participants
noted that each course was taught as a discrete area of knowledge in isolation from the rest of the curriculum and without any
obvious effort to integrate content. Projects and case studies embedded within individual courses provided opportunities to
apply newly acquired knowledge to management problems in some instances, but the limitations of the functional structure
were compounded by dividing the curriculum into a coursework component that emphasized theory, followed only then by an
individual project that focused on application.
Criticism of individual courses and instructors was generally muted and participants were surprisingly forgiving about many of
their day-to-day dissatisfactions, often attributing these problems to inadequate resources or the normal challenges associated
with starting up a new graduate program. Ironically, the course singled out for the greatest criticism was based on experiential
learning principles. Designed to explore the cross-functional challenges of managing in a northern, resource-based economy,
reactions to the Northern Management course illustrate how elusive the effort to transcend conventional approaches to
teaching and learning can be when students lack experience and instructors are not adequately prepared to exploit the student
experience to stimulate critical reflection about the practice of management.
DISCUSSION & CONCLUSIONS

Despite the fact that some students appear to learn little about management and derive comparatively modest economic
advantages from graduate business education, the MBA remains ―the academic success story of the 20th century‖ (Pfeffer &
Fong, 2002: p. 3), and an unmistakable source of cachet for graduates and academic institutions. By virtue of their experience
and desire to continue working while studying, practicing managers have special needs for graduate business education as
well as the capacity to learn about management in new and different ways. Experiential learning can offer practicing managers
more than just ―mastery of sophisticated techniques with which to manipulate the world‖ (Mintzberg, 2004: p. 29) by creating
opportunities for critical reflection about personal experience. In order to fulfill this promise, however, experiential learning must
distance itself more fully from the emphasis on theory, analytical technique and functional curricula so closely identified with the
full-time MBA by offering graduate business education that is not only accessible, but also educationally relevant.
The promise of the experiential learning model of graduate business education was evident in the impressions elicited from
recent graduates drawn to a new MBA program by the opportunity to combine full-time work with graduate business education
in an academic setting that facilitated face-to-face interaction with instructors and peers. A critical look at the new MBA
program reveals, however, that while it is accessible to practicing managers who work full-time, the depth of experience
demanded of students and the style of teaching and learning have more in common with the traditional, full-time model of
graduate business education than the reflective, experienced-based approach to teaching and learning envisioned by Gosling
and Mintzberg.
As the foundation of critical reflection, experience is indispensable to learning with and from others. Since experience cannot
be trained up in an academic boot camp, a more vigorous effort to assess applicants‘ experience could improve the quality of
MBA admissions. Shifting from coarse screens based only on the number of years of management experience to qualitative
assessments of the depth and quality of that experience makes it possible to discriminate more confidently between seasoned
and unseasoned managers. Moreover, broadening the definition of relevance beyond the immediate work domain to include
other types of life experience, in all of its forms, permits candidates with unusual but nonetheless valuable experience to
compete for admission while expanding the pool of qualified applicants.
Reconciling accessibility with educational relevance implies the need for several difficult decisions by the new MBA program.
Building a rigorous and educationally relevant MBA requires that the admission process identify and select capable applicants
151
with legitimate management experience, and that once admitted, students continue to perform at a high level. Training up
suitably experienced applicants who lack foundational knowledge in one or more core areas of management, holding students
accountable for their academic performance, even if that means smaller enrolments and short-term financial hardship for the
program, and providing formal and informal academic support for those who experience difficulties acquiring core knowledge
represent three steps that can be taken to more fully capture the educational relevance derived from a diverse student cohort.
Teaching and learning that does not fully embrace experiential learning principles can create obstacles to educational
relevance that are not easily overcome by experience and diversity. Reducing the pacing and intensity of class room sessions
to increase opportunities for critical reflection, encouraging instructors to assume the role of learning coaches who focus more
on managing learning processes than on providing ―knowledge facts‖ (Li et al., 2007: p. 26) and moving towards curricula
grounded in managerial practice rather than business functions will further enhance the educational relevance of the MBA
experience by providing practicing managers with opportunities to reflect on, and learn from their own experience and that of
their accomplished peers. As dramatic as a shift from lecture and case method pedagogies to experiential learning will be for
students, the transition could be even more difficult for faculty. Since many of the instructors teaching in the new MBA program
were themselves somewhat inexperienced, efforts to train faculty on how to incorporate experiential learning more fully into
their teaching will almost certainly be necessary.
Participants recounted numerous examples of student cooperation, personal tutoring and encouragement offered to peers who
struggled with technically complex courses. Paradoxically, the shared identity and collective values that facilitated this
cooperation and produced favourable assessments of satisfaction and value regarding the MBA program as a whole, may be
the product of student diversity. In anticipation of the likelihood that these qualities will be difficult to recreate in successive
cohorts comprised of students who could be more alike than different, the program should be prepared to act to foster the
development of the same identity and values that were instrumental in the academic success achieved by the first MBA class.
In the experiential learning model of graduate business education, accessibility and educational relevance go hand in hand to
ensure that the right students learn about the practice of management in the most effective way. Asking unseasoned managers
to reflect critically about their own experience is no more useful than exposing experienced managers to a style of teaching and
learning that fails to exploit their capacity to learn from personal experience. While transcending the full-time model of graduate
business education by carefully aligning accessibility and educational relevance implies challenges and risks for a new MBA
program, graduate business education that is not accessible and educationally relevant to practicing managers, serves neither
their long-term needs, nor those of the MBA program in which they are enrolled.
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153
EFFECTS OF PROFICIENCY LEVEL AND SOCIAL BACKGROUND ON

STRATEGY USE IN LISTENING COMPREHENSION TASKS
Katrin Shamshiri
University Putra Malaysia, Malaysia
ABSTRACT
This study investigated the effects of proficiency level and social background (rural/urban) on socio-affective strategy use
among 56 counseling students who had taken an IELTS preparation course for a period of eight weeks at the University Putra
Malaysia. Students were divided in the control and experimental groups based on the results of their pre-test. They were then
categorized in four groups considering their proficiency levels. The experimental group received socio-affective strategy
training before completing the weekly listening tasks, while the control group did the tasks with no instruction. Every week the
subjects filled in a listening strategy questionnaire on a Likert scale. At the end of the treatment, the subjects were given a post-
test. The within group analysis of the subjects‟ mean scores in strategy inventory reveled that the more proficient students were
more socially active and obtained higher mean scores in social strategies than the less proficient students in both control and
experimental groups. As for the affective strategy, the high proficiency students in both groups gained a higher mean score.
Low proficient students, however, used more affective strategies than those with moderate proficiency in both experimental and
control groups. The results of independent sample test revealed that there was no significant difference between urban and
rural students in using socio-affective strategies.
Keywords: Socio-Affective Strategy, Language Proficiency Level, Listening Comprehension, Social Background
1. INTRODUCTION
Following the gradual but significant shift in teaching a second language in the early 1970s, resulting in more focus on learners
and learning than on teachers and teaching, language learning strategies have become the focus of attention in numerous
studies (Goh & Lin, 1999; Oxford 1993; Oxford & Ehrman, 1993; Oxford, 1992; Toyoda, 1998; Carrier 2003; Peters, 1999;
Laviosa, 1992, Murphy, 1987). Great body of research mostly concentrated on investigating the frequently used strategies,
picking up the strategies that proficient learners used, and training them to less proficient ones (Chamot & Kupper, 1989;
Naiman et al., 1978; Rubin, 1981; Stern, 1975; Wenden & Rubin, 1987). Social, cultural, and economic background of the
learners, and their effects on strategy use, however, have not received adequate attention except in a few studies (Anderson
and Lynch, 1988; Gharib, 2004; Oxford, 1989; Riazi and Rahimi, 2005). In other words, it is not well defined if there is a
difference between rural/urban students in using learning strategies generally, and socio-affective strategies specifically as far
as the current study is concerned.
2. BACKGROUND
Language learning strategies as defined by (Nyikos, 1991), are ―the [purposeful steps] used by language learners to
comprehend and process new information more deeply, to help to recall old information, and apply knowledge and skills to
facilitate problem- solving. These strategies are measured among students by Oxford‘s (1990) Self Report Inventory‖. (p.25)
Oxford (1990a) proposed a comprehensive model in which six categories are classified into two groups of direct and
indirect. The direct strategies include memory, cognitive and compensation while indirect strategies include metacognitive,
social and affective. The last two categories are the focus of the current study.
While it has been confirmed that explicit strategy training increases the frequency to which strategies are used (Chamot &
Kupper, 1989; Naiman et al., 1978; Rubin, 1981; Stern, 1975; Wenden & Rubin, 1987) there are many other factors that
may affect strategy use among learners. Rahimi (2004), for instance, introduced proficiency level, motivation, learning style,
gender, and the years of language learning in his study.
Language learning strategies and proficiency levels of the students have been the issue of discussion in many previous
studies (Goh and Foong, 1997; Rossiter 2003; Nisbet et al, 2005; El-Dib, 2004, Kato, 2005). Some researchers
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K. Shamshiri Volume 9 – Spring 2010
(Vandergrift, 2003a; Ross and Rost, 1991; Goh and Foong, 1997; Kato, 2005) arrived to the conclusion that more proficient
learners were inclined to use specific strategies more frequently than less proficient ones. El-Dib (2004), on the other hand,
does not seem to agree with this conclusion. His results indicated that less skilled students tended to use more affective
strategies than proficient ones. He explains that dealing with tension and anxiety accompanied with learning a foreign
language could be one of the reasons of such a finding.
Hu (2009) introduced social background of the learners - that is being from rural/urban areas - as another factor affecting
strategy use. In his study, the research results showed that the urban students did better in total strategy use, as compared to
the rural ones. However the t-test result revealed a significant difference in using compensation and social strategies between
them and no evident distinction existed between the two groups when using metacognitive, cognitive, affective, and memory
strategies.
The major focus of the current study is to examine the effects of proficiency level and social background of the learners on
using socio-affective strategies. In short, this study aims to investigate the answers of the following questions:
1. Is there any difference between students at different proficiency levels in socio- affective strategy use?
2. Is there any difference between rural and urban students in socio-affective strategy use?
3. METHOD
3.1 Participants
Subjects in this study consisted of 56 counseling students at the University Putra Malaysia. Based on their SPM results, the
students‘ level of ESL proficiency was intermediate. Subjects took the optional course ‗IELTS Preparation‟ once a week for a
period of eight weeks. The demographic distribution of the subjects in the control and the experimental group is
presentenced in Table 1.
Table 1: Demographic information of the participants

Control Experimental Total
N Percentage N Percentage N Percentage
Rural 19 33.9 18 32.1 37 66
Urban 9 16.1 10 17.9 19 34
Total 28 50 28 50 56 100
3.2 Instrumentation
Three different instruments were used in the study:
a) Two sample IELTS listening sections, to serve as pre and post tests- Students were randomized into the control
and experimental groups based on their scores in the pre-test.
b) Six sample listening exercises- Students practiced the tasks every week for 45 minutes during a six week treatment.
c) An 8 item inventory of socioaffective strategy use for listening comprehension, adapted from Teng‘s (1996), on a Likert
scale between one and four: 1) strongly disagree, 2) slightly disagree, 3) slightly agree, and 4) strongly agree- Students
filled in this inventory every week after doing the listening tasks.
3.3 Procedures
This experiment was conducted in 8 weeks. In the first week, students took a pre-test. Based on the results, they were
randomized in the control and experimental groups. They underwent the treatment for a period of six weeks. Both groups
practiced the listening exercises once a week (45 minutes) for a period of six weeks. The experimental group received
instructions on how to employ socio-affective strategies for listening tasks. They were asked to reflect their feelings and
worries either by writing or talking about them. They were encouraged to communicate with their peers and teacher.
Moreover, they were trained how to relax and breathe deeply before doing the exercises, and finally they were asked to report
how they felt after doing the tasks. The control group, on the other hand, did not receive any explicit instruction from the
teacher. The instruction in the syllabus was designed based on Teng‘s (1996) model of L2 listening strategies (see Table 2).
155
Finally, in week 8, both groups took the post-test, which was another sample IELTS listening comprehension. The scores of
students in the control and experimental groups were compared in pre and post tests within and between groups to see their
progress before and after the treatment, and if any group had a significant achievement.
The teacher‘s instruction was different from week to week, based on the type of the task. Basically, the teacher focused on
using the techniques as presented in Table 2.
Table 2: The stages of strategy training in experimental group

Writing about feelings
Talking about feelings to peers
Pre Listening
Lowering anxiety, relaxation, deep breathing, and stretching
Repeating Positive Statements
Inside Explanation of the task
Class While Listening Asking for clarification
Helping peers to do the task Exchanging Ideas Group and Pair Work
Checking the Answers within groups
Post Listening Self reward and encouragement
Commenting on the task getting feedback from teacher and peers
Out of Before and after
Repeating positive statements every night and morning
Class night sleep
3.4 Data Analysis

A paired t-test was conducted to analyze subjects' listening scores in pre and post tests within and between groups.
Descriptive statistics was used to compare students‘ socio-affective strategy use based on their proficiency level in each group.
An independent samples test was used to compare rural and urban students‘ socio- affective strategy score in each group.
4. RESULTS
The analysis of the subjects‘ scores in pre-test and post-test revealed that both groups did considerably better in the post test
than in the pre-test. Moreover, the experimental group outperformed the control group in the post-test. This result confirms that
socio-affective strategy training has positive effects on the subjects‘ listening comprehension (Table 3).
Table 3: Paired T-Test for pretest and post test

Pretest
Groups N Mean SD t df Sig.* (2
tailed)
Control 28 10.96 3.49054
Pre test -1.627 27 .115
Experimental 28 11.32 3.27791
Control 28 13.3214 3.38902

Post test -4.946 27 .000
Experimental 28 18.0714 3.75084
Sig p, 0.05
The comparison of the subjects‘ mean scores in the strategy use showed that the experimental group used considerably more
social and affective strategies as compared to the experimental group. This result confirms that better performance of the
experimental group in the post-test was due to receiving socio-affective strategy training which raised their awareness of
strategy use and resulted in their higher score in the post test (Table 4).
Table 4: Paired Sample Statistics
156
Strategy Groups Mean N SD Std. Error Mean df Sig* (2-tailed)

Control 1.8735 28 .27486 .05194 27 .000
Social
Experimental 3.3289 28 .23139 .04373
Control 2.0238 28 .19980 .03776 27 .000
Affective
Experimental 3.3705 28 .16757 .03167
Sig p, 0.05
Table 5 depicts the control group‘s mean scores in social and affective strategies considering their proficiency level. As
depicted in the table, the control group consisted of three major proficiency levels: low: 7, moderate: 16, and high: 5
students. The low proficiency group obtained the lowest mean score in social strategy (1.74). The high proficiency group
gained the highest mean score in both social and affective strategies (social: 2.15; affective: 2.14). The moderate group
gained higher mean score in social strategy than the lower proficiency group (1.84> 1.74), however they gained slightly
lower mean in affective strategy than the lower proficient group (1.99< 2.00). The difference is so marginal statistically that can
be ignored.
Table 5: Socio-affective strategy use in control group

Control Group
Proficiency level Social Affective
Low Mean 1.7381 2.0000
N 7 7
SD .33482 .20972
Moderate Mean 1.8438 1.9974
N 16 16
SD .22847 .21108
High Mean 2.1583 2.1417
N 5 5
SD .09501 .12360
Total Mean 1.8735 2.0238
N 28 28
SD .27486 .19980
The same fluctuation was found in the experimental group. Table 6 presents the mean scores of the experimental groups in
social and affective strategies based on their proficiency level. Obviously, more proficient students used affective
strategies more frequently than lower proficient ones in both groups; however, the subjects with moderate proficiency level in
the control and experimental groups gained lower mean scores in affective strategy than the lower proficiency groups.
Table 6: Socio-Affective strategy use in experimental group
157
Experimental Proficiency
Level Social Affective
Low Mean 2.9792 3.3542
N 2 2
SD .26517 .14731
Moderate Mean 3.2652 3.3295
N 11 11
SD .21592 .19848
High Mean 3.4222 3.4028
N 15 15
SD .18691 .14829
Total Mean 3.3289 3.3705
N 28 28
SD .23139 .16757
An independent samples t-test was conducted to compare the mean scores of the rural and urban students in social and
affective strategies in both groups.
First, the Lavene‘s Test for Equality of Variances was checked. Since the Lavene‘s test was not significant (p. = .243> .05), it
was assumed that the variances were approximately equal. Based on the results of the Lavene‘s test, it was known that the
two groups had approximately equal variances on the dependent variable, so the top line was reported (Table 7).
Descriptive statistics of the two groups is also presented in Table 7 to compare their socio-affective strategy use.
Generally, the experimental group, who received strategy training, obtained higher mean scores in both social and affective
strategies.
The last column of the table shows the results of the t-test for equality of means within the control and experimental
groups‘ categories (rural/urban).
Table 7: Independent Samples Test Social and Affective Strategy

