The Business Review, Cambridge

Vol. 8 * Number 1 * Summer. 2007

The Library of Congress, Washington, DC   *   ISSN 1553 - 5827 

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Comparative Study of American and Japanese Auto Industry: General Motors Versus Toyota Motors Corporations

Dr. Hailu Regassa, Colorado State University-Pueblo

Dr. Ahmad Ahmadian, Colorado State University-Pueblo

 

ABSTRACT

The automobile industry is undergoing rapid technological transformation and is currently faced with increased deregulation, accelerating globalization, and ever-changing consumer tastes. Likewise, firms in the industry are exploring new avenues to cope with demand in the market place and stay competitive.  The U.S. automakers are struggling with an ever-diminishing market share and have so far failed to bridge the gap with their Japanese counterparts on quality, reliability, product design, production, and cost efficiency. General Motors (GM), for instance, incurred a massive loss of $8.6 billion dollars, the highest ever, in 2005 alone and plans to eliminate 30,000 jobs or more and close or scale back operations in 12 facilities over the next two to three years. A misstatement in its accounting records could drive up its total loss to a whopping $10.6 billion. Ford Motors also reported record losses of $1.5 billion from its North American operations and Daimler Chrysler A.G., while performing slightly better than its peers in the U.S., fared far short of expectations relative to its Japanese competitors.  In contrast, their Japanese counterparts, Honda, Nissan, and Toyota Motors all recorded hefty growth in profits while their stock prices soared during the same period. Toyota Motors, the second largest automaker, so far, said that it will post record earnings for its fiscal year ending on March 31, 2006, as its sales grow across all key regions. Toyota is actually expected to overtake GM in market share in the upcoming year of its operations for the first time. While GM currently has a worldwide total market share of 26 percent followed by Toyota, the latter, however, commands a large market capitalization of almost $173.6 billion as of December 31, 2005, more than 14.3 times as much as that of GM. This paper will make an attempt to review the strategies pursued by the major automobile manufacturing companies in the U.S. and Japan in general, and GM and Toyota in particular, in their quest to enhance their dominance in the market place and streamline their costs in order to improve their financial performance and stay competitive. Specifically, this paper will carry out a comparative analysis of various performance measures including growth rates, cost structures, profitability, return on investments, management efficiency, product-mix, and design and quality standards for GM and Toyota and evaluate their ability to cope with and adapt to a fast changing global competitive landscape.  Increased globalization, free trade, limited domestic growth opportunities, and the fierce competitive economic landscape have forced overseas carmakers operating outside their country of origin, specifically the U.S., to adopt different strategies to increase their market share and enhance their financial viability. Foreign firms, by in large, usually choose among an array of decision attributes, such as product design and quality and standardization, market share, customer-orientation, research and development, continuous process improvement, low employee turnover, training, lower cost, competitive or reduced prices, and the like as their strategic production, marketing, and financial tools to gain access to and compete in the United States. A number of studies have documented some of the unique marketing and business practices employed by firms of different national origin to penetrate and get a foothold in the U.S. market.  Studies of a more general nature have documented evidence of a differentiated approach in and use of strategic decision choices by firms with different national origins. For instance, Erramilli (1996), Kogut and Singh (1988), and Nohria and Garcia-Pont (1991), suggest strong home country effects on strategic choice. Thomas and Geoffrey (1999) investigated why Japanese firms tended to favor market share over short-term profits more than U.S. firms and why German and Japanese firms invest more in physical capital as a share of GDP than U.S. firms. Underlying the issue of national identities on strategic choices is subject to debate over the theory of the firm as to whether product markets or institutions determine optimal strategy. The underpinning of the neoclassical economic view is based on the idea that the global industry environment determines the optimal strategy (i.e., product market competition ensures that only the most efficient firm strategy will survive) such that firms from all countries can, therefore, be treated as a homogeneous production function notwithstanding their national identity. In sharp contrast to this theory, Thomas and Geoffrey (1999), support an alternative view where the firm is regarded as a collection of resources/skills embedded in a network of implicit contracts with other agents. The resources/skills of the firm are accumulated in the process of interactions with the agent in the network, and this network of relation is precisely attributable to the domestic institutional environment.  An important distinction in the predictions of these two views is whether firms have distinct national identities in choosing different strategies, while competing in the same global industry environment. Thomas and Geoffrey (1999) provide evidence that the home country environment and in particular, the institutional bargaining power between owners and labor in strategy decisions, is instrumental in differences in strategic choices.

 

Predicting Job Performance from Individual Characteristics among R&D Engineers

Dr. Robert T. Keller, University of Houston, Houston, TX

 

ABSTRACT

A study of 288 engineers from four corporate research and development (R&D) organizations investigated hypotheses generated from person-job models of individual characteristics as longitudinal predictors of job performance.  As hypothesized, higher levels of self-esteem, an innovative orientation, and job involvement, and a lower level of need for clarity predicted one-year later supervisory ratings of job performance.  Implications for the improvement of person-job models of performance for knowledge workers are discussed.  Why are some engineers better performers than others?  This question is important because the presence of productive employees can positively influence the effectiveness of others, and because advanced economies have become knowledge-based whereby engineers engaged in R&D share similarities with other knowledge workers such as physicians, lawyers, and accountants (Shalley, Zhou, & Oldham, 2004).  Organizational researchers have generally studied individual characteristics such as personality traits and job attitudes to predict job performance (Simonton, 2003).  The conceptual foundation of the present study was based on recent person-job models that help to specify the conditions within which selected personality traits and job attitudes can best predict performance in particular jobs such as that of engineers (Kristof-Brown, Zimmerman, & Johnson, 2005; Tett & Burnett, 2003; Shalley et al., 2004; Simonton, 2003).  Kristof-Brown et al. (2005) suggested two conceptualizations of person-job fit.  The first is the fit between the demands of the job and the abilities of the employees, whereby the knowledge, skills, and abilities of the employees are related to the requirements of the job situation.  This first conceptualization of person-job fit tends to emphasize the organization’s side as to how well the employee meets the employer’s job needs.  A second kind of person-job fit considers how the needs, desires, and/or preferences of the employees are met or satisfied by the jobs in which they work.  This second type of person-job fit tends to focus on the well-being, satisfaction, and level of adjustment of employees.  Both kinds of person-job fit are germane to the present sample of R&D engineers whereby the requirements for technical knowledge as well as innovativeness are valued by the employing organization, per the demands-abilities conceptualization.  The needs-values conceptualization is also important for understanding person-job fit because R&D engineers who have needs-satisfying jobs will tend to be higher performing, more productive, and technically innovative (Simonton, 2003).  In their extensive literature review of the research on individual’s fit at work, Kristof-Brown et al. (2005) suggested some important requirements for future research in order to move the field forward from its current state.  First, they suggested that personality traits are more stable and proximal to job behaviors than are values.  Second, they suggested that personality traits be selected that are not similar to each other in order to capture a more holistic assessment of fit models and performance.  For example, dissimilar personality traits would tend to tap more variance explained in performance than if the personality traits overlapped among themselves.  Kristof-Brown et al. (2005) noted that common method bias is a serious problem in much of the prior research in the fit-at-work literature.  They found in their review that those studies that had single or common sources of data for variables had higher effect sizes than those studies where separate sources of data were used to measure variables.  Because the variables measured in the fit literature are perceptual and concern such personal matters as values and personality traits, the suggestion here is that separate sources of dependent variables be used when taping outcomes from work such as job performance.  A large proportion of the fit literature has relied on cross-sectional designs where all the variables are measured at the same time.  Kristof-Brown et al. (2005) saw this a s a problem because of the inflation of common method bias, but also because some time lag is usually needed for the effects of fit to be seen on such outcomes as job performance or satisfaction.  They suggested that longitudinal research designs be employed where outcome variables are measured at a later time point than the predictor variables in order to overcome the problems of a cross-sectional design. A final concern that Kristof-Brown et al. (2005) identified in the fit-at-work literature is the over-reliance in prior studies on single-organization samples.  The use of single-organization research designs can limit the external validity of the results, and also take advantage of chance or the peculiarities of a particular organization.  To remedy this concern they suggested the use of multiple-organization samples that can provide some validation of results across situations and organizations.  Recently, research on personality and job performance in general has seen considerable interest in the core self-evaluation traits model developed by Judge, Locke, and Durham (1997) as a particular stream of research.  The core self-evaluation model posits that people make fundamental assessments about themselves concerning worthiness, competence, and capabilities that can affect one’s performance, behavior, and attitudes at work (Judge, Erez, and Bono, 1998).  The present study selected self-esteem and an internal locus of control from this model because of their particular relevance to the sample of R&D professional employees. 

 

Wal- Mart and the Trap of Success:  An Organizational Ecology Perspective 

Dr. Elias G. Rizkallah, La Sierra University, CA

Dr. Nabil Y. Razzouk, California State University, San Bernardino, CA

 

ABSTRACT

This paper addresses the theoretical implications of corporate success on an  organization’s behavior, and the perception and response of rivals, consumers, and others in the corporate environment to that behavior.  More specifically, the paper examines the experience of Wal-Mart, whereby the giant retailer has been experiencing significant attacks from a number of constituencies in its environment.  Specific attention is given to the fact that much of the troubles ailing Wal-Mart were self inflicted and the result of the company excessive focus on short-term profit and growth goals and not enough attention given to anticipating and managing the response of its various relevant publics.    The paper then concludes with some specific recommendations for corrective action at Wal-Mart. The world economy has undergone radical change during the past two decades. Geographical and cultural distances have shrunk, technology development and globalization have changed how companies conduct their business. The result is vastly more complex and dynamic marketing environment for companies and consumers.  Along with this complexity, researchers and practitioners in all fields of inquiry have developed concepts and theories to explain and understand the dynamics of the new environment - the players involved, their behavior, power, performance, and relationships -- and suggested some requirements for survival and success. Emphasis was put on understanding the dynamics of the relationship among all the entities in the environment and the interdependency relationship that exist; and how such relationship may change over time as per the performance of each party. Each organization is considered as a part of a greater integrated system, where its behavior affects and is affected by behaviors of others. “Strategic management,” “relationship marketing,” “ network economy,” and “virtual global market” are some of the concepts characterizing the new business arena. Although strategic management dictates that an organization must have some competitive advantage(s), the sustainability of such an advantage depends on the characteristics of that organization, its behavior, and its relationships with other parties in the greater system.  A main ingredient of success in today’s competitive marketplace comes from nurturing candid and positive relationships with the rest of the parties in the environment. This ethic gives corporate executives the ability to establish sustainable strategic advantage. To maintain a strong leadership position, executives must understand that any organization, irrespective of its success and size, receives explicit or implicit assent from the individuals and groups affected by its existence. In the business arena, a diverse aggregation of people - including investors, customers, suppliers, regulatory bodies, management, employees, unions, competitors, and the community – give assent to a company and thus these groups become stakeholders – parties with a vested or implied interest in the enterprise and its behavior.  The company’s organizing principles initially stated in an extremely broad terms to leave room for all the possible dimensions that might develop or to be developed in the future.   However, as this company grow and interact extensively with various stakeholders, it should relentlessly work on creating positive relationships with others in the environment. It is important to note that the organizing principles of corporations are characterized by dynamic relationships that continually interact with one another, and the strategic advantage lies in balancing the relationships so that all parties benefit. For example, if a company focuses solely on its relationship with its investors, or if it is preoccupied with destroying a competitor, these actions will adversely affect the relationships of the remaining stakeholders. Therefore, success by focusing on achieving benefits for one of the parties using power, exercising brute force, and conceited behavior does not usually enhance relationships, and thus invoke a strategic threat that could be detrimental to the success or survival of the corporation.  Traditional economics has utilized equilibrium analysis to examine the results of particular choices after the market has settled down and all of the salient reactions to those choices have occurred.  Strategists and decision makers in diverse markets have always been trained to ask themselves what the reaction of all other actors in the market will be to their own behavior in the market place.  Those expected reactions often affect the decision maker’s assessment of the results of his/her own actions.  More recent economic thinking has shed doubt on the value of equilibrium analysis particularly in situations in which equilibrium has not yet occurred, and the markets are still in a dynamic state of adjustment and change.  Equilibrium economics has now given way to Evolutionary Economics (Nelson and Winter, 1982) which places the focus on change instead of equilibrium.  The central assumptions of this paradigm is that organizations would choose to satisfice rather than maximize, and rely heavily on routines and decision rules in doing so.  Moreover the environment works to select out more successful routines from less successful ones; but, at any one time, the system is not likely to be in equilibrium.  Furthermore, the growing work in organizational ecology—the study of the rise and death of organizations, reveals a growing number of lessons to be learned from growth, survival, and death patterns within evolving industries.

 

Developing Virtual Team Problem-Solving and Learning Capability using the Case Method

Vu N. Tran, NDS Americas and Pepperdine University, CA

Hugo M. Latapie, NDS Americas, CA

 

ABSTRACT

Developing capable virtual teams is challenging but critical in today’s global economy.  Team-based problem solving and learning capability is a must-have characteristic of a high-performance virtual team.  This paper investigates the use of the case teaching method on virtual team development.  Research findings on the effectiveness of using this method to develop virtual team capability are mixed.  Negative findings include difficulties with (a) developing initial shared context for the case discussion, (b) maintaining team’s interest in case discussions, (c) guiding the learning process, (d) building up team momentum, and (e) ensuring team learns as they solve case problems.  Positive findings include (a) no observable degradation found in case-based virtual team learning, (b) team members developed more complete and thoughtful arguments, (c) virtual teams generated more ideas, and (d) more diverse opinions were developed and shared.  Proposed improvements included (a) development of richer case information, (b) development and discussion of cases from different cultural and social perspectives, (d) integration of learners to remote live cases, and (e) development of asynchronous case learning process.  We recommend few research areas for improving the case teaching method in virtual team environment. Developing highly capable engineering virtual teams is challenging but critical in today’s global economy.  Team-based problem solving and learning are essential characteristics of a high-performance virtual team.  This paper investigates the use of the case teaching method on virtual team development today. Specifically, we are interested in understanding the effectiveness of applying this method to team learning environments where team members themselves are not physically collocated (i.e., virtual teams).  Here, team members collaborated via computer-mediated systems such as email, instance messaging, groupware, and sometime POTS (plain-old telephone system).  Section 1 introduces the case teaching method for developing team problem-solving and learning capability.  Section 2 surveys existing literatures in application of case teaching method to virtual teams.  Section 3 summarizes our findings and recommends new research areas based on today’s work.  To guide our investigation, we developed the following three research questions: (a) What is found so far about the effectiveness of training virtual teams using the case method, (b) what changes are recommended to advance the effectiveness of this training method in the virtual environment, and (c) how is the effectiveness of this method being evaluated.  Case-based teaching method, we will call Case Method, has proven itself as one of the most effective approaches to teaching problem solving to adult learners [1].  The method, pioneered as a tool for teaching business  school graduate students on how to solve complex business problems collaboratively at the Harvard Business School (HBS) in the 1920s, has since been widely adopted throughout universities in the United States and other countries[2-4].   The use of the Case Method spreads beyond the educational discipline of business[5] to law[6], teacher education[7], science[8], and medicine[9].  Harvard Business School provides the following description of the case method:  The case method creates a classroom in which students succeed not by simply absorbing facts and theories, but also by exercising the skills of leadership and teamwork in the face of real problems.  Under the skillful guidance of a faculty member, they work together to analyze and synthesize conflicting data and points of view, to define and prioritize goals, to persuade and inspire others who think differently, to make tough decisions with uncertain information, and to seize opportunity in the face of doubt[10]. The written casses capture “the story exactly as the protagonist [a real person who is confronted with a real problem] saw it, including ambiguous evidence, shifting variables, imperfect knowledge, no obvious right answers, and a ticking clock that impatiently demands action[10].”  Teaching a case typically follow this process: The instructor introduces the learners into new topics by distributing a written case of a situation of interest to be used as the basis for the next class discussion.  Each learner, on his or her own time, prepares to discuss the situation by studing the case.  In class the learners get together to discuss the case. These learners bring their individual perspectives as to what action they would take in the protagonist’s position.  Each learner’s unique perspective comes from both his or her formal education and life experience [11]. The instructor guides and facilitates the discussion between learners.  ach learner presents his or her view or position, using case evidents to support his or her arguments.  Other learners challenge the position, citing other case evidents as counter arguments.  The discussion would go on for a period time, as learners work together solving the complex situation at hand.  The instructor guides the discussion toward the essenses behind the situation, and moderates the intensity and orderly of the debate.  His objective is to promote team learning. At the end of the case discussion, the intructor concludes by linking the case back to the original learning topics.  Case method is an effective teaching method for both team-based problem-solving and learning.  Some important attributes that distinquish this method from what Paulo Frerie decried as the traditional “banking model” of education [12], where learners are structured as mere one-way “receptacles” of instructors’ knowledges: The method relies on reflection and inquiry over learning facts, which are proven method for teaching adult learners.  The method is bottom up, favoring learning by solving concrete problems over memorizing theoretical concepts. The case learning reflects Kolb’s four-step adult experiential learning model of (a) concrete experience with a real-life situation, (b) observation and reflection, (c) conceptualization and generalization, (d) testing of new concept in new situations [13]. The method focuses on collaborative problem solving over individual problem solving.  The method provides a mean to bring on diversed set of individual experience into the learning process, exposing potential mental biases from individuals.  The method teaches learners to work with incomplete information and ambiguity [14].  Developing virtual teams’ problem-solving and learning skills using the case method is inherently challenging.  Geographical distance between team members prevents the opportunity for gathering in a single physical location and at the same time to participate in group discussion about the cases.  Language and cultural barriers slow down members ability of express opinions or to understand those expressed by others.   Time zone difference makes it difficult to carry highly interactive and intensive discussions or debates. 

 

Patterns in High-Tech Firms Growth Strategies by Seeking Mass Mainstream Customer Adaptations

Dr. Bruce Buskirk, Pepperdine University

Dr. Stacy M. P. Schmidt, California State University, Bakersfield

Dr. David L. Ralph, Pepperdine University

 

ABSTRACT

This article summarizes the subjective insights the authors gained as a result of  in-depth interviews that were conducted of twenty business executives charged with directing strategic growth within their firm.  Each was asked, and then probed for the directions of growth they perceived to be open to their firm.  Furthermore this article examines the  Technological Life Cycles [TLC] and its six phases:  1.  Cutting Edge.2.  State of the Art (SOTA).3.  Advanced.4.  Mainstream.5.  Mature.6.  Decline.  In addition, it examined the paths to finding product niches in a “third wave” of market entry:1. Standardization.2. Technology convergence.3. Improved user interfaces.4. Improved “network” interfaces [plays well with other toys].5. Invisible security. In order for this to be successful, engineering must relinquish its control on product development.  Marketing needs to be  given rule over the NPD domain, which will allow them to be more effective in finding productive product niches. Growth by the five means listed above requires the cooperation of marketing and engineering in development.  This will require a cultural change in many firms.  In-depth interviews were conducted of twenty business executives charged with directing strategic growth within their firm.  Each was asked, and then probed for the directions of growth they perceived to be open to their firm.  The majority of this convenience sample of executives of heavily slanted towards middle sized electronics firms, but included some B2B services providers as well.  This piece summarizes the subjective insights the authors gained in this process. The process revealed the Technological Life cycle which consists of the following six stages: 1. Cutting Edge,  2.  State of the Art (SOTA), 3.  Advanced, 4.  Mainstream, 5.  Mature, and 6.  Decline.  These stages play a large role in the marketing of products and thus the strategic growth of the firms.  In addition, the study revealed the need for firms to find product niches in a “third wave” of market entry.  As a result, the following five paths for finding these product niches were examined: 1. Standardization, 2. Technology convergence, 3. Improved user interfaces, 4. Improved “network” interfaces, and 5. Invisible security. The addition of seeking increased corporate growth through investments in technological research, as an additional alternative to the new/old, products/markets offering first proposed by Ansoff (1957) was investigated in Buskirk, Popper (1992).  Buskirk (1986) identifies the effects of technology levels imbedded in the benefits of products upon the marketing of those products, finding that few products succeed in reaching the mainstream technology levels favored by the large market segment of those consumers other than innovators and early adopters.  While products aimed at innovators and early adopters gain much notoriety based upon their news worthiness and the nature of heavy advertising early in the product life cycle, they are often quick to fail as innovators and early adopters quickly move on towards the next new “thing”.   While innovators and early adopters may receive some level of benefit from their mastery of new technologies, the later majority of the participants in the diffusion of the innovation have decreasing tolerance for investing their time in learning to master new technology.  Naisbitt (1982) coined the term High-Tech / High-Touch, warning future business leaders that the key variable in the future was destined to be the “High-Touch” portion of the equation.  High-Tech firms are often at a disadvantage in understanding the “High-Touch” aspect of products demanded by consumers.  As marketing developed as a science during the period from roughly 1960 to 1985 the majority of new product developments were driven by marketing research focused upon consumer research.  Growth from new product development based upon consumer research slowly declined after about 1980.  Marketing research had been successful in meeting most every need and want that met technological feasibility.  It became increasingly difficult to diagnose latent demand based upon consumer research.  Again, about 1985, driven by the home computer and advances in communications, a wave of consumer products found their way to the marketplace driven by engineering and technological advancements.  Technological Life Cycles [TLC] have become increasingly shorter.  However, while technological advances have increased in velocity, this same increased emphasis on technological advancement can blind the culture of the firm to the “High-Touch” aspects of product development.  Technological Transitions are difficult on management, knowing which Stage of the Technological life Cycle a firm is currently working is of strategic importance to the firm.  Management must be ready to shift resources as a technology ages and not waste resources on technology that does not have potential.  High-Technology firms tend to be in the Cutting Edge or State of the Art phases of their technology.  These firms by their very nature are most often product driven.  When firms make a shift with their technology to the advanced stage, the firm must also shift from being product oriented to being market oriented.  This is often very difficult for the firm to accept.  This involves shifting from engineering to marketing thus necessitating the collaboration between these departments.

 

Customer Perceptions of Attribute Importance in the Business-to-Business Environment

Ming Haw Leong, Centre for Nuclear Energy Research, Fredericton, NB, Canada

Dr. Jane Dunnett, University of New Brunswick, Fredericton, NB, Canada

 

ABSTRACT

Attributes used by organizational buyers in choosing their suppliers are studied, using a Japanese manufacturer of rubber flexible joints.  Surveying trade show participants indicated that quality was the most important attribute used to evaluate potential suppliers.  Follow-up in-depth interviews suggested which services provided by suppliers indicate quality to the customer. Findings were categorized into two quality dimensions: short-term (measurable, used as the decisive criteria) and long-term (immeasurable, focusing on the customer-supplier relationship). Most business-to-business (B2B) companies who want to expand into a new market should have a good understanding of that new market. Otherwise, their investment will be wasted or the return on their investment will be less than expected. While understanding the uncontrollable factors such as economics, societies, politics, and technologies are important, most companies concentrate on the operating environment such as the power of suppliers and buyers, possible substitute products, competitors, and most importantly, customers. In the B2B environment, most customers buy components or raw materials to manufacture products for end users or other organizational buyers. In order to be a supplier of an organizational buyer, the supplier must understand the needs or preferences of its customers. These needs and preferences can be categorized into attributes such as quality, price, and service. There are similarities between consumer and organizational buying behavior because both of them are affected by individual factors (Webster and Wind, 1972a). However, the complexity of organizational buying behavior (OBB) is high because it usually involves more than one decision-maker, with each one being influenced by the environment, organization, and individual factors. For a company to enter a new market or acquire new customers, the company must understand how customers evaluate their suppliers and how they choose or switch suppliers.  Tozen is one such company, wanting to expand into the US market. Founded in 1972, Tozen (www.tozen.co.jp) is one of the leading companies that manufacture seismic and vibration isolation products for the organizational market. Because of Japan’s seismic geographic environment, there is a high demand for vibration isolation products. The company grew rapidly with expansion to Malaysia, Hong Kong, Thailand, China, and the Philippines. Tozen’s success came not only from lower production costs, but also from innovation through research and development and consistent manufacturing process (Muroi 2003). However, expansion into North America has been slow. Tozen still lacks the image of high quality and reliability that it needs to persuade North American customers to switch suppliers. The research objective of this project is to find out what services Tozen should provide for its North American customers in order to promote such an image of the company.  When evaluating the quality of a supplier, customers have focused not only on the physical product itself but also on the services offered. Tozen needs to provide the right services to its customers to help promote the company as a high quality supplier. To determine what kind of services that Tozen should provide, we must understand the customer’s perception of service quality. This area of research is included in the organizational buying behavior literature. Research in organizational buying behavior has increased since the 1980s (Ward and Webster, 1991), and the works of Robinson, Faris, and Wind (1967), Sheth (1973) and Webster and Wind (1972a) have influenced many later studies. Many models outlined and categorized different variables that affected the organizational buying process through their different impacts on customers’ perceptions of attribute importance. The concept of different purchasing types such as new-task buying, modify-rebuy and straight-rebuy (Shapiro, Wong, Perreault and McCarthy, 2001) is also an important concept that relates to the work by Sheth (1973), as well as Webster and Wind (1972b). This concept helps describe the difficulties of acquiring new customers. Robinson, Faris and Wind (1967) suggested that normally five stages are found in the supplier evaluation process: (1) problem recognition or identification of need; (2) establishment of specification; (3) identification of alternatives; (4) evaluation of alternatives; and (5) selection of suppliers. Each stage in the process is performed by members of the company’s buying center, which is the group of employees involved in the buying decision process. Every member in the buying center will play one or more of the following roles: users, influencers, deciders, buyers, and gatekeepers. Due to the different characteristics of each role, the relative importance of supplier attributes may vary. For instance, ‘users’ responsible for maintaining a plant may put more importance on using suppliers who can provide quick responses while ‘buyers’ who are restricted by their budgets may consider price more important than service quality. The interactions of these roles will significantly influence the outcome of the buying decision. Tozen’s products are mainly used in piping or pumping systems. Engineers designing a piping system will make recommendations on the size, temperature, pressure or other engineering specifications of the flexible joints required. The engineers may also suggest some qualified suppliers with whom they have worked before. When contractors want to buy these joints, they can only buy from suppliers who meet the specifications.  To break into a new market or acquire new customers, it is critical that Tozen makes both engineers and specialized contractors aware of its products; otherwise, its products will not be considered in the purchasing process. Once Tozen’s products meet the minimum engineering specifications and Tozen becomes one of the qualified suppliers, it still needs to compete with other suppliers on the other variables to make its products stand out among all competitors. Hansen and Bush (1999) found that quality is multidimensional, with services reliability, responsiveness, assurance, performance, durability, and reliability, quality and features of products among their suggestions. Therefore, it is important for Tozen to provide services that will promote the company’s quality image in those dimensions. Therefore, the main research question is defined as follows:

 

Energy Production Concerns: A Multi-Year Perspective

Dr. Jack A. Fuller, West Virginia University, Morgantown, WV

Robert Bessette, President, Council of Industrial Boiler Owners, Burke, VA

 

ABSTRACT

The authors analyzed data from a fluidized bed boiler survey distributed during the spring of 2003 to develop appropriate AFBC (Atmospheric Fluidized Bed Combustion) performance benchmarks.  The survey was sent to members of CIBO (Council of Industrial Boiler Owners), who sponsored the survey, as well as to other firms who had an operating AFBC boiler on-site. There were three primary purposes for the collection and analysis of the data contained in this fluidized bed boiler survey: 1. To develop AFBC benchmarks on technical, cost, revenue, and environmental issues. 2. To inform AFBC owners and operators of contemporary concerns and issues in the industry. 3. To improve decision making in the industry with respect to current and future plant start-ups and ongoing operations. In contrast to an earlier research paper which focused on operating data for a single calendar year, the current study analyzed data over a series of years. The authors analyzed data from a fluidized bed boiler survey distributed during the spring of 2003 to develop appropriate AFBC (Atmospheric Fluidized Bed Combustion) performance benchmarks.  The survey was sent to members of CIBO (Council of Industrial Boiler Owners), who sponsored the survey, as well as to other firms who had an operating AFBC boiler on-site.  In contrast to an earlier study of the authors, which focused on operating data for a single year (2002), this study analyzed data over a series of years. There were a total of 45 plants with 78 AFBC boilers included in the study. This represents a useable response rate to the survey of approximately 71 percent since there are approximately 110 operating AFBC units in the United States to whom the survey was directed.  Of the 45 plants, 17 were in the 1 - 39 MW (or 1 - 319 KPPH [thousands of pounds per hour steam]) range.  Of these, 12 used coal, two used gob, and three used wood or biomass as their primary fuel source.  There were 16 plants represented in the 40 - 99 MW (or 320 - 809 KPPH) range.  Of these, six used coal, five used culm (waste anthracite), four used gob (waste bituminous coal), and one used wood as their primary fuel source.  There were 12 plants included in the study 100 MW (810 KPPH) or larger in size.  Of the 45 plants in the study, 17 plants used a secondary fuel source.  Of the 17, two used coal, six used petroleum coke, two used wood, three used TDF (tire derived fuel), one used fiber rejects, one used fuel oil, and two used natural gas as a secondary fuel source. With respect to the 78 boilers included in the study, 70 used CFB (circulating fluidized bed) technology, seven used BFB (bubbling fluidized bed) technology, and one was a multi-solids boiler.  Of the 78 boilers, there were 38 boilers in the 1 - 39 MW (1 - 319 KPPH) range.  Of these 38, 30 used coal, two used gob, and six used wood or biomass as their primary fuel source.  There were 28 boilers in the 40 - 99 MW (320 - 809 KPPH) range.  Of these 28, 24 used coal, seven used culm, and seven used gob as their primary fuel source.  There were 12 boilers in the study 100 MW (810 KPPH) or larger in size.  Of these 12, 10 used coal, one used gob, and one used petroleum coke as their primary fuel source.  Of tThere 33 boilers that used a secondary fuel source: three used coal, eight used petroleum coke, two used wood, twelve used TDF, three used fiber rejects, two used fuel oil, and three used natural gas.  There were three primary purposes for the collection and analysis of the data contained in this fluidized bed boiler survey:2.1. To develop AFBC benchmarks on technical, cost, revenue, and environmental issues.2.  To inform AFBC owners and operators of contemporary concerns and issues in the industry. 3.  To improve decision making in the industry with respect to current and future plant start-ups and ongoing operations. These three purposes were identified by research engineers and project managers at the U.S. DOE (United States Department of Energy) and CIBO leadership and members as being key to improving the operating efficiency and performance of AFBC plants. Benchmarking brings an external focus on internal activities, functions, or operations in order to achieve continuous improvement.  Starting from an analysis of existing activities and practices within the firm, the objective is to understand existing processes or activities and then to identify an external point of reference or standard by which that activity can be measured or judged.  The ultimate goal is quite simple: To be better than the best; to attain a competitive edge.  Stated one way, benchmarking is the continuous process of measuring product, services, and practices against the toughest competitors or those companies recognized as industry leaders.  Business success requires fact (not fiction) and analysis (not guesstimates) with a clear ongoing focus on meeting and exceeding customer expectations. The continuous pursuit of excellence is the underlying and ever-present goal of benchmarking practices.  The starting point in achieving excellence is the customer.  Whether internal or external to the organization, the customer sets the expectations for performance and is the ultimate judge of its quality. For benchmarking purposes, a customer is anyone who has a stake or interest in the ongoing operations of the company.  World-class performance is dedicated to serving the customer.  Well-run companies now see the final customer as just the end-point in a chain of customers.  Everyone has a customer at the next process (i.e., where your work goes next).  The customer then can be internal or external to the organization.  It is anyone who receives the output of our labor or is affected by its quality and timeliness.

