Art 1

ILAKSHAN

ISSN 0973 -1954 Volume IV

XIMB JOURNAL OF MANAGEMENT Issue No. 2

September, 2007

Articles Evolution of Citizen Charter led Rural e-Governance: A Livelihood Security Approach to Information Systems Planning in Indian Context Harekrishna Misra & B. N. Hiremath Analysis and Development of A Concept Level Framework on Corporate Social Responsibility Som Sekhar Bhattacharyya Public Expenditure on Health and Health Outcomes: The Experience of the Indian States Biswa Swarup Misra & Akshya K. Panda Internationalization of Indian Pharmaceutical Industry : A study on the determinants of export stimulation Srikant Panigrahy, P.Mishra & B.P.Patra Competencies Necessary for Technology Transfer from Home to Host Country Companies: A Case Study Kiran J. Desai & Harsha Desai Measuring Critical Factors in Safety Management - A Survey Based Approach M.N. Vinodkumar & M. Bhasi Consumer Rights Protection and Regional Co-operation among SAARC Countries Basant Kumar & Brajaraj Mohanty Factors Blocking the Implementation of Retailing Technology A. Veena & H.R. Venkatesha Continuous and Sustainable Improvement through Supply Chain Performance Measurement - A Case Study of an LCV Manufacturing Company Ashwani K. Varma Trade Protection Measures (TPM): Issues and Perspectives Sridhar Panda & Rajiv Arora Perspective Shaping the Moral Foundation for Globalization: Lessons from Indian and Western Philosophy Bibhu Prasan Patra Demand Estimation – Some Empirical Observations and their Implications P.Mishra Management Case Suhas Gopinath Brajaraj Mohanty & Rajeev Roy Rural Women’s Marketing Association (RWMA) Debasis Pradhan A Tale of Two Samitis Niraj Kumar Reliable Iterative Testing Environment (RITE) -a Case of Software Development Model Sanjay Mohapatra Gram Utthan - From Micro Credit to Micro Enterprise S.P. Das & Alok Pattanayak Book Review Outsourcing : the Definitive View, Applications and Implications Shiva Kumar Srinivasan Total Relationship Management Jaydeep Mukherjee

Xavier Institute of Management Bhubaneswar - 751 013

EDITORIAL BOARD Editor

Brajaraj Mohanty Professor, Xavier Institute of Management Bhubaneswar Members

John C.Camillus, Donald R.Beall Professor of Strategic Management, University of Pittsburgh, Pittsburgh,U.S.A. S.K. Chakraborty, Founder- Convenor, Management Centre for Human Values, Indian Institute of Management, Kolkata Keith D’Souza, Director (Organizational Effectiveness), Pfizer Limited, Mumbai J.M. Denton, Professor & Head of International Affairs, University of Stellenbosch Business School, Bellville, South Africa Ranjan Ghosh, Director, Goa Institute of Management, Ribandar, Goa M.G. Jomon, Associate Professor, XLRI, Jamshedpur Jerome Joseph, Professor, Indian Institute of Management, Ahmedabad Oswald A. Mascarenhas, s.j., Kellstadt Professor of Marketing, University of Detroit-Mercy, Detroit Sasi Misra, Distinguished Fellow, Entrepreneurship Development Institute of India, Ahmedabad Amar KJR Nayak, Associate Professor, Xavier Institute of Management, Bhubaneswar Gopal Krishna Nayak, Director, International Institute of Information Technology, Bhubaneswar H.K. Pradhan, Professor, XLRI, Jamshedpur V.Ranganathan, Professor, Indian Institute of Management, Bangalore Latha Ravindran, Professor, Xavier Institute of Manavement, Bhubaneswar Subhash Sharma, Dean, Indian Business Academy, Bangalore W.S. William, Professor & Dean (Academic), Xavier Institute of Management, Bhubaneswar For inquiries, subscriptions and contributions, please write to Editor, ILAKSHAN XIMB Journal of Management Xavier Institute of Management Xavier Square, Bhubaneswar - 751 013, India Ph. : 91-674-3983893 (Direct), 3012345 (Pilot) Fax : 91 674-2300995 E-mail : [email protected]

ILAKSHAN XIMB JOURNAL OF MANAGEMENT Volume IV

Issue No. 2

September, 2007

Xavier Institute of Management Bhubaneswar - 751 013

September, 2007

THE CREST OF THE XIMB

ISSN 0973-1954

The lamp on the book stands for the spread of knowledge, the chimney for industrial development, the two plants for rural development and the IHS logo for the Jesuit Society which manages the institute.

Regd. No. : ORIENG/2006/18251 Publisher Dr E. Abraham s.j. Director Xavier Institute of Management Bhubaneswar

Printer Dr E. Abraham s.j. Director Xavier Institute of Management, Xavier Square, Bhubaneswar - 751013

Editor Dr. Brajaraj Mohanty Professor, Xavier Institute of Management Bhubaneswar - 751013

Subscription Vilakshan is published twice a year. Annual subscription : Rs 300/-

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© Copyright with Xavier Institute of Management. No part of the publication may be reproduced in any form without prior permission of Director, Xavier Institute of Management, Bhubaneswar. However, the views expressed in the papers are those of the authors and not of the Editoral Board or Publisher.

Contents ARTICLES 1.

Evolution of Citizen Charter led Rural e-Governance: A Livelihood Security Approach to Information Systems Planning in Indian Context

Harekrishna Misra & B. N. Hiremath

01

2.

Analysis and Development of A Concept Level Framework on Corporate Social Responsibility

Som Sekhar Bhattacharyya

25

3.

Public Expenditure on Health and Health Outcomes: The Experience of the Indian States

Biswa Swarup Misra & Akshya K. Panda

43

4.

Internationalization of Indian Pharmaceutical Industry : A study on the determinants of export stimulation

Srikant Panigrahy, P.Mishra & B.P.Patra

61

5.

Competencies Necessary for Technology Transfer from Home to Host Country Companies: A Case Study

Kiran J. Desai & Harsha Desai

85

6.

Measuring Critical Factors in Safety Management - A Survey Based Approach

M.N. Vinodkumar & M. Bhasi

95

7.

Consumer Rights Protection and Regional Co-operation among SAARC Countries

Basant Kumar & Brajaraj Mohanty

109

8.

Factors Blocking the Implementation of Retailing Technology

A. Veena & H.R. Venkatesha

121

9.

Continuous and Sustainable Improvement through Supply Chain Performance Measurement - A Case Study of an LCV Manufacturing Company

Ashwani K. Varma

133

10. Trade Protection Measures (TPM): Issues and perspectives

Sridhar Panda & Rajiv Arora

155

PERSPECTIVE 11. Shaping the Moral Foundation for Globalization: Lessons from Indian and Western Philosophy

Bibhu Prasan Patra

167

12. Demand Estimation – Some Empirical Observations and their Implications

P.Mishra

179

Brajaraj Mohanty & Rajeev Roy

189

Debasis Pradhan

203

Niraj Kumar

211

16. Reliable Iterative Testing Environment (RITE) -a Case of Software Development Model

Sanjay Mohapatra

217

17. Gram Utthan - From Micro Credit to Micro Enterprise

S.P. Das & Alok Pattanayak

233

Shiva Kumar Srinivasan

245

Jaydeep Mukherjee

249

MANAGEMENT CASE 13. Suhas Gopinath 14. Rural Women’s Marketing Association (RWMA) 15. A Tale of Two Samitis

BOOK REVIEW 18. Outsourcing : the Definitive View, Applications and Implications 19. Total Relationship Management

Evolution of Citizen Charter led Rural e-Governance: A Livelihood Security Approach to Information Systems Planning in Indian Context* Harekrishna Misra1 & B N Hiremath2

Abstract Indian rural e-governance initiatives face many challenges. This is not because it involves the rural infrastructure, but the complex process of involving the rural citizens. Rural citizens, who lack basic livelihood opportunities, are laden with survival threats and for them, everything leading to livelihoods prospects matter much. It is often argued that creation of “services on demand” and “stakeholderownership oriented development” initiatives may lead to success. In order to make the interventions successful, it is essential that the citizens themselves identify their issues, prioritize their needs, and manage their infrastructure and services. In this paper we discuss issues related to stakeholder-ownership oriented e-governance, design process and its effect on ICT planning for e-governance. We illustrate through a case about the utility of participatory rural appraisal (PRA) as a tool to involve rural citizens in planning and elicit their priorities for ICT options.

1.0 INTRODUCTION

Information and communication technology (ICT) projects require proper identification of users’ needs. ICT is a bundle of hard and soft components, where hard components are technology driven (system software, communications and power) and the *

1. 2.

users do not have any control. Soft issues relate to understanding processes, modeling and their automation. Managing the soft issues and technology enabled processes depend on the users’ capability. A synergic effect is possible when the soft issues are supported by the right kind of infrastructure in the supply-

Received June 23, 2007; Revised August 22, 2007. Authors gratefully acknowledge the assistance provided by Gramin Vikas Trust, Dahod, in conducting PRA exercises and for providing logistic support. Our special thanks are due to Mr. Arun S. Nathan and Mr. Kalpesh Soni of GVT for their support. Professor, Institute of Rural Management Anand, email: [email protected] Professor, Institute of Rural Management Anand, email: [email protected]

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chain. These require a rigorous information system (IS) planning (Ward and Peppard, 2002). Identifying the right types of services with users’ perspective is important to make an ICT initiative successful (Jokela, 2002). While there is phenomenal growth in ICT-enabled processes, decrease in cost of computing, increase in acceptability of e-business, ecommerce and m-commerce activities; failures plague the projects. Despite having a good method, many projects fail due to its less usability. There is a growing concern over evaluating, managing, and measuring effectiveness of ICT infrastructure created (Lycett, Macredie, Patel and Paul, 2003). Indian rural e-governance initiatives are more complex but face analogous situations. This is not because it involves the rural infrastructure, but the complex process of involving the rural citizens who are expected to be the larger beneficiaries. Rural citizens, who lack basic livelihood opportunities, are laden with survival threats and for them, everything leading to livelihoods prospects matter much. Alike e-business, e-commerce applications, e-governance rural initiatives need to be citizen-centric. It is important for the policy makers to direct the ICT initiatives for addressing not only the feasible business practices (e-business, e-commerce etc.), service oriented opportunities (e-governance, egovernment etc.), but also integrate the

demand based services for these citizen with focus on livelihoods opportunities. Unless directed towards creating “services on demand” and “stakeholderownership oriented development” initiatives, the projects taken up for intervention may not guarantee success. In order to make the interventions successful, it is essential that the citizens themselves identify their issues, prioritize their needs, and manage their infrastructure and services. The support of government, non governmental organizations (NGOs), etc., should monitor the infrastructure set up for the purpose. However, these projects need to evolve through demand-driven approach. Evolution precedes revolution and in rural development/ governance initiatives, evolution is possible through citizens’ participation. ICT based governance/development paradigms recognise citizens’ participation to be more important and in Indian context it is very relevant. (Prabhu, 2004; Bhatnagar, 2004; Satyanarayana, 2004). In this paper we discuss the concept and importance of user-led IS planning, design process and its effect on ICT planning. We consider rural citizens to be the end-users. We illustrate the utility of participatory rural appraisal (PRA) as a tool to involve rural citizens in planning IS and elicit the prioritsed demands on ICT options. Various IS metrics are

Misra et.al, Evolution of Citizen ... 3

accentuated to enumerate these ICT options. Through a case, we discuss how migration information centres (MICs) could be planned through the PRA techniques which support the livelihood perspectives of the citizens. We also narrate how these centres cater to their livelihood security, purposeful IS plan could be initiated an a simple ICT option could be adopted to help implement the IS planned. Moreover, we also discuss how this exercise could bring in the citizens’ perspectives and transform them to action. We conclude the paper with an analysis of the findings and provide an indicative direction to further research. 2.0 CITIZEN-LED ICT INITIATIVES

Rural ICT initiatives based on various business and governance models, are still evolving (Bhatnagar, 2004; Misra and Gachhayat, 2004; Prabhu, 2004; Satyanarayana, 2004). These initiatives are critically influenced by poor ICT and related infrastructure such as electricity, education, transport etc. It is therefore, essential that any rural ICT initiative in Indian context should primarily be led by the rural citizen (the user) with the active support of agencies involved. 3.0 CITIZEN-CENTERED DESIGN PROCESS

User-centered designs (UCD) is one major area of current research and in this paper the rural citizens are defined to be the end-users. UCD practices are aimed at understanding the users, their perception and incorporating them in the product/service delivery.

Exhibit 1

UCD Framework 1. Plan User centered Processes

2. Specify the context of Use

5. Evaluate against User requirements

3. Specify User Requirements

4. Produce solutions User Acceptance

ICT initiatives for rural development can also therefore, be mapped with this perspective. Normally, UCD (Jokela, 2002) practices are described through ISO13407 as shown in Exhibit-1. The exhibit suggests that any ICT application should be user centered and for effective utilization their perspectives need to be mapped. This is possible if users demand their services and make useful contributions during design and development. It would ensure an effective solution to the user expectations leading to its effective use. Citizens’ acceptance is a major concern for success of rural ICT initiatives. The citizens neither have exposure nor ability to evaluate any attribute described in Exhibit-1. Presently the initiatives are conceptualized, put as pilots and then

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used without citizens’ active participation. Innovations are necessary for harnessing experiences gathered, and then evolving initiatives to scale up. ICT initiatives need careful consideration of the factors responsible for successful scaling-up and one of these is “User Acceptance” (Lamb and Kling, 2003). The user acceptance model for information technology (Venkatesh, Morrish, Davis and Davis, 2003) is presented in Exhibit-2. Exhibit 2 Concept of User Acceptance

Individual reactions to use ICT

Intention to use ICT

Actual use of ICT

It is essential to understand citizens’ needs to consider ICT options for income generation and other desired services. The chosen ICT options should showcase the possibility of scaling up. Presently, Indian rural ICT interventions are focused on e-governance, and egovernment perspectives (Satyanarayana, 2004; Bhatnagar, 2004) with a view to providing citizen centered services. There are also other models with business perspectives like ITC e-Choupal (Sivakumar, 2004), and composite kiosk based services (Misra and Gachhayat, 2004). However, moderate acceptance of these models is due to lack of concerted effort to map the citizen priorities rendering these initiatives to remain supply-driven. Without a strategy to convert these supply-driven projects to demand-driven it is unlikely that such projects would succeed during scalingup.

Exhibit 3 ICT Projects for Rural Development Citizen-Led IS Projects

Demand on ICT Services

AgencyLed IT Projects

Supply of ICT Services

Misra et.al, Evolution of Citizen ... 5

Citizens’ acceptance determines the scope to transform the initiatives to be “demand driven” (Bhatnagar, 2004). Citizen-led IS planning has potential to create a good demand for ICT services (Exhibit-3) as compared to agency-led inititaives. Effectiveness of projects/ programmes is determined by responsiveness, community-rootedness, frontline acceptability, respectful trust, relationship, and usability. This will happen only if the projects are citizenled. 4.0 ICT AND DEVELOPMENT INITIATIVES

Rural ICT initiatives, especially through e-governance, e-government, and ebusiness models, have hastened the development process (Bhatnagar, 2004). There is evidence that ICT can be applied for enhancing opportunities for rural livelihood, generating employment, provide business opportunities and rendering ICT enabled services such as e-health, e-education etc. (Prabhu, 2004; Misra and Gachhayat, 2004). However, these ICT initiatives are not free from challenges. The digital-divide syndrome, which was primarily perceived as a problem rather than one of the symptoms led to poor design of the ICT initiatives across the world (Greenberg, 2005). In India, despite having ICT policies, the problem is still mounting and there is no sign of a sustainable solution to the complex problem of rural development (I4D, 2005). The challenge to garner benefits of ICT as a tool for development process is not by its automaton, but by

aiding the process - since automation might lead to unemployment (Greenberg, 2005). Besides, deployment of ICT infrastructure in rural areas is not commensurate with the perceived benefits (Bhatnagar, 2004), thus restricting their usability in the right context (I4D, 2005). Another set of challenges that Indian ICT initiatives face, are organizing an affordable, scalable and self-sustaining ICT infrastructure to provide services for income generation, e-government and conducting business in a convergent manner. The challenge is therefore, to revisit the development process in the context of ICT interventions and explore possibility of citizens’ participation (Misra, Hiremath, and Mishra, 2006). The UN global egovernment readiness survey 2005 (UN, 2005) and National e-governance plan (Kochhar and Dhanjal, 2005) recommend active participation of rural citizens with a view to improve the e-government services and their acceptance. 5.0 C I T I Z E N S ’ PA R T I C I PAT I O N F O R SUSTAINABLE LIVELIHOODS BASED ICT INITIATIVES

There have been two distinctive approaches to citizens’ participation in development projects; one is the classical top-down approach where the development agency identifies projects and invites the community to participate and the other is for the citizens to identify projects and invite a development agency to form an equal partnership with it to develop the project. ICT projects use

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these approaches sparingly. However, it is felt that techniques like Participatory Rural Appraisal (PRA) are dependable means of generating data for gaining an understanding of needs, preferences and priorities within rural communities (Suresh, 2002). They contribute to improving thinking, analysis, and decision-making processes related to the production, dissemination, and efficient use of lessons learned from participatory development experiences. What is ‘Sustainable Livelihood’?

Livelihood security is yet another important issue that is likely to influence the success of rural ICT projects. This aspect is very critical for sustenance of rural citizens and needs some discussion. Sustainable livelihood is a way of thinking about the objectives, scope and priorities for development in order to enhance progress in poverty elimination. It is a holistic approach that tries to capture and provide a means of understanding the vital causes and dimensions of poverty without narrowing the focus on just a few factors. It also tries to delineate the causes and symptoms of poverty, allowing for more effective prioritization of action at an operational level. The sustainable livelihoods approaches aim to help people achieve stable livelihood improvements that they themselves define. It recognises that people have certain rights and responsibilities towards each other and to society. Sustainable livelihoods

approaches rest on core principles that the activities should be people-centred, responsive and participatory, conducted in partnership with both the public and the private sector including civil society/ non-governmental organizations, sustainable and dynamic. The sustainable livelihoods approaches draw on the changing views of poverty. In particular, participatory approaches to development have highlighted great diversity in the goals to which people aspire and in the livelihood strategies they adopt to achieve them. Poverty analysis has highlighted the importance of assets, including social capital, in determining well-being. The importance of the policy framework and governance, which have dominated much development thinking since the early 1980s, are also reflected in sustainable livelihoods, as is a core focus on the community. Community-level institutions and processes have been a prominent feature of approaches to natural resource management and are strongly emphasised in sustainable livelihoods approaches, though the stress is on understanding and facilitating the link through from the micro to the macro, rather than working only at community level. A livelihood intervention is a conscious effort by an agency or an organisation to promote and support livelihood opportunities, usually for a large number of people. Livelihood intervention is more than income enhancement. It is

Misra et.al, Evolution of Citizen ... 7

about increasing economic power of the people. It is facilitating asset creation, capacity building, and access to opportunities. It is building securities. In short, livelihood interventions aim at reducing their vulnerabilities and promote livelihood security. Food and Livelihood Security

Livelihood security has to be understood from the people’s perspective. This is crucial, as people’s own perception of their food and livelihood security determines their decision-making behaviour. People’s perception of their food/livelihood security provides a oneto-one correspondence with technology adoption, participation in community based organisations, health, educational programmes, etc. Therefore, food security is a subjective concept; defined by an individual farmer’s own perception as to whether he/she has been able to support the family’s food and fodder requirements for a year from all resources he/she owns, controls and manages. For most households, the food produced on their land does not feed the family for the entire year for many reasons. The magnitude of food shortage varies from family to family in a given year and from year to year for a given family. Social and Cultural Aspects of Livelihood Security

Other than food, households have to provide for social and cultural expenditure. Many of these expenditures are either associated with celebrating

several transition stages in the life of an individual or with the transition stages in natural climatic seasons that determine farming operations. Marriage is one of the major social events and involves considerable expenditure. Dowry is customary among many social groups while ‘bride-price’ is common among some tribes. This is seriously eroding families’ ability to make productive investments in many cases and adversely affecting attainment of livelihood security in quite a few cases. How do we account for the importance given to dowry/ bride-price often at the cost of other ‘productive investments’ in agriculture or jeopardising their livelihood security? It simply means the cultural and social aspects at times assume far more importance than their concerns for food. Thus, livelihood security is multidimensional that encompasses food and nutritional security, financial security, social, and cultural security, and emotional security, among others. 6.0 PARTICIPATORY RURAL APPRAISAL AND LIVELIHOOD SECURITY

Each village and household has its problems, preferences, strength as well as priorities and PRA exercise captures these in a participatory mode as explained in previous section. Through the PRA exercise, various common issues related to village, household and individuals are listed. These abstracted versions are the metrics and they form as the basic input for measuring the deliverables of the IS planning process.

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The metrics are supported by measurement criteria set by the citizen themselves to determine its critical success. Metrics developed by the village, household and individuals in a village are studied by agencies involved in addressing the issues gathered through PRA. While exploring options, the critical success factors are listed for consideration. During PRA exercise a series of options are generated for interventions and providing services to citizens as well as augment infrastructure. Besides, measurement criteria are also indicated by citizens. Agencies involved in development process therefore, are equipped with the required indicators for interventions, and measuring the possible outcomes. ICT enabled services at this stage are selected and provided. PRA exercise is a continuous process (Suresh, 2002). The feedback is therefore, an important factor for evaluating the interventions and this needs another possible PRA exercise. There are several constraints in conventional methods of gathering needs. These constraints are high cost, time consuming, questionable accuracy, and lack of stakeholder participation. Often quantitative information generated does not explain real life situations and the local knowledge is not utilized in information processing. PRA methods are essentially a process of learning about people’s conditions in an intensive, iterative, and expeditious manner (Chambers, 1992). These techniques are adopted to achieve increased accuracy at

low costs both in terms of time and money to identify the citizens’ needs. Development projects need relevant and good quality information. By definition, development interventions are oriented to changing people’s lives. They attempt to target those who are marginalized and vulnerable to disruptions. Projects are designed based on information about the people in question, their needs, conditions, and concerns. When organizations base their actions on insufficient or faulty information, the result is a misplaced intervention that has little correspondence to the needs the poor. Such projects may actually have a negative effect on poor as they undermine traditional practices or cause local communities to invest their scarce resources in unviable activities. Vulnerable populations may actually become more destitute as a result of such poorly informed interventions. Until recently, top-down methods were dominant in which most essential decisions were made by “specialists” (as opposed to community members) about what issues to be addressed and how the information will be used. The local people’s role is generally limited to answering questions that are designed by outsiders. Today, the methods have become more participatory as local people play a greater and more active role in the information gathering process. Responding to a questionnaire is one of the most limited forms of “passive” participation. A more active type of

Misra et.al, Evolution of Citizen ... 9

participation involves diagramming or participating in more open ended discussions. Both of these types of interaction allow local people to express their own concerns rather than merely responding to outsiders’ questions. A still higher level of participation is attained when villagers set the agenda for the study, define the questions, gather the information, and are integrally involved in the analysis and use of the information. If, the objective is getting the local people to become more involved in decision making, then the participatory aspect becomes vitally important. The more that community members are active participants the more likely that they will feel a stake in the process and, the more they feel a stake in the process, the more they will be motivated to take on greater responsibilities in decision making and leadership. Thus, people’s participation is vital requirement in improving the quality of rural service delivery. But where quality is perceived simply in terms of technical feasibility, financial viability, risk assessments and managerial complexity, ignoring direct and serious peoples’ participation in the planning process, the quality of rural service delivery becomes doubtful. Competent decisions and accountable performance is required from a range of stakeholders, some of whom have been systematically alienated in the past by conventional approaches to planning. The main concern of participatory approach is to facilitate rural

service users identify their needs, rank options among competing possibilities, and assemble these in the form of community plans for action and thinking through solutions. Participatory approaches address some of the lacunas of the past and assist in eliciting people’s own analysis of their poverty and wellbeing provides a deeper understanding of dimensions of poverty other than mere income and consumption indicators. They are useful in understanding complexity and multiplicity of peoples’ livelihood strategies, barriers to their participation, social exclusion, and assessing social capital of different groups differentiated by gender, age, caste, ethnicity and literacy. One of the key expressed goals of such techniques was to make PRA accessible to the illiterate and others who might be left out of traditional information gathering processes. PRA relies, to a great extent, on mapping, diagramming and public dialogue about community problems and issues. An indepth and situation bound nature of participatory approaches can provide insights for policy and practical actions with high benefits for poor people in their own terms. The process of participatory approach emphasizes the linking of information from communities to broader policy dialogue with community based organizations (CBOs), NGOs, local and national government officers, academics, donors, among other stakeholders.

1 0 Vilakshan, XIMB Journal of Management ; September, 2007

PRA tools and techniques are extensively used by development practitioners and action researchers. In this paper however, we have made use of participatory tools and techniques to make the IS planning process demanddriven (thus evolving). This also has been used for ranking the livelihood security options which helps in assessing the IS metrics. 7.0 CITIZENS’ INFORMATION SYSTEMS PLANNING: THE CAUSAL FRAMEWORK

In this paper we consider PRA methodology, with livelihoods security perspective as discussed in previous section, a tool to initiate rural citizen centered design process. A priortised citizen charter at village level is considered as a foundation to IS planning process and this evolves dynamically. Through the PRA exercise we expect involvement of rural citizens in eliciting their view points leading to a metrics based measurement system which is an important stage for ICT acquisition life cycle (Pandian, 2003). The goal-questionmetrics (GQM) methodology (Basili, Caldiera, and Rombach, 1994) strongly fits into the deliverables of PRA exercise since it quantifies appropriate deliverables through metrics and these metrics are related to the long term aspirations of the rural citizens. A framework is presented in Exhibit 4, which discusses the causal flow among various stages of the development process involving stakeholders and eliciting various ICT options that can be

generated for interventions. This exercise is termed to be evolutionary since the metrics are generated and prioritised by the citizens themselves. As explained in exhibit 4, PRA based IS planning exercise needs to be conducted through the active participation of citizens. Usually in Indian context, villages are taken up for PRA exercise since villages provide common resources for livelihood, agriculture, irrigation, education, communication, power, transport etc to the rural citizen. Besides, each household also owns its resources in the villages for sustenance. Each household and village receives infrastructure oriented benefits and services from the government. All these resources form the basis of support for the village and household. IS planning exercise therefore, is aimed to elicit responses from the citizens for development of these resources, providing access to information and support services available for augmentation of these services and prioritizing them. Exhibit 4 PRA Based IS Planning Framework Resource PRA Exercise

Interventions and Measurement

Intervening Agencies

Citizen Metrics IS Planning

ICT Options

Misra et.al, Evolution of Citizen ... 11

PRA Tools and Techniques for IS Metrics elicitation

PRA tools as discussed above are used for involving rural citizen to share information on common as well individual resources, their problems, expectations, and limitations in earning their livelihoods which is the most important issue before them. They depend mostly on resources available in

the village, support received from agencies like government, NGOs and CBOs. In most cases these supports are not commensurate with their expectations leading to deprivation in earning a sustainable livelihood. Their expectations are captured through PRA process which attempts to deliver certain meta-measurable indicators the citizens consider to be important.