Levene’s Test
Groups Descriptive Statistics (Equal Variances T test for equality of Means
Assumed
Sig.* (2-
Categories N Mean SD F Sig t df
tailed)
Rural 18 1.9444 .29184
Social 1.424 .243 1.921 26 .066
Urban 10 1.7458 .19390
Control
Rural 18 2.0625 .21402
Affective .233 .633 1.399 26 .174
Urban 10 1.9542 .15769
Rural 19 3.3465 .25271
Social .81664 .374 .578 26 .568
Experimenta Urban 9 3.2917 .18634
l Rural 19 3.3662 .18869
Affective 1.055 .314 -.194 26 .848
Urban 9 3.3796 .12048
Sig p, 0.05
As it would appear from the table, there is no significant difference between the mean scores of rural and urban students in
both groups in total social and affective strategy use. This result suggests that social background of the students (i.e. being
rural or urban) did not affect their socio-affective strategy use significantly.
5. DISCUSSION
158
In this study the results indicated that socioaffective strategy training affects listening comprehension. As far as proficiency
level is concerned, the participants of this study were categorized in three groups. It was found that more proficient
students used more social strategies than less proficient and moderate ones. This result concurs with the results of
previous studies (Kato, 2005; Jurković, 2006; Graham, 2004; Ross and Rost, 1991; Goh and Foong, 1997). Graham
(2004) believes that the lower rate of strategy use among less proficient students can be due to the lack of awareness about
what strategies to use and the role of strategies in improving their performance. The results of the post- test in this study
confirmed that explicit strategy training affected strategy use in the experimental group. The students of three proficiency
levels (low, moderate, high) in the experimental group gained a considerably higher score in both social and affective
strategies than their counterparts in the control group. Ross and Rost (1991) also believed in strategy awareness among
higher proficiency students. In their study, for instance, they first identified the listening comprehension strategies used by
high proficiency students and then successfully taught them to low proficiency language learners.
The question to be answered in the current study is that while the experimental group received strategy training, what
accounted for different mean scores among students of different proficiency? Previous studies have indicated that it is not
realistic to expect students of different proficiency levels to employ the same strategies (Pressley & Harris, 1990). In other
words, strategy instruction must be in accordance with students‘ level of proficiency, and their ability to use strategies
appropriately. This in turn suggests that strategy training should not only be based on what strategy to employ, but also when
and why use a specific strategy (Paris, Lipson & Wixsom, 1983). As different mean scores in employing social strategies were
reported within the three categories of the control and experimental groups, it can be concluded that proficiency level
affected strategy use in this study, and merely receiving strategy training cannot increase strategy use equally among all
participants.
Another finding of this study was that although high proficiency students in both groups gained the highest mean scores in
affective strategy, moderate proficiency students obtained lower mean scores than low proficiency groups. Riazi and
Rahimi (2005), explain that using affective strategy might be due to the difference between the cultural background and the
national origin of the subjects. In other words, as far as affective strategy is concerned, other factors such as cultural
background (SU Yuan-lian, 2002) and personal differences (Maslow, 1971), seem to highly affect the frequency use of this
specific strategy.
As observed during the treatment, the less skilled learners used more affective strategies to compensate for their lack of
proficiency. This phenomenon in the literature is referred to as strategic competence -- learner‘s ability to employ strategies to
compensate for imperfect knowledge (Canale and Swain, 1980) -- which is a subcategory of communicative competence first
introduced by Hymes (1972).
Eslami and Al-Buainain (2008) confirm that students‘ level of English proficiency is found to be correlated with cognitive,
metacognitive and affective strategies. However their results are not in accordance with the findings of this study. Affective
strategy was one of the least favorite strategies among their subjects. In the current study, on the other hand, students
obtained higher mean scores in affective strategy in both control and experimental groups, regardless of their proficiency level
(Table 5). Comparing the mean scores of social and affective strategies among the three proficiency levels of both groups also
revealed that affective strategy was generally used more frequently than the social strategy.
Which strategy, social or affective, contributed more to better comprehension in the post- test could not be specified
statistically. Focused group discussions and a think aloud protocol revealed that more proficient learners were more favored by
both social and affective strategies. This result does not concur with several previous studies. Hu (2009) reported that
affective strategy was the most used strategy and social strategy was the least frequently used. In another study, Cohen,
Weaver, and Li (1998) found that to come up with better speaking performance, their subjects used different strategies, some
of which were affective. The effect of the affective strategy component alone, however, could not be partialed out. In contrast,
Rossiter‘s (2003) results showed that instruction in affective strategies (relaxation techniques, positive self-talk, the use of
humour, risk- taking, and self-rewards) provided no significant between-group benefit for L2 performance or perceptions of self-
efficacy measured in the narrative task or in the object description task. Rossiter explains that in his study the subjects in the
control and experimental groups had relatively fixed and stable appraisal of self efficacy for learning. In other words, his
subjects in the experimental group did not seem to be flexible in terms of using the instructed strategies.
Social background and how it might affect employing social and affective strategies was the second issue in this study. The
results of an independent samples test revealed that there was no significant difference between the rural and urban
students in the control and the experimental groups in terms of using social and affective strategies. One of the most recent
studies in the area of using language strategy among urban and rural students is Hu‘s (2009) research. His findings however
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are not compatible with this study. It is indicated in his study that the urban students used relatively more strategies than rural
students. In this study, while there was no significant difference between the two categories, the mean scores of the rural
students in social and affective strategies were slightly more than those of the urban students. An ignorable exception was
using affective strategy in urban students of the experimental group which was slightly more than the rural group. This finding
could be due to the fact that the majority of the students had rural background and there were not enough urban students to
compare the results in a quasi experimental study. One other reason might have been the effect of Malaysia‘s 10th plan to
narrow down the education gap between urban and rural areas (Luke and Ismail, 2007). Rural and urban students seemed
homogenous when it came to using strategies to approach specific tasks.
6. CONCLUSION
This paper was motivated by the question of how language proficiency and social background would affect socio-affective
strategy use. The investigation was carried out based on Teng‘s (1998) listening strategy inventory and the data were
analyzed using SPSS 16.0. The data indicated that explicit socio-affective training considerably increased students‘ awareness
of strategy use and eventually resulted in higher performance in the post-test. Moreover, proficiency level affected strategy
use in both groups; however, receiving instruction resulted in a remarkable increase of employing strategies. Lack of
instruction and low proficiency, on the other hand, increased affective strategy use among less skilled learners in both
groups. In addition, it was found that rural and urban background did not affect strategy use significantly in this study. It is
recommended that more research with numerous subjects be conducted to investigate how socio-cultural background
might affect the frequency to which students use different strategies.
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Carrier, K, A. (2003). Improving High School English Language Learners‘ Second Language Listening Through Strategy
Instruction. Bilingual Research Journal, 27(3), pp 383-408.
Chamot, A.U. & Kupper, L.. Learning Strategies in Foreign Language Instruction. Foreign Language Annuals. 1989.22: 13-24.
Cohen, A. D., Weaver, S. J., & Li, T-Y. (1998). The impact of strategies-based instruction on speaking a foreign language. In A.
D. Cohen, Strategies in learning and using a second language (pp. 107-156). New York: Longman.
El-Dib, Mervat Abou Baker. "Language Learning Strategies in Kuwait: Links to Gender, Language Level, and Culture in a
Hybrid Context." Foreign Language Annals. American Council on the Teaching of Foreign Languages. 2004. Retrieved
September 13, 2009 from HighBeam Research: http://www.highbeam.com/doc/1P3-668125421.html
Eslami, Z. R., Al-Buainain, H., & Yeh-Zu, J. (in-Press). Language Learning Strategy Use by Arabic speaking Students
Learning English through Content areas. Proceedings of TESOL Arabia (2008).
Gharib, E, M. (2004). Secondary School Students‘ Perceptions of Learning Difficulties and Strategies. The Reading Matrix,
4(2). pp. 63-84.
Goh, Christine C. M., and Liu Xue Lin. 1999. Learning environments and metacognitive knowledge about language learning.
Hong Kong Journal of Applied Linguistics 4(2): 41-56.
Goh C, C, M., & Foong P, K. (1997). Chinese ESL Students‘ Learning Strategies: A Look at Frequency, Proficiency, and
Gender. Hong Kong Journal of Applied Linguistics, 2 (1), pp. 39-53.
Graham, S. J. (2004). Giving up on modern foreign languages? Students‘ perceptions of learning French. Modern Language
Journal, 33(2), pp.171–191.
Hu, Yanfeng. (2009). A Survey on the English Learning Strategy of the Rural High School Students, etcs. First International
Workshop on Education Technology and Computer Science, vol. 1, pp.764-767.
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apply strategies that improve reading comprehension. Elementary School Journal, 85, pp. 635-645.
Jurković, V. (2006). Vocabulary Learning Strategies in an ESP Context. Journal of the Slovene Association of LSP Teachers,
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The Teaching of Mathematics in Franklin Pierce University’s Individual and Community Integrated Curriculum
THE TEACHING OF MATHEMATICS IN FRANKLIN PIERCE UNIVERSITY’S

INDIVIDUAL AND COMMUNITY INTEGRATED CURRICULUM
Paul R. Niemi, George Downing and Nathaniel White

Franklin Pierce University, USA
ABSTRACT
Franklin Pierce University teaches Mathematics for the liberal arts student as part of its Individual and Community Integrated
Curriculum. The Individual and Community Integrated Curriculum, which is taken by ALL Franklin Pierce students regardless
of their area of concentration, is designed to “foster a common understanding of the questions and issues that lie at the heart of
contemporary American life.”
The program begins with a one-semester seminar, “Individual and Community First-Year Seminar” which introduces students
to the liberal arts college‟s expectations and provides an overview of the four-year program. Courses are scheduled to
encourage students to read, write, and develop sound critical-thinking processes. These courses are integrated with courses
that make up the student‟s major area of study.
In the Science and Mathematics areas, the student takes a two-semester Integrated Science course and a one-semester
course in Foundations of Mathematics. Foundations of Mathematics is divided into four major topics, with the goal that at least
one of the topics will awaken the realization that mathematics plays an important part in the student‟s life. The four topics
covered are:
1) The Mathematics of Voting: Preference Ballots, Plurality, Borda Count, Plurality-with-elimination and Pairwise
Comparison Methods; Rankings. Weighted Voting Systems, Banzhaf and Shapley-Shubik Power Indexes.
2) Fibonacci Numbers, Sequences, Dynamics of Population Growth, Linear, Exponential, and Logistic Growth.
3) Assorted Routing Problems, Graphs, Euler‟s Theorems, Fleury‟s Theorem, Graph Models, Eulerizing Graphs, Hamilton
Circuits, Traveling Salesman Problem, Efficiency Considerations; Nearest Neighbor and Cheapest Link Algorithms.
4) Descriptive Statistics: Graphs, average, median, and standard deviation. Probability: sample spaces, permutations,
combinations, and odds.
Franklin Pierce has found that “The experience of active learning in these courses prepares students to succeed in college and
as lifelong learners.”
INDIVIDUAL AND COMMUNITY INTEGRATED CURRICULUM

The Individual and Community Integrated Curriculum (IC) Program consists of 27 courses from which a student takes a
selection of 12 over the duration of their college career, totaling 38 credit hours. The IC Program serves to fulfill the general
education requirements of the liberal arts program at Franklin Pierce University. (FPU Catalog, 2010:14, 15) Courses within
the program follow a wide range of subjects across a wide variety of fields. The interdisciplinary structure allows a student at
Franklin Pierce to experience, over the course of their college career, courses from the Humanities Department (College
Writing I and II, American Experience, Twentieth Century, Ancient and Medieval Worlds/Reason and Romanticism), the Natural
Sciences department (Integrated Science I and II or other course pairs and Foundations of Mathematics), the Business
Administration department, (The Challenge of Business in Society), the Fine Arts Department (Experiencing the Arts/Music in
Our World), and the Sociology Department (Science of Society) all under the IC course prefix (excepting the science
requirements). Students may customize their IC experience through a number of either/or selections depending on their major
tracks or overall interests. The IC program is slated to be completed by a student‘s junior year; however a student has an
added degree of flexibility with the option of delaying a number of IC courses depending on the needs of their broader
schedule.
Additionally, the IC courses serve as prerequisites for other courses. This functions as a convenient metric for an overall
screening of students; there is a reasonable (not absolute however) expectation of a student‘s class standing pursuant to the
status of their past IC courses, and thus a reasonable expectation of candidacy for certain upper level courses. Such a
structure also allows courses to be offered ―inclusively‖ to the general population of the campus as every student will eventually
complete the prerequisites, instead of traditional ―exclusively‖ offered courses which have major specific prerequisites. An
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P. R. Niemi, G. Downing and N. White Volume 9 – Spring 2010
example of this is Technical Writing, a Computer Information Technology course that has prerequisites of College Writing I and
II. This allows any sophomore who would have completed those courses during their freshman year to take it, regardless of
what they have chosen as their formal major.
The IC program is constantly under review and revision. One of the issues has been the overlap of course materials and
subjects pursuant to a student‘s major. One example of this is the Science of Society course. Among other topics, it includes
overviews of sociological theories and research methods. However, majors such as Criminal Justice and Social Work and
Counseling are already required to take a number of courses specifically dedicated to these subjects: Introduction to Sociology,
Deviance and Social Control, Qualitative Research and Quantitative Research. This causes a significant amount of overlap of
course materials. A proposal from the Behavioral Sciences faculty has been to follow the course substitution model used in the
Natural Sciences Division, which would largely eliminate this problem.
Another aspect under review has been the inconsistency of students‘ experiences with the courses. Because the IC courses
are mandatory there are many sections of the same course, taught by a wide variety of professors on the University Campus.
The experience of an IC course differs greatly based on the professor that teaches it, as there will be different aspects of the
course emphasized, relating to the professor‘s field and area of expertise. This difference in experience is most pronounced
among the Individual and Community 101 classes. The purpose of the IC 101 class is to serve as an introductory course to
Franklin Pierce University and explore the ―questions raised by the relationship between the individual and the community…‖
(FPU Catalog, 2010:120). Because the stated goals are ambiguous, there are a number of very different interpretations of
them leading to, as aforementioned, students having very different experiences of what is supposed to be the same class.
THE TEACHING OF MATHEMATICS IN THE INTEGRATED CURRICULUM