 

Corporate Governance in China

Doreen M. McGunagle, Capella University

 

ABSTRACT

The financial crisis that overran Asia in the late 1990’s prompted most of the affected countries to make improved corporate governance a priority.  How has corporate governance changed in China since the financial crisis of the 1990’s? Analyze the current reforms of the businesses government on corporate governance.What is corporate governance? It is the determination of the broad uses to which organizational resources will be deployed and the resolutions of conflicts among the myriad participants in the organizations. Corporate governance involves the mechanisms and approaches that govern the way a corporation uses its resources so that stakeholders’ interest are taken into consideration and protected. Two areas in which corporate governance reform was mandated by Sarbanes-Oxley are the role of board of directors and financial reporting. Enacted July 30, 2002, the U.S. regulators passed a significant reform act which was the Sarbanes-Oxley Act of 2002, a U.S. federal law designed to protect investors by improving the accuracy and reliability of corporate disclosures. Corporate governance has become an important issue that today’s strategic decision makers must cope with (Coulter, 2005).  Senior managers have lead responsibility for crafting and executing a company’s strategy, it is the duty of the board of directors to exercise strong oversight and see that the five tasks of strategic management are done in a manner that benefits shareholders or stakeholders.  In watching over management’s strategy-making, strategy-executing actions and making sure that executive actions are not only proper but also aligned with the interests of stakeholders, a company’s board of directors has three obligations to fulfill (Thompson, Strickland, & Gamble, 2005).  Board members must ask probing questions and draw on their business acumen to make independent judgments about whether the strategy proposals have been adequately analyzed and whether proposed strategic actions appear to have greater promise than alternatives. The board is always responsible for determining whether the current CEO is doing a good job of strategic leadership. Boards must also exercise due diligence in evaluating the strategic leadership skills of other senior executives in line to succeed the CEO. The board must add value, but to ownership, not to management.  It is common to hear that boards should add value, but the value referred to is usually value to management in the form of advice and contacts. Governance exists to add value to owner’s voice in why they own, not to add value to management (Thompson, Strickland, & Gamble, 2005). The original purpose of a board of directors was to have a group, independent from management that looked out for the interests of the owners who, because of the corporate form of structure, were not involved in the day to day management of the organization. What actually happened in many organizations was that board members often enjoyed a cozy relationship in which the board members took care of the CEO and the CEO took care of the board members.  With the passage of Sarbanes-Oxley the demands on board members of publicly traded companies have increased considerably (Coulter, 2005).  The financial crisis that overran much of Asia in the late 1990s prompted most of the affected countries to make improved corporate governance a priority. Nearly all the countries now require the companies listed in the stock exchange to have independent directors and audit committees. Agreement is growing on what good governance entails, and most countries in the region have adopted explicit governance codes. Security laws and the listing requirements of stock exchanges have been strengthened, regulatory authorities have enhanced powers, and the media are more inquisitive and probing. Across Asia companies remain unconvinced of the value of good governance and real world impediments. The institutions that are needed to ensure good governance such as, judicial systems, capital markets: long-term institutional investors that can push for better governance continue to be underdeveloped in most of these countries.  New corporate-governance laws and codes are important because they set the stage for change. Under the new law, the US Sarbanes-Oxley Act requires that the board be independent whereas in Asia, the pool of qualified independent directors is small.  In a country where noncompensation and confidentiality in contracts are difficult to enforce, companies might be reluctant to give any outside director to much insight to their performance or strategy. Corporate governance is a new concept in most parts of Asia, raising awareness is a vital element of any reform effort. Many directors are unaware of their fiduciary obligations and view their directorships as serious with real responsibilities, so the institutes in Hong Kong, Singapore, South Korea, and Thailand are offering seminars and training programs for directors and officers. The Asian Corporate Governance Association has been formed to promote understanding and reform (Barton, Coombes, & Wong, 2004).  The issue of corporate governance has become an important issue primarily due to the Asian crisis and the growth of international capital markets. Currently most countries have single-tier boards. New corporate governance polices in Asia show similarities with developed country governance standards, the principle feature of which is a convergence towards the Anglo-American “shareholder” model.  The Asian countries are not moving towards an identical system of governance, there is a striking agreement among the proponents of reform in each country on the major principles.  Enhance shareholder value as the primary focus of the company. There is a need for non executive and independent non executive directors to provide an “outside view” on strategic direction and to counterbalance the executives on the board to help strengthen the supervisory board. The board committee’s should have responsibility for audit, nomination, compensation, and comprising of majority of independent directors.  The importance of higher levels of information disclosure form listed companies. Allowing or encouraging institutional investors to act as a check against management and for enhancing board implementations (Allen, 2000a).  Some of these principles have been incorporated into laws and regulations governing companies and securities trading or have been expressed in the listing rules of stock exchanges. One of the most interesting cases of governance development in Asia concerns audit committees.  Singapore mandated them in early 1989 following the collapsed of a major conglomerate and a market crisis in the mid 1980s, Singapore stated that companies must n-be  comprise of directors where the majority are independent.  Malaysia followed suit in 1994.  Thailand announced in early 1998 that listed companies must met this requirement from 1999.  Korea also made them mandatory for the listed subsidiaries of top 30 conglomerates in 1999. In 1999, Hong Kong made it mandatory for companies to disclose whether or not they have committees.  Audit committees are voluntary in India (Allen, 2000a).

 

Valuing the Patent Risk Using the Finite Difference Method

Dr. Cherng-Shiang Chang, FRM, China University of Technology, Taipei, Taiwan

 

ABSTRACT

By using the real option approach, Backer (2006) investigates the impact of patent risk on firm values and research incentives.  The cost of engaging in litigation over intellectual property (IP) will be increased due to imperfect patent protection.  As profit rates rising up, may call for a lawsuit on infringing from the challengers, and lead to falling patent values.  Therefore, a trade-off between promoting innovative efforts and securing competitive market outcomes should be taken into account carefully.  In this article, we extend Backer’s model by employing the Ornstein-Uhlenbeck process for the cash flow rate to meet the real product specific lifecycle.  The resulting partial differential equations (PDEs) are so complicated that the bi-nominal tree technique originally applied by Backer (2006) fails to provide satisfactory results.  A novel finite difference method is then chosen and implemented to solve the problem numerically.  Patents and R&D projects can be regarded as a complex option on variables underlying the value of the project (Schwartz, 2004).  As acknowledged by Dixit and Pindyck (1994), patents are classic examples of real options: a patent holder has the option to develop certain types of products, or to license the technology, or to use it as an input for further research.  Once a patent is issued and valid, it grants the right to exclude others from using the technology.  Since enforcement is imperfect and costly, the right to exclude becomes the right to suit with some probability of success.  Empirical work shows that more valuable patents are more likely to be enforced through lawsuits against the alleged infringers (Lanjouw and Schankerman, 2001).  If the patents are imperfect protected or found invalid, the property right will have evaporated.  The risk that a patent will be declared invalid is substantial.  Roughly half of all litigated patents are found to be invalid.  Marco (2005) discusses the option value of litigation on a stronger empirical focus.  Aoki and Hu (2003) explore time factors of patent litigation and licensing in a deterministic setting, as well as the role of settlement. Typically, activity of litigation appeared as an exogenous parameter in previous option-based analyses of “imperfect” patent option.  In the real world context, litigation is the result of value-maximizing behavior on the part of potential challengers.  Technically speaking, it is best treated as an option to litigate to model the patent risk endogenously.  As argued by Backer (2006), the analysis of patent risk as an endogenous parameter in option-based models of IP is still in its infancy.  Backer (2006) proposes an option-based view (OBV) of imperfect patent protection as a formal strategic model of so-called “probabilistic” patents (Lemely and Shapiro, 2005), to investigate the impact of patent risk on firm values and research incentives.  In this article, we extend Backer’s model by employing the Ornstein-Uhlenbeck process for the cash flow rate to meet the real product specific lifecycle.  The resulting partial differential equations (PDEs) are so complicated that the bi-nominal tree technique originally applied by Backer (2006) fails to provide satisfactory results.  A novel finite difference method is then chosen and implemented to solve the problem numerically.  Here we mainly consider the model proposed by Backer (2006), and follows its original notation.  A patent with an expiration at time T owned by the incumbent innovator, allows him or her to commercialize some new product.  A commercial success will generate some net cash flows, which fluctuate randomly.  This uncertainty is introduced by specifying the profit rate as a stochastic process.  In the present paper, we employ the Ornstein-Uhlenbeck process instead of the original geometric Brownian motion for the cash flow rate to meet the real product specific lifecycle.  Let Pt denotes the profit rate or net cash flow, the Ornstein-Uhlenbeck process is a mean reversion process expressed as follows: where k is the speed of reversion, s the corresponding volatility, andis the long-run average level of profitability, to which Pt tends to revert.  Under the martingale measure P*, Equation (1) is then described by: where l is the market price of risk, respectively.  Equation (2) describes the profit rate obtained by discounting the expected cash flows under a risk-neutral measure at the constant risk-free rate r.  In this model, the terminal value of the patent is assumed to be a multiple M of PT, where PT is the terminal profit rate.  Let EP*[×] denotes the expectation with respect to the risk-neutral measure, conditional on the information available at time t.  The value of the project, VI, to the incumbent is then given by: where VI(Õt, t) represents the value of a completed project under “perfect” patent protection.  In the context of patent risk, the impact of the action responded by the potential challenger on the incumbent’s optimal investment policy would be substantial.  As shown in Figure 1, it is a sequential game for the investment decision of the patent holder (the incumbent).  At each node in {I1, I2, I3, ….} the incumbent decides whether to invest in the patent (c) or wait an extra period (w).  Once the incumbent has decided to commercialize, the challenger faces a similar sequence of choices.  At each node in {L1, L2, L3, ….} he or she may either litigate (l) or defer litigation to a later point in time (w).  In the event of litigation occurred at {N1, N2, N3, ….}, the outcome may be successful (s) or failed (f).

 

Stock Market Performance Analysis for Three European Emerging Stock Markets

Dr. Timotej Jagric, University of Maribor, Maribor, Slovenia

Dr. Boris Podobnik, University of Rijeka, Rijeka, and Zagreb School of Economics and Management, Croatia

Dr. Vanco Balen, University of Zagreb, Zagreb, Croatia

Dr. Marko Kolanovic, Bear, Stearns & Co. Inc., Equity Derivatives Strategy, New York

Vita Jagric, University of Maribor, Maribor, Slovenia

 

ABSTRACT

The paper provides a stock market performance analysis for three European emerging stock markets: Croatia, Slovenia, and Bosnia and Herzegovina. We show that in 2005 the overall level of South-East stock market performance exhibited extraordinary results. Additionally, using monthly observations we perform a detailed study of the performance of Croatian and Slovenian mutual funds and Bosnian investment funds. The risk/return measures of funds are assessed using the Sharpe ratio, Treynor ratio, Information ratio, Jensen’s alpha, and Appraisal ratio. Funds are ranked according to their risk-adjusted performance. Furthermore, we analyze the timing ability of the funds using the quadratic regression of Treynor and Mazuy. Over the last few years, the mutual fund industry in transition economies has exploded. In the process of promotion mutual funds industry Slovenia and Croatia are in the forefront among transition economies, while on the other hand, the Bosnian market is still in its infancy. This paper studies the mutual fund industry in these countries in the first years of its development, i.e. in the period which is characterized by important flows to mutual funds. This period is interesting, since this is the period when the stock market seems not to be efficient (Podobnik et al., 2006; Jagric et al., 2005).  The mutual fund industry is among the most successful recent innovations. It is larger in countries with stronger rules, laws, regulations, and specifically where mutual fund investors’ rights are better protected. The industry is also larger in countries with wealthier and more educated population, where the industry is older, trading costs are lower and in which defined contribution pension plans are more prevalent (Khorana et al., 2005). We think that the trends in Slovenian, Croatian, and Bosnian mutual fund industry reflects these findings. Most research on mutual fund industry has been performed on US mutual funds. Recently there have been some studies of non-US mutual funds. In 2002 Otten and Bams performed cross-country analysis of European funds which includes Germany, France, Italy, the UK, Spain, and the Netherlands. In this paper we evaluate the performance of mutual funds in Slovenia and Croatia, and investment funds in Bosnia and Herzegovina. We rank the funds on the basis of different parameters, which give us the opportunity to gain some additional insight into the properties of financial markets in transition economies. To emphasize the financial perspective of South-East Europe, we also analyze returns of major finan­cial indices in Croatia (CRO), Bosnia and Herzegovina (BiH), Slovenia (SLO), Serbia and Montenegro (S&M), Bulgaria (BULG), and Macedonia (MAC), and show that the financial equity market for the whole region in the re­cent years exhibited strong performance. This paper is organized as follows, in section two we introduce the performance measures used in evaluation of funds: the Sharpe ratio (1994), the Treynor ratio (1966), the Information ratio, the Jensen's alpha (1968), the Appraisal ratio, and the Treynor-Mazuy (1966) timing measure. In section three we briefly explain the data. In section four we calculate and discuss the performance measures of Croatian mutual funds, Bosnian investment funds and Slovenian mutual funds. Finally, the concluding remarks are given in section five. To evaluate performance of an investment, following Markowitz return – risk paradigm, one must always consider investment's return in conjecture with the performance risk as measured by standard deviation of returns. Capital Asset Pricing Model (CAPM) states that return on an investment i should be a linear function of the systematic or market risk (beta) and return premium over the market: Here is the market return, risk free return and return on fund .  is a stochastic fund specific return, and determines the level of fund's market exposure. By definition, for a risk-free investment beta is zero. The constant term in equation (1), so called Jensen's , indicates whether the portfolio manager is superior (> 0) or inferior (< 0) in stock selection compared to the market. In Jensen's paper (1968) this measure indicates the difference between fund's actual return and expected return the manager would earn if the money has passively invested at the same risk level of the market index. To further quantify manager’s ability to predict market moves, Treynor and Mazuy (1966) added a quadratic term in CAPM model. From estimates of the above parameters one may distinguish between selection and timing ability. If alpha is positive and significantly different than zero, one identifies selection ability. The Treynor-Mazuy coefficient  shows a manager's timing ability to shift funds into high beta stocks when the market is going to go up and to shift into low beta stocks when the market is going to go down.  Keeping in mind Markowitz return-variance paradigm, Sharpe found how two statistical measures (mean and standard deviation of return) can be replaced with just one, later called the Sharpe ratio. The Sharpe ratio is calculated by dividing the premium (excess) return by the standard deviation (total risk) of the return:

 

Empirical Tests for Bubbles in the Asian Emerging Stock Markets

Dr. Ako Doffou, CFA, Sacred Heart University, Fairfield, CT

 

ABSTRACT

This paper investigates empirically whether emerging Asian markets stock prices can deviate from their fundamental values. Because standard tests are subject to size distortion, a more robust statistical test for non-cointegration due to Taylor and Peel (1998) is used here to test periodically collapsing emerging Asian markets stock price bubbles. The test results refute the bubbles hypothesis While policy shocks are negligible and market structures are stable in developed financial markets, emerging markets are affected by the pace and sequencing of policy reforms. Investors lost confidence in emerging markets following the East Asian financial crisis which started in July 1997 in Thailand and affected currencies, stock markets, and other asset prices in several Asian countries called East Asian Tigers. The Asian financial crisis was triggered by Japanese commercial banks that reduced their exposure to Asia in response to emerging troubles in Thailand and South Korea. Japanese banks had been severely weakened by the collapse of the real estate and stock market bubbles in Japan in 1990. Because Japanese banks are the largest lenders in Asia and the key creditors in Thailand, they signaled the change in sentiment to other foreign commercial banks that also withdrew their loans. Pressures on the Thai currency led its government to impose some mild controls on capital outflows. Then, there was a large current account deficit, low foreign exchange reserves relative to short term foreign currency debt and an overvalued currency. To speculators, Thailand looked like Mexico in 1994 and the speculative pressure started to build up in early 1997. Those mild controls on outflows did not work in 1997 and the currency collapsed in July 1997. After a futile defense of the effective peg, the collapse of the Thai currency led to a massive foreign reserve bleeding which triggered the Asian crisis that soon engulfed Indonesia, Malaysia and South Korea. These capital outflows triggered a devaluation in Thailand in mid 1997, but not in Korea until late 1997, due to the different exchange rate regimes in these countries. Despite the devaluation and outflow of bank loans, bond investors continued to provide capital to Asian borrowers until November 1997, at spreads which did not reflect the risks involved. By 1998, foreign equity investors were returning to these markets in search of bargains. Rather than rushing to the exits in a herd-like fashion, institutional investors made investment decisions which created off-setting private capital flows. Based on recent trends and market dynamics, more attention should be paid to the incentives facing institutional investors and the design of domestic institutions, rather than to the need for a new financial architecture.  After this crisis, there is a need for a deep understanding of the mechanisms that drive emerging markets. Many investors have argued that emerging markets prices are infected by bubbles. The purpose of this paper is to answer this concern. Bubbles have played, and continue to play, a key role in crises, in particular by distorting balance sheets. Bubbles develop when arbitrage (i.e. taking financial positions against market mispricing) becomes excessively risky. This is never a problem in classical finance, with masses of atomistic agents, each taking a relatively small position with little individual risk, confident that all others are arbitraging too. In reality, short-horizon (“noise”) traders engage in herding (when information is costly to acquire, they simply “copy” the portfolio choice of others) and this drives prices away from fundamentals during periods of optimism and pessimism. Traders only profit from gathering information if the information they have is impounded in prices by the trades of similarly informed traders, within a timeframe allowing them to make a profit. This positive information spillover is contrary to the classical notion of negative spillovers in a world of only rational traders with long horizons. Those who try to arbitrage the mispricing lose wealth when they are forced to liquidate investments before the price recovers to fundamental value. Taking a position without the certainty that others are arbitraging is just too risky. It is particularly difficult to arbitrage the absolute level of a whole class of assets like a stock or real estate market than to arbitrage relative price differences between assets within a class. Several large bubbles (especially in stock markets and real estate) have burst in the past fourteen to nineteen years (in particular, in Japan, Asia, the US) rippling out waves of fresh bubbles. The big players in creating past bubbles were private banks and mutual funds. Current players are found, particularly, in central banks and bond markets. Bubbles cause assets and liabilities to become improperly valued, and balance sheets give a false impression of the true situation. Incorrect price signals cause misallocation of resources. Much needed adjustment is delayed amid a false sense of security. Economic dynamics become unpredictable, especially if there are interactions between different bubble elements, or between a bubble element and a non-bubble element. A bubble can arise when the actual market price depends positively on its own expected rate of change, as normally occurs in asset markets. Since agents forming rational expectations do not make systematic prediction errors, the positive relationship between price and its expected rate of change implies a similar relationship between price and its actual rate of change. In such conditions, the arbitrary, self-fulfilling expectation of price changes may drive actual price changes independently of market fundamentals. Such a situation is referred to as a price bubble. An explicit definition of market fundamentals is dictated by a specific model’s structure. The notion of a bubble can make no sense in the absence of a specific model detailing a market’s operation. Without such a model, it is very difficult and almost impossible to define market fundamentals and to isolate the trajectory characteristic of a bubble. In this paper, a specific model is employed to advance an exact definition of a bubble.

 

An International Perspective on Internal Controls in Small and Medium Enterprises

Dr. Meena Chavan, Macquarie University, Australia

Dr. Anil S. Lamba, Maharashtra, India

 

ABSTRACT

This paper reports the results of an empirical examination of cultural influences on judgments of Australian, Indian and Malaysian SME managers in relation to whistle blowing as an internal control mechanism. Australia serves as a proxy for the Anglo-American cluster of countries comprising the U.S., UK and Canada, while India and Malaysia represent the Asian cluster. The study draws on cultural characteristics and differences among these countries to formulate hypotheses that Australian managers are both more likely and more accepting of engaging in whistle blowing as an internal control mechanism than Malaysian and Indian managers. Data was gathered through a survey questionnaire administered to samples of SME managers that have significant operations in all three countries. The questionnaire comprised two whistle-blowing scenarios, and used both single-attribute and multidimensional attribute measures of managers’ judgements. The results support the hypotheses about differences in Australian compared to Indian and Malaysian managers’ judgments. The findings of this study suggest that enterprises that aim to improve effectiveness in their control systems or achieve similar levels of reliability across divisions in various countries need to implement control systems that are compatible with cultural values. Specifically, the results suggest that compared to India and Malaysia, whistle blowing as an internal control mechanism is likely to be more effective in Australia. The findings of this study contribute to developing a comparative model of global whistle-blowers. This global model is likely to be useful to managers of both local and multinational enterprises.  The key role that employees can play in delivering effective corporate governance is changing. It is high time this is recognized and the multinational SME’s globally introduce policies to protect the whistle blowers who play a vital role in delivering effective corporate governance through their brave acts of whistle blowing.Stakeholders and individual employees globally should be able to freely communicate their concerns about illegal or unethical practices to the company board and their rights should not be compromised for doing so.  Corporations need to set up formal processes and provide advice to employees about raising concerns about the wrongdoings in the work place and educating and training them on whistle blowing and accountability. Protecting whistleblowers that make responsible disclosures to the appropriate authorities is a vital means to encourage employers to create a culture, which is open to hear and address employee concerns about illegality and wrongdoing. (Bond, 1991)  This paper identifies the basic issues used to compare the corporate governance policies specific to whistle blowers in, the Asian Cluster, and the Anglo American cluster to investigate the following hypothesis: H1  To hypothesize that there is significant difference in the likelihood of Australian managers engaging in whistle blowing as compared to their Asian counter parts  H2: To hypothesize that the Australian managers are more accepting of the engagement in whistle blowing than their Asian counterparts. In 2002, three women working for quite different organizations – Enron, World.Com and the FBI - were made TIME Persons of the Year to acknowledge their bravery in speaking up in regard to corporate malpractices and oversights. It is a sign of the importance of the role of the whistleblower in today’s society, where increasing emphasis is placed on corporate governance in a direct response to corporate collapses. Indeed, the fact that these three women were so acknowledged represents the emergence of a significant cultural shift to the attitude of the informant, as society recognizes the costs associated with corporate malpractice both in financial terms, risks to public safety and other ramifications that can arise. Whistle blowing in the United States is an accepted part of the cultural landscape. It has been a theme in Hollywood films such as Serpico, Silkwood, Marie, and The Insider. In addition, Whistleblowers are often treated as heroes and experts on news shows. (Chang, 1995) Whistle blowing has been on the increase in the United States for the following reasons: Changes in the bureaucracy, which is more educated and professional; the wide range of laws that encourage whistle blowing; federal and state whistleblower protection; institutional support for whistleblowers and a culture that often values whistle blowing.  What about the rest of the world? Do they feel the same about Whistle blowing? There has been some increase for and support for whistle blowing in Australia, in recent years but we are nowhere near the United States position. This paper explores the current situation on corporate governance and whistle blowing in Australia, Malaysia and India. Several states and territories have some form of whistleblower protection legislation. These include the South Australian Whistleblowers Protection Act 1993, the Queensland Whistleblower Protection Act 1994, the ACT Public Interest Disclosure Act 1994, and the NSW Protected Disclosures Act 1994. Western Australia has the more limited Official Corruption Commission Act 1988. Others have considered or are considering the introduction of similar legislation (see Demaria 1995 for the background).  It is noteworthy that the Australian Acts focus on whistle blowing by public sector employees only. For example, the Queensland Whistleblower Protection Act ‘provides special protection [in the public interest] to disclosures about unlawful, negligent or improper public sector conduct’. The NSW Protected Disclosures Act is intended to ‘provide protection for public officials disclosing corrupt conduct, maladministration and waste in the public sector’. The ACT Public Interest Disclosure Act encourages ‘the disclosure of conduct adverse to the public interest in the public sector’.

 

The Global Downfall of Corporate Tax Rates

Dr. Dennis C. Stovall, Grand Valley State University

David P. Centers, Grand Valley State University

 

ABSTRACT

Competition for corporate tax dollars has increased dramatically around the world. Countries are competing with one another for a limited amount of tax revenue from corporate profits. They are reducing corporate tax rates to attract investment from companies within their borders as well as investment from abroad. This competition started in the United Kingdom and has spread across Europe and other industrialized nations.  The United States, however, has not followed this trend. Many within the U.S. support the reduction of corporate taxes to become more competitive with other industrialized nations. At the end of 2006, the U.S. ranked second behind Japan for having the highest corporate tax rates within the Organization for Economic Cooperation and Development (OECD). Ireland, in contrast, has used a reduction in tax rates to its advantage. It has one of the fastest growing economies in Europe, far outstripping the French, whose tax rates have essentially remained unchanged from 1993 to 2006. Ireland has also developed an effective network of double taxation agreements with 44 other countries with the purpose of stimulating foreign investment, but this is not to say that Ireland is not without its problems. Inflation has become a real fear on the Emerald Isle with its fast growing economy. Others feel that a reduction in corporate rates is not necessarily a good idea. Some fear that with a drop in rates there could be a corresponding drop in revenues from those taxes. This has been proven to be false in most instances. Governments will usually accompany a drop in rates with a tightening of tax rules and regulations, thus making it more difficult for companies to reduce their tax liabilities through deductions and credits.  Companies have also tried to use this competition among governments to their own advantage by pitting one country’s rates against another’s. After one government lowers its rates, companies will lobby another government to stay competitive in the global market place and lower its rates as well. A radical new idea has been introduced in the United States. Bills in the House of Representatives and the Senate have proposed the elimination of corporate income taxes all together. Elimination of these taxes would be replaced by a federal sales tax on all new goods and services. Competition would ensure that profits would not remain bloated after the passage of the bills so that prices would remain virtually the same. With these bills, the U.S. looks to become the world leader in investment and growth.  As technology increases and trade agreements become more prevalent, allowing trade barriers to disappear, competition is now a global phenomenon. Competition, however, is not limited to companies; it has also increased among countries. The economics of today allow for companies to produce in the countries with the lowest cost of production. Part of these production costs are government regulations and taxation. If a company is faced with the prospect of producing in one of several countries, a factor in the decision is the type of tax structure each country has. Corporations are shopping around for the best combination of resources, skills, finance, security, and the effective rule of law in order to improve their bottom line (Hickey 2006). This has led countries around the world to market themselves as viable location options for corporate facilities. One aspect of that marketing strategy is the effective tax rate for their country. A major shift in corporate taxation rates has been taking place over the last 25 years. Many European countries have realized that they are in a global fight for a limited amount of business. Corporate rates have been falling all across Europe in order to attract international corporations who do business on a global scale.  The first European country to cut its rate was the United Kingdom in the mid 1980’s. The government of Margaret Thatcher lowered the corporate tax rate from 52 percent to 35 percent between 1982 and 1986 (Hickey 2006). The thinking behind this move (which is still prevalent today) is that a drop in tax rates will attract more investment which, in turn, would actually increase tax revenues. Reform in the United Kingdom is still continuing. In order to keep competitive, “…the U.K. Inland Revenue published in August 2002, a consultative document setting out some areas where the U.K. taxation of companies could be reformed, with a view to simplification and modernization. The declared aim to the proposed reforms is to produce a modern and competitive corporate tax system which is neutral, flexible, consistent, coherent, transparent and responsive to market failure” (Higginbottom 2003). Fierce competition in today’s markets demands that countries stay flexible and responsive. Part of this flexibility is in the continuous evaluation and reformation of existing tax law. This type of thinking has spread all across Europe and other industrialized nations as well. In fact, between 2000 and 2006, not a single country in the Organization for Economic Cooperation and Development (OECD) increased their corporate tax rates as shown by the chart below (Atkins and Hodge 2006).