Exhibit 5 Citizen Metrics Elicitation through PRA Tools Inputs

PRA Process

PRA Deliveries Delivery

• Village Resources • Individual Resources • Agency Supporto • Governmento • NGOo

Focus Group • Community Discussions Resource Map Time-Line Analysis • Village Resource Map

Remarks Metrics • Food Security • Education Security • Health Security

Describes p r e s e n t scenario of the community development plan and its impact

• Infrastructure and Service

• CBOs

Venn Diagram

Social Map

Problem Tree

Mapping Livelihood Deprivation Causes

In exhibit 5, we have considered resources available to villages as inputs since these provide a guiding condition to the villagers to determine their livelihood options. Through PRA methods we have adopted various

• Social Security • Emotional Security • Development Metrics

Describes prioritization of the social problems and s o c i a l stress.Organizing Development Options and Prioritization

processes such as focus group discussions, time-series analysis, Venndiagram and problem-tree analysis to elicit various attributes of the management of village resources, social fabric of the village. Mostly these factors

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contribute to the livelihood security metrics such as food, education, health as well as related infrastructure. Through this table we align livelihood metrics with the deliverables of PRA methods. We then consider all these metrics as a vital input to the IS metrics which can be used in IS planning process. IS are logical reflections of the physical processes and their behaviour (Fenton and Pfleeger, 2002). It also advocates for an ownership. Behavioural analyses are important characteristics of any process and they are mostly measured through agreed attributes. Understanding of the attributes is initiated through certain measurable terms which are identified as metrics. The metrics normally evolve with the process and their maturity brings in a measurable behaviour of the process thus leading to measurable metrics. IS practices with metrics provide an interface between the physical process and information communication technology (ICT) orientated processes (Kan, 2002). Options for ICT interventions need to be carefully chosen on the basis of their strength and weakness. ICT as a technology is seen as a process improvement tool and this is possible through an IS-ICT alignment exercise (Weill and Broadbent, 1998; Lamb and Kling, 2003). The alignment exercise looks for the requirements of a process (process metrics), lists possible deliveries through the systemic approach being made (IS metrics) and provides a scope to leverage the strength of ICT options through an analysis of each

option (ICT metrics) (Pereira and Sousa, 2005). Strategic IS-IT alignment models advocate a metrics based approach for successful alignment among processes and IS; IS and IT (Henderson and Venkatraman, 1993; Luftman, 2003). ICT interventions effectively contribute towards managing transactions, organized process, and bringing an overall improvement in information dissemination (Bergero, Raymond and Rivard, 2004; Pereira and Sousa, 2005). Therefore, it is imperative that prior to organizing ICT resources, information systems with feasible demand driven metrics are developed. In exhibit 6, three metrics driven dimensions of alignment exercise are discussed. We consider livelihood metrics as an important factor in the lives of rural citizens which are very critical for their existence. Any IS-IT alignment exercise that ensures a support to their livelihood prospects would eventually attract their attention leading to acceptance and effective use. In exhibit 6, we have considered the goal of rural citizens to be “sustainable livelihood security” which is influenced by various security metrics to include food, education, health, infrastructure, social and emotional and their overall development. These largely contribute to their quality of life and livelihoods prospect which can be verified through PRA exercise. The metrics thus developed (exhibit-5) are used in exhibit 6. The IS metrics consider

Misra et.al, Evolution of Citizen ... 13

“transactions”, “processes” and “information elicitation” to be major attributes to its success. For example, food security is the most valuable metric for rural citizens. It leads to transactions in “financial” and “labour” markets. The process is “income generation” since it supports the food security. Information required to carry out the process are opportunity, policy, market, agencies involved and cost of access to such information. Thus in all ICT options need to support these IS metrics. Each factor of IS metrics is explained below with respect to ICT metrics. Transactions and Rural Citizen

In the context of feasible and dynamic rural livelihood options, the rural citizens are subjected to transactions with various markets such as labour, land, water, financial (institutional and noninstitutional), input and output, information etc. These dynamic sets of

transactions make their information systems complex. Two of the major attributes of a transaction are its “lifecycle” and “mode”. These two attributes provide an indication as to how effective the transactions are and therefore, help in considering ICT options. Besides these attributes, the interfaces between the transaction owner (the rural citizen whose literacy level determines appreciation of the technology) and the process(es) through which these transactions are carried out provide challenge to make a transaction successful. Though there are enough ICT tools to make this interface happen, it is difficult for the rural citizen to appreciate if the transactions do not directly benefit their livelihoods. It is therefore, essential that the transactions are demanded by the citizens and served by the agencies as per agreed terms. These demands can be effectively elicited through PRA exercises.

Exhibit 6 Metrics Based IS-IT Alignment Strategy Demand Driven Citizen Metrics

Goal

IS Metrics Trans actions

Sustainable Livelihood Security

Food Security

Process

ICT Metrics Infor mation

• Income • Oppor- • tunities • genera • Policies • tions • Labour • Market • Agencies • Cost • Financial

Trans actions Modes Time Location

Process • Quality • Interfaces

Infor mation • Access Cost • Agencies • Policies • Market • Cost

1 4 Vilakshan, XIMB Journal of Management ; September, 2007

Demand Driven Citizen Metrics

Goal

IS Metrics Trans actions

Process

ICT Metrics Infor mation

Trans actions

Process

Infor mation

Education Security

• Finan- • Income • Oppor- • Modes tunities • Time cial genera • Policies • Loca• Knowl- tions • Market tion edge • Lit• AgenShareracy cies ing • Cost

• Quality • Interfaces

• Access Cost • Agencies • Policies • Market • Cost

Health Security

• Financial • Expert Services

• Oppor- • Modes tunities • Time • Policies • Loca• Market tion • Agencies • Cost

• Quality • Interfaces

• Access Cost • Agencies • Policies • Market • Cost

Infrastructure and Services

• Finan- • Incial come • Utility genera Sertions vices • Convergence

• Oppor- • Modes tunities • Time • Policies • Loca• Market tion • Agencies • Cost

• Quality • Interfaces

• Agencies • Policies • Market • Cost

Social Security

Subjective Assessment of IS Metrics Obtained

Subjective Assessment of ICT Metrics Obtained

Emotional Security

Subjective Assessment of IS Metrics Obtained

Subjective Assessment of ICT Metrics Obtained

Development Metrics

Evaluation of IS Metrics, Options and its Prioritization by Rural

Citizen Evaluation of ICT Metrics, Options and its Prioritization by Service Providers/ Agencies

• Income genera tions • Mortality

Processes and Rural Citizen In order for having effective transactions, processes with certain measurable metrics

need to be in place (Ould, 1995; Weill and Broadbent, 1998). These processes being citizen-centric, need to be well defined

Misra et.al, Evolution of Citizen ... 15

with their deliveries. For example, income generation is a process and various options do exist before the rural citizen. However, success of income generation process should be evaluated with possible metrics such as income level, migration, expenditure on education, health, socio-cultural events, etc. It is possible to generate these metrics through a PRA exercise as well since it recognizes the role of each identified process through the goal setting exercise. Information and Rural Citizen

Rural citizens face myriad of problems associated with poverty, deprivation and related socio-economic issues. One of the major attributes for such problems is “lack of information”. Information on resources, support services related to livelihood goal and goal related citizen metrics (vide exhibit 5) is essential for the rural citizen. Accessing information with minimized constraints is a problem that rural citizens encounter. ICT helps in minimizing these constraints through right sizing the information-processing environment with a proper information structure (Bergero, Raymond and Rivard, 2004). PRA helps in recognizing the demand for information and therefore, provides a support for preparation of information structure. For example, income generating option for supporting livelihood needs a complex and dynamic approach such as tracing various markets, locating demand, and reaching these sources. Collating these

options with a right context and making it available to the rural citizen in their own understandable terms are easier said than done. Here, ICT options can be evaluated depending on the infrastructure available such as communication, data transfer, data access, power, applications such as information portal and maintaining these sources on a sustainable basis. 8.0 LIVEHOOD SECURITY MANAGEMENT THROUGH ICT: A CASE STUDY

The natural, physical, and social assets play a vital role in people’s livelihoods. Yet, there has been a steady erosion of these assets. In rural areas, ecological problems such as deforestation have played havoc in peoples’ livelihoods in many ways. Climate change, soil erosion, water depletion, habitat loss, energy overuse and species extinctions are all symptoms of economic process that depletes resources. With increasing pressure on land, individual households have exploited their resources leading to unsustainable livelihoods. If the goal of development is to build sustainable livelihoods, the very people who depleted the resource base have to be involved in problem identification, analysis, prioritization, planning, implementation, monitoring, and evaluation of development projects. This calls for the bottom-up participatory approach. Dahod district in Gujarat State is inhabited predominantly by the tribal population. Agriculture is their main

1 6 Vilakshan, XIMB Journal of Management ; September, 2007

source of their livelihoods. Majority of the farmers belong to the small and marginal category. The average land holding is 2.12 acres per household, which is extremely low considering the food requirement of a household. Nearly all farmers grow a single crop of maize during Kharif season. The rains are inadequate in two out of five years leading to food insecurity. With increasing population pressure on land and land degradation over time, it has not been able to provide food and livelihood security to rural households. Whatever food they produce, feeds the family for 8-9 months of the year. We took a case study based on the framework and explored various ICT options through the PRA exercise conducted by Gramin Vikash Trust (GVT), an NGO, in this district. During this exercise it was evident that “sustainable livelihood security” is a major concern for the rural citizens in the area. Based on the application of GQM principles on the PRA exercise conducted in the village provided an insight to the preferences of the citizen services. The goal of most of the citizen in the village is “sustainable livelihood security”. We analyzed the goal and understood that citizen have their measurable preferences to meet their goal. These are termed as the “metrics” and listed as “food security”, “health and sanitation facility”, “education facility”, “financial security”, “social security”, “cultural security”. Among these metrics we took two most important metrics as chosen by the

citizen which are “food security” and “health security for them as well as their animals”. In exhibit 7 we discuss various measurements that citizen attached to each metric to understand the existence of these facilities to verify these metrics. Further, all these measurements are examined with possible ICT options that can be used for interventions so as to measure the metrics identified. For example our observation that “food security” is the first priority among the rural citizens followed by “live stock security” and the last in the scale is “health security”. Food security as per the rural citizens is characterized through measurements of “self-sufficiency on food”, “migration for supplementing food”, “availability of work opportunity locally” and “access to input and output market”. These measurements indicate the possible IS metrics and ICT metrics as explained in exhibit 6 through transactions, processes and information. These also explain that e-government applications would carry great deal of acceptance to enhance their livelihood which can facilitate “transactions”, “processes” and “information”. Exhibit 7 illustrates our observation that “food security” is the first priority among the rural citizens followed by “live stock security” and the last in the scale is “health security”. Food security as per the rural citizens is characterized through measurements of “selfsufficiency on food”, “migration for supplementing food”, “availability of work opportunity locally” and “access

Misra et.al, Evolution of Citizen ... 17

to input and output market”. These measurements indicate the possible IS metrics and ICT metrics as explained in exhibit 6 through transactions, processes and information. It was understood during study that scanty opportunities in the village, inability of available village resources as well as poor government support, most of the villagers face very low “income generating opportunities” leading to

“migration”. Migrants faced many hardships including humiliation and loss of self esteem. Further investigations with the people revealed that for majority of the poor who migrate in distress, there is very little assurance of employment for they are unskilled workers. They undergo interim periods of unemployment during their stay in the urban areas, which deplete their meagre savings.

Exhibit 7 Identification of PRA Based ICT Options Goal

Metrics

Food Security

Sustainable Livelihood Security

Health Security (Human)

Measurements

Demand on ICT Options

Remarks

ICT Option Ranking1

Self sufficiency on food

Income Generating Opportunities

Kiosk based services for citizen

Ia

Migration for supplementing food

Demand for Information on employment opportunities

eGovernment applications

Ib

Availability of work opportunity locally

Demand for Information on employment opportunities from government and other agencies

eGovernment applications

Ic

Access to input and output market

Opportunity on marketing

e-Business applications and services

Id

Public Health Service

Providing opportunities in the village

e-Health Services

IIIa

Traditional Health Service

Rendering services to other Villages

Nil

IIIe

Health Education

Creating Opportunities in the Village; Maintaining Records

e-Health Services

IIIb

1 8 Vilakshan, XIMB Journal of Management ; September, 2007

Goal

Metrics

Livestock Security

1

Measurements

Demand on ICT Options

Remarks

ICT Option Ranking1

Immunization Services

Providing Information on Immunization details and history

e-Health Services

IIIc

Accessibility to Health Infrastructure

Providing Information on Doctors, Interaction with Doctors, Receiving advice from Doctors

e-Health Services

IIId

Clinical Service

Maintaining Health Records

e-Health Services

IIa

Self sufficiency on fodder

Least Demand

Nil

IIb

Artificial Insemination

Providing facilities in the village, access to information on availability

e-Health Services

IIc

Availability of Medicine

Providing facilities in the village, access to information on availability

e-Health Services

IId

Dairy Cooperative

Providing facilities in the village, access to information on marketing inputs, pricing

Dairy Information Kiosk

IIe

Suffix a, b, c, … denotes intra-group prioritization

The poor migrants are also perceived as thieves in the urban areas and so are they are unnecessarily harassed by the police and others. Frequently the migrants are cheated at the worksite by contractors where and suffer losses of wages due to the lack of awareness of legal recourse, mechanisms of redress and lack of

documents of the work in which they were engaged. Migrants lack knowledge about travel routes, modes of travel, timings and other details of transportation increasing their cost in terms of time, money, and effort. The migrants do not have risk compensating mechanisms like insurance and therefore

Misra et.al, Evolution of Citizen ... 19

they are deprived of the benefits in case of an accident. Therefore, a holistic approach is necessary to address this critical issue of migration. It may not be feasible to stop the migration entirely because of its critical support to the socio-economic structure of the rural citizens. It would rather be feasible to look for the opportunities where ICT as an infrastructure could facilitate migrants in terms of establishing a mechanism to provide information and communication services through e-governance networks. Village Jadha: Embracing Feasible ICT option for Migrants

It is in this context that the study of GVT found the income through migration constituting 65 percent of the household income in Jadha village in Dahod district. A group of 22 migrants came forward to support idea of GVT to form a “mahamandal” (federation) to address their problems. In consultation with the people and mahamandal, GVT envisaged the formation of Migration Information Centre (MIC - locally known as Palayana Suchana Kendras). GVT provided support for housing and operating the centre. Telephony - The Link: Jadha village is poorly connected by road and is situated in hilly terrain. GVT therefore, had a challenge to establish a telephone link for the MIC. The land line option was ruled out because of the topography and wireless in local loop (WLL) was procured for the purpose.

The Ground-Work for MIC: GVT then started a multi-pronged approach to address the problems faced by migrants by organizing and increasing their awareness of their rights. It started enrolment of migrants, prospective migrants with MIC at a nominal fee in order to meet the operation and maintenance expenses. The MIC provides employment to two “jankaars” , round the clock. GVT conducted exercises for skill identification of migrants and villagers; identification of contractors and possible locations where migrants work and distributed identity cards to the members. The basic philosophy behind the formation of MIC was to reduce the costs of migration by providing communication services through telephony, loans, information on jobs, increase the returns from migration by skill training, easier transfer of funds; tackling nonpayment cases, influence the perceptions of government officials and urban communities about migrant workers. MIC therefore, acted as support for establishing a social and economic safety network for these migrants. Now, the MIC has added various government related services to its network and provides information on government supported schemes. Results of MIC: The MIC in Jadha started in the year 2000 and its effect on the Jadha households is noteworthy. Some of the achievements appear in Table-8 through Table-10.

2 0 Vilakshan, XIMB Journal of Management ; September, 2007

Exhibit 8 Total Participation and Revenue Generated through MIC Participation in MIC

As on 23/01/06

Total Household/ Population

392/3030

Total Registration

461

Total Identity Card Issued

509

Activities

Unit Rate

Registration Fee

Rs. 5.00 every two years

Identity Card

Rs. 5.00

Message sending / delivery / message through Jankars

Rs. 2.00

Telephone Call

Rs. 2.00

Negotiation of Wage

5% of total increased value

Wage Realisation

10% of recovered amount

Exposure visit

Rs. 250.00

Remittance

2% value remitted (2%)

Govt. links

2%

Insurance claim

5% of Value

Exhibit 9 Use of Telephony (as on 23/1/06) Description

Total till last month

In the month of January 2006

Total

Incoming calls

963

23

986

Outgoing calls

651

20

671

Exhibit 10 Wage* Recovery from Contractors (Case solved as on 23/1/06) Place of Work

*

Amount Recovered

No. of Migrants involved

Baroda

Rs. 15,500

36

Ahmedabad

Rs. 15,000

40

It is noted that total amount of benefits due to wage negotiations to the migrants is Rs. 3,80,000 as on date

Opportunity Ahead

This MIC was introduced and supported by GVT on a pilot basis to understand

the effects and its scope for replication. Today it has spread to nearby 10 villages with high success rate.

Misra et.al, Evolution of Citizen ... 21

This MIC was introduced and supported by GVT on a pilot basis to understand the effects and its scope for replication. Today it has spread to nearby 10 villages with high success rate. The success has been noticed by the government of Gujarat and these MICs are now being transformed to cluster resource centers (CRC). Various egovernment applications such as “eGram” are planned for providing support to the villagers through these CRCs. 9.0 CONCLUSION

MICs have brought in many tangible and socio-economic supports to the prospects of livelihood security to rural households. It is evolutionary since it is based on participation of rural citizens; it is sustainable through a transaction cost sharing basis. These include reduction in migration costs; better communication, networking, employment opportunities; providing emotional, social, cultural, food and financial security; resolving conflict with contractors and bringing in overall livelihood security. This case describes the benefit of a demanddriven model through which a critical issue like migration could be negotiated and a simple ICT option (WLL connectivity) could provide a better opportunity to the migrants. It also described how the support structure could be related to the egovernment opportunities that

national e-governance plan extends. It is evolving through demand generated by rural migrants. While a supply-driven service through e-government can be made operational because of the obvious support structure provided by the government and various funding agencies, it is imperative for the policy makers to extensively make use of participatory rural appraisal techniques to understand and prioritize the demands of rural citizens to augment their own livelihood security through a rightly sized ICT architecture. ICT is strongly believed to be a service enabler tool in development process and it is advocated that ICT acts as a medium to poverty alleviation (Greenberg, 2005). In Indian context the policies for poverty alleviation are planned with a top-down strategy making it “supply driven”. As discussed in exhibit 3, supply driven projects do not generate much demand unless the planning process involves the citizen. Creating an atmosphere for eliciting the requirements and prioritizing the needs of citizens is a complex phenomenon because of the spatial, political, social, religious and cultural dynamics. It is therefore, necessary to balance the system that encourages availability of the supply driven services with active citizens’ participation. As illustrated in exhibit 11, the projects need to capture priorities of the citizens through PRA

2 2 Vilakshan, XIMB Journal of Management ; September, 2007

exercises leading to a comprehensive IS and ICT plan for the village. All the supplies need to meet the demands as elicited through this exercise. However, the demands elicited are illustrative in

nature and a detailed study is necessary to fine-tune any such prioritization. Authors plan for further research in this area to substantiate the findings from work done in this area.

Exhibit 11 An Assessment Model

PRA

Programme, Policy and Schemes

House Hold livelihoods Plan Social and natural resource in the village

VILLAGE RESOURCES

National EGov. Plan

EVALUAT -ION Demand on village resource

Village IS Plan

Village ICT Plan

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Case Studies”, Sage Publications, New Delhi, pp.60-64.

Basili, V.R., Caldiera, G. and Rombach, H.D., 1994, Goal Question Metrics Paradigm, Encyclopaedia of Software Engineering, Wiley, Vol.1, pp.528-532.

Chambers, R. 1992. Rural appraisal: Rapid, relaxed and participatory. IDS Discussion Paper 311. Brighton: IDS.

Bergeron, Francois, Raymond, Louis and Rivard, Suzanne, 2004, Ideal Patterns of Strategic Alignment and Business Performance, Informtaion and Management, Vol.11, pp. 1003-1020.

Chennai Statement: Up-Scaling Pro-Poor ICT Policies and Practices, Report on Workshop held in November, 17-19, 2004 in Chennai conducted by Swami Nathan Foundation, India, I4D,New Delhi, February, 2005.

Bhatnagar, Subhas, 2004, “e-government: From Vision to Implementation, A Practical Guide with

Fenton, N.E. and Pfleeger, S.L., 2002, Software Metrics: A Rigorous & Practical Approach,

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2 nd edition, Thomson Asia Pte. Ltd., Singapore, pp.83-87. Greenberg, Alan, 2005, ICT for Poverty Alleviation: Basic Tool and Enabling Sector, Sida Publications, Montreal, Canada. Henderson J.C., and Venkatraman N. (1993) Strategic alignment: Leveraging indormation technology for transforming organizations. IBM systems Journal, Vol.32, No.1, pp. 4-16. http://www.worldbank.org/poverty/ mission/up1.htm 21st Feb. 2004. Jokela, T., 2002, Assessment of User-Centred Design Processes - Lessons Learnt and Conclusions. in Proceedings of PROFES 2002. Rovaniemi, Finland. Kan, Stephen H., 2002, Metrics and Models in Software Quality Engineering, Pearson Education, New Delhi, pp. 1-31. Kochhar, S., and Dhanjal, G., 2005, From Governance to e-Governance A second look at some of the country’s best projects, Skoch Consultancy Services Pvt. Ltd,. New Delhi, October 2005 Lamb, Robert and Kling, Rob, 2003, Reconceptualising Users as Social Actors in Information Systems Research, MIS Quarterly, Vol.27, No.2, June pp197-235. Luftman, Jerry, 2003, Assessing IT/Business Alignment, Information Systems Management, Vol. 20 4 Fall, pp. 9 – 21 Lycett, Mark, Macredie Robert D., Patel Chaitali and Paul Ray J. 2003, “Migrating Agile Methods to Standardised Development Practice,” Computer Magazine, IEEE Computer Society; June 2003, Volume 36, Number 6, New York, pp79-85.

Mishra, Satyan, Gachhayat, Nitin, 2004, Rural Business through ICT: Profitability and Role of Governance, IRMA Silver Jubilee Symposium, 14-19, Anand, India. Misra, H., Hiremath, B N., and Mishra, D., 2006, Citizen Centric ICT Initiatives for Rural Development in Indian Context: A Participatory Framework, IRMA Working Paper Series (in press). Ould, Martyn A., 1995, Business Processes Modelling and Analysis for Re-engineering and Improvement, John Wiley & Sons, England, pp.1-30 Pandian, Ravindranath, C., 2003, Software Metrics, Auerbach Publications, New York, Washington D.C. Pereira, Carla Marques, and Sousa, Pedro, 2005, Enterprise Architecture: Business and IT Alignment, ACM Symposium on Applied Computing, March 13-17, Santa Fe, NM, USA. Prabhu, C.S.R., 2004, “E-Governance: Concepts and Case Studies”, Prentice-Hall of India, New Delhi, pp.10-25. Satyanarayana, J., 2004, e-Government, the Science of the Possible”, Prentice-Hall of India, New Delhi, pp.8-22. Sivakumar, P., 2004, ITC e-Choupal: Enmeshing interests, enhancing incomes, IRMA Silver Jubilee Symposium, 14-19, Anand, India. Suresh, Kumar, 2002, Methods for Community Participation: A complete Guide for Practitioners, Vistaar Publications, New Delhi, pp.40-52. United Nations, 2005, From E-government to E-inclusion, UN Global E-government, Readiness Report, Department of Economic and Social Affairs, Division for Public

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Administration and Management, New York.

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Venkatesh, Vishwanath, Morris, Michael G., Davis, Gordon B., and Davis, Fred D., 2003 User Acceptance of Information Technology: Toward a Unified View, MIS Quarterly, Vo.27 No. 3, September, pp425478.

Ward, John, & Peppard,Joe, 2002, “Strategic Planning for Information Systems”, John Wiley and Sons, England, pp. 40-45. Weill, Peter, and Broadbent, Marianne, 1998, Leveraging the Infrastructure: How Market Leaders Capitalize on Information Technology, Harvard Business School Press, Boston, Massachusetts, pp.125-152.

Analysis and Development of A Concept Level Framework on Corporate Social Responsibility* Som Sekhar Bhattacharyya1

Abstract Corporate Social Responsibility (CSR) has become a very popular field of enquiry in management research and an equally celebrated piece of action in management practice over the last few decades. CSR has won a favourable place in the hearts and minds of management researchers and practitioners. But at a very fundamental level, the very term CSR has raised more dust than it has settled. There have been various views on what the concept of CSR stands for. A clear understanding on definitional aspects on CSR is yet to be achieved. For research on CSR to move forward, the chaotic situation on definitional aspects of CSR should be settled in firm ground. In an attempt to do so, this study reviews the various concepts on CSR and synthesizes these to arrive at a simple but holistic framework.

1.0 INTRODUCTION

The institution of business resides in the broader society and nature. Since times immemorial business (dominantly traders in ancient time) had economic superiority over other institutions in society. So this economically rich section of society has always been expected to take care of the poorer sections of society. There have been numerous examples of business and traders doing social good by involving in charity and philanthropy. In the last few centuries because of technological and managerial progress,

business has become a very dominant institution in society (Dicken, 2003).Over the years the interface between business and society has been dynamic and evolving. The concept of Corporate Social Responsibility (CSR) captures the various thoughts and action on the equation between business and society. The journey of CSR, in modern day management started in the early 1950s with the protagonist writings of Bowen (1953). The concept of Corporate Social Responsibility (CSR) has been extensively discussed from 1950s (Carroll ,1999).But

* Received July 3, 2007; Revised August 31, 2007 1. FPM Researcher, Management Development Institute, Gurgaon, email: [email protected]

2 6 Vilakshan, XIMB Journal of Management ; September, 2007

since these early days, antagonistic writings on CSR by none other than Leavitt(1958 )and the noble laureate Friedman(1970) have raised conceptual question on what is CSR. This paper in the first few sections discusses the state of confusion in CSR terminology. In the subsequent sections various concepts on CSR are with multitude of thoughts are reviewed and then synthesized to bring out the core and essential themes on CSR. Finally, this paper comes up with a simple yet comprehensive conceptual framework on CSR. 2.0 UNDERSTANDING CSR

The concept of CSR has been debated and deliberated upon, right from the very beginning of the concept itself (Carroll, 1999; Meehan et al., 2006). A look back at the last forty years of CSR literature reveals a fierce contest on the issue of arriving at definition on CSR (Meehan et al., 2006; McWilliams et al ., 2006 ; Windsor, 2006 Leisinger,2005 ; Valor, 2005; Acutt et al., 2004; Munshi, 2004; Young 2004; Hill et al., 2003; Ka¨rna et al., 2003; Keay, 2002; Frankental, 2001; Shrivastava and Venkateswaran ,2000 ; Willums, 1998; Pinkston and Carrol, 1996). The uncertainity regarding what CSR stands for transcends the academic boundary and is even present in the realm of management practice (Altman, 1998). Further, there is a clash between the management practitioners and the academic world on CSR. What is CSR as viewed by firm managers might not be

seen as a CSR initiative by the researchers (Leisinger, 2005). Thus, there has been rise in literature dwelling upon definitional debates on CSR (Mohr, 1996). Pinkston and Carrol (1996) had the opinion that since the belief and attitude differ across societies and further as the relevance of issues in society change in temporal dimension, a singular definition on CSR could be difficult to arrive at (Shrivastava and Venkateswaran, 2000). Frankental (2001) had even argued that because of the intangible and vagueness attached to CSR it is actually devoid of any standard meaning. Thus, sometimes the definition has been even antagonistic to one another (Hill et al., 2003).This lack of tangibility in CSR has posed difficulty in measurement of CSR actions (Munshi, 2004) as well specially in measurement of CSR financial performance (Ullmann, 1985; Carby- Hall, 2005; Moir, 2001; Munshi , 2004; Waddock ,2004; Hill et al., 2003; Valor, 2005; Mohr et al.,2001; Zenisenk, 1979; Bowman and Haire,1975; Gavin and Maynard, 1975; Boel and Perry, 1985; McGuire et al.,1988) . One popular way is to use financial performance as a proxy for social performance (using social reports). But each of the measures developed by researchers has certain limitations. Each of the measures developed introduces certain biases and hence causes inconsistencies, while others suffer from lack of generalization characteristics (Aupperle et al., 1985; Graves and Waddock, 1994; Miles, 1987; Wolfe and Aupperle, 1991; Wood, 1991). So there are

Bhattacharyya, Analysis and Development ... 27

no absolute, well accepted measures of CSR output (Munshi, 2004). Thus CSR researchers and practitioners agree on the point that CSR is an extremely difficult concept to measure. Thus, one can very well conclude that the definitional aspect on CSR still needs to be settled since due to the definitional constraints theoretical progress has been impeded (McWilliams et al., 2006). Besides, answers to definitional aspects would also help in developing valid measurement instruments on CSR. Accordingly, this study has become relevant. 3.0 CSR AND MANY OF ITS SIBLINGS (TERMS).