The second year class ―Foundations of Mathematics‖ covers mathematics in the IC program. Students should achieve three
things from this course. First, as per the attached course syllabus, they should learn critical thinking and solid reasoning by
studying mathematical concepts. Second, students should gain a greater understanding of their role in their community and
how to relate to it. Finally, they should gain an understanding of the importance of mathematics in their own lives.
The topics covered in Foundations of Mathematics were chosen to further the goals of the IC curriculum. Unlike traditional
introduction to mathematics courses, this course teaches primarily through applied concepts. The course covers four topics,
each of which includes a number of subtopics. The topics discussed are the mathematics of voting; circuits and routing
problems, including Euler‘s Theorem, Fleury‘s Theorem, and Hamilton circuits; Fibonacci Numbers, sequences, and growth
models; and descriptive statistics, including graphing and probability problems. The text, Excursions in Modern Mathematics,
by Tannenbaum & Arnold, includes a selection of Projects and Papers at the end of each chapter, after the more traditional
review problems. These discussion topics require the student to consider real world applications of the concepts presented in
the chapter and to apply clear reasoning and critical thinking to those problems.
Using applied mathematics to teach these concepts allows the professor to further the goals of the IC program as well. The
applied problems presented provide a common understanding of questions and issues, which is one of the IC goals. In
particular, the chapters on voting and growth models provide insight into current issues. While learning the mathematics
behind these issues, the students are also learning about the issues themselves. The mathematical concepts involved also
provide a new language for students to use when engaging in conversation about these topics covered in the course.
Mathematics can provide a framework for discussion where no common ground previously existed.
Learning the mathematical concepts behind topics such as voting systems, growth models, and probability theory also allows
students to think about and discuss these topics at a deeper level. This is a goal of both the IC curriculum and the course
itself. The IC program seeks to progressively encourage students to read, write, and think at more sophisticated levels in each
year of study. Learning the concepts governing common topics allows a deeper understanding of the topics, leading to more
clarity and depth in the students‘ reasoning and discussion of the topics.
This applied concepts approach also provides the strongest method of showing the students the importance of mathematics in
their own lives and areas of study. Students often question the importance of required courses not directly related to their
major. Foundations covers four topic areas of fairly common interest, allowing a number of opportunities for students to find
areas where mathematics can be important in their own lives.
An excellent example of a chapter, which applies to a range of different interests, is found in the chapter covering Fibonacci
numbers. The Projects and Papers section at the end of the chapter includes topics of interest to a number of different areas
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of study. The first project involves the appearance of Fibonacci numbers in the plant and animal worlds. The second
discusses the golden ratio in art, architecture, and music. The third and fourth are more closely related to pure math, while the
final discusses the psychological implications of the golden ratio. In addition to mathematical concepts, the selection of
projects includes topics applying to a range of fields including biology, environmental science, history, art, architecture, music,
and psychology.
Teaching the Foundations of Mathematics course using applied concepts rather than purely mathematical concepts allows the
instructors to achieve a number of goals beyond an understanding of basic mathematics. Students are taught to think about
the topics and explain their conclusions clearly and logically. They are provided with a common language and a common
understanding of the issues discussed, both important parts of the IC core. Finally, they are given a wide range of topics that
can expose them the importance of mathematics in their own lives.
SUMMARY
The Individual and Community curriculum is an integral part of Franklin Pierce University‘s identity as a Liberal Arts institution.
Through its component courses, it increases students‘ critical thinking and logical reasoning skills. It also serves to expose the
student to a wide variety of fields and offer a knowledge base that is essential to success where ―Employers and graduate
schools seek students whose knowledge and background beyond the major give them an edge in the highly competitive world
beyond college‖ (FPU Catalog, 2010:14).
ACKNOWLEDGEMENT
The authors thank Dr. Frederick S. Rogers, Chair, Division of Natural Sciences, Franklin Pierce University, who reviewed the
manuscript and made suggestions for improvement.
REFERENCES
Niemi, P. R., (2010). IC201 Foundations of Mathematics Syllabus
2009/2010 ACADEMIC CATALOG, Franklin Pierce University
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P. R. Niemi, G. Downing and N. White Volume 9 – Spring 2010
APPENDIX
IC201 Foundations of Mathematics Syllabus Spring 2010
Instructor: Paul Niemi Email: niemip@franklinpierce.edu
Office: Marcucella Hall 110 Phone: 603-899-4253
Office Hours: To be posted
Text: Excursions in Modern Mathematics, Tannenbaum & Arnold, Prentice-Hall
Course Description
The major goal of the course is to promote critical thinking by aiding the student to state problems clearly, sort out the relevant from the
irrelevant, abstract common properties from individual situations, and argue coherently. Students are exposed to good reasoning
processes through an introduction to mathematical concepts. Required of all candidates for graduation unless waived by examination or
substitution.
Course Objectives
Students should learn to:
 understand a variety of methods for deciding the winner of an election, the advantages and disadvantages of each, and the
impossibility of a completely ―fair‖ method,
 calculate power indices in weighted voting systems,
 understand the Fibonacci sequence and other number sequences,
 appreciate the power of exponential growth and contrast it with linear and logistic growth,
 analyze graphs by applying Euler‘s Theorem and Fleury‘s algorithm,
 explore Hamilton Circuits and ways to find optimal paths,
 use graphical presentations of data,
 understand basic statistical concepts of average, median, and standard deviation, and
 understand the rudiments of probability theory and its applications.
Plagiarism
Refer to the Academic Regulations section of the academic catalogue for the University‘s policy on plagiarism. Violations of this policy will
not be accepted.
Topical Outline and Approximate Examination Dates

Chapter 1 Preference Ballots, Plurality, Borda Count, Plurality-with-elimination and Pairwise Comparison Methods; Rankings
Chapter 2 Weighted Voting Systems, Banzhaf and Shapley-Shubik Power Indexes
EXAM #1 Week of FEBRUARY 15–19 [To be announced]
Chapter 9 Fibonacci Numbers, Sequences
Chapter 10 Dynamics of Population Growth, Linear, Exponential, & Logistic Growth
EXAM #2 Week of MARCH 8–12 [To be announced]
Chapter 5 Assorted Routing Problems, Graphs, Euler‘s Theorems, Fleury‘s Theorem, Graph Models, Eulerizing Graphs
Chapter 6 Hamilton Circuits, Traveling Salesman Problem, Efficiency Considerations; Nearest Neighbor and Cheapest Link Algorithms
EXAM #3 Week of APRIL 19–23 [To be announced]
Chapter 14 Descriptive Statistics: Graphs, average, median, and standard deviation
Chapter 15 Probability: sample spaces, permutation, combinations, and odds
EXAM #4 MAY 9–12 [To be announced]
Class Procedures and Grading

Classroom time will be devoted to (a) discussion of the homework assignment, (b) presentation of new material, and (c) sample exercises
worked out collaboratively by students and instructor. ATTENDANCE IS REQUIRED AT ALL CLASSES and will be recorded. Note that
class participation is part of the grade. Please bring your textbook and calculator to each class.
Homework is assigned each class period. Students are expected to make an honest effort to complete the assignment for the next class.
Working together with other students is encouraged. The importance of homework cannot be overemphasized. MATHEMATICS IS NOT A
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SPECTATOR SPORT! One must DO mathematics to understand it. Please do not hesitate to see me and/or the Foundations tutor for
help.
Approximate grading breakdown will be as follows:
4 Class Exams 70%
Class Participation 10% (1 point off for each absence beyond 3)
Homework & Quizzes 20%
Caveat
It may be necessary to modify the topics covered or the class procedures as the course progresses. Any changes will be announced in
advance and only after class discussion.
PLEASE SEE ME AS SOON AS YOU ARE HAVING ANY PROBLEMS WHATSOEVER.
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G. P. Marquis Volume 9 – Spring 2010
BUSINESS SCHOOL STUDENTS: CLIENTS OR PRODUCTS?
Gerald P. Marquis
ABSTRACT
One of the persistent questions that faculty at business schools have to address is how to manage their relationship with
students. There have been many papers written espousing either the “Students as Products” point of view or the “Students as
Customers” point of view. The general theme of the prior view is that future employers or society are the purchasers of the
knowledge or education embodied in the student as the product of the university. In contrast, the general theme of the later
view is that the student is the purchaser of the education or knowledge, and thus this is a transaction. For this research the
“Students as Customers” approach is replaced with the “Students as Clients” approach to the student/professor relationship.
This alternative approach minimizes or eliminates the transaction-like relationship and introduces a client to mentor/expert
relationship. After a review of prior works on the product model a “Students as Clients” model is explored. A survey was
conducted to test the acceptance of these models among business school faculty and the results are presented herein. This
paper addresses undergraduate business students and MBA students.
Keywords: Student/Faculty Interaction, Client, Product
INTRODUCTION
One of the persistent questions that faculty at business schools have asked of themselves is how to manage their relationship
with their students. There have been many papers written on the customer vs. product sides of this issue. This paper looks at
another possible dichotomy of views; students-as-clients vs. students-as-products. Many authors espouse the point of view that
students are products of our academic institutions. Other authors advocate that students are to be considered as clients. This
study focuses on undergraduate business students and MBA students and not the doctorial students that most likely are
pursuing a career in academia and appropriately should be supported and guided differently.
This paper begins with a review of the literature regarding the two approaches to the student/faculty relationship mentioned
above. The next section will discuss the survey instrument and methodology used to collect the data. Following next is the
presentation of the survey results and implications. The paper ends with a conclusion section in which we may answer the
question: are business school students: clients or products?
LITERATURE REVIEW
Students-as-Products – Pro
A common description of the student/faculty interaction is the student-as-product model and there are several advocates of this
model. Kearns (1998) points out that colleges and universities have a very diverse set of stakeholders with diverse
expectations leading to the assertion that colleges and universities are ―public-serving organizations, engaged in the production
of public goods‖ (p. 141). Although students are one of the stakeholders, Kearns (1998) further states that ―students have the
right to expect an institutional commitment to quality teaching, but they should never have control over what is taught or,
necessarily, how it is taught‖ (p. 141). That is, the student is only a part of the ―public good‖ produced by a college or university,
thus, in effect the product of the educational institution. As institutions serving the public good, these institutions are
increasingly being held accountable for the quality of their output, i.e. the graduate.
Another, and more succinct, statement of why students should be treated as products is stated clearly as:
Students as a product places all the emphasis on the development of the student. The ultimate customer is the
outside world, in essence what the graduate does in the world after (Sorley, 2005, online).
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In this article he goes on to give examples of how many great teachers that have viewed their students as the product of their
educational institutions have produced graduates well prepared for their careers in the outside world. By diligently working to
assure that the ―right‖ knowledge has been imparted into the student the students have been successful in their chosen
careers.
Sirvanci presents an excellent analogy of how higher education can be considered as a production process as illustrated below
(1996, p. 100).
Secondary schools Suppliers

Admitted high school graduates Raw material
Students Product-in-process
Courses Process stages
Graduates Finished product
Employers Customers
Following this scenario, the student is clearly viewed as the product of the education process. The role of faculty is to assure
the quality of the graduate. ―The clear benefit from a product-oriented approach is the quality of education that each student
receives. By treating each student as a product to be carefully ‗crafted‘ and ‗inspected‘ for quality, the focus shifts from
teaching to learning‖ (Emery et al., 2001, p.114). The student-as-product approach places the emphasis on the outcomes of
the education process and on a need for quality control.
A similar metaphor for the student-as-product scenario is presented by Hoffman and Kretovics by likening incoming students as
raw material. Their description is:
Once raw materials enter into the production process (aka: the higher education system), value is added; and they
are repeatedly tested and retested (via coursework) as the product makes the transformation from raw materials to
work-in-process to finished products (2004, pp. 107-108).
These ―finished products‖ are then the representatives of the university‘s quality that will be measured by their future
employers. They go on to state that since the graduate is the product of the university, employers are the customers of the
university and the value of the product can be assessed by the hire rate and starting salaries. With the value of the
product/graduate quantifiable, a measure of quality can be determined thus leading to a measure of quality control on the
educational process.
Students-as-Products – Con
There are some down-side results that can occur when adopting the student-as-product model to higher education. One
concern of schools that adopt the product–oriented approach is that they ―could be faced with lower retention rates and under-
enrolled classes‖ thus leading to reduced revenue (Emery et al., 2001, p. 114). So this approach could negatively affect the
institution financially and reduce the need for faculty.
―The product approach demands that business schools treat students as their products: they assume the responsibility to train
students to become qualified products that can meet the criteria of various industries‖ (Emery et al., 2001, p. 113). More
succinctly, Wynn states that an issue with the student-as-product scenario is that of product liability. He states that the ―current
trends in common law indicates that a producer cannot escape the responsibility for the performance of his product‖ and that
schools need to consider this issue (Wynn, 1985, p. 2). This responsibility on the part of the faculty and institution can very well
be a major reason for not adopting the student as product model.
Another consequence of adopting the student-as-product model is that is overlooks the student‘s active involvement in the
education process. This can lead to students not accepting the responsibility of active engagement in the learning process
(Hoffman and Kretovics, 2004, p. 108). Without active engagement in the education process the student becomes an
autonomic entity into which knowledge is infused as added value.
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Students-as-Clients – Pro
A less commonly discussed description of the student/faculty interaction is the student-as-client model. Armstrong makes a
convincing argument that undergraduate and MBA students need to be considered clients. His model posits the universities are
like professional firms and the students are clients. He bases this on the definition that a client is ―a person who engages the
professional advice or services of another.‖ To make this case he identifies several important distinctions as listed below
(Armstrong, 2003, pp. 272-273).
 Business students rely on the professional judgment of faculty in preparation for their future careers
 Students do not attend university to advance its research agenda; they attend to satisfy their own needs
 Clients come to professionals to benefit from their specialized services; once this is done they leave
 Students attend university for a few years to receive an education before moving on in life
In this client model ―we focus on the students‘ underlying needs (employability and intellectual development) that our
professional services can uniquely satisfy‖ (Armstrong, 2003, p. 373). Thus the faculties, operating as professionals, are
charged with delivering the course material required to make the students productive graduates rather than satisfying their
wants for easy courses and good grades as a customer approach would engender. Additionally, faculty members must make
themselves available to the students outside of the classroom for the one-on-one counseling and advisement sessions that the
student-as-client model suggests is an integral part of the educational process.
Bailey puts the student-as-client metaphor in a ―professional service framework‖ that, in turn, puts professors in the role as a
professional that delivers expert advice and counsel. This scenario leads to several important characteristics (Bailey, 2000, p.
355).
 The client has expectations that the professional operates within accepted standards and ethical guidelines,
 The client have expectations that the professional has greater expertise and that expertise is sought out in the
relationship,
 The client places a high degree of confidence in the beliefs, decisions, and advice of the professional on whose services
the client has called.
Sharrock adds to this view by stating that faculty members need to see students as clients ―when they need advice to help
them understand their concerns, and make informed decisions‖ (2000, p. 150). Students will come to the faculty member when
they need expert guidance on course choices, assignments, and occasionally personal issues. Students rely on the
professional judgment of faculty in preparation for their future careers
In the student-as-client scenario the faculty member becomes more of a mentor to which the student will come to for advice
and counsel. This assumes that the student will have the desire to seek out faculty members to enhance their educational
experience.
THE SURVEY INSTRUMENT