 

The Broad Dimensions of Doing Business Abroad

Dr. Coen Heijes, University of Groningen, The Netherlands

 

ABSTRACT

Management literature on cross-cultural cooperation generally adopts a standardized approach that is based on the classic dimensions of researchers such as Hofstede (1980, 1991) and Trompenaars (1993). In this exploratory study, we show the importance of a broader perspective and discuss the ambivalences and ambiguities inherent in cultural identity. Both researchers and expatriate training centres usually view cooperation across borders from a standardized, positivist point of view. A set of fixed dimensions is generally used to describe the possible pitfalls of foreign-entry modes and cross-border cooperation. Countries are described and categorized across these dimensions and practical advice is provided, depending on where and how the respective countries differ in their cultural dimensions (Hofstede, 1980, 1991; Laurent, 1983; Adler, 1991; Trompenaars, 1993; Schneider & Barsoux, 1997). All in all, it is an approach that is extremely popular, offering both scientists and managers a handy toolbox for doing business abroad. However, it is an approach that in its standardization blatantly ignores the lessons anthropology has to offer us on the deeper layers of each specific society.  This is a pity, because in fact management thinking has a lot to gain from anthropology, but only if it really pays attention to what anthropology is about. Anthropology is not a way of thinking that categorizes nations or interactions among people along worldwide dimensions. In fact, anthropological literature hardly pays any attention at all to these dimensions that are so popular in management thinking. Anthropology is all about history, educational processes, language and colour issues and generally uses time-consuming field work instead of quantitative questionnaires to describe and analyze cultures. It is a good thing that management thinking has learned to pay attention to cultural processes, but what is still lacking is an attention for the deeper layers of culture. I will show how important these deep-embedded aspects of culture, such as anthropology studies, are and how strongly they influence identity and permeate society.  In this exploratory paper, I will discuss the importance of the broader perspective of history, colour, education and language and show how it influences cross-cultural cooperation in a way that the current general approach by necessity fails to encompass. No matter how interesting standardized dimensions may be, without a specific knowledge of history, language and education, cross-cultural understanding, let alone cross-cultural cooperation, is doomed from the start. With this research I aim first at showing the necessity of going beyond a standardized approach to international business in revealing the ambiguities and ambivalences that national identity is composed of and the impact this has for doing business abroad. Through this research, I intend to stimulate a further debate on how best to learn from the lessons anthropology has to offer us in studying cross-cultural and diversity management and how to incorporate anthropology in management studies. In addition, as this study is based upon research on the Caribbean island of Curaçao, with this paper I add to the research agenda in this area. Many of the Caribbean islands, due to their relatively small size, have received little attention in international management literature. However, the Caribbean is a highly diversified region, considering both the multitude of different ethnic groups that inhabit the islands and the diversity of relationships to the former mother countries. Finally, most of the research on Curaçao is in Dutch, leaving Curaçao to be a rather blank spot on the international research agenda. After discussing methodology in the next paragraph, we will discuss history, language and education and analyze the way these long-term processes influence cross-cultural cooperation in the region. In this paper I study the impact of history, language and education on doing business abroad. I do so within the context of the island of Curaçao. Curaçao is a former Dutch colony in the Caribbean. As this is an exploratory ethnographic case-study, I have chosen a qualitative approach, being a useful strategy in doing research in a current situation with a strong contextual influence and providing a wealth of data that questionnaires do not readily provide. The research has been conducted according to the standards of qualitative research (Flick, 1998; Stewart, 1998). Methodical triangulation has been applied using different techniques in collecting data: interviews, participant observation and literature study. The interviews were conducted with a range of teachers, heads of schools, educational and historical experts and others professionals. Participant observation took place during a series of lectures over a period of three years on culture and identity at the University of the Netherlands Antilles on Curaçao. In total, 107 persons have been involved in the research – 40 by way of interviews, the remainder by way of participant observation. In addition, a broad literature review took place of literature on the history, language, educational system, identity and cross-cultural cooperation on Curaçao. The interviews and other data were transcribed and analysis took place using the development research sequence method in analyzing data on characteristic and recurrent elements in categories of history, language and education (Glaser & Strauss, 1967; Spradley, 1979, 1980). All respondents agree on four factors that influence Curaçaoan society and identity to this day. These factors centre around history, colour, language and education. Following I will discuss these aspects and show how they permeate present-day Curaçao and influence cross-cultural cooperation. No matter how interesting possible cultural dimensions may be, without a solid knowledge of these deeper-embedded patterns of society, cross-cultural cooperation is bound to fail – as indeed is happening on Curaçao. Though the results of this explorative study may not be fully indicative of history, language and education on Curaçao, the triangulation and wealth of data help us to further understand and explore the complex relationship between history, language, learning and cross-cultural cooperation on Curaçao.

 

The International Financial Reporting Standards and the United Kingdom Tax Implications

Dr. Maria Luisa Fernández de Soto Blass, CEU University of San Pablo, Madrid, Spain

 

ABSTRACT

On 13 June 2000, the Commission adopted [MSOffice1] Commission Regulation (EC) No 1725/2003 of 29 September 2003, adopting certain international accounting standards in accordance with European Parliament and Council Regulation (EC) No 1606/2002, in which it was suggested that all listed companies should be required to prepare consolidated accounts in accordance with international accounting standards beginning in 2005. The International Accounting Standards (IAS) are adopted by the London-based International Accounting Standards Board, on which the Commission will be represented. These common rules will be known in the future as the International Financial Reporting Standards " (IFRS). The Finance Act ("FA") of 2004 and the two Finance Acts of 2005 adopted in the United Kingdom  contain legislation aimed at ensuring that those companies choosing to adopt the International Accounting Standards (IAS) to draw up their accounts will receive broadly equivalent tax treatment with those companies that continue to use the UK GAAP (UK Generally Accepted Accounting Practices[MSOffice2] ).  The legislation also covers those companies that choose to adopt certain new UK Accounting Standards (new UK GAAP) which are very similar to IAS.  There are changes in the UK tax legislation affecting  IAS1, FRS, Reporting financial performance, IAS 11, construction contracts, IAS8/FRS3, Errors and changes of basis, IAS 16, property, plant & equipment, IAS 17, leases,  IAS 18, Renue, IAS 19, employee benefits, IAS 20, Government grants & SSAP 4. IAS 21, currency accounting, FRS 6 and 7, Business combinations, IAS 36, Intangible assets/impairment, IAS 38 ,intangibles, IAS 37, Provisions, IAS 39, Financial instruments measurement, IAS 40, investment property, IAS 41, biological assets, and the issues raised by IFRS 4, Insurance contracts. This paper is the result of research that the author is conducting at The Institute for Fiscal Studies, Ministry of Economy and Finance, [MSOffice3] Spain, CEU University of San Pablo, Madrid, Spain, and at University of Leeds, Leeds, United Kingdom during 2006 and 2007. International Accounting Standards (IAS) are often referred to as the International Financial Reporting Standards (IFRS). In this paper, the term "IAS" is used for ease of reference. The Finance Act ("FA") of 2004 and the two Finance Acts of 2005 contain legislation aimed at ensuring that companies choosing to adopt the International Accounting Standards (IAS) to draw up their accounts will receive broadly equivalent tax treatment with the companies that continue to use the UK GAAP (UK Generally Accepted Accounting Practices). The legislation also covers those companies that choose to adopt certain new UK Accounting Standards (new UK GAAP) which are very similar to the IAS.  FA 2004 included the first [MSOffice4] tranche of legislation at sections 50 to 54 and Schedule 10 covering the adoption of the IAS and the effect of the IAS on UK taxes.  On 9 December 2004, five statutory instruments were made under powers given by the FA 2004 legislation. FA 2005 introduced further legislation at sections 80 to 84 and Schedule 4 (and includes amendments of the FA 2004 legislation) again covering the adoption of the IAS and the effect of the IAS on UK taxes.  Finance (No. 2) Act 2005 at Schedule 6 also contained some further amendments.  In July and August 2005 three further statutory instruments were laid, and a statement was made by the Paymaster-General in relation to transitional adjustments on financial instruments, in advance of further regulations.  Those regulations, with three others, were laid in December 2005. Nearly all the legislation is to be effective, or is intended to become effective, for the periods of account beginning on or after 1 January 2005. Some of the regulations laid in July, August and December 2005 have effect for other periods.  This paper contains  information about this legislation and the IAS and tax implications.  This paper contains  information about this legislation, the IAS and  UK tax implications.  In reference to IAS1, FRS, Reporting financial performance, UK tax law uses the balance on a profit and loss account as the starting point for:Case I basis computations (including Schedule A, overseas property, Case V trades) – section 42 FA 98 and section 25 ITTOIA , non-trading income from loan relationships, derivative contracts and intangibles (HM Revenue & Customs, 2007).

 

Global Tourism Winners: How Countries and Companies Succeed in Tourism

Dr. Paul Kauffman, National Institute for Governance University of Canberra, Australia

 

ABSTRACT

The paper examines changes in international travel destinations since 1990, and factors which account for high tourism growth including key economic and social data and policy interventions, in order to identify elements of a model which analyses outstanding tourism performance.  It was found that the highest performing large tourism countries were in Asia and south Eastern Europe. The methodology used was to analyse changes in national tourism numbers and income since 1990, and relevant explanatory factors, including the policy approaches of high performing countries, in order to identify factors that make for tourism excellence. What elements constitute global best practice for national tourism growth? Data published by the United Nations World Tourism Organisation, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) allow rigorous study of economic dimensions of tourism and what makes for high net tourism growth in particular localities. The paper examines the extent to which such data can inform policy and investment decisions. It considers countries where tourism income exceeds US $5 billion per annum. All are mixed economies. About 21 of these countries are members of the OECD. The remainder have high economic growth and in some cases democratic government (1). The paper examines growth in receipts from international tourism between 1990-2005 and growth in international arrivals, on a country by country basis. Growth in national per capita gross domestic product, correlations between economic growth and tourism growth and relevant factors such as comparative national average incomes are examined to consider the following questions: 1. Which countries have recorded the highest growth in tourism numbers. 2. Which countries have recorded the highest growth in international tourism income. 3. What is the correlation between growth in numbers and growth in income 4. Which countries attracted higher than average growth from high net yield tourists. 5. What factors assist in attracting high net yield tourists (Case studies are used to identify and analyse varying national approaches) 6. How is tourism growth related to general economic growth, for example, how does GDP growth and average per capita incomes correlate with growth in tourism income. The study also identified other factors which are important for countries and firms wishing to grow their tourism businesses. Understanding how these factors interrelate is important for businesses investing internationally in tourism, for government policy makers and for managers of tourism enterprises. In order to obtain a clearer picture of key factors in producing a vibrant tourism sector in a mixed economy, it is necessary to make qualitative judgements and use a case-study approach. Some key background factors include: Increasing global competition; The giant growth of Asia; The benefits of market friendly, nimble consumer focused and consumer responsive businesses, and their integration through ICT and new technology; Greater openness of most countries, the integration of diverse labour forces and their need for continuous learning; High global economic integration and reciprocal learning from Asian giants such as China, Japan and India, which have growing outward bound and inward tourism markets; Support for private-public partnerships, and market focus of such partnerships. Growing collaboration between the public and private sectors in most successful countries is noteworthy. The United Nations World Tourism Organisation (WTO)'s mission is to strengthen partnerships between the private and public sectors. Their publications emphasize the importance of private sector leadership, devolved decision making and promotion of competition (2). Because public money is involved measurements for success and failure are important in order to provide accountability for public funds (3).  'Tourism is defined as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited. (4) The definition includes tourists, people visiting friends and relatives, business people, students and other travellers.

 

Global Tourism Winners: How Countries and Companies Succeed in Tourism

Dr. Paul Kauffman, National Institute for Governance University of Canberra, Australia

 

ABSTRACT

The paper examines changes in international travel destinations since 1990, and factors which account for high tourism growth including key economic and social data and policy interventions, in order to identify elements of a model which analyses outstanding tourism performance.  It was found that the highest performing large tourism countries were in Asia and south Eastern Europe. The methodology used was to analyse changes in national tourism numbers and income since 1990, and relevant explanatory factors, including the policy approaches of high performing countries, in order to identify factors that make for tourism excellence. What elements constitute global best practice for national tourism growth? Data published by the United Nations World Tourism Organisation, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) allow rigorous study of economic dimensions of tourism and what makes for high net tourism growth in particular localities. The paper examines the extent to which such data can inform policy and investment decisions. It considers countries where tourism income exceeds US $5 billion per annum. All are mixed economies. About 21 of these countries are members of the OECD. The remainder have high economic growth and in some cases democratic government (1). The paper examines growth in receipts from international tourism between 1990-2005 and growth in international arrivals, on a country by country basis. Growth in national per capita gross domestic product, correlations between economic growth and tourism growth and relevant factors such as comparative national average incomes are examined to consider the following questions: 1. Which countries have recorded the highest growth in tourism numbers. 2. Which countries have recorded the highest growth in international tourism income. 3. What is the correlation between growth in numbers and growth in income. 4. Which countries attracted higher than average growth from high net yield tourists. 5. What factors assist in attracting high net yield tourists (Case studies are used to identify and analyse varying national approaches) 6. How is tourism growth related to general economic growth, for example, how does GDP growth and average per capita incomes correlate with growth in tourism income. The study also identified other factors which are important for countries and firms wishing to grow their tourism businesses. Understanding how these factors interrelate is important for businesses investing internationally in tourism, for government policy makers and for managers of tourism enterprises. In order to obtain a clearer picture of key factors in producing a vibrant tourism sector in a mixed economy, it is necessary to make qualitative judgements and use a case-study approach. Some key background factors include: Increasing global competition. The giant growth of Asia. The benefits of market friendly, nimble consumer focused and consumer responsive businesses, and their integration through ICT and new technology. Greater openness of most countries, the integration of diverse labour forces and their need for continuous learning. High global economic integration and reciprocal learning from Asian giants such as China, Japan and India, which have growing outward bound and inward tourism markets. Support for private-public partnerships, and market focus of such partnerships. Growing collaboration between the public and private sectors in most successful countries is noteworthy. The United Nations World Tourism Organisation (WTO)'s mission is to strengthen partnerships between the private and public sectors. Their publications emphasize the importance of private sector leadership, devolved decision making and promotion of competition (2). Because public money is involved measurements for success and failure are important in order to provide accountability for public funds (3).  'Tourism is defined as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited. (4) The definition includes tourists, people visiting friends and relatives, business people, students and other travellers.

 

An Analysis of Business Leaders in Thailand

Dr. Sinee Sankrusme, Ramkhamhaeng University, Bangkok, Thailand

 

ABSTRACT

The competitive problems facing business at present have changed in nature compared with the past.  Business leaders encounter competition in their businesses at the global level, which in turn poses a challenge for administrators both in the present time and in the future, specifically how to manage to make business survive and grow in a sustained manner. Currently, business is faced with the task of selecting methods that will simultaneously ensure an increase in productivity in management, a better level of customer response and a reduction in costs. In addition to quality, innovative ideas, an effective response to customers’ needs, and costs, it is necessary to reduce the time in bringing a product to market, the time in responding to customers and enhance the level of customer service. A business leader needs to have strength, flexibility, and agility in order to ensure the continued survival of the organization, which challenges his or her capacity for business leadership. Business leadership has an impact on working at the personal level, the group level and the organizational level. It is interesting, therefore, to analyze how the aspect of business leadership plays a role in supporting the working performance of groups and organizations, thereby enhancing efficiency in terms of organizational working performance, creating satisfaction, facilitating self-adjustment in the workplace, engendering a proper working atmosphere and leading to the need for achievement at work. Business leadership plays a central part in understanding group behavior, for it is the business leader who usually provides the direction toward goal attainment. Therefore, a more accurate predictive capability should be valuable in improving group performance. A major breakthrough in our understanding of business leadership came when we recognized the need to include situational factors. Business leadership, in other words, is a very complex phenomenon. How would you describe an effective business leader? There are as many aspects as there are answers to this deceptively simple question. Everyone wants to become a better business leader. Business leadership is a special case of interpersonal influence that gets an individual or group to do what the business leader wants done. There are many types of business leaders. However, this study classifies three types of business leadership. They are charismatic, considerate, and structured business leadership. Business leaders’ interest in job satisfaction tends to center on its effect on employee performance. To understand the behavior of people in organizations, we must understand the forces that affect individuals as well as the ways individuals affect the organization. The behavior of individuals both affects and is affected by the group. The accomplishments of organizations are strongly influenced by the behavior of their group members. From a managerial perspective, the work group is the primary means by which managers coordinate individuals’ behavior to achieve organizational goals. Managing groups in an organization is difficult. Business leaders must know employees’ performance, satisfaction, adjustment, group atmosphere, and need for achievement which are the main point of the study. The aims of this research are: (1) To analyze aspects of business leadership in Thailand, (2) to study aspects of business leadership that affects the performance of the group in various areas, such as performance, satisfaction, adjustment, group working atmosphere and need for achievement. The types of business leaders in this study are charismatic, considerate and structured business leadership.  The survey approach based on studying an industrial estate in Thailand. The interview consists of six  standardized questionnaires, they are Leadership Style Manipulation Checks, Individual Self-Related Performance Scale, Satisfaction Scale, Adjustment to the Leader Scale, Group Atmosphere and Need for Achievement Scale. The sample groups in the study consisted of twenty-nine industrial estates in Thailand selected by “Multi-Stage Sampling.” In the first stage, a sampling of five industrial estates was chosen from twenty-nine industrial estates by simple random sampling, they were: (1) A northern  industrial estate (Lamphun), (2) Laem Chabang  industrial estate (Cholburi), (3) a southern industrial estate (Songkhla), (4) Bang Pa-in industrial estate  (Ayudhaya) and (5) Cholburi industrial estate (Borwin). Next, simple random sampling was used to select a  number of industrial factories from each industrial estate, resulting in a total of thirty two factories in all, approximately 10% of all the industrial factories from the industrial estates targeted. For the final stage, a  random sampling of interviewees was made by the accidental sampling method, consisting of approximately  10% of employees from each factory. Afterwards, a selection of two hundred sets of inquiry forms / questionnaires was distributed and the resulting statistics presented in the form of mean scores, standard  deviation, percentages, frequency, and an analysis of  the mean differences in two or more population groups in the form of a One-Way ANOVA. The aim was to test the  hypotheses  that, with regard to different aspects of  business leadership, there were no differences in terms of  performance, satisfaction with performance, the level of adjustment to superiors, the atmosphere of group performance, and the need for achievement in working  performance.

 

Global Tourism Winners: How Countries and Companies Succeed in Tourism

Dr. Paul Kauffman, National Institute for Governance University of Canberra, Australia

 

ABSTRACT

The paper examines changes in international travel destinations since 1990, and factors which account for high tourism growth including key economic and social data and policy interventions, in order to identify elements of a model which analyses outstanding tourism performance.  It was found that the highest performing large tourism countries were in Asia and south Eastern Europe. The methodology used was to analyse changes in national tourism numbers and income since 1990, and relevant explanatory factors, including the policy approaches of high performing countries, in order to identify factors that make for tourism excellence. What elements constitute global best practice for national tourism growth? Data published by the United Nations World Tourism Organisation, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) allow rigorous study of economic dimensions of tourism and what makes for high net tourism growth in particular localities. The paper examines the extent to which such data can inform policy and investment decisions. It considers countries where tourism income exceeds US $5 billion per annum. All are mixed economies. About 21 of these countries are members of the OECD. The remainder have high economic growth and in some cases democratic government (1). The paper examines growth in receipts from international tourism between 1990-2005 and growth in international arrivals, on a country by country basis. Growth in national per capita gross domestic product, correlations between economic growth and tourism growth and relevant factors such as comparative national average incomes are examined to consider the following questions: 1. Which countries have recorded the highest growth in tourism numbers. 2. Which countries have recorded the highest growth in international tourism income. 3. What is the correlation between growth in numbers and growth in income.4. Which countries attracted higher than average growth from high net yield tourists. 5. What factors assist in attracting high net yield tourists (Case studies are used to identify and analyse varying national approaches) 6. How is tourism growth related to general economic growth, for example, how does GDP growth and average per capita incomes correlate with growth in tourism income. The study also identified other factors which are important for countries and firms wishing to grow their tourism businesses. Understanding how these factors interrelate is important for businesses investing internationally in tourism, for government policy makers and for managers of tourism enterprises. In order to obtain a clearer picture of key factors in producing a vibrant tourism sector in a mixed economy, it is necessary to make qualitative judgements and use a case-study approach. Some key background factors include:Increasing global competition.The giant growth of Asia.The benefits of market friendly, nimble consumer focused and consumer responsive businesses, and their integration through ICT and new technology.Greater openness of most countries, the integration of diverse labour forces and their need for continuous learning. High global economic integration and reciprocal learning from Asian giants such as China, Japan and India, which have growing outward bound and inward tourism markets.Support for private-public partnerships, and market focus of such partnerships. Growing collaboration between the public and private sectors in most successful countries is noteworthy. The United Nations World Tourism Organisation (WTO)'s mission is to strengthen partnerships between the private and public sectors. Their publications emphasize the importance of private sector leadership, devolved decision making and promotion of competition (2). Because public money is involved measurements for success and failure are important in order to provide accountability for public funds (3). 'Tourism is defined as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited. (4) The definition includes tourists, people visiting friends and relatives, business people, students and other travellers. Travel growth far exceeds population growth. Since about 1950, the numbers of international travellers, of people arriving or visiting a foreign country each year, have doubled about every fifteen years. Travellers to Asia and Pacific nations number 155 million each year. They exceed the 136 million travelling to nations in the Americas. At present each group is about one third the size of the 442 million who visit countries in Europe. The global total is predicted to double again in 2020, but East Asia and the Pacific will grow to 25 % of the global market at the expense of Europe, which will retreat to 46% and the Americas, which will only have 18% of the global tourism/travel market (5). In 2005 total receipts from international travel amounted to $US 680 billion dollars. Examining growth in numbers and receipts during the past fifteen years shows that south-eastern European countries (Croatia, Turkey, Greece) and eastern Asian countries (China, Macao, Thailand, Malaysia, India) recorded the highest annual growth in international arrival numbers (Table 1): From this one might predict that countries in south-eastern Europe, in east Asia and Australasia also recorded the highest annual growth in international tourism receipts between 1990 and 2005 (Table 2). About 15 countries recorded very high average annual growth. They can be grouped into major Asian countries (China, India, Japan and Malaysia), south-eastern Europe (Croatia, Turkey and Greece) and Australasia (Australia and New Zealand). The economic growth, tourism polices and conditions of these three groups of countries are highly significant (Table 2).

 

An Analysis of Business Leaders in Thailand

Dr. Sinee Sankrusme, Ramkhamhaeng University, Bangkok, Thailand

 

ABSTRACT

The competitive problems facing business at present have changed in nature compared with the past.  Business leaders encounter competition in their businesses at the global level, which in turn poses a challenge for administrators both in the present time and in the future, specifically how to manage to make business survive and grow in a sustained manner. Currently, business is faced with the task of selecting methods that will simultaneously ensure an increase in productivity in management, a better level of customer response and a reduction in costs. In addition to quality, innovative ideas, an effective response to customers’ needs, and costs, it is necessary to reduce the time in bringing a product to market, the time in responding to customers and enhance the level of customer service. A business leader needs to have strength, flexibility, and agility in order to ensure the continued survival of the organization, which challenges his or her capacity for business leadership. Business leadership has an impact on working at the personal level, the group level and the organizational level. It is interesting, therefore, to analyze how the aspect of business leadership plays a role in supporting the working performance of groups and organizations, thereby enhancing efficiency in terms of organizational working performance, creating satisfaction, facilitating self-adjustment in the workplace, engendering a proper working atmosphere and leading to the need for achievement at work. Business leadership plays a central part in understanding group behavior, for it is the business leader who usually provides the direction toward goal attainment. Therefore, a more accurate predictive capability should be valuable in improving group performance. A major breakthrough in our understanding of business leadership came when we recognized the need to include situational factors. Business leadership, in other words, is a very complex phenomenon. How would you describe an effective business leader? There are as many aspects as there are answers to this deceptively simple question. Everyone wants to become a better business leader. Business leadership is a special case of interpersonal influence that gets an individual or group to do what the business leader wants done. There are many types of business leaders. However, this study classifies three types of business leadership. They are charismatic, considerate, and structured business leadership. Business leaders’ interest in job satisfaction tends to center on its effect on employee performance. To understand the behavior of people in organizations, we must understand the forces that affect individuals as well as the ways individuals affect the organization. The behavior of individuals both affects and is affected by the group. The accomplishments of organizations are strongly influenced by the behavior of their group members. From a managerial perspective, the work group is the primary means by which managers coordinate individuals’ behavior to achieve organizational goals. Managing groups in an organization is difficult. Business leaders must know employees’ performance, satisfaction, adjustment, group atmosphere, and need for achievement which are the main point of the study. The aims of this research are: (1) To analyze aspects of business leadership in Thailand, (2) to study aspects of business leadership that affects the performance of the group in various areas, such as performance, satisfaction, adjustment, group working atmosphere and need for achievement. The types of business leaders in this study are charismatic, considerate and structured business leadership.  The survey approach based on studying an industrial estate in Thailand. The interview consists of six  standardized questionnaires, they are Leadership Style Manipulation Checks, Individual Self-Related Performance Scale, Satisfaction Scale, Adjustment to the Leader Scale, Group Atmosphere and Need for Achievement Scale. The sample groups in the study consisted of twenty-nine industrial estates in Thailand selected by “Multi-Stage Sampling.” In the first stage, a sampling of five industrial estates was chosen from twenty-nine industrial estates by simple random sampling, they were: (1) A northern  industrial estate (Lamphun), (2) Laem Chabang  industrial estate (Cholburi), (3) a southern industrial estate (Songkhla), (4) Bang Pa-in industrial estate  (Ayudhaya) and (5) Cholburi industrial estate (Borwin). Next, simple random sampling was used to select a  number of industrial factories from each industrial estate, resulting in a total of thirty two factories in all, approximately 10% of all the industrial factories from the industrial estates targeted. For the final stage, a  random sampling of interviewees was made by the accidental sampling method, consisting of approximately  10% of employees from each factory. Afterwards, a selection of two hundred sets of inquiry forms / questionnaires was distributed and the resulting statistics presented in the form of mean scores, standard  deviation, percentages, frequency, and an analysis of  the mean differences in two or more population groups in the form of a One-Way ANOVA. The aim was to test the  hypotheses  that, with regard to different aspects of  business leadership, there were no differences in terms of  performance, satisfaction with performance, the level of adjustment to superiors, the atmosphere of group performance, and the need for achievement in working  performance.  Charismatic business leadership is a throwback to the old conception of business leaders as being those who by the force of their personnel abilities are capable of having profound and extraordinary affects on subordinates. They relied on charisma, presumed to be an individual characteristic of a business leader.

 

Development of Financial Institutions in Transition Economies: The Importance of Financial Regulation

(A Croatian Case-study)

Marta Bozina, University of Zagreb, Croatia

Josip Stajfer, University of Zagreb, Croatia

 

ABSTRACT

Numerous research and work papers discuss the positive correlation between a well developed financial system and a good overall economic performance in industrialized countries. In this paper we focus mainly on the particularities of transition countries and their financial sector – on a case study analysis of the current Croatian financial system development and trends in forming new financial institutions. In order to ascertain the role of financial intermediaries which are new to a transition economy, the paper analyses the structuring of investment funds and their economic management. We analyze the meaning of the structure of financial systems and the management of its markets, especially the capital market, in transition economies. We approach this issue with special regards to the Croatian capital market and investment funds as its component, analysing the existing unbalance in the financial system. The weakness of Croatian financial system is its structure symbolised by well-developed banks and by poorly developed market. As an EU candidate country, Croatia is undergoing substantive structural changes in the financial system. Strengthening of the non-bank financial institutions such as investment funds, would highly contribute to Croatia’s financial sector stability. These goals cannot be achieved without targeted state intervention through legal regulation in financial markets resulting in positive external effects – economic development and sustained prosperity.  Capital account liberalization is seen as an essential, and even inevitable, step on the path to economic development, analogue to the earlier reductions in barriers to international trade in goods and services. Modern financial markets are the structural basis of a well-performing liberal economy and the key vector of trans-border integration. The leading trend of financial globalisation and the increase in international financial flows challenge economic systems worldwide – demanding for a developed financial structure and a sound legal environment in which positive impacts of financial intermediation on overall economic performance can be expected. The fierce competition in an internationalised financial system is a challenging task for developing countries and transition economies, such as Croatia, which forces them to speed up the process of post-transition harmonisation with industrial countries in order to deepen the domestic financial systems and prepare them for regional economic integration.  As an EU candidate country, Croatia is undergoing substantive structural changes in the financial system, which is likely to continue in the foreseeable future. The weakness of Croatia’s financial system is its structure symbolised by well-developed banks and by a poorly-developed market which hinders the provision of financial services (Issing O., 2003). The strengthening of the non-bank financial institutions such as investment funds, would highly contribute to Croatia’s financial sector stability. It would enable efficient financial intermediation, allocation of savings and it would increase the liquidity of financial instruments. In accordance, the development and specialisation of non-bank financial institutions, such as investment funds would be highly recommended. These goals cannot be achieved without targeted state intervention through legal regulation in financial markets resulting in positive external effects – economic development and sustained prosperity. In this paper we explore the role of the non-bank financial institutions development, in particular that of investment funds, in a preferably strong financial system and its positive correlation with economic growth. We study the meaning of the structure of financial systems and the management of its market (especially the capital market) in transition economies with special regards to the Croatian capital market and investment funds as its component, analysing the existing unbalance of the financial system – due to a poorly developed financial market. This is not a solely Croatian characteristic, and it is a feature that can be observed in most of the transition economies. In fact, the financial system with fairly active banks but relatively inactive markets has already been noted in papers and referred to as the “unbalance bank” system (Levine R., 2000).  The correlation between financial and economic development is well established, but how to obtain and sustain such a positive influence between these two economic areas, is a definitive policy issue. The analysis of the impact that financial markets have on economic performance must start by assessing the pivotal role of the structure of a national financial system. In countries with a developed financial economy, the financial market is the key factor that enables the restructuring of assets and liabilities held by economic actors, due to efficient financial intermediation as part of a branched institutional structure.  In the "Financial Structure and Development" Goldsmith gave an excellent definition of what is a "financial structure" – the mixture of financial instruments, markets and institutions operating in an economy. This book analyses the (1) evolution of national finance systems during economic development, (2) whether the development of the financial system influence the rate of economic growth, (3) impact of financial structure on the pace of economic development. Setting aside that he clearly documented the evolution of financial intermediaries, and the positive correlation between financial and economic development, the resolution of the third hypothesis was left only to cross-country comparison, and that being made on the examples of Germany and the United Kingdom. Although Goldsmith’s analysis makes a valuable reference point to all the researchers that want to understand the deep changes which are affecting the structure of financial relations between economic actors - their asset management conceptions and the resources, in regard of transitional economies it cannot serve as a main research reference. In this case, Goldsmith’s analysis is an excellent theoretical basis, but further analysis has to be made bearing in mind the heterogeneity of these economies and the specific path they have taken in the transition from central planned to market oriented economies.