The lack of a singular universal definition on CSR is further complicated by the fact that the canvas of Business and society is painted with various other terms! (Waddock, 2004; Munshi, 2004). These terms like Corporate social responsibility (CSR,CSR1) ,Corporate social responsiveness (CSR2) , Corporate social performance (CSP) ,Corporate community involvement (CCI) , Corporate community relations (CCR), Corporate citizenship (CC),Business citizenship (BC) , Global Business Citizenship (GBC) etc (Waddock, 2004; Munshi, 2004) have flooded business and society literature.The number of terms in this relatively new field is amazing (Valor 2005). This has also created ambiguity in its own way. It has been seen that sometimes the same authors use the term with various meanings in different

studies or in the same study (Carroll, 1998; Valor 2005). CSR has been equated with terms like CC and sustainability (Young 2004), and often these terms have been used interchangeably with each other (Acutt et al., 2004). Thus CSR is one of the many terms though it is the preeminent one. So one can be certain that not only there is no one definition of CSR but there is a presence of many sister terms to define and explain the philosophy CSR attempts to portray. Further, authors use these terms often interchangeably. The reality is that all these terms attempt to deal with the construct of business and society in their own way, each being little different from one another. The CSR concepts domain is like a battlefield with many sisters and similar terms posing against each other to grab the sacred piece of land (hearts and minds of researchers). In this study only the preeminent term CSR will be reviewed not the other terms. This review is done in the next section. 4.0 ANALYSIS OF THE CONCEPTS ON CSR

Business responsibility towards the society is an important theme in the context of business and society. In the present day scenario the importance of corporate responsibility towards society further increases as national governments are playing an increasingly role towards community problems, social ills and environmental challenges facing society (Cooper, 1998).Sethi and Steidlmeier, (1994) had viewed a pivotal

2 8 Vilakshan, XIMB Journal of Management ; September, 2007

role of CSR in the socio- economic progress of society and they had also expected that both business and civil society institutions agree on the social challenges to be addressed and cooperate to attain the same for a better world for tomorrow. CSR comes at many levels. Wood (1991) had analyzed CSR at three levels •

Institutional social responsibility ( for profit organizations to earn profit as its primary duty)

•

Organizational social responsibility (firms to take responsibility for social and environmental wellbeing).

•

Individual social responsibility (individual firm managers to act morally).

The level of analysis adapted in this study is primarily at the organizational social responsibility level, but shades of other levels are also present as it is difficult to segregate the three levels entirely because of the associated interdependence amongst the three levels (Wood, 1991). 4. 1. CSR and Ethics

One of the earliest thoughts on business and society came from Bowen in 1953. Bowen had prescribed that managers of for profit organizations should frame such policies (and decisions), and undertake such actions which are within the boundary of the norms and values of the society (Bowen, 1953). One of the big impact conceptualization of CSR came in 1979 from A. B.Carroll in the seminal

paper “The Pyramid of Corporate Social Responsibility” .He conceptualized CSR as encompassing four responsibilities economic, legal, ethical, and philanthropic. The economic responsibility expectation tells businesses to be productive and thus be profitable. The legal responsibility of businesses expects that firms perform the business activities within the legal and regulatory framework. The third responsibility of business captures the notion of ethics. As viewed by Bowen, Carroll also prescribed to run business within the set of socially allowed set of values and norms(depending upon cultural and religious setting). The fourth and the last responsibility, philanthropic responsibility deals with the expectation that businesses proactively address and solve the problems and challenges faced by society (Carroll, 1979).The philanthropic responsibility can also be seen as a discretionary expectations of the society from business (Schwartz and Carroll 2003).Another eminent business and society scholar Prakash Sethi (1979) around the same time had also conceptualized CSR along ethical , legal and social responsiveness dimensions. Social responsiveness is the proxy to the philanthropic or discretionary responsibility of Carroll ( 1979). This aspect will be discussed little later in this study. According to the view of Andrews (1971), one of the first strategy academicians, social responsibility is demonstrated by corporate action which

Bhattacharyya, Analysis and Development ... 29

doesn’t harm or hurt others regardless of how profitable that activity can be for the firm. This explanation by Andrews highlights that those corporate activities which are profitable but injures society are not to be tolerated. Sandra Waddock, (2004) viewed corporate responsibility as the extent and nature of firm (ir) responsibility reflected by a firm’s strategies and operations. Firms have responsibility towards its stakeholders for any of its actions (good or bad). Waddock (2004) is of the view that a firm cannot ignore its responsibilities. So if a firm in the name of even CSR harms any stakeholder it will represent irresponsibility, not responsibility. On similar lines an exhaustive explanation of CSR was provided by Frederick and his colleagues in 1978. According to them, a firm ought to be held responsible for any of its action that affects communities and environment. CSR represents the very essence of this. CSR implies that the negative impacts of business on people and society should be acknowledged and corrected. CSR calls for sacrificing profits, if the very nature of earning profit injures other stakeholders (Frederick et al., 1978). The ethical way of conducting business is also echoed by the Prince of Wales Business Leaders Forum which describes CSR as business practices based on ethical values and respect for society and environment (Aaronson, 2003). Similarly Business for Social Responsibility (BSR) declares CSR as doing business which is not only

linked to social and ethical values but to exceed it (Aaronson 2003). Thus repeatedly the ethical dimension of CSR has been championed and ethics has been seen as the backbone of CSR activities. So the normative school can be satisfied if we say that any firm activity should not break a legal framework or should not harm any stakeholder intentionally. The moment the firm management comes to know that by a business activity even one stakeholder is injured and harmed, the firm management should stop the activity or modify the activity in such a manner that the harm impact component is addressed and mitigated. This ethical dimension of CSR has been a dominant dimension and fundamental feature of CSR. Another point which needs to be mentioned here is that from early days in CSR researchers had agreed that CSR activities to be within the boundary of legal requirements (which seems quite obvious) .Both Sethi’s (1979) and Carroll’s (1979) conceptualizations on CSR had also indicated that any firm activity (including CSR activities) should comply to legal requirements (law of the land). BSR also in its statement on CSR talks not only of legal compliance but also to promote such practices, which exceeds beyond legal compliance (Aaronson 2003). Thus CSR is something, more than just complying with regulatory bindings (Ka¨rna et al., 2003). So ethics has an integral and foundational root in CSR, while legal compliance is a necessary though not a

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sufficient condition for an activity to become a CSR activity. Way back in mid 1970s Ackerman and Bauer (1976) had seen CSR as firm decisions and subsequent actions which the firm had thought as its socially responsible activity. Similarly, Carroll (1979) and Sethi (1979) while conceptualizing CSR, had included the aspect of discretionary or responsiveness. The discretionary nature of the CSR has also been emphasized by Kotler and Lee(2005).In other words Van Marrewijk(2003) had seen CSR as voluntary business practices for addressing stakeholder concerns. Thus CSR is a voluntary, discretionary activity (not an activity done to comply with legal or regulatory demands forced upon the firm). This is an important feature of CSR initiatives. Thus CSR is what a firm assumes to project as CSR. Academic researchers should not necessarily contest the CSR thematic claims made by firm managers. 4. 2.CSR dominant goal to benefit society

The foundation of CSR is built upon the legal and ethical building blocks. But the direction in which the discretionary/ voluntary CSR activities are directed needs to be explored. Steiner (1972) had viewed social responsibility of the corporate as a ‘‘social contract’’ (emphasis added) between the business and the broader society. Steiner (1972) had emphasized the notion of CSR as a positive, social welfare of business seeking business attitude towards

society. While Wood (1991) had pointed out the fact that society has an expectation that business firms have social performance (emphasis added) like its existential economic performance. This social expectation or social performance was further advocated upon by Buchholz and Rosenthal( 2002).They described corporations as more than economic institutions. They opined that it is the stakeholders that firm should be accountable to not just towards the shareholders alone. This notion of larger society was getting accommodated as stakeholders in management literature (Freeman, 1984). Stakeholder’s were defined by Freeman as “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (1984: p-46).This broad definition generated a wide range of stakeholders. So stakeholders were seen as parties who can affect the firm or is affected by the firm activities (Evan and Freeman, 1988). On similar lines Hopkins (2003) wrote of stakeholders of a firm as having concern, interest and power to influence a business organization. Clarkson (1995) added a temporal dimension to the stakeholder concept by saying that the stake could be in past, present or future of the firm. Thus the stakeholder concept made certain segments of the society relevant (emphasis added) for a firm and CSR was directed to take care (emphasis added) of these stakeholders. In fact Hopkins (2003) grounded his definition of CSR on stakeholder care married to the concept

Bhattacharyya, Analysis and Development ... 31

of ethics. Stakeholder concept generates a wide range of stakeholders and as the expectation that a firm should to cater to the demands and expectations of each of the stakeholders’ leads to the genesis of a wide range of firm CSR activities (Leisinger, 2005). 4. 3. CSR as practice

CSR is not just all words but action. The great management guru Peter Drucker(2001)and later Jones(2005) put forward that firms’ should endeavour to achieve a greater internalization of negative externalities(created by that very firm) and also a greater generation of positive externalities for betterment of the society. Buchholz and Rosenthal (2002) also echoed this as they advised profit making firms to put resources and management effort to address the social ills that are prevalent, specially the ones that the firms created because of their business activities. Thus CSR stands for action. The notion of Corporate Social Performance (CSP) captures the notion of CSR activity (action) output .This was another major concept in CSR literature. CSP first integrates organizational CSR principles, processes, policies and attempts to measure the CSR programme performance (good, bad satisfactory outcomes) (Wood, 1991).CSP called for business action at the macro-level and micro- level concerns existing in society by issues identification, analysis and last but the most important, the responsive action taken. CSP also entails how

business accounts for the changing societal conditions(Carroll ,1979;Sethi, 1979; Wood, 1991).Thus the focus of CSP is on outcomes (social impacts) of the social policies and initiatives the firm undertakes(Wood, 1991).The output side of CSR activities is the CSR reporting dimension .Corporate social reporting (CSR) is the process of communicating the social and environmental effects of organizations to particular interest groups and to society at large (Gray et al.,1987). As such, it involves extending the accountability of business organizations, beyond the traditional role of providing a financial account to the owners of capital (shareholders). Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for their shareholders. Thus, CSR reporting structure is a CSR activity communication output mechanism keeping stakeholders in mind. 4. 4. CSR and Community Involvement

CSR action is being increasingly recognized as a collaboration between business firms and other social institutions (Burke, 1999; Osborn and Hagedoorn, 1997).This cooperative arrangement has been viewed as beneficial to both business firms as well as the society (Boatright , 2000; Pava and Krausz, 1997; Garone ,1999; Steiner and Steiner, 1991). Philanthropy was seen as a top-down (corporate to community) one-way relationship, whereas CSR is viewed as a socio- economic collaborative

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effort between the business firm and the communities (Osborn and Hagedoorn, 1997).This feature of CSR is important because the expectations and aspiration of the communities are often different from that of the firms performing the CSR (Burke, 1999).This clash of expectation between the two also change over time. As the times are changing, firms are not able to just adopt a top down approach (corporate to community). Firms have to adopt an approach in which the stakeholders’ views are heard and accommodated in the CSR initiatives (Burke, 1999); Burke(1999) termed this inclusive approach as Corporate Community Relationship (CCR). These types of CSR initiatives provide firms the social license to operate in its business interests with the local communities in a better manner. Thus if business firm engage in partnership with a stakeholder (like a local community, villagers, farmers women’s groups etc) and does work to nurture the relationship, this can be viewed as a community relations intensive CSR initiative. The longer the duration of this type of CSR the better it is. Waddock( 2004) had also talked about Community Relations (CCR) or Involvement (CCI) where firms are expected to move from just one point fragmented interaction between business and the relevant stakeholders to a long term, trustworthy relationship based on partnerships/ collaboration with stakeholders. This has become a prevalent and preferred way of

engagement between business and communities (Brugmann, and Prahalad, 2007)).Similarly, Altman( 1998) had also called for a business and stakeholder relationship where the interests of both the company and the local communities are promoted. But these partnerships with communities should not necessarily be mainly driven with an economic agenda in mind (Fig, 2005).Thus CSR as a concept calls for means establishment of a long term (longitudinal) interaction, intense, meaningful, need based and trustworthy relationship (among equals) between the firm and the relevant stakeholders in the society. 4. 5. The economic angle to CSR

There is no doubt that firms are expected to be profitable first and then think of its social responsibilities. Drucker (2001) among others had proclaimed that if a business organization is not able to earn profit (for stockholder) it can never take care of the society or any other stakeholders. It is important to note that CSR proponents never pressed the idea that business has to undo its economic responsibility and overdo its social responsibility. Being socially responsible does not mean that a company abandon its primary economic mission (economic responsibility in Carroll’s (1979) pyramid. Nor does it mean that socially responsible firms cannot be as profitable as other less socially responsible firms. But at one level it does mean that companies need to do a cost benefit analysis for undertaking a CSR initiative.

Bhattacharyya, Analysis and Development ... 33

This kind of analysis can help both business and society gain from the CSR programme (Frederick et al., 1992),as there is no point for profit organizations to drain its valuable resources. Increasingly, scholars have advocated that CSR should make business sense (Porter and Kramer, 2006 ; Crawford and Scaletta, 2005; Salzmann et al., 2005; Porter and Kramer,2002 ; Meehan et al., 2006; Friedman ,1970 ; Kotler and Lee 2005 Windsor, 2006; Altman ,1998; Waddock, 2000; Ricks ,2005;Perrini,2005; Stead, and Stead, 2000; Lewis, 2003; Bhattacharya et al, 2007). Bhattacharya, Craig Smith and Vogel commenting on the international conference, held in September 2003 on “Integrating Social Responsibility and Marketing Strategy” wrote that a dominant theme emerging out was that CSR has shifted from being in the outer ring of business activities to being a inner ring (core) business activities (Bhattacharya et al, 2004). Altman (1998) had found that many business firms were discovering benefits to firm and its strategic business objectives because of the firm CSR initiatives. Ellkington (1994; 1997) had championed the seminal concept of Triple Bottom Line (TBL). TBL represents the philosophy and action in which business simultaneously creates the trio of economic, environmental and social value. Thus, this encompasses Win- Win –Win situation benefiting business, society and environment (People, Planet,

Profits, 3 P) (Henriques and Richardson, 2004). New terms like Corporate Social Opportunity (CS0) (Grayson and Hodges, 2004) also reflect this philosophy. CSO describes those social and environmental projects which have commercial viability. Grayson and Hodges( 2004) commented that only such social and environmental initiatives will be sustainable in the long run. The concepts like TBL, 3 P and CS0 bring in the important perspective of corporate benefit and business opportunities from CSR initiatives. The sanctity of CSR has been redefined. One can start the discussion on this theme starting with the duo of M.E.Porter and Mark .R. Kramer, and their articles in Harvard Business Review. The authors had advised business organizations to align the social goals and objectives and actions with the business economic goal, so that long term business interests are served (Porter and Kramer, 2002; Porter and Kramer, 2006). Porter and Kramer, (2006) had also laid the blueprint for guiding organizations in this direction by describing how firm CSR initiatives can improve the firm and industry level competitive context and /or add value to the firm business. So the convergence of social and environmental goals was emphasized. The case of the sanctity of CSR generating economic and other benefits gets more support if one looks at the interpretation of CSR from Business forums and consultancy firms. These institutions invariably talk about

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embedding business benefits in the CSR programmes. The elite league consultancy firm PWC acknowledges that economic, environmental and social value can be generated and sustained only when a firm aligns its products and services with the stakeholder demands (PWC,2007).The global economic institution, World Bank (which has the mandate to develop the developing countries) views CSR as a tool for both socioeconomic betterment of the society as well as providing business with benefits (World Bank Group, 2007).World Business Council for Sustainable Development(WBCSD) a global level non business organization championing CSR has formulated a business agenda for sustainable development in which the dimensions or firm competitiveness and profitability are embedded (Moir, 2001). It talks about operational efficiency and effectiveness, value creation, risk reduction, protection of resource base of raw materials, retention of talent and license to operate and innovation management as business gains from CSR initiatives. This is a pragmatic way of looking at the subject of CSR as the firm is the source of CSR .CSR hinges so much on the firm that researchers should have belief and confidence that what a firm claims as CSR carries noble motives to positively impact the society and a firm has every right to get benefit (economic as well as non economic) out of CSR programmes. So again the discretionary nature of CSR is emphasized.

None less than Peter Drucker had advised organizations to do related CSR. Unrelated CSR activities undertaken by firms might be ineffective and inefficient (Drucker, 2001).Business firms solving any unrelated social problem can backfire as the business doesn’t have the expertise to solve these issues and thus the firm can waste shareholder resources and also not solve the social problem Leavitt (1958). Thus, it is beneficial for both business and society that, business firms indulge in CSR themes related to its mainstream business. Here the concept of Strategic CSR makes its way. In simple parlance Strategic CSR is those types of CSR initiatives which are good for business as well as good for society (Lantos, 2001). Strategic CSR provide the scope of bringing significant socioeconomic good to the society as well as bring significant business benefits to the organization (Bruch, 2005; Werther and Chandler, 2006; Porter and Kramer, 2006). By championing Strategic CSR one is not saying that there is no requirement of philanthropy and charity in the society, philanthropy is noble and is required by society in its own way (Fulda, 1999). The concept of strategic CSR brings the CSR initiatives very close to the main business. Strategic CSR is gathering momentum in practice (Lantos, 2001). Thus, it can be difficult in the context of Strategic CSR to separate a CSR activity from the core business activities (Fukukawa and Moon 2004;Porter and Kramer,2006).

Bhattacharyya, Analysis and Development ... 35

This is the best thing to happen in the entire history of firms (right from 1600s) when the pure business activities are solving social problems, but it still seems an utopian statement given the present state of affairs in the present world. But one can on the statue of CSR, emboss with golden words that business benefits can be achieved from firm CSR activities. 5.

CSR AS A CONTINUUM

By the new millennium scholars felt that it was extremely difficult to present a

single one point definition of CSR (as one could have gathered from the discussion so far). CSR represents not one but many themes varying in both colour as well as shade. Scholars believed and proposed that firm CSR activities can be best conceptualized as a continuum (Johnson 2003; Miles and Covin ,2000; Van Marrewijk, 2003).These CSR continuums capture the wide range of social initiatives in one platform. H.H.Johnson (2003) provided one CSR continuum which has been tabulated in table 1.

Table- 1 : Corporate Social Responsibility continuum (Johnson 2003) Level

Characteristics

Level-1

*Do not adhere to many rules and regulations.

Illegal/

*Exploits workforce.

Exploitative/

*Misrepresents accounts.

Irresponsible

*False advertising. *Pollutes Environment. *Does nothing for the society. Etc.

Level-2

*Minimum compliance to local, state laws.Regarding work, environment.

Compliant

*Few or no activities for society.

Level-3

*Little more than complying with minimum compliance to local, state laws regarding work, environment.

Fragmented

*Registration to ISO 9000. *Participation in CSR is occasional, fragmented rather than strategic and non integrated.(CSR is piecemeal, minimal& with mixed motives)CSR may done with profit motive.

Level-4 Strategic Level-5 Social Advocacy

*ISO 9000, ISO 14000, LCA & Recycling programs, Green certifications.* Very good HRD programs,*Active continual relationship with Community.*Varied community programs. *CSR is a moral initiative regardless of the financial consequences.*Belief that companies are not solely to make profit but to take care of societies also.*Innovative ways to do CSR.

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At one end of the continuum the bad firms are placed which indulge in unethical and illegal activities (exhibiting no CSR activities). In the middle are firms which comply to the laws and regulations of the land and do fragmented social and environmental activities here and there, now and then. The higher level firms indulge in Strategic CSR as they

proactively engage in social activities to change the society for the better.Another continuum was synthesized from the works of Miles and Covin, 2000; Karna et al., 2003; Day and Wensley, 1988 and Hunt, 2000. This CSR Continuum was conceptualized on the basis of Competitive Advantage by the authors. Table -2 depicts this Continuum.

Table 2- The CSR Continuum (from Miles and Covin, 2000;Karna et al.,2003; Day and Wensley ,1988 and Hunt ,2000). CSRcontinuum

Source of competitive advantage

Form of competitive advantage

Compliance

CSR expenditures perceived as a cost of doing business

Typically a cost-based positional advantage, attempting to create superior efficiency in value delivery

Strategic

CSR expenditures perceivedas an investment in the ûrm’sset of distinctive competencies

Could take cost and/or differentiated position to be either more efficient or more effective in creating value propositions for the customer.

Forced

CSR expenditures perceived as a”tax” being mandated by NGOsor other external stakeholdersthat will diminish the firm’sability to create value for otherrelevant stakeholders

None

According to this continuum, forced CSR a non proactive approach, brings no competitive advantage to the firm. Compliance based CSR brings only cost based competitive advantage. Strategic CSR brings the two types of competitive advantage. By doing Strategic CSR, firms’ can pursue either of the two

generic strategies of cost leadership and/or product differentiation. It becomes apparent from the two continuums that it is strategic CSR that firms should attempt to perform as strategic CSR lies at higher levels in the continuum and represents a desired state of affairs.

Bhattacharyya, Analysis and Development ... 37

This study evaluated various views on CSR without even mentioning any single definition at any point in this paper, to stay neutral! The fear and the general concern that the debate over what CSR stands for will not be settled in near future has been indeed a genuine one. This attempt was to evaluate the various explanations and definition on CSR to synthesize the key learnings and find out the basic themes (novelty) projected by each of the different explanations on CSR. This was done so that a final understanding on the most basic yet vital question on what CSR is doesn’t linger in the minds of researchers for long. In modern day, business as an institution is growing as are the problems in society and natural environment, so the prospect of CSR as a tool for a better future is promising. Hence once the definitional aspects on CSR are better understood further research on CSR can be undertaken. This review story on CSR undertaken right from the Pyramid of Corporate Social Responsibility to the Corporate Social Responsibility continuums helped one to find out the answer to the question asked at the beginning of this paper (on what does the term CSR stand for). The answer to the questions posed has been depicted by two figures (figure 1 & 2). Figure -1 portrays the gray areas which CSR has. These are 1.

terms like CC, Corporate Sustainability, GBC etc

CONCLUSIONS

One has to accept that the concept of CSR has many other similar sister

2.

Single point CSR definition is difficult. CSR measurement is also difficult.

3.

The concept of CSR can be better defined as a continuum rather than as a single state. This continuum is conceptualized based upon the varying level of CSR (lower to higher level of CSR). The continuum can be based upon the extent of interaction in the CSR activity (intensity of CSR) with the stakeholder and the time period of CSR intervention (longitude of interaction) with the stakeholder.

Many sister terms exists No single universal Definition

CSR CSR

Measurement is Difficult

Can be best explained as a Continuum

6.

Figure -1, CSR the ambiguity

Figure -2 p rovides the conceptual underpinnings and the ey features of the concept of CSR which were explored and analyzed in this paper. For CSR initiative one has to remember that1.

A CSR activity if it is not legally correct then that activity however good it might be for a particular

3 8 Vilakshan, XIMB Journal of Management ; September, 2007

2.

A CSR activity if it harms or injures any stakeholder but benefits any other stakeholder then also it cannot be termed as a CSR initiative as it fails the ethics acid test.

3.

CSR is a discretionary activity.

4.

CSR is an action centric process.

5.

CSR is done with stakeholders with the dominant objective to benefit the stakeholders and the broader society.

6.

CSR initiatives stands for a continuous engagement, relationship (not just an one time acquaintance/ act) with the stakeholder concerned.

7.

CSR has the dominant goal to benefit the society but it can also bring business benefits for the firm.

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Public Expenditure on Health and Health Outcomes: The Experience of the Indian States* Biswa Swarup Misra1 & Akshya K. Panda 2

Abstract Public expenditure on health, working through its effect on the quality of human capital has great potential in raising labour productivity and in shaping the growth trajectory of a nation. the scope for increasing government expenditure on health is also much better in a growing economy. However, given the competing claims on government expenditure, one may not find a linear relationship between higher growth and increase public spending on health. Further, how effective would be this higher public health expenditure in improving the health status of the population is a matter of empirical enquiry. This paper employs a two step approach to study the relationship between SDP; public health expenditure and health outcomes based on panel causality tests for twenty-three states of India for the period 1991 to 2004. The empirical findings suggest that higher growth augurs well for public spending on health and further, the rise in public spending on health contributes to improve the health status in the states of India.

1.0 INTRODUCTION

Does growth matter in provision of public health services? It makes sense to hypothesise that to the extent it makes room for additional expenditure on improving health facilities for the population, growth matters. Nonetheless, it may not be uncommon to find that expanding the reach and scope of public health services may not * 1 2

be on the priority list of expenditures in a growing economy. Even if additional health expenditure is incurred, it may not be well designed to have the optimum impact. Though one of the chief concerns of modern day welfare state is providing healthcare for all, it has all along been a challenging task in India. Many choices are involved to improve the situation. These inter alia include preventive care,

Received August 23, 2007 ; Revised August 30, 2007. The views expressed are personal views of the authors and do not have any bearing with the institutions they work for. Associate Professor, Xavier Institute of Management, Bhubaneswar. e- mail: [email protected] Director. Planning Commission of India, New Delhi. e-mail: [email protected]

4 4 Vilakshan, XIMB Journal of Management ; September, 2007

curative care, alternative systems of medicine and planning for healthcare professionals. The emphasis in India has all along been on curative care. There can be no argument against it especially when people suffer from pain and agony of sickness. It would be more meaningful, however, to give more emphasis on preventive care, especially in a resource constrained economy such as India. Focus on preventive healthcare could be useful for a number of reasons. Preventive health care has the scope for being cost-effective because of its far and wide reach, it prevents illness and thereby avoids loss of man-days and expensive treatment. It would further, save on valuable resources for more quality care for the few. Not withstanding the tilt in favour of curative health care provisioning, the overall public spending on health has also been quite low. A couple of factors were responsible for the low public spending on health. Broadly, it was a consequence of fiscal profligacy coupled with misplaced fiscal priorities in the 1980s and the 1990s. Subsequently, there have been attempts to enforce fiscal discipline both at the level of the Central and State governments through the promulgation of the fiscal responsibility legislation (FRL), in the year 2003, which prescribes outer limits for government’s fiscal deficit. In light of constraints posed by the FRL at one end and government’s committed administrative expenditure at the other, concerns have been expressed

that public spending on health in India may not be able to meet the growing needs of the population not even in the foreseeable future (Panda, 2006). However, in the recent times there has been a surge in growth when the average GDP growth exceeded 8.5 per cent per annum during the period 2004-05 and 2006-07. High growth has made government’s revenue position much comfortable and has given the elbowroom to meet the FRL commitments. Better growth prospects at least in the medium term combined with fiscal correction in the economy raises the possibility of a rise in spending on public health in India. But to what extent the growth performance of the economy would influence public spending on health is a matter of empirical investigation. Studying the historical relation between growth and public spending on health would act as a good pointer in this context. Further, to get an idea of the effectiveness of the public spending it would be instructive to study the impact of such expenditure on some basic health indicators. One obvious and oft used indictor is the Infant Mortality Rate (IMR). This paper attempts to examine the growth dependency of public expenditure on health and whether the health expenditure is really effective in making a dent on the health outcomes measured in terms of IMR at the level of states in India in the post reform period. The rest of the paper is schematised along the following lines. Section II provides a

Misra et.al, Public Expenditure on... 45

brief review of literature on the relationship between economic growth, health care expenditure and health outcomes. Some stylized facts about the behaviour of output, health expenditure and IMR in the Indian States are described in Section-III. The methodology used to study the relation between output and health expenditure and that between health expenditure and IMR is discussed in section IV followed by a description of the data. The results from the empirical estimates are outlined in section V. Concluding observations follow in section VI. 2.0 REVIEW OF LITERATURE

Health status of the population can make a difference to the growth prospects of a nation. This can be seen from a number of dimensions. First, a healthy workforce ensures less absenteeism and thus higher productivity. Second, there are increased incentives to invest in human and physical capital as life expectancy increases. Third, better health status has the potential to augment the savings rates in the economy as workers have an incentive to save for retirement; and lastly, better health status improves labour force participation rate as serious illness forces people to drop out of the labour market. Health is also important from the perspective of ‘demographic transformation’. As health awareness improves, infant morality rate drops, motivating people for smaller families. Seen from another angle, to the extent health expenditure can be treated as an

investment in human capital, it has the scope to act as an engine of growth (Lucas, 1988). When it comes to assess the effect of economic growth on health status of the population, one of the ways is to see what is happening to health care spending. Health expenditure is a function of total resources available (income or wealth) in the system. When incomes are rising, there is scope for a rise in both private and public health expenditure. As we have discussed, a rise in health expenditure makes possible higher labour supply and productivity, eventually leading to higher income. Thus runs the virtuous cycle. Barro (1997) has found that a 10 per cent increase in life expectancy leads to half a per cent increase in income growth for the developed countries. In case of Britain, Fogel (1994) found that 30 per cent of British economic growth over last 200 years could be attributed to improvements in nutrition. Several other longituditional studies also support this conclusion (Almas Heshmati, 2001). Thus, from a policy perspective, health is as much an input to economic development as an outcome. There have been several attempts to study how growth impacts health outcome at the empirical plane. Some prominent ones are Newhouse (1977), Leu (1986), Parkin et al., (1987), Hitris and Posnett (1992), Pritchett and Summers (1996), Hansen and King (1996) and Barro (1998). All the cited studies bring out the consistently strong effect that income has

4 6 Vilakshan, XIMB Journal of Management ; September, 2007

on health outcomes. Bhalotra (2006), however, observed a positive association of health and income but limited evidence of an impact of aggregate income (GDP) on health, from a study of macro economic evidence from rich and poor countries. Anand and Ravallion (1993) in a cross country analysis of developing country data found no evidence of GDP having effect on health outcomes, if poverty and public expenditure are held constant. Pritchett and Summers (1996) using panel data for 58 developing countries found a robust impact of aggregate income on health with elasticity estimated to range between (-) 0.12 and (-) 0.3, depending on the estimates used and on whether or not education is held constant. Bhalotra (2006) found unconditional growth elasticity of ‘under 5’ mortality in India at about (-) 0.7. Controlling for state ‘fixed effects’, raise the elasticity up to (-) 1.0. But inclusion of ‘year effects’ reduced it to (-) 0.6. Malik (2006) observed that health indicators do not have a significant effect on Gross National Income. The estimates based on twostage least squares reduced form equation shows no significant effect of health indicators, such as life expectancy, IMR and total fertility rates on growth in income. As regards developed countries, Deaton and Paxson (2004) find no effect of income on mortality in the UK and a small effect in the US. The effect is considerably diminished when time dummies and education are built

into the model. Deaton and Paxson (2004) observed that effect of income on health may not find full reflection when mortality risk is concentrated (such as in pockets of poverty) and income distribution very much skewed. Apart from this variation in evidence, there are differences in the evidence depending on whether it is based on microeconomic data on health and income or aggregated data. Deaton and Paxson (2001, 2004) conclude that understanding the effect of income on mortality presents many puzzles, between countries, and between analyses at different levels of aggregation. The interest in health expenditure ultimatately lies in its potentiality to improve the health outcomes of a nation. A number of studies including that of Poullier, Patricia, Kei and Savedoff (2002) and Bokhari, Gai and Gottret (2007) bring out the importance of government spending on health in determining health outcomes. Bokhari, Gai and Gottret (2007) find that for developing countries, while economic growth is an important contributor to health outcomes, government spending on health is an equally important factor. Though government spending is important in general, it is very much possible that the scope of health expenditure may expand in an economy without significant improvement in health outcomes. This point of view is substantiated by an analysis data on health expenditure and health outcome

Misra et.al, Public Expenditure on... 47

for 150 countries including both developed and developing and underdeveloped countries by Poullier, Patricia, Kei and Savedoff (2002) who find that health spending does determine health outcomes but the relationship is not linear. Poullier, Patricia, Kei and Savedoff (2002) in their study find three broad patterns that explain the relationship between health spending and health outcome. First, countries that to begin with spent less on health care, higher spending have a significant impact on health status. Second, public policy makes a difference in the effectiveness of health spending in determining health outcomes in the low spending countries. Third, among high spending countries, additional spending bears little relationship to improvements in health adjusted life expectancy. In the light of the cross country empirical findings, it would be of interest to examine how public health expenditure, growth and health outcomes interact in case of India. As the aggregate picture often conceals more than what it reveals, we try to explore the direction of causation, the strength of the relationship between economic growth, public health expenditure and health outcomes for India at the disaggregated state level. What follows is a discussion on the broad behaviour of output, public health expenditure and IMR in the post reform period before we study the causality.

