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Dancing with an Elephant: Cultural Missteps in Managing a Thai Expatriate

Charles A. Rarick, Ph.D.

CASE SYNOPSIS

Marianne Whitaker is very concerned about the success of one of her new account representatives, Pongpol Chatusipitak, a Thai national who has worked for her at Premuris Investments for only six months. Pongpol does not appear to Marianne to be very motivated and some of his behavior seems odd to her. A decision must be reached concerning his future with the company. The primary subject matter of this case concerns the cross-cultural difficulties found in managing a foreign expatriate in the United States. Issues particularly relevant to cross-cultural difficulties found between Thailand and the United States are emphasized. It was a typically beautiful day in Southern California as Marianne Whitaker peered out her office window at Premuris Investments to the streets below. Marianne was not able to enjoy the scenery, as she was very concerned about the performance of one of her financial services advisors, Pongpol Chatusipitak. Pongpol had been hired six months ago to help generate increased business from the large Thai business community of Southern California. Pongpol had not generated much business in the first few months, but recently his performance had improved. Marianne was also concerned about some of his personal and work behaviors. Marianne felt that she would like to fire Polpong, however, this choice may not be an option. She wondered out loud where she had gone wrong and if anything could be done to improve the situation.  Pongpol Chatusipitak, or “Moo” as he liked to be called, was from Chaing Mai in northern Thailand. Pongpol graduated from Chulalongkorn University in Thailand with a degree in economics. After working for a Thai bank for three years he enrolled in the graduate program at the University of Southern California to study finance. Upon completion of an M.B.A. degree from USC, Pongpol was hired by Premuris as a financial services advisor.   Marianne Whitaker remembers how she was struck by the warm and easygoing nature of Pongpol. He seemed to have a perpetual smile and appeared very conscientious. Pongpol did not have an outstanding academic record at USC, however, Marianne had discounted the importance of grades and was more concerned with what she considered to be a strong work ethic in Asian people. The fact that Pongpol had an M.B.A. from a respected school, and spoke fluent Thai, made him a good candidate for the position. Marianne felt that Pongpol would be able to make contacts with the Thai business community and help generate significant revenue from this group of successful entrepreneurs. Premuris had determined that due to the competitive nature of the financial services industry and the firm’s relatively small size, it was necessary for the company to branch out into more select niche markets. It was decided to begin with the Thai business community of Southern California.

 The Correlative Relationship between Value, Price & Cost

 Dr. Richard Murphy

Introduction

A consumer goes to an electronics store to purchase a new television set. The consumer spends almost an hour listening to the salesperson, looking at and comparing different models. The consumer selects a model priced at $585. Did the television cost the consumer $585? Many people would answer "yes" because that was the price of it. But, there is a difference between the actual dollars charged as the price and the cost to the consumer. That customer had time and energy involved in the purchase in addition to the number of dollars paid. The cost to the consumer, then, must include all the resources that were used to make the purchase.  Today's consumer is bombarded with advertisements in all media, direct mail offers, and telemarketing offers for telephone long distance service. One of AT&T's ads boasts a rate of 7 cents per minute for long distance. The price is 7 cents but that is not the cost. Whether the ad is a commercial on television or an ad in a print document, there is a small caveat printed  - the consumer will be billed a monthly charge of $5.95 per month if they sign up for this long distance rate (Teinowitz, 1999). The actual cost to the consumer is a good deal more - $5.95 per month plus the 7 cents per minute.  This is the difference between the price and the cost.  The value of anything is perceived by the customer, not the manufacturer or the vendor. Value is an abstract construct that the consumer determines based on a number of factors. The degree of risk in the purchase is also a factor in perceived value. Consumers must perceive that they receive a higher value from one vendor or from one product than another in order to purchase it.  The cost includes the actual price of the product or service but it also includes the 'hidden' costs, such as the time it takes to travel to the store or the time it takes to complete the transaction. The following pages more fully discuss the issues of cost, price and value.

The Accounting Crisis as a Result of the Enron Case, and Its Implications on the U.S. Accounting Profession