 

A Study to Determine Compliance with Minimum Requirements for Quality Assurance in the College of Economic and Management Sciences at the University of South Africa

Dr. AG Oosthuizen, University of South Africa

Vadm PvZ Loedolff, University of South Africa

F. Hammann, University of South Africa

 

ABSTRACT

During 2004, the Council for Higher Education (CHE) commissioned an investigation into the provision of distance education in South Africa. The report revealed serious quality issues in distance education and recommended a set of quality criteria for distance education, some of which were labelled minimum standards that are non-negotiable.  During 2008, Unisa, as the only dedicated public distance education institution in South Africa, will in all probability be audited and measured against these minimum criteria.  The College of Economic and Management Sciences (CEMS) at Unisa consequently commissioned a research project to determine its compliance with these minimum standards.  The research entailed the evaluation of study material as well as opinion surveys amongst academic staff, students and tutors.  The evaluation of the study packages revealed pockets of excellence as well as examples of poor quality.  The results of the questionnaires were analysed statistically and revealed that certain issues that are deemed to be of critical importance have an extremely low level of satisfaction.  Unisa is one of South Africa’s newly merged institutions and is the only dedicated public distance education institution of higher learning in the country.  The Higher Education Quality Committee (HEQC) intends to visit the institution during May 2008 to do an audit of its affairs in terms of the Framework for Institutional Audits (CHE, 2004).  As part of its preparation for the audit, the CEMS commissioned a research project to determine the College’s compliance with a set of minimum standards published in a research report on distance education, commissioned by the CHE in 2004 (CHE, Policy Advice Report 2004:68). With the merging of Technikon SA, Unisa and the distance education section of the Vista University (VUDEC) in 1994, the University of South Africa became the only dedicated distance education institution for higher education in South Africa.  Although a distance education institution, Unisa is subject to the same quality regime and “common set of audit criteria” as the residential institutions of higher learning in the country (CHE, Framework for Institutional Audits 2004:6). In terms of the Higher Education Act 101 of 1997, the Council for Higher Education (CHE) has been assigned the responsibility for quality assurance in higher education in South Africa.  The CHE’s responsibility for quality assurance is being discharged through a permanent sub-committee, the Higher Education Quality Committee (HEQC).  The mandate of the HEQC includes, inter alia, quality promotion, institutional audits and programme accreditation. (CHE, Framework for Institutional Audits 2004:v) In terms of its mandate to oversee quality assurance, the HEQC published a Framework for Institutional Audits in 2004 whereby the higher education institutions will be audited at regular six-year intervals, against a set of quality criteria published in the same year (CHE, Criteria for Institutional Audits 2004).  The latter consists of a comprehensive set of criteria to be used during the institutional audits and covers a whole range of institutional matters, namely policy and planning, learners, programme development, course design, course materials, assessment, learner support, human resource strategy, management and administration, collaborative relationships, quality assurance, information dissemination and results.  According to the Framework (2004), Unisa will be audited in May 2008. Many regard distance education as the solution to provide on a large-scale higher education and training that is accessible to all (the popular concepts of massification and open learning) to satisfy the country’s need for more skilled labour.  Unfortunately, Unisa’s reputation for quality education was tarnished by the publication of a scathing report on the provision of distance education in South Africa in 2004 (Policy Advice Report, 2004).  In the report, the quality of distance education was questioned and specific recommendations made to improve the situation.  One of the recommendations was to compile quality guidelines on distance education in particular (CHE, Policy Advice Report 2004:67).  However, it was recognised that a set of comprehensive criteria “is insufficient if the intention is to ensure that the criteria are used rigorously”.  The comprehensive set may be so overwhelming that institutions merely pay lip-service and ignore the bad practices that are remediable.  A further recommendation in the report, therefore, referred to a selection of these criteria where bad practices are extremely critical and label these as the minimum targets that must be reached by a distance education institution (CHE Policy Advice Report, 2004:68).  Although the minimum requirements for distance education were never fully incorporated into the audit criteria, the HEQC will in all probability use it to evaluate Unisa’s affairs during the audit in 2008.  The CEMS at Unisa was quick to realise this and took the lead in the University in starting preparations for the audit. The preparations in the College started by putting in place a fully functional quality assurance committee structure.  The College Quality Assurance Committee (QA Committee) functions as a sub-committee of the College Tuition Committee and comprises representatives from all the academic departments in the College.  The brief to the QA committee was simple: take the necessary action to create a climate of quality assurance in the College, thereby preparing the College for the 2008 audit.  The Committee adopted a holistic position and assumed that all criteria may be relevant and that the College must be ready to be audited against the audit criteria, the programme accreditation criteria as well as the specific distance education criteria.  Owing to the College’s timeous action, time was not a limiting factor and a full set of activities could be deployed to test the College and its academic affairs against all sets of criteria.

 

The Impact of Projected Demographic Developments on Growth, Long-Term Real Interest Rates and Funded Pension Provision

Dr. Stefan W. Schmitz,  Oesterreichische Nationalbank

 

ABSTRACT

The following paper provides a critical analysis of the projected impact of demographic change on GDP-per-capita growth rates in the EU and on financial markets (in particular on long-term real interest rates). In addition, the paper argues that demographic change can have a large impact on funded pension provision. It does so by citing the results of a simulation study that integrates demographic developments in to a standard growth model, linking the results to the accumulation and annuitisation of funded pensions. Furthermore, the simulations introduce the possibility of the international diversification of investments and consumption as well as the integration of real capital markets.  The need to cut benefits in public pay-as-you systems is defended by the inevitable impact of demographic change on economic growth. At the same time, private funded pension provision is tax subsidized in many OECD countries (i.e. Austria), as if it were not subject to the negative impact of demographic change. This paper questions the implicit assumptions in the economic policy discourse that (a.) demographic change future economic growth relative to historical experience, and (b.) private pension provision would not be negatively affected by demographic change. Its impact on funded pensions is frequently discussed in economic literature on the basis of the “asset meltdown” hypothesis. According to this theory, an increase in the share of pensioners as a percentage of the total population (or relative to the working age population) triggers a decline in asset prices, as pensioners dissave in old age and, owing to this demographic development, there might be fewer economically active persons that actively save than dissvares who act as sellers in the capital markets. Following a methodical critique of this hypothesis, an alternative conceptual framework is employed. Within this framework, the main mechanisms are identified that are of cardinal importance for the interaction between demographic developments and funded pension provision. Since the two effects identified work in opposite directions, their relative significance within the conceptual framework is examined by means of quantitative simulations. The purspose of the simulations is to provide an insight into the relative strength of the opposing effects at work and should be interpreted as forecasts. The paper is structured along the following lines: The first section shows that (a.) the impact of demographic change on the macroeconomy is biased in the models that underly the economic policy discourse and (b.) discusses the impact of demographic change on financial markets (i.e. long-term real interest rates). In the second section I report the results of a simulation study that is based on a model in which demographic change is integrated in a neoclassical growth model with Harrod-neutral technological progress to analyse its impact on the long-term returns of funded pension provision (i.e. the long-term real rate of interest). Section three summarises and concludes the paper.  The following chapter analyses the literature on the impact of demographic change on the macro-economy and financial markets. A number of recent studies analyse the impact of demographic change on the macro-economy. (1) The approaches are very similar in all the studies. They utilise a general equilibrium approach based on an overlapping generations-model (OLG). The supply side of the economy is modelled as standard aggregate production function based on two inputs (capital and labour) and increases in aggregate labour productivity (capital deepening and total factor productivity) as well as in the quality of labour. Under the assumption of perfect competition on output and input markets the real wage and the real rate of interest are the marginal productivities of labour and capital, respectively. The household sector is partitioned into overlapping generations. Each generation is modelled as maximising lifetime utility based on a standard utility function and an intertemporal budget constraint under certainty. The rationality assumptions underlying this approach are extreme as is the convention to abstract from uncertainty. The simulations based on these OLG-models utilise demographic projections until 2050. The main issues investigated are: how will ageing affect GDP growth per capita and labour productivity.  The OECD (2005) analyses the impact of demographic change on economic growth in FR, DE, JP and the USA. It projects that demographic change will have a modestly negative impact on GDP growth per capita. In order to take into account policy responses to demographic change, the study analyses the impact of pension reforms that encourage personal long-term savings as well as policies that aim at increasing participation rates, individual labour productivity and the quality of labour. In all four countries GDP growth per capita is projected to average about +1.4 to +1.6 percent per annum until 2050, which implies that living standards double over the next 45 to 50 years. This is roughly in line with average GDP growth per capita in Western Europe (AT, BE, DK, FI, FR, DE, IT, NL, NO, SE, CH, UK, GR, IE, PT, ES) in 1973-1998 with 1.78 percent per annum (Maddison 2001, Table A1-d). A comparison of these results with a baseline scenario (with an average GDP growth rate of about 1 percent) highlights the significant positive impact of policy responses to increase participation rates, individual labour productivity and the quality of labour. (2) For the EU-25 EPC/EC (2006) projects GDP growth per capita to average +1.7 percent until 2050. It declines from 2.4 percent (2004-2010) to 1.9 percent (2011-2030) and, finally, to 1.2 (2031-2050).

 

The Releasionship Between Service Failures, Service Recovery Strategies and Behavioral Intentions in Hotel Industry

Dr. Chen-Hsien Lin, Diwan College, Madou, Taiwan, ROC

Dr. I-Hua Lin, Lynn University, Boca Raton, FL

Cheng-Te Lin, National Chung-Hsing University, Taichung, Taiwan, ROC

 

ABSTRACT

This study explained the components of service recovery strategies used when service failure occurs in each situation in a hotel, and to link customer response to service recovery strategies to behavioral intention, as applied to the hotel industry in Orlando, Florida. The purposes of this study were to investigate the explanatory relationships between hotel guests’ sociodemographic characteristics and perceptions of (a) service failure; (b) service recovery strategies in each service failure situation; and (c) behavioral intentions; to investigate the impact of hotel guests’ sociodemographic characteristics and their perceptions of service recovery strategies used in each service failure situation compared with other strategies, in explaining behavioral intentions of hotel guests in Orlando, Florida.  One research questions and four hypotheses were developed for this quantitative, non-experimental study.  Several statistical measures, such as frequency distributions, reliability estimates, a correlational analysis, and multiple regression analysis were used for data analysis.  Future studies may try to strengthen internal validity of the study; conduct a replication study in other service industries in other city as Las Vegas. In marketing, the most important strategy is to maintain current customers and attract new ones (McCole, 2004).  As a result, most sellers attempt to deliver first-class service to customers because high-quality service is likely to enhance customer satisfaction (Simon & Kraus, 2005).  Numerous studies have shown a positive correlation between customer satisfaction and repurchase intention, which can lead to future profitability (Simons & Kraus, 2005).  However, failures, errors, mistakes, and complaints can frequently happen in the process of service delivery (Babakus, Yavas, Karatepe, & Avci, 2003).  As one of the service industries, the hotel industry involves a high degree of personal interaction between hotel staff and customers; miscommunication can lead to service failure (Lewis & McCann, 2004).  Unlike the manufacturing industry, where quality controls can permit zero defects, the hospitality industry, in particular the hotel industry, cannot control all components of service delivery due to being dependent on human variables (Magnini & Ford, 2004).  Although caution during service delivery is considered, errors can inevitably happen regardless of who provides that service -- the best service provider or the normal service provider (Hess, Ganesan, & Klein, 2003).  Errors in service delivery are viewed as service failure of the business.  Service failure can negatively impact the satisfaction and future behavioral intention of customers (Mattila, 2001). Businesses typically lose approximately 50% of their customer base every five years (Mack, Mueller, Crotts, & Broderick, 2000).  The cost of gaining new customers is approximately five times that of retaining present ones (Kerr, 2004).  Service failure can put companies out of business if attention is not paid to this problem.  Consequently, hotels cannot afford to lose guests who have the potential to become public relation makers for hotels through positive word-of-mouth by referring others to use the company’s products or services (Magnini & Ford, 2004). “Service recovery involves those actions designed to resolve problems, alter negative attitudes of dissatisfied customers and to ultimately retain these customers” (Miller, Craighead & Karwan, 2000, p. 388).  Therefore, emphasis on service improvement, in particular service recovery strategies, is important to companies in order to resolve this problem.  Service recovery is a key strategy that can be utilized to help increase customer satisfaction, regardless of industry settings, and the hotel industry is no exception.  Orlando, Florida is one of the most popular vacation destinations in the U.S.  There are many interesting and appealing places for tourists to visit such as Universal Studio, Sea World, and Walt Disney World.  As one of the largest industries in the U.S., the hotel industry in Orlando, Florida is seemingly operating in a highly competitive environment.  As numerous tourists spend vacations in this area, the expectation of hotel guests toward the service delivery can vary.  Some with high expectations of service quality may switch to other service providers if they receive a lower quality of service than their expectations.  In addition, if the hotel provides service failure during the process of service delivery, and does not promptly seek appropriate strategies to recover, this can worsen the situation, leading to the customer’s negative intention regarding the hotel.  However, little research about service quality focusing on service recovery in the hotel industry in Orlando, Florida has been undertaken.  Based on the literature review, no report regarding service recovery strategies used to resolve problems when service failure occurs in a regular service hotel has been found.  Also, there is no evidence concerning relationships between service recovery strategies and behavioral intentions of customers in the hotel industry in Orlando.

 

Fostering Critical Thinking in Business Courses: Pedagogical Innovations and Strategies

Dr. Kirti Sawhney Celly, Celly Services, Inc., Long Beach, CA

 

ABSTRACT

One of the key challenges facing business school educators in teaching at colleges and universities with large populations of minority and first generation college students is fostering critical thinking.  This paper documents a number of pedagogical innovations and strategies for motivating students to read and reflect on their textbooks, scan their environment as consumers, and document and reflect on a course’s major theories and concepts in the context of their own experiences as consumers.  Students are encouraged to use the WISE approach, that is, to wonder about, investigate, speculate, and evaluate theories, concepts and their own experiences.  These strategies were specifically geared at increasing student interest, involvement, technology use, learning, and critical thinking.  An exploratory look at the effectiveness of these innovations is provided through an examination of student assignments, results of in-depth interviews with students, and an examination of the course evaluations.  Three strategies that received excellent feedback were the use of: poetry in the form of “brandomes” to summarize the essence of brands; online psychographic segmentation that gave students a first hand experience of being categorized, and engendered a lot of questioning; and short movies, to discuss branding and promotions.  These strategies met with success in improving interest, involvement, technology use, learning, and critical thinking in the context of introductory marketing classes but have relevance for other undergraduate business courses. The genesis of this paper is a professional struggle that the author faced when she moved from teaching in what might be characterized as privileged environments to teaching at a major urban university that is one of the most diverse in the nation.  Rather than being segue, it turned out to be a discontinuous change in learning environment.  Several challenges hitherto not experienced included students being completely disengaged, acknowledging that they do not read the assigned text and materials, and reluctance to do any written work, whether in-class or out.  While these challenges were widespread in the upper division courses, they seemed to be at their worst in the introductory classes.  Several characteristics of the university environment and student body are pertinent to understanding the challenges of motivating student interest, involvement, learning, and development of critical thinking.  First, the university is a comprehensive public urban institution located in a major metropolitan area.  Second, the majority of students come from the lower income communities within a ten-mile radius of the campus.  Third, there is considerable age and ethnic diversity.  The ethnic diversity of the campus at the time of the study is reflected in a student population that is 35% Hispanic, 31% African-American, 10% Asian and Pacific Islander, and 23% White compared to proportions in the U.S. population of 13%, 13%, 4% and 74% respectively. (www.csudh.edu/oir; www.census.gov Census 2000 Summary File (SF 1)), gaining the university a ranking from the U.S. News and World Report of the most diverse in the Western U.S for three consecutive years.  Related to the above, the university caters to a large number of first-generation Americans and first generation college students in its service area.  Finally, the university suffers from poor faculty morale and a historically weak institutional image with better students self-selecting other options for their college education (Smith 2002).  As a cumulative consequence of these characteristics, major challenges for the university are under-prepared students and poor student success rates as measured by retention and graduation data (Smith 2002).  The perception that academic standards and faculty expectations of students have been in a state of decline created a vicious cycle in which writing played a progressively smaller role in courses, and students who enroll (in a course/degree program) expect to pass/get their degrees with little effort.  In-depth interviews with students over a course of two years revealed that they would not read the text (and often did not purchase it nor use the desk copy at the library), had a preference for standardized, multiple-choice questions in testing, and disliked all assignments involving any reading or writing.  Faulty assumptions about the effort involved in completing higher education requirements, coupled with life realities such as single parenting, caring for elders, working full time and holding multiple jobs while going to university result in a tendency to wrongly view the degree-granting role of higher education as the enabling factor in upward and lateral mobility in the workforce.  This undermines the importance of viewing higher education as a means of learning, thinking and knowledge acquisition that in turn are instrumental in career mobility.  The educator’s teaching evolved in response to these challenges.  Confronted with a student body and educational environment that challenged her previous experiences and beliefs about student motivations and aspirations, she reflected on the questions: How do we motivate students to develop an interest in and involvement with marketing as a subject matter?  How do we give them opportunities to use technology within the context of introductory marketing courses?  How do we foster an understanding that marketing is now grounded in solid theoretical, conceptual, and empirical bases?  Taking ideas from the Enhancing Critical Literacy Project at the University based on a Title V grant for Hispanic serving institutions, the author developed several pedagogical innovations and strategies to enhance critical thinking in marketing.  These approaches required students to document and reflect on the course’s major theories and concepts in the context of their own experiences as consumers.

 

E-Business Applications and Information Technologies: Providing New Opportunities for Women

Dr. Varuna Godara, University of Western Sydney, NSW, Australia

 

Abstract

The use of e-business applications and information technologies is increasing in almost all areas of for-profit Organisations and not-for profit organisations all over the world. These high-tech applications are capable of providing many benefits to individuals and organisations which include opportunity of telecommuting and equal opportunities. While the literature on benefits of e-business applications and information technologies is growing, there is limited substantive research focused on the impact of e-business applications and information technologies on gender bias and family-work conflict.  While walking through the hi-tech market of the 21-century, we would love to see the intelligent, competent as well as the elegant women, breaking the ice of unobtrusiveness, and overpowering the old-boy network. But there is a long way to go before we actually see gender equality everywhere, especially in developing countries like India. Even today gender bias and family-work conflicts are impacting women’s career differently from those of their male colleagues. Therefore it is often among the topical issues of the day.  In this paper the major hurdles or constraints coming in the ways of women and the status level or the class of the women working in IT companies are examined. After this a strategic plan to remove these constraints by the integration of women and E-Business applications and Information technologies have been suggested.  The use of e-business applications and information technologies is increasing in almost all areas of for-profit Organisations and not-for profit organisations all over the world. These high-tech applications are capable of providing many benefits to individuals and organisations which include opportunity of telecommuting and equal opportunities. While the literature on benefits of e-business applications and information technologies is growing, there is limited substantive research focused on the impact of e-business applications and information technologies on gender bias and family-work conflict.  While walking through the hi-tech market of the 21-century, we would love to see the intelligent, competent as well as the elegant women, breaking the ice of unobtrusiveness, and overpowering the old-boy network. But there is a long way to go before we actually see gender equality everywhere, especially in developing countries like India. Even today gender bias and family-work conflicts are impacting women’s career differently from those of their male colleagues. Therefore it is often among the topical issues of the day. Indian woman is struggling to break the traditional misconceptions by establishing an identity in family, work organisations and society. Today we can see her participating actively in public forums, in alumni seminars, educational institutes, medical centres and corporate world. But we have a long way to go before we see the intelligent, competent and elegant woman getting equality in family, work and society as a whole. Indian society has been known as man’s world and the role of woman is believed to be of typical housewife, guardian of tradition and spiritual culture. They are not allowed to enjoy freedom of association and indulgence in material pleasures as men. During the Vedic and Rigvedic periods (approximately 4000-1000 BC), women in India held equal status with that of men (Kuppuswamy 1975; Choudhury, 1978). According to Jayaprakash( 2002), we can divide the past [Indian history] in to ancient India , Medieval India and Modern Indian period. In ancient India women enjoyed equal status with man in all fields of life, she received the same education like man, many Hindu religious books like Vedas, Upanishads, Ramayana, Mahabharata have mentioned the names of several women who were great scholars, poets, philosophers of the time. The wife was ‘Ardhangini’ which means she is half of her husband. An unmarried man was considered to be incomplete man. All religious ceremonies were  performed by the husband along with the wife. This shows the importance given to the women in ancient period. But in the Medieval period, the status of women went down considerably. She was considered to be inferior to man. Many historians have called this age as the ‘dark age’. Her position became very miserable. Customs of purdah, sati, child marriage & restrictions on widow marriage are prevalence of joint family system have been the factors responsible for the injustice done towards women. The degradation of women started only since 300 BC. The patriarchal joint-family system, structure of property ownership, early marriage, self-immolation of widows (sati) or state of permanent widowhood, all became obstacles to the development of women (Neera Desai, quoted in Kuppuswamy, 1975:243). The position of women in modern India is changing considerably. She is trying to get equal social, economical, educational, political and legal status that of men.  Web and IT can play a bridging role in eliminating many of the problems of working women, leading her to a status of equality at work and in society. The present study will help women in identifying new targets for their work and life.  Concentrating on women working in IT industry in India (in the state Haryana) aims of this research was to study:

 

Exchange Rate Pass-Through to Domestic Prices: The Turkish Case (1994-2006)

Dr. Ilyas Siklar, Anadolu University, Eskisehir, Turkey

Dr. Nilgün Çaglarirmak Uslu, Anadolu University, Eskisehir, Turkey

 

ABSTRACT

In this paper, we use a VECM model on monthly data from January 1994 to December 2006. The paper finds an incomplete and decreasing exchange rate pass-through to inflation in Turkey, consistent with findings on other countries. Our empirical results suggest that: (1) the exchange rate movements have a moderate effect on domestic price inflation  (2) the exchange rate pass-through is more pronounced in PPI as compared to CPI due to the higher share of tradables in PPI relative to CPI; (3) the impact of pass-through on domestic prices spreads over 12 months, however, the effect is more pronounced in the first four months as indicated by pass-through coefficients of PPI and CPI; (4) the exchange rate pass-through to consumer prices have further weakened after the free float of lira against foreign currencies in February 2001 and resultant structural changes in the economy.  This result, which shows a low exchange rate pass-through to domestic prices, has an important implication for the monetary policy implementation. Low exchange rate pass-through provides greater freedom for pursuing independent monetary policy especially through inflation targeting regime. The term "pass-through effect" refers to the effect of changes in the exchange rate of a domestic currency for foreign currency on the country’s domestic prices for traded and non-traded goods. According to Goldberg and Knetter (1997) exchange rate pass-through is defined as “the percentage change in local currency import prices resulting from a one percent change in the exchange rate between the exporting and importing countries.” Other authors (Menon 1995, McCarthy 2000, Hufner and Schoder 2002) understand pass-though effect in a broader sense, as “the process how home prices change in response to changes of exchange rates”. The relationship between exchange rate movements and price adjustments of traded goods, which is termed as “exchange rate pass-through”, has long been debated in academics. When exchange rates changes, foreign firms can choose to pass exchange rate changes fully to their selling prices in export markets (complete pass-through), to bear exchange rate changes to keep selling prices unchanged (zero pass-through), or some combination of these (partial pass-through). It has been widely recognized that exchange rate pass-through is a time-consuming process, and it appears to vary a lot across countries and time as well as across industries within a country. The total effects of exchange rate pass-through are dependent on micro factors as well as macroeconomic conditions. These factors can be listed as follows: 1. The market structure and degree of concentration,  2. The perception of the variability and duration of the exchange rate, 3. The degree of homogeneity and substitutability of traded good’s and the market share of foreign firms with respect to domestic competitors , 4. The degree of the asymmetry (hysteresis) of the entry or exit decision processes of firms when the exchange rate changes, 5. The degree of intra firm trade, 6. The trade policies, 7. The foreign exchange policies affecting the market prices of traded goods, different inflationary environment. (Rincon et al, 2000) Thorough understanding of exchange rate pass-through is of extreme importance for several reasons: first, the knowledge of the degree and timing of pass-through are essential for the proper assessment of monetary policy transmission on prices as well as for inflation forecasting. Second, the adoption of inflation targeting requires knowledge of the size and speed of exchange rate pass-through into inflations. Finally, the degree of exchange rate pass-through has important implication for “expenditure-switching” effects from the exchange rate. In other words, a low degree of exchange rate pass-through would make it possible for trade flows to remain relatively insensitive to changes in exchange rates, though demand might be highly elastic. If prices respond sluggishly to changes in exchange rates and if trade flows respond slowly to relative price changes, then the overall balance of payments adjustment process would be severely stalled, which will produce a certain degree of “exchange rate disconnect”. Therefore, the degree and timing of aggregate exchange rate pass-through, as well as its determinants, are important. This paper assesses the extent to which the movements in exchange rate affect domestic producer and consumer prices in Turkey by analyzing data from January 1994 to December 2006. The remainder of the paper is organized as follows. Section 1 gives a brief discussion on the empirical and theoretical literature on exchange rate pass-through, which is followed by an overview of inflation and exchange rate trends in Turkey, in Section 2. The data, empirical methodology and estimation results are discussed in Section 3. Finally part of the paper entitled Conclusion highlights and evaluates the main findings and the conclusions of the paper. Two channels of exchange rate pass-through are identified in the literature: a direct channel and an indirect channel. Both channels are equally important in an open economy. Taylor (2000) suggests another channel via expectations. According to this view, pass-through is highest when exchange rate changes are perceived to be persistent and prices adjust because of the expectations of the public. The direct channel arises mainly because of the “law of one price” and the purchasing power parity (PPP) in its aggregation. The paper alludes to the relative version of PPP, which claims that starting from a base of an equilibrium exchange rate between two currencies, the future of the exchange rate between the two currencies will be determined by the relative movements in the price levels in the two countries. For a given import price, changes in the exchange rate will translate directly into higher domestic prices.