To conduct the survey a clear description of both of the faculty/student relationships was constructed. Considering the literature
cited above, we developed the following descriptions. For these scenarios a distinction was made between the roll of
education; as an intangible entity that is transferable, or as an attribute to be embedded into a product.
For the description of the students-as-client scenario the following was used:
Students-as-Clients
University faculties are oriented toward satisfaction of student needs including employability or intellectual development.
Students seek out faculty to engage the professional advice of the faculty member. Faculties design their courses to provide
the advice required to meet the current and future wants and needs of their students. The student places a high degree of
confidence in the beliefs, decisions, and advice of the faculty member. This makes education an ―intangible‖ paradigm that is
transferred from faculty to student.
For the description of the students-as-products scenario the following was used:
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Students-as-Products
University faculties are oriented toward the satisfaction of society and its expectations. As a social institution, the goal of the
university is to produce graduates with the appropriate knowledge and skills for jobs and productive citizenship. Faculties
design their courses to meet the long term needs of students and society. Faculties believe they know what is best for
students, and they teach with the students‘ best interests in mind. This makes education the ―value added‖ to the student as
the product.
Since the Students-as-Clients category was introduced to this study, a description was constructed from a condensation of the
available literature. The second scenario was adapted from the Obermiller (2005, p. 29) article and modified for our survey.
The survey instrument presented these scenarios and asked the respondents their level of agreement or disagreement using a
six point Likert Scale, Agree Very Strongly (1) through Disagree Very Strongly (6). They were to rate each of the scenarios on
their personal preference on how faculty should interact with students. The entire survey instrument is available upon request.
This was an on-line survey administered over the Internet. The survey was distributed via e-mail to the Deans of business
schools and colleges in the United States who were in turn asked to forward the e-mail to their respective faculty. Within the e-
mail was a clickable link to the on-line survey.
SURVEY RESULTS
Descriptive Variables
The survey requesting e-mail was sent to 476 business school deans. A parsing of the IP addresses indicated that responses
came from 48 schools and/or colleges yielding a response rate of 10% (48/476). There were 209 usable responses to the
survey. The survey included descriptive variables that were believed might be important as predictors to the level of agreement
or disagreement to the three models. These descriptive variables are presented in the tables below along with counts and
percentages for each choice within the respective variable.
The profile for the institutions responding to the survey is presented in Tables 1 and 2 below. There were about an equal
number of responses from Public schools and from Private for profit schools with a much lower response rate from the Private
religion based schools. The most common programs represented are Undergraduate only (UG) and the combination of
Undergraduate and Master‘s only (UG and M only). Institutions having only a Masters program (M only) and having all three
academic programs (UG, M, Doc) accounted for a lower representation in the survey.
Table 1
School type Count %
Public 90 43.1
Private (or for profit) 89 42.6
Private (religion based) 30 14.4
Table 2
School Programs Count %
UG Only 72 34%
M Only 22 11%
UG and M Only 77 37%
UG, M, Doc 38 18%
An aggregated respondent profile is presented in Tables 3 through 6 below. While the number of years of teaching is fairly
evenly distributed, the highest response rate is from those individuals with more than twenty-five years of teaching experience.
The academic rank of the respondents is again fairly evenly distributed with the rank of Instructor being the most common.
Male respondents outnumbered the female respondents by more than twice and the most occurring age reported is in the 51 to
60 bracket. In general, all that can be said of the respondents as a group is that the survey results may be biased by males in
their 50‘s.
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Table 3
Years of Teaching Count %
1–5 30 14.4%
6 – 10 40 19.1%
11 – 15 44 21.1%
16 – 20 21 10.0%
21 – 25 26 12.4%
>25 48 23.0%
Table 4
Rank Count %
Instructor 64 30.9%
Assistant Professor 43 20.8%
Associate Professor 46 22.2%
Full Professor 54 26.1%
Table 5
Gender Count %
Male 143 70.8%
Female 59 29.2%
Table 6
Age Count %
21 – 30 3 1.5%
31 – 40 17 8.5%
41 – 50 51 25.4%
51 – 60 88 43.8%
61 and above 42 20.9%
Preference Results
The preferences were recorded on a six point Likert Scale ranging from Agree Very Strongly (1) to Disagree Very Strongly (6).
The resulting data is considered ordinal data since the data fits Allen and Seaman‘s definition as ―Data in which an ordering or
ranking of responses is possible but no measure of distance is possible‖ (2007, p. 64). Clason and Dormody state that with
discrete observations the data should ―be summarized as counts (or percentages) occurring in the various response
categories‖ (1994, p. 32). And Jamieson adds ―that for ordinal data one should employ the median or mode as the measure of
central tendency‖ (2004, p. 1217). In keeping with these referenced sources, the following tables include the actual counts, the
percentages, the medians, and the modes for the various response categories.
One assumption early on was that there would be a significant difference on how faculty members would rate the two models
depending on the type of school. To investigate this assumption the two tables below are presented, one for each of the
proposed interaction models.
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Table 7
Faculty should interact with students as clients
Public Private (or for profit) Private (religion based)
Count Percent Count Percent Count Percent
Agree Very Strongly (1) 28 32% 29 35% 10 36%
Agree Strongly (2) 20 23% 29 35% 8 29%
Agree (3) 26 30% 16 19% 6 21%
Disagree (4) 8 9% 5 6% 2 7%
Disagree Strongly (5) 5 5% 2 2% 2 7%
Disagree Very Strongly (6) 1 1% 3 3% 0 0%
Median 2 2 2
Mode 1 2 1
Table 7 shows that the preponderance of the respondents are in agreement with this newly defined faculty/student model of
interacting with student as clients regardless of the school type. This is clear as for all three school types since over fifty
percent of the respondents either agreed strongly or agreed very strongly. Note also that both the median and mode for all
three school types fall into the same two categories. A cursory examination of the data also reveals that the response
distribution is heavily skewed to the Agree Very Strongly end of the scale.
Table 8
Faculty should interact with students as products
Public Private (or for profit) Private (religion based)
Count Percent Count Percent Count Percent
Agree Very Strongly (1) 19 21% 17 20% 5.0 18%
Agree Strongly (2) 26 29% 19 22% 9.0 32%
Agree (3) 26 29% 17 20% 7.0 25%
Disagree (4) 7 8% 19 22% 3.0 11%
Disagree Strongly (5) 3 3% 6 7% 1.0 4%
Disagree Very Strongly (6) 8 9% 8 9% 3.0 10%
Median 2 3 2.5
Mode 2 2 2.0
In Table 8 we can see that across the three school types there is some agreement that the student as a product model is
preferred with more than sixty percent of the respondents selecting one of the ―agree‖ choices. Again we observe a skewed
distribution of responses to the agree end of the scale. The median and mode fall into the Agree or Agree strongly categories
of preference. Thus the preference to treat students as products is not as strong at the preference to treat students as clients.
Table 9
All Schools Faculty should interact with students:
as Clients as Products
Count Percent Count Percent
Agree Very Strongly (1) 67 33% 41 20%
Agree Strongly (2) 57 28% 54 26%
Agree (3) 49 24% 51 25%
Disagree (4) 15 7% 29 14%
Disagree Strongly (5) 9 4% 10 5%
Disagree Very Strongly (6) 4 2% 19 9%
Median 2 3
Mode 1 2
Table 9 is an aggregate of all three school types for each of the two faculty/student models. It can be seen that the survey
subjects indicated a preference for both models with medians and modes all on the ―agree‖ side of the scale. The table also
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indicates that the students-as-clients preference model has both a lower median and mode than the students-as-products
preference model indicating an overall preference for the prior model. Sixty one percent (61%) of the respondents fell into
either the ―Agree Very Strongly‖ or ―Agree Strongly‖ categories for the students-as-clients model compared with only forty six
percent (46%) that fell into these two categories for the student-as-products model.
Preference Analysis
In the three tables above all measures of central tendency fell on the ―agree‖ side of the scale. This result could lead to the
conclusion that faculty would like to interact with students both as a client and as a product. What is of interest now is how do
faculties expect to educate students using both models since on the surface these two models seem to be countermeasures of
each other. That is, how can a faculty interact with a student on a client/professional basis and at the same time treat them as
a product in which the faculty has to create added value? Muncy suggests that the real question should be ―When should a
university take a particular orientation?‖ (2008, p. 22). He suggests that universities should adopt different approaches for
different aspects of the educational experience.
One possible answer may be that each model needs to be evoked but in differing times and/or situations. It may be that the
product model is more applicable to the classroom while a professor may prefer a client model in their office. The product
model may work for dealing with large groups as in a class while the client model may work better in a ―one-on-one‖ situation in
the professor‘s office. A possible problem with this scenario is that the student may not be able to change roles to
accommodate the two differing interaction styles.
Another possible explanation for this dual preference may be that the different models are applicable at different times in the
student‘s career at a college or university. For example, the traditional entering freshmen, usually with not much experience in
an adult world, could very well be thought of as incoming ―raw material‖ as in the product model. As these students progress
and have ―value added‖ due to their experience and interaction with professors, they would mature into a more rounded adult
that would be more comfortable in seeking advice from professors as the client model suggests. This metamorphosis has been
observed by this author. As students approach and enter their senior year, with graduation looming, they are more likely to
seek out advice and counsel from faculty members whom they rely on for their professional judgment for career choice, job
hunting, and interviewing.
A third possible explanation for this dual preference may be the different activities needed for curriculum design versus
teaching. While considering curriculum design faculty may think in the student-as-product mode. How do we determine
prerequisite structures between courses so that there is a coherent continuum of increased knowledge transfer to the student?
The product model can be useful to answer this question. A sequence of courses, each building on the knowledge gained in a
prior course, can look very much like an assembly line with each course adding more value to the output from its prerequisite
course. On the other hand, while thinking about the actual teaching process, faculty may opt for a more student centered
approach. This mindset could lead to the preference to interact with students as clients.
CONCLUSION
Over the years there has been much written about what the student-professor relationship should be. In place of the typical
product vs. customer dichotomy found in many of these discussions it was of interest to test another pair, i.e., product vs.
client. Two scenarios describing the two models; ―student-as-clients‖ and ―students-as-products‖ was constructed. A survey
was then conducted via the Internet to collect business school instructional staff as to their preferences on how faculty and
student interact with respect to these two models.
The results of the survey indicates that the majority of the faculty responders either ―strongly agreed‖ or ―very strongly agreed‖
with both the student-as-client model and the student-as-product model with a minor preference for the student-as-client model.
Another interesting result is that the distributions for the three school types, Public, Private (or for profit), Private (religion
based), were remarkably similar.
The results of this survey tend to indicate that there clearly no common view on how faculty members wish to interact with
students. The dual preference for the diametrically opposed client model and the product model also raises the question if both
models can be used side-by-side. And if so, in what situations would each model be best used? Clearly in our changing
education environment these issues need to be researched more so that our colleges and universities can better meet the
needs of our students, the future employers of our students, and the greater society as a whole into which our students will
enter.
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One of the limitations of this study is the method used to distribute the survey, i.e., sending e-mails to business school deans
and asking them to forward it to their faculty. To be sure, some deans either overlooked the requesting e-mail or deleted it as
spam-like e-mail or the survey topic was of no interest to them. Then the survey request would have been forwarded only to
faculty in schools in which the deans had an interest in the subject of the faculty/student relationship. A corresponding limitation
is that it is most likely that only faculty members that had an interest in the survey topic did take the survey. A final limitation is
the disappointing comparative small number of responses from private (religion based) schools.
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Armstrong, Michael J., (2003), Students as Clients: A Professional Services Model for Business Education, Academy of
Management Learning and Education, Vol. 2, No. 4, pp. 371-374.
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No. 3, pp. 353-365.
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Curriculum in the 21st Century, Journal of Management Education, Vol. 24, No. 1, pp. 102-126.
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Interaction, Innovative Higher Education, Vol. 29, No. 2, pp. 103-120.
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No. 2, pp. 140-156.
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1998, accessed on-line 3/1/2007 at http://www.gmu.edu/news/gazette9811/students.html.
Muncy, James A., (2008), The Orientation Evaluation Matrix (OEM): Are Students Customers or Products?, Marketing
Education Review, Vol. 18, No. 3, pp. 15-24.
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Faculty and Students, Marketing Education Review, Vol. 15, No. 2.
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Sorley, Scott, (2005), Students – Customer or Products?, Scott Sorley‟s Education Technology Guidebook, April 14, 2005,
accessed 3/1/2007 on-line at http://scott.sorley.com/articles/20050414.html.
Sharrock, Geoff, (2000), Why Students are not (Just) Customers (and other reflections on Life After George), Journal of Higher
Education Policy and Management, Vol. 22, No. 2, pp149-164.
Vaill, Peter, (2007), Beware the Idea of the Student as a Customer: A Dissenting View, Essay, accessed 3/1/2007 on-line at
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10.3/Vol.%202/Wynn.htm.
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D. Radulovic and D. Radovanovic Volume 9 – Spring 2010
LATENT DIMENSIONS OF CRIMINAL BEHAVIOR
Danka Radulovic and Dobrivoje Radovanovic

University of Belgrade, Serbia
ABSTRACT
The article presents findings of the empirical study of factors of criminal behavior examined on a large random sample of adult
male offenders. The sample was described by forty-one variable of frequency occurrence of different forms of criminal behavior
throughout lifespan of subjects. Using oblimin transformation of the main components authors found nine well-defined latent
dimensions of criminal behavior. They could be interpreted as the serious and lighter forms of adolescent gang members
criminality; violent and nonviolent forms of property crime; violent and nonviolent acts of fraud and embezzlement; as well as a
relatively minor predominantly urban type of criminal activities; and two specific latent dimensions of crime connected with
alcoholism and drug addiction of the offenders.
Keywords: Crime, Psychology, Dimensions, Male.
PROBLEM
Among the most serious difficulties facing researchers in an attempt to determine relationships between psychological
variables and criminal behavior is the problem: how to measure the criminal behavior, or what to take as the criterion variable,
valid from the methodological point of view (Eysenck,Gudjonsson,1990, Radulovic,et al.,1998). For example, as parameters of
crime in a survey are identified by type of offences or duration or seriousness of imposed sanctions, satisfactory results usually
can‘t be attained. The so obtained results provide unrealistic picture that the links between psychological variables and criminal
behavior is low or that differences in these variables among offenders of different offences almost do not exist. Experience,
however, and the criminal-law practice teach us that it is difficult to assume that the psychological dimensions are without the
influence, or with a small influence on the issue whether an individual will make offence and, if he will, what offence he will do.
Obviously, the problem lies in a choice of dependent variables.
Of course, that problem, in principle, could be solved by control groups, but it would be very difficult to equalize control groups
in a satisfactory manner. Besides that, the control groups make researches disproportionately rise in price and duplicated work.
More operative, economical, and research simpler is to find out within the criminal behavior those variables that meet
methodological criteria.
Attempts to "length of his sentence" simply do not get results because the variable contains a lot of "mitigating and aggravating
circumstances"; shortly, because it is too saturated by unknown and uncontrollable phenomenon.
Also, at first glance, it can make meaningful attempt to make a criminal behavior operational, with the help of kind of offence,
because at the basis of such determinations is logically acceptable hypothesis that the killers by the structure of psychological
dimensions differ from thieves, and thieves from robbers etc. This strategy, however, does not give enough reliable results too,
because the types of offences are legal categories. In other words, legal science, in most cases, adapted their categories to the
nature of its interest for a, by crime attacked object. Thus, for example, in the legal category of „property crime― we have
serious forms of theft and burglary and robbery (which is primarily violent act) and plunder the state and social property etc.
The situation is not better with the „acts against life and body ―or „acts against personal dignity and morality. Of course, legal
science constituted that categories entirely appropriate to their needs, principles and interests and those are primarily the result
of variations of external factors. Affiliation of the perpetrator to these categories, in the case that they are used in a research, is
not dictated internal psychological reasons, but legal principles, hence psychological phenomena only secondary come in to
expression. If these categories would be constituted on the basis of natural variations of the human behavior, the picture on
individual differences among offenders of different offences would probably be clearer and more realistic, as the contribution to
the psychological phenomena to criminal behavior would be, in general, disproportionately more reliable determined. However,
in both cases, the role of psychological phenomena is extremely important. Contribution of the psychological phenomenon to
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the criminal behavior in general, or to the certain types of conduct, is the unavoidable basis for any serious preventive actions.
Any other solution is either too far away from the human itself, or it is already in the issue of state reaction that comes into play
when the offence is already done. Image of the psychological differences of perpetrators of certain types of would give
completely different capabilities in institutional procedures of prisoners in penal institutions. In addition it would certainly clarify
the impact of variations from the field of psychology on illegal behaviors.
At the time when a growth rates of crime in many countries worldwide are extremely high when a violent crime is becoming part
of everyday life, when the rates of recurrences after prison sentences are growing up to 60 percents, it becomes particularly
important to determine the role of the psychological phenomena in crime, in general, and in its individual forms, as realistic as
possible. One of the prerequisites is finding more natural and more reliable criteria variables. The authors of this paper started
from the idea that the factor structure of the criminal conduct made on the basis of the discovered, but also on undiscovered
offence and antisocial modalities of behavior, especially on the basis of natural, individual variables of such a behavior, is an
effective research way to achieve this goal.
Latent structure of antisocial, deviant and delinquent behavior of juvenile and young adult men was analyzed on the samples
from the population to which this, and two earlier studies applies (Ajdukovic,1988, Prislin, Wolf,1988). In both studies the data
on antisocial, deviant and worse criminal behavior came under self statements of respondents and in both cases the heavier
forms of deviant and openly criminal behavior dominated. In these studies it was found that on the base any discovered or
undiscovered forms of deviant and delinquent behavior, latent dimensions responsible for the relatively homogenous group of
offences, or deviant behavior, can be detected. These latent dimensions were responsible for violent behavior, disposition of
property crimes commission, anarchic behavior, tendency for severe criminal acts committed in the perpetration of violence
and the tendency of perpetration of serious offenses against property. Besides these, latent dimensions responsible for the lack
of adaptation to school or immediate social environment, of which the dimension responsible for anarchic behavior had the
most important role, were discovered.
METHOD
Latent structure analysis of the modalities of criminal behavior, carried out on the basis of data obtained on a sample of 314
male, aged from 18 to 60 years, clinically healthy in the days of testing, and written with a good knowledge of native language,
which made any crime, except political offenses, and for that criminal acts were convicted final verdict and on the basis of
these verdict were in the serving of prison sentences. Sample of candidates was taken as a two-stage sample, on that way, at
first, from the prison population was drawn, by the optimal allocation, six prisons, and than tested all the sentenced which, by
the mentioned characteristics belonged to defined population.
Data on deviant, delinquent and criminal behavior were obtained from the subjects themselves, using metric proven reliable
and valid questionnaire that was designed by Wolf (1985). Based on the questionnaire, or self reports of respondents, obtained
information about the frequency of discovered and undiscovered crime and criminal behavior, especially for under the age of
14 years, then the age of 14 to 18 years and the period after eighteen years. This paper analyzed data of the occurrence
frequency of forty-one kind of criminal behavior in the period of fourteen years of age to the offender age on the day of testing,
regardless of whether such crime was discovered or left undiscovered. The following variables were analyzed:
1. running away from school for several days;