Dr. Dhia D. AlHashim

 ABSTRACT

In a free-enterprise economy, the integrity of the economic system is crucial to investors’ confidence. Lately, with the discovery of so many business scandals investors’ confidence in the corporate system and the accounting profession has eroded. The purpose of this research is to investigate reasons for the recent business scandals, particularly that of Enron Corporation, the impact on the U.S. accounting profession, and the lessons learned for developing nations.  On August 14, 2001 Mr. Jeffrey Skilling, CEO, resigned from Enron; on November 8, 2001 Enron restated its earnings for the years 1997 through 2000.  On November 30, 2001 Enron filed for bankruptcy protection.  Enron wiped out $70 billion of shareholder value, defaulted on tens of billions of dollars of debts and its employees lost their life savings (pension plan consists of Enron’s stock). The question is:  Why Enron collapsed?  There is only one answer, in my opinion, and that is:  derivatives!  A major portion of these derivatives relates to the now infamous “Special Purpose Entities (SPEs).”   Enron Corporation was one of the pioneers of energy deregulation and became a major force in the trading of energy contracts in the U.S. and overseas markets.  Last year, the company was considered the seventh largest company in the U.S., with revenues exceeding $150 billion and assets of more than $60 billion.  It handled about one quarter of the U.S.’s traded-electricity and national gas transactions.  However, it appears that Enron’s success was not entirely due to the brilliant business strategies developed by its former chairman Ken Lay.  As the unraveling scandal shows, a significant portion is attributable to innovative financing and accounting strategies. There is no question that the continuation of deregulation of the economy and the privatization of services depends on the integrity of financial reporting systems.  Integrity can be achieved by having a fair and transparent accounting system. It is alleged that accountants are compromising their integrity, by manufacturing company’s earnings, for the sake of obtaining a piece of the act!   Observing unusual business events recently, leads us to the conclusion that it is not only Enron who is manufacturing earnings and hiding debts in subsidiaries and partnerships, with help of their accountants, many other U.S. companies are hiding trillions of dollars of debt in off-balance-sheet subsidiaries and partnerships, such as UAL ($12.7 billions), AMR-parent of American Airlines ($7.9 billions), J.P. Morgan Chase ($2.6 billion), Dell Computer ($1.75 billion), and Electronic Systems ($0.5 billion). This research investigates the impact of these recent business scandals, particularly that of Enron Corporation, on the U.S. accounting profession, with possible lessons learned for developing countries.

The Relationship Between Dividends and Accounting Earnings

Dr. Michael Constas and Dr. S. Mahapatra

 INTRODUCTION

This research examines the relationship between dividends and earnings.  The model used here is a variation of the model tested in Fama and Babiak (1968), which has not been altered by other empirical literature.  The importance of this model is underscored by Copeland and Weston (1988), Kallapur (1993), and Healy and Modigliani (1990), which was used to examine the influence of inflation in dividend policy.  This research, however, differs from the Fama and Babiak model in important respects.  The Fama and Babiak model is linear, while the model tested in this research is a linear logarithmic transformation of a nonlinear relationship.  The Lintner (1956), and Fama and Babiak (1968) model has an additive error term with a normal distribution, whereas the model tested herein assumes that the underlying relationship has a multiplicative error term with a lognormal distribution. The empirical results reported in this paper reflect an improvement over the results obtained by using the original Fama and Babiak (1968) model.  The Fama and Babiak (1968) study involved running separate regressions for each firm.  In the revised model (used here), the cross-sectional parameters are significant, and, in both cross-sectional and separate firm regressions, the revised model produces higher adjusted R²s than is produced by the Fama and Babiak model. The Fama and Babiak (1968) model is based upon the premise that a firm’s current year’s dividends reflect its current year’s earnings.  The prior year’s dividends are subtracted from both the current year’s dividends and earnings in order to produce the change in dividends as an independent variable.  The empirical results reported here, however, suggest that the presence of the prior year’s dividends as an independent variable is an important part of the relationship between dividend changes and earnings changes.  Current dividends appear to be adjusted when a firm experiences earnings that are inconsistent with prior dividend declarations.  This adjustment can be explained in two ways.  First, it may be that a firm readjusts its dividends when it experiences inconsistent earnings because its ability to pay dividends has changed.  Second, the adjustment may be due to the fact that dividends serve as management’s signal as to how the firm is expected to perform in the future, and this signal changes due to new information.  If the second explanation were to be correct, dividends would offer important information regarding management’s expectations of future earnings of a firm.

 Trade and the Quality of Governance

Fahim Al-Marhubi, Ph.D.