 

Measuring the Effects of Employee Orientation Training on Employee Perceptions of Organizational Learning: Implications for Training & Development

Dr. M. Akdere, University of Wisconsin-Milwaukee, WI

Dr. Steven W. Schmidt, East Carolina University, Greenville, NC

 

ABSTRACT

The most important goal of any given training effort is to achieve learning at the individual, group/team, and organization. This study used a paired samples design to measure the change in the employee perception of learning through an employee orientation training program in a large U.S. manufacturing company. The results and implications for training and development are discussed. The importance of training and development opportunities in the workplace cannot be overemphasized. An organization’s philosophy on workplace learning is a factor evaluated by potential employees in the job-hunting process. It is a factor that influences why workers accept jobs with certain employers. It is a reason why employees stay with an employer, and why they leave one employer for another. It is a key component in what employees look for in their jobs and in their organizations.  Many organizations offer new employee orientation training as a way to introduce new hires to a variety of organizational-specific topics. New employee orientation training serves many purposes and has many meanings from both an organizational and employee perspective. For trainers to get leaders to transfer learning to behavior, and for leaders to get their employees to transfer learning to behavior, a lot of disciplined, consistent effort is needed (Kirkpatrick & Kirkpatrick, 2005, p. 14).Researchers have found that successful new employee orientation training helps new employees become familiar with their organizational environment. Often included in orientation training is information on the organization’s philosophy on learning, and on training and development opportunities within the organization. This study looks at the influence new employee orientation training actually has on employees’ perceptions of their organization’s philosophy on workplace learning. Using a paired samples design, we measured the changes in employee perceptions of workplace learning. Argyris and Schon (1978) describe organizational learning as occurring when “members of the organization act as learning agents of the organization, responding to changes in the internal and external environments of the organization by detecting and correcting errors in organizational theory-in-use, and embedding the results of their enquiry in private images and shared maps of organization” (p. 16). Organizational learning has also been described as “ongoing learning in a deliberate manner with a view to improvements supporting the organization’s goals” (Collinson, Cook, & Conley, 2006, p. 107).  Rowland (2004) posits that concepts involving  intellectual capital, including organizational learning, are “more important in today’s organizations than traditional assets such as natural resources and skilled labor” (p. 33).  Organizational learning takes place at a variety of different levels – at the individual level, group level, and ultimately, at the organizational level (Zietsma, et al., 2002).   It “provides a sustainable avenue for change and an opportunity for continuous renewal from within” (Collinson, et al., 2006, p. 109).  Rowland (2004) notes that the processes associated with learning and knowledge structure are similar at the individual and organizational levels:   “The organization as well as the individual is thought to be a cognitive entity (or) information processor” (p. 34).  Sharing knowledge, Rowland (2004) posits, “is a matter of how information can be communicated to others, readily interpreted, and used” (p. 34).  Organizational learning adds dimensions to the individual learning process, however, in that what is learned by the individual is shared with the group.  Organizational learning theorists struggle with some of the same issues as do all educators.  Just as educators wonder why individuals learn at different rates, organizational learning theorists note that “research has not progressed to the point of explaining the variation of learning rates observed across organizations” (Epple et al.,  1991).  Researchers have concluded that organizational learning can be impeded in a variety of ways.  Zietsma (2002) notes that organizations may get caught in a legitimacy trap, whereby learning may be rejected based on the organization’s perceived legitimacy of the source. Organizational learning can also be impeded (or encouraged) by an organization’s power structure.  Clifford and Thorpe (2007) define learning of development as:

 

Stock Valuation by Simulation with a Jump-Diffusion Model

Dr. Wen-Lian Liu, China University of Technology, Taipei, Taiwan

Dr. Cherng-Shiang Chang,  FRM, China University of Technology, Taipei, Taiwan

 

ABSTRACT

By using techniques from real options theory and modern capital budgeting, Schwartz and Moon (2000, 2001) devise a rational pricing method of internet companies.  In this article we extend the valuation model of Schwartz and Moon (2001) in several ways.  First, we employed a jump model for the evolution of revenues in addition to the original pure diffusion model. A Poisson process is incorporated to capture the possible jumps of company revenues, which occur frequently in the real world.  Second, to deal with the problem of valuing the stock options with early exercise features, we apply the Least Square Monte Carlo method proposed by Longstaff and Schwartz (2001).  An illustrated company, eBay is valued and the results are compared with those obtained by Schwartz and Moon (2001).  The results reveal that the presence of random jumps will decrease the firm value or stock price.  For the non-equity claims, like warrants, or employees’ stock options, the early exercise of the claims will raise the equity value of firm earlier, and in turn, re-invest them earlier to increase the firm value. Nowadays it is widely accepted that the real options approach is superior to discounted cash flow (DCF) model.  As acknowledged by Mason and Merton (1985), a capital budgeting problem can be described as a collection of real options, i.e., a set of opportunities managers have to deviate from a previously decided course of actions.  Trigeorgis (1996) argues that the real options framework has become one of the main paradigms of capital budgeting. Schwartz and Moon (2000) develop a model for pricing Internet companies using real options theory and modern capital budgeting techniques.  Schwartz and Moon (2001) then improve their model by providing stochastic costs and future financing, and also by including capital expenditures and depreciation in their analysis.  In the model of Schwartz and Moon (2001), the revenues are assumed to follow a pure diffusion process-geometric Brownian motion.  Meanwhile, the exercise of contingent claims, like warrants or employees’ stock options occurs at their maturity to simplify the analysis.  Goncalves-Pinto and Azevedo-Pereira (2006) apply the model of Schwartz and Moon (2001) to value the Portugal Telecom, in which, the issues of contingent claims and dividend policy are taken into account. In the real world context, however, frequently referred state variable-such as demand, profit or even costs-could adjust better to mixed processes, which combine continuously Brownian movement with the probability of discontinuities.  Depending on the nature of the variable, these kinds of discontinuities or “jumps” may be caused by the disruption of an economic crisis, a change in customers’ preferences, a corporate bankruptcy or, quite simply to technological progress.  Merton (1976) first derived the analytic solution for the European option when the underlying asset follows a mixed process, comprising a geometric Brownian motion subject to discrete Poisson jumps.  Bonis et al (2006) compare two alternative Monte Carlo simulation models for the growth option with jumps. The aim of the present work is to explore the effects of discrete jumps and contingent claim type securities on the value of a company.  We adopt the same illustrative case, eBay, valued by Schwartz and Moon (2001) but incorporate the discrete jump model and deal with the contingent claim type securities of eBay to examine their effects in details. Here we mainly consider the model proposed by Schwartz and Moon (2001), and follows its original notation.  Let R(t) denote the instantaneous rate of revenues at time t.  Assume that the dynamics of these revenues are governed by a mixed process, comprising a continuous geometric Brownian motion subject to random jumps with a Poisson variable.  Therefore, as pointed out by Bonis et al (2006), its behavior is characterized by the stochastic differential equation: where μ(t) and σ(t) represent the expected rate of growth and volatility in revenues, respectively; λJ is the mean frequency of the discrete jumps per time unit; (π-1) is a random variable measuring the size of the proportional jumps in revenues, and k is the mean value of these jumps; and dz1 and dq represent, respectively, stochastic Gauss-Wiener and Poisson processes which we assume to be independent and characterized by their usual expressions: As the discrete motion is regarded, the jumps are assumed to be independent and ln(p) is normally distributed with mean μp and deviation σp in such a way that: Following standard practice, we assume the direction of the jump to be unknown a priori and therefore the effect of the jump in the drift term to be null, i.e., μp = -σp2/2 and k = 0.  The model also assume that μ(t) is a stochastic process whose dynamic is drawn on an arithmetic mean-reverting process like:

 

Marketing To Multiple Audiences: A Case of the Tang Teaching Museum at Skidmore College, NY

Dr. Elzbieta Lepkowska-White, Skidmore College, Saratoga Springs, NY

Dr. Kristina Powell, Skidmore College, Saratoga Springs, NY

 

ABSTRACT

In this research case we investigate marketing strategy in a new format of a museum.  Placed among the clusters of traditional red brick architecture covering the Skidmore College campus in Saratoga Springs, New York, the Frances Young Tang Teaching Museum and Art Gallery (commonly referred to as ‘the Tang’) “begs to be noticed.”  The Tang is a shift in the college museum model.  Rather than serving the interests of a specific discipline the Tang was built to serve as a teaching museum of modern art that crosses boundaries between multiple disciplines. Despite being a not-so-typical museum, the Tang is facing some marketing challenges that are very typical to the museum field.  The Tang serves multiple audiences including the Skidmore administration, faculty and students, the regional community, donors, and the contemporary art world.  All of these groups have different needs, interests, and goals which they envision for the Tang.  In this case we present efforts that have been undertaken by the Tang to target its multiple audiences and the outcomes of these approaches.  The case is based on the multiple interviews with the Tang administration and the Tang customers.  The Frances Young Tang Teaching Museum and Art Gallery, founded by Skidmore College, opened to the public in October of 2000.  The museum is named after a 1961 Skidmore alumna, Frances Young Tang, whose family provided generous support for its creation and development.  Traditionally, college museums are founded on the basis of an inherited collection in either the sciences or fine arts.  The Tang Museum is a departure from this convention as it does not house a significant donated collection of artwork or natural science objects.  Skidmore College provided financial support for its creation and has helped in its conceptual development.  From the beginning, the first director John Steinbeck, together with the architect Antoine Predock worked very hard to make the Tang a unique teaching museum.  Steinbeck summarized the mission (Exhibit A) of the Tang “The purpose of the Tang Teaching Museum and Art Gallery is to foster interdisciplinary thinking and studying, to invite active and collaborative learning and to awaken the community to the richness and diversity of the human experience through the medium of art.” In 2004 Skidmore named a new director for the Tang Museum, John Weber, an experienced curator and educator. Under John’s direction, the first mission statement was removed and replaced by a long description of the museum’s history and goals (see Exhibit A).  In the six years of its existence, the Tang has engaged in rigorous exhibition and marketing programs that have brought it into the national dialogue on art and ideas among other ‘big players’ of the museum world.  The level of quality of artists and exhibitions has earned the Tang Museum high regard among national editors including those at the New York Times and scholarly artistic periodicals such as the Architectural Record, and Artforum International, and even a science periodical (Mercury: Magazine of the Astronomical Society of the Pacific).  A critical part of the Tang’s mission is to serve Skidmore College.  Skidmore College is a small liberal arts college, comprised of 2,200 students, located in the small town of Saratoga Springs, New York.  Skidmore offers cross disciplinary education in the arts, humanities, sciences, social sciences, business, education, exercise science, and social work.  The mission statement of the school underlines the cross disciplinary learning in addition to “linking theoretical with applied learning” and creativity.  At its inception, the Skidmore College president envisioned the Tang as a core partner in pioneering interdisciplinary learning for the Skidmore College community: “Our goal is to build on the Tang’s reputation for intense and experimental interdisciplinary activity so that the museum becomes as central to academic inquiry as the library, the laboratory, the seminar room, and the studio.” (1)  Other leaders within the Skidmore administration agree that “No one else is doing this.  We are redesigning the concept of interdisciplinary education in the context of the Tang Museum.”(2)  The Tang brings a lot of attention to Skidmore from a national standpoint.  During the conference of 2006 on the “College Museum,” a speaker noted that “colleges need museums [because] they serve as ‘eye-candy’.”(3)  Some argue that Skidmore’s support of the Tang is “very, very ambitious; especially considering the number of priorities the college has – the kind of commitment the college has made to the Tang is really significant and admirable.”  According to Skidmore newspaper, the Tang museum was an $11 million dollar project.  The museum was financed with a lead gift from the family of an alumna along with numerous other donors.  Currently, the Tang’s annual operating budget is $1.5 million.  Historically, museums have been built using strong and premeditated architectural vocabulary to make dramatic statements. Skidmore’s Tang Museum does not stray from this convention.  The exterior architecture of the building is dramatically different from the red brick buildings on campus.  Architect Antoine Predock conceptualized the building as a unifying element on campus, with doors and architectural elements that literally extend and open up to all ends of campus from the sports gym, to the science building, and beyond – a physical invitation to learning across the disciplines (see Exhibit B).  The architecture of the Tang is deliberately a reflection of Skidmore’s interdisciplinary mandate. 

 

Organizational Commitment Across Different Employee Groups

Dr. Sinan Caykoylu, Simon Fraser University, Burnaby, BC, Canada

Dr. Carolyn P. Egri, Simon Fraser University, Burnaby, BC, Canada

Dr. Stephen Havlovic, SUNY Institute of Technology, Utica, NY

 

ABSTRACT

Although, over the decades many models for different employee groups were developed that examined commitment levels in organizations, this field of study still lacks a parsimonies unified model that encompasses all the employees of an organization as a whole. This study first proposes a parsimonies organizational commitment model and than tests it across different employee groups of a hospital. Our findings suggest that job satisfaction plays a key role in determining organizational commitment levels, as does effective leadership and less role ambiguity. Empowerment, job motivating potential, and role conflict have an important influence on job satisfaction. Interestingly, acceptance by coworkers was not related to either job satisfaction or organizational commitment levels.  Organizational commitment has received a great deal of interest and has been a subject of many studies (Bateman and Strasser, 1984; Iverson and Roy, 1994; Mowday, Porter and Steers, 1982). This interest about organizational commitment is driven by several reasons. Organizational commitment is a relatively stable construct over time (Porter et al., 1974); previous studies have consistently found that organizational commitment is negatively related to turnover, absenteeism and performance (Steer, 1977). Studies have also repeatedly found organizational commitment to be positively related to job satisfaction, job involvement and coping with job tension (Porter et al., 1974). Steer (1977) also showed the link between organizational commitment and various other variables such as, employee’s job, role and task identity; as well as, demographic differences (gender, age and job tenure).  These consistent findings indicate organizational commitment to be in the centre of a web that is made up of behaviours and attitudes, which can affect organizational outcomes positively or negatively.  Although, over the decades many models for different employee groups were developed that successfully predicted commitment outcomes, there is still a need for a unified model that can be applied to all the employees of an organization. Many of the studies either test their models on homogenous groups or treat their participants as if they are all similar. However, majority of organizations are made up of several distinct groups that work together. Models developed based on the findings of a single group of employees can be misleading and not be useful for an organization as a whole. The aim of this research is to tackle this issue by developing a causal model that can be applied for an organization as a whole.  Many causal models have been developed to examine organizational commitment levels (Baba and Jamal, 1991; Baker and Baker, 1999; Iverson and Roy, 1994; Laschinger et al., 2001; Lum et al., 1998; Price and Mueller, 1981). Most of these models vary in the variables they emphasize, for example one variable deemed important for one model is not even cited in other studies. This lack of inclusiveness has made it difficult to assess accurately the relative importance of the various determinants of organizational commitment.  We identified antecedents from several different models to be able to test whether their posited relationships held across the whole organization.  From our literature survey we identified seven common antecedents to be included in our model to predict organizational commitment. Theses antecedent were job satisfaction, empowerment, job motivating potential, acceptance by coworkers, supervisor effectiveness, role ambiguity, and role conflict.  Job satisfaction has been included in many studies as an important antecedent for organizational commitment. We also found ample studies indicating its mediating role. Drawing on previous research, we expected the rest of the six antecedents to influence organizational commitment through job satisfaction. We also determined that antecedents’ supervisor effectiveness, role ambiguity and role conflict additional to an indirect effect on organizational commitment trough job satisfaction also had a more direct impact.  The dependent variable for the model is organizational commitment. Meyer and Allen’s (1991) popular multidimensional conceptualization of commitment identifies three distinct components of this construct. Affective commitment identifies employees’ emotional attachment and identification with the organization. Continuance commitment is related to the perceived cost of leaving the organization. Normative commitment is based on the obligation employees feel about staying with the organization. The nature of these commitment components might differ, but one way or the other, they have a similar impact on employees’ decision to continue or discontinue their employment with the organization. Since employees can experience each of these psychological states simultaneously to varying degrees, affective, continuance, and normative commitments could be seen as discernible forms, rather than types of commitment (Wasti, 2005). Meyer and Allen (1991) also stated that when all these three types of commitments are taken into consideration, one's relationship with an organization could be understood better. Based on these arguments and high correlation among these three components of organizational commitment (Wasti, 2005), our model will focus on organizational commitment as a unitary construct.  Mobley (1977) in his turnover model considered organizational commitment to be related to job satisfaction. Other studies have also consistently shown job satisfaction to be closely associated with organizational commitment (Batemen & Strasser, 1984; Iverson and Roy, 1994). Even though there is a strong positive relationship between organizational commitment and job satisfaction, they are conceptually distinct in that organizational commitment encompasses an employee’s attitude towards the whole organization, whereas job satisfaction is limited to specific aspects of the job (Cetin, 2006; Williams and Hazer, 1986).

 

TFP Growth at Private Sectors of Turkey

Dr. Arzu Alvan, Yasar University, Bornova, Izmir, Turkey

Dr. B. N. Ghosh, Eastern Mediterranean University, Famagusta, TRNC

 

ABSTRACT

Aim of this study is to measure the Total Factor Productivity (TFP) growth in private sectors of Turkish Manufacturing Industry between of 1992 and 2001. Also Value Added (VA) growth components of the sectors are decomposed. For this purpose Two-Deflator Growth Accounting Approach is applied. There is a direct relationship between TFP growth and VA growth at the private manufacturing sectors. TFP growth is positive at almost all sectors. Raw labour’s contribution to VA growth plays the most significant role. Besides, capital’s contribution to VA growth of almost all private sectors is positive throughout the examined period.  Scarcity of resources is one of the main reasons to produce under efficient and productive production processes to get the highest possible volume of output. Researchers often find that productive production process is the result of the growth of Total Factor Productivity (TFP). And the two-way causality between TFP growth and output growth are also being proved by Harberger, among others (Robles, 2000, Harberger, 1998). Moreover, when TFP growth increases, the growth rate of Gross Domestic Product (GDP) follows an upward trend; while falls in TFP growth are correlated with decreases in GDP growth rates. Therefore, it is possible to understand growth in GDP by explaining the elements causing positive changes in TFP. This is why a comprehensive study of the growth process must include an analysis of the sources of TFP growth (Robles, 2000). Obtaining a stable and sustainable economic growth is one of the main macroeconomic challenges of ruling agents in every typical economy. Therefore, the sources and the outcomes of economic growth are being researched and analysed by economists. The empirical findings of their studies show that there is a variety of sources of economic growth such as productivity growth, increases in human capital, advances in Information and Communication Technologies (ICT), economic policy changes, technological advances and so on (Harberger, 1998, Notaro, 2003).   Several contemporary authors who analysed sources of  output growth concludes that if output growth is different than the sum of labour and  contributions of capital to output growth, the difference is attributed to the residual or Total Factor Productivity (TFP) (Cho, 2000). TFP growth enables firms to create competitive capability which is a special advantage. TFP growth and cost reduction in production process occur at the same time. Hence, reduced cost in production process leads to a strong competitive advantage (Kim, 2001).  In 1942, Tinbergen (Tinbergen, 1959) initiated what is called today the sources of economic growth methodology or growth accounting.  This procedure consists in attributing output growth to increase in inputs and TFP or a residual.  Economic growth, then,  is explained by the analysis of the behaviour of its components (Robles, 1997). Today, there are three main approaches to the sources of economic methodology. Traditional approach is proposed by Solow and Kendrick (Kendrick, 1956, Solow, 1956) and this approach incorporates only changes in input quantities. Afterwards, Jorgenson develops an extended traditional approach; this method is based on the theory of production and disaggregates by several hundred classes of inputs when assessing the contribution of inputs to growth. Jorgenson’s approach is much elaborated, but it does not depart a great deal from the traditional approach because sometimes it fails to consider all changes in the quality of human capital.  This happens whenever the classes of labour are not good representatives of the true labour skill premium in an industrial branch. Finally, Harberger (Harberger, 1991) puts forward Two-Deflator Approach (TDA) which permits a more complete assessment of the contribution of human capital quality to growth.  This method has its roots in the theory of capital, and TFP is interpreted as real cost reduction which is the element explaining economic growth (Cepeda, 2000). Except the ones which method of Jorgenson is applied, growth accounting methodologies however, use highly aggregated data to examine the sources of growth. Of course measuring aggregate productivity is important, but one should never forget that measuring productivity across firms or and/or industries gives more reliable results compared with the measurement of productivity at the aggregate level. As Cho (Cho, 2000) explains in his dissertation clearly that “the act of aggregation itself introduces many biases and complications”.  In the frame of these references this study aims to investigate the sources of growth in Turkish Manufacturing Industry between the years 1992 and 2001 by using Two-Deflator Approach. Labour, capital and TFP are regarded as the three main elements of the sources of growth in empirical studies. Therefore, in this paper, their contributions to growth are going to be examined separately for public and private manufacturing sectors. Thus, a comparison of production efficiencies in the public and private manufacturing sectors is probable.  In the view of this scope, in the second section of the study, literature review on growth accounting methodologies is presented. In the third section empirical findings which are obtained by using Two-Deflator Approach are elaborated. Finally, at the last section of the study conclusion is given.

 

Investigating the Impact of Gender on Managing a Sales Force in a Developing Country: An Exploratory Study in Tajikistan

Dr. Musa Pinar, Valparaiso University

Dr. Joelle E. Nisolle, West Texas A&M University

Dr. Michael K. McCuddy, Valparaiso University

 

ABSTRACT

This exploratory study investigates applicant (student) perceptions of the gender effect on managing and supervising efforts regarding salespeople in Tajikistan. Based on 149 surveys, the results for the entire sample of students, as well as for male and female subsamples, show the existence of a significant gender effect where they prefer to work for male managers and feel that male managers would reward them satisfactorily. Also, comparisons of male students versus female students reveal significant differences between the two genders in terms of training, motivating, and rewarding recruits. The study discusses the managerial implications of these findings for developing and managing a successful sales force.  In recent years, as more women have joined the labor market, the makeup of the work force has changed in all industries. Seeing women in many traditional male-dominated fields is not uncommon. This change is not unique to western countries; rather it is becoming increasingly common to see women joining the labor market in many developing countries. These developments have brought both questions and challenges in managing an increasingly diverse work force. For example, recent research in the United States has shown that even though women are successful in the traditionally male-dominated field of selling, they still face some barriers in gaining entry to some selling jobs (Anonymous, 1988; Fugate, Decker, Decker, & Brewer, 1988;). Prior studies of women in sales (Comer & Jolson, 1991; McNeilly & Russ, 2000; Russ & McNeily, 1988; Swan & Futrell, 1978; Swan, Rink, Kiser & Martin, 1984) suggest that stereotypes of women in selling still exist in the minds of both potential customers and managers. Past research concerning gender effects in selling has addressed such issues as female managers’ leadership style (Comer, Jolson, Dubinsky, & Yammarino, 1995; Yammarino, Dubinsky, Comer, & Jolson, 1997); gender-role identity (Jolson & Comer, 1992); and behavior and perceptions of gender stereotyping (Comer & Jolson, 1991; Russ & McNeilly, 1988). However, these studies did not address how gender stereotyping in the sales field could influence the effectiveness of managing and supervising a diverse sales force. This issue is even more relevant and critical in developing countries where women in the workplace are a less common occurrence.  Prior gender effect studies in the sales field seem to focus on two general areas. One group of studies covers the gender effect on sales effectiveness and sales performance. These studies (Crosby, Evans, & Cowles, 1990; Smith, 1998) suggest that gender similarity between salespersons and customers is positively related to both the quality of the salesperson/customer relationship and sales performance. Crosby et al. (1990) found that same-sex relationships are associated with greater relationship investment, more open communication, and greater trust and satisfaction within relationships. These findings support conventional wisdom that exchange relationships are easier to develop with similar others (Churchill, Ford, & Walker, 1997). On the other hand, Dwyer, Orlando, and Shepherd (1998) found that female salespeople are just as effective as male salespeople, and gender similarity is not a significant factor in sales performance. In addition, some consumers may be more accepting of salespeople who are dissimilar to themselves (Jones, Moore, Stanaland, & Wyatt, 1998). Another group of studies investigated sex bias during the employment interview and attempted to separate the effects of applicant sex and recruiter sex on recruiters’ evaluations (Arvey & Faley 1988; Powell 1987). The results of these studies were mixed. Although personnel managers regarded same-sex applicants as more similar to themselves than cross-sex applicants, sex similarity was not a factor in ratings of likeability or suitability for the job (Gallois, Callan, & Palmer, 1992). Similarly, a study by Graves and Powell (1988) showed no significant effect of applicant sex on interview outcomes, but the perceived similarity and interpersonal attraction were important factors in recruiters’ decisions. In another study, Graves and Powell (1995) found that female recruiters saw male applicants as more similar to themselves and more qualified than female applicants. Also in a more recent study, Hardin, Reding, and Stocks (2002) found that the gender of a hypothetical recruit did not affect the rating assigned by recruiters, regardless of recruiter sex. Clearly, the findings of past research concerning the effects of sex similarity on recruiting and interview outcomes are inconsistent and complex (Graves & Powell, 1995).  Using United States college students, Pinar, Hardin, Eser, and Rogers (2006) examined applicant (student) perceptions of gender effects on the management/supervision of salespeople. Their results show the existence of a significant gender effect for the entire sample of students, where students as a whole prefer to work for a male manager and feel that male managers would offer them the best training in how to conduct sales in their first sales position. The results by applicant gender indicate that male students most prefer to work for male managers and feel that male managers would offer them the best training in how to conduct sales for their first sales position, and that male managers are most capable of motivating them to excel in their sales jobs. A similar analysis for female students showed that, while females also prefer to work for male managers, they feel that female managers are most capable of motivating them to excel in sales jobs. Finally, the study found no gender effect for either male or female students concerning the rewarding of selling efforts, or for females regarding training for the first sales position.  Much of the research addressing gender effects in the sales field have been based on three main theories; the Similarity-Attraction Paradigm (Byrne, 1971; Byrne & Neuman, 1992; Graves & Powell, 1995), Social Identity Theory (Tajfel, 1982; Tajfel & Turner, 1986), and Self-Categorization Theory (Turner, 1982; 1985). The similarity-attraction paradigm suggests that individuals tend to be attracted to those similar to themselves (Byrne, 1971). Social identity theory (Tajfel, 1982; Tajfel & Turner, 1986) indicates that an individual’s self-identity formation is partly a result of group membership. An important and integral part of the above theories involves self-categorization. Self-categorization theory (Turner, 1982; 1985) indicates that individuals take socially defined categories into account when making evaluations about others, and that those characteristics similar to oneself would likely be regarded as positive and vice-versa. All three theories indicate that a positive self-identity of individuals is maintained by seeking to maximize inter-group distinctiveness and to perceive out-group members as being less attractive (Jackson, Stone, & Alvarez, 1992; Kramer, 1991).

 

Changing Organizational Structure to Accommodate New Management Technology in a University: A Case Study

Dr. Jay L. Tontz, California State University, Eastbay

Dr. Sam Basu, William Paterson University

 

ABSTRACT

 “… Companies have learned that information technology isn’t a silver bullet. New IT must be combined with organizational change to achieve real productivity gains.”  Business Week, February 9, 2004 In Organization theory [2, 3], technology and the choice of the organization structure have generally been closely related. Although there is little agreement about the strict causal direction of such a relationship, there is general consensus among most organization theorists that technology does play a role in determining the resulting organization structure [3]. From a macroeconomic point of view, a number of economists in the US and elsewhere, engaged in a series of debates around the question of a lag between the introduction of information systems technology and the desired gain in labor productivity [1]. It is quite possible that the lag was, at least partially, due to issues related to implementing the necessary organizational changes required to accommodate the new technology. It is generally understood that universities tend to be less dynamic than organizations which are to a greater degree market driven. It might therefore be of interest to look at the case of introducing a somewhat radical organization structure driven by evolving technological in a college/university setting. This paper provides an example of how one part of our university reorganized staff assignments to take advantage of new information technology and the subsequent increase in labor productivity. In the mid 1990’s the California State University system office signed a contract with PeopleSoft to provide management software for the central office and each of its twenty-three campuses. One of the campuses, The California State University, Hayward elected to adopt three modules, Human Resources, Financial Services, and Student Records.  At that time our University followed the traditional academic staffing organizational model. The campus was organized into four Colleges and each College organized its faculty and staff by academic department. Each academic department had a department secretary. Secretaries maintained the processes used to hire, retain, and promote faculty and staff; the budgets and purchasing functions for the department; the student records, and the advising and registration in department courses, and bureaucratic functions of managing paperwork in the department in line with university policies and procedures.   Given this structure, our campus original implementation plan provided for training of each department secretary in each of the modules to be adopted.  After reviewing the appropriateness of this traditional staff structure to efficiently and effectively manage the operation of the departments, the skill sets of the current personnel, and the implied costs in time away from the offices for the required training, the administration of the College of Business and Economics decided to adopt on an alternative organizational structure.  This paper traces the history of the conversion to a new organizational structure. It discusses the traditional academic organizational structure, the proposed alternative structure, the processes the administration followed in convincing the individuals involved to adopt the new technology and organization structure, and lessons learned. We believe we have been successful in making the transition. We have reduced the required number of staff, and improve the quality of services delivered. It was neither an easy nor a quickly accomplished process. Individual senses of stability were sometimes disrupted, people left the organization, and the administrators spend long hours convincing individuals involved that the change was needed.  We offer this case as evidence that new managerial technology combined with organizational change can achieve real productivity gains, lowered operational costs, and improve morale. The California State University System is the largest four-year university system in the United States.  With twenty-three campuses, over 42,000 faculty and staff, it serves over 415,000 students. In the mid 1990’s the system decided to improve its management information system by adopting PeopleSoft software for the central offices and each of its campuses.  The system officials delegated the authority to campus to decide how the implementation would take place. Our campus, California State University, Hayward, located in the San Frisco Bay area, was established in 1957. We currently have approximately 14,000 students. Over eighty percent of our students start their college studies at other colleges and transfer to our campus, usually in their junior year. Thus we serve primarily junior and senior year undergraduate and master level graduate students. We are considered primarily a local campus with over eighty percent of our students coming from the immediate two counties served by our University.  The vast majority of our students live off campus, and thus we are designated as a commuter campus for students, staff, and faculty.  The University is divided into four Colleges. Each college is divided into a number of academic departments. Each college followed the traditional American university staff organizational structure with clerical staff allocated to each department. While implementing the new administrative technology our campus administration decided to continue with the traditional organizational structure of staff positions.

 

An Integrative Framework of Workplace Stress and Aggression

Dr. Susan M. Stewart, University of Puget Sound, Tacoma, WA

 

Abstract

This paper presents an integrative framework based on research related to workplace stress and aggression.  While many researchers have demonstrated that individual differences in personality can affect both perceptions of job stressors and negative affective reactions to perceived job stressors, the role of cognitive appraisal has been largely overlooked.  This framework examines cognition, namely conditional reasoning (James, 1998), in the interpretation of stressful environmental events occurring prior to experiencing negative emotion.  Workplace aggression is treated as the result of a multistage process with four components: individual differences in personality, occurrences of stressful events, cognitive appraisals of those events, and emotional reactions to the appraisal process. During the past decade, aggressive workplace acts have been shown to be occurring at alarming rates and costing organizations billions of dollars every year.  Workplace aggression is defined as “attempts by individuals to inflict harm to others with whom they work, or have worked, or to the organizations in which they are currently, or were previously employed” (Neuman & Baron, 1997a, p. 38).  Incidents or patterns of aggressive behaviors (e.g., bullying, verbal/physical assault) can cause great financial loses due to litigation, employee turnover, lower productivity, and negative publicity (Le Blanc & Kelloway, 2002; Leymann, 1990; Vigoda, 2002).  Furthermore, employees subjected to workplace aggression report a wide range of physical, psychological, and social complaints that prevent them from effectively performing their jobs (Button, 2001; Fox & Spector, 2005; Raggins & Cornwell, 2001).  As such, aggression in work organizations has become a concern for practitioners and researchers alike. Although speculations about the causes of workplace aggression are scattered throughout the popular and trade literature, as yet there is little theoretical development published in the scientific business literature.  Further still, little research exists that has collectively examined the antecedents of workplace aggression.  Given the prevalence of these destructive acts and its impact on employees and organizations, a theoretically focused framework that incorporates the various factors involved in this behavior needs to be studied.  Aggressive behavior is complex, multi-determined, and stems from the interplay of individual, situational, cognitive, and affective components.  While a detailed discussion of all of the factors related to aggression is beyond the scope of this paper, the most relevant and widely studied variables pertaining to organizational settings will be reviewed and presented in an integrative framework (see Figure 1).  This framework focuses on variables that have been researched and measured at the level of the individual; readers interested in examining group or organization level variables are encouraged to see the model developed by O’Leary-Kelly, Griffin, and Glew (1996). A large body of research, particularly in the social-psychological literature, provides evidence on individual level factors associated with aggressive predispositions (Buss, 1961; Megargee, 1966; Nisbett, 1993).  Findings indicate that individuals differ substantially in their propensity to aggress, or attack, in response to environmental stimuli.  While some individuals respond mildly to intense aggravation, others are highly sensitive and react with strong emotions and overt aggression to seemingly innocent exchanges (Baron & Richardson, 1994; Berkowitz, 1993; Geen, 1995; Toch, 1992).  A brief review and discussion of the research on dispositional factors shown to play a role in this regard is provided below. Self-Attributed Aggression.  There is considerable evidence suggesting that people who are dispositionally aggressive are more likely to engage in antisocial behaviors, or to direct harmful actions against other persons (Geen, 1995).  Many researchers have assessed an individual’s propensity to act in an aggressive fashion through the use of self-report measures.  Self-reported, or self-attributed, aggression is typically measured via (1) overt integrity tests, which directly ask about attitudes toward theft and counterproductivity, and admissions of previous behavior; and (2) personality tests, which assess traits believed to be related to theft and counterproductivity (Sackett, Burris & Callahan, 1989).  Personality-based measures, such as the Hogan Employee Reliability Index (composed of items assessing hostility to rules, impulsiveness, sense of alienation, and social insensitivity), have predicted aggressive behaviors, including termination from work, injuries, absenteeism, and other forms of deviance (Hogan & Hogan, 1995).  The Personality Research Form Aggression Scale (Jackson, 1984) and the California Personality Inventory’s Socialization Scale (composed of items assessing hostility toward rules and authority, thrill-seeking impulsiveness, social insensitivity, and alienation; Gough, 1996) have been related to self- and other-ratings of adjectives describing an aggressive personality.  Other personality measures, including Personnel Decisions Incorporated's Employment Inventory (1985), the Personnel Reaction Blank (Gough, 1972), and the Inwald Personality Inventory’s Reliability Scale (Inwald, 1992), have also predicted a broad range of aggressive workplace behaviors, including absenteeism, property damage, and drug/alcohol abuse.  In addition, overt integrity tests, such as the Stanton Survey (Harris & Gentry, 1992), Personnel Selection Inventory (London House, 1975), Employee Reliability Inventory (Borofsky, Friedman, & Maddocks, 1986), and the Reid Report (Reid Psychological Systems, 1951), have been related to theft, disciplinary actions, and illegal activities, to name a few.  Overall, a substantial amount of research exists that has empirically demonstrated that individual differences in self-attributed aggression are correlated with (and predictive of) counterproductive workplace acts.