3.0 STYLISED FACTS

Health care facilities in India have always lagged behind demand for such services including the availability of health care professionals in the country. Just before India’s Independence, Sir Joseph Bhore Committee (1946) prescribed the norm of one doctor per 1500 population and one nurse per 500 population. Instead, the doctorpopulation ratio was 1:1800 in as late as the year 2001. Like the doctorpopulation ratio, progress in the provision of important health care infrastructure has also been tardy. This is brought out in Table 1. Further, the deficiency in health care infrastructure has been acute in the rural areas. According to RHS Bulletin, June 2000 (Ministry of Health and Family Welfare), there is huge gap in Specialist doctors, Block extension educators, Pharmacist, Lab.techinician, X-Ray technicians etc. Roughly there has been 25% deficit in the foreseen requirement in 1991 and availability in 2000 in rural health personnel across categories. To cite an example, as against the requirement of 22348 specialist doctors, the gap is still 18607. In some categories, the gap is less glaring and in others it is more. Notwithstanding the deficiency in health care infrastructure, India has made significant strides in health outcomes. This has been made possible by the health care facilities provided by the private sector and people’s willingness to pay for private medical facilities.

4 8 Vilakshan, XIMB Journal of Management ; September, 2007

Table- 1: Progress in Health Care Availability in India (1951-2004) (per lakh population) Health Infrastructure

1951

1981

1991

2000

2004

2005

Sc/PHC/CHC

0.20

8.45

6.73

16.08

15.57

15.56

Hospitals

2.57

3.47

2.77

4.27

3.50

2.52

Beds (Pvt. & Public)

32.65

83.87

66.87

85.75

84.24

82.93

Doctors (Modern System)

17.21

39.57

31.55

49.66

57.58

59.50

Nursing Personnel

5.03

21.19

16.89

72.63

77.01

78.45

Life Expectancy

36.7

54

57**

64.6

63.3

64

IMR

146

110

80

68

60*

58

Health Outcome

Source: National Health Policy-2002 *As of 2003 ** for male

This all India picture subsumes the details and regional variations in the health outcomes. Federating states of the Indian Union are in different places of the income spectrum and have varied achievement in social parameters. As health is a state subject, much would depend on the initiative of the state concerned in putting health as a priority in its scheme of resource commitment. As far as health expenditure in the Indian states is concerned, some broad observations follow. First, on an average, health expenditure as proportion of SDP has seen a sharp decline between the year 1991 and 2004 from 1.58 percent to only 1.07 percent for all the twenty three states. The declining trend has been more acute in the post 2000 period. Second, in the period under study, the maximum

health expenditure as a proportion of SDP was noticed for Sikkim in the year 1999 at 4.7 per cent and the lowest for Haryana in the year 2004 at 0.4 per cent. Third, in general, spending on health care as a proportion of SDP has been much higher for the northeastern states of Assam, Arunachal Pradesh, Manipur, Meghalya, Nagaland, Tripura, Sikkim and Himachal Pradesh as compared to the major states of India for most of the years. Higher observed spending in the north eastern could be to some extent because of their special status in the scheme of resource transfer from the center to the states. Fourth, the sharpest decline in the health expenditure between 1991 and 2004 is seen for Manipur, Mizoram, Tripura and Nagaland. Fifth, despite the decline, these states along with other north

Misra et.al, Public Expenditure on... 49

eastern states and Himachal Pradesh still incur the maximum health care expenditure compared to rest of the states. Share of health expenditure in the SDP though conveys to some extent the importance attached to health care services in the overall scheme of expenditure budgeting, the growth in health expenditure vis a vis that of the SDP would indicate whether overall resource availability anyway constrains health care expenditure. Health expenditure grew at a higher pace in 19962000 as compared to that in 1991-95 for all states except for Assam, Mizoram, Nagaland, Karnataka, Rajasthan and Uttar Pradesh (Table-2). At the same time except for Manipur, Meghalaya. Sikkim and Bihar in all the other states SDP grew at a lower pace in 1996-2000 as compared to 1991-95. This would give the impression that most of the states do not want to comprise their commitment

towards improving the health status of the population by increasing their health expenditure in the face of a slackening of SDP growth. However during 2000-04, growth in health expenditure declined for all states except for Uttar Pradesh as compared to that in 1996-2000. It is interesting to find that except for Mizoram, Nagaland and Orissa all other states also experienced a decline in their growth of SDP during 2000-04 as compared to 1996-2000. In fact in both the sub periods of 1996-2000 and 2001-04 SDP has grown at a slower pace as compared to the 1991-95 period. This behaviour of growth in health expenditure and SDP leads one to surmise that perhaps beyond a point states are constrained to increase their health spending in the face of a slowing down in the SDP growth. The more important question is how the health expenditure influences health outcomes?

Table-2: Growth in Health Expenditure and Output (Percent) 1991-95

1996-00

2001-04

1991-04

PHE PSDP POP PHE PSDP POP PHE PSDP POP

PHE PSDPa POP

Andhra Pradesh

13.0

15.6

2.1

15.0 10.9

1.2

4.5

7.5

1.2

9.1

11.8

1.4

Arunachal Pradesh

12.0

14.4

3.3

12.4

6.7

2.3

4.6

6.0

1.5

9.1

8.9

2.4

Assam

11.8

10.1

2.2

5.4

9.0

1.7

-0.6

7.2

1.3

5.4

8.8

1.7

Bihar

9.1

9.7

2.3

17.0 10.7

2.7

1.9

7.4

2.2

5.0

7.7

2.6

Gujarat

10.9

18.1

2.3

18.5

8.8

2.1

-0.3

13.7

2.0

7.4

11.0

2.2

Haryana

9.4

12.1

2.8

16.0

9.9

2.8

4.3

8.7

2.1

8.7

10.6

2.7

5 0 Vilakshan, XIMB Journal of Management ; September, 2007

1991-95

1996-00

2001-04

1991-04

PHE PSDP POP PHE PSDP POP PHE PSDP POP

PHE PSDPa POP

Himachal Pradesh

11.4

13.7

1.9

18.0 14.5

2.0

2.9

7.6

1.9

9.6

12.7

1.9

Karnataka

14.6

14.5

2.1

14.3 12.8

1.6

-0.4

7.0

1.4

7.9

11.8

1.7

Kerala

11.7

15.9

1.1

13.3 11.7

0.9

6.1

7.8

1.2

9.6

12.8

1.0

Madhya Pradesh

10.8

11.2

2.5

16.0 10.0

2.2

3.3

8.9

2.2

7.9

8.7

2.2

Maharastra

10.3

16.5

2.6

10.4

8.6

2.2

2.1

9.9

1.7

8.1

10.5

2.2

Manipur

9.0

11.8

2.7

15.9 11.8

2.4

-6.3

9.3

2.2

7.3

10.6

2.5

Meghalaya

8.2

10.2

2.9

14.7 10.8

2.9

2.8

6.9

1.7

8.3

10.3

2.8

Mizoram

11.7

13.8

3.2

11.5

7.5

2.6

11.2

10.4

1.8

9.9

11.5

2.7

Nagaland

9.5

14.4

6.2

1.0

3.1

5.7

-1.4

7.9

5.5

4.8

9.8

5.7

Orissa

10.0

14.5

1.9

15.5

9.0

1.5

2.0

9.6

1.4

7.4

9.9

1.6

Punjab

6.5

14.6

2.2

22.8 10.1

2.1

-3.0

4.3

1.1

10.1

9.8

1.9

Rajasthan

13.8

11.3

2.7

12.5 10.6

2.8

0.6

6.1

2.3

6.9

9.4

2.7

Sikkim

11.2

10.2

4.0

18.5 13.3

2.5

5.9

9.0

2.4

9.0

12.0

3.1

Tamil nadu

11.5

17.1

1.5

13.1 12.1

1.1

-0.3

5.2

1.0

7.0

11.9

1.2

Tripura

5.2

7.3

2.5

10.1 17.1

1.3

4.4

12.0

1.2

7.3

14.0

1.6

Uttar Pradesh

9.4

10.7

2.5

5.4

8.7

2.5

10.4

7.9

0.1

4.4

8.8

2.2

West Bengal

4.6

10.6

2.2

18.8 13.6

1.7

-1.2

9.0

1.4

8.8

11.9

1.8

Note: Growth rates are compound growth rates computed from a semi log specification.Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and Uttaranchal respectively. PHE=Per capita Health expenditure PSDP = Per capita SDP POP=Population in the States

While growth might be having an impact on health care expenditure, it is also possible that extent of health care expenditures by a state amongst

other things is guided by the health status prevailing in the state. Scatter plot (Chart-1) of the health expenditure and health status proxied

Misra et.al, Public Expenditure on... 51

though the IMR reveals a negative association between them 3. This brings out the importance of health expenditure in the states. Chart-1 Scatter Plot of Health Expenditure and IMR IMR per thousand live births

140 120 100 80 60 40 20 0 0.00

0.50

1.00

1.50

2.00

2.50

Health expenditure as percentage of SDP

4.0 EMPIRICAL METHODOLOGY

To decipher the relationship between output, health expenditure and IMR, we employ panel FMOLS tests to study the causality between output and health expenditure and also between health expenditure and SDP. The standard approach to test for causality amongst economic variables is the granger causality. As we have information both in the time series and the cross section dimension, test of cointegration in a panel context becomes more useful. A study of causality in a panel context would require an examination of the data at hand for stationarity in the first place, followed by a test of cointegration in the panel context. Further, in the event of panel cointegration, we discuss the appropriate methods that can be employed to study causality. 3.

There are several techniques which can be used to test for a unit root in panel data. Specifically, we are interested to test for non-stationarity against the alternative that the variable is trend stationary. One of the first unit root tests to be developed for panel data is that of Levin and Lin, as originally circulated in working paper form in 1992 and 1993. Their work was finally published, with Chu as a coauthor, in 2002. Levin, Lin and Chu assume that the individual processes are crosssectionally independent. Given this assumption, they derive conditions and correction factors under which the pooled OLS estimate of will have a standard normal distribution under the null hypothesis. In contrast to the LLC test, Im-Pesaran-Shin (IPS) propose an estimation framework which presumes that all series are stationary under the alternative hypothesis. IPS propose the use of a group-mean Lagrange multiplier statistic to test the null hypothesis. The ADF regressions are computed for each unit, and a standardized statistics is computed as the average of the LM tests for each equation. Adjustment factors (available in their paper) are used to derive a test statistics that is distributed as standard normal under the null hypothesis. IPS also propose the use of a group-mean t-bar statistic, where the t statistics from each ADF test are averaged across the panel; again, adjustment factors are needed to

The scatter plot shows negative association between health expenditure and IMR. Decline in IMR is indicative of improvement in health status.

5 2 Vilakshan, XIMB Journal of Management ; September, 2007

translate the distribution of t-bar into a standard normal variate under the null hypothesis. IPS demonstrate that their test has better finite sample performance than that of LLC. The test is based on the average of the augmented DickeyFuller (ADF) test statistics calculated independently for each member of the panel with appropriate lags to adjust for autocorrelation. The adjusted test statistics, [adjusted using the tables in Im, Pesaran and Shin (1995)] are distributed as N(0,1) under the null of a unit root and large negative values lead to the rejection of a unit root in favor of stationarity. For cointegration analysis in a panel context, a standard approach is Pedroni’s (1995, 1997) framework, which allows for heterogeneous cointegrating vectors. The panel cointegration tests suggested by Pedroni (1999) extend the residual based Engle and Granger (1987) cointegration strategy. First, the cointegration equation is estimated separately for each panel member. Second, the residuals are examined with respect to the unit root feature. If the null of no-cointegration is rejected, the long run equilibrium exists, but the cointegration vector may be different for each cross section. Also, deterministic components are allowed to be individual specific. To test for cointegration, the residuals are pooled either along the within or the between dimension of the panel, giving rise to the panel and group mean statistics (Pedroni, 1999). In the former, the statistics are constructed by summing both numerator

and denominator terms over the individuals separately, while in the latter, the numerator is divided by the denominator prior to the summation. Consequently, in the case of the panel statistics the autoregressive parameter is restricted to be the same for all cross sections. If the null is rejected, the variables in question are cointegrated for all panel members. In the group statistics, the autoregressive parameter is allowed to vary over the cross section, as the statistics amounts to the average of individual statistics. If the null is rejected, cointegration holds at least for one individual. Therefore, group tests offer an additional source of heterogeneity among the panel members. In the event the variables are cointegrated, to get appropriate estimates of the cointegration relationship, efficient estimation techniques are employed. The appropriate estimation method is so designed that the problems arising from the endogeneity of the regressors and serial correlation in the error term are avoided. Due to the corrections, the estimators are asymptotically unbiased. Especially, Fully Modified OLS (FMOLS) is applied. In the model the asymptotic distribution of the OLS estimator depends on the long run covariance matrix of the residual process. The estimates needed for the transformations are based on OLS residuals obtained in a preliminary step. The panel FMOLS estimator is just the average of individual parameters. The

Misra et.al, Public Expenditure on... 53

group mean FMOLS test performs best when T is larger than N. In a panel context, when we find evidence of cointegration, a moot issue is determination of the direction of causality. The approach followed by many authors in the panel context is to test for cointegration between the variables under study. Once cointegration is found, a panel OLS is performed to obtain the residuals of the parametric relationship between the variables under study. (1) k

k

j =1

j =1

ΔYit = a1 j + ∑ α 2ij ΔXi , t − j + ∑ β 2ij ΔYi ,t − j + λ 2iecmit −1 + μ1it

(2)

The lag of the residual so obtained constitutes the ECM term in the estimation of (1) and (2). However, constructing the ECM term based on the residuals from an OLS may not be appropriate as it is FMOLS and not OLS, which is the appropriate estimation techniques when there is evidence of panel cointegration amongst the variables under study. As such, we have used residuals from the panel FMOLS estimate to construct the ECM term in the test for Granger causality in the panel context. We consider per capita SDP, per capita health expenditure and the IMR as the variables of interest for this study. While information on SDP and health expenditure for the period 1991 to 2004

is available for twenty three states, information on IMR is available for only sixteen states for this period. As such, we have used the full information to study the health expenditure and SDP relation, we narrow down the scope of the study to sixteen states to capture the relationship between health expenditure and IMR. We use three alternative tests to study the unit root character of the variables in a panel context. Pedroni’s method has been applied to study cointegrating relationship between log of per capita SDP (LPSDP) and log of per capita health expenditure (LPHE) and also between LPHE and IMR. Panel FMOLS estimates are employed to decipher the pattern of elasticity amongst the two set of variable. Subsequently, wek look into the causality k ΔXbetween it = a1 j + ∑ α 1ij ΔXi , t − j + ∑ β 1ij ΔYi ,t − j + λ 1iecmit −1 + μ1it LPSDP and LPHE and between j =1 j =1 LPHE and IMR from the panel data perspective 5.0 RESULTS

The results of the panel unit root tests for each of our variables are shown in Table-3. In no case the null hypothesis that every State has a unit root for the series in log levels is rejected. However, the series are stationary in their first differences. Hence, the variables considered are I(1). Once ascertained that all the three variables are I(1), we turn to the question of possible co-integration between them. Table-3 reveals the evidence regarding the co-integration property between output and health expenditure and also between health

5 4 Vilakshan, XIMB Journal of Management ; September, 2007

expenditure and IMR for the Indian States. The panel co-integration tests on Table-3: Panel Unit Root Tests Variable → Statistics ↓ Im Pesaran and Shin (IPS) W-stat

LPSDP Levels

the relation between SDP and health expenditure is performed on twenty three states. LPHE

First Difference

2.20(0.98) -11.55(0.00)

IMR

First Difference

Levels

Levels

First Difference

1.49(0.93)

-5.69(0.00)

3.70(0.99)

-11.47(0.00)

ADF- Fisher Chi square

29.65(0.97) 187.77(0.00) 23.44(0.99)

113.08(0.00) 12.76(0.99)

160.51(0.00)

PP- Fisher Chi square

47.84(0.39) 236.72(0.00) 30.52(0.96)

235.19(0.00) 15.91(0.99)

193.28(0.00)

Note: Figures in brackets indicate p- values.Panel unit root test assumes individual intercept and trend in the SDP equation, only intercept on the HE equation and neither intercept nor trend in the IMR equation.

However, given the lack of consistent information on IMR for a number of states, the cointegration relationship between health expenditure and IMR is Table-4: Panel Cointegration Results Test Statistics

LPSDP and LPHE

LPHE and IMR

Panel v-stat

-0.1297

4.41613

Panel rho-stat

-2.5642

-2.15439

Panel pp-stat

-4.19653

-2.50135

Panel adf-stat

-3.96719

-2.38723

Group rho-stat

-0.8643

-0.45579

Group pp-stat

-4.84143

-2.12386

Group adf-stat

-4.58496

-2.09265

-0.1297

4.41613

Panel v-stat

confined to only sixteen states, which covers all the major states of India. In general, the Pedroni (1999) tests turn out to reject the null hypothesis of no cointegration between both set of variables under consideration (Table-4). Having found evidence of panel cointegartion, the FMOLS tests are performed which suggests that elasticity of output to health expenditure is much higher than elasticity of health expenditure to output. This brings out the importance of health expenditure in pushing up the growth trajectory of the states4. Further, health expenditure has an impact in reducing IMR. However, it is intriguing to find that health expenditure declines in the face of rising IMR. Perhaps competing

4 The detailed FMOLS estimates are given in Annex-1 and Annex-2.

Misra et.al, Public Expenditure on... 55

claims in the health expenditure budget partly explains this kind of behaviour of health expenditure. The emphasis on curative rather than preventive health care expenditure might be responsible for this odd behaviour of health expenditure in Indian States. It may also be that there are extended lags in response of health expenditure to changes in IMR, which the FMOLS estimates are not able to capture. The residuals from the FMOLS estimates are gathered to construct the ECM term for doing the next round of estimation to infer about the direction of causality. The panel causality tests indicate that output granger causes health expenditure both in the short run as well as in the long run (Table-5). However, health expenditure granger causes output only in the long run and the causation is rather weak. As far the causality between health expenditure and the IMR is concerned,

we find evidence of health expenditure granger causes IMR both in the short run and long run whereas IMR granger causes health expenditure only in the long run. 6.0 CONCLUDING OBSERVATIONS

SDP →HE

14.22 (0.00)

138.80 (0.00)

71.91 (0.00)

HE →SDP

0.005 (0.94)

2.90 (0.08)

1.62 (0.19)

This paper was an attempt to test the efficacy of growth in improving health facilities in the Indian States using panel econometric methods. We have adopted a two step approach to test this. First, we have studied the causal nexus between SDP and health expenditure and found evidence of SDP granger causing health expenditure. Further, we find that health expenditure granger causes IMR both in the short run and long run. These results indicate that by pursing a high growth strategy, the governments acquire greater maneuverability in spending on public health, which in turn contributes to improving the health status of the population. The increased spending on health would take output to further higher levels as health expenditure granger causes output in the long run. The results point at an optimistic scenario, in which growth, if sustained, creates scope for higher spending on public health and which in turn positively influences health outcome.

HE →IMR

2.82 (0.09)

2.67 (0.10)

3.27 (0.03)

REFERENCES

1.217 (0.27)

16.98 (0.00)

8.58 (0.00)

Table-5: Panel Causality Tests Short Run

IMR→ HE

Long Run

Short run and Long run

Note: Figures in Parenthesis indicate the pvalues of the concerned F-Statistics

Ahuja, Rajeev and Johannes Jutting (2003). “Design of Incentives in Community Based Health Insurance Schemes”, ICRIER Working Paper No. 95, February.

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Anand, S. and M. Ravallion (1993). “Human Development in Poor Countries: On the Role of Private Incomes and Public Services”, Journal of Economic Perspectives, 1(3). Banerjee, A. (1999): “Panel Data Unit Root Tests and Cointegration: An Overview”, Oxford Bulletin of Economics and Statistics, Special Issue, Vol.61, pp.607-629. Barro, Robert J. (1997). “Determinants of Economic Growth: A Cross-county Empirical Study.” MIT Press, Cambridge, MA Barro, Robert J. (1998). “Human Capital and Growth in Cross-Country Regressions”, Harvard University, unpublished. Barro, Robert J. and X. Sala-I-Martin (1995). “Economic Growth”, New York: McGrawHill. Becker, Gary Stanley (1964). “Human Capital: A Theoretical and Empirical Analysis, with reference to Education,” New York, NBER, Columbia University Press, 1964 Bhalotra, Sonia.(2006). “Health and growth in India: Panel Data Estimates”, Working Paper, University of Bristol, U.K Bokhari, F.A.,Gai, Y and Gottret, P.(2007). “Government Health Expenditures and Health Outcomes,” Journal of Health Economics 16, No. 3 pp. 257–273. Bonin, H. (2001), “Generational Accounting: Theory and Application,” Berlin. Breyer, F. and Felder, S. (2004).”Life Expectancy and Healthcare Expenditures: A New Calculation for Germany Using the Costs of Dying”, DIW Discussion Paper No. 452. Deaton, Angus (2001). “Health, Inequality and Economic Development”, NBER Working Paper 8318, June.

Deaton, Aungus (2004), “Health in an Age of Globalization”, NBER Working Paper 10669, August. Deaton, A. and Paxson, C. (2001). Mortality, education, income and inequality among American cohorts, in D. Wise (ed.), Themes in the Economics of Aging, Chicago: University of Chicago Press. Deaton, A. and Paxson, C. (2004), “Mortality, Income and Income Inequality Over Time in Britain and the US, in D. Wise (ed.), Perspectives in the Economics of Aging, Chicago: University of Chicago Press. Dickey, D. and Fuller, W. (1979). “Distribution of the Estimators for Autoregressive Time Global Forum for Health Research, 20012002, The 10/90 Report on Health Research. Engle, R. F. and Granger, C. W. J. (1987). “Cointegration and Error Correction: Representation, Estimation, and Testing”, Econometrica, Vol.55 (2), pp. 251-276. Fogel, Robert W. (1994). “The Relevance of Malthus for the Study of Mortality Today: Long-Run Influences on Health, Mortality, Labour Force Participation, and Population Growth,” NBER Historical Working Papers 0054, National Bureau of Economic Research, Inc. Gopalan, Sarala and Mira Shiva (2000). “National Profile on Women, Health and Development”, World Health Organisation, April. Government of India (1946). “Report of the Health Survey and Development Committee”, Ministry of Health, New Delhi. Chairman Sri Joseph Bhore. Government of India (2005). “Report of the National Commission on Macroeconomics

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Hansen, P. and King, A. (1996). “The Determinants of Health Care Expenditure: A Cointegration Approach”, Journal of Health Economics, 15, pp.127-37.

Jones, Charles I. (2004), “Why Have Health Expenditures as a Share of GDP Risen So Much”, Department of Economics, U.C. Berkeley, 5 May.

Hasley Rogers (2005). “Missing in Action: Teacher and Health Worker Absence in Developing Countries”, Journal of Economic Perspectives, Vol.19, No.4, Fall.

Leu, R. (1986). “The Public-Private Mix and International Health Care Cost, in Public and Private Health Services: Complementaries and Conflicts, Culyer A.J. and Jonsson, B. (eds.), Basil Blackwell: Oxford.

Hagist, Christian and Kotlikoff, Laurence J (2005). “Who’s Going Broke? Comparing Health Care Costs in Ten OECD Countries.” Working Paper 11833, NEBR. Hall, Robert E. and Charles I. Jones (2005), “The Value of Life and the Rise in Health Spending”, UC Berkeley mimeo, 18 October. Heshmati, Almas (2001). “On the Causality between GDP and Health Care Expenditure in Augmented Solow Growth Model,” Working Paper Series in Economics and Finance 423, Stockholm School of Economics. Hitris T. and Posnett J. (1992). “The Determinants and Effects of Health Expenditures in Developed Countries”. Journal of Health Economics, 11, pp.173-181. Im, K. S., Pesaran, M. H. and Shin, S. (1995): “Testing for Unit Roots in Heterogeneous Panels”, Mimeo, Department of Applied Economics, University of Cambridge. Im, K.S., Pesaran, M.H., and Y. Shin (1997): “Testing for Unit Roots in Heterogeneous panels”, Mimeo, Department of Applied Economics, University of Cambridge. Jean-Pierre Poullier, Hernandez Patricia, Kawabata Kei and Savedoff William D. (2002). “Patterns of Global Health Expenditures: Results of 191 Countries”,

Lucas, R. (1988). “On the Mechanics of Economic Development”, Journal of Monetary Economics 22, 1, pp.3-42. Malik, Garima (2006).”An Examination of the Relationship between Health and Economic Growth”, Working Paper No. 185. Indian Council for Research in International Economic Relations Miller, T. (2001). “Increasing Longevity and Medicare Expenditures”, Demography, 38 (2), 215-226. Misra, Rajiv, Rachel Chatterjee and Sujata Rao (2003). “India Health Report”, Oxford University Press. Newhouse, J.P. (1977). ‘’Medical Care Expenditure: A Cross-National Survey’’, Journal of Human Ressources, 12, pp.115-125. Newhouse, J.P. (1992), “Medical Care Costs: How Much Welfare Loss?”, Journal of Economic Perspectives, 6 (3), 3-21. Parkin, D., McGuire, A., and Yule, B. (1987). “Aggregate Health Care Expenditures and National Income: Is Health Care a Luxury Good?”, Journal of Health Economics, 6, pp.109-27. Observer Research Foundation (2004). “Decentralised Delivery of Health Care:

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International and Indian Experiences”, Conference Report, Forum of Federations. Panda, A. K. (2006). “Health Care “ Yojana, October Pedroni, Peter (1999). “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors”, Oxford Bulletin of Economics and Statistics, Vol.61, Special Issue, pp.653-670. Pedroni, Peter (2001). “Purchasing Power Parity Tests in Cointegrated Panels”, Review of Economics and Statistics, Vol.83, pp. 727731. Phillips, P. and P. Perron (1988). “Testing for a Unit Root in Time Series Regression,” Biometrika, Vol. 75, pp. 335-346. Poullier, Jean Pierre, Patricia Hernandez, Kei Kawabata and William D. Savedoff (2002). “Patterns of global health expenditures: Results for 191 countries”, WHO Discussion Paper, No. 51 (EIP/HFS/FAR), Pritchett, L. and L. H. Summers (1996), “Wealthier is Healthier”, Journal of Human Resources, 31(4), pp. 841-68.