ABSTRACT

Different strands of the trade and governance literature imply a link between the openness of an economy to international trade and the quality of its governance. This paper tests this proposition using a newly created dataset on governance that is multidimensional and broad in cross-country coverage. The results provide evidence that the quality of governance is significantly related to openness in international trade. This association is robust to alternative specifications, samples, and governance indicators.  The last decade has witnessed an explosion of research on economic growth. Two issues that lie at the heart of this research include the role of international trade and that of governance in promoting growth and better development outcomes. However, due to conceptual and practical difficulties, these two lines of research have run in parallel without explicit recognition of each other. Conceptually, the relationship between openness and governance has been left rather imprecise, with a notable absence of a convenient theoretical framework linking the former to the latter. Practically, the difficulty lies in defining governance. While it may appear to be a semantic issue, how governance is defined actually ends up determining what gets modeled and measured. For example, studies that examine the determinants of governance typically tend to focus on corruption (Ades and Di Tella, 1999; Treisman, 2000). However, governance is a much broader concept than corruption and little has been done to address the other dimensions of governance discussed in the next section. The purpose of this paper is to investigate more systematically the link between the openness of an economy and the quality of its governance. A practical difficulty that arises, however, in trying to estimate openness’ exogenous impact on governance in a cross section of countries is that the amounts that countries trade is not determined exogenously. Openness may be endogenous since it is quite likely that countries that can manage risks and exploit opportunities from trade because of their high quality governance choose or can afford to be more open. Hence, better governance can lead to greater openness rather than the other way round. As a result, correlations between openness and governance may not reflect an effect of trade on governance.  In estimating the impact of openness on governance, what is needed is a source of exogenous variation in openness. Using measures of countries’ trade policies in place of (or as an instrument for) trade will not solve this problem since countries that have better governance may also adopt free-market trade policies. To cope with this problem, this paper estimates trade’s impact on governance by instrumental-variable estimation using the component of trade that is explained by geographic factors as an instrument for openness. This instrument, constructed by Frankel and Romer (1999), exploits countries geographic characteristics (countries’ sizes, populations, distances from one another, common border or not, and landlocked or not) as a source of exogenous variation in trade. The suitability of this instrument rests on the premise that geography is an important determinant of countries’ (bilateral as well as total) trade, and that countries geographic characteristics are unlikely to be correlated with their governance, or affected by policies and other factors that

Caribbean Economic Integration: The Role of Extra-Regional Trade

Dr. Ransford W. Palmer

ABSTRACT

This paper examines the feed-back effect of extra-regional trade on intra-regional imports of the Caribbean Community (CARICOM). Because of  the non-convertibility of CARICOM currencies, intra-regional trade must be settled in hard currency, typically the U.S. dollar.  It is argued that the growth of extra-regional trade generates foreign exchange which stimulates the growth of gross domestic product and intra-regional imports. Over the past thirty years, there has been an explosion of common market and free trade arrangements around the world, all of them designed to foster trade and promote economic growth. NAFTA and the European Economic Community are the two dominant ones. But in Africa and Latin America there are numerous others. Theoretically, the benefits from these arrangements seem particularly attractive for groupings of developing countries, but in practice numerous obstacles tend to hinder their full realization. This is particularly the case of CARICOM, a grouping of small Caribbean economies  where the benefits tend to be constrained by their small size and openness, among other things. This paper examines the impact of extra-regional trade on the economic integration effort.

What’s in an Idea?  The Impact of Regulation and Rhetoric on the US Food Supply Chain

Dr. Lorna Chicksand

ABSTRACT

This paper seeks to explore the relationship between government and business through an examination of regulation pertaining to the US agri-food sector.  It will be argued that regulation can act as a power resource, determining who appropriates value in the supply chain.  However, political intervention in the market creates differentially advantageous positions for some to the detriment of others and, as such, the political allocation of rents is a dynamic process in which firms compete to control this allocation. Thus, a further argument of this paper is that other power resources are available to firms which can be used as countervailing sources of power to undermine and overturn regulation.  In particular, the paper will focus on the role of ideas as ‘weapons’, which can be used by firms as resources to overturn unfavourable regulation.  This paper will argue that the policy changes brought about under the 1996 Farm Bill (which replaced the New Deal-era target price/deficiency payment structure for feedgrains, wheat, cotton and rice with ‘production flexibility contract payments, thus decoupling the payments from either the commodity price or the amount of croup produced) could only be brought about by a corresponding change in the ideas which underpinned agricultural policy.  It will be argued that these policy changes, which favoured agribusiness interests at the expense of production agriculture, were the result of a long-term campaign waged by agribusiness to change the terms of debate within which US agricultural policy was framed.  Although ‘decoupling’ had been on the agricultural agenda since as early as the 1950s, the paper will argue that more wholesale changes did not occur earlier because: (1) production agriculture acted as a countervailing interest to agribusiness; and, (2) the farm fundamentalist ideology had become “locked-in” to the AAA, and had become ‘cemented’ institutionally.  However, by the 1980s, the agri-food supply chain had become increasingly integrated, with agribusiness assuming far more influence over policy direction than production agriculture and, as such, could more rigorously work to discredit the farm fundamentalist ideology.  They launched an ideological campaign, utilising the rhetoric of globalisation, competition and markets to redefine the problems facing agriculture.  In doing so, they successfully changed the ideas which framed agricultural policy, which enabled more wholesale policy changes to be implemented.

Reform and Corporate Governance in Russia

Jennifer Foo, Ph.D.