2. strolling and waste of time;
3. running away from home;
4. gambling large sums of money;
5. violent behavior;
6. drinking in society;
7. drinking in solitude;
8. had their own gang which performed bad, unlawful things too;
9. illegal borrowing of the vehicle;
10. light physical injury;
11. stealing of motor vehicle;
12. association with gang of hooligans;
13. intentionally not returning of lent money and values;
14. stealing in the market;
15. the destruction of other people's property;
16. intentionally causing a fire;
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17. resistance to official;

18. pocket-picking;
19. smoking marijuana;
20. destruction of social property;
21. fraud;
22. using false documents;
23. participation in a fight,
24. stealing food, beverages and other items;
25. selling of stolen goods;
26. stealing of greater sums of money;
27. secretly taking money and other objects;
28. taking the easy drugs;
29. rape;
30. grievous bodily injuries;
31. serious theft;
32. taking heavy drugs;
33. falsification of documents;
34. force getting to drugs;
35. murder;
36. robbery;.
37. burglary;
38. causing traffic accidents;
39. economic crime;
40. provision of illegal services;
41. smuggling drugs.
Latent structure of these variables is determined by the method of principal components (Cattell,1966,Hotelling,1933). The
number of retained principal components is determined based on the Guttman-Kaiser's criterion by which all the major
components that contribute to the entropy of variables co-variables are retained, or that have a value greater than or equal to
one. These components are then transformed into the oblique angle Oblimin position.
RESULT AND DISCUSSION

The main results obtained by the component analyzing of the modalities of antisocial and criminal behavior of the subjects are
shown in the following four tables:
In Table 1. are structures of the main principal components (marked by k), commonalities of variables in nine dimensional
latent space(h2) and the variances of the main components (λ.);
In Table 2. are patterns of Oblimin factors, marked by v,
In Table 3. are structures of Oblimin factors, marked by f;
In Table 4. are inter correlations of isolated factors.
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Table 1: Structure of the Main Components (k), Commonalities (h2) and Variances of the Main Components (λ)
variance k1 k2 k3 k4 k5 k6 k7 k8 k9 h
1.RAS .485 .115 -.017 .147 .249 -.278 .187 .489 .122 .699
2.SWT .501 .218 .236 .140 .357 .046 -.088 -.006 .157 .536
3.RAH .494 .146 -.153 .267 -.096 .075 .501 .059 .214 .675
4.GLM .644 -.290 -.062 -.145 .140 -.104 .203 .144 .133 .629
5.VB .584 .410 .228 -.184 .376 -.151 -.156 -.019 -.050 .786
6.DS .531 .100 -.231 .119 .168 .424 -.146 .279 -.214 .713
7.DA .541 .035 -.235 -.131 .220 .407 I -.116 .188 -.278 .706
8.GNG .635 .461 -.193 -.131 .145 .015 .018 -.211 .032 .738
9. BV .699 -.008 -.402 .023 -.134 .188 -.039 -.136 -.113 .737
10.LPN .575 .396 -.235 -.302 -.094 .012 .134 .072 -.117 .679
11.SV .501 .233 -.319 -.266 -.041 .180 .398 -.197 .003 .710
12.AGH .638 .475 -.074 -.319 -.052 .095 .002 .142 .004 .772
13.RMV .456 .224 .457 -.004 .500 .265 .039 .006 .039 .790
14.SM .513 .295 -.103 -.057 .156 -.118 -.077 .130 .386 .575
15.DPP .582 .226 .174 -.044 -.106 -.399 -.249 -.123 -.071 .676
16.IF .479 .000 .601 .241 .159 .066 .151 -.271 .076 .780
17.RO .676 .209 .134 -.334 -.067 -.015 -.248 .039 .300 .788
18.PP .648 -.535 -.160 -.219 .172 -.080 -.074 -.041 -.104 .834
19. SMH .658 -.426 -.135 -.329 -.051 -.011 .020 -.005 .164 .771
20.DSP .566 .252 .057 .072 -.086 -.380 -.171 -.237 -.154 .654
21.FR .624 -.425 -.007 .293 .222 .098 -.058 -.278 .163 .821
22. UFD .632 -.502 -.133 -.189 .049 -.034 .077 -.110 .030 .728
23.PIF .649 .500 -.082 -.249 -.094 .098 -.019 -.098 -.120 .783
24.SFB .528 .283 -.013 .212 -.110 .092 .298 -.199 -.215 .599
25.SSG .707 .091 -.273 .265 -.079 -.126 .200 .014 .079 .732
26.SGM .742 -.066 -.165 .310 .012 .003 -.369 -.066 .106 .830
27.STM .609 .008 -.229 .500 -.070 -.066 -.252 -.022 -.171 .776
28. TID .526 -.022 .380 -.081 -.512 .268 -.056 -.005 .201 .806
29.RAP .615 .035 .601 .169 .207 .062 .133 -.086 -.121 .855
30.GBI .589 .252 .198 -.181 -.142 -.116 -.171 .134 .043 .565
31 STF .683 .125 -.399 .350 -.060 -.219 .108 .002 .044 .828
32.THD .529 -.080 .416 -.121 -.422 .162 -.006 .080 .219 .733
33.FDO .616 -.608 -.087 -.072 .045 -.103 .055 .126 .014 .794
34.FGD .598 -.111 .600 .104 -.219 .104 .135 -.061 -.123 .837
35.MUR .626 .141 .168 -.200 -.269 -.188 .006 .114 -.248 .663
36.ROB .757 -.519 .067 -.116 .037 -.048 -.058 -.030 -.170 .898
37.BUL .726 .019 -.441 .192 -.040 -.060 .018 -.148 .132 .804
38.TRA .711 -.406 .097 -.150 -.006 -.073 .004 .036 -.187 .745
39.ECC .451 -.058 .375 .338 -.111 -.224 .215 .357 -.229 .749
40.PIS .454 -.001 -.056 .527 -.256 .321 -.318 .194 .091 .802
41.SMD .611 -.661 .015 -.174 .010 .074 .004 .014 .027 .847
λ 14.792 3.898 3.086 2.229 1.638 1.379 1.333 1.066 1.025
% 36.1 9.5 7.5 5.4 4.0 3.4 3.3 2.6 2.5
178
74.3% of the total variability of variables for criminal behavior assessment were retained. It also proved that the first main
component is responsible for explaining almost half of the variables that cover isolated major components.
Table 2: Pattern of Oblimin Factors

variance v1 v2 v3 v4 v5 v6 v7 v8 v9
1.RAS -.02 .11 .08 .00 -.15 .07 .06 .67 .34
2.SWT .06 -.03 .56 .14 -.02 .08 -.02 .07 .28
3.RAH -.25 -.02 .08 .11 .12 -.09 .70 .28 .09
4.GLM -.07 .63 .06 -.11 -.00 .01 .16 .23 .18
5.VP .46 -.00 .46 -.15 -.10 .22 -.07 .06 .29
6.DS -.15 .05 .08 .30 -.03 .73 .03 .10 -.01
7.DA -.09 .23 .08 .08 -.06 .76 .03 -.03 -.03
8.GNG .33 -.04 .21 .00 -.06 .21 .42 -.16 .27
9.BV .14 .29 -.12 .30 .06 .31 .39 -.17 -.04
10.LPN .27 .01 -.14 -.19 .10 .36 .41 .07 .14
11.SV -.01 .14 .00 -.24 .04 .19 .73 -.16 .06
12.AGH .24 -.67 .00 -.15 .26 .41 .25 .06 .29
13.RMV -.10 -.04 .82 -.13 .01 .27 -.04 .03 .14
14.SIM .09 .00 .10 .10 .06 .01 .11 .11 .61
15.DPP .72 .06 .07 .09 .10 -.11 -.07 .07 .11
16.IF .05 .05 .77 .04 .18 -.23 .12 .01 -.12
17.RO .27 .15 .09 -.01 .43 .09 -.06 -.09 .50
18.PP .11 .90 .00 .00 -.13 .12 -.07 -.04 .00
19.SMH -.01 .78 -.11 -.06 .20 .00 .08 -.07 .19
20.DSP .73 .02 .09 .16 -.03 -.11 .10 .02 .00
21.FR -.09 .56 .41 .42 -.08 -.14 .10 -.17 .02
22.UFD .01 .82 .01 -.01 .01 -.03 .13 -.07 .01
23.PIF .39 -.10 .06 -.08 .20 .37 .35 -.11 .12
24.SFB .18 -.12 .21 .08 .04 .11 .58 .06 -.26
25.SSG .12 .15 -.03 .31 -.02 -.03 .50 .25 .11
26.SGM .23 .24 .10 .64 .05 .09 -.02 -.05 .19
27.STM .32 .07 -.01 .67 -.10 .15 .08 .12 -.10
28. TID -.01 .05 .05 .12 .86 -.02 .06 -.08 .00
29.RAP .12 .11 .73 -.04 .14 .02 .04 .18 -.19
30.GBI .38 .02 .04 -.01 .35 .13 -.07 .14 .23
31.STF .23 .12 -.11 .41 -.15 -.04 .47 .25 .14
32.THD -.02 .14 .07 .02 .78 -.07 .01 .04 .06
33.FDO -.06 .86 -.06 .06 .01 -.01 -.03 .18 .00
34.FGD .12 .16 .41 .00 .50 -.05 .07 .15 -.33
35.MUR .48 .16 -.09 -.14 .30 .16 .06 .25 -.10
36.ROB .16 .82 .10 .05 .06 .10 -.08 .04 -.15
37.BUL . .16 .28 -.07 .41 -.07 .00 .46 -.04 .20
38.TRA .18 .71 .06 -.03 .10 .12 -.04 .13 -.15
39.ECC .13 .06 .14 .06 .13 -.01 -.01 .70 -.28
40.PIS -.12 -.15 -.02 .78 .36 .24 -.06 .09 .01
41.SMD -.13 .89 .03 .02 .16 .03 -.07 -.02 -.05
179
Table 3: Structure of Oblimin Factors

variance f1 f2 f3 f4 f5 f6 f7 f8 f9
1.RAS .21 .27 .27 .17 .05 .23 .28 .72 .43
2.SWT .30 .19 .64 .24 .17 .26 .20 .25 .37
3.RAH .06 .22 .22 .29 .23 .13 .71 .41 .20
4.GLM .20 .70 .26 .13 .23 .23 .36 .37 .30
5.VB .64 .20 .60 -.01 .17 .44 .22 .24 .47
6.DS .13 .28 .24 .41 .13 .75 .30 .21 .18
7.DA .18 .39 .22 .22 .12 .79 .29 .08 .19
8.GNG .57 .21 .35 .15 .15 .50 .63 .04 .49
9.BV .38 .52 .09 .47 .24 .52 .61 .04 .18
10.LPN .51 .23 .08 -.02 .27 .58 .60 .18 .37
11.SV .25 .29 .10 -.04 .18 .42 .76 -.02 .27
12.AGH .53 .20 .23 .00 .42 .64 .51 .21 .50
13.RMV .18 .16 .83 .00 .23 .38 .14 .21 .25
14.SM .34 .21 .26 .19 .18 .27 .34 .25 .68
15.DPP .78 .27 .31 .19 .33 .16 .21 .26 .26
16.IF .25 .25 .82 .18 .39 -.05 .20 .25 -.05
17.RO .54 .38 .34 .10 .57 .38 .26 .12 .60
18.PP .27 .89 .19 .23 .13 .30 .20 .12 .14
19.SMH .22 .82 .11 .15 .37 .24 .31 .10 .29
20.DSP .77 .24 .29 .27 .20 .15 .33 .21 .17
21.FR .12 .68 .50 .59 .14 .07 .29 .08 .10
22.UFD .20 .84 .18 .21 .23 .18 .32 .10 .13
23.PIF .64 .18 27 .06 .38 .61 .58 .08 .36
24.SFB .39 .15 .35 .25 .24 .30 .65 .24 -.05
25.SSG .38 .42 .21 .50 .19 .25 .69 .43 .28
26.SGM .44 .52 .33 .75 .25 .33 .33 .20 .32
27.STM .44 .34 .20 .77 .10 .31 .36 .31 .06
28.TID .25 .30 .29 .20 .88 .16 .22 .13 .05
29.RAP .37 .34 .85 .16 .42 .19 .22 .41 -.04
30.GBI .57 .26 .29 .09 .51 .35 .22 .30 .36
31.STF .44 .38 .13 .59 .06 .25 .68 .42 .31
32.THD .24 .36 .31 .13 .83 .12 .18 .23 .09
33.FDO .13 .87 .15 .29 .22 .15 .19 .31 .09
34.FGD .34 .40 .61 .17 .69 .11 .22 .38 -.22
35.MUR .64 .36 .20 .03 .51 .36 .32 .39 .09
36.ROB .36 .90 .34 .30 .35 .29 .21 .25 .00
37.BUL .40 .52 .14 .58 .12 .31 .68 .18 .37
38.TRA .38 .80 .31 .20 .37 .30 .23 .30 .01
39.ECC .28 .25 .36 .23 .34 .07 .15 .78 -.18
40.PIS .09 .16 .18 .78 .39 .31 .18 .25 .06
41.SMD .09 .90 .22 .24 .35 .18 .14 .14 .03
180
Table 4: Inter correlation of Oblimin Factors