 

Measuring the Effects of Employee Orientation Training on Employee Perceptions of Organizational Culture: Implications for Organization Development

Dr. M. Akdere, University of Wisconsin-Milwaukee, WI

Dr. Steven W. Schmidt, East Carolina University, Greenville, NC

 

ABSTRACT

Using a paired samples design, we measured the changes in employee perceptions on organizational culture. Employees at a major manufacturing company were surveyed before attending a new employee orientation training, immediately after the training, and one month after the training. The findings and implications for future research are discussed. Learning about an organization’s culture is very important to all employees as they go through the steps of the hiring process, and also as they become new employees in an organization. Potential and new employees form impressions about an organization’s culture from many sources, both formal and informal. There are a variety of ways organizations can teach new and potential employees about their cultures. An organization’s new employee orientation is often used to address organizational culture. Is this an effective venue, over both short and longer-term periods of time? The purpose of this research is to examine the effectiveness of new employee orientation training programs on new employee perceptions of organizational culture. Perceptions were measured both before and after new employee orientation, as well as one month after the conclusion of new employee orientation. This paper examines the results and findings of this study. Based on the results and findings, conclusions are made and recommendations are presented.  The variety of sources potential new employees use to learn about an organization’s culture can be problematic. Cable, Aiman-Smith, Mulvey, and Edwards (2000) found that information gathered by potential employees regarding organizational culture can be inaccurate, which could lead to a mismatch between employee expectations and the actual organizational culture. Mismatches could lead to a variety of issues. Sheridan (1992) found that the variation in organizational cultural values has a significant effect on employee retention, job performance, and voluntary termination of employment. Cable et al. (2002), when examining potential new employees’ sources of information regarding organizational culture, concluded that potential employees value information sources that have bases within the organization itself (and, therefore, that organizations can control).  “Applicants’ culture beliefs were related to several preinterview information sources that recruiters can manage, but they were less related to information sources that firms cannot control” (Cable et al., 2002, p. 1084). While recruiters can manage issues of organizational culture throughout the recruitment process, organizations can clearly present issues of organizational culture to new hires through the new employee orientation process.   “Orientation is the planned introduction of new employees to their jobs, their coworkers, and culture of the organization” (Cook, 1992, p. 133, quoted in Blackwell, 1997). Most organizations offer an employee orientation program coordinated by the human resource department (Blackwell, 1997). New employee orientations serve many purposes and have many meanings from both an organizational and an employee perspective. Researchers have found that successful new employee orientation programs help new employees become familiar with their organizational environment and help them understand their responsibilities (Robinson, 1998). They have also been found to be positively related to job satisfaction (Gates & Hellweg, 1989), employee socialization (Klein, 2000), and have been recommended to aid in employee job enrichment and morale building (Kanouse & Warihay, 1980). Research has also shown that employers benefit from new employee orientations in that they receive well-trained, highly motivated new employees as quickly as possible (Robinson, 1998). New employee orientations are often used to teach employees about “big-picture” organizational issues, such as culture, vision, values, mission, structure, ethics, policies, and confidentiality. Hicks, Peters, and Smith (2006) note that the Mayo Clinic’s new employee orientation emphasizes the medical center’s values, and also educates participants on the clinic’s heritage and culture.  How effective is the new employee orientation process in conveying those big-picture organizational issues? Do employees learn from new employee orientations, and is that learning carried back to the workplace? It is difficult to address these questions because of the dearth of research on the topic. Wanous and Reichers (2000) note that “Orientation programs have rarely been the subject of scholarly thinking and research” (p. 2). They continue by noting that “the current body of research work (on new employee orientation programs) is too small for meta-analysis” (p. 2), and as a result, they changed the methodology used in their 2000 study to descriptive summary (Wanous & Reichers, 2000). Other researchers have come to similar conclusions. While most organizations use formal orientation training, “there is surprisingly little in the academic literature examining the impact or most appropriate structure of these programs” (Klein, 2000, p. 3).  Organizational culture . . . is the pattern of basic assumptions which a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration, which have worked well enough to be considered valid, and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems. (Schein, 1983)

 

Contagion Intra-Industry Effects of M&A Announcements(1)

Dr. Hironobu Miyazaki, North Asia University, Akita, Akita, Japan

Dr. Hiroyuki Aman, Nagasaki University, Nagasaki, Japan

 

ABSTRACT

M&A is generally considered to influence not only the firm engaging in M&A but also the rival firms in the corresponding industry. Using an event study methodology, this study investigates how stock prices of rival firms respond to the release of M&A announcements. On examining firms in the pharmaceutical industry, we find that some rival firms are under the contagion effect of M&A. Moreover, the major results of factor analysis are summarized as follows. First, there is a curvilinear relationship between firm size and the probability of the contagion effect hypothesis. At low levels of firm size, the relationship is negative; at high levels, it is positive. Second, R&D-intensive firms, which have the full potential to absorb new R&D knowledge, obtain technology from the M&A market to a large extent. There is complementarity between R&D intensity and M&A. Recently, M&A has become a popular strategy among Japanese firms. In 2004, the total number of M&A transactions exceeded 2000, and in 2006, the number of transactions recorded was 2775. M&A influences not only the firms engaging in M&A but also the rival firms, by exerting positive and negative effects upon them in the corresponding industry.  Generally speaking, M&A has the following merits: First, firms engaging in M&A increase productivity by obtaining synergistic gains, for example, economies of scale and scope (2). For instance, they strengthen marketing capacity, each complementing the other’s weak points. Second, firms engaging in M&A acquire technology from the M&A market or realize technological complementarity by combining both internal and external technological knowledge. M&A is preferred, because the acquisition of technology and know-how obtained by the firm that has already succeeded in R&D is speedy.  We consider that in many cases, although M&A announcements benefit the announcing firms, they do not always benefit the rival firms. In this paper, we empirically analyze the intra-industry effects of M&A announcements. Previous studies that have examined the intra-industry effects of M&A announcements are listed below. Eckbo (1985) assessed the intra-industry effects of M&A in response to horizontal merger announcements. He found that, during the period between 1963 and 1981, rivals experienced significant positive abnormal returns in response to horizontal merger announcements. These results suggest that a merger announcement can signal an increased probability that corresponding rivals will be acquired. Akhigbe and Madura (1999) found that on an average, bank acquisition announcements generate significant positive intra-industry effects. The intra-industry effects of rival bank portfolios are not uniform across announcements, as they are conditioned by variables that could signal information about the probability that rival banks will become takeover targets.  Akhigbe and Martin (2002) found that Microsoft acquisitions in the Internet/online services segment adversely affect the stock prices of the Internet/online services rival portfolio; on the other hand, Microsoft’s operating system acquisitions favorably affect the stock prices of the Internet/online services rivals.  However, the above mentioned studies investigated the intra-industry effects of M&A announcements in U.S. markets. To our knowledge, no similar research has been done with regard to Japan. In this paper, we focus on Japanese markets. Our purpose is to reveal intra-industry effects in the Japanese pharmaceutical industry. Furthermore, we intend to offer interesting insights into the relationship between M&A and innovative factors. As the pharmaceutical industry is an R&D-intensive industry and its industrial classification is clear, it is an appropriate industry for our study (3). This paper is organized as follows: Section 2 presents a brief discussion regarding the theoretical background; Section 3 presents the data sets, model, and results of the regression analysis; and Section 4 presents the summary and conclusion. Two potentially offsetting sources of intra-industry valuation effects in response to M&A announcements have been discussed in finance literature. First, the contagion effect hypothesis suggests that M&A announcements could affect rival firms positively (4). They signal the potential to realize the efficiency gains, which, in turn, may then signal similar opportunities for other rival firms as well. They may bring about an increased likelihood of the next M&A and favorable future industry conditions. We consider that some rival firms that have the potential to conduct M&A would be the next acquirers and that the other rival firms would be possible future targets. Second, the competitive effect hypothesis suggests that rival firms are negatively affected by M&A announcements if the competitive balance of the industry is altered in favor of the combined entity. The firm engaging in M&A obtains synergistic gains, for example, economies of scale and scope and technology from the M&A market resulting in it moving ahead of the rival firms that have a high intra-industry position. Viewed from a different perspective, this is a disadvantage for rival firms.  Some rival firms are under the contagion effect hypothesis, while others are under the competitive effect hypothesis. In this paper, we focus particularly on the former case.

 

Analyze of Tourist Destination Cluj-Napoca, Romania

Dr. Smaranda Adina Cosma, “Babeþ-Bolyai” University Cluj-Napoca, Romania

Dr. Adina Negrusa, “Babeþ-Bolyai” University Cluj-Napoca, Romania

Dr. Partenie Dumbrava, “Babeþ-Bolyai” University Cluj-Napoca, Romania

 

ABSTRACT

The industry of tourism represents one of the sectors with the highest development at global level. Romania has an important tourism potential but this is not sufficiently exploited. The city of Cluj-Napoca is one of the biggest from Romania, an important academic, cultural and business centre, combine with a various tourist offer - cultural and historical monuments, a diversified portfolio of accommodation establishments, restaurants, clubs, tourist agencies and an attractive natural-geographic space.  All those make from Cluj-Napoca an interesting tourist destination for various type of tourist. The paper analyses the tourist supply and identifies the demand for the destination. The study underlines possible differentiation elements for the city comparing with its main competitors. In conclusion, we try to find a correlation between the offer and the customer needs. Romania has almost all the features to be one of the preferred tourist destinations: it is blessed with a beautiful landscape, it can offer different types of tourism (mountain tourism, heritage and cultural tourism, rural tourism, spa tourism, geo-tourism, MICE tourism – meeting, incentives, conferences and exhibitions –, seaside tourism) and it has a diversified supply of lodging capacities. Despite this, the travel and tourism economy (direct and indirect impact of visitor activities, capital investment, export and government services) contribution to Romanian GDP varied around the 2%. The causes for the small percentage are multiple, various and complex: the slow pace of privatisation process in tourism and hotel industry; the degradation of the existing lodging capacities; an old road and railway infrastructure; the lack of financial resources; the absence of a strategy for tourism development at national level etc. Probably these are the reasons why in the last few years, travel and tourism sector has been identified by Romanian government as a focal point of the National Development Plan.The WTTC has forecasted for 2006 that travel and tourism economy is expected to contribute 4,8 per cent of Romania’s GDP and account for 485,000 jobs (5,8% of the total employment). A study of Romanian National Institute for Research and Development in Tourism (INCDT) reveals that from a total of 5.452.651 tourists in 2004 (INCDT 2005): 47,63% choose urban tourism, 14,29% mountain tourism, 13,17% seaside, including Constanta, 12,21% spa tourism, 1,29% Danube Delta and 11,41% other forms of tourism. During 1999 and 2000, the National Agency for Regional Development was created and Romania – for a better development – was ‘split’ in 8 regions (North-East, South-East, South-Muntenia, South-West Oltenia, West, North-West, Centre, Bucharest-Ilfov), with a regional branch of the Agency functioning in each region. The North-West Region includes 6 counties (Cluj, Bihor, Maramureþ, Bistriţa-Năsăud, Satu-Mare, Sălaj), representing around 15 percent from the total Romania’s territory and is situated on the fourth place taking into account the population and the area. Cluj county is situated in the heart of historical province of Transylvania and is one of the most important communication point (roads, railways, airway) in the country. In the Cluj county, the urban population represents 67,2%, even if in Romania, in total, is 52,7%. The average net wage in Cluj county is 728 RON (around 210 EUR). The density is 105 peoples/ km2. Cluj county represents 2,8 per cent of the Romanian territory. The 52,68% of the population works in services and trade. The main foreign investors of the Cluj county is Hungary with over 117 millions $ (ADR North-West, 2000). Its economy is one of the most balanced developed from Romania. The most important sector is manufacturing, in the second position is transport, storage and communications and the third position came wholesale and retail [2]. Hotels and restaurants section represents 1,09 % from the total taking into account the evolution of turnover for the active enterprises. Regarding the structure of Cluj economy by size class, almost 87% of the active units are micro enterprises, with less then 10 employees and the number of macro enterprises with more then 250 employees is just 0,57% from the total. Cluj-Napoca, the municipality of the Cluj county, is the second city in the national hierarchy as a polarisation potential after the capital – Bucharest - , influencing the entire Transilvania. Cluj-Napoca is one of the most important and biggest cities in Romania and is the only one in the North-West Region with over 300.000 peoples. The City of Cluj is considered the ‘capital of Transylvania’ because it is an important academic, cultural and business centre. All those factors make from Cluj an important tourist destination for various type of tourist.  The initiative of Cluj-Napoca City Hall regarding the tourism development strategy at the local level as a potential source of increasing the total revenue is welcome, but the strategy was formulated late, only by the end of 2005.  From the accommodation establishments point of view, Cluj county is situated on the 9th place out of 41, representing around 3,5 per cent of the total Romanian number of hotels. Compared with the county rank, Cluj-Napoca -the municipality- stands on the third place after the capital Bucharest and Timisoara. The tourist offer for Cluj-Napoca has a great variety: cultural and historical monuments (medieval and modern monuments, churches, museums, festivals, exhibitions); a diversified portfolio of accommodation establishments, restaurants, clubs, tourist agencies; an attractive natural-geographic space.

 

An Empirical Analysis of the Impact of ISO Quality Standard Certification

Dr. C. P. Kartha, University of Michigan - Flint, Flint, MI

 

ABSTRACT

ISO9000 is a series of internationally accepted guidelines as to how companies should set up their quality assurance systems. Focusing on procedures, controls and documentation, the standard is designed to help a company identify mistakes, streamline its operations and be able to guarantee a constant level of quality. It is rapidly becoming to be a de facto requirement for doing business in many industries.  The certification process requires a significant investment of both human as well as financial resources of the organization. There have been questions raised as to the worthiness of making such investments by organizations for obtaining certification. This paper presents the results of a survey designed to study the impact of certification on a number of factors such as customer satisfaction, improved productivity and profitability.  Quality is the most important concept in the corporate world today. The quest for quality is probably more widespread and intense globally today than at anytime in history.  Organizations have realized that the key to increased productivity and profitability is improving quality and in order to survive competition from home and abroad, they are forced to return to the basics of better quality management and cost competitiveness measures for their products and services. One of the most effective strategies evolved over the years has been based on the concept of Total Quality Management (TQM). TQM is a systems approach to management that aims to enhance value to customer by designing and continually improving organizational processes and systems.  It provides a new vision for management leadership.  It places customer as the principal focal point and redefines quality as customer satisfaction.  The emphasis is on continuous improvement of processes through employee involvement and empowerment.  TQM relies on fact-based decision making. A number of large corporations have been actively involved in the introduction and implementation of TQM in the last few years.  An emerging need for guidelines and standards for TQM implementation forced countries to develop models for self-appraisal and for identifying and addressing quality issues.  Perhaps the first such attempt in the West to develop a comprehensive set of guidelines for achieving world-class quality was in the United States.  In 1987 the Congress established the Malcolm Baldrige National Quality Award.  The purpose was to promote quality awareness, to recognize quality achievements in the U.S. companies, and to publicize successful quality strategies.  The criteria used for the award incorporates all major elements of TQM and is often referred to as a defacto definition of TQM. Subsequently, the International Standards organization developed a set of quality standards, ISO9000, as a model for quality assurance standards in design, development, production, installation and service.  The whole purpose behind the deployment of ISO9000 was to simplify the international exchange of goods and services by developing a common set of quality standards.  It is a series of standards on quality assurance and quality management.  The standards are not specific to products or services but apply to the processes that create them.  The standards are generic and therefore can be used by manufacturing and service organizations around the world.  The European Community (EC) nations adopted ISO9000 as the model for international standards for quality and required ISO9000 registration as a mandatory condition for doing business with other nations.  The registration implies compliance to documented practices so as to guarantee a consistent level of quality. The ISO 9000 quality system standard is used for ensuring a supplier’s conformance to specified requirements.  The quality system requirements specified in the standard are considered complementary to technical product and service requirements.  The 1994 version of the standard includes management responsibility for the quality system, procedures for contract review, and procedures to control and verify product design.  In addition, requirements for document control, purchasing, process control, inspection and testing, quality records, quality audits, training and servicing are discussed.  The document contains procedures for a total of 20 elements. ISO9000:2000 is the most recent revision of the older version ISO9000:1994. The majority of the organizations has either acquired or is in the process of achieving certification for the new revision. The new version of the standard provides a process-oriented structure and a more logical sequence of the contents.  The new revision of the standard retains the essence of the 20 elements in the earlier standard and the requirements are consolidated into four main sections: Management Responsibility, Resource Management, Product and/or Service Realization and, Measurement, Analysis and Improvement. There is also renewed emphasis on process approach, customer focus and continuous improvement in the latest revision. The standard requires documenting conformance of quality systems to the company’s quality manual and established quality system requirements.  The registration process involves a document review, pre-assessment to identify potential noncompliance, and final assessment leading to registration.  Periodic re-audits are required.   Feedback from assessment includes a record of nonconformance with specific requirements of the standard.  The process of obtaining ISO certification can be long and expensive and depends on the quality improvement efforts that exist in an organization. The cost of initial certification could be anywhere from $150,000 to $200,000. A recent survey reported that the average total cost associated with registration was $187,000. According to this survey the average annual savings reported amounted to over $100,000. However a majority of organizations make this decision partly because many customers require certification as a pre-condition to do business with them. This paper investigates the effects of certification on a number of variables that affect quality, productivity and profitability of an organization. A survey was conducted and results were compared for companies with and without ISO certification.

 

Integrating SEE Countries in the European Services Trade: The Case of Romania

Dr. Ana Bobirca, Academy of Economic Studies, Bucharest, Romania

Dr. Paul Miclaus, Academy of Economic Studies, Bucharest, Romania

 

ABSTRACT

Services account for more than 70% of overall European GDP, while exports represent only one-fifth of intra-European trade. One of the justifications is that trade costs resulting from the multitude of regulatory barriers in the European states constitute a significant impediment to services trade.  In the course of their negotiations with the WTO and the EU, most countries in South-Eastern Europe (SEE), including Romania, have started to make noticeable progress towards opening up their services markets. But barriers to the integration of services markets are still important. The paper indicates that removing these barriers would raise the area’s economic growth potential and enhance its resilience to shocks.  The enlargement of the European Union to include several Central and Eastern European countries has led to intense investigation and speculation regarding its impact on both existing members and future participant countries, as well as on the multilateral trading system and world trade in general. Some analysts consider that European integration to date has caused considerable trade diversion, manifested especially in agricultural products. Previous enlargements of the European Union led to prolonged negotiations with the Union’s trade partners, such as the United States. The recent inclusion of two South-Eastern European (SEE) countries (i.e. Romania and Bulgaria) is already raising similar concerns. Taking into account that the services sector assumed dominant position among economic activities in most SEE countries (Romania, Bulgaria, Croatia, FYR Macedonia, Albania, Bosnia and Herzegovina, Serbia and Montenegro), bearing heavily on economic development, it became of utmost importance to explore and discern the tendencies in services trade in the region, aspects dealt with in the first part of this paper.  The characteristics of existing regulatory and socio-economic frameworks in the services sector are addressed in the second part of the paper. These are important especially in view of the need to accommodate EU policies to better serve future members and, thus, to shape more “services inclusive” regulatory environments in SEE countries in order to ensure faster and more efficient integration of the services market into the European economy.   To this end, the third part addresses the methodologies used for measuring services barriers. The fourth part of the paper focuses on the methods used to measure the level of restrictions in telecommunications services in Romania and on the techniques used to highlight the progressive developments in this field. The main challenge here is the transformation of available, essentially regulatory measures characterizing services into quantitative information on the basis of an index methodology which allows for comparisons across time, different service sectors and countries. Based on the information from the above, this analysis also permits, as a conclusion, an examination of the overall progress of SEE economies in services trade liberalization and its contribution to their economic development and integration into the European economy. One of the conventionalized facts of economic development is that the share of services in GDP and employment rises as per capita income increases (Francois and Reinert, 1996). This reflects increasing specialization and exchange of services through the market, with an associated increase in variety and quality that may raise productivity of firms and welfare of final consumers, in turn increasing demand for services. The share of services in GDP and employment has grown significantly in the SEE countries in the last 16 years. Compared with the high-income OECD average in 1990, when the share of services in employment and GDP was around 63%, the region’s countries clearly lagged far behind: services accounted for only 30–40% of GDP and employment. As of 2003, these services shares had increased substantially, reaching a 49% GDP level and a 42% employment (as compared to 68% average OECD and around 70% in the EU). In Romania, the contribution of the services sector to GDP remained around 45% for the last three years, while services activities account for around 40% of employment (National Institute of Statistics, 2006). Available data suggest that in almost all SEE economies the increase in services mainly reflects the growth of traditional services such as wholesale and retail trade activities, travel and urban transportation. These sectors account for a larger relative share both in terms of contribution to GDP, as well as to employment. However, in some SEE countries such as Romania, Bulgaria and Croatia, the importance of other services sectors such as business services is rising, suggesting that these countries are beginning to develop the modern services link. As it is the case with the share of GDP attributed to the services sector, trade in services in SEE countries has become increasingly important, even though it still represents a very small portion of the world trade in services (according to EUROSTAT, only 0.75% of world trade in services, as compared to EU-25 that was able to stabilize its share in total world trade in services at 26.2% in 2004). Romania’s share of EU-25 trade in services is only 0.7% (4.5 mld. euro in 2004), as opposed to 1.62% for the share of EU-25 merchandise trade with Romania (32.188 mld. Euro in 2004).

 

Globalization & Labor: Needs, Means & Returns

Dr. Alev M. Efendioglu, University of San Francisco, San Francisco, CA

Dr. L. W. Murray, University of San Francisco, San Francisco, CA

 

ABSTRACT

The technological changes of the past two decades have brought about significant and profound changes in our society and economy. Technology, specifically the telecommunications technologies, has created environments and delivery systems that have accelerated globalization with increased offshoring of business processes and 24/7 business operations. However, increased globalization has often resulted in local labor shortages, especially in countries which have been the major recipients of globalized business processes. These changes have also created opportunities and challenges for organizational trainers, as they extend their training efforts, unburdened by time, location, or knowledge source. Unfortunately, in spite of the best efforts of organizations and the professional trainers’ associations, there are significant problems in evaluating the true impact of training. These attempts encounter significant challenges in measurement of the costs and benefits and use valuation methods which will not be acceptable for valuation of other organizational investments. This paper reviews and discusses the impact of globalization on shortage of skilled labor in developing countries, and proposes and demonstrates how traditional investment valuation methods, can and should be incorporated in to the valuation of organization training. The technological changes of the past two decades have brought about significant and profound changes in our society, economy, and educational systems. Technology, specifically the telecommunication technologies, has created environments and delivery systems that have spawned e-commerce and virtual retail outlets, increased globalization with offshoring, and 24/7 business operations. During 2004, 20 percent of U.S. companies spent over 20 percent of their outsourcing budget offshore. (Campoy, 2004) According to Forrester Research, an estimated 315,000 U.S. services jobs had been moved overseas by the end of 2003, and by 2015, roughly 3.3 million U.S. business-processing jobs will be performed abroad. (Brainard, 2004) Offshoring is not confined to a few manufacturing industries but rather utilized across many industries, even by non-manufacturing industries trying to decrease their operating or support costs. Biotech industry is one such industry. A brief look at the companies in the San Francisco Bay Area turned-up biotech companies that are already testing the offshore waters, among which are Stanford University spin- off SRI International signing an outsourcing deal with a research firm in Shanghai and South San Francisco's Genentech Inc., founder of the biotech industry, manufacturing some supplies of an innovative cancer drug in Spain. This same trend can also be seen in the financial sector. A recent report by Deloitte Research forecasts that by 2010, the world's 100 largest financial institutions will also move $400 billion of their cost base offshore, saving an average of just under $1.5 billion annually each. The survey forecasts that by 2010 more than 20 percent of the financial industry's global cost base will have gone offshore. (Wu, 2004) However, these efforts to further globalize and to employ labor and skills in developing countries have created conditions where the availability of educated employees has been significantly strained, putting increased demands on the existing skill sets of the local population. An excellent example of this is the situation in China. In 2003 China had roughly 8.5 million young professional graduates with up to seven years' work experience and an additional 97 million people that would qualify for support-staff positions. Despite this apparently vast supply, multinational companies found too few graduates with the necessary skills for service occupations. According to interviews with 83 human-resources professionals involved with hiring local graduates in low-wage countries, fewer than 10 percent of Chinese job candidates, on average, are suitable for work in a foreign company in the nine occupations studied: engineers, finance workers, accountants, quantitative analysts, generalists, life science researchers, doctors, nurses, and support staff. Effective managers are in short supply as well. It is estimated that, given the global aspirations of many Chinese companies, over the next 10 to 15 years they will need 75,000 leaders who can work effectively in global environments; today they only have 3,000 to 5,000 who can fill these positions. To compound this lack of available skilled labor, Chinese graduates lack mobility; only one-third of all Chinese graduates move to other provinces for work. (Farrell and Grant, 2005) As a result, during 2005, wages in China increased an average of 10% in already high-pay major cities and population centers and up to 40% in some of the inland areas. The latest statistics from the Indian government also show that, for the Indian software firms, payroll costs increased 35.1% during 2005. These socio-economic changes have forced organizations, which want to continue globalization of their skill based processes, to make investments in training technologies, materials, and activities. Some U.S. companies believe better education and training is the only way to maintain their relative position. Among these companies are Motorola, which hires graduates straight from school and the trains them at its “Motorola University” in Beijing, and Intel Corp. which has backed initiatives that have trained 600,000 teachers. (Roberts, 2006) According to McKinsey Global Institute, to compensate for the poor education systems in developing countries, companies invest heavily in training programs, which can add 15% to personnel costs. (Sovich, 2006)  The continued developments in communication technologies (e.g. access to Internet, availability of broadband access, and increasing penetration of computers globally in homes, etc.) have created an opportunity for distributed education and training that is unburdened by time, location, or knowledge source, and have given options for organizations to train their labor force at far-flung locations (domestic and foreign). As the globalization and offshoring efforts of organizations continue and accelerate, the urgent need to train local labor effectively and cost efficiently will require large organizations to utilize distance education systems and technologies in an increasing fashion and make significant additional investments in communication technologies, training delivery systems, and personnel. In fact, the Institute of Management & Administration (2002) found that 60% of U.S. companies use some form of e-learning to deliver training to their employees, customers, and/or suppliers. These companies have used “distance training” because it is cost effective (i.e., reduced travel time, reduced time away from the workplace, lower direct costs of instruction), it is convenient and flexible (easy to customize and deliver without time and location limitations), and it has been found to be as effective as live instruction. However, some very high-end systems with broadcast-quality cameras and a row of 50-inch plasma screens cost as much as $1 million for a two-location system ($500,000 more for each additional one), plus as much as $18,000 a month for high-speed phone lines. That is as much as 50 times the cost of older, less sophisticated systems.