ABSTRACT

 This paper looks at some issues in enterprise restructuring and reforms in Russia.  The paper looks at the characteristics of privatization and the Russian corporate governance or the lack of it.  The issues of corporate governance and enterprise reforms are particularly important for transitional economies when confronted with the realities of market discipline and global competition.  This paper also looks at the efforts to establish a corporate governance system in Russia.  An empirical investigation was performed to compare Russia's transition progress to that of other eastern bloc countries such as Poland and Hungary.  An investigation of Russia's enterprise reforms and corporate governance may also stimulate institutional changes in Russia and other former socialist countries.  In the past decade, post-communist countries of Russia and Eastern Europe have carried out transitional reforms.  Efforts have been made to privatize state-owned enterprises (SOEs) by transferring ownership to the private-sector owners.  The initial transition efforts paid off in significant gains in real GDP growth for most of the transition countries as Table 1 indicates.  Russia, however, experienced negative growth rates and insignificant growth after the transition.  The past decade has shown that countries like Poland, Hungary and the Czech Republic are weathering the transition relatively well while Russia and Romania are encountering serious transitional problems.  Privatization, in itself, is insufficient to effect a successful transition to a market economy. What is needed is effective privatization complemented by structural reforms in the legal sector to support and enforce the reforms

Information Communication Technology in New Zealand SMEs

 Dr. Stuart Locke and Dr. Jenny Cave

 ABSTRACT

The New Zealand Government has shown a concern to promote the use of information communication technology (ICT) by New Zealand small to medium size enterprises (SMEs).  There has been an enquiry into telecommunication regulation and an ongoing commitment to an E-summit programme.  The latter involves both Government and enterprise in ongoing dialogue and public fora.   In the May 2002 Budget for fiscal year beginning July 1, 2002 Government is introducing a new regional broad banding initiative to assist where private telecommunication companies find it not profitable to upgrade the infrastructure.  This study investigates the perceptions of SMEs, as solicited through a quarterly SME survey conducted for the Independent Business Foundation.  The survey is now into its third year and provides the opportunity for monitoring changing sentiments and addressing new issues as and when they arise.  The perceptions of various groups integrally involved with the small medium enterprises (SMEs) sector, regarding information communication technology (ICT) are analysed in this paper.  The Economist Intelligence Unit/Pyramid Research (EIU) study (2001) (www.ebusinessforum.com) into levels of E-preparedness ranked New Zealand 20^th down from 16^th the year before.  While the impact of ICT across the whole business sector is important, it is essential that the SME sector, including the micro businesses, should capture some of the efficiency gains.  Government has continued to push ICT but there has been an increasing disquiet that business is not moving quickly enough to catch the knowledge wave.  Science Minister, Hon Peter Hodgson, addressing a pharmaceutical conference in March 2002, observed “I have watched us miss the ICT bandwagon, if I can be blunt.  And it’s not going to happen again.” (New Zealand Herald, p E3).

The Internationalisation Process of UK Biopharmaceutical SMEs

Dr. Cãlin Gurãu

 ABSTRACT

The classical models and theories of internationalisation have considered export and out-licensing activities to be the main modes of entry on international markets. The structural changes in the global economy, the emergence of high technology industries and the increased involvement of SMEs in international activities are challenging these theories. The development cycle of new products and technology has become long, complex and extremely costly. The lack of specialised resources on domestic market has forced the high-technology SMEs to initiate early their internationalisation in order to access essential complementary resources on a global basis. This paper investigate the internationalisation model and the entry modes of UK Biopharmaceutical SMEs.  Gurău and Ranchhod (1999) have shown that biotechnology is an industrial sector in which internationalisation is likely to occur, because:  (the sources fuelling the biotechnology industry are international (i.e. finance, knowledge, legal advice, etc.) (Acharya, 1998 and 1999; Russel, 1988); (the marketing of biotechnology products and services is international (Acharya, 1999; Daly, 1985); (the competition in the biotechnology sector is international (Acharya, 1999; Russel, 1988); (the international community (Acharya, 1999; Bauer, 1995; Nelkin, 1995; Russel, 1988) closely scrutinizes the scientific or industrial developments in biotechnology.  The large pharmaceutical and chemical corporations which began to diversify their activity into biotechnology from the early eighties, had the managerial expertise and the financial resources to develop this activity on a global basis (Daly, 1985). They used their existing networks of international assets in order to solve the problems related to the novel technologies and emerging markets and to defend their dominant position within the industrial markets (Chataway and Tait, 1993; United Nations, 1988).  On the other hand, the small and medium-sized biotechnology enterprises (SMBEs) are confronted with important problems in their process of internationalisation: limited financial resources, the management and processing of huge amounts of information, restrictive regulations, unfamiliar market environments, etc. These represent significant entry barriers on the foreign markets (Acs et al., 1997; Chataway and Tait, 1993; Daly, 1985; OECD, 1997). In spite of these problems, the global competition and the structural limitations of their domestic market compel them to become international (Acs and Preston, 1997; Fontes and Coombs, 1997; Daly, 1985).  This paper attempts to investigate the internationalisation model specific for the U.K. small and medium-sized biopharmaceutical  enterprises (SMBEs), with a special emphasis on the market entry modes designed and implemented by these firms.