Factor v1 v2 v3 v4 v5 v6 v7 v8 v9
v1 1.00 .21 .25 .11 .26 .27 .29 .18 .22
v2 .21 1.00 .21 .26 .25 .21 .25 .18 .12
v3 .25 .21 1.00 .14 .26 .16 .14 .24 .10
v4 .11 .26 .14 1.00 .07 .11 .21 18. .03
v5 .26 .25 .26 .07 1.00 .16 .16 .18 .03
v6 .27 .21 .16 .11 .16 1.00 .30 .08 .26
v7 .29 .25 .14 .21 .16 .30 1.00 .17 .22
v8 .18 .18 .24 .18 .18 .08 .17 1.00 .07
v9 .22 .12 .10 .03 .03 .26 .22 .07 1.00
The first main component is well defined by all variables of criminal behavior, so that points to the existence of the general
factor of criminal behavior that primarily affects the frequency of offenses by the individual. This conclusion is supported too, by
the obtained information relating to inter correlations of isolated and rotated factors. Since they are equal and are all positive,
they clearly confirm the assumption about the existence of such defined general factor in the space of a higher line. Besides
the fact this general factor is well saturated with all variables, it is particularly well defined by the following forms of antisocial
behavior: robbery, stealing of money, burglary, traffic offence, selling stolen goods, illegal borrowing of the motor vehicle,
serious theft and smoking of marijuana. Bearing in mind that presented results were obtained by testing the subpopulation of
adult men, that because of committed crimes was serving a prison sentence, they clearly indicate that one can postulate the
thesis about the existence of a general factor of criminal behavior. This general factor suggests a general tendency that those
perpetrators who in a most number of cases perform larger number of other crimes, make it so that they broader range of their
criminal behavior. From the saturations of variables that dominantly define the general factor, it can be concluded that violators
who made all the more difficult forms of property crime, are more likely than others to make the other crimes and offenses
(Radulović, 2006).
Isolated main components are then rotated into Oblimin position and after thirty two iterations the following factor solution was
obtained.
The first factor is defined by the destruction of social and other people's property, murder, participating in fight and causing
serious bodily injury, and there is a high correlation with violent behavior, too. The first two variables define it particularly well,
so that in its etiology is undoubtedly that a major role is played by a destructive and impulsive characteristics, and because of
significant saturation with data belonging to the fellowship that made the bad things and acted rowdy, this factor can be defined
as a factor of violent crime (against property and persons) that are typically done in organized groups.
Another factor is defined by pocket-picking, drug trafficking, forgery, using false documents, robbery, smoking marijuana,
causing traffic accident, gambling and fraud, so that can be defined as a factor in the relatively small urban-type crime.
The third factor is defined not returning of lent money and valuables, causing fires, rape, stroll and wasting time and violent
behavior, so it can be defined as the propensity to frauds with the expressed violent behavior.
The fourth factor is defined by providing illegal services, burglaries and theft of money, so it can be defined as a property crime,
primarily associated with all forms of non-violent, but the criminal acquisition of money.
The fifth factor is defined by using a lighter and heavier drugs and violent reaching drugs, and presents a clean factor of drug
addict behavior. It is an interesting fact that this factor has significant correlations with data about belonging to hooligan gangs,
made rapes, inflicting serious bodily injuries and murder, which specifies this factor as a violent crime of drug addicts.
The sixth factor is defined by drinking in solitude and in society, and something less, rowdy gang affiliation, so more points to
anti-social behavior or the tendency to alcoholism. From the correlations of other manifestations of criminal behavior it can be
seen that such a tendency to alcohol leads to secondary criminal behavior that is manifested through affiliation to hooligan
gangs, theft and unauthorized "borrowing" cars, violent behavior and participation in fights, and points to one type of alcoholism
that leads to violent criminal behavior against property and persons. The factor can be best described as a crime of alcoholics.
181
The seventh factor is well defined by motor vehicle theft, running away from home, stealing items and selling stolen goods, and
somewhat less is defined by serious theft, burglary, membership in the gangster clique, inflicting light bodily injuries and
borrowing of the motor vehicle. This factor can be defined as the tendency towards the performing of more serious forms of
property crime that, more often, is done within the activities of adolescent gangs or property crime as adolescent gangs.
The eighth factor is defined by only two variables: economic crime and running away from school, and it was less incorporated
into the existing structure. It probably indicates the existence of special groups of offenders who were hired early on, either
because of lower cognitive abilities or because of the lack of motivation for education, and they tend to perform minor
embezzlements and frauds in their companies. In fact, this factor describes the second-level economic crime
The ninth factor is also a dual factor and defined in the stealing in the market and official resistance, but it has significant
correlations with belonging to organized groups characterized by violent behavior and escaping from school, and can be
defined as the theft in markets and affiliation to juvenile gangs.
Findings obtained by this analysis provide useful insight into the more basic, psychologically founded factors of criminal
behavior. Knowledge about the existence of latent dimensions of antisocial behavior could be useful in the area of prevention,
but also in the field of criminal policy of the state response to crime.
However, it must be born in mind that the obtained results are primarily related to the classical forms of antisocial and illegal
behavior and those whose perpetrators were male. So, the further researches are needed, which would determine whether this
latent dimensions are also observed in a multitude of varieties of deviant and criminal manifestations of other offender samples
including the female, and also when taking into account other, newer forms of crime (organized, computer, etc.).
REFERENCES
Ajdukovic, M (1988) Self-report and exploring delinquent and social maladaptive behavior of domestic joungs, Penological
themes, 3, 1-2; 15-38.
Cattell,R.B (1966)The meaning and stategic use of factor analysis . In R.B Cattell, Handbook of multivariate experimental
psychology, McNally, Chicago,174-243.
Eysenck H,, J.; Gudjonsson, G. H. (1990) The causes and cures of cri minality. New York: Plenum Press.
Hotelling,H.(1933)Analysis of a complex of statistical variables into principal components. Journal of Educational Psychology,
24: 417-441,498-520.
Prislin,R, Wolf,B. (1988) Latent structure of self delinquent and deviant behaviour, Penological themes,3, 3-4,162-176.
Radulović, D. (2006) Psychology of Crime–Psychopathy and Offences, Belgrade: Faculty of Special Education and
Rehabilitation, Institute of Criminological and Sociological Research.
Radulovic, D.; Hosek, A.; Momirovic, K.; Radovanovic, D. (1998): The influence of sociological and psychological factors on
various forms of criminal behavior, Summary of 4th scientific conference "Empirical research in psychology", 20-21.
Belgrade: Institute of Psychology and Laboratory of Experimental Psychology.
182
SECTION 3
SCIENCE & TECHNOLOGY

INFRARED PEN DEVELOPMENT FOR VIRTUAL SMART BOARD
T. Pongwattana, P. Phangsai, J. Rojjanathavorn and S. Adsavakulchai

University of the Thai Chamber of Commerce, Thailand
ABSTRACT
Currently, smart board technology is very famous. This is because this technology is applied not only for better presentations
but also for education efficiency. However, smart boards are very expensive which makes the technology less likely to be
adopted on a wide scale by the education industry. Thus, the main objective of this study is to develop infrared pens for virtual
smart board use for education. The research methodology is to apply “Wii Remote” technology by using embedded high
solution infrared camera as a capture image tool. The image is directly sent to a computer via Bluetooth connection. Then to
develop C# program using RANSAC algorithm to do the image processing. After testing the infrared pen with a virtual smart
board and developing more features for the program. Finally, it can be concluded that the development of infrared pen for
virtual smart board is very economical and highly efficient.
Keywords: Infrared Pen, Smart Board Technology, RANSAC Algorithm
1. INTRODUCTION
Currently advanced computer technology is developed for easy-use especially in education. In Thailand, the traditional
teaching used dusty chalk and dry-erase boards. Then the technology used whiteboard with pen, overhead projector. In this
knowledge age, it is very important that the most up-to-date technology in order to prepare the students in the 21st century job
market. Information technology has changed the role of teachers in the classroom. Many students with an abundance of
knowledge with technology, so it is important that we as teachers both stay current with new technology and are willing to learn
from the students and allow them to teach us. The modern educator today employs tools such as smart boards to teach
students. Especially interactive white boards are currently used in many classrooms as replacements for standard white
boards, blackboards and flip charts. They also have replaced of the DVD and television combinations schools have used for
years. Smart board is controlled by computer and internet completely i.e. highlights text, zoom in-out using infrared pen.
The main objective of this study is to develop infrared pen for smart board working efficiency.
2. METHODOLOGY
To develop the infrared pen (IR) development for virtual smart board, the system consists of 5 component s as following:
1. Projector is projecting the pictures from computer, CD players, DVD players, etc. for presentation
2. IR Camera is functioning to capture light from IR pen before image processing
3. Computer is supporting at least BluetoothEDR2.0 signal
4. Infrared pen
5. Smart board programming using C language
To connect all the hardware, the computer connect with projector via VGA. Then image signal from computer send to projector.
2. Infrared camera capture image from projector via Bluetooth. 3. Detect the light from infrared camera from screen 4. Set up
the working area with 4 points from IR pen using image processing is shown in Figure 1.
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T. Pongwattana, P. Phangsai, J. Rojjanathavorn and S. Adsavakulchai Volume 9 – Spring 2010
Figure 1: Infrared pen development for virtual smart board
To develop IR pen, the step of development as following:
2.1 IR Pen Material Preparation

Switch on-off, whiteboard pen, dry cell battery, infrared sender and wire are shown in Figure2.
Figure 2: IR pen material
2.2 IR Pen Development

The components of IR pen are pen tip, body and pen bottom as shown in Figure 3.
Figure 3: IR pen components
185
2.2.1 To prepare IR pen

Punch a hole in the body for installing on-off switch as shown in Figure 4.
Figure 4: Punching pen body
2.2.2 Set up the circuit for IR pen

As shown in Figure 5.
Resist Switc
or h
To Powe
Infrared r
Figure 5: InternalLED
circuit in IR pen
2.2.3 Test IR pen

Using digital camera as shown in Figure 6.
Figure 6: IR pen testing
186
2.3 Programming Language

Using C# and RANSAC algorithm. The flowchart is shown in Figure 7.
Figure 7: Flowchart of IR pen with smart board
3. RESULT
3.1 Testing Smart Board
The working area for displaying the optimal image processing is shown in Fig. 8.
Figure 8: Smart board working area
187
From Fig. 8, the projector is projecting the working area 4 points approximately 120x150 inches using flowchart to control as
shown in Figure 8.
Figure 8: Flowchart for setting working area
3.2 Testing IR Camera

By connecting IR camera with high speed computer support. EDR2.0 via Bluetooth is shown in Figure 9.
Figure 9: Testing IR Camera
188
3.3 Testing IR Pen

With smart board is shown in Figure 10.
Figure 10: Testing IR Camera
3.4 Running Application

Using integrating the IR pen, smart board and program utility is shown in Figure 11 a-d.
Figure 11-a: Running application
Figure 11-b: Running application
189
Figure 11-c: Running application
Figure 10-d: Running application
It can be concluded that the development of infrared pen for virtual smart board with C# program using RANSAC algorithm is
very economical and highly efficient.
4. CONCLUSION
The limitation of this study is the shadow from light source of projector to the smart board. The working area is limited only
120x150 inches and only 3 meters between IR pen and computer. On-going research is to develop microcontroller instead of
Wii remote.
5. REFERENCES
[1] http://www.wonderhowto.com/how-to/video/how-to-build-an-infrared-smart-board-with-a-wiimote-174101/
[2] http://www.classroom20.com/profiles/blogs/649749:BlogPost:157820
[3] http://techshoestring.blogspot.com/2009/02/forty-dollar-smart-board-using-wii.html
[4] http://www.springerlink.com/content/bg3j773821357165/
190
V. A. Fatahian, M. R. Ismail, N. Ashikin, H. M. Saud and S. H. Mobini Volume 9 – Spring 2010
EFFECTS OF DEFICIT FERTIGATION ON GROWTH AND PHYSIOLOGICAL

RESPONSES OF MELON THROUGH PARTIAL ROOT SYSTEM
Vahid A. Fatahian, Mohd Razi Ismail, N. Ashikin, H. Mohd Saud and Saeid Hassanzadeh Mobini
Universiti Putra Malaysia, Malaysia
ABSTRACT
Effects of deficit fertigation (water and nutrients stresses) through alternate partial root zone (PRD) were studied on melon
plants. Half of the root system was alternately exposed to four watering amounts (100% of evapotranspiration (FI), as a control,
80%, 70% and 60% of FI) and two concentrations of nutrient solution (100% of nutrient solution (FN) and 70% of FN). After two
days, the eight treatments of this factorial combination were shifted to the other halves of the root systems. Results showed
that fruit fresh weight values of PRD plants with 100% of FN treatment were lower, up to 36%, compared to control. Leaf area
declined in relation to substrate available water in PRD plants. Total soluble solids (TSS) increased up to 40% in PRD
treatments compared with control. Nitrogen, phosphorus and potassium contents were lower, up to 36%, 19% and 17%
respectively, in plants with PRD compared with control.
Keywords: Fertigation Deficit, Water Stress, Water Use Efficiency, Partial Root Drying, Melon (Cucumis Melo), Macro and
Micro Nutrients
INTRODUCTION
Some regions where water scarcity occurs, fertigation is a method by which most horticultural crops can use efficiently water
and fertilizers. Melon and cucumber, like other vegetative crops, are recognized to be easily affected by water and fertilizer
deficits. Practically, over- consumption of fertilizers and irrigation are used to meet their physiological requirements. Such
inefficient use of water and fertilizers leads to increase pollution of ground water (Lehrsch et al., 2000).
Some studies have been conducted to lead water and nutrient use efficiency for a sustainable crop production (vamerali et al.,
2003). Partial root drying (PRD) as a new irrigation system plays an important role to improve water use efficiency and reduce
water consumption (Dry and Loveys, 1998; Stoll et al., 2000; de souza et al., 2003; Kang and Zhang, 2004), but there is little
information about PRD effect on plant nutrition. PRD is a irrigation technique where only part of the root zone receives
alternately water while the other root zone is left dried, resulting in higher water use efficiency (Kang et al., 2002a; Wakrim et
al., 2005) without much reduction in economic yield (Kang et al., 2001; Buttar et al., 2006). Plant root system would be partially
exposed to water stress through this method.
Earlier studies have shown that when the plants uptake unevenly distributed water may lead to enhance the uptake of soil
nutrients (Ho et al., 2005), but it is generally unclear how water and nutrient deficits through the PRD improve the nutrients use
efficiency. Many reports claim that split root system has no or minor effects on fruit yield and some even report positive
influences on fruit quality (Bussakorn et al., 2001; dos Santos et al., 2003). When the plant root system are exposed to soil
drying conditions, they produces chemical signals that are transmitted to the shoots to regulate the stomata (decreasing water
loss) and limit vegetative growth, thus improving water use efficiency (WUE) (Stoll et al., 2000). There are also studies in which
detrimental effects on yield have been found (Kirda et al., 2007; O‘Connell and Goodwin, 2007).
In this work, we present the results of an experiment with melon (Cucumis melo L.), in which we combined different levels of
PRD irrigation and concentrations of nutrient solution to examine the interactions of these critical resources. To examine the
relative effects of water and nutrients solution to plant physiological responses, we conducted a pot- grown shelter experiment
with melon plants. The study examined the effects of different levels of alternate water supply and compared them to well-
watered controls. Nutrient solution was added to the PRD irrigation treatments with 30% reduction in concentration compared
to 100% of full nutrients (FN). We applied different levels of irrigation and nutrient concentration to evaluate water and nutrient
deficit, separately. The experiment examined leaf area index, water relations, micro and macro nutrients, fruit fresh weight, fruit
quality and water use efficiency OF melon (Cucumis melo L.). We expected that these results must physiologically show the
plant responses to water and nutrient deficit.
191
Effects of Deficit Fertigation on Growth and Physiological Responses of Melon through Partial Root System
MATERIAL AND METHODS

Plant Material and Growing Conditions
Seeds of melon (Cucumis melo cv. Glamour) were germinated at 28° c for 7 days in a tray with commercial media (75%
cocpeat and 25% perlite) at 8 May 2009. Similarly sized seedlings were grown with roots divided equally in a split container, 18
cm × 26 cm by 15 cm deep, with potting media attached in order not to damage the root system. The media of these bigger
pots was the same as used in germination. The four watering levels and two nutrient concentrations were arranged in a two-
way factorial randomized block design.
The pots were placed in a shelter (Putra University, Serdang, Malaysia). Four blocks were arranged, with each block consisting
of one replicate of each treatment. All treatments were randomly placed in each block.
Fertigation Treatments
Pots were irrigated evenly with half strength nutrient solution of the following concentrations (ppm): N 80-100, P 50, K 150, Ca
120, Mg 50, B 0.7, Cu 0.2, Fe 3, Mn 0.8, Mo 0.06 and Zn 0.3. Water and nutrient deficit treatments began 10 days after the
transfer to the split pots. Each half root system received alternate exposure to either full nutrient solution or one of a set of
seven irrigation deficits and nutrient concentrations. These solutions included 100% of full irrigation (FI) and nutrient (100 +FN),
as a control, 80% of FI added with 100% of FN (80 +FN), 70% of FI with 100% of FN (70 + FN), 60% of FI with 100% of FN (60
+ FN), 100% of FI with 70% of FN (100 + FN), 80% of FI with 70% of FN, 70% of FI with 70% of FN, 60% of FI with 70% of FN.
Solutions were alternated every two days to the other half of the divided root system (Figure 1).
100 % of full nutrient (FN)

100 % of Full Irrigation (FI) 80 % of FI 70 % of FI 60 % of FI
100 + FN 80 + FN 70 + FN 60 + FN
70 % of FN (ND = Nutrient Deficit)

100 % of FI 80 % of FI 70 % of FI 60 % of FI
100 + ND 80 + ND 70 + ND 60 + ND
Figure 1: Experimental design of the fertigation deficit through the PRD with Cucumis melo. The black part represents water
amounts in different treatments. The 100 % of FI treatments were well-watered based on full evapotranspiration of
plants, as a control, 80 %, 70 % and 60 % of FI pots received alternately either full nutrient concentration or 70 % of
full nutrient.
The combination of nutrient concentration and watering levels gave seven solution-deficit treatments: 80 + FN, 70% of FI with
100% of FN, 60% of FI with 100% of FN, 100% of FI with 70% of FN, 80% of FI with 70% of FN, 70% of FI with 70% of FN,
60% of FI with 70% of FN. The treatments were replicated four times.
A drip irrigation system, with each emitter supplying the different amount of nutrient solutions (water and nutrient), was used for
irrigation. For all treatments, one emitter was installed at one side of the plants (Figure 1). The following equation was used to
calculate melon evapotranspiration to determine amount of watering:
Etc= Kc × Et0,
192
Where Et0 is the reference evapotranspiration calculated with the pan evaporation class A method (Doorenbos and Pruitt,
1977). ETo is calculated on a daily basis using meteorological data. The values of the crop coefficient (Kc) were taken from
FAO tabulated Kc values (Doorenbos and Pruitt, 1977). Only three values for Kc were used for this experiment at the different
growing stages: Kc of initial 0.7, mid-season 1, and late season 0.65. According to this method, enough water was supplied to
this 100% of evapotranspiration (FI) treatment to replenish the media to field capacity. Each of the three watering deficit
treatments received different lower amount of the nutrient solution relative to control (Table 1) and the solutions was frequently
provided to only one of the two sides three times per day. In all treatments, the side that received the watering was also shifted
every two days.
Table 1: Irrigation amounts (mm) for melon plants (per plant)

Irrigation date 100% of Etc (FI) 80% of FI 70% of FI 60% of FI
22 May to 30 May 37 29.6 25.9 22.2
1 June to 25 July 351 281 245.7 40.6
Total 388 310.4 271.6 232.8
80% of FI, 70% of FI and 60% of FI are different ratios of irrigation compared to 100% of melon evapotranspiration (FI). Water was applied
through the pipes and dripper system. Melon seeds (cucumis melo) were sown in the trays at May 8, 2009.
Media moisture was determined by Gravimetric sampling method. This method was used in four replicates of each of the
treatments throughout the experiment. The samples were collected every five days at 20 cm depth in media, just prior to
watering and then they were weighed (wet sample) and oven-dried at 104°C for 24 hours. After the dry samples were re-
weighed, the percent soil water content on a dry mass or gravimetric basis, Pw, was determined with the following formula:
Pw = [(wet sample weight-dry sample weight) / dry sample weight] x 100.
Watering and nutrient deficit treated plants were compared to 100% of FI for LAI. Four plants were randomly selected in each
following sampling times per treatment, interval at different stages of the rockmelon growth, 0-25, 26-33, 34-41, 42-49, 50-59
and 60-71 days after sowing (DAS). The leaf area was measured by leaf area meter (model 3050A; Li-Cor Lincoln, NE, USA).
Leaf area index (LAI) was calculated as LA (cm2)/10000=LA (m2)/0.28125 (shading area per plant).
Relative Water and Elemental Nutrient Content

The relative water content (RWC) of leaves was calculated as: RWC = (FW-DW)/ (TW-DW), which was modified from Sharper
et al., (1990). Leaf pieces were collected from 3-4 leaves and wrapped immediately in saran wrap to minimize evaporation.
Samples were stored in the dark and weighed to give a value for tissue fresh weight (FW), and then the leaf pieces were
immersed in de-ionized water overnight and kept from physiological activity by physical inhibition of growth and respiration.
They were reweighed for turgid weight (TW) and placed in a dryer at 60°C (24 hours) for dry weight (DW).
FW = fresh weight, TW = turgid weight, DW = dry weight.