Sloss, Christine M. and Gary W. Hrper (2004). “When Street Sex Workers are Mothers”, Archives of Sexual Behaviour, Vol.33, No.4, August, pp. 329-41. Solow, Robert M. (1966). “Review of capital and growth”, American Economic Review, 56, 1257-60 UNDP (2004). “Human Development Report”, Oxford University Press. Weil, David N. (2005), “Accounting for the Effect of Health on Economic Growth”, NBER Working Paper 11455, June. World Bank (2005). “World Development Report”, Oxford University Press. Zweifel, P., S. Felder and A. Werblow (2004). “Population Ageing and Healthcare Expenditure: New Evidence on the `Red Herring”, Geneva Papers on Risk and Insurance: Issues and Practice, 29 (4), 652-666. Zweifel, P., S. Felder and M. Meiers (1999). “Ageing of Population and Healthcare Expenditure: A Red Herring?”, Health Economics, 8, 485-496.

Misra et.al, Public Expenditure on... 59

Annex-1

Parametric Relationship Between Health Care Expenditure and SDP (FMOLS Estimates) State

Response of Health Expenditure to changes in SDP

Response of SDP to changes in Health Expenditure

Andhra Pradesh

0.782

1.217

Arunachal Pradesh

1.084

0.890

Assam

0.565

1.610

Bihar

0.507

0.927

Gujarat

0.594

1.269

Haryana

0.779

1.147

Himachal Pradesh

0.801

1.240

Karnataka

0.600

1.373

Kerala

0.782

1.243

Madhya Pradesh

0.879

1.043

Maharastra

0.731

1.188

Manipur

0.637

1.202

Meghalaya

0.779

1.150

Mizoram

0.876

1.113

Nagaland

0.537

1.607

Orissa

0.723

1.189

Punjab

1.078

0.833

Rajasthan

0.673

1.290

Sikkim

0.707

1.274

Tamil nadu

0.596

1.550

Tripura

0.571

1.805

Uttar Pradesh

0.508

1.723

West Bengal

0.791

1.185

Note: Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and Uttaranchal respectively.

6 0 Vilakshan, XIMB Journal of Management ; September, 2007

Annex-2

Parametric Relationship Between Health Care Expenditure and IMR (FMOLS Estimates) State

Response of IMR to changes in Health Expenditure

Response of Health Expenditure to changes in IMR

Andhra Pradesh

-0.101

-5.881

Assam

-0.215

-2.889

Bihar

-0.276

-3.327

Gujarat

-0.081

-3.247

Haryana

-0.132

-4.371

Himachal Pradesh

1.133

0.497

Karnataka

-0.221

-1.982

Kerala

-0.314

-2.091

Madhya Pradesh

-0.366

-2.533

Maharastra

-0.337

-2.538

Orissa

-0.327

-2.316

Punjab

-0.085

-5.224

Rajasthan

-0.219

-2.613

Tamil Nadu

-0.294

-1.875

Uttar Pradesh

-0.443

-2.039

West Bengal

-0.310

-2.864

Note: Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and Uttaranchal respectively.

Internationalization of Indian Pharmaceutical Industry : A study on the determinants of export stimulation* Srikant Panigrahy1 , P.Mishra2 & B.P.Patra3 Abstract In this paper an attempt has been made to study various determinants that have stimulated the Indian pharmaceutical (henceforth pharma) firms to move to overseas market. It is found that motives for Indian pharma firms moving to overseas market was proactive (rather than reactive), and the most important stimulation was for profit and growth opportunities overseas. Export stimuli of Indian pharma firms were categorized conceptually into five meaningful groups (viz. overseas market pull motives, local market push motives, product superiority, opportunity utilization and growth motives), with a new set of underlying structure of relationships, following the classification of proactive and reactive motives. The implications of the findings for managers, academicians and policy makers are discussed. This study might yield valuable lessons to other firms for export decision making and policy makers for appropriate export assistance.

1.0 INTRODUCTION

The Indian pharmaceutical industry is one of the most competitive and highly fragmented industries in India that has made significant progress and witnessed consistent growth over the past three decades (Agarwal, 2004). There are more than 20,000 players, and no single company has a market share greater than *

eight percent (ORGIMS, 2006). It plays an important role for the nation as it directly deals with health of the people. The Indian Patents Act, 1970, along with Drug Price Control Order and economic reforms, have made the pharma industry self sufficient to meet the domestic demands (meets around 95% of local demand) and also establish itself as a

Received June 26, 2007, Revised September 1, 2007. The paper is based on the thesis of the first author to be submitted to Xavier Institute of Management, Bhubaneswar under the guidance of the second and third authors. 1. Scholar, Fellow Program in Management (FPM), Xavier Institute of Management, Bhubaneswar, email: [email protected]. 2. Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected] 3. Associate Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected]

6 2 Vilakshan, XIMB Journal of Management ; September, 2007

major player in exports obtaining a trade surplus during 1990’s and performing consistently (Lalitha, 2002). At present the industry market size has increased from Rs. 4 billion in 1970 to Rs. 370 billion in 2004-05, growing at a Cumulative Aggregated Growth Rate (CAGR) of 13.7 percent (Cygnus, 2005). Internationalization has been an important activity carried out by the Indian pharma firms. It is defined as a process in which the firms gradually increase their international involvement. It can also be defined as the successive development in a firm’s international engagement in terms of geographical spreading in markets, products and operation forms, and changes in management philosophy and organizational behaviour from beginning of process to current situation (Albaum et al 2002). Firms go for internationalization mainly through exports/imports and FDI. Excluding the imports route, firms internationalize to various international markets depending upon risk and control undertaken from exports, joint ventures, licensing, and foreign direct investments (Johanson 1990). Out of all the entry modes, exports have been the traditional method and still the most popular route followed by many of the pharma companies. After India adopted process patents in 1972 (Indian Patents Act, 1970), the exports of Indian pharmaceutical industry has risen from Rs. 373.3 millions in 1973-74 (Agarwal A 2003) to Rs.160 billion in 2004-05, growing at a CAGR of 21% compared with

domestic CAGR of 12%(Pradhan 2006). At present, export accounts for 46% of total production of pharmaceuticals in India. Currently, India exports to around 200 countries worldwide including highly regulated countries like USA, UK and Japan. Seeing the above figures, it is interesting to find out the main determinants which have influenced Indian companies to move to overseas markets. Studies on Indian pharmaceutical industry is very rich and have mainly focused on origin and history of the industry, R&D activities, access to medicines, sustainability of organization. Studies have also been made on TRIPS effect on the industry with respect to various streams like research and development, price of medicines, patient welfare, foreign direct investments, etc. However, there are relatively few studies which have focused on export behaviour and performance of the industry (Pradhan 2003, Pradhan 2004, Agarwal 2003, Chadha A 2005). Studies on export behaviour have been in limelight for about four decades starting from the pioneer work of Tookey (1964). Although exporting in an era of globalization has been well acknowledged in the academic literature, theoretical developments in the area have not matched the development in practice (Dhanaraj C & Beamish W P 2003). For the past four decades, researchers have presented various descriptive models of export behaviour but still, there lacks the theoretical developments, and the very

Panigrahy et.al, Internationalization of ... 63

reason has attracted a lot of interests on this topic by the researchers. The reason attributed for the failure of a specific theoretical development may be the rapid changes which occur in the external and the internal environment for a firm, for example government regulation and policies, industry competitiveness, changes in technology, etc. The above studies on the export behaviour have contributed in many ways to the field of exporting. However most of the studies have been in the developed countries (Sousa 2004) and have taken all sectors in a particular country into consideration, creating a question mark on the homogeneity of the data collected. The present study contributes to the ongoing debate of export behaviour in several ways. Firstly, it focuses on a particular sector, the pharmaceutical industry in a developing country, India. Secondly, it is studied in a changed regulatory environment that is after implementation of TRIPS in 2005 in India. Thirdly, it categorizes the stimulating determinants into groups that could be conceptually meaningful and help in development of theoretical framework to the ongoing discussion of export stimulants. Fourth, it aims at helping managers to know the important determinants for export stimuli, and export decision making. It may also help policy makers to frame appropriate policies for Indian pharma firms to move to overseas markets.

Literature review

Studies on export behaviour have been divided into two streams. The first stream deals with export behaviour theories for firms moving to overseas market. The second stream deals with identifying determinants which have played an important role for firms moving to overseas markets that is, the determinants stimuli for export behaviour. Export behaviour theories

Export behaviour of firms is defined as the process undergone by a firm while selecting a particular destination and the further process carried out to expand in the foreign markets. Export behaviour theories attempt to explain why and how the individual firm is engaged in export activities and how the dynamic nature of such activities be conceptualized (Shoham et al 1995). Risk, uncertainty and imperfect knowledge are important determinants in export behaviour and a firm goes though experimental phase gaining experience in each of the succeeding stages. Export marketing researchers have often classified exporting companies according to their level of internationalization (Bilkey and Tesar 1977, Cavusgil 1980, Czinkota and Johnston 1981). 2.0 EXPORT BEHAVIOUR STIMULANTS

The nature of export stimulation has been shown to affect the internationalization of a firm (Welch and Wiedersheim Paul 1980). Research on export stimuli discipline started in early 1970’s and since

6 4 Vilakshan, XIMB Journal of Management ; September, 2007

then has grown in an accelerating phase mainly due to rapid globalization of world economies (Douglas and Craig 1992). It is one of the most well researched topic and many studies have been carried out in a very short span of time (Leonidou, 1998). Research on determinants of export stimuli first started in United States, and then into other countries around the world. Majority of the work has been carried out in United States and European countries in comparison to developing countries where these are relatively few (Leonidou, 1998). A commonly used typology of export stimuli is to regard them as emanating either internal or external from/to the firm (Brooks and Rosson 1982, Cavusgil 1980, Kaynak and Stevenson 1982, Welch and Wiedersheim-Paul 1980). Internal stimuli are those derived from influences endogenous to the firm, for example, economies of scale, or particular in-house competencies (see Table 1). On the other hand, external stimuli arise from the environment in which the firm operates, or may operate, e.g., government exports

promotion programs, or the bankruptcy of a competitor. But this classification provides little idea about evidence of behavioural pattern which the firm develops in its approach to export markets and operations (Katsikeas 1996). The above issue is taken care by a second stream of export stimulus studies which helps to identify whether or not firms take the initiative to seek, identify and exploit export market opportunities. In this regard, export marketing researchers have made a distinction between proactive and reactive exporters (Czinkota and Ronkainen 2004, Piercy 1981, Katsikeas et al, 1993) to portray effect on export performance. Proactive stimuli are defined as those associated with firm’s aggressive behaviour and deliberate search for export opportunities (pull factors). Reactive stimuli are those associated with firm’s reaction to changing conditions and reflect a passive attitude in seeking export opportunities (push factors). These two motivation types reflect different types of attitude and behaviour and are likely to influence export performance.

Table 1: Proactive and Reactive Stimuli Internal Proactive

• • • • •

Reactive

• • •

External

Managerial urge Growth and profit overseas Marketing advantages Economies of scale Unique product/ technology competence

•

Risk diversification Extend sales of a seasonal product Excess capacity of resources

•

Adapted from Albaum et al (2002)

•

• •

Foreign market opportunities Change agents

Unsolicited orders Small home market Stagnant or declining home market

Panigrahy et.al, Internationalization of ... 65

Barker and Kaynak (1992) study identified size of overseas market, search for stability through market diversification, apparent profit potential, unsolicited foreign orders and physical proximity of a market as the major motivators for a firm to move to overseas markets. The study listed these motivating factors for initiating overseas markets involvement in order of importance as larger market size, stability through diversification, profit potential, unsolicited orders, proximity of market, utilize excess capacity, offer by foreign distributor, increase growth rate and smoothing out business cycles. Other empirical studies over years have also pointed out factors such as saturated domestic markets, government incentives to export, tax incentives offered by foreign governments to establish manufacturing plants in their countries, and competition in domestic market. Agarwal (2004) had done an extensive study on the international competitiveness of knowledge-based industries taking Indian pharma industry as a case study. The determinants for firms’ decision to start exporting were R&D capabilities of the firm, equity collaboration with foreign companies, technology collabouration with foreign companies, small domestic markets in the product dealt by firm, tax incentives, price control in domestic market, concessional import from exports, and trade and FDI liberalization policies of 1990s. The study showed importance of R&D and fiscal incentives as major

motives for entering foreign markets. As for promoting export competitiveness, the determinants which played a major role were size of the firm; R&D effort, indirect tax incentives, and import of raw materials were found as major determinants. A list of studies conducted by various researchers on the export stimulants have been provided in Annexure 1. From the literature review and discussions, it is observed that researchers have found mixed results on various determinants influencing export stimulation of the firm. The present study is therefore conducted to identify the important determinants which have stimulated the Indian pharma industry to move to overseas markets and to identify whether the determinants cluster in groups giving rise to a few latent factors. 3.0 METHODOLOGY AND OPERATIONALIZATION OF DETERMINANTS

To address the above mentioned objectives, the following methodology has been followed. We have divided the determinants into two groups. All the determinants have been measured on perception of managers about each determinant on a scale of one to seven, one being less important and seven meaning most important. Proactive motives

a.

Growth and profit opportunity overseas

Firms move to international markets for better growth and profits. Management

6 6 Vilakshan, XIMB Journal of Management ; September, 2007

may perceive international sales as a potential source of higher profit margins or of more added-on profits. There is evidence that desire for short term profit is important to many companies who are at initial stages of exporting (Shoham, and Albaum, 1995). Several studies show positive correlation of profit and growth with a firm starting to engage in exports. It is said that growth and profit motives are linked directly to a firm motivation, the higher the better. b.

Technological advantage

Worldwide, the pharmaceutical industry is known to be one of the most research intensive industries. Indian pharma companies are known to have an advantage over other pharma companies worldwide with respect to know- why (reverse engineering) technological advantages. Due to strong chemistry skills of scientists present in India and lack of product patents, the pharma firms easily reverse engineer the molecules discovered world wide in a very short span of time and able to launch in domestic markets and other less regulated markets. So we think this determinant plays an important role as an export stimulus for overseas markets. We conceptualize technological advantage as the advantage Indian pharma firms have in terms of technology. c.

Exclusive market information

It is another proactive stimulus. It includes knowledge about foreign customers, market places or market situations that is not widely shared by

other firms. This knowledge may result from particular insights based on firm international research, special contact, or simply beginning in right place in right time (Czinkota and Ronkainen, 2004). d.

Managerial urge/ interest/ aspirations

Favorable attitudes towards foreign activities are considered an essential prerequisite before firms get into or expand in international markets. Managerial urge is said as a motive that reflects the desire, drive and enthusiasm of management toward international marketing activities (Czinkota and Ronkainen, 2004). Decision-maker characteristics, including cognitive and affective factors, explain in certain instances the difference between managers in attitude and behaviour toward foreign activity (Shoham, and Albaum, 1995). e.

Tax benefits

Tax benefit plays an important role of stimulation to exports. For example, in United States, a tax mechanism called Foreign Sales Corporation(FSC) has been instituted to assist exporters which provides firm with certain tax deferrals thus making international marketing activities more potentially more profitable(Czinkota and Ronkainen, 2004). In India, export profits, that is profits generated from exports are exempted from income tax by Ministry of Finance Tax (Aradhana 2003). So we think pharma firms to avail this tax exemption would have started moving

Panigrahy et.al, Internationalization of ... 67

to overseas markets, the more the better profits without tax. f.

Economies of scale and scope

By moving to international markets, a company can achieve economies of scale and scope by spreading over more units and thereby reducing the fixed costs incurred in administration, facilities, equipments, staff work and R&D. Indian pharma companies’ drug prices are known to be one of the lowest prices in the world. Although they account for 13% of the volume market all over the world, they only have 1% sales turnover. So due to less profit margins, economies of scale gives the firms’ more volume turnover although margins are low and thereby achieving capital efficiencies. So this indicator may act as major stimuli for most of the Indian pharma companies as these depend more on volume generated from unit sales due to low pricing of medicines. g.

Possession of special competitive advantage

Unique products/ technology/ other resources advantage are a major driving force for moving to international markets. It is because a firm producing superior products is more likely to receive inquiries from foreign markets because of perceived competence of its offerings and second due to the unique product, the company incurs less sunk costs to develop for foreign markets due to standardization of the product. Especially in pharmaceutical industry, if a firm has some patented products, it can

receive huge benefits by moving to international markets. Indian pharma products are also known for cheaper prices with good quality. So possession of some competitive advantage acts as stimuli for many firms to cater into international markets. h.

Lower costs of labour, production and energy

Lower costs of labour, production and energy help firms price their products lower when compared to other international markets. This may give the pharma firms a better cost leadership advantage (porter strategy) and help compete in terms of price of medicines globally. So this advantage may be one of the determinants for export stimulus. i.

National export promotion

Policy measures favouring domestic pharma companies for exports may be one of the important stimuli for firms starting exports. These may be income tax exemption, subsidies, replenishment import license, subsidized export credit and export credit insurance, bonded warehouses, support on knowledge of foreign markets as well as marketing guidelines (Aradhana 2003), act as a stimulus for firm to move to international market. j.

Unique product advantage

Unique products produced in terms of intensive technology whether a new molecule, a new dosage form, few side effects or with right combination of drugs

6 8 Vilakshan, XIMB Journal of Management ; September, 2007

helps a firm get motivated to move to overseas market in search of additional growth and profits as well as leverage this advantage. Also, due to cheaper prices with good quality of drugs, pharma firms may look for international markets to explore. k.

Favourable currency movements

Favourable exchange rates have been depicted as one of the major stimulus to move to international markets. Favourable exchange rates give firm better profits due to currency advantage in purchase parity (Shoham and Albaum, 1995). l.

R&D and technology collaboration

R&D and technology collabouration with foreign players helps a firm to know about new technologies and implement in the firm. This helps firm gain new technologies to create better products and have a competitive advantage. So this may act as one of the major stimulus for pharma firm to move to international markets. m. Firm mission and vision Most of the studies have emphasized the importance of mission and vision of company playing an important role in moving to international markets. Firm whose mission and vision has a global approach are found to move to overseas market faster and establish themselves as global players rather than being focused only on domestic market.

Reactive motives

a.

Competitive pressures

Due to intense competition from multinationals and foreign companies, a firm may fear to lose domestic market share with these companies who would have benefited from effect of economies of scale from international marketing activities. b.

Overproduction

This strategy was used too often by companies during downturns of business cycles which provided an ideal outlet for inventories that were significantly above desired levels. These sales were stimulated by short term price cuts and as soon as domestic market demand returned to previous levels, international marketing activities were curtailed or withdrawn totally (Czinkota and Roakainen, 2004) c.

Stagnant or declining home market

International expansion for some of firms becomes a feasible strategy if the domestic market is saturated or declining. The reasons maybe like unused productive resources (like production and managerial slack) which act as a stimulus to move to international markets. Production slack is a stimulus for securing new market opportunities and managerial slack provides those knowledge resources required for collecting, interpreting and using market information (Shoham and Albaum, 1995).

Panigrahy et.al, Internationalization of ... 69

d.

Proximity to customer and ports

Physical and psychological closeness plays an important role in export activities of firm. These are simply an extension of domestic activities without any particular attention being paid to the fact that some of products are moving abroad. e.

Unsolicited foreign orders

Unsolicited receipt of exports arising from either inquiry of product, price or distribution information is a very common method and found in research as one of the most important stimuli. These enquiries may result from advertising in trade journals which have a worldwide circulation through exhibitions and by other means. f.

Price control in domestic markets

India has a DPCO policy, which controls the prices of all essential drugs. This prevents a firm for free market pricing as all these essential medicines have a price cap and none of the firms can exceed this price cap. Many of the pharma firms to charge better margins may find the overseas market as an opportunity to sell their products g.

Excess capacity of resources

Firms may move to international markets to use excess capacity of resources available in the firm with respect to managerial expertise, proprietary knowledge, financial resources, and productive capacity more profitably than alternative domestic markets. In these circumstances, firms may well embark on

marginal pricing and sell at lower prices on export markets, seeking only a contribution to their overall costs for their home-based market. h.

Small domestic market

Due to small domestic market, firms move to international markets in aspiration of more profits, economies of scale. Many of the firms in countries have looked for international markets to carry business. As the number of pharma firm in India is around 20,000 the competition is intense. Many of the people in India are unable to have access to medicines (still 35-40% of the population). This limits the profit for doing business in the domestic market. So firms look for international markets for better growth and profits. Identification of determinants, measurement and tools used

We have identified 21 determinants from several studies which emerged as major export stimuli for overseas market. These were measured, as stated earlier, on a seven-point likert scale, indicating the degree of importance, 1 being least important and 7 being most important. Perceptions of managers were asked on the importance of each stimulus affect on reasons for internationalization of their firm. The unit of analysis under study was defined as the overall firm-level. All the indicators were measured in ordinal scale of 1 to 7 in order to facilitate the use of statistical analyses (Katsikeas et al 1996). Several steps were followed to take care

7 0 Vilakshan, XIMB Journal of Management ; September, 2007

of question wording, question sequence, questionnaire appearance to make it attractive and maintain better flow with high clarity. Content validity (face validity), is established by asking experts opinion in the field to assess whether a particular measure or question is measuring what the researcher is interested in. The questionnaire was circulated for a pilot study taking six respondents from the pharma sector dealing with international markets to ensure that questions were relevant and phrased in a meaningful fashion. The whole process undertaken helped to discard the ambiguity from the questionnaire and frame the questions in a meaningful manner, which assured content validity. Data was collected using survey method from Indian pharma companies engaged actively in exports. PROWESS database was used to identify only indigenous Indian pharma companies who have an export sales turnover averaging more than Rs.10 crores each year for the past three years. The total number of pharma companies who met the criteria was 87. The objective of the study was addressed within the context of indigenous Indian pharma companies actively engaged in exporting. All the firms were first contacted by telephone to know their interest to participate in the study; of these 9 firms were excluded, mainly because of wrong address, ceased export operations, or closed down due to acquisition. Of the remainder, only 62 firms showed real interest in taking part

in the study. Some of the reasons given for non participation were lack of time, concerned persons unavailability as always in overseas tours, and reluctant to provide outsiders with data due to sensitive issues (being pharma industry, the sensitive issues are more). Personal interviews were carried out using a structured questionnaire in most of the cities where cluster of pharma companies are located such as Mumbai, Hyderabad, Chennai, Bangalore and Delhi. The reason for carrying personal interviews is because in most of the cases we find the top management people passing on the questionnaire to any of their associates to fill the questionnaire. Also, during the process of data collection, emphasis was placed on identifying most appropriate individual available in each case to elicit the relevant information. Importantly, for all the personal interviews, respondents were in managerial level and reported both familiarity with their firm exporting activities and involvement in relevant export marketing policy decision making. There were some firms which could not be interviewed on the above locations as well as some pharma firms which were situated in other locations. To these firms, the structured questionnaire was mailed, forwarded with a letter from the institution citing the purpose of the study. Also, another draft was prepared citing the objective of the study and the definitions with operationalization measures of each of the independent variables what they

Panigrahy et.al, Internationalization of ... 71

denote in our present study. A note was written to the firms that only managers with an experience of atleast four years in handling international markets in their organization was eligible to fill the questionnaire. Knowingly, the name of the person, age, experience in the firm, designation was added in the last page of the questionnaire to cross-check. This ensures the reliability of the information collected, as interviewees responded to questions within their domain area (Kotabe and Czinkota 1992). The draft, forward letter from institute and the questionnaire were mailed through institute printed envelopes with a self addressed return envelope for better response. Additionally to incentivise the respondents, a question was added in the last page asking the respondents whether they needed a personal copy of the results of this study carried out. Out of the 60 responses, it was found that 45 interviewee wanted the results of the study. This implied the importance of the study being carried out. Interestingly it was found that most of the respondents who did not want a personal copy of the results of the study were in the age group of 48-53. Maybe one of the reasons can be predicted as due to their long experience in handling international markets, they might not find this study useful. The data collection was spread over a period of four months. To evaluate possibility of non-response bias in the data, a comparison was made between participating firms and nonparticipating firms with respect to

number of employees, sales volume, export ratio and years of exporting. Such information could be generated from only 14 firms out of 27 firms that did not participate in the study. Using t-test procedure under assumptions of both equal and unequal sample variances, no significant differences between groups were found at 5% level on any of these variables taking care of non-response bias in the study. The evaluation of responses to the questionnaire was done by using descriptive statistics through examination of average responses (mean), frequency and standard deviation of the respondents for each of the determinants. Categorization of stimulating factors: Exploratory Factor Analysis was used to analyze the structure of interrelationships among the 21 export stimuli and identify groups of variables that can be conceptually useful in describing export stimulation (Leonidou 1998, Calof 1994). Although the total sample size is small (N=55), but we had no other choice as the population size came to be 87 Indian pharma firms actively engaged in exports. Appropriate tests have been conducted to test the adequacy of the sample size. Two measures, Bartlett’s test of sphericity and Kaiser-MeyerOlkin measures were used for the measure of sampling adequacy. Bartlett’s test of sphericity is used to test whether the variables are

7 2 Vilakshan, XIMB Journal of Management ; September, 2007

correlated or uncorrelated in the population, in other words, whether the population correlation matrix is an identity matrix (Malhotra, 2004). It is based on the chi-square transformation of the determinants of the correlation matrix and large values of the test statistic show that the variables are correlated in the population. KMO index compares whether the data are likely to factor well, based on correlation and partial correlation. Small values indicate that factor analysis may not be appropriate. A cut off of value of 0.6 is used but many of the researchers use a more lenient 0.5 cut off value (Hair et al 1998, Malhotra, 2004). Principal component analysis is used over common factor analysis as we wanted to determine the minimum number of factors which will account for maximum variance in the data for use in subsequent multivariate analysis. Varimax rotation procedure was used over oblique rotation as our objective was to minimize number of variables with high loadings on a factor; thereby enhancing interpretability of the factors Number of factors was determined using the scree plot and eigenvalues. Eigenvalues for a factor denotes the total variance attributed to that factor and only factors with eigenvalue greater than 1.0 are retained while the other factors are not retained in the model. Scree plot is a plot of the eigenvalues against the number of factors in order of extraction. Depending upon the shape of the plot,

mostly when the curve makes an elbow towards less steep decline, the scree test indicates to drop all further components after the one starting the elbow. Number of factors determined by a scree plot generally would be one or a few more than that determined by eigenvalue criterion (Malhotra N K 2004). SPSS 11 was used as a data processing tool to analyze the data. 4.0 ANALYSIS AND FINDINGS

The findings related to export stimuli of Indian pharma firms have been presented vide Table 2. It is found that seven stimuli were held in relatively high regard by the firms (cutoff X>5). The most important determinant for Indian pharma firms to move to overseas markets was found to be attractive profit and growth opportunities (x=6.07). This goes in accordance with many other studies (Leonidou 1995a, Katsikeas 1996) which have also found the same determinant playing a major role for firms moving to international markets. The other most important determinants found were managerial urge/ interest/ aspirations (x=5.62), firm mission and vision (5.42), economies of scale (x=5.20), economies of scope (x=5.11), technological advantage (x=5.07), and lower costs of labour, production and energy (x=5.09). As per Albaum’s classification of proactive and reactive stimuli, we find all the seven stimuli are proactive in nature.

Panigrahy et.al, Internationalization of ... 73

Table 2: Descriptive statistics Motive to start exports

Mean(X)

Std Dev.