Impact of Company Market Orientation and FDA Regulations on Bio-Tech Product Development

L. William Murray, Ph.D., Alev M. Efendioglu, Ph.D. and Zhan Li, Ph.D.

ABSTRACT

New products produced by Bio-Technology firms – products designed to treat, or cure, human illnesses –  require large investments ($150 million +) and take a long time (10-12 years) from idea generation through product launch.  These products require full authorization by the U.S. Food and Drug Administration (FDA) before the developing firms are permitted to sell them for use by patients.  Little is known about the management processes by which these products are developed.   Even less is known about the impact of the FDA regulation on the manner in which these products are developed, produced, and distributed.  The purpose of this paper is to report the results of a recent survey of professionals employed by Bio-Tech firms to develop new products.  The FDA must approve all new pharmaceutical and medical device products designed for use by individuals.  A firm interested in developing a new pharmaceutical product must file an application with the FDA, state the goal and define the approach towards discovering possible new products, and provide the FDA with a detailed statement as to how the development process will be managed.  If approved, the firm can take the first steps towards developing the product, each step of which must be recorded, analyzed, and summarized in performance review reports to the FDA.  Three earlier studies researched the possible impacts of FDA regulations on and marketing of new products. An earlier study of development and production process of diagnostic-imagining equipment suggested that for this type of medical devices FDA regulation had little effect.  A later study by Rochford and Rudelius (1997) suggested that there are regulatory influences and impacts on product development, if one examines the number of development activities (i.e., stage gates) that the firm performed in their development of a new product. A more recent third study of medical device producers by Murray and Knappenberger (1998) further elaborated the relationships between product regulation, the manner in which the product was developed, and the market success of the new product.  It concluded that the act of regulation increased the new products “time to market”; i.e., the amount of time it took the firm from idea generation through final product launch.   

Country-of-Origin Effects on E-Commerce

Francis M. Ulgado, Ph.D.

ABSTRACT

This paper examines the Country-of-Origin effects in an e-commerce environment.  In addition to Country-of-Brand and Country-of-Manufacture effects, the paper investigates the presence and significance of Country-of-E-commerce Infrastructure.  It develops hypotheses regarding such effects amidst varying customer and market environments, such as business vs. consumer buyers, levels of economic development and product type, and proposes a methodological framework to test the hypotheses.  Recent years have witnessed a rapid increase in the range of multimedia technologies available internationally.  Among them, the Internet technology has dramatically changed the shopping environment for individual consumers and businesses throughout the globe.  The number of consumers worldwide purchasing through business-to-business as well as business-to-consumer e-commerce media ("e-commerce hereafter) has been skyrocketing these days.  However, preliminary statistics indicate that the level of growth and development of internet and e-commerce infrastructure varies across countries and has generally lagged behind the United States.  Meanwhile, current research has also indicated the continued prevalence of country-of-origin effects on consumer perception on products or services that they purchase.  This study investigates the presence and significance of country-of-origin effects on buyer perception in the e-commerce environment.  While, country-of-brand and country-of-manufacture dimensions have been investigated in the past, this paper adds country-of-e-commerce infrastructure effects.  These three variables are selected to be examined under different business-to-business, business-to-consumer, and level of development environments.

The FASB Should Revisit Stock Options

Dr. Ara Volkan,

ABSTRACT

Accounting for employee stock options has been a source of controversy since Accounting Research Bulletin No. 37 was issued in November 1948. In 1995, after more than 12 years of deliberation, the FASB issued Statement of Financial Accounting Standards No. 123 (FAS 123). The pronouncement encouraged, but did not require, firms to adopt a fair value pricing model to measure and recognize the option value at the grant date and record a portion of this amount as an annual expense over the vesting period of the option. Moreover, FAS 123 did not require the quarterly calculation and disclosure of the option expense. The primary purpose of this paper is to highlight the flaws in FAS 123 and explore alternative methods of accounting and reporting for stock options that address these flaws. In addition, two studies that evaluate the impact of these alternatives have on annual and quarterly financial statements are analyzed. Finally, accounting procedures are recommended that will report more reliable and useful information than current rules provide. Given that two Congressional Subcommittees are intending to propose fair valuation and expensing of stock options when they finish their investigations into the Enron debacle, the content of this paper is both timely and relevant.  Accounting for employee stock options has been a source of controversy since Accounting Research Bulletin No. 37 was issued in November 1948. Subsequent pronouncements, Accounting Principles Board Opinion No. 25 (APBO 25) issued in 1972 and Financial Accounting Standards Board (FASB) Interpretation No. 28 issued in 1978, continued the tradition of allowing the fixed stock option plans avoid recording compensation expense as long as the exercise price was equal to or exceeded the market price at the date of grant.  In 1995, after more than 12 years of deliberation, the FASB issued Statement of Financial Accounting Standards No. 123 (FAS 123). The pronouncement encouraged, but did not require, companies to adopt a fair value pricing model to measure and recognize the option value at the grant date and record a portion of this amount as an annual expense over the vesting period of the option. The firms that chose not to follow the recommendations of FAS 123 could continue to use the requirements of the APBO 25. These firms had to disclose the pro forma impact of FAS 123 requirements on their annual earnings and earnings per share (EPS) in the footnotes of their annual reports. However, FAS 123 did not require the quarterly calculation and disclosure of the option expense.  The primary reason the FASB did not require companies to record an option expense was pressure from the business community and Congress. Because of this pressure, the FASB reversed the accounting proposals contained in its Exposure Draft – Accounting for Stock-Based Compensation (ED) issued in 1993 and opted for a realization and footnote disclosure approach in FAS 123 as opposed to the realization and financial statement recognition approach that was advocated in the ED. Another major obstacle to recognition was the narrow scope of the definitions of assets, expenses, and equity provided in Statement of Financial Accounting Concepts No. 6 (SFAC 6). Thus, the FASB was not entirely successful in delivering on its stated intention to provide neutral accounting information to assist users in assessing investment opportunities.  To its credit, the FASB has recognized that SFAC 6 should be revised to address certain transactions that under current standards are not properly measured, recorded, and reported. Thus, in a pair of October 27, 2000 exposure drafts (file reference numbers 213B and 213C) concerning accounting for financial instruments with characteristics of liabilities, equities, or both, the FASB noted its intention to amend the definition of liabilities to include obligations that can or must be settled by issuing stock.