TW = turgid, after that samples were DW = dry weight FW = fresh weight.
Dried leaf blades (excluding the main veins) of four replicate plants per treatment were grounded and used to analyze the
nutrient content. The analytical methods used were the same as those described by Southern and Hart (1969). 200 mg of the
grounded leaf blade was digested in sealed Teflon vessels in a milestone destruction oven (MLS Ethos D) with Sulfuric acid
and hydrogen proxide. Nitrogen content was measured using the micro Kjeldahl procedure; phosphorous by the vanadate
colorimetric technique and potassium, calcium, magnesium, copper, iron and manganese, using an atomic absorption
spectrophotometer.
Fruit Fresh Weight, Total Soluble Solids, Plant Leaf Area Index and WUE
At 95 DAS, one fruit per plant was harvested from four plants per treatment. The harvested fruits had been 58th day old from
fruits appearing. Individual fruits were weighed with a digital balance and then total soluble solids content was determined.
Water use efficiency (WUE) was calculated as the fruit fresh production divided by the plant water use during the treatment
period. Total soluble solids (TSS) content of fresh undiluted juice was measured on one fruit per plant I four replicates. TSS of
melon fruits was measured with a handheld refractometer (ATC-1 Atago, Tokyo, Japan) and was expressed in °Brix.
193
Data Analysis and Statistics

Two-Way Analyses of Variance (ANOVA) were carried out to evaluate all eight treatments, testing for effects of watering and
nutrient solution concentrations. Plants were grown under shelter with temperatures of 23/32°C and relative humidity of 88%.
RESULTS
Media Moisture Content
Changes in media water content during the growing season are shown in Figure 2. Volumetric media water content of 100 % of
FI treatments was the highest values, over 60 % (v/v), within the 20 cm depth of the root zone. Under 100 % of FI treatments,
media water content remained 5-20 % higher than 80 %, 70 % and 60 % of FI treatments for most of the growth period. Under
irrigation deficit, water uptake by the roots depleted the media to different levels (Figure 2). Under all treatments, the media
water content followed a regular pattern towards the end of the experiment, as may be expected by irrigation frequency, three
times per day (Figure 2). It is assumed that nutrient concentrations did not alter media moisture content, for example in the 100
% of FI treatments with two nutrient concentrations, plant roots received the same amount of watering.
70
Volumetric Media Water Content (%)
60
50
40
30 100 % of FI
80 % of FI
20
70% of FI
10
60% of FI
0
25 30 35 40 49 68 78
Days after sowing
Figure 2: Changes in volumetric media water content (%) in the root zone under four irrigation treatments. Symbols
represent Means ± SE (n = 4 replicates).
Leaf Area Index (LAI)

Supplying the plants with deficit fertigation treatments significantly reduced their growth compared to the full watered
treatments (Table 2). Leaf area index (LAI) was lower under limited water. Small though significant differences were observed
between the treatments already at the occurrence of pistillate flowers (30-38 DAS). However, the vegetative growth declined
remarkably in all plants that were irrigated with 40 % of FI and 70 % of FN during the intensive stage of fruit growth between 49
and 59 DAS (Table 2).
194
Table 2: Effect of different levels of irrigation and nutrient concentrations on leaf area index (LAI)
Treatments 0 - 25 26 – 33 34 – 41 42 – 49 50 – 59 60 - 71
DASa DAS DAS DAS DAS DAS
60 + ND 0.05 ± 0.002 0.4 ± 0.01 0.47 ± 0.01 1.24 ± 0.03 1.50 ± 0.01 1.49 ± 0.01
60 + FN 0.07 ± 0.003 0.42 ± 0.002 0.72 ± 0.01 1.55 ± 0.02 1.91 ± 0.02 1.90 ± 0.01
70 + ND 0.06 ± 0.002 0.42 ± 0.007 0.63 ± 0.02 1.50 ± 0.02 1.82 ± 0.02 1.82 ± 0.02
70 + FN 0.1 ± 0.009 0.43 ± 0.004 0.85 ± 0.01 1.86 ± 0.01 2.14 ± 0.01 2.14 ± 0.01
80 + ND 0.09 ± 0.008 0.42 ± 0.009 0.8 ± 0.01 1.80 ± 0.01 2.08 ± 0.01 2.08 ± 0.01
80 + FN 0.14 ± 0.01 0.47 ± 0.008 1.12 ± 0.02 2.20 ± 0.01 2.30 ± 0.01 2.30 ± 0.01
100 + ND 0.13 ± 0.01 0.44 ± 00.4 0.92 ± 0.01 2.10 ± 0.01 2.26 ± 0.01 2.26 ± 0.01
100 + FN 0.16 ± 0.01 0.51 ± 0.02 1.22 ± 0.01 2.30 ± 0.006 2.40 ± 0.02 2.40 ± 0.02
The values represent Means ± SE (n = 4 replicates). See Figure 1 for treatment codes. Leaf Area Index of plants was significantly bigger under
100% of FI as compared to 80 %, 70 % and 60 % of FI. a Days After Sowing.
Relative Water Content of Leaf (RWC)

There was no significant difference between 100 % of FI and FN relative to other nutrient and watering deficit treatments in
relative water content (RWC) values existed in leaves tissue (Table 5), although the RWC values of watering and nutrient
deficit treatments were up to 10 % lower than control plants.
Micro and Macro Nutrients

Deficit fertigation significantly affected leaf micro and macro nutrient concentration, with 100 % of full irrigation and nutrient
obtaining higher leaf nitrogen, phosphorus concentrations than all the watering and nutrient deficit treatments (Figure 5a).
There were also significant effects among the nitrogen and potassium values of watering and nutrient deficit treatments (Table
3). But among the treatments, effects of watering and nutrient deficit were no significant in terms of calcium, magnesium, Iron
and copper concentrations (Table 4). Plants in the 100 % full nutrient (FN) treatments obtained slightly higher leaf potassium,
calcium and copper concentrations compared to plants in the 70 % of FN (Figure 5a,b). 60 % of FI treatments resulted in lower
leaf N, K and Mg concentrations. The low concentration in the 60 % of FI and 70 % of FN (60 + ND), compared to the 100 % of
FI plants, was especially obvious. The leaf manganese and zinc concentrations were significantly lower under100 % of FI
compared to 80 %, 70 % and 60 % watering treatments (Figure 5b).
Table 3: Statistical analysis of the leaf blade Macro (% N, % P, % K, % Ca and % Mg) elements content
Effects %N %P %K % Ca Mg
df F df F df F df F df F
Block 3 1.01NS 3 1.85NS 3 1.61NS 3 0.95NS 3 0.56NS
Watering, W 3 28.2*** 3 4.77** 3 15.16*** 3 0.70NS 3 1.05NS
Nutrient, N 1 26.47*** 1 1.02NS 1 11.01*** 1 2.48NS 1 1.67NS
W×N 3 1.60NS 3 0.95NS 3 2.09NS 3 0.37NS 3 0.58NS
Effects of watering deficits (100 %, 80 %, 70 % and 60 % of FI) and nutrient concentrations (100 % and 70 % of FN) and their interaction
are compared. Block was included as a covariate * p < 0.05, ** p < 0.01, *** p <0.001; NS = not significant
Table 4: Statistical analysis of the leaf blade Micro (Fe, Mn, Cu and Zn ppm) elements concentration
Effects Fe(ppm) Mn (ppm) Cu (ppm) Zn (ppm)
df F df F df F df F
Block 3 1.01NS 3 1.85NS 3 1.61NS 3 0.95NS
Watering, W 3 28.2*** 3 4.77** 3 15.16*** 3 0.70NS
Nutrient, N 1 26.47*** 1 1.02NS 1 11.01*** 1 2.48NS
W×N 3 1.60NS 3 0.95NS 3 2.09NS 3 0.37NS
Effects of watering deficits (100 %, 80 %, 70 % and 60 % of FI) and nutrient concentrations (100 % and 70 % of
FN) and their interaction are compared. Block was included as a covariate * p < 0.05, ** p < 0.01, *** p
<0.001; NS = not significant
195
8.00
(a)
leaf blade Macro Elements content (%) 7.00
6.00 N P K Ca Mg
5.00
4.00
3.00
2.00
1.00
0.00
100 + FN 100+ ND 80 + FN 80 + ND 70 + FN 70 + ND 60 + FN 60 + ND
Treatments
leaf blade Micro Elements concentration (ppm)
120.00
Fe Mn Cu Zn (b)
100.00
80.00
60.00
40.00
20.00
0.00
Treatments
Figure 5: (a) Leaf tissue macro elements contents and (b) Leaf tissue micro elements concentrations of Cucumis melo plants
in response to different irrigation deficits and nutrient concentrations. Bars represent Means ± SE. see Figure 1 for
treatment codes
Total Soluble Solids (TSS) and Fruit Fresh Weight

TSS was much larger for plants under 60 % of full irrigation than watering deficit treatments (Figure 3a).TSS was similar for all
80 % and 70 % of FI treatments, except the 100 % of Full Irrigation + Full Nutrient (100 + FN) in which plants produced less
soluble solids in fruits. Reducing the watering up to 40 % (60 % of FI treatments) lead to highly TSS of melon fruit increased,
irrespective of nutrient concentrations. There was no significant difference between nutrient treatments (100% of FN and 70 %
of FN) in TSS (Figure 3a). The interaction effect of watering and nutrient deficit treatments was also no significant in TSS
(Table 5).
196
Table 5: Statistical analysis of the relative water content of leaf, fruit fresh weight, total soluble solids and irrigation water use
efficiency per plant.
Effects Relative water Fruit fresh Total soluble Irrigation water
content weight solids use efficiency
(%) (gr/plant) (°Brix) (gr/plant)
df F df F df F df F
Block 3 1.79NS 3 0.36NS 3 39.26*** 3 0.87NS
Watering, W 3 0.83NS 3 10.15*** 3 29.54*** 3 0.26NS
Nutrient, N 1 0.82NS 1 0.38NS 1 0.89NS 1 5.69**
W×N 3 1.59NS 3 5.04** 3 1.26NS 3 3.29*
Effects of watering deficits (100 %, 80 %, 70 % and 60 % of FI) and nutrient concentrations (100 % and 70 % of FN) and their interaction are
compared. Block was included as a covariate * p < 0.05, ** p < 0.01, *** p <0.001; NS = not significant
18.00 90.00
(a) (b)
Relative water content of leaf (%)

16.00 80.00
Total Soluble Solids (°Brix)
14.00 70.00
12.00 60.00
10.00 50.00
8.00 40.00
6.00 30.00
4.00 20.00
2.00 10.00
0.00 0.00
Treatment Treatment
Figure 3: (a) Total soluble solids and (b) Relative water content of leaf of Cucumis melo plants in response to different
irrigation deficits and nutrient concentrations. Bars represent Means ± SE. see Figure 1 for treatment codes
Fruit fresh weight was significantly higher under 100% watering and nutrient treatments compared to watering and nutrient
deficit treatments. There was a significant interaction between watering and nutrient treatments in fruit fresh weight (Table 5).
Fruit fresh weight of 80% of FI treatments was significantly higher than 70% and 60% of FI (Figure 4a).
33 1600
a a
Fruit fresh weight (gr plantˉ¹)
water use efficiency(gr/liter)
31 1500
1400
29 a
27 ab ab ab 1300
1200
b a
25 b 1100 a a
b a
23
FN 1000
FN
21 ND b 900 c c
ND
19 800
50 60 70 80 90 100 110 50 60 70 80 90 100 110
irrigation levels % Irrigation levels %

Figure 4: Effect of different irrigation deficit and nutrient concentration on fruit fresh weight (a) and water use efficiency (b) of
Cucumis melo plants. Mean values followed by the same letter within a nutrient treatments did not differ
significantly. See Figure 1 for treatment codes.
Irrigation Water Use Efficiency (IWUE)