Frequency 1

2

3

4

5

6

7

Attractive profit and growth opportunities overseas

6.07

0.81

0

0

0

2

10

25

18

Technological advantage

5.07

0.84

0

0

0

14

26

12

3

Exclusive information about some foreign market

4.62

1.41

2

1

5

19

17

3

8

Managerial urge/ interest/ aspirations

5.62

1.15

1

0

3

1

14

27

9

Tax benefit

4.78

1.37

3

1

6

4

22

19

0

Economies of scale

5.20

1.33

0

2

4

6

20

20

3

Economies of scope

5.11

1.03

0

0

5

7

24

15

4

Speed to reach the market

4.67

1.29

1

0

10

13

16

11

4

Possession of special competitive advantage

4.93

1.07

0

0

5

13

23

9

5

Lower costs of labour, production and energy

5.09

1.42

3

0

5

2

21

19

5

National export promotion

4.96

1.45

3

2

3

4

20

20

3

Unique product advantage

5.00

1.07

0

0

3

15

23

7

7

Favorable currency movements

4.85

1.47

4

1

2

7

23

14

4

Competitive pressures

4.13

1.61

4

8

3

15

15

7

3

Overproduction

2.93

1.48

9

17

11

8

8

1

1

Saturated domestic markets

3.55

1.66

7

12

8

6

17

4

1

Proximity to customers and ports

3.73

1.67

6

10

8

9

15

5

2

Unsolicited export orders

3.27

1.48

7

14

7

14

10

3

0

Price control in domestic market

4.04

1.72

6

7

7

8

14

12

1

R&D and technology collaboration

4.47

1.55

1

5

12

7

13

13

4

Firm mission and vision

5.42

0.83

0

0

0

5

29

14

7

7 4 Vilakshan, XIMB Journal of Management ; September, 2007

Stimuli which were also rated highly by the respondents in export decision making were possession of special competitive advantage (x=4.93), speed to reach the market first (x=4.67), tax benefits (4.78), national export promotion (x=4.96), unique product advantage (x=5) and favourable currency movements (x=4.5). All of these stimuli are proactive motives which shows that Indian pharma firms moving to international markets was a proactive approach. Competitive pressures in domestic market, overproduction, saturated domestic markets, proximity to customers and ports, unsolicited export orders were not found as the major stimuli to move to overseas markets. These are all reactive motives as classified by Albaum. R&D and technology collaboration (x=4.47) found a mixed response from the respondents for initiating exports. One of the reasons may be attributed that not all of the pharma firms have gone for research and technological collaboration to overseas markets. Only a few players like Ranbaxy, Dr. Reddys Lab, Glenmark, Nicholas Piramal have moved to international markets. Drug price control in domestic markets (x=4.04) also found a mixed response for Indian pharma firms to move to overseas markets. Drug pricing policy of India puts a price cap on free pricing of drugs. The profits margins of firms are affected as pricing of drugs are fixed by the government. It may be noted that one of

the cheapest manufacturer of medicines globally is India and the sales turnover is solely based on volumes of drug sold. So, this maybe one of the reasons for firms moving to overseas markets. Our study found national export promotion policies as one of the high rated indicators for firms moving to international markets. This response contradicts the earlier studies (e.g., Leonidou 1988) which have cited national export policies playing limited role in export initiation. Researchers (Pradhan 2004, 2006, Lalitha 2002) have found policies framed by government of India have played a favourable role in making the pharma industry a successful one and competitive. Indian Patents Act 1972 and liberalization policies taken in 1991 have indeed been a boost for pharma firms to be competitive domestically as well as in international markets. So our study goes in accordance with finding of the above studies that national policies have played an effective role in shaping the pharma firms. Surprisingly, an unsolicited order from customers overseas was not found to be an important indicator for moving to overseas markets. This reactive motive of firms was found to be one of the important indicators (Bilkey 1978) for stimuli of exports. The reason for such a finding may be cited as most of the respondents of the firms would have not been there in the firm while it had started taking decision to export. Also literature supports that

Panigrahy et.al, Internationalization of ... 75

as the export experience of the firm rises, the importance of unsolicited orders diminishes (Johnston and Czinkota 1982). So this motive maybe not rated higher by respondents. Proximity to customer ports also did not find much importance in our study. This variable is based on “psychic distance”. This concept indicates how firms find convenient to export in those countries which are psychologically close with domestic country for having better performance (Johanson and Valhne, 1990). This could be one of the reasons why most of the Indian pharma firms have been a late mover to overseas markets. After liberalization in 1991, the psychic distance would not have played a major role due to globalization and liberalization of the economies, where barriers have reduced substantially. But some previous studies have cited psychic distance had played an important role for pharma firms who had started exports in 1970s, as most of the exports in that period were to countries like Russia, Nepal, and Bangladesh. To summarize, our analysis using descriptive statistics finds Indian pharma firms moving to overseas markets was proactive approach rather than reactive. The most important stimulant was found to be profit and growth opportunities overseas. Firm mission and vision to become a global player and managerial interest/

aspirations also were found equally important stimulations to move to overseas markets. The study also finds R&D and technology collaboration as a stimulant for pharma firms to move to overseas markets. Factor analysis results: A visual examination of the correlation matrix was carried out to find those that are statistically significant. It was found from the correlation matrix that out of the 210 correlations (21 independent variables), 112 were statistically significant at 0.05 level showing a percentage of 53.3 percent. Bartlet test of sphericity was found to be significant at 0.001 level which shows that correlations exist among the variables (or non zero correlations). The KMO test (measure of sampling adequacy) (Table 3) was found to be 0.732, exceeding the cut off value of 0.6, stating that the variables collectively meet the necessary threshold of sampling adequacy as well as fundamental requirements for factor analysis to be carried out. Table 3: KMO and Bartlett’s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett’s Test of Sphericity

.732

Approx. ChiSquare

834.485

df

210

Sig.

.000

7 6 Vilakshan, XIMB Journal of Management ; September, 2007

Exploratory principal component factor analysis using varimax rotation (Table 4) Table 4: Total Variance Explained, Extraction Method: Principal Component Analysis. Extraction Sums of Squared Loadings Component

Total (Eigen value)

% of Variance

Cumulative %

1

6.610

31.475

31.475

2

4.655

22.167

53.642

3

1.813

8.635

62.277

4

1.353

6.442

68.719

5

1.079

5.140

73.859

of the 21 export stimuli found five possible factor-solutions can be retained based on percentage of variance and eigenvalues more than one. The five factors together explained 73.859 percentage of the variance (Table 4) of all the variables taken into consideration. It was found there was no significant overlapping of items among factors. Factor 1, 2, 3 and 4 loaded a Cronbach alpha of more than 0.7, while factor 5 loaded 0.495. All the variables have been grouped under five factors with a cutoff of +/0.5 or above. It was found all loadings of the variables gelling together have substantially fallen above the threshold.

Table 5: Rotated Component Matrix. Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 8 iterations. Variables

Components Factor 1

Factor 2

Factor 3

Communality Factor 4

PROFIT

Factor 5 .620

TECHADV

.798

.656 .762

EXCLINFO

.866

.828

MGRURGE

.748

.601

TAXBENEF

.807

.740

ECOSCALE

.760

.854

ECOSCOPE

.633

SPEEDMAR

.636

COMPADVA

.762

.605 .668 .722

LOWLABOUR

.813

.743

NATEXPO

.871

.859

PRODADV

.886

.834

Panigrahy et.al, Internationalization of ... 77

Variables Factor 1 FAVCUREN

Components Factor 2 Factor 3

Communality Factor 4

Factor 5

.804

.793

COMPPRES

.623

.774

OVERPROD

.822

.718

SATDOMES

.844

.808

PROXPORT

.782

.791

UNSOLICI

.678

.650

PRICECON

.633

.777

RDCOLLAB

.874

MISSVISI Cronbach’s alpha

.779

-.601 0.9137

0.9077

.548 0.8609

Factor 1 has five significant loadings that are tax benefits, economies of s c a l e , l o w e r c o s t s o f l a b o ur , production and energy, national export policy and favourable currency movements. These all are proactive stimuli representing export benefit/ opportunities and can be classified under one category that is market pull motives. Factor 2 consists of seven significant loadings that are competitive pressures, overproduction, saturated domestic markets, proximity to ports, unsolicited export orders, price control and mission and vision of the firm. It is interesting to find that mission and vision of firm has a negative sign which may indicate when all above variables of the factor emphasis increases, the mission and vision of firm to become a global player reduces or doesn’t gel

0.7723

0.495

well with above indicators. Excluding mission and vision (communality loading of 0.548), all the above determinants are reactive motives which may be looked as domestic market constraints for moving to overseas market. These factors can be named as local market push motives. Factor 3 has four significant loadings that is technology advantage, some kind of competitive advantage, product advantage and R&D collabouration. These again represent proactive motive of the firm to move to overseas market. The technology advantage would be to achieve better product differentiation, competitive advantages maybe with respect to pricing, promotion, distribution, manufacturing facilities, vertical integration of the organization, product advantage indicate uniqueness of product vis-à-vis competition, and

7 8 Vilakshan, XIMB Journal of Management ; September, 2007

R&D collaboration helps to achieve better products. These all can be clubbed under one factor that is product superiority. Factor 4 consists of three significant loadings that is exclusive information about the foreign market, managerial urge or inspiration and speed to reach the market first. These are again proactive stimuli. The factor explains whenever the managers get exclusive information about some opportunities in the overseas markets; they try to reach their first. This

factor can be termed as opportunity utilization. Factor 5 consists of two significant loadings that are economies of scope and growth and profit opportunities. Both are proactive stimuli for a firm to move to overseas markets. It is found that firms look actively for overseas markets for profits and growth opportunities and economies of scope. The economies of scope give the firm a better growth opportunity and profits. So this factor can be named as growth motives.

Table 6: Export stimuli factors with variables classified as per proactive and reactive motives Factors Overseas market pull motives

Proactive

Reactive

Tax benefitEconomies of scaleLower costs of labour, production and energy National export promotion Favourable currency movements.

Local market push motives

Competitive pressures Over production Saturated domestic markets Proximity to customer and ports Unsolicited export orders Price control in domestic market

Product superiority

Technological advantageUnique product advantageR&D and technology collaboration

Opportunity utilization

Exclusive information about some marketManagerial urge/interest/ aspirations

Growth Motives

Attractive profit and growth opportunitiesEconomies of scope

Panigrahy et.al, Internationalization of ... 79

5.0 CONCLUSIONS AND SUGGESTIONS

Our findings and discussions have led to the following conclusions. It is found that Indian pharma firms moving to overseas markets was a result of not one single stimulating factor, but a number of proactive stimulants. Profit and growth opportunities in overseas markets, managerial urge/ interest/ aspirations, firm mission and vision, economies of scale and scope, technological advantage, and lower costs of labour, production and energy specific to domestic conditions were found as the most important stimulants. Export stimuli of Indian pharma firms were categorized conceptually into five meaningful groups (viz. overseas market pull motives, local market push motives, product superiority, opportunity utilization and growth motives), with a new set of underlying structure of relationships, following the classification of proactive and reactive motives. The findings also confirmed the Albaum classification of proactive and reactive stimuli. Firms can look upon the factors for export making decisions by following the structure framed. Prior studies conducted in the field have found that proactive motives help the firm achieve a better export performance when compared to reactive motives. Our findings can be compared with the export figures which show that Indian pharma industry has showed a positive trade surplus over years from 1990s.

Managers of the firm should take steps to cultivate this spirit among employees for doing business overseas. This sort of competency building is important as we found that most of the firms have moved overseas for growth and enhancing profits. This paper points the importance of looking at various stimulants that promote exports. Technology and R&D collaboration in overseas markets is also important if firms wish to expand globally. This helps to acquire new technologies and cultivate an innovativeness spirit inside the firm. This was one of the major findings from the study. Drug pricing policy has acted as a proactive motive for Indian pharma firms looking abroad. The main reason was that firms were unable to get higher profit margins as the prices of medicines were fixed by the government. The policy makers should look into this factor and frame appropriate policies to keep a balance between access of medicines to patients and pharma firms’ profit margins. As pharma industry is highly technological intensive, lot of investments goes towards research and development to produce new molecules ($800 million to produce a new drug as per Tufts Report, 2003). Liberal pricing policy as well as incentives from government would help pharma firms to get funds to invest in R&D activities for innovation of new molecules. Understanding the firms’ motivation structure provides guidelines for the design and implementation of effective marketing plans and national policy

8 0 Vilakshan, XIMB Journal of Management ; September, 2007

designs for export promotion. Most of the studies earlier were conducted in developed countries. The uniqueness of this is that it presents a view of the export motives of the Indian pharma firms. Two more new determinants have been added which underlie and support export motives of Indian pharma firms. These are research and technology collaboration in overseas and drug pricing policy. Although drug pricing policy is specific to pharma sector, there exist different pricing policies framed by domestic government which affect the firms. This may stimulate some of them to look overseas. Researchers may use these two motives to test across sectors and countries and find whether any structural differences exist. This might help them to generalize from such evidences to build export stimulation frameworks and enhance theory development of export stimuli. REFERENCES Aaby, Nils-Erik & Stanley F. Slater. (1989). “Managerial influences on export performance: A review of the empirical literature 1978-88”, International Marketing Review, 6 (4): 53-68. Aggarwal A. (2004) “Strategic approach to Strengthening the International Competitiveness in Knowledge Based Industries: The Indian Pharmaceutical Industry”, RIS-DP 80/ 2004, RIS Discussion Papers, available at www.ris.org.in\Dp80_pap.pdf Albaum, G., Strandskov, J., & Duerr, E. (2002), International Marketing and Export Management, 4th edition, Pearson Education Limited, Edinburgh Gate.

Barker, A.T. and Kaynak, E. (1992) “An empirical investigation of the difference between initiating and continuing exporters”, European Journal of Marketing, Vol. 26 No. 3, pp. 27-36. Bilkey, W.J. (1978) “An attempted integration of the literature on the export behaviour of firms”, Journal of International Business Studies, Vol. 8, Spring/Summer, pp. 33-46. Bilkey, W.J. and Tesar, G. (1977) “The export behaviour of small-sized Wisconsin manufacturing firms”, Journal of International Business Studies, Vol. 8, Spring/Summer, pp. 93-8. Brooks, MR. and Rosson, P.J. (1982) “A study of export behaviour of small- and mediumsized manufacturing firms in three Canadian provinces”, in Czinkota, M.R. and Tesar, G. (Eds), Export Management: An International Context, Praeger, New York, NY, pp. 39-54. Calof, J.L. (1994) “The Relationship between Firm Size and Export Behaviour Revisited”, Journal of International Business Studies, Vol. 25, No. 2, pp. 367-387. Cavusgil, S. Tamer and Shaoming Zou (1994) “Marketing StrategyPerformance Relationship: An Investigation of the Empirical Link in Export Market Ventures,” Journal of Marketing, Vol. 58 1-21. Cavusgil, S.T. (1980) “On the internationalization process of firms”, European Research, Vol. 8 No.6, pp. 273-81. Cavusgil, S.T. (1984) “Differences among exporting firms based on their degree of internationalization”, Journal of Business Research, Vol. 12 No. 3, pp. 195-208. Cavusgil, S.T. and Nevin, J.R. (1981) “Internal determinants of export marketing behaviour: an empirical investigation”,

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Journal of Marketing Research, Vol. 18 No. 1, pp. 114-19 Cavusgil, S.T., Bilkey, W.J. and Tesar, G. (1979) “A note on the export behaviour of firms exporter profiles”, Journal of International Business Studies, Vol. 10, Spring/Summer, pp. 91-7. Chadha A (2005) “Product Cycles, innovation and exports: A study of Indian Pharmaceuticals”, NUS, Working paper no. 0511, available at http://nt2.fas.nus.edu.sg/ ecs/pub/wp/wp0511.pdf Cygnus (2005), Indian Pharmaceatical Industry Gygnus Industry Research. Unpublished document. Czinkota, M.R. and Ronkainen, I.A. (2004), “International Marketing”, 7th ed., Thomson Learning, Mason, OH. Dhanaraj, C. and Beamish, W.P. (2003) “A resource-based approach to the study of export performance”, Journal of Small Business Management, Vol. 41 No. 3, pp. 24261. Diamantopoulos, A., Schlegelmilch, B.B. and Allpress, C. (1990) “Export marketing research in practice: a comparison of users and non-users”, Journal of Marketing Management, Vol. 6 No. 3, pp. 257-74. Hair, J.R. Jr, Anderson, R.E., Tatham, R.L. and Black, W.C. (1998) “Multivariate Data Analysis”, Prentice-Hall, London Johanson, J. and Vahlne, J. E. (1990) “The Mechanism of Internationalization,” International Marketing Review, 7 (4), 11-24. Johnston, W. & M. Czinkota (1982). Managerial motivations as determinants of industrial export behaviour. As found in: M. Czinkota & G. Tesar (eds), Export management: an international context, 3-17. New York: Praeger.

Joynt, P. (1982) “An empirical study of Norwegian export behaviour”, in Czinkota, M.R. and Tesar, G. (Eds), Export Management: An International Context, Praeger, New York, NY, pp. 55-69. Karafakioglu, M. (1986) “Export activities of Turkish manufacturers”, International Marketing Review, Vol. 3 No. 4, pp. 34-43. Katsikeas, C.S. 1996 “Ongoing Export Motivation: Differences between Regular and Sporadic Exports” International Marketing Review, 13 (2), pp. 4-19 Katsikeas, C.S. and Piercy, N.F. (1993) “Longterm export stimuli and firm characteristics in a European LDC”, Journal of International Marketing (USA), Vol. 1 No. 3, pp. 23-47. Kaynak, E. and Kothari, V. (1984) “Export behaviour of small manufacturers: a comparative study of American and Canadian firms”, European Management Journal, Vol. 2, Summer, pp. 41-7. Kaynak, E. and Stevenson, L. (1982) “Export orientation of Nova Scotia manufacturers”, in Czinkota, M.R. and Tesar, G. (Eds), Export Management: An International Context, Praeger, New York, NY, pp. 132-45. Koh, A. C. 1991, “Relationships Among Organisational Characteristics, Marketing Strategy and Export Performance”, International Marketing Review, vol. 8, no. 3, pp. 46-60. Kotabe, M., Czinkota, M.R. (1992), “State government promotion of manufacturing exports: a gap analysis”, Journal of International Business Studies, Vol. 23 No.4, pp.637-58. Kothari, V. (1989), “Overseas strategies of small business – a longitudinal study”, in Avlonitis, G., Papavasiliou, N.K.,

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Kouremenos, A.G. (Eds), Marketing Thought and Practice in the 1990s, EMAC Proceedings, Athens, pp.153-67.

of Indian Pharmaceutical Industry”. RIS, New Delhi, available at http://www.ris.org.in/ dp40_pap.pdf.

Lalitha N (2002) “Indian Pharmaceutical Industry in WTO Regime, A SWOT Analysis” Economic and Political Weekly, August 24, Vol.38, No.34.

Ramaseshan, B. and Soutar, G.N. (1996), “Combined effects of incentives and barriers on firms export decisions”, International Business Review, Vol. 5 No. 1, pp. 53-65.

Leonidou, L.C. (1988) “Export initiation by indigenous manufacturers in a small developing country”, Spoudai, Vo1. 38 No. 1/2, pp. 63-78.

Shoham, A. and Albaum, G.S. (1995) “Reducing the impact of barriers to exporting: a managerial perspective”, Journal of International Marketing, Vol. 3 No. 4, pp. 85-105.

Leonidou, L.C. (1995) “Export stimulation research: review, evaluation and integration”, International Business Review, Vol. 4 No. 2, pp 133-56.

Sousa, C. M. P. (2004). Export Performance Measurement: An Evaluation of the Empirical Research in the Literature. Academy of Marketing Science Review, 4 (9): Available: http://www.amsreview.org/ articles/Sousa 200409-2004.pdf

Leonidou, Leonidas C. and Anna A. Kaleka (1998) “Behavioural Aspects of International BuyerSeller Relationships: Their Association with Export Involvement,” International Marketing Review, 15 (5), 373-97. Malhotra NK (2004) “Marketing Research”, Fourth edition, Prentice Hall of India, New Delhi. ORGIMS (2006). Indian Pharmacentical IndustryPrognosis Report. Unpublished document. Pavord, W.C. and Bogart, R.G. (1975) “The dynamics of the decision to export”, Akron Business and Economic Review, Spring, pp. 6-11. Pradhan J (2004) “Strengthening Intellectual Property Rights Globally: Impact on India’s Pharmaceutical Exports”, J.N.U., New Delhi, 2004.available at http:// www.geocities.com/pradhanjayaprakash/ Pharexpo1.pdf Pradhan, J P (2006) Global Competitiveness of Indian Pharmaceutical Industry: Trends and Strategies, ISID Working Paper, No. WP2006/05 Pradhan, J. P. (2003) “Liberalisation, Firm Size and R&D Performance: A Firm Level Study

Sullivan, D. and Bauerschmidt, A. (1990) “Incremental internationalization: a test of Johanson and Vahlne’s Thesis”, Management International Review, Vol. 30 No. 1, pp. 19-30. Tesar, G., Tarleton, J.S. (1982), “Comparison of Wisconsin and Virginian small and mediumsized exporters: aggressive and passive exporters”, in Czinkota, M.R., Tesar, G. (Eds), “Export Management: An International Context”, Praeger Publishers, New York, NY, pp.85-112. Tookey, D. A. (1964) “Factors associated with success in exporting,” The Journal of Management Studies, Vol. 1 No. 1, pp. 48-66. Welch, L.S., Wiedersheim-Paul, F. (1980), “Initial exports – a marketing failure”, Journal of Management Studies, No.October, pp.333-44. Zou S., Fang E., and Zhao S. (2003)”The Effect of Export Marketing Capabilities on Export Performance: An Investigation of Chinese Exporters”, Journal of International Marketing, 11 (4), 32-55.

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Annexure 1 DETERMINANTS OF PROACTIVE & REACTIVE STIMULI

Proactive Stimuli Determinant

Authors who have considered such determinants

Attractive profit and growth opportunities overseas

Kaynak and Kothari, 1984; Leonidou, 1988; Pavord and Bogart, 1975, Albaum et al 2002, Diamantopolous et al 1990, Leonidou 1995a, Ramaseshan & Soutar 1996, Leonidou and Leonidas 1998 Czinkota & Ronkainen 2004

Technological advantage

Tesar & Tarleton (1982), Kothari (1989), Koh 1989, Czinkota & Ronkainen 2004, Cavusgil & Nevin 1981

Exclusive information

Weaver & Pak 1990, Czinkota & Ronkainen 2004

Managerial urge/ inspiration

Cavusgil, 1984a; Katsikeas and Piercy, 1993; Kaynak and Stevenson, 1982, Leonidou 1995a, Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004

Tax benefits

Leonidou and Leonidas 1998, Baldauf, Cravens & Wagner 2000, Czinkota & Ronkainen 2004

Economies of scale and scope

Katsikeas and Piercy, 1993; Kaynak and Kothari, 1984; Sullivan and Bauerschmidt, 1988, Sullivan and Bauerschmidt (1990), Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004

National export promotion

Albaum et al., 1989; Bilkey, 1978; Kaynak and Kothari, 1984

Unique product advantage

Cavusgil, 1984a; Cavusgil et al., 1979; Johnston and Czinkota, 1982, Tesar & Tarleton (1982) Karafakioglu (1986), Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004, Cavusgil & Nevin 1981

Possession of special competitive advantage

Tesar & Tarleton (1982), Kothari (1989), jaffee et al (1988), Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004, Cavusgil & Nevin 1981

Firm mission and vision

Leonidou 1995a

Lower costs of labour, production and energy

Zou S et al (2003)

8 4 Vilakshan, XIMB Journal of Management ; September, 2007

Reactive Stimuli Determinant

Authors who have considered such determinants

Competitive pressures

Karafakioglu (1986) , Czinkota & Ronkainen 2004

Overproduction

Czinkota and Johnston, 1983; Leonidou 1988; Pavord and Bogart, 1975, Brooks & Rosson 1982, Joynt 1982, Ogram 1982, Tesar & Tarleton (1982). Kaynak et al 1987 Sullivan and bauerschmidt (1990) , Czinkota & Ronkainen 2004

Declining domestic scales

Pavord & Bogart (1975), Kaynak et al 1987, Karafakioglu (1986), Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004

Excess capacity

Barker and Kaynak, 1992; Kothari (1989)Diamantopoulos et al., 1990, Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004

Favorable currency movements

Katsikeas and Piercy, 1993; Sullivan and Bauerschmidt, 1988

Saturated domestic markets

Pavord & Bogart (1975), Ramaseshan & Soutar 1996, Leonidou and Leonidas 1998, Czinkota & Ronkainen 2004

Proximity to customers and ports

Baldauf, Cravens & Wagner 2000, Czinkota & Ronkainen 1995, Cavusgil & Nevin 1981

Unsolicited export orders

Albaum, 1983; Kaynak and Erol, 1989; Piercy, 1981a, Simpson & Kujawa (1974) Tesar & Tarleton (1982), Ghauri and Kumar (1989)

Source : Collected from various research studies and compiled by the author

Competencies Necessary for Technology Transfer from Home to Host Country Companies: A Case Study* Kiran J. Desai1 & Harsha Desai2

Abstract Effective technology transfer between two organizations is influenced not only by the needs of the receiving organization, but also by its culture and a match between the cultures and management processes of both organizations.

1.0 INTRODUCTION

Companies adopt advanced technologies to simultaneously lower costs and improve quality of their products and to deliver them to their customers rapidly (Hottenstein, 1997). Process-structure complexity, product-line complexity, organizational scope and its marketing strategies also affect an organization’s propensity to seek technology (Gupta, Lonial and Mangold, 1991; Gupta and Lonial, 1998; Kotha and Orne, 1989). Moreover, small and medium size companies are now seeking advanced appropriate technologies to make them more competitive in the world markets (Grieve, 2004). Scott-Kennel (2004) has * 1. 2.

similarly suggested that foreign direct investment by the multinational companies into their local partners allows the host country partners and subsidiaries to gain a competitive advantage. 2.0 LITERATURE

Balachandra (1996) has identified a new paradigm for technology transfer process from a developed to a developing country. When the transfer typically takes place between small firms, there is little government interference, the transfer takes place rather informally, and the technology is “obtained in the best possible manner.” Khosrow and Desai (1982) suggest that a successful technology transfer process

Received January 2, 2007, Revised June 8, 2007; Both authors contributed equally to the paper. Professor, McNeese State University, Lake Charles, Louisiana, USA Professor, Loyola College in Maryland, Baltimore, Maryland 21210, USA, email:[email protected]

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across borders involves at least five forces: a set of actors who initiate, approve, accept, and adopt new technology; several processes including licensing, exchange controls and repatriation issues; the mode of technology transfer including joint ventures, licensing arrangements, and direct establishment of subsidiary operations; the macro environmental challenges including government policy for exports and ownership; and the micro environment factors that include financing of the venture, borrowing rules and regulations, and foreign exchange requirements. Cobb and Barker (1992) have reported that higher the education level and job skills of the parties involved more effective is the technology transfer. Wie (2005) reporting on transfer of technologies into Indonesia has suggested that companies acquiring new technology must “assimilate, adapt and improve these imported technologies” for maximum benefit. The managers in a typical company seeking technology transfer think that individuals responsible for this transfer will intuitively think through the challenges confronting transfer. Unfortunately, this is not true. The extant literature suggests that for an effective technology transfer to take place between two organizations across borders, a process or methodology for

achieving this transfer must exist (Eldred and McGrath, 1997). These authors have suggested the following process for a successful and satisfactory technology transfer: One, transfer must take place at the right time – the technology being transferred (equipment, process, drawings) and its application must be in sync. For example, if the new technology is being used for product development, then the timing of the transfer must synchronize with the new product development where it will be used. The new product development team has to be ready to accept the technology in the development process. Two, the supporting technologies must be available – typically technology transfer requires additional work to bring about the installation of that technology into an existing organization. For example, the question about how the power needs of the new technology will be met and how will the other infrastructure needs (land, utilities, training requirements to operate the new technology) of the new technology satisfied. And three, the management of technology transfer process – It is important to assure that the existing culture and management of the receiving organization is capable of absorbing the new technology. Griffith, Kiessling and Dabic (2005) describe similar difficulties experienced by the multinational corporations as they attempted to transfer technologies to their Croatian subsidiaries. The local

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managers were unable to transfer technology effectively because of their lack of skills or unwillingness to accept the new technologies. The managers presumed that these technologies would disrupt their current mode of operations. The ‘way things are done around here’ may have been the culprit in ineffective transfers. The technology transfer process may face obstacles if the organization is secretive about its business practices and one part of the organization is kept in the dark about the relevant goings on in the other parts of the organization. If the incoming technology requires cooperation among the company’s subunits, it will be difficult to absorb the new technology. Ferdows (2006) discussing appropriate absorptive capacities of host firms receiving new technology from home firms comments that often this transfer of technology is easier if the tacit knowledge of the home firm is somehow codified (drawings, manuals, skills training); this codification becomes difficult and hence the transfer becomes difficult when the know-how changes frequently. Sacchetti (2004) has advocated that unless there is a consistent part of the population in the developing country (like India) that is literate and the domestic development of scientific and technical knowledge is fairly well advanced, it is difficult for a home country to successfully provide and then implement advanced technology to

a host country company. James (2006) has emphasized that “concepts designed for the rich countries may be inappropriate to the conditions prevailing in the majority of poor countries that comprise the Third World.” This advice is especially true of technology concepts, including equipment, that are transferred “as is” from the rich countries to the poor countries! As we will see later in the case study, this is exactly what transpired. A company’s current manufacturing strategy defines a company’s inventory management practices as well as the skills of its workers. It also partially circumscribes what the company is or is not capable of or willing or not willing to do by way of making changes. The business-market considerations provide a company’s long-term strategy defining not only its current positioning in the market vis-à-vis its competitors, but also its willingness to modify its technology and modify its present tangible and intangible resources and organizational capabilities so as to meet new market challenges (Barney, 1991). The businessmarket strategies also guide a company’s manufacturing strategy. Technology transfer considerations in this milieu affect both the manufacturing and business-market strategies. In turn these two strategic issues directly affect the scale and the scope of a company’s technology transfer activities.