How the World of Marketing Channels is Changing

Ajay K. Kohli, Ph.D.

Goutam Challagalla, Ph.D.

Bernard Jaworski, Ph.D.and Robert Lurie, M.B.A.

ABSTRACT

The world of marketing channels is changing.  A deepened focus on the customer experience, micro segmentation, and the use of technology is leading to two key developments.  First, an increasing number of companies are moving toward using flexible channel systems. Microsoft’s bCentral is an example of a company that has built a flexible channel system.  The second development in the world of marketing channels is that companies are reaching customers using multiple media.  These media afford marketers the opportunity to reach customers in the way they would like to be reached, and deliver an ever more customized buying experience to them.  Avon is an example of a company that has moved from using just one way to reach customers to multiple in a span of few years.  These two developments create a host of new challenges for marketers. They must decide whether to use flexible channel systems or use vertically integrated distributors/retailers. What criteria should be used to make these choices? And if a flexible channel system is used, what organizational changes should be made in order to work effectively with channel partners? What new skills and resources are needed by a marketer to work effectively with members of a flexible channel system versus vertically integrated distributors? The spread in the use of new media raises the difficult issue of how a marketer can integrate all of the various media to deliver an experience customers can actually enjoy. What does channel integration mean anyway, and how should this integration be realized?

Institutional and Resource Dependency Effects on Human Resource Training and Development Activity Levels of Corporations in Malaysia

Dr. Zubaidah Zainal Abidin

Dr. Dennis W. Taylor

ABSTRACT

This study considers managerial motives and orientations affecting decisions about levels of employee training and development (T&D) activities. Specifically, arguments drawn from institutional theory and resource-dependency theory are used to articulate variables that seek to uncover these managerial motives and orientations. Using listed companies in Malaysia, a field survey was conducted amongst two groups of managers deemed to have influence on the determination of annual T&D budgets and output targets, namely, human resource (HR) managers and finance managers. The results reveal that T&D activity levels are affected by institutional-theory-driven components of management dominant logic and by perceived organizational resource dependencies on employees versus shareholders. But there are contrasts in the significance of these variables as perceived by HR managers compared to finance managers.   In Malaysia, there is a relatively high level of investment in human resources (mainly training and development expenditure) by companies. The federal government’s Human Resource Development Fund (HRDF) was established in 1993. Its purpose has been to encourage and help fund human resource investment activities by companies. Through reimbursements of eligible T&D expenditures, the HRDF scheme in Malaysia provides corporate managements with a strong incentive to allocate budget expenditure to T&D programs and to report on numbers of employees trained and developed. But Malaysian companies have not been consistent in taking advantage of this government scheme. This is evidenced by variability in the ratio of levies collected to claims paid by the HRDF on a company-by-company basis, suggesting that corporate managements treat T&D activity levels as quite discretionary in their planning and annual budgeting.  What factors influence management’s choice of the annual T&D activity level? This study will focus on whether the level of T&D activity is determined by variables embedded in institutional and resource-dependency theories. The motivation for addressing this research question is that insights can be provided about management behaviour in an operating functional area of the company (i.e., investment in human resources) that has economic or human consequences of relevance to employees, shareholders and government oversight bodies. To employees, T&D programs provide the means of maintaining their own competitiveness within their employer organization by improving knowledge, skills and abilities, especially if their current workplace environment is dynamic and complex (Lane and Robinson, 1995). To shareholders, T&D expenditure is seen as reducible in times of economic stringency in order to meet short-term profit targets, but the importance of knowledge and intellectual capital is also recognized as critical in business success (Pfeffer and Veiga, 1999). To government oversight bodies (such as the HRDF body in Malaysia), levels of corporate T&D are broadly viewed as improving the value of the country’s human capital (Huselid, 1995).