The only dry period was during the one week of late fruit maturation. IWUE for fruit fresh weight under 60% of FI treatments
was higher than 100%, 80% and 70% of FI plants during the treatment period (Figure 4b). The interaction effect of watering
197
and nutrient treatments was significant in IWUE (Table 5; p < 0.05).IWUE was derived from the differentials of fruit fresh yield
and water use during the treatment period. The amount of watering used in 100%, 80%, 70% and 60% of Full Irrigation treated
plant was 39, 31.2, 27.3 and 23.4 (Liter/plant), respectively during the experiment.
DISCUSSION
Our results show that melon is a sensitive plant to dry conditions as well as nutrient deficit. Leaf area and fruit fresh weight
were on average 2 and 1.5-fold higher in the 100% of FI plants than in the 60% of FI treatments (under 100% of full nutrients).
80% of FI thus resulted in a more vegetative growth, leading to more fruit weight values that were close to the 100 % of FI
controls. Nutrient deficit (70% of FN) under 80% of FI treatments did not further enhance leaf area. This result suggests that
increasing leaf area prevailed and lead to maximal leaf growth that could not be further increased by enhancing nutrient
concentration. Watering deficit conditions did not affect the leaf area response to nutrients. Apparently, the drying media
responses of leaf growth do not affect the plant ability to uptake nutrients. Upon exposure of roots to drying soil, concentrations
of the abscisic acid (ABA) are increased in the xylem sap. Leaf and stem growth rates could be reduced by ABA (Zhang and
Davies, 1990, 1991).
In fact the decrease in melon yield in the deficit-irrigation treatments was due to a decrease in fruit weight. Similar results were
found by Long et al. (2006) and Dogan et al. (2008). To explain the significant effect on yield, it is suggested that chemical
signals that limit vegetative growth in the advanced stages of fruit growth (Table 1 ), where over 90% of the water transported
to this organ goes through the phloem (Ho et al., 1987), can reach the fruit in its early development through the xylem. This is a
common-sense explanation of why PRD systems cause a reduction on fruit growth and yield.
All of the observed physiological responses such as reduction in vegetative growth and maintenance of water potential in PRD
vines examined by Loveys et al. (2000) in PRD treatments were found in our study with the exception of fruit weight. In our
study, there was no significant difference between the different watering and nutrient deficiency treatments in terms of relative
water content of leaf (Figure 3b).
Partial rootzone drying improved some characteristics of the fruit such as total soluble solids (Figure 3a). The total soluble
solids (TSS) content was different among irrigation deficit treatments (Figure 3a). The results obtained by different researchers
(Lester et al., 1994; Fabeiro et al., 2002; Kirnak et al., 2005) show that fruit sugar content is affected positively by water deficit.
In our case, also the sugar content was influenced by the water treatments. However, other researchers have reported no
effect of the irrigation scheduling on total soluble solids (Hartz, 1997; Dogan et al., 2008). The TSS values of full nutrient (FN)
and nutrient deficit (ND) were similar in all watering deficit treatments. In one experiment with tomato, Davies et al. (2000)
found a signiﬁcant decrease in fruit size and weight in plants with PRD, and an increase of 21% in the total soluble solids
content of fruits. In our study, the different water content in the fruit and CO2 assimilation rates could have contributed to the
dissimilarity in the total soluble solids content among the fruits of the different treatments.
Fertigation with 70 % of FN, resulted in approximately 40 % less leaf area as compared to 100 % of full nutrient treatments
under the same deficit watering treatments and a decrease in N, K, Ca, Mn and Cu uptake. Water deficit treatments (80 % and
60 % of FI) resulted in the high uptake of Mn, Cu and Zn indicating that alternate watering along with more decreasing in media
moisture may be an optimal strategy not only for water but also for micro elements uptake. 60 % of FI treatments together with
70 % of FN supply (60 + ND), resulted in the smallest N, K and Ca uptake by the plants. Decrease in media water availability
affects the rate of diffusion of many plant nutrients and concentration of media solution. Over a period of water stress a marked
decrease in nutrient uptake is reported (Marschner, 1986) through decreased transfer of ions to the root. The decrease in P
availability with water deficit was due to decreased diffusive flux of nutrients during water stress (Schaff and Skogley, 1982). It
indicated that nutrient availability increased with media water availability. Increase in diffusive K flux in the soil and the
efficiency of applied K with increased soil moisture are well documented in the other studies (Zeng and Brown, 2000).
Decreased soil water availability reduced K, Cu, Fe and Mn concentration in leaf probably due to decrease in mobility as a
result of increased impedance (Seiffert et al., 1995).
Partial root zone drying approach causes to enhance irrigation water use efficiency (IWUE) with no yield reduction and better
quality products (Dry and Loveys, 1998; Kang et al., 2001). IWUE was lower in 100 % of FI than in 60 % of FI under the both
nutrient concentrations (100 % of FN and 70 % of FN), although there was no significant difference between the watering
deficit treatments in IWUE values (Table 5). It is known that plants under increasing water stress respond by an increase in
WUE. This effect should be due to a root-sourced chemical signal and its regulation of the water loss in the shoots. Mingo,
Bacon, and Davies (2003) showed that tomato plants responded to an uneven distribution of water in the soil by reducing their
stomatal conductance while the whole shoot remained hydrated compared to the whole rootzone irrigation control. Such
198
regulation was shown as the enhanced ABA synthesis in the roots in the drying zone and its appearance in the xylem to the
shoots (Zhang and Davies, 1991) and/or the synergistic effect of altered pH in the xylem (Wilkinson and Davies, 2002). As well
as increasing hydraulic conductivity of root (Hose, Steudle, and Hartung, 2000), ABA has also a pivotal role in the control of
stomatal aperture (Wilkinson and Davies, 2002), decreasing leaf transpiration and achieving optimization of water use for CO2
uptake and survival (Jones, 1980).
In summary, our experiments provided evidence that partial root drying along with severe water deficit may result in lower fruit
weight of C. melo. We have further shown that reducing nutrients in solution by 30 % in 70 % of FN treatments, declined yield
and plant vigor. The results of this experiment suggest that fruit fresh weight in 80 % of FI was higher than 70 % and 60 % of
FI, although TSS was marginally declined as compared to severe water deficit treatments. Theses results call for more
experiments in order to fully evaluate the specific macro and/or micro elements deficit in fertigation using agronomic benefit
PRD.
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Soil 221: 121-134.
Zhang J., and W.J. Davies.1990. Does ABA in the xylem control the rate of leaf growth in soil dried maize and sunflower
plants? Journal of Experimental Botany 41: 1125–1132.
Zhang J., and W.J. Davies. 1991. Antitranspirant activity in the xylem sap of maize plants. Journal of Experimental Botany 42:
317–321.
ACKNOWLEDGMENT
We are grateful to Haji Khoiri and Zahardin Zulkifli for their assistance with the plant nutrient analysis. This work was financially
supported by the Institute Tropical of Agriculture.
200
SECTION 4
ABSTRACTS
Development of Teacher Efficacy for the Sustainability of Teacher Professionals through Pre-Internship Service-Learning
DEVELOPMENT OF TEACHER EFFICACY FOR THE SUSTAINABILITY OF

TEACHER PROFESSIONALS THROUGH PRE-INTERNSHIP SERVICE-LEARNING
Trae Stewart and Kay Allen

University of Central Florida, USA
ABSTRACT
Teacher efficacy refers to a teacher‟s judgment of his or her competence and ability to bring about meaningful and significant
educational outcomes for all students. Evidence is mounting that teacher efficacy has an impact on numerous desirable
educational outcomes including student achievement, motivation, and the students‟ own sense of efficacy (Tschannen-Moran &
Woolfolk-Hoy, 2001). Furthermore, teacher efficacy appears to correlate positively to teacher retention – a key element for
educational sustainability.
The question centers on how to develop teacher efficacy in teachers prior to their beginning teaching activities, including
internships. One possible approach is service-learning, which asks students to address a real community need that is explicitly
linked to their academic students and professional preparation. Most documentation has been on this connection between
increased self-efficacy and volunteering during the undergraduate years, but has not been shown to conclusively affect general
self-efficacy (Billig, 2000; Furco 2003; Ikeda, 1999; McMahon, 1998; Morgan & Streb, 1999; Shaffer, 1993). Therefore,
additional research is necessary.
The current study aimed to determine if pre-internship teacher education students‟ participation in service-learning activities in
K-12 classrooms would significantly affect their sense of teacher efficacy. A secondary focus sought to determine if one type of
service-learning activity (e.g., whole class instruction) would impact teacher efficacy more than another (e.g., small group
tutoring).
Pre-internship teacher education students completed demographic questionnaires and pre/post versions of the Teachers‟
Sense of Efficacy Scale (Tschannel-Moran & Woolfolk Hoy, 2001). Findings from MANOVA revealed that pre-internship
service-learners in both types of service-learning activities increased significantly in their sense of teacher efficacy. However,
neither type of service-learning activity was superior to the other as measured by the minimally accepted .05 level. The
discussion will focus on the factors shared between the two service-learning designs that might mediate a positive mastery
experience.
Keywords: Teacher Efficacy, Service-Learning, Pre-Internship Students, Teacher Education
202
A. Halawa Volume 9 – Spring 2010
EFFECTS OF GLOBALIZATION ON THE RISING RATES OF OBESITY

AND OVERWEIGHT IN DEVELOPING COUNTRIES
Abdelhadi Halawa
Millersville University, USA
ABSTRACT
The aim of this paper is to investigate the effects of globalization on the rising rates of obesity and overweight in developing
countries. In the last 25 years, due to the spread of globalization, sprawling fast food restaurants, abundance of inexpensive
processed foods and sugary beverages, many developing countries have experienced drastic changes in traditional dietary
habits, which have contributed to a steady increase in obesity and overweight rates. According to recent reports by the World
Health Organization (WHO), obesity and overweight have reached alarming rates globally. This growing epidemic has been
reported not only in developed countries, but also in developing countries that historically have been experiencing low
socioeconomic conditions, food shortages, famine, and undernourishment. WHO reports indicate that, currently, there are more
than 1 billion overweight adults; including 300 million suffer from morbid obesity. Obesity and overweight have joined the ranks
of chronic diseases, and have become the major one cause of cardiovascular disease, stroke, type 2 diabetes, certain forms of
cancer, and the second cause of death and disability. Obesity habitually coexists in developing countries with rampant poor
diet and under-nutrition with serious social and psychological implications affecting nearly all age groups and socioeconomic
strata. In spite of the persistence of healthy food insufficiency in many developing countries, globalization, economic growth,
and urbanization have contributed profound changes in dietary and lifestyle patterns. This phenomenon has led to increased
consumption of diets high in refined carbohydrates, foods with high concentration of simple sugar and saturated fats, coupled
with curtailed physical activity and leading more sedentary lifestyle. These factors have contributed to obesity and overweight
rates rising three-fold since the 1980s in many countries in Africa, the Middle East, Eastern Europe, Asia, and the Pacific
Islands. In addition to health risks, obesity and overweight pose a threat to social and economic development as they
contribute to as high as 7% of total healthcare costs in developed countries, and an estimated 2-5% in some developing
countries. Changes in food consumption trends and dietary habits in many of the developing countries have changed markedly
during the past 25 years. There has been an increase in per capita energy and fat intake in most developing countries in the
Middles East and Asia. Data from the Food Balance Sheets (FBS) Millennium Issue 1999-2000 and published by the United
Nations Food and Agriculture Organization (FAO) demonstrated an increase in calories consumption during 1971–1997 in
most of the countries of the Middle East. The FBS showed that a high percentage of the consumed calories came from animal
food sources, including fat. According to a study on the impact of diet on the prevention of heart disease in the Middle Eastern
and Arab countries published in 2002, Musaiger AO reported that daily per capita fat intake showed notable increases in fat-
rich foods, ranging from 13.6% in Sudan to 143% in Saudi Arabia. The study concluded that it is probable that the high rates of
consumption of foods rich in calories and animal fats coupled with a sedentary lifestyle among most Middle Eastern
populations significantly contributed to the rise of obesity and overweight among children and adults alike. In order to combat
this increasingly growing epidemic, developed as well as developing countries should establish short-term and long-term
national strategies for prevention and treatment starting with children. This paper will examine the effects of globalization on the
most affected developing countries, major contributing factors to obesity and overweight, health and economic coats, and
recommendations for prevention and treatment strategies.
Keywords: Globalization, Obesity, Overweight, Developing Countries, Physical activity, Food Consumption, Sedentary
Lifestyle, and Health Risks of Obesity and Overweight
203
The Discernment in Cloud Computing Communication (C3): The Unaddressed Seven Systems Security - CIA4V
THE DISCERNMENT IN CLOUD COMPUTING COMMUNICATION (C3):

THE UNADDRESSED SEVEN SYSTEMS SECURITY - CIA4V5
James A. Ellzy and David King

ABSTRACT
The anonymity of cloud computing communication (C3) has motivated significant research. In this investigation we use the
perspectives of computer-mediated-communications (CMC) from the discernment of its respective abilities to form and sustain
social groups. We also examine one of the hallmarks of communication on the Internet, that is, the ease with which users self-
disclose their confidentiality (Wallace, 1999). In on-line discussion boards and Internet chat-rooms, C3 users reveal incredible
amount of personal information naturally, with optimistic consequences. In a recent analysis of private information
dissemination, it was found that individuals disclosed more personal information in the process of using C3, and did so under
circumstances of high confidential self-awareness and low public self-awareness (Joinson 2001). This study examined whether
norms of self-disclosure emerge and whether these norms are adhered to, in a C3 setting. In this assumption it was concluded
that, a shift from personal to social levels of identity is basically a cognitive process, which indeed, has been a shift in the level
of inclusiveness at different levels of transformation. This piece of writing is exploratory, given that the related technologies are
rapidly changing. Exemplars of electronic learning and security concerns are addressed. Interpretivist and social construct
methodologies are used to illustrate rigor and coherence in the study.
Keywords: Computer-Meditated Communication, Self- Awareness, Self- Disclose, Identity, Individuality, Social.
5 CIAAAAV – Confidentiality, Integrity, Availability, Authentication, Authorization, Accessibility and Vulnerability
204
For information about Intellectbase International Consortium and associated journals of the conference,
please visit www.intellectbase.org
JAGR-Journal of Applied Global IJAISL-International Journal of RMIC-Review of Management IJSHIM-International Journal JGIP-Journal of Global
Research Accounting Information Innovation and Creativity of Social Health Information Intelligence and Policy
Science and Leadership Systems Management
RHESL-Review of Higher JISTP-Journal of Information IJEDAS-International Journal JIBMR-Journal of International JOIM-Journal of Organizational
Education and Self-Learning Systems Technology and of Electronic Data Business Management & Information Management
Planning Administration and Security Research
B E S T M A P S
EDUCATION
BUSINESS SCIENCE
MULTI-DISCIPLINARY
SOCIAL FOUNDATIONS TECHNOLOGY

& INTELLECTUAL
PERSPECTIVES
POLITICAL MANAGEMENT
ADMINISTRATION
JKHRM-Journal of Knowledge JGISM-Journal of Global Health IHPPL-Intellectbase Handbook JWBSTE-Journal of Web-Based

and Human Resource Information Systems in of Professional Practice and Socio-Technical Engineering
Management Medicine Learning

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ISSN 2150-6906

nternational Handbook of Academic Research and Teaching

Published by: Intellectbase International Consortium .

Dr. David King

Mrs. Karina Dyer

Mr. Ben Murray

CONFERENCE ORGANIZERS & INTERNATIONAL AFFILIATES

United States Australia Europe

EXECUTIVE EDITORIAL BOARD (EEB) AND REVIEWERS TASK PANEL (RTP)

Dr. David White Dr. Dennis Taylor

Dr. Mumbi Kariuki Dr. Khalid Alrawi

Dr. Michael Alexander Dr. Greg Gibbs

Dr. Chris Myers Dr. Faith Anyachebelu

Dr. Aditi Mitra Dr. Elizabeth Kunnu

Dr. Kim Riordan Dr. Eileen J. Colon

SCOPE & MISSION

 Promote the collaboration of a diverse group of intellectuals and professionals worldwide.

Last Name First Name Institution State Country

Adsavakulchai S. University of the Thai Chamber of Commerce Thailand

Allen Kay University of Central Florida FL USA

Arroyo Luis Gladstone City Council QLD Australia

Ashikin N. Universiti Putra Malaysia Malaysia

Azizan Noor Azlinna University of Malaya Malaysia

Dian Jayanti Kurniasari Komp Griya Bandun Asri I Indonesia

Downing George Franklin Pierce University NH USA

Ellzy James A. Tennessee State University TN USA

Fatahian Vahid A. Universiti Putra Malaysia Malaysia

Ferrer Mario CQ University QLD Australia

Ghanwat Deepali S. Tennessee State University TN USA

Ghazali Zulkipli Universiti Teknologi PETRONAS Malaysia

Gillett Pat Southern Cross University QLD Australia

Halawa Abdelhadi Millersville University PA USA

Halib Mohammed Universiti Teknologi PETRONAS Malaysia

Hayati Neuneung Ratna Widyatama University Indonesia

Huang Eva University of Sydney NSW Australia

Huy Le Van Danang University Vietnam

Irawati Muchlis Tanti Widyatama University Indonesia

Ishak Norzamri bin Multimedia University Malaysia

Ismail Mohd Razi Universiti Putra Malaysia Malaysia

Kadir Mohd Rizuan Abd Universiti Tenaga Nasional Malaysia

Kamssu Aurore J. Tennessee State University TN USA

Khan Tehmina RMIT University VIC Australia

King David Tennessee State University TN USA

Kumar Gulshan Global B-School India

Lai Fong-Woon Universiti Teknologi PETRONAS Malaysia

Li L University of the Thai Chamber of Commerce Thailand

Last Name First Name Institution State Country

Marquis Gerald P. Tennessee State University TN USA

Maute Manfred F. York University ON Canada

Medhekar Anita CQ University QLD Australia

Mobini Saeid Hassanzadeh Universiti Putra Malaysia Malaysia

Muchiri Michael CQ University QLD Australia

Niemi Paul R. Franklin Pierce University NH USA

Nordin Shahrina Md Universiti Teknologi PETRONAS Malaysia

Ortiz Norma University of Puerto Rico-Mayagüez Campus PR USA

Phangsai P. University of the Thai Chamber of Commerce Thailand

Pongwattana T. University of the Thai Chamber of Commerce Thailand

Radovanovic Dobrivoje University of Belgrade Serbia

Radulovic Danka University of Belgrade Serbia

Ramli Juliana Anis Bte Universiti Tenaga Nasional Malaysia

Rojjanathavorn J. University of the Thai Chamber of Commerce Thailand

Samad M. Fazilah Abdul University of Malaya Malaysia

Santa Ricardo Charles Darwin University QLD Australia