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3.0 A CASE STUDY

In the following sections we apply our technology transfer ideas to a gemstone business. The case involves a unique technology, but the lessons of how best to or not “to do technology transfer” apply equally well to other industries and cases. The gemstone business case describes the considerations of a transfer of an automated gemstone manufacturing factory from Europe to India. The Gemstone Business

In the worldwide precious and semiprecious stone industry, the current practice is for a buyer to approach a seller to look for what’s available in stock. This practice encourages the seller to pursue a manufacturing strategy of producing to stock – build to inventory - and sell from stock. Unfortunately, there is seldom an attempt made at the producer or the trader level to forecast the demand; the industry is driven by “current fashions” making it very difficult to anticipate consumer preferences for colour gemstones. Recognizing this continuing difficulty of responding with inventory to meet the shifting customer preferences shaped by fashion, a company we worked with decided to explore possible changes in its manufacturing strategy. This company’s business strategy envisioned that the buyer could simply walk into a shop and ask for certain size

of stones with a given quality and in any quantity. The business strategy also envisioned that if the pre-shaped stones were on hand then the business should be able to deliver the requirement within three days. This strategy was thought to increase the company’s market share by providing better value to customers at lower prices that were driven by lower overall manufacturing cost. For this business-market strategy to succeed the company realized that it needed a new manufacturing strategy and a new method of processing. An extensive worldwide search led to the highly mechanized process used in Europe; this process was also suitable for synthetic stones. However, the newly found European equipment was very expensive in the Indian context. As luck would have it, soon an opportunity arose when a German company went bankrupt and its equipment could be bought in an auction. In order to transfer this equipment to India, with no engineers on the company’s staff and little experience in dealing with an “integrated plant”, authors had to device a comprehensive technology transfer model. The equipment was purchased at 10 cents on the dollar. An engineering team spent six months in Germany; upgraded the automation technology from electronic to programmable logic controller (PLC); and received the necessary training on

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the running and maintaining of the equipment. The plant was transferred to India with the German technicians’ help to their counterparts in India. Acquisition of this automated technology forced vertical integration knowing and capability of replacing cutting and diamond coating, polishing surface, and programming and system analysis of PLC. The manufacturing and business strategies were thus coordinated with the technology transfer processes. Transfer of technology benefits for the gemstone business

•

Will ensure incompetitiveness in producing large quantity of high quality standardized colour stones;

•

Processes will become more capital intensive - only 25 people will be needed to work per 8 hour shift, to produce between 8,000 to 15,000 stones in an automated factory, as opposed to 850 workers in a manual factory;

•

Automation will provide an avenue for measuring and recording data and quality; this was difficult in manual processing.

Challenges faced by the company

Periodically, the company must send the machinery abroad for a new diamond coating. To get this done, the Indian

government has to give permission to export the machinery: the cutting and faceting drum takes many months to be repaired; an import license is needed to import the drum back to India; the polishing drum has to be refurbished by either importing the sleeve of coating or importing the chemicals to make the coating; and finally, the polishing drums take at least two weeks to clear customs in India. Moreover, there is no maintenance infrastructure available in India for similar machines. Frequent power failures are a part of life as are the unavailability of locally made repair parts for machinery. Since the business is quite competitive, its manufacturing processes need to remain a closely guarded secret; under these conditions, training provided by outside individuals can compromise the business. Outcome and Conclusions

The German plant was acquired at 10 cents on the dollar. The company’s engineers spent six months in Germany to upgrade to new PLC technology as well as learning the basics of using the equipment. The plant was imported into India and was installed. It took more than a year to impart the skill and knowledge to local engineers and workers. German technicians were called in for help for a short duration.

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4.0 TECHNOLOGY TRANSFER ADVICE AND ITS APPLICATION

The table-1 is our attempt to summarize the advice technology transfer literature has to offer for small and medium size companies. The first column shows the various author(s) and a brief review of their comments. The second column is the actual advice the article offers, and

the third column is the application we were involved in. The three columns together give a quick overview of the most up-to-date technology transfer advice and its application. In the following, Host firm is the technology ‘receiving’ firm and the Home firm is the technology ‘giving’ firm.

Table 1 : Authors’ Comments, Article advice & Application to case Article Advice

Application to the Gemstone Business

The host firm has to find and induce the technicians working in it to understand the technology.

The home firm was bankrupt and unable to provide help in the transfer of technology; eventually, the host firm did send a project team to the home firm in Germany to master the technology.

Home firm - Originator of Technology

Need to assure that drawings, technical manuals and technical help are available at the home firm for technology transfer.

The home firm was bankrupt and could not adequately provide this assistance.

Host firm - Receiver of Technology

Need to understand the infrastructure and technical requirements that follow the new technology.

The host firm had a history of failures in high-tech manufacturing. The family ownership of the company had little formal / technical education. And the host firm had insufficient infrastructure to support the transfer of technology.

Transfer Process

Mode of transfer of technology must be determined prior to the purchase of technology. Both

The host firm had to transfer technology without the benefit of the home firm’s

Balachandra (1996) Transfer takes place between small firms

Khosrow and Desai (1982)

of

Technology

Desai et.al, Rural Competencies ... 91

Article Advice

Application to the Gemstone Business

the home and the host firms should know how this new technology will transfer!

help – since the home country firm was no longer in business (the new technology was being obtained via an auction).

Macro environment

The home and host firms need to take advantage of new government policies.

Indian government liberalized the importation of used factory/machineries. This was timely for the host firm’s acquisition of the new technology.

Micro environment

Both the home and host firms need to take advantage of the prevailing liberal rules for foreign exchange and custom duties.

The host firm successfully obtained the license to import the new machinery.

The host firm needs to establish the required education and skills before committing to the acquisition of the new technology.

Lack of in-house technical expertise created delays and dependency on outside technician for timely technology transfer.

Both the home and host firms must scan for business opportunity.

The host firm recognized a potential threat from China; finding a German firm going into bankruptcy was fortuitous, and the host firm could acquire German plant.

The host firm needs to establish the education and skills requirements before committing to the acquisition

Lack of in-house technical expertise created delays and dependency from outside technician for technology

Cobb and Barker (1992) Higher the education and skills of the workers in the host firm, more effective the transfer.

Eldred and McGrath (1997) Transfer must take place at the right time; technology and its application must be in sync.

Griffith et.al. (2005) Host firm's unwillingness to accept new technology leads to ineffective technology transfer.

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Article Advice

Application to the Gemstone Business

of the technology; at the same time the host firm needs to prepare the existing workforce to accept the new technology.

transfer in a timely manner. Separate plant was created with few trusted employees to assure success.

To stay competitive in the world markets, the host firm needs to continuously look for newer technology to adapt to changing business-market conditions.

The host firm anticipated the threat from China and the shortage of skilled workers, hence it looked for an automated plant (also improve the quality of its products) and volume production.

The host firm must plan for assimilation, adaptation and eventually improve the imported technology.

This advice was followed: an engineer from the host firm was trained in the new technology.

Predetermining the availability of necessary skills and knowledge in the host country.

It was difficult for the host firm to obtain the necessary technical assistance.

Continue to work on the knowledge cycle of research, design, development and manufacture, adapting, adopting and improving upon the available technology.

In the medium to long run, the host firm needs to look for future expansion and improve on the acquired technology.

The host firm had planned for this; no current information is available on its status.

Creating an empowered workforce - being able to discuss and participate in decision making regardless of the rank and title.

Looking at TQM, Six Sigma program, and ISO 9K-2K, the host firm should encourage the participation of rank and file in the technology transfer process.

With the nature of ownership at the host firm (family ownership) and its penchant for secrecy this openness will not take place at the host firm.

Barney (1991) The business-market considerations and willingness to modify technology.

Wie (2005) The host firm must assimilate, adapt and improve the imported technology. Sacchetti (2004) The host country has population that is literate and has a fairly developed scientific and technical knowledge. Pantano (2005)

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Article Advice

Application to the Gemstone Business

The host firm cannot import ‘management style’; the new management processes have to be developed internally within the host organization.

The host firm management style needed to be changed to adapt the new technology; but due to family ownership of the business and a strict requirement for maintaining secrecy, it was difficult to adapt the new technology.

Bessant and Francis (2005) Soft technology (management competencies), continuous improvement, competencies of recipient organization

The most important lesson learned is that the technology transfer from the home to the host firm requires both of these companies to have sufficient understanding of each others management styles, skills and education levels and the sufficiency of the host company’s infrastructure. To be able to accept, adopt or adapt the new technology both the home and the host companies must be aware of the nuances of each others’ cultures! REFERENCES Barney, J. (1991) “Firm resources and sustained competitive advantage,” Journal of Management, March, Vol. 17, Issue. 1, pp. 99-120. Balachandra, R. (1996) “International technology transfer in small business: A new paradigm, International Journal of Technology Management, Vol. 12, No. 5-6, pp. 625-638. Bessant, J. and Francis, D. (2005) “Transferring soft technologies: Exploring adaptive theory,” International Journal of Technology Management and Sustainable Development, Vol. 4, No. 2, pp. 93-112.

Carlile, P. (2004) “Transferring, translating, and transforming: An integrative framework for managing knowledge across boundaries,” Organization Science, Vol. 15, No. 5, September–October, pp. 555–568. Cobb, S. and Barker, T. (1992) “A model of crosscultural training in the transfer of technology,” Journal of Technology Transfer. Vol. 17, No. 4, pp. 8-15.. de Jager, B., Minnie, C., de Jager, J., and Welgemoed, M. (2004) “Enabling continuous improvement: a case study of implementation,” Journal of Manufacturing Technology Management, Vol. 15, No. 4, p. 315324. Eldred, E. and McGrath, M. (1997) “Commercializing new technology,” Research Technology Management, March/ April, Vol. 40, Issue 2, pp. 29-33. Ferdows, K. (2006) “Transfer of changing production know-how,” Production and Operations Management, Vol. 15, No. 1 (Spring), pp. 1-9. Grieve, R. (2004) “Appropriate technology in a globalizing world,” International Journal of

9 4 Vilakshan, XIMB Journal of Management ; September, 2007

Technology Management and Sustainable Development, Vol. 3, No. 3, pp. 173-187.

Economic Issues, Vol. XL No. 3 (September), pp. 743-766.

Griffith, D., Kiessling, T. and Dabic, M. (2005) “An exploratory examination into the challenges to technology transfer in the transitional economy of Croatia,” Thunderbird International Business Review, March-April, Vol. 47, Issue 2, pp. 163-181.

Khosrow, F. and Desai, K. (1982) “An Empirical Model for a Combined Macro-Micro Approach to transfer of technology, “ Proceedings of the European International Business Association, 8th Annual Meeting, INSEAD, Fontainebleau, France, December, pp. 19-21.

Gupta, Y. Lonial, S. and Mangold, W. (1991) “An examination of the relationship between manufacturing strategy and marketing objectives” International Journal of Operations & Production Management, Vol. 11 Issue 10, pp. 33-43. Gupta, Y. and Lonial, S. (1998),” Exploring linkage between manufacturing strategy, business strategy and organizational strategy,” Production and Operations Management, Vol. 7, n. 3, pp. 243-264. Hottenstein, M. and Casey, M. (1997) “Facilitation of advanced manufacturing technology: Implementation and transfer,” Industrial Management, September-October, Vol. 39, Issue 5, pp. 8-12. James, J. (2006) “An institutional critique of recent attempts to measure technological capabilities across countries,” Journal of

Kotha, S. and Orne, D. (1989) “Generic manufacturing strategy: A conceptual synthesis,” Stratgeic Management Journal, Vol. 10, No. 3, pp. 211-232. Pantano, V. (2005) “The power of knowledge sharing,” Manufacturing Engineer, Vol. 84, Issue 5 (October-November), pp. 36-39. Sacchetti, S. (2004) “Knowledge caps in industrial development,” New Political Economy, Vol. 9, No. 3 (September), pp. 389-412. Scott-Kennel, J. (2004) “Foreign direct investment: A catalyst for local firm development?” European Journal of Development Research, September, Vol. 16, Issue. 3, pp. 624-652. Wie, T. (2005) “The major channels of international technology transfer to Indonesia: \An assessment,” Journal of the Asia Pacific Economy, Vol. 10, No. 2 (May) , 214-236.

Measuring Critical Factors in Safety Management - A Survey Based Approach* M.N. Vinodkumar1 & M. Bhasi2

Abstract In recent years there has been widespread acknowledgement of the significance of managerial and organizational failures in the causation of accidents. The activities and processes involved in managing safety have come under increasing scrutiny due to development of new approaches for safety management. This paper identifies six critical safety management practices that are relevant in Indian scenario and a valid and reliable instrument is developed to measure the level of these management practices in industries. This diagnostic tool can be used to identify areas of weakness in safety management programmes and remedial efforts can be designed to improve the safety level in an organization. The study was conducted in eight chemical industrial units in Kerala, a southern state in India.

1.0 INTRODUCTION

Investigations of the major industrial disasters in last two decades have pointed out that the events leading to the accidental outcome had their origins in the organization and management of the system. Most of these industrial accidents are attributable to factors such as poor management and training and other individual psychological characteristics, than to unforeseeable weaknesses in technical components (Kennedy and Kirwan, 1998). For this reason, focus has moved away from a

* 1. 2.

technical and human error focus of accident prevention, to the activities or processes that are involved in ‘Safety Management’. Safety management can be regarded as a sub-system of the total organizational management, specially designed to cater to safety of employees in an organization. It is the documented and formalized version of the safety management systems that exist as a documented system of policy, procedures and instructions etc. It is an overall system for ensuring that safety activities are properly planned, effectively

Received July 21, 2006; Revised July 19, 2007 Reader, Cochin University of Science & Technology, Kochi, Kerala, email: [email protected] Reader, Cochin University of Science & Technology, Kochi, Kerala, email: [email protected]

96 Vilakshan, XIMB Journal of Management ; September, 2007

implemented, and that follow up system is arranged. The primary aim of safety management is to intervene in the causation process that leads to accidents. Safety management attained significance in India only after the Bhopal gas tragedy in 1984. Learning lessons from Bhopal disaster, most of the industrial organizations in India have made considerable investments in safety related infrastructure, equipment and training. Enforcement rules and regulations have also been made more stringent with a number of amendments in the Acts and Rules. Every Indian manufacturing organization is supposed to prepare a ‘Safety Manual’ based on ‘The Factories Act, 1948’ and state ‘Factory Rules’ to take care of the health and safety of its employees, covering the various manufacturing activities employed in the company. To what extent these are practised in reality depends on the commitment of the top management of the organization. Committed managements subsequently adopt various safety management practices to safeguard their employees from work related hazards whereas others try to manage safety of employees by encouraging them to work safely. A scientific investigation into this only can reveal what is happening inside the organization so that improvement methods can be suggested.

2.0 SAFETY MANAGEMENT PRACTICES

Earlier investigations into safety in industries (Cohen and Cleveland, 1983; Cox and Cheyne, 2000; Glendon and Litherland, 2001; Vredenburgh, 2002; Zohar, 1980) have identified various factors that influence safety performance in industries. The same set of factors were never observed in these studies indicating that the factors are not universally stable and varies with cultural background of the sample and type of industry. Along with attitudinal, motivational and behavioural factors, a few management factors were also reported to be important in these studies. Different safety management practices are adopted in industries by managements to promote health and safety of workers. In one of the first investigations of safety climate, Zohar (1980) found that management’s commitment to safety is a major factor affecting the success of an organization’s safety programmes. The safety commitment of the management must result in an observable activity on the part of the management and must be demonstrated in their behaviour as well as their words (Hofmann, Jacobs and Landy,1995). Employees’ perceptions will reflect how employees believe that safety is to be valued in the organization (Griffin and Neal, 2000). In high risk environments like chemical industries,

Vinodkumar et.al, Measuring Critical ... 97

management commitment has been repeatedly highlighted (Cox and Flin 1998, Flin et al. 1996, Cox and Cheyne 2000). In order for employees to be active participants in a safety programme, they must receive occupational safety training. Safety training provides the means for making accidents more predictable. To improve the level of safety and health for all employees, organizations should institute a systematic, comprehensive safety and health training programme for new employees, provide a mentor for these employees and use a buddy system to help orient new employees in the safety, health and quality systems (Vredenburgh, 2002). The studies of Lee (1998), Ostrom et al.(1993), Tinmannsvik (2003), Cohen et al. (1975), Smith et al. (1975) and Zohar (1980) have found that those companies with lower accident rates were characterized by good safety training for employees. Employee participation is a behaviouraloriented technique that involves individuals or groups in the upward communication flow and decision-making process within the organization. The amount of participation can range from no participation, where the supervisor makes all decisions, to full participation, where everyone connected with, or affected by the decision, is involved. Since employees close to the work are the bestqualified persons to make suggestions

about improvements, they can be consulted before making final decisions, especially for those decisions that affect the employees (Vredenburgh, 2002). This empowerment of workers provides them with authority, responsibility and accountability for required decisions and ensures that both employees and management are involved in setting goals and objectives. It induces employees to do their best work as individuals and as a team, while relieving the manager to plan, lead and mentor (Cohen and Cleveland, 1983). Worker involvement has been reported as a decisive factor in safety management by Lee (1998), Rundmo (1994), Dedobbeleer and Beland (1991), Shannon et al. (1996) and Cox and Cheyne (2000). Regular communication about safety issues between management, supervisors and the workforce is an effective management practice to improve safety in workplace. Cohen (1977), Vredenburgh (2002), Cox and Cheyne (2000) and Mearns et al.(2003) included communication and feedback as a factor in their surveys using questionnaire among various category of workers and showed that safety performance is influenced by the level of communication in an organization. Well documented safety rules and procedures and its enforcement by supervisors and managers can improve safety behaviour of workers. Glendon

98 Vilakshan, XIMB Journal of Management ; September, 2007

and Litherland (2001) reported this as a reliable factor after factor analyzing the data collected from construction workers. Cox and Cheyne (2000) and Mearns et al. (2003) included safety rules and procedures as a factor in their offshore safety studies and showed that it has significant correlation with accident rates. The use of incentives, awards and recognition to motivate employees to perform safely is an accepted feature of both organization behaviour management and total quality management models (Accident Prevention Manual for Business and Industry, 12 ed., NSC, Illinois). They can add interest to the hazard control programme of an organization and enhance self-protection action on the part of the workforce (Cohen et al., 1979). A well-designed reward system should be characterized by high level of visibility in the organization, offering recognition, which can help modify behaviour (Vredenburgh, 2002). Recruiting new personnel, who are predisposed to displaying safety conscious attitude in their work, is a management practice adopted in many developed countries. Turner (1991), Eckhardt (1996) and Vredenburgh (2002) found that the consideration of safety performance in the selection of employees is a significant predictor of injury rates.

3.0 OBJECTIVES OF THIS STUDY

Research in safety all over the world has proved that quality of a product is closely related safety of work environment. Hence, it has become necessary for the fast growing Indian companies, especially high hazard chemical and process industries, that are competing with reputed multinational companies to implement effective safety management practices to ensure safety of their workforce. The level of these safety management practices implemented and their effectiveness along with the safety outcomes need to be measured for possible improvements and corrections. Hence, the objectives of this study were to 1.

identify the critical factors of safety management relevant to Indian chemical and process industry, and

2.

design and develop an instrument that is valid and reliable to measure the identified critical factors of safety management.

4.0 METHODOLOGY 4.1 Identification of critical factors of safety management

Based on survey of literature and discussion with safety managers in large chemical industrial units, the following six critical safety management practices were identified:

Vinodkumar et.al, Measuring Critical ... 99

•

Management Commitment

•

Safety Training

•

Worker Involvement in Safety

•

Communication and Feedback

•

Safety Rules and Procedures and

•

Safety Promotion Policies

Hiring practices (recruiting experienced safety conscious employees) that is found in many developed countries is not considered in this study since such a policy is not adopted in industrial units in Kerala. 4.2 Measuring critical management practices

4.2.1

safety

Instrument

From a review of related literature and theory, a 44-item questionnaire covering areas of management commitment, safety training, worker involvement, safety communication and feedback, safety rules and procedures and safety promotion policies was prepared. The items included were employees’ perceptions of those safety management policies that are found to discriminate between high versus low accident-rate organizations. The content of this draft questionnaire was discussed with senior safety professionals from industries and senior professors in management to ensure validity. The experts were requested to scrutinize the questionnaire, give their impressions regarding the

questionnaire, and also give objective feedback and suggestions with regard to comprehensiveness and coverage, redundancy level, consistency and number of items in each variable. After considering each item in detail, necessary changes were made by simplifying, rewording, removing and replacing some of them. A pilot survey was conducted on a selected sample of 100 workers from five industrial units to get the feedback about the clarity of items. Subsequently, some of the negatively worded items were changed to positive wording for simplicity. The final questionnaire contained 35 items (Table 1) and it was decided to give the questions in English as well as the local language Malayalam. The respondents were asked to give their preference on a 5 point Likert scale (strongly disagree, disagree, neither disagree nor agree, agree and strongly agree) in order to evaluate the subject’s agreement with each item. 28 items were phrased positively and 7 items negatively so that strong agreement in the former and strong disagreement in the latter resulted in a higher score in favour of safety for that item. The questionnaire ready for administration consisted of two parts. Ten demographic questions about the name of the company, department, designation, qualification, age, sex, number of years of experience, accident history, number of accidents in 2002 while

100 Vilakshan, XIMB Journal of Management ; September, 2007

Table 1. No. of items in Critical Safety Management Practices Critical safety management practices

No. of items

Management Commitment Safety Training

9 6

Worker Involvement in Safety

5

Communication and Feedback

5

Safety Rules and Procedures

5

Safety Promotion Policies

5

working in this company which resulted in at least 2 lost working days as per Indian Factories Act 1948 and number of working days lost due to above accidents in 2002 constituted the first part. The statements related to safety formed the second part. Space was provided beside each statement to mark the preference in the 5-point Likert scale. To maintain anonymity, identity of the respondent was not requested in the questionnaire. 4.2.2

Sampling and Data Collection

Eight large chemical industrial units in Kerala were selected for questionnaire administration. All factories had a worker population of 400-800 with separate safety departments. From the previous accident records submitted to the government, it was observed that two of them had high accident rates, four

moderate and two low accident rates. After getting permission from the respective managements, the questionnaire was distributed personally to all workers present in the general shift and the morning shift. Completed questionnaires were personally collected from the participants in the evening and 1806 completed forms were received. Out of this, 1566 were from workmen category and 240 from supervisory level first line officers. The number of questionnaires distributed and returned from the eight industrial units with percentage response rate is shown in Table 2. Table 2. Sample size and response rate. Org

No. given

No. returned

Response %

1

342

224

65

2

510

373

73

3

368

243

66

4

231

168

73

5

280

205

73

6

225

171

76

7

245

168

69

8

335

255

76

Total

2536

1806

71

The reason behind opting for a large sample like this was that a smaller sample selection from various departments in each industrial unit was looked upon with apprehension by the workers since the matter was related to statutory

Vinodkumar et.al, Measuring Critical ... 101

requirements of safety of workers. They feared that if the data collected by the researcher is given to the management for any reason, the top management will be able to identify each respondent and his answers that might have gone against the interests of the company, and may finally result in victimization or harassment of those employees. A first attempt for a smaller sample selection in the first organization met with failure, as the workers were reluctant to fill the questionnaire due to these reasons. The actual reason was identified after discussions with the trade union leaders. Hence, it was decided to give the questionnaire to all eligible respondents present during day time. 4.3 Validity, Reliability Unidimensionality Analysis

and

Validity is defined as the extent to which any measuring instrument measures what it is intended to measure (Carmines and Zeller, 1990). The proposed instrument has been tested for validity, so that it could be used for meaningful analysis. The three aspects of validity, namely, content validity, face validity and convergent validity, have been tested. 4.3.1

Content Validity

Content validity of an instrument refers to the degree to which it provides an adequate depiction of the conceptual domain that it is designed to cover (Hair, Anderson, Tatham and Black, 1998). In the case of content validity, the evidence

is subjective and logical, rather than statistical. Content validity can be ensured if the items representing the various constructs of an instrument are substantiated by a comprehensive review of the relevant literature (Bohrnstedt, 1983). 4.3.2

Face Validity

Generally, a measure is considered to have ‘face validity’ if the items are reasonably related to the perceived purpose of the measure (Kaplan and Scauzzo, 1993). Face validity is the subjective assessment of the correspondence between the individual items and the concept through rating by expert judges and can be established through review of the instrument by experts in the field (Hair et al., 1998). Face validity is also a subjective and logical measure, similar to content validity. 4.3.3

Reliability Analysis

Reliability of an instrument is defined as the extent to which any measuring instrument yields the same result on repeated trials (Carmines and Zeller, 1990). Out of many methods, the internal consistency method is considered to be the most effective method especially in field studies. The internal consistency is estimated using a reliability coefficient called Cronbach’s alpha (a) with the help of statistical programme SPSS 10. The Cronbach’s alpha value of above 0.6 or above is considered significant in exploratory research (Hair et al., 1998).

102 Vilakshan, XIMB Journal of Management ; September, 2007

4.3.4

Convergent Validity

The evidence for ‘convergent validity’ is obtained when a measure correlates well with other measures that are believed to measure the same construct (Kaplan and Scauzzo, 1993). Using confirmatory factor analysis technique, the convergent validity of the questionnaire was checked with the help of a coefficient called Tucker-Lewis Index (TLI). Statistical programme AMOS-4 was used for this purpose. A scale with TLI values of 0.90 or above is an indication of strong convergent validity (Bentler and Bonnet, 1980). 4.3.5

Unidimensionality Analysis

Unidimensionality refers to the existence of a single construct/trait underlying a set of measures (Hair et al., 1998). Individual items in the model are investigated using AMOS-4 to see how closely they represent the same construct. A Comparative Fit Index (CFI) of 0.90 or above for the model implies that there is strong evidence of unidimensionality (Byrne, 2001). 4.4 Predictive Validity

To establish the predictive validity of the instrument, the following hypotheses were formulated. H1 : There is significant negative correlation between Management Commitment and the accident data. H2 : There is significant negative correlation between Safety Training and the accident data.

H3 : There is significant negative correlation between Worker Involvement in Safety and the accident data. H4 : There is significant negative correlation between Safety Communication and Feedback and the accident data. H 5: There is significant negative correlation between Safety Rules and Procedures and the accident data. H6 : There is significant negative correlation between Safety Promotion Policies and the accident data. H7 : There is significant negative correlation between Total Safety Management Score and the accident data. The above hypotheses were tested by calculating Pearson’s correlation coefficients. Given two sites with relatively equal hazard risks, the one with the better safety management score should have fewer accidents and lost working days. First, the means of the summated scores of each of the six factors of safety management, selfreported accidents and number of working days lost for each of the eight chemical companies were calculated (Table 4). These means were then correlated with the accident rates and lost working days in the year 2002 in each of these companies. It was found that the reported accident frequency rates submitted by the companies to the state government were not reliable due to

Vinodkumar et.al, Measuring Critical ... 103

and analysis of the prescriptive, conceptual, practitioner and empirical literature, so as to ensure the content validity. Face validity was assured in the initial stages of questionnaire development itself.

various reasons. Therefore, self-reported accident rates and working days lost computed from the responses to a question asking the participants to give the number of accidents and working days lost in the year 2002 was used for this purpose.

The reliability of the scale developed was tested by computing Cronbach’s alpha (a) value for all the factors. This procedure resulted in removal of 6 items from the instrument. Sufficient care and judgement were used to see that the content validity of each scale was not lost while removing items. The results are presented in Table 3. It can be seen from the table that all the factors have Cronbach’s alpha value above 0.6, which testifies the reliability of the instrument.