 

Cross-Cultural Competence: The Role of International Project in US Business Schools Curricula

Dr. Gordana Pesakovic, Argosy University, Sarasota, FL

 

ABSTRACT

The purpose of this exploratory paper is to assess the concept and practice of the short-term programs abroad in the US business schools. The paper addresses the following questions: What do US companies need to operate successfully in a global economy?  How is academia addressing these business needs? What is the role of study-abroad programs? The paper uses a case study of short programs abroad offered between 2004 and 2006 at Argosy University/Sarasota. The world is changing! How many times have we heard this statement? “The world is flat,” according to ancient Pythagoreans or according to Thomas Freedman. Plus ça change, plus c’est la même chose. “All is one,” Hinduism declares! How much do we know? How much do we not know? How much of what we know is false and how much true?  How much…? Allan Goodman (2005) portrayed the alarming status of “the American mind”: 87% of college-educated adults cannot find Iraq on a map; 83% of our citizens do not have a passport, and 50% of those who do are either over 60 or under 5 years of age; 70% of Americans today can neither name the president of Russia nor identify the job that Kofi Annan holds; 60% believe we have a fully-functioning anti-missile shield that is protecting us as we speak from terrorists and rough states; 3 out of 300 of the world’s smartest freshmen (at the Fletcher School), can pass a world geography placement test, and those 3 tend not to be US citizens.(p.198); Can the US “globalize” the world without “globalizing” itself? In order to look for an answer to this question, one should start from the following research questions: 1. What do US companies need to operate successfully in global economy?  2. How is academia addressing these business needs?  3. What is the role of study-abroad programs?  The case study of short programs abroad offered, during 2004-2006 at Argosy University, Sarasota campus, is used to illustrate some of the major issues related to the above questions. Between the end of the World War II and the 2007, four periods with different global business rules can be identified: The reconstruction, from the end of the war to Churchill’s famous Iron Curtain speech  (1945-1947) Cold War, until the fall of the Berlin wall (1948-1989) The triumph of the market economy  (1990-2001) The quest for identity (2001-present). The first period was brief, and can be characterized as sellers market, with the United States as the single undamaged economy. The United States was providing everything, from food to manufacturing products, to the rest of the world, and was running a trade surplus between  1945 and 1949.  The second period was impacted by an ideological division of the world. One part of the world, the “East”, was economically separated from the West. Economic interaction between the United States and the East was limited, and determined by politics and security. The US economy during these two periods was mostly self-sufficient with a minimal dependency on international trade, especially from 1940 to 1970. The percentage of export in the GDP had ranged from 3.8% (1940-1950) to 7.7% (1960-1970). The percentage of import in the GDP fluctuated from 3.4% (1940-1950) to 9% (1960-1970). However, by the end of the second period (1980-1990) the US economy became more depended on imports (22% of GDP). This paper focuses on the third and fourth periods. This time frame is more relevant for the future orientation of business schools and the education US business professionals for the 21st century. What is the new business paradigm? What does American business want from the world? How does the world perceive US business and its intentions? Is there a gap between what the US wants and how it is perceived? If the gap exists, how can we bridge it? The global economy plays a significant role in the US economy during 1990-2007. It can be expressed either in energy dependence on foreign resources (55% of oil consumed is imported), or dependence on foreign financing of the US current account deficit (three-fourths of this deficit is financed by other countries! (Setser et al. 2005) The economic mantra of the 1990s was Washington consensus. Some devastating consequences of either misreading of this neo-liberal approach, or of its strict following, were evident in the Mexican crises in the first half of the 1990s, in the East Asian crises, and in the collapse of the Russian financial market in the second half of 1990s. During the triumph of the market economy period, few fallacies were noticed. First, it was generally assumed that “what works in the US will work in the rest of the world”. Second, it was equally assumed that when in the similar situation, people will react similarly. Third, if others speak English, we can understand each other. Later developments in the emerging markets of East Asia and South America, together with transition economies in the former Eastern block, exposed each of these fallacies. The effects of the wrong-headed policies based on these fallacies were significant. Examples range from the South East Asian crises in the late 1990s, to the South American “socialist revolution”. Between 1974 and 1993, the American Assembly of Collegiate Schools of Business (AACSB) was simply encouraging, but not requiring, business schools to include international business topics in their curriculum. The AACSB did not require separate courses, or majors in international business. This policy was defendable as long as international business had a limited impact on the country’s GDP. However, the playing field had considerably changed since 1990s.  First, paradigm shifts in the global economy began to emerge elsewhere, not only in the US. The shifts caused shock waves in the US economy forcing painful restructuring of entire industries, labor markets, legal framework, and the approach to welfare. Second, the number of countries that became involved in the global economy increased significantly. Therefore, the need for a better understanding of the world started to evolve. This need spawned questions such as “How do they think?”, “What is their value system?”, “What language do they speak?”, or “What is their religion?” After the September 11, the need for a better understanding of other cultures became the national security issue.

 

The Introduction of Urboun Call Option (UCO)

Nuradli Ridzwan Shah Bin Mohd Dali, Islamic University College of Malaysia, Negeri Sembilan, Malaysia

 

ABSTRACT

Derivatives are complex instruments since its value derived from underlying assets. Options is a type of derivatives that gives rights to buyer or seller to exercise their rights based on the price movement of an underlying assets. However, options is not acceptable according to many scholars due to its speculative nature and premium fee charge and not because of its promise.  This is a proposal to the Muslims scholars to accept options developed using Urboun or deposits as a replacement to premium fee charged in conventional options. The need for reevaluating the currency derivative market for the benefits of maslahah, and exploring the option currency market using Urboun or deposits would enrich the Islamic economics literature. Currency or money is an important aspect in our life because it facilitates trade activities, payments of debts and zakah, and measures of values or units of account and as storage of values. The purpose of currency trading is for three reasons which namely sale and purchases of currency, a) to settle international payments, b) to hedge against market volatility and c) to make profits (Saiful Azhar, 2005, pg 565).The evolution of the economic system from barter trading to the uses of bimetallic and fiat money (paper money) as a medium of exchange shows that the process of civilization, modernization and the fallen of a society do have strong connections with monetary stability.  The Origins of Money as stressed by Glyn Davies (2002) are:-Money did not have a single origin but developed independently in many different parts of the world.  Many factors contributed to its development and if evidence of what anthropologists have learned about primitive money is anything to go by economic factors were not the most important.  Money performs a variety of functions and the functions performed by the earliest types were probably fairly restricted initially and would NOT necessarily have been the same in all societies.  Money is fungible: there is a tendency for older forms to take on new roles and for new forms to be developed which take on old roles. It is clear about the permissibility of the usage of fiat money in the current economics system but Umar Vadillo to name one, issued a controversial decree stating that the existing fiat money is not in accordance to Shariah principles since it promotes injustice and riba and needs to be reconsidered.  He suggested that the Muslims to use the gold dinar and silver dirham, as the bimetallic currencies, which have intrinsic value as these currencies were accepted during Prophet Muhammad saw time. Nevertheless, the OIC Fiqh of Academy has issued a decree on the permissibility of using paper money as currencies as long as it adheres to the strict rules and regulation regarding to the sale and purchase of sarf. Mohamed Sharif (2006) mentioned that the currency is not a shariah matter because it is based on nuqud. The OIC view is used throughout the discussion in this paper to avoid any misunderstanding and misconception on the derivatives.  Derivatives such as Forwards, Futures and Options are instruments that are widely used for hedging and speculating.  The currently practices of futures and options derivatives are not in accordance to the shariah laws.  Futures and Options are derivatives, which values derive from other financial products. On the other hand, options are yet too speculative, which involve gharar and maisir, which are not in accordance to the shariah laws (Nuradli R.S and Sanep Ahmad 2006).  However, there are two forward products which have been developed - the Tawarruq Murabahah Forward Delivery and Tawarruq Salam Forward Delivery. Nevertheless, the development of the Islamic contract for option is still debatable. In the light of future financial instruments, the contract of sulh and jialah could be used as an alternative to conventional future. However in this paper, the discussion on option will be discussed as for the futures will be discussed in a subsequent forthcoming paper.  Derivatives as a whole from Islamic perspective are an issue which many ulama’s have different opinions on its permissibility.  They have their own different reasons for approving and prohibiting such contracts except for Salam contract (Nuradli R.S & Sanep Ahmad 2006).  Obiyatullah Ismath Bacha, (1999) reviewed the evolution of modern financial derivatives and its needs, urged the Islamic scholars to do some rethinking and evaluation (Obiyatullah, 1999).  He explained the instruments in details by laying out critical issues on why the Islamic communities need these instruments in the market place as well as highlighting several consequences that would affect the Islamic business if these instruments were ignored (Obiyatullah, 1999).  Mohammed Obaidullah (1999) has laid out that futures and options are prohibited with emphasis on the definition of sarf from two different points of views. The first view stated that only gold and silver would be governed in the rules of bai as-sarf while the fiat or paper currencies did not fall into bai-sarf category. He cited Ibnu Taymiyah definition of sarf, as gold and silver could perform as a medium of exchange and the fiat money was not considered as sarf or currency. Therefore selling and buying fiat money with other fiat money with deferred delivery if the currencies are not made of gold and silver is acceptable because fiat money is not categorized as sarf (Mohammed Obaidullah 1999).  However in this current economic system, if this view is apprehended, lending fiat money with interest is acceptable which will have a major implication on the Islamic banking system.  The contemporary view states that fiat or paper currencies fall into bai as-sarf category therefore deferring delivery is riba (Obaidullah, 1999). This is also supported by the decree issued by the OIC Fiqh academy regarding bai-as-sarf.  Another prominent Islamic scholar, Monzer Kahf also prohibits the sale of currency with deferred delivery. This view is more practical in the current system and in the light of the economic development of the ummah.  However, it is undeniable that the use of gold and silver as medium of exchanges could promote economic stability. Therefore research on its impact on the economic social order and comeback should not be ignored. 

 

Consumer Perceptions of Foreign Products: An Analysis of Product-Country Images and Ethnocentrism in Guatemala

Dr. John E. Spillan, Pennsylvania State University at DuBois, PA

Dr. Orsay Kucukemiroglu, Pennsylvania State University at York, PA

Dr. Talha Harcar, Pennsylvania State University at Beaver, PA

 

ABSTRACT

Throughout the world consumers are connected with a myriad of products and services from all over the world.  The advent of ever changing and rapid communication, has given consumers far more knowledge about products than any time in history. The consequence of this information availability allows the consumer to examine the product’s country-of- images more closely. As such, their information and perceptions about the country and product has an impact on consumer behavior and is a major concern of marketers. The goal of this paper is to present the results of a study that was conducted to analyze the perceptions of Guatemalan consumers regarding products-country of origin images. In addition, Guatemalan ethnocentrism and life styles were analyzed to develop a perspective on what other factors may be influencing their buying patterns. The findings of the study revealed that several lifestyle dimensions exist among Guatemalan consumers which have an influence on their ethnocentric buying tendencies. Over the last four decades, the country-of-origin (COO) concept has been studied, discussed and evaluated as an important dimension in understanding how consumers purchase products and how companies market products in foreign countries. The effects of a product’s country of origin on buyers’ perceptions and evaluation has been one of the most widely studied phenomena in the international business, marketing and consumer behavior literature (Tan and Farley, 1987; Papadopoulos and Heslop, 1993). Studies have found that consumers have significantly different country images or general perceptions about products made in different countries (Bilkey and Nes, 1982; Kaynak and Kara, 2000; Roth and Romeo, 1992).  As the manufacture of products and the quest for consumers become increasingly global activities, international marketing research becomes much more important. The COO idea reflects the global marketplace’s increasing complexity. The real question is why does COO influence purchase decisions. Some have noted that product category, knowledge of a particular country and patriotism are major factors affecting the purchase decisions (Roth and Romeo, 1992). The purpose of this research is to offer a developing country’s perspective on COO, namely Guatemala. Here, COO is studied by understanding the fit between countries and product categories. Relating country images to product category characteristics, decision makers can better understand preference formation for their products. This information provides insight into what underlies consumers’ attitudes towards products manufactured in particular countries. Managers can benefit by having a better understanding of when promoting product’s COO is beneficial and when it is not, as well as identifying the dimensions along which country image should be improved (Roth and Romeo, 1992). The concept of country quality is really what makes the COO effect take place. The fact that a product’s origin matters to consumers has significant strategic implications for firms engaged in both domestic and international businesses. Findings from product country image (PCI) studies can provide information to firms exporting products, manufacturing abroad, and/or competing in their home markets against foreign companies. The relevance of country of origin research becomes even more salient when one considers the increasing trend toward free trade and the high pace at which national economies are turning global. The numerous practical and theoretical implications of country-of-origin research have made it one of the most fruitful areas in marketing with numerous studies published in the last four decades.  Past research has demonstrated that the consumer tend to regard products that are made in a given country with consistently positive or negative attitudes (Bilkey and Nes, 1982) These origin biases seem to exist for products in general for specific products, and for both end-users and industrial buyers alike (Bilkey and Nes, 1982; and Quester and Dzeverter, 1999). Overall, products from developing countries are perceived to be riskier and of lower quality than products made in more developed countries (Laroche, Papadopoulos, Heslop, and Mourali, 2005). The reasoning is that when consumers have little knowledge about a foreign product’s attributes, they are likely to use indirect evidence, such as country of origin, to evaluate products and brands and make inferences regarding the quality of their attributes. Johansson et al (1985) demonstrated that country image does affect the evaluation of product attributes, but not the overall evaluation of products.  Erickson, et al (1984) reported that country image impacts consumers’ evaluation of specific attributes rather than their overall evaluation of the product. Because of the global competition between firms, country of origin perceptions has become important for researchers. Knowing what consumers from a specific country feel about products coming from different countries will allow firms to develop an appropriate marketing strategy. For this study we want to know how the people of Guatemala feel about products being imported from the U.S., Japan, Hong Kong, China, Europe, and Latin America as well as how Guatemalans feel about their own domestic products. We also want to know how people with different demographic characteristics feel about the country of origin of the products. Information regarding a product’s country of origin can influence how consumers think about it. As we stereotype people who are foreign born, we also stereotype products according to where they are made. Products produced in France will suggest elegance and style. Research demonstrates that consumers in developing countries conclude that which high quality brands are foreign. Many Latin American consumers, for instance, believe that foreign telephone companies offer better service than local companies (Hoyer and MacInnis, 2004). Consumers are not as likely to make assumptions about a brand based on its country of origin when they are highly motivated to review and understand the information about the brand. Nor are consumers going to assume anything about the country of origin when there processing goal guides attention away from origin information (Hoyer and MacInnis, 2004). A product’s country of origin provides an anchor for the consumer’s perceptions and influence subsequent judgments.  An example will illustrate. The Italian government spent $25 million dollars on ads to persuade consumers that Italian fashions are the best (Hoyer and MacInnis, 2004).

 

Value-at-Risk Analysis for Korean Stock Market: Asymmetry and Fat-tails in Return Innovations

Dr. Sang Hoon Kang, .University of South Australia, Adelaide, Australia

Dr. Seong-Min Yoon, Pukyong National University, Busan, Korea

 

ABSTRACT

The correct assumption of return distribution might improve the estimated performance of the Value-at-Risk models in financial markets. In this study, we investigate the VaR of Korean stock market using the APARCH model with normal and Student-t distribution. The APARCH model can capture clustering and asymmetry in volatility, and the assumption of Student-t distribution can reflect the fat-tail innovations. Form the empirical results of diagnostic statistics, the in-sample analysis and the out-of-sample analysis, we can find that the Student-t APARCH VaR models for long and short positions predict critical loss more accurate than the models with normal innovations.  In recent years, the financial regulators and supervisory committee of financial intuitions have paid great attention to effective risk management or investment in the markets. Indeed, most financial institutions seek to avoid their exposure losses or minimize possible investment risk. In this purpose, financial institutions have put great emphasis for the development and adoption of accurate measures of market risk (Duffie and Pan, 1997).  Some quantitative techniques have been introduced to appraise possible losses that financial institutions can incur. Of these techniques, the Value-at-Risk (VaR) is one of most popular technique for measuring market risk that has been widely used in banking and securities sectors. As far as economics and finance are concerned, VaR calculates the maximum loss (or worst case scenario) on an investment, over a given time period (normally 1-day or 10-day) and a given probability . More specifically, the VaR at level  means that in a given time the possible maximum loss for a sample of returns on asset and portfolio will not exceed VaR at a conditional level . From the empirical purpose, the implementation of VaR must require the computation of the empirical quantile at level of the distribution of the returns of asset and portfolio (Giot and Laurent, 2003).  The RiskMetrics model proposed by the J.P. Morgan financial group measures the market risk under the assumption of normality (RiskMetrics Group, 1996). However, the main problem with the RiskMetrics model is that it does not capture non-normality in the residuals. Generally, the residual of a financial time series suffers from excess skewness and kurtosis, implying that assumption of Gaussian error innovation is inappropriate for explaining the asymmetric and fat-tail characteristics of residuals. Therefore, the VaR estimation using the RiskMetrics model may lead to spurious results at high quintiles for fat-tailed distributions as it mainly concerns the tail properties of distribution (So and Yu, 2006).  Another problem of VaR estimation is concerned with the fact that the returns often show leverage effect (i.e. stock return volatility tends to rise more following a large price fall (bad news) than following a price rise (good news) of the same magnitude). In order to circumvent this problem, the variants of GARCH class models have been advanced in econometrical literature (Ding, Granger and Engle, 1993; Nelson, 1991). In particular, Ding, Granger and Engle (1993) proposed a new class of asymmetric power ARCH (APARCH) model to capture the asymmetry in the stock returns. Subsequent studies have widely used the APARCH model in modeling the VaR using stock returns (Giot and Laurent, 2003; Huang and Lin, 2004; Sriananthakumar and Silvapulle, 2003) This paper considers the VaR estimation for daily returns of KOSPI 200, a representative stock index of Korean stock market. To further enhance the robustness of the estimation results, we compare the performance of the APARCH models with different distribution innovations such as Gaussian and Student-t distribution. In this respect, this paper provides two important contributions. First, most empirical studies focused only on a long position of a portfolio assuming that traders or portfolio managers bought the traded asset and are concerned when the price falls. Nowadays, all traders or portfolio mangers concern not only long trading positions but also short trading positions. Thus we consider a long (bought an asset) and short trading (sold an asset) positions in modeling and estimating the lower (left-side) and upper (right-side) tails of the distribution precisely. Second, we also calculate not only in-sample VaR values for evaluating the estimated model’s goodness-of-fit ability but also out-of-sample VaR values for assessing the forecasting quality of the estimated model.  The rest of this paper is organized as follows. The next section describes the theoretical properties of symmetric and asymmetric VaR models under different innovations. The third section provides the statistical characteristics of sample data and the estimation results. The final section contains some concluding remarks. This section follows the model framework of Giot and Laurent (2003) and provides a brief description of APARCH model with normal and Student-t innovations. The first step is to take into account the serial correlation in the daily percentage returns: , with . To account for the serial correlation, we set an AR process on the  series as follows: where  is conditional mean and ,  and  are constant parameters.  We now consider the APARCH model for the conditional variance of . The APARCH model of Ding, Ganger and Engle (1993) extended the GARCH model of Bollerslev (1986) with an optimal power transformation term in the lagged errors. The GARCH model commonly imposes a squared power term in the lagged errors. The general APARCH model is given by following equation:

 

FedEx: Leveraging IT for a Competitive Advantage

Dr. Nabil Alghalith, Truman State University, Kirksville, MO

 

CASE SYNOPSIS

The primary subject matter of this case is to examine the strategic and operational impacts of information technology on FedEx. Secondary issues examined include IT architecture, and the impact of IT on business model evolution. FedEx Corporation is the premier global provider of transportation, package delivery, e-commerce, and supply chain management services.  The company offers integrated transportation and logistics solutions through a network of subsidiary companies that collectively compete under the worldwide FedEx name. The family of companies includes FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks and FedEx Services.  FedEx handles 3.3 million packages nightly, employs over 200,000 people, and connects customers to 215 countries within 24 to 48 hours.  The case provides a thorough analysis of the strategic and operational impacts of IT implementation on FedEx. The case examines the following aspects of FedEx: 1. History and background 2. Organization structure  3. Business model 4. Competitive environment 5. Information technology architecture 6. IT deployment and assessment 7. Recommendations 8. Lessons learned  The strategic grid (Applegate) and competitive forces model are used to assess the impacts of information systems implementation on corporate competitiveness, organization structure, systems integration, streamlining and automation of operations. FedEx Express was founded in 1973 by Frederick W. Smith.  He believed there was a need for shippers to have a system designed specially for airfreight that could accommodate time-sensitive shipments.  Since speed was crucial, his vision was to ship all packages using a private fleet of aircraft and a single hub.  The single hub would allow tight control of the cargo so that it got to its destination overnight, and the company-owned planes would free the service of commercial airline schedules and shipping regulations.  With 14 small aircrafts, the business was launched from the Memphis International Airport, where the company headquarters were located. Frederick Smith named the company Federal Express to relate the patriotic meaning of “Federal” to the company.  Smith thought the name would help obtain governmental contracts, since it symbolized a national marketplace.  He also believed the name was good for attracting public attention and sustaining name recognition.  At first, FedEx Express struggled to make a profit and remained in the red until July 1975.  The company experienced rapid growth following deregulation of the airline industry, which allowed the company to fly larger aircrafts anywhere at anytime in the United States.  Federal Express was not well established until the first half of the 1980s when the company entered its maturing phase.  By 1983, the company reached $1 billion in annual sales.  It was the first American company to do so within 10 years of start-up without mergers or acquisitions. FedEx Ground began in 1985 as Roadway Package System (RPS).  RPS was the first in the ground carrier business to place a bar code on every package as a standard service to enable en route tracing, auto-rating, itemized billing, and a consignee direct-billing program.  Utilizing internet-based technology, the company was the first to provide access to consignee signatures as part of an integrated, web-based shipping information system that also includes tracing, tracking, rating, and proof-of-delivery services. Following the acquisition of RPS by the FDX Corporation in 1998, the ground carrier business was renamed FedEx Ground in January 2000.  Since its inception, FedEx Ground has expanded throughout the United States, achieving 100 percent coverage of North America.  Leveraging the preexisting IT infrastructure of RPS, FedEx Ground has continued to break new ground with services such as electronic C.O.D. (an automated returns program), automatic proof of delivery, and integrated multi-carrier shipping systems.  The corporation also formed FedEx Trade Networks to offer brokerage, trade consulting, freight forwarding, information technology, and international transportation solutions.  With this service, it bypasses the need to negotiate with many different companies and pricing structures.  In 2001, FedEx realigned its logistics companies, blended its operations with the other subsidiaries, and acquired American Freightways.  These moves were designed to streamline the organization and further improve customer service.  In 2002, FedEx renamed the freight companies FedEx Freight East and FedEx Freight West.  This was based upon the rationale that a common branding system would better cultivate the growth of regional, less-than-truckload (LTL) freight business.  Today, FedEx Freight is the leading U.S. provider of next-day and second-day LTL freight services.  Like the other companies that carry the FedEx name, FedEx Freight East and FedEx Freight West both are known for exceptional service, reliability, and on-time performance. In February 2004, FedEx acquired Kinko’s.  Kinko’s provides an “office on the road” for traveling business professionals and remote workers, who often need high-speed Internet access, videoconferencing, presentation support and other business services.  There are over 1,200 Kinko's locations in the continental United States, with more than 400 stores that operate 24 hours a day.  With more than 1,200 stores in 10 countries and serving more than 100 million customers each year, FedEx hopes to create ”physical and digital integration” for its customers.  FedEx management anticipates that this acquisition will bring a new phase of growth, profitability, and additional service offerings for customers (Corwin).

 

Corruption and Its Economic and Business Implications

Dr. Syed Shahabuddin, Central Michigan University, Mount Pleasant, MI

 

INTRODUCTION

Corruption has economic as well as social implications. Both obviously affect society, usually in adverse ways. However, the word corruption means different things to different societies. Some societies accept corruption and others do not. Unfortunately, corruption persists and leads to despair and resignation among those who attempt to control it. The effects of corruption are further complicated by the fact that the reason most political regimes crumble is widespread misconduct among politicians and public officials and the accompanying unlawful practices among business and the public. Such conditions almost always pave the way for dictatorships through coups and the resultant governments which are initially accepted overwhelmingly by the population.  Regardless of whether corruption is acceptable to individual societies or not, corruption needs to be addressed worldwide because of its undesirable economic and social consequences. Therefore, many methods have been developed to measure various types of corruption, including the Business International Index (BI), the World Economic Forum Index (GCR), the Transparency International Index (TI), and the World Bank’s Private Sector Survey.  (A list of countries and their corruption index rankings according to Transparency International is in the Appendix.) All these indices measure levels and types of corruption. These many measurement tools indicate the concern of the world community with corruption and the serious consequences corruption has on people and societies. Many researchers have used these indices to find factors to help explain corruption. The results are encouraging in many cases. As a result, researchers have some idea of the causes of corruption. Thus, many international organizations, such as the World Bank, have decided to find ways to curb or eliminate corruption. The UN has passed many resolutions and has held conventions to urge countries to criminalize and to prevent the bribing of officials.  While many explanations as to the causes of corruption and the steps necessary to eradicate it have been proposed, in fact both the causes and cures are relatively simple.  Corruption has been in existence since time immemorial. Even today, corruption is prevalent in all societies in various forms. This is true even in the so-called “Western civilized societies.” A simple definition of corruption is that it is the abuse of public office for private gain. That is, corruption is the abuse of public offices by public officials in which they accept or demand bribes in return for favors such as to perform their official duties expeditiously or to skew laws in favor of the giver. In practice, corruption takes many forms.  Elite corruption is the theft or misuse of vast amounts of public money by the top members of a government for personal use or to hold and/or maintain their official positions. Influence corruption is the collusion of officials with interests in the private sector to benefit only the parties concerned. Legal corruption involves monetary contributions by members of the private sector to government officials in exchange for the passage for particular legislation. Regardless of the form corruption takes, general unfairness and specific favors for some groups or persons over the masses or other individuals is the result. Corruption transfers resources to benefit a group or individual at the expense of the society as a whole. In fact, corruption is a form of taxation on the citizens who are unwillingly and unwittingly penalized. In addition, corruption poses a threat to democratic processes and the market economy.Corruption creates secrecy and inequality, both of which are contrary to the creation, existence, and survival of democratic institutions. It prevents public institutions from operating in non-personalistic, impartial, and legal manners within the law. The phenomenon of corruption is further complicated by the obvious conflict of formal institutions and informal standards. In some cultures, some form of corruption is acceptable despite universal laws approved to prevent it.In addition to the existence of corruption detailed above, other forms of irregularities that have negative effects are nepotism and misappropriation.Corruption rests on many economic and social bases. According to Sandholz, Wayne and Koetze, the extent of corruption is related to a country’s domestic political-economic structure and democratic rules, and the extent of its integration into international trade and culture. They suggest that corruption is high in:- economically poor countries; - state controlled economies; - economically poor countries; - state controlled economies;- weak democratic systems:- economies which are not internationally integrated:- large bureaucracies, and:- society where bribes are culturally accepted.Regardless of the forms of corruption, two conditions either encourage or discourage corruption. The first is the extent of the reward or punishment one receives for being corrupt, and the second is the amount of cultural acceptance. A society’s norms guide its members to act in certain ways in given situations, and research has linked structural and normative standards to corruption. Both the rewards and punishments and the amount of cultural acceptance of corruption in a society can encourage corruption as well as inhibit it, but each, by itself, can also encourage or inhibit it. For example, in one country there may be opportunities for officials to be corrupt, but culture may not allow it. In contrast, in another country the culture might permit corruption, but opportunities for individuals to engage in corruption do not exist. Therefore, countries that wish to remove corruption must alter the conditions which cause it.  To understand how particular conditions can create environments which make corruption possible or even inevitable, one must know the factors that generate the conditions.

 

Relation Between Manufacturing Practices, Flexibility and the Performance in ERP System Firms

Leopoldo Gutierrez Gutierrez, University of Granada, Spain

Javier Tamayo Torres, University of Granada, Spain

 

ABSTRACT

In recent years, the management literature has produced various articles on the importance of flexibility for a company and its performance. This paper focuses on the relationship between flexibility and higher performance in companies with flexible manufacturing planning, such as Enterprise Resource Planning (ERP). This research analyses [JLP5] the literature on manufacturing flexibility and manufacturing practices to explore the performance obtained by companies with the ERP system. The research is based on three basic operating strategies according to the firm’s focus of activities. Today’s manufacturing environment can be characterized by intensified competition, rapid market changes, increased product variety and short product life cycles. To be competitive, manufacturing enterprises must respond rapidly to changes in product demand (Persentili, E. and Alptekin, S., 2000).  The uncertainty of the environment in recent years has forced companies to be flexible in their decisions and structures. Flexibility and company performance have been studied in the academic context, but the relation to strategic planning such as ERP has not.  There is increasing recognition in today’s manufacturing environment of the need for more flexible Manufacturing Planning and Control (MPC) strategies that can respond to rapid changes in product demand.  Our research has two main goals. Firstly, we seek to perform a literature review of manufacturing flexibility and performance in ERP systems firms. Secondly, we seek to establish a model to measure whether more flexible companies achieve better performance.  This research is based on a model by Beach et al. (2000), which shows the relation between manufacturing strategy, required system flexibility and performance measurement.  This is an important subject; our theoretical research establishes the basis for determining whether or not flexible companies capable of adjustment have a competitive advantage over less flexible companies. We also study performance theoretically in ERP system companies, an area in which no research has been published. In the literature, we find different types of MPC strategies. The most commonly used strategies in industry are Just-In-Time (JIT)-pull strategies and Material Requirements Planning (MRP)-push strategies.  JIT is a strategy for inventory management in which raw materials and components are delivered from the supplier immediately before they are needed in the manufacturing process. MRP is as a process to determine material, labour and machine requirements in a manufacturing environment. It is considered a push strategy. The literature defines MRP as a process used to calculate the amount of raw materials necessary to manufacture a specific number of products. This strategy tries to anticipate possible production needs.  In recent years, the importance of the subject and the need for company development have evolved into a new management system: Enterprise Resource Planning (ERP). ERP systems constitute one of the most relevant areas for investment in Information Technology (IT) infrastructure (Davenport, 1998). An ERP system is an integrated enterprise computing system to automate the flow of material, information, and financial resources among all functions within an enterprise in a common database. ERPs are management information systems (MISs) that integrate and automate many of the business practices associated with the operations or production and distribution aspects of a company engaged in manufacturing products or services.  Implementation of the ERP system brings many benefits for the organization, such as reducing cycle time, improving the efficiency of information flows, generating financial information quickly and assisting in the development of new organizational strategies (Davenport, 2000).  In a competitive environment characterized by increasing levels of complexity, the need for integration is growing. Integration is the quality of collaboration among the departments required to achieve unity of effort greater than the demand coming from the environment (Lawrence and Lorsch, 1967).  ERP systems are based on integration: The uniqueness of the database and the adoption of workflow management systems support the integration of the information flows that connect the different parts of the firm; ERP systems provide management and the other operators with standardized practices, thus offering cognitive schemes that facilitate coordination; ERP systems offer a dual focus to management attention, balancing local (unit) performance with overall (process) performance. According to practitioners, the introduction of ERP systems frequently follows a three-step process (Bancroft, 1997): 1. Implementation of a few basic modules of the ERP system. This step is frequently performed from quite a conservative perspective in order to limit the amount of change introduced. 2. Extension of the scope of the ERP system. 3. Transformation of the business process (one of the main subjects of the relationship qe are studying). ERP literature focuses on three topics: implementation, ERP systems factors and performance as perceived by companies; this one, the key objective of our research. In recent years, flexibility in manufacturing firms has been considered one of the most important charcteristics for the company’s adaptation in environmental uncertainty. Nagurur (1992) defines flexibility as “the ability of the system to quickly adjust to any change in relevant factors like products, process, loads or machine failure”. Flexibility can also be defined as “the ability to change or react with little penalty in time, effort, cost or performance” (Upton, 1994).  Flexibility must be planned and managed carefully (Jaikumar, 1986) and is understood as a function of the physical attributes of the manufacturing system. Manufacturing flexibility is thus highly related to performance and management system.