Back-Testing of the Model of Risk Management on Interest Rates Required by the Brazilian Central Bank

 Herbert Kimura, Ph.D.

Luiz Carlos Jacob Perera, Ph.D.

Alberto Sanyuan Suen, Ph.D.

ABSTRACT

The model proposed by the Brazilian Central Bank for interest rate positions represents the first attempt of the regulator to define a quantitative methodology to assess market risk of portfolios. Since the model allows discretion in the establishment of different criteria for interpolation and extrapolation of interest rates, it is possible that banks may reduce their capital requirements simply by using different methods of defining the term structure. This study will verify the impact of such methods in the assessment of interest risk, specially in the case of the Brazilian high volatile market. In addition, it will be discussed, through the presentation of simulations, if the model defined by the regulator can influence the willingness of financial institutions to assume more credit risk by lending to counterparts with poor credit ratings and by making more long term loans.  Following guidelines suggested by the Basle Committee, the Brazilian Central Bank has regulated rules for capital requirements in function of the assumed market risk. Brazil initiated efforts to set an specific regulation related to the market risk with the emission of the legislation of the risk evaluation of positions exposed to the fixed interest rates fluctuation, according to the parametric model of variances and covariances.  Having in mind the complexity of the risk factors in the Brazilian economy clearly subject to the major fluctuations of the market parameters, it is important to the Brazilian financial institutions to implement tools to evaluate risks, allowing a better estimation on the potential losses.  Exemplifying the Brazilian economic scene, despite the relative success of the stabilization plan implemented in 1994 seeking to reduce inflation that reached more than 80% in March of 1990, the interest rate is still one of the highest in the world (around 20% per year), having reached 47% per year during the 1997 Asian crisis. Besides, in 1999 the Brazilian currency was devaluated almost in 50% in only one month, due to the investors’ crisis of confidence of the conduction of the economic politics.  In such great volatility context, the major part of the Brazilian banking segment has implemented several methodologies to analyze the risk measurement both through the value-at-risk measures and through projections in stress tests. In function of the Brazilian economy specificities, the market practices have been more demanding in some requirements than the own international regulation. For instance, while the Basle Committee demands quarterly changes of the variance-covariance matrix, the Brazilian Central Bank determines daily risk parameters to the prefixed rates. The own financial institutions, in the majority of cases, revaluate daily the statistical parameters of risk, incorporating daily changes to the correlations between variables associated to the risk factors of the market.    

Analysis of Dynamic Interactive Diffusion Processes of the Internet and New Generation Cellular Phones

Dr. Kaz Takada and Dr. Fiona Chan-Sussan

Dr. Takaho Ueda

Dr. Kaichi Saito

Dr. Yu-Min Chen

ABSTRACT

NTT DoCoMo has been experiencing an unprecedented success with its i-mode cellular phone services in Japan.  In this study, we analyze the diffusion of the i-mode and other second generation (2-G) cellular phones, and its dynamic interactive effect on Internet diffusion is modeled and empirically tested with the diffusion data.  The empirical results clearly support the hypothesized relationship between the two indicating that in the short term the rapid diffusion of the 2-G has an negative effect on the diffusion of Internet.  However, we contend that in the long run the diffusion of these technologies should exert positive and complimentary effect on each other.   The introduction of NTT DoCoMo cellular phone i-mode services in 1999 has brought Japan to become the number one mobile commerce (m-commerce) nation by 2001.  The success of the i-mode service is of such a phenomenon that every major newspaper and magazine has had at least one article written about its success in the last twenty four months (Barrons 2000; Business Week 2000; Fortune 2000, among others).  How does the i-mode phenomenon affect the traditional Internet diffusion through the use of personal computers (PC), and how does it affect the future of Internet diffusion?  The i-mode represents a new generation of the cellular phone, and it is capable of performing various functions beyond the traditional voice based cellular telephones.  The major characteristics of the i-mode cellular phone according to NTT DoCoMo are that, with the i-mode phone, people can access online services including balance checking/fund transfers from bank accounts and retrieval of restaurant/town information.  In addition to conventional voice communications, users can access a wide range of sites by simply pressing the i-mode key.  The service lineup includes entertainment, mobile banking and ticket reservations.  The i-mode employs packet data transmission (9600bps), so communications fees are charged by the amount of data transmitted/received rather than the amount of time online.  The i-mode is compatible with Internet e-mail and can transfer mails between i-mode terminals. Packet transmission allows sending and receiving of e-mail at low cost.  The i-mode, although dominant in the market, is not the only service. Other services from different service providers offer the cellular phones services with comparable features and capabilities.  In this study, we analyze the effect of the introduction of this new second generation (2-G) cellular phones in Japan.  Specifically, our research question is posited as follows:  Does an explosive growth of the second generation cellular phones lead to stimulating the adoption of Internet access among the Japanese households, or suppress its adoption?  

Franchise Development Program: Progress, Opportunities and Challenges in the Development of Bumiputera Entrepreneurs in Malaysia

Dr. Sallehuddin Mohd Noor, Dr. Norsida Mokhtar, Dr. Ishak  Abd Rahman and Dr. Jumaat Abd Moen,

ABSTRACT

Issues related to the involvement of Bumipiteras in the development of the country, mainly in the business sector has received attention from the ruling government since the country’s independence. Before independence, the policy used by the English has caused Bumiputeras to be left far behind in many aspects, when compared to other races. In order to solve this problem, the government launched the New Economic Policy (NEP) which focuses to eliminate poverty and to reorganize the many races in Malaysia. The era of NEP is replaced by the National Development Policy (NDP) that aims to continue where NEP left of. Under NDP, the government designed programs that increased the numbers of Bumiputeras in the trading sector through the Bumiputera Community Trade and Industry Plan (BCTIP). In parallel to the outlined strategy in the resolution of the Third Bumiputera Economic Congress held in 1992, this paper will attempt to evaluate and analyze the achievements and opportunities in the franchise development program that is a vital mechanism which encourages Bumiputera involvement and contribution to the nation’s economy. This paper will also attempt to view the main challenges faced by Bumiptera entrepreneurs in the franchise development program.

 Developing a Computer Networking Degree: Bridging the Gap Between Technology and Business Schools

Dr. Karen Coale Tracey

ABSTRACT

The idea of integrating curriculum and collaboration between academic disciplines is not a new concept in higher education. Interdisciplinary learning, teaching, and curriculum came to the forefront as part of the progressive educational movement of the early twentieth century. Multidisciplinary and interdisciplinary programs can foster, accelerate, and sustain constructive change in academia and student learning (Ellis&  Fouts, 2001).  The purpose of the paper is to describe the proposal for the Bachelor of Science in Computer Networking Technology degree at Central Connecticut State University (CCSU).  CCSU is a regional public university that serves primarily residents of Central Connecticut.  It is one of four regional public universities offering higher education in the state.  CCSU’s location in the center of the state means that the entire population of the state is within 75 miles of its location in New Britain.  Connecticut is one of the smallest states in land area. Its land area of 4845 square miles makes it the third smallest state in terms of area (World Almanac, 2002). The greatest east-west distance in the state is approximately one hundred miles.  The greatest north-south distance is approximately seventy-five miles.  Connecticut’s population of approximately three million makes it the twenty-first smallest state in terms of population (U.S. Bureau of Census, 2000).   Its population growth during the last decade (1991-2000) was 3.6 percent, which is noticeably less than the 13.1 percent growth in the U.S.  CCSU is located approximately 2-3 hours from Boston and New York City.   CCSU is divided into five academics schools:  Arts/Sciences, Business, Professional Studies, Technology, and Graduate. CCSU enrolls approximately 12 thousand students.  About two thousand of these students are enrolled in the Business School and 900 in the School of Technology. Most CCSU students (about three quarters) are undergraduate students (CCSU, 2002).    Ninety-five percent are Connecticut residents.   Twenty-two percent live on campus.   Sixty-eight of the full-time students receive need-based financial aid (Morano, 2002). 

Intellectual Property Rights and the Attributes of the Market

Dr. Mohammed Boussouara

 ABSTRACT

It is now well established by academic scholars that property rights are a necessary requirement for the function of market-based economy. (Alchian & Demsetz, 1973, Drahos 1996) Over the last two centuries or so this principle has been extended to intellectual Property Rights (IPR) which include patents, copyrights, trademarks, brands etc..(Abbott Et Al, 1999) That importance is shown by the monetary and competitive gains generated by brand equity.   However the definition and protection of intellectual property rights is also one of the most complex issues that is the subject of international negotiations because its acceptance has not always been universal.  (May, 2000). Criticisms of the extension of IPR include, among other things, its impact on free trade and competition (Maskus2000, Maskus & Lahoual 2000).  This paper argues that recent court cases and agreements like TRIPS (Gervais, 1998) may lead to the erosion of the fundamentals of property rights per se and by implications to the attributes of the market. Specifically it addresses the issues of competition and the rights of buyers and consumers.  The focus of the paper is trademarks and brands, in particular it addresses the issue of gray marketing and the implications for global marketing management (Clarke & Owens, 2000) and innovation of science based products like pharmaceuticals. (Rozek & Rapp, 1992, Grubb, 1999)  Finally, the paper will argue that it is far better for companies to use marketing tools, rather than courts, in order to protect their brand and trademarks equity.