5.0 RESULTS AND DISCUSSION

The objective on the first part was to identify critical safety management practices that influence safety performance in industries. Even though safety management is gaining importance in India, it is yet to completely break free from the shackles of “Traditional Safety Management”. Because of this, main source of information was international studies and discussions with safety professionals.

Results of Confirmatory Factor Analysis (Table 3) show that Convergent validity calculated using Tucker-Lewis Index

The present instrument has been developed based on a detailed review

Table 3. Results of Confirmatory Factor Analysis: Unidimensionality, Convergent Validity and Reliability coefficients for safety management practices. Sl. No

Safety Management Practices

No.of items

Comparative Cronbach’s Fit Index Alpha α) (CFI) (α

Tucker – Lewis Index (TLI)

1

Management Commitment (MC)

8

0.963

0.8632

0.948

2

Safety Training (TR)

5

0.993

0.8173

0.986

3

Workers’ Involvement (WI)

4

0.953

0.6924

0.948

4

Communication (CO)

4

0.980

0.7043

0.940

5

Safety Rules & Procedures (SR)

4

0.998

0.8078

0.994

6

Safety Promotion Policies (SP)

4

0.940

0.6346

0.920

Overall fit

-

0.914

-

0.903

104 Vilakshan, XIMB Journal of Management ; September, 2007

(TLI) of each of the constructs as well as the overall instrument are greater than 0.90, thereby demonstrating strong convergent validity for the instrument. Unidimensionality of the instrument developed was tested by computing Comparative Fit Index (CFI) for all the factors. Results (Table 3) for each of the constructs as well as the overall CFI are more than 0.90, thereby demonstrating strong unidimensionality of the instrument. Results of investigation of predictive validity of the measuring instrument are presented on Table 4. Pearson’s Correlation Coefficient show that four out of six management practices (Management Commitment, Worker

Involvement in Safety, Communication and Feedback and Safety Rules and Procedures) and the Total Safety Management Score are significantly negatively correlated to mean values of self-reported accidents and working days lost supporting the respective hypotheses. For Safety Training and Safety Promotion Policies, even though Pearson’s Correlation Coefficients are in the direction consistent with the hypotheses, they failed to attain significance. Hence, those two hypotheses are partially supported. Worker Involvement in Safety is found to have the highest negative correlation with self-reported accident rates and is in tune with the findings reported from advanced countries. When company

Table 4. Mean values of safety management practice scores, self - reported accidents and days lost in 8 industrial units along with Pearson’s Correlation Coefficients. Org. Accidents

Days lost

MC

TR

WI

CO

SR

SP

Total

1

0.0670

0.6295

27.49

19.05

13.06

13.22

14.05

12.87

99.75

2

0.0912

1.2091

26.23

17.44

12.35

12.45

13.56

13.39

95.42

3

0.0988

0.8601

26.79

18.29

13.08

13.11

13.40

12.79

97.47

4

0.0595

0.8333

25.29

15.46

12.97

12.42

12.56

12.08

90.77

5

0.1422

1.7598

23.16

15.86

11.72

11.36

11.32

10.80

84.22

6

0.0643

0.6433

23.63

15.86

12.35

11.91

12.23

9.99

85.98

7

0.0298

0.1429

31.89

21.18

15.65

15.71

15.96

14.44

114.84

8

0.0039

0.0588

31.09

19.66

14.64

15.00

15.42

13.91

109.72

Correlation with accidents

-0.78*

-0.59

-0.81*

-0.80*

-0.79*

-0.55

-0.74*

Correlation with days lost

-0.81*

-0.70

-0.86**

-0.85**

-0.83*

-0.56

-0.79*

* P< 0.05, ** P< 0.01

Vinodkumar et.al, Measuring Critical ... 105

MC1

Safety is given high priority by the management

MC2

Safety Rules and procedures are strictly followed by the management

MC3

Corrective action is always taken when the management is told about unsafe practices.

MC4

In my workplace managers/supervisors do not show interest in the safety of workers.

MC5

Management considers safety to be equally important as production.

MC6

Members of the management do not attend safety meetings.

MC7

I feel that management is willing to compromise on safety for increasing production.

MC8

When near-miss accidents are reported, my management acts quickly to solve the problems.

MC9

My company provide sufficient safety equipments for the workers..

TR1

My company gives comprehensive training to the employees in workplace health and safety issues.

TR2

Newly recruits are trained adequately to learn safety rules and procedures.

TR3

Safety issues are given high priority in training programmes.

TR4

I am not adequately trained to respond to emergency situations in my workplace.

TR5

Management encourage the workers to attend safety training programmes.

TR6

Safety training given to me is adequate to enable me to assess hazards in workplace

WI1

Management always welcome opinion from employees before making final decisions on safety related matters.

WI2

My company has safety committees consisting of representatives of managements and employees.

WI3

Management promote employees’ involvement in safety related matters.

WI4

Management consults with employees regularly about work place health and safety issues.

WI5

Employees do not sincerely participate in identifying safety problems.

CO1

My company doesn’t has a hazards reporting systems where employees can communicate hazard information before incidents occur.

CO2

Management operates an open door policy on safety issues.

CO3

There is sufficient opportunity to discuss and deal with safety issues in meetings.

CO4

The targets and goals for safety performance in my organization are not clear to the workers.

CO5

There is open communications about safety issues in this work place.

SP1

In my company safe conduct is considered as a positive factor for job promotions.

106 Vilakshan, XIMB Journal of Management ; September, 2007

SP2

In my company employees are rewarded for reporting safety hazards (thanked, cash or other rewards, recognition in news letter etc)

SP3

In my company safety week celebration and other safety promotional activities arranged by the management are very effective in creating safety awareness among the workers.

SP4

There exists very healthy competition among the employees to find out and report unsafe condition and acts.

SP5

Our supervisor becomes very unhappy and angry when employees find out and report unsafe conditions and acts in our section.

SR1

The safety rules and procedures followed in my company are sufficient to prevent incidents occurring.

SR2

The facilities in the Safety department are not adequate to meet the needs of my organization.

SR3

My supervisors and managers always try to enforce safe working procedures.

SR4

Safety inspections are carried out regularly.

SR5

The safety procedures and practices in this organization are useful and effective.

management encourages worker involvement in safety related activities and decision-making, the sense of belongingness and responsibility of workers increase resulting in better safety performance. 6.0 CONCLUSION

Safety management has been identified as a six-construct system and a valid and reliable instrument is designed to measure the important safety management practices in industries. It is found that when organizations take proactive measures to protect their employees, the company derives financial benefits in reduced lost time and workers compensation expenses. Hence,

practitioners can use this instrument to measure the level of safety management in their organization and provide information to the decision-makers for developing their management strategies to enhance their safety standards. REFERENCES Bentler, P.M., Bonett, D.G., 1980. Significance test and goodness of fit in the analysis of covariance structures. Psychological Bulletin 88, 588-606. Bohrnstedt, G., 1983. Measurement. In Rossi, P., Wright, J., Anderson, A. (eds.), A Handbook of Survey Research, Academy Press, San Diego, CA. Byrne, B.M., 2001. Structural Equation Modeling with AMOS: basic concepts, applications, and

Vinodkumar et.al, Measuring Critical ... 107

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Cohen, H.H., Cleveland, R.J., 1983. Safety program practices in record-holding plants. Professional Safety 28, 26-33. Cox, S., Flin, R., 1998. Safety culture: philosopher’s stone or man of straw ? Work and Stress 12 (3), 189-201. Cox, S.J., Cheyne, A.J.T., 2000. Assessing safety culture in offshore environments. Safety Science 34, 111-129. Dedobbeleer, N., Beland, F., 1991. A safety climate measure for construction sites. Journal of Safety Research 22, 97-103. Eckhardt, R., 1996. Practitioner’s influence on safety culture. Professional Safety 7, 2325. Flin, R., Mearns, K., Fleming, M., Gordon, R., 1996. Risk Perceptions and Safety in the Offshore Oil and Gas Industry. (OTII 94454), HSE Books, Suffolk.

Kaplan, R.M., Scauzzo, D.P., 1993. Psychological testing: Principles, applications and issues, Pacific Grove, CA. Kennedy, R., Kirwan, B., 1998. Development of a hazard and operability based method for identifying safety management vulnerabilities in high risk systems. Safety Science 30, 249-274. Lee, T., 1998, Assessment of safety culture at a nuclear reprocessing plant. Work and Stress 12, 217-237. Mearns, K., Whitaker, S.M., Flin, R., 2003. Safety climate, safety management practice and safety performance in offshore environments. Safety Science 41, 641-680. Ostrom, L., Wilhelmsen, C., Kaplan, B., 1993. Assessing safety culture. Nuclear Safety 34 (2), 163-172. Rundmo, T., 1994. Association between safety and contingency measures and occupational

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accidents on offshore petroleum platforms. Scandinavian Journal of Work Environment and Health 20, 128-131.

Tinmannsvik, R.K., Hovden, J., 2003. Safety diagnosis criteria – development and testing. Safety Science 41, 575-590.

Shannon, H.S., Walters, V., Lewchuk, W., Richardson, J., Moran, L.A., Haines, T., Verma, D., 1996. Workplace organizational correlates of lost-time accident rates in manufacturing. American Journal of Industrial Medicine 29, 258-268.

Turner, B.A., 1991. The development of a safety culture. Chemistry and Industry. 4, 241-243.

Smith, M.J., Cohen, H.H., Cohen, A., Cleveland, R.J., 1975. On-site observations of safety practices in plants with differential safety performance. National Safety Congress Transactions (Vol.12), Chicago: National Safety Council.

Vredenburgh, A.G., 2002. Organizational safety – Which management practices are most effective in reducing employee injury rates ? Journal of Safety Research 33, 259276. Zohar, D., 1980. Safety climate in industrial organizations: Theoretical and applied implications. Journal of applied psychology 65, 96-102.

Consumer Rights Protection and Regional Co-operation among SAARC Countries* Basant Kumar1 & Brajaraj Mohanty2

Abstract The issue of consumer rights protection has gained importance and received international recognition after the United Nations promulgated the basic guidelines on consumer rights protection in 1985. Since then, consumer protection legislations have been passed in many countries to ensure fair trade practices and to prevent consumers from exploitation. However, among the SAARC countries, only in India and Sri Lanka such legislations have shown some teeth in protecting consumers’ interests. In view of the recent developments of consumer leaders being associated with the achievement of MDGs in the Asian region, there is a need for addressing the issue of consumer protection in the SAARC forum.

1.0 INTRODUCTION

The modern approach to consumer movement can be traced to the formation of the Consumer League of New York towards the turn of the 19th century which provided the platform to fight for the protection of consumer rights and sovereignty and gradually the consumer movement grew across the US. Following the establishment of the International Organization of Consumers Unions in 1960, known today as Consumers International (CI), the movement extended into Asia, Latin America, and

* 1. 2.

Africa in the 1970s and 1980s and throughout the former Soviet Union in the 1990s. In the USA, for the first time in 1962, the consumer’s sovereignty and their rights were constitutionally recognized in the US by US President John F Kennedy who equated the consumer rights with national interest. He provided four basic rights: right to safety, right to choose, right to information and right to be heard. After thirteen years, president Gerald Ford added the right to education to the existing list. The

Received August 10, 2007; An earlier version of this paper was presented at the Annual Convention of AMDISA held in Dhaka during February 24 & 25, 2007. The Authors are thankful for various suggestions made by the discussants during the convention. Reader & Placement Officer, Department of Business Administration, Utkal University, Bhubaneswar, email: [email protected]. Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected]

110 Vilakshan, XIMB Journal of Management ; September, 2007

Consumers International (CI), the umbrella body for 250 organizations in over 115 countries, expanded the charter of consumers rights contained in US bill from five to eight. The other three rights are right to basic needs, right to representation and right to healthy environment. On the basis of this charter, the United Nations adopted its guidelines for Consumer Protection in April 1985. Gradually, in the process of economic liberalization and globalization, these landmark guidelines have opened the eyes of many national governments, consumer associations, activists and social scientists resulting in formulation and introduction of progressive legislations in their respective countries. Considerable progress has been made in the implementation of the guidelines at the national level and in strengthening cooperation at the regional and international levels. There has been a surge in public awareness of consumer issues. The consumer movement is gaining momentum and public policy is being strengthened. With the global IT revolution, the power has shifted from sellers to buyers. The new consumer power has given consumers unprecedented strength to get information. In competitive markets with high transparency with regard to price, quality and choices, consumers are getting the treatment as kings (Rice, 1998; Cunniff, 1999; The Tribune, 2003).

Against this backdrop, this paper aims (i) to discuss the trends in consumer movements and relevant legislations to protect consumer interests in the SAARC nations; and (ii) to assess the need for regional dialogue on consumer protection in SAARC forum. 2.0 CONSUMER PROTECTION LEGISLATIONS IN SAARC COUNTRIES

Consumer protection legislation is an integral part of the consumer protection framework in any country. The Asia Pacific region has seen a wide diversity in consumer protection legislation. While in many countries, consumer protection law and redressal mechanisms are still rudimentary, in some others significant and spectacular progress has been made. Among the seven members SAARC countries, India, Sri Lanka, Pakistan, Nepal, Maldives have enacted their respective consumer protection legislation. Bangladesh and Bhutan are yet to enact any legislation. The emerging trends of consumer movements and legislations in these countries are presented in Table-1. 2.1 India

‘Consumerism’ began to dominate the Indian market towards the end of the 20 th century following the economic reforms and various agreements that were signed under the World Trade Organization. It meant the realization of the rights of the consumer as envisaged in the Consumer Protection

Kumar et.al, Consumer Rights Protection ... 111

Table 1 : Consumer Protection Act in SAARC Countries Country

Relevant Act

Year Amended/Repealed/Remarks

India

Consumer Protection Act 1986

Amended in 1991,1993,2003

Sri Lanka

Consumer Affairs Authority Act 2003

Repealed Control of Prices Act 1950, Consumer Protection Act 1979, & Fair Trading Commission Act 1987

Nepal

Consumer Protection Act 1999

Operational but ineffective due to political instability and poor literacy

Pakistan

Islambad Consumers Protection Act 1995 (NWFP) Consumer Protection Act 1997Baluchistan Consumer Protection Act 2003 Sindh Consumer Protection Act 2003Punjab Consumer Protection Act 2003 Non-operational

North Western Frontier Province Consumer activists and NGOs are crying for its implementation

Maldives

Consumer Protection Act 1996

Operational with limited scope

Bangladesh

Not yet enacted

Obstacles are being created by powerful lobby of vested interests for enactment of specific legislation. Persisted demand for legislation by NGOs and consumer activists is on.

Bhutan

Not yet enacted

———-

Source: Kumar and Mohanty, (2006), updated

Act 1986 (COPRA 1986) and ensuring right standards for the goods and services. One of the greatest achievements of the Indian consumer movement is the enactment of this dynamic law. This is a significant acknowledgement of extreme of the rampant consumer abuses including particularly the public utilities like telephone, transport, power etc. Prior to the enactment of COPRA 1986, several statutory measures for consumer protection have existed in

India for a long time. These measures dealt with only certain aspects of consumer protection and were mainly punitive and preventive in nature. The consumer could not seek remedy or redressal against the offending trader, manufacturer and service providers. The enactment of Consumer Protection Act, 1986 by Parliament was a milestone in the history of consumer protection movement in India. This has been further strengthened by the latest additions to the lists of legislations

112 Vilakshan, XIMB Journal of Management ; September, 2007

such as Competition Act, 2002 and Right to Information Act, 2005. In the mean time COPRA 1986 had been amended three times during 1991, 1993 and 2002 to further guarantee safe consumerism. The special feature of this Act is to provide speedy and inexpensive redressal of the grievance of the consumer and to provide him specific relief or award of compensation wherever appropriate. It recognizes six of the eight rights of the consumer as provided in the UN charter, viz. the right of choice, safety, information, redressal, public hearing and consumer education. The other two rights are dealt separately by other Acts. A separate Department of Consumer Affairs was also created in the Central and State Governments to exclusively focus on ensuring the rights of consumers as enshrined in the Act. A consumer can file his complaint without assistance of any advocate and save unnecessary litigation expenses.

The most important feature of the Act is the provision for setting up three-tier quasi-judicial machinery popularly known as “consumer courts” at national, state and district levels. The apex court, National Commission functions in Delhi. Every State Government has a State Commission. At present there are 35 state Commissions. The third tier is in each district and is called district forum. Till date there are 605 district forums, out of which 569 are reported to be functioning. It can be seen from Table 2 that all these courts have handled nearly 2.8 million cases, of which about 2.5 million cases have been disposed of (www.ncdrc.nic.in). The disposal of 88 per cent of the cases is a significant achievement in the prevailing conditions. This Act has been regarded as the most progressive, comprehensive and unique piece of legislation. The strengths of the consumer after amendment of COPRA 1986 can be best understood from some of the latest landmark judgments of the Consumer Courts. National Consumer

Table 2: Performance of Consumer Forums as on September 7, 2007 Agency

National Commission (1)

Cases filed Cases disposed since inception of since inception

Cases Pending

% of Disposal

48,931

39814

9117

81.37

State commission (35)

4,13,377

3,02,072

1,11,305

73.07

District Forums (570)

24,06,009

21,78,103

2,27,906

90.53

Total

28,68,317

25,19,989

3,48,328

87.86

Source: www.ncdrc.nic.in/statistics_files/sheet005.html/10/07/2007

Kumar et.al, Consumer Rights Protection ... 113

Disputes Redressal Commission in 2003 allowed for early hearing of a medical negligence case, pending for adjudication over three years, in which a US citizen of Indian origin sought a whopping Rs.770 million compensation-highest in the country’s medical history- for the death of his wife (Times of India, June 3, 2003). The multinational corporate giant Pepsi was slapped a fine of Rs. 10 million by a District Court in Delhi in April 2006 for the presence of a foreign object in a Pepsi bottle. Pepsi’s spokesman however said that bottles might have contained spurious products. Similarly at the same time, another District Court punished Coca Cola with a fine of Rs. 1, 20,000 for the presence of a dead insect floating in a sealed bottle (Indian Express, April 29, 2006). However, in spite of such examples, in general the consumer interests are affected by several weaknesses in our regulating mechanisms due to prolonged process, in some cases for more than five years, inadequate time being given by the judges who are retired judges and adjournments of hearing dates by the lawyer for his pecuniary interest. Consumer movement in India has also been accused of being elitist and mostly benefiting urban, not the rural consumers. 2.2 Sri Lanka

Sri Lanka’s legal system has protected consumer rights through executive power and various acts. An early legislation goes back to the Food Control Act of 1939. But

it was only in 1975, in the face of scarcities and queues before government shops that the Government felt the need for a regulation and established the National Prices Commission. One of the latest is the Consumer Affairs Authority Act No. 09 of 2003, which brought together the Fair Trading Commission, Department of Internal Trade and Department of Weights and Measures under one umbrella to facilitate more effective addressing of consumer needs. This legislation repealed three basic laws namely; (i) The Control of Prices Act No. 29 of 1950 (ii) The Consumer Protection Act No. 1 of 1979, and (iii) The Fair Trading Commission Act No. 1 of 1987. The new law is intended to promote effective competition and protect consumers’ interests as well as regulate internal trade and anti competitive practices. The most important feature of the Act is the creation of a Consumer Affairs Authority (CAA) and a Consumer Affairs Council (CAC), the latter functioning as a higher body with power to review the decisions of the former. Among several organizations safeguarding the consumers’ interests in the country, CAA, Sri Lanka Standards Institution, Department of Weights and Measures and Telecommunications Regulatory Commission play very important roles. But CAA is the only such organization which handles all types of consumer problems, be it goods or services. The government presently has identified 54 product varieties to be

114 Vilakshan, XIMB Journal of Management ; September, 2007

under retail price marking by CAA. Essential consumer products such as LP gas, milk powder, mosquito coils, match boxes and wheat flour are covered in this category. Offenders of price violation are subject to trial and fine up to Rs 1 million. It is reported that recently CAA has conducted two hundred fifty successful raids and collected fines to the tune of more than Rs.2 million (www.dailynews.lk/2006/04/06). The review of Sri Lankan News Papers like ‘Daily News’ (www.dailynews.lk) and ‘Sunday Observer’ (www.sundayobserver.lk) reveals that the consumers of Sri Lanka lack proper education about their rights and they very often are not provided with correct information regarding products and services. In addition, there is a total absence of consumer representation in the process of decision-making. Some critics allege that due to the corrupt legal and political system and a lethargic public service due justice can not be given in many cases. 2.3 Nepal

The Consumer Protection Act, 1998 of Nepal came into force in 13 April 1999. It recognizes six basic consumer rights viz. right to be protected, right to be informed, right to choose, right to be redress grievances, right to be heard and compensated and right to consumer education. It has provided for the establishment of the Consumer Protection Council under the Chairmanship of Minister for Supplies to advise the

government on matters relating to consumer protection, prices, quality and purity of consumer goods and services, disseminating information and conducting studies. The Act also regulates the powers given to Inspection Officers to inspect, investigate or search any place where there are reasonable grounds to believe that consumer goods or services which are not safe, efficacious or of the prescribed standard are being produced, sold or supplied. The offenders, who influence the demand, supply and price of any consumer goods or services by unscrupulous means are punished with fine ranging from Rs 30,000 to Rs 500,000 or imprisonment up to 14 years or both. The Compensation Committee at district level investigates the complaints and awards compensation in deserving cases. Appeal against the decision of the Compensation Committee lies with the Appellate Court (Nepal Reporter, March 22, 1998). The political instability of Nepal coupled with very high degree of corruption and massive poverty with common people having no or little access to developmental cake has caused the administration ineffective (www. nepalvista.com/April 26, 2006). In this backdrop, the Consumer Protection machinery in Nepal has failed to deliver the results. In view of this failure, recently, senior officials and experts have asked the government to enact new laws including competition law and to set up new institution to oversee consumer related issues (ekantipur.com/ March 15, 2006)

Kumar et.al, Consumer Rights Protection ... 115

2.4 Pakistan

The law in Pakistan provides for partial accommodation of the consumers interest in the legislative scheme. However, consumer concerns are marked by their abuses in the juridical debates. Furthermore, no effective implementation and enforcement mechanisms of these laws are available. Besides, consumers are also largely unaware of their rights and possible legal remedies. This is evident from the report in print media in March, 2005 and 2006 on the eve of World consumers’ Day Celebration that many consumers in Pakistan remained disillusioned with the rights and privileges enjoyed by them (www.jang.com.pk/thenews/daily, www.pakistantimes.net) Consumer protection groups in Pakistan won a small but significant victory in 1995 when the government enacted the Islambad Consumers Protection Act, 1995 for the federal capital territory. During the last decade similar laws have been enacted in other provinces viz. NWFP Consumer Protection Act, 1997, Baluchistan Consumer Protection Act, 2003, Sindh Consumer Protection Ordinance, 2004 and Punjab Consumer Protection Act, 2005. All these laws recognize basic consumer rights, provide for the establishment of consumer protection courts and consumer protection councils in the respective areas of enforcement, and assert to protect consumers from unfair trade practices with penal provisions of fine or

imprisonments or both. But these laws are not yet operational as the rules of business for their full operationalization have not been framed. Consumer protection movement in Pakistan has got a boost with the registration of Consumer Rights Commission of Pakistan (CRCP) in 1998. CRCP is an independent, non-profit, and non-governmental organization. It largely works through local fund-raising and engaging volunteers. It is not supported by any industry or commercial sector. Its vision and strategies have significant cross linkages with both market practices and issues of governance. It is the first national consumer organization in the country, which approaches the issue of consumer protection in comprehensive and holistic terms. CRCP has established Consumer Complaint and Redress Forum (CCRF) for handling consumer complaints. The CCRF handles complaints according to the policy devised by CRCP and extends legal advice to its members and citizens, who have some grievance against the civic agencies and market practices. During the past three or four years, CRCP along with different regulatory bodies has been actively engaged in protecting and promoting consumer interests. These regulatory bodies include, amongst others, National Electric Power Regulatory Authority (NEPRA), Pakistan Standards and Quality Control Authority (PSQCA), Pakistan Tariff Commission

116 Vilakshan, XIMB Journal of Management ; September, 2007

(PTC), Pakistan Telecommunication Authority (PTA) and Monopoly Control Authority (MCA). 2.5 Maldives

Maldives with a chain of about 1200 small islands covering 300 sq km and having population of little over a quarter million has a strong central Government. It has traditionally been a subsistence economy with few resources and low per capita income (GDP per capita US$ 2,261). Most of the GDP comes from fishing and tourism. The expanding tourism industry underpins economic growth and is the Maldives main employer and source of revenue. The country’s economy is dominated by annual imports of oil, textiles and yarn, rice, cigarettes, cement, engines for boats, television, aircraft parts, prefabricated buildings and vegetables worth more than US$ 500 million. Against this socio economic and political background, the Consumer Protection Act, 1996 has attempted to protect the basic rights of the consumer. This Act mainly focuses on checking of hoarding of goods, price manipulation and misleading advertisements for sale of goods and provision of services. Since it is a small and peaceful society under effective central ruling, there is hardly any exploitation of consumers. Hence, except the administration, control and supervision of the Ministry of Trade and Industry, there is no other mechanism to redress the grievances of consumers. However, three is a penal provision in the Act to punish the offender with a fine

between Rf 500 to Rf 1,00,000 on the first instance and by an amount between Rf 5000 to Rf.1,00, 000 where such offence is repeated. 2.6 Bangladesh

Consumer protection is virtually nonexistent in Bangladesh. No specific law has been enacted in the country. In effect, there is no comprehensive law that can protect the interests of consumers. Laws enacted during British rule in India and thereafter in Pakistan are still in force. None of these are appropriate and applicable in the context of present-day consumers’ society. Some of these laws include Trade Mark Act, 1940; Unadulterated Food Ordinance, 1959; Standard of Weights and Measures Ordinance, 1961; Drugs Control Ordinance, 1982; and Breast Feeding an Alternative to Child Food Ordinance, 1984. The regulatory agencies of the government designed for monitoring product standards and market ethics are ineffective or non-functional. Hence, the market is dominated by black money and smuggled goods by beleaguered manufactures or stealthy shopkeepers (SOS-arsenic.net). Due to the dearth of proper and effective implementation of existing laws on consumer rights, millions of people in the country are being exploited by a group of unscrupulous and profit-monger businessmen. As a result, consumers are not able to free themselves from the vicious circle of adulterated goods, incorrect weights and measures. A recent

Kumar et.al, Consumer Rights Protection ... 117

survey conducted by the Consumers Association of Bangladesh (CAB) has revealed that more than 50 percent products in Bangladesh market, especially food items, are adulterated. So it is very easy to guess what people are consuming as food. Selling adulterated food is a punishable offence, but the sad truth is, those dishonest groups involved in this practice have never been brought to justice (www.thedailystar.net/law/ 2004/03/02). The CAB being the lone such organization of any significance in the country has been the pioneer in consumer movement and education in Bangladesh since its inception in 1978. It has been organizing meetings, seminar, workshops, and conducting surveys to further consumer movement and pressure the government to come with a comprehensive Act to protect the consumer interests. In view of the persistent demand from CAB, the civil society members and the media, the cabinet approved in principle the draft law in September, 2004. But, since then, nothing has been heard about the fate of the proposed law. The main obstacle is a powerful lobby of vested interests which has been active against enactment of this law (www.thedailystar.net/2006/01/14). The survey conducted by CAB during 2005 reveals that 53 per cent of the city’s consumers are aware of their rights as consumers (www.consumersbd.org). The movement is picking up and the public opinion is growing for enactment

of a comprehensive consumer protection Act. Enactment of such law in the neighboring countries has also created pressure on Bangladesh to have a similar law. 2.7 Bhutan

The awareness on consumer protection in Bhutan is not fully developed and there is no specific legislation for consumer protection. However, discussions, meetings, workshops and seminars at higher level in the government have been going on since June 1999 to frame simple rules and act to protect consumers’ rights and interests from unfair and unscrupulous trade practices. But there has not been any concrete outcome. 3.0 CONSUMER MOVEMENT AND REGIOAL COOPERATION

With globalization, there is increased international trade. The trade among India, China, Pakistan and other neighboring countries have vastly increased. This has made it essential to have common laws and multilateral agreements in an environment of mutual cooperation. A beginning has been made by some governments and consumer organizations to evolve such cooperations. Consumer protection movement in Asian countries has further been strengthened with the economic integration of countries in the region viz. Association of South East Asian Nations (ASEAN), Asia Pacific