 

Valuation of Callable Convertible Bond with Parisian Feature Using Finite Element Method

Dr. Pu Gong, Huazhong University of Science & Technology, Hubei Province, P.R. China

Jianling Meng, Huazhong University of Science & Technology, Hubei Province, P.R. China

 

ABSTRACT

A valuation model for a callable convertible bond with Parisian feature and notice period requirement is presented here using the arbitrage-free valuation method. Different from the existing works, we analyze the interaction between the optimal call policy and the optimal conversion policy based on the game theory analysis of options. Moreover, the finite element method is adopted to solving the pricing model and the projected successive over-relaxation technique is used to handling the American constraint. Finally, the convertible bond issued by China Merchants Bank is taken for an example to illustrate how the model works. Results show that notice period and Parisian feature have significant effect on the value of convertible bond and the optimal policies, and the so called “delayed call” phenomena has got some explanations here. Most convertible bonds provide the issuer with the right to call back part of or all of their convertible bonds, which would take away the opportunity that the holder can convert the bonds into stocks at higher stock price level. To keep the convertible bond attractive, the so called soft and hard call constraints are designed. The hard call constraint restrains the issuer to initiate the call during the early life of the bond and the soft call constraint further requires the stock price to be above certain trigger price (usually 30% to 50% higher than the conversion price) for a consecutive or cumulative period. The excursion time requirement in the soft call constraint is called the Parisian feature. However, convertible bond may be terminated prematurely either by early voluntary conversion or by call. The interaction between the optimal call policy and the optimal conversion policy has great impact on the convertible bond value by affecting the boundary condition of the pricing model for convertible bond, which makes the valuation for the convertible bond more complicated. In the pioneering theoretical studies on the optimal call policy of convertible bonds, Ingersoll (1977) and Brennan and Schwartz (1977) both argued that a callable convertible security should be called to maximize the value of the issuer’s firm as soon as the conversion value equals the prevailing effective call price. Unfortunately, empirical evidence suggests that convertible bonds are usually called late: the stock price at calling far exceeds the theoretical optimal critical stock price (Mikkelson, 1981; Asquith, 1995). While some corporate finance considerations, such as, signaling hypothesis, balance sheet liquidity, yield advantage and after-tax-cash flow considerations, safety premium hypothesis, would partially explain the delayed call phenomena, some researchers argue that part of the “delayed calling” may be attributed to under estimation of the optimal call stock price in earlier contingent claims pricing models of convertible securities (Bühler and Koziol, 2003; Yigitbasioglu and Alexander, 2005). By taking the call notice period into account, Butler (2002) and Lau and Kwok (2004) both found that under plausible conditions, the delay of call increases monotonically as the length of the notice period increases. Subsequently, Using a sample of convertible bonds called for redemption between 1986 and 2000, Altintig and Butler (2005) found that after properly accounting for convertible bonds’ notice periods and call protection and yield advantage, the median excess call premium in their sample is 3.74%-far lower than the call premiums found by previous researchers. Recently, some authors explore the analytical properties of the optimal conversion policy and the optimal call policy with the optimal stopping theory, such as, Sirbu and Shreve(2005), Liao and Huang (2006) and Dai and Kwok (2007). In our pricing model for convertible bond, both Parisian feature and notice period requirement are considered, and their effect on convertible bond’s value and the optimal strategies are discussed. However, different from the existing works, we analyze the interaction between the optimal call policy and the optimal conversion policy with the game theory analysis of options. According to Ziegler (1999), the game theory analysis of options is an attempt to combine game theory and option pricing. By replacing the maximization of expected utility encountered in classical game theory models with the maximization of an option value (the arbitrage-free value of the payoff to the player), this method has the greatest strength of separating the valuation problem from the analysis of the strategic interaction between the players. Therefore, the complex decision problems under uncertainty can be solved by applying classical optimization procedures to the value of the option. In this work, the projected successive over-relaxation technique is used to handling the dynamic programming problem. The stock price S here is assumed to evolve according to the following process:whereis the drift rate, D is the constant dividend yield, σ and are the volatility of stock return and standard Wiener process, respectively. Usually, the issuer can call back their bonds only after the stock price S has been above a certain trigger price for a specified length of time. The variable J called barrier time is introduced to describe the feature of path-dependence. The barrier time is defined as the length of time the asset price has been beyond the barrier:

 

A Method to Advance Mutual Understanding in a Multi Partnership Project

Tapani Ryynänen, Technical Research Centre of Finland, Espoo, Finland

Kim Jansson, Technical Research Centre of Finland, Espoo, Finland

 

ABSTRACT

In group work, especially across organizational borders, it is challenging to transfer and manage information. In a joint research project initiated by several companies the management group has an important role as information and knowledge transferring medium. This role can be supported by using a facilitated systematic method that interconnects the corporate level and the network level (management group level) processes thus reducing the stickiness of the information and supporting participants ability to exploit the information. A group of Finnish maritime industry companies together with the researchers used the method to think up and elaborate the most valid challenges to establishing business in China. The challenges were listed, combined, evaluated, and put through SWOT analysis. Finally the management group considered the possible steps to take both as a group and as a single company. Often we see in real life inefficient communication between partners in R&D projects. In multi-partnership projects the centre of communication is the project team, often in smaller projects acting also as a management team. Communication tasks within and by this group are where efficiency should be improved. Each partner in the project has its own communication and decision processes also on the company level, where often company confidential information is handled. These processes are interconnected via a management group, in such a way that both benefits of sharing information and keeping the confidentiality of information can be achieved. Thus hindrances in communication between management group (network level) and partners’ own organizations (corporate level) as well as within the management team are an important issue. By applying methods fit for this dialog, communication, decision making and documentation of the process can be improved. In this paper, we will describe a method that supports this dialog. A case of networked co-operation is presented, where dialog takes place between individual companies through the management team of a joint research project. Communication has both a technical and social dimension. “The social dimension of an organization is especially crucial in the network organization because the type of coordinated action that is required is rarely routine.” (Nohria and Eccles, 1992). Any extensive method implemented should support both elements. Group work, especially in the context of business networks where several firms are represented often by several individuals, is not an unbroken process, but a series of separate fragments. These discontinuity points take place both in time and space and need to be managed in order not to waste only time and money, but most important, knowledge.  There are two important issues in having a fruitful dialog among a group of cooperating companies: (1) exchange of information and (2) priorization. If this dialog is ongoing and objective-oriented in nature, it should be documented in sufficient detail to allow “audit trail” type of analysis, adjunct learning enabling and better development method implementation. Learning is a key to exploit available information. Argyris (1982) argues that executives’ are disconnected from their reasoning processes while making tough decisions. When several managers form a management group, these separate and unconscious reasoning processes need to co-operate to make decisions justifiable. Therefore a method that directs this mechanism makes learning more efficient and more transferable.  Information becomes shared as well as owned within and by the management group during the process through group work and researchers’ actions. These actions structure, visualize and document information during the process; they also give group members tools to transfer information from corporate level to network level and vice versa. Innovation related sticky information (Hippel, 1994) can be found also in this process. A group of companies discussing how to improve probability of a successful market entry is a very innovative composition. Von Hippel has classified reasons why information is sticky. “Some reasons have to do with the nature of the information itself, some with the amount of information that must be transferred, and some with attributes of the seekers and providers of the information.” In this process, the first and the third reason are very relevant, but the second is no problem due to quite limited amount of transferred information. Though the amount of information obtained during the process was quite big, it was acquired from outside for the group, not passed between the members. Especially in the beginning of the process, the nature of information is qualitative, even fuzzy, though as process moves forward, more detailed and focused issues are handled. Most partners are in the middle of their own process “trying to understand and communicate”. Information is also classified; issues handled are very much on the strategic level.  From a research point of view it is often challenging to study qualitative information, but quantification of data is always a fuzzy transition. Where this transformation take place - in the mind of the researchers mind or in that of an interviewee, - is the difference. This method uses interconnected qualitative and quantitative tools to try and create an observable relation between different types of information. This is not only for researchers to utilise, but in a development focused process with a group of people from several companies this provides a tool that supports group communication and learning. Attributes of the seeker and provider exist both on the personal and organisation level. Each member of the management group has two roles: one within the group (network level) and one within the company he represents (corporate level). He has to balance these roles based on the mandate given to him by the company he is representing. This mandate defines the corporate level attributes of the person. He also has personal level attributes, such as knowledge and experience, along with personality attributes that make him a person, a character. And as we know, some characters are easier to co-operate with than others. All this is naturally true also in the case of the researchers participating in the project.

 

The Impact of Using Information Technologies on Crisis Management Success in Small and Medium Sized Enterprises

Dr. Muammer Zerenler, University of Selcuk, Konya, Turkey

Dr. F. Atýl Bilge, University of Selcuk, Konya, Turkey

Derya Özilhan, University of Selcuk, Konya, Turkey

 

ABSTRACT

This paper reports the findings of a survey on the use of Information Technology (IT) in crisis management in Turkish small and medium sized. The survey was sent to 241 enterprises with 249 employees or less, resulting in a response rate of 55,6 %. Statistical analysis of the result this study demonstrates that the level of IT use in crisis management is predominantly related to the presence of a member in the crisis management team with an IT background. Crises can take many forms and result from a wide variety of causes. Moreover, every company can and probably will be hit by a crisis in the near or long term future. However, it is not because crises are bound to happen, that a company cannot cope with it. A proper response does not only reduce damage and facilitates the aftermath; it is even often a plain necessity for survival. This becomes clear when examining the alarming results of Ianna (1997) and Wilson (2000), who point out that the majority of firms who experience a severe crisis face failure within the next two years. The term “crisis” has been defined differently by management writers (see, for example, Fink, 1986; Bell, 1971; Pauchant and Mitroff, 1992; Booth, 1993). In layman terms, the Longman Dictionary defines a crisis as ``a turning point in the course of any thing; uncertain time or state of affairs; moment of great danger or difficulty'' (Longman, 1978). Crisis management is therefore crucial for all organisations, because effective crisis management helps to ensure the continuous wellbeing of an organisation. As information technology and information systems today are embedded in all organizational levels and activities, a growing research and development effort has emerged in recent years that focuses on the design, development,use and evaluation of information systems that can help organizations prepare for,and respond to,a crisis (Turoff et al.2004;Van de Walle and Turoff 2006). For example, information systems have been used to understand the possible relationships among threats an organization is facing (Van de Walle and Rutkowski 2006), to make sense of an ongoing crisis (Weick 1988),create awareness and counter threat rigidity (Staw et al.1981; Rice 1990) and information overload, or for planning, training and simulation purposes (Turoff et al.2005).  While corporate crisis planning and preparedness in general is the setting of this research paper,a particular point of interest addressed here are the particular motivations, if any, of managers to use IT in the different stages of crisis management in their company. Crisis management is generally considered a strategic management activity aiming to prevent or minimize the impact of a crisis for the organization. Crisis management is a dynamic and systematic process encompassing the phases of prevention and mitigation, preparedness, response and recovery (Fink 1986; Preble 1997; Pearson and Claire 1998; Pauchant and Mitroff 2002; Spilland and Crandall 2002). Gorski (1998) states that a crisis can test the capabilities of an organization’s staff and its leaders. According to Caponigro (2000), crisis management is the function that works to minimize the impact of a crisis and helps an organization gain control of the situ-ation. It also operates to take advantage of any benefits that a crisis may present. As such, the demands of daily operations and crisis management are so important that organizations need to implement crisis management plans and teams in order to achieve continuity in business operations (Barton, 1993; Caponigro, 1998; Hickman and Crandall, 1997). The initial phase of prevention and mitigation typically involves a threat or vulnerability analysis, leading to an identified list of risks that may provoke a crisis upon their materialization. Identified risks may be eliminated (for instance by installing a software patch for some identified system vulnerability), diverted (for instance by buying Service Level Agreements), or accepted and prepared for (e.g. by installing duplicate systems at a remote site). These activities are often referred too as risk management, which in general leads to a risk management plan. A crisis management plan on the other hand addresses the response phase of the crisis,and outlines the measures, strategies and procedures to be taken,and the responsibilities of those involved.A crisis management team usually is activated to prepare for, coordinate and monitor the ongoing response activities. The team takes the necessary steps to support and facilitate the decision making processes during crisis response,mainly by coordinating the response activities and collecting and distributing information to the responders,senior management, employees and other stakeholders,including the press. The construction of a crisis plan typically starts with an attempt to identify and classify possible crises which may occur, given the properties of the organization and its business processes. Several frameworks have been defined to assist in this classification process (Marcus and Goodman 1991; Pearson and Mitroff 1993).  Pearson and Mitroff ’s framework as shown in Figure 1 is a widely accepted framework, which uses the dimensions ‘normal –severe ’impact and ‘human/social –technical/economic ’nature to cluster crises.Rather than preparing for every conceivable crisis, Mitroff suggests that organizations should prepare for one type of crisis within the clusters he identified. Hence, a set of five different incident or crisis types are identified for which a company should prepare (Table 1).

 

Marginal Revenue Productivity and Scale Economies

Dr. Yahn-Shir Chen, National Yunlin University of Science and Technology, Taiwan

Chao-Ling Lin, Chang Jung Christian University, Taiwan

 

ABSTRACT

This study investigates marginal revenue productivity and scale economies for different organization structure of audit firms in Taiwan. Empirical results indicate that the contribution to audit firms from practicing certified public accountants is significantly higher than that of from their assistants. Marginal revenue productivity of certified public accountants in partnership firms is significantly lower than that of in proprietorship firms. In the overall sample firms and proprietorship firms, certified public accountant is under-compensated but over-compensated in the partnership firms. Finally, scale economies prevail in the public accounting profession and the degree of scale economies is higher in proprietorship firms. For years, certified public accountants (CPAs) have been regarded as lucrative professionals or so-called "deep pockets" and also face the threat of litigation against them (Menon and Williams, 1994). However, public accounting profession is also a labor-intensive industry and overtime work is a common practice. High compensation of CPA is thus an exchange for long hours of work. As a practical matter, it is reasonable for a member who makes greater contribution to an organization and rewarded with high compensation. In a typical public accounting firm, auditors include practicing CPAs and their assistants. Is the compensation of auditors commensurate with their contribution? To address it, we firstly employ translog function to estimate the contributions of auditors, that is their marginal revenue productivity. Next, the relation between compensation and contribution of the auditors is examined to clarify this question. Audit firms may be organized as either partnerships or proprietorships. Most of the proprietorships are small local firms performing audit and related services primarily for small businesses and not-for-profit entities. Partnership firm operates by multiple owners and is eligible for auditing public companies in Taiwan. Some partnership firms are affiliated with firms in other countries and therefore have an international capability. Accordingly, partnership firm has inherent potential to expand its business and such an organization structure may be essential for long-term development and survivorship. However, the fact that two third of the total audit firms in Taiwan are proprietorships raise the following question: Why are most of the audit firms organized in sole proprietorships if partnerships guarantee a better development potential? In theory, economies of scale exist when the average cost decreases along with the expansion of business. This might be one of the reasons behind the establishment of partnership audit firms. But why are there so many sole proprietorship audit firms in the industry? Whether these small audit firms are capable of gaining benefits from scale economies? To answer this question, this study will examine the empirical data to ascertain whether economies of scale prevail in the public accounting profession and whether a significant differential in the degree of scale economies exists between partnership and proprietorship audit firms. Empirical results indicate as follows. First, for the overall sample, the contribution of practicing CPAs to audit firms is 3.87 times that of assistants and the CPAs’ remuneration is 3.68 times that of assistants, which implying that the practicing CPA is under-compensated. Specifically, practicing CPA of the partnership firm is over-compensated but under-compensated in the proprietorship firm. Second, the marginal revenue productivity of CPA in proprietorship firm is higher than that of in the partnership firm. Finally, economies of scale prevail in the public accounting profession and the proprietorship firm has higher degree of scale economies. In the stream of researches investigating marginal revenue productivity and scale economies, few prior studies have taken into account the effects of organizational structure. Findings in this study show that organizational structure of audit firm has a moderating effect on marginal revenue productivity and scale economies, which makes an incremental contribution to the literature of this field. The remainder of this study proceeds as follows. In section 2, we discuss the literature review and develop our hypotheses. Methodology appears in section 3. In section 4 and section 5, we present the empirical results and additional analysis. We conclude in section 6. Most of prior studies investigate the marginal revenue productivity of industries other than public accounting profession. In their research on 31 Egyptian public textile mills in 1990, for example, Aly and Shields (1999) find that the marginal revenue productivity of the laborers in most of textile mills is less than their average wage. As to the research on economies of scale, banking industry is the most investigated subjects (e.g., Benston et al., 1982; Noulas et al., 1990; Berger and Humphrey, 1991; Mester, 1996; Huang, 1998). Few prior studies examine the marginal revenue productivity of auditors except Banker et al. (2003). They specify a translog revenue function to examine the relation between revenue and human resources inputs over a balanced panel of annual data for 64 large public accounting firms in the United States for the period 1995~1999. They report that average marginal revenue productivity of partners was 9 times that of professionals and the remuneration of partners was 3 times that of professionals, indicating that partners were under-compensated relative to professionals during the sample period. In contrast, more prior studies investigate the scale economies of audit firm. Banker et al. (2003) find that economies of scale prevail in the public accounting profession in the United States for the period 1995~1999. Cheng et al. (2000) report that scale economies exist in 152 Taiwan audit firms in 1994. Lee et al. (2003) investigate the effect of increasing the passing rate of uniform CPA examination on scale economies of audit firms during the period of 1989~1998. They also find that scale economies prevail in the public accounting profession.

 

Local-Currency Pricing and Investment Decision under Exchange Rate Changes: A Two-Period Model of International Duopoly

Piriya Pholphirul, The National Institute of Development Administration (NIDA), Bangkok, Thailand

 

ABSTRACT

Changes of Exchange rate affect multinational firms on deciding level of their foreign direct investment. To capture the role of firm to expect exchange rates change before deciding their local-currency pricing, exchange rate movement can be either temporary change or permanent change due to demand-supply of currency as well as the policy implementation toward exchange rate regime. We extend the previous studies of dynamic international duopoly model of Froot and Klemperer (1989) and Tivig (1996).  In the real world, multinational corporations can simultaneously invest in local market and perform the local-currency pricing strategy by observing the exchange rates volatility. The results show that multinational firms will less likely to change their international price-setting as well as degree of foreign direct investment outflows if exchange rates perform temporarily, but will do aggressively if exchange rates are expected to change in the future. Moreover, as found by Tivig (1996), a temporary depreciation of domestic currency induces the foreign firm to “perverse” the pass-through effect by increase in the price in the first period instead of lowering the price. The uncertainty effects are not included in this model to follow the perfect-foresight condition.  Followed the collapse of the Bretton Woods exchange rate system in the 1973, there has been a considerable increase of the studies on relationship between exchange rates and goods prices. Two of the most striking studies are “Exchange Rate Pass-Through” referred to the response of import prices to exchange rates and “Pricing-to-Market” referred to price discrimination across export markets induced by the exchange rate volatility. Therefore, the link between exchange rate pass-through and Pricing-to-Market is obvious in international marketing strategies. Technically, degree of exchange rate pass-through inversely depends on degree of exchange rate pass-through in that PTM = 1-ERPT. A lower degree of pass-through implies that firms can markup a higher price over their marginal cost. Thus, in some case, complete pass-through of exchange rate (ERPT = 1) implies that firms will have a zero market over their marginal cost (PTM =1 or P = MC).  The most obvious marketing variable affecting pass-through is the policy a firm adopts to guide routine export pricing decision.  Firms usually employ different pricing policies by searching from the empirical record. (1)   Because Pricing-to-Market refers to the destination-specific adjustment of markups in response to exchange rate changes, sellers reduce markups to buyers, whose currencies have depreciated against the seller, thereby stabilizing prices in the buyer’s currency relative to a constant markup policy.  This specific constant markup of Pricing-to-Market referred to as “Local-Currency Price Stability” (LCPS). (2)  In the previous pass-through literatures, two questions have been neglected to explain how multinational firms competing in international markets and facing currency fluctuations. The first deals with the degree of multinational that exporting firms may have over their international markets where, basically, market entry and exit is the basic assumption to fulfill equilibrium in goods market. In this international context, exporting firms behave different ways to capture profit and market power by investing aboard vir the activity called “Foreign Direct Investment” (FDI). Foreign direct investment activities refer when a multinational corporation decides to establish the foreign subsidiaries or affiliates in their foreign countries. Therefore, the first question needed to answer is how firms with allowing of market entry through FDI affect their local-currency pricing.  The second question concerns the duration change of currency induced price changes. The extent to which changes in exchange rates that pass-through to domestic producer prices during the floating-rate period has still puzzled economists. The most part of researches dealing with exchange rate pass-through, pricing-to-market, and local-currency pricing have examined only actual exchange rates.  Let we recognize that the successful multinational firms attempt to be forward-looking, where they will not ignore the available indicators of future currency movements. The time path or the duration of exchange rate will directly affect the path of both input costs so that expected exchange rate movements should influence the intertemporal pricing decisions of profit-maximizing firms. Based on our literature search, there are Dohne (1984), Fisher (1989), Froot and Klemperer (1989), Feinberg and Kaplan (1992), Krugman (1987), and Tivig (1996) that consider the impact of possible future exchange rate changes to the strategic pricing of international firms. Only Froot and Klemperer (1989) and Feinberg and Kaplan (1992) provide some empirical research. Nevertheless, the conclusion of those researches is still consistent to explain that exchange rate pass-through is often partial and perverse in some certain cases. Dohner (1984) uses a dynamic model of pricing by assuming that exporters are the forward-looking and profit-maximizing firms. In general, the behavior that consumers usually adapt themselves on purchasing goods subjected to price changes called speed of consumer adjustment. The speed of consumer adjustment and expectations of the duration of exchange rate changes determine degree of the local-currency pricing in that firms have to set their prices based on the convexity of demand function in local markets. Fisher (1989) presents a partial equilibrium model in which domestic and foreign firm set prices based on domestic and foreign market structures. Feinberg and Kaplan provide the empirical analysis by examining the U.S. price experience in response to the actual and anticipated rise and fall of the dollar. Actual and expected future real exchange rates are seen to have opposite impacts on domestic price determination at the industry level. Therefore, exchange rate volatility is a key measurement to the degree of exchange rate pass-through and local-currency pricing strategy that multinational firms would consider.  Nevertheless, we are enlightened to provide further investigations based on previous studies from Krugman (1987), Froot and Klemperer (1989), and Tivig (1996).  Let us say that U.S. is the imported domestic country while dollar volatility affects both supply-side dynamics and demand-side dynamics. (3) In Krugman (1987), he discusses for supply-side dynamics in that transportation cost, marketing cost, and distribution cost can explain the failure of import price to fall as one might expect dollar appreciation.  Those costs are considered to take times to adjust. Longer time to adjust generate higher “cost of adjustment” and “shadow price” to the multinational firms.  The most useful way to think about the problem is to regard the firm as placing a shadow price on output.  If this shadow price is positive, it will expand output; if it is negative, it will reduce output.  Now, suppose that time also affect the shock system by changing the exchange rates. The result depends on how permanent the shock is assumed to be. Alternatively, that shock may consider just for temporary.  Considering this persistence of exchange rate and cost of adjustment that would affect on supply-side dynamic, the appreciation of U.S. dollar reduce imported prices, as the short period and it would begin rising after the exchange rate returned to its initial level.  However, the permanent depreciation of the U.S. dollar affects largely and persistently decreases in domestic price. Therefore, allowing for cost of adjustment, the extent of Pricing-to-Market and degree of exchange rate pass-through depends on how long the appreciation/depreciation has lasted and how persistent it is expected to be

 

The Evaluation of Vendor’s Product Performance

Ville Hinkka, Helsinki University of Technology, Finland

Frank Bescherer, Helsinki University of Technology, Finland

 

ABSTRACT

This paper offers practitioners and academics a novel approach that facilitates important decision evaluations. The presented model can be used to evaluate different quotes for technically challenging tasks or products. The special focus is on considering alternative situations during early innovation phases in high-technology environments with complex tasks. The proposed model can be used to identify possibly gaps between the purchaser’s requirements and given alternatives. The model is constructed to help purchasers evaluate these gaps, compare them, and make a final decision based on the evaluations and price differences.  The approach starts by defining the task and relevant system being studied. Then the analyzing company should define the attributes to be evaluated in the different options. Subsequently, the company needs to get quotes for the required product or service, analyze them and identify critical parameters. It is then possible to arrange them in order from most to least critical. The next step is to identify each critical parameter’s target level. The last parameter to consider is always the price the vendor requires, because a value called ‘deficiency price’ will be added on to that at the end of the procedure. This deficiency price is the value of the margin between the target and offered level. The basis for the evaluation is that if the target and offered performance are the same, there is no effect on price. If the offered level is below the target, the price increases. Exceeding targets may have several effects on price, depending on the circumstances. As this case study shows, the model is suitable for comparing quotes in early phases of innovations in a complex technology environment, where suppliers promise something they will deliver in the future. A limitation of the method is the evaluation of the different parameters. While different evaluation approaches are presented here, a company applying the proposed method still has to spend time on the evaluation of different options. However, the method will facilitate discussions and comparisons, as different concerns can be expressed in value figures.  To operate economically a company must minimize transaction costs of supplies it purchases and limit risks associated with the purchasing process. In a purchasing setting where a company has to choose different solutions, making the right decisions with the aim of designing competitive products is important. Optimizing purchasing decisions can strongly influence a firm’s bottom-line performance (Seydel 2005). However, purchasing decisions are not always straightforward, and imply a multitude of different parameters with different units, which make aggregation problematic. To make the right purchasing decisions the performance of different available solutions has to be evaluated. Performance parameters can vary from case to case. This paper’s aim is to present a model which could be used for evaluating different quotes for technically challenging tasks or products. We focus on comparing situations in the early phases of innovations in a high-technology environment. The purchaser’s challenge is to get the highest-quality product possible at a competitive price. As the required technology usually does not exist yet, quotes are based on suppliers’ promises, so gaps can arise between the purchaser’s requirements and the supplier’s promises. This model is constructed to help purchasers evaluate these gaps, compare them, and make a final decision based on the gap valuations and price differences.  The model is based on the theory of constraints (TOC) philosophy. As a constraint is something that limits the performance of a system relative to its goal, we believe that by constructing a model that goes through all the constraints of the offers, it is possible to address the problem of vendor selection. So the guiding research question is: How can performance be evaluated with an approach similar to the TOC? The research follows a methodology similar to the ‘Constructive Approach’ (Kasanen et al., 1993) and ‘Innovation Action Research’ (Kaplan, 1998), both of which are suggested as a methodology in cost management studies. Kasanen et al. (1993) state that the constructive approach’s intention is managerial problem solving. It is thus seen as applicable in the underlying case, with the help of a newly developed method. As it is problematic to aggregate different criteria in the evaluation of suppliers, the literature has developed multiple criteria for facilitating decisions and offering support (e.g. Dulmin and Mininno, 2003). Choi and Hartley (1996) found that price is one of the least important criteria for selection. Verma and Pullman (1998), however, found that suppliers are selected largely on cost and delivery performance. One answer to the two challenges of different units and different importance when analyzing multi-parameter quotations is to use what Timmerman (1986) called the ‘cost-ratio method,’ in which the quoted prices are adjusted by the costs or benefits the client organization experiences from a supplier for a selection criterion after the total cost of ownership principle. Ferrin and Plank (2002) found 237 cost drivers in their study and organized these into 13 categories: operation cost, quality, customer-related, logistics, technological advantage, initial price, opportunity cost, supplier reliability and capability, maintenance, inventory cost, transaction cost, life cycle, and miscellaneous. By identifying all the cost drivers that have an effect on total acquisition costs, it is possible to construct a model in which all the cost drivers are evaluated and added together. The basic idea of TOC is that rather than looking at each local area and trying to trim it, the whole operational system should be optimized. Therefore, it is important to distinguish between a “Bottleneck Resource” and a “Non-bottleneck Resource” (Hsu and Sun 2005). Contrary to conventional thinking, TOC views constraints as positive, not negative, because they determine a system’s performance, and a gradual elevation of the system's constraints will improve its performance. From the perspective of an ongoing improvement process, TOC suggests that an organization should ask three fundamental questions concerning change to accelerate its improvement process (Gupta 2003): 1) How do organizations identify the weakest link, the constraint(s)? 2) How do organizations strengthen the identified weakest link by developing practical and good solutions? 3) How should organizations implement the solutions?

 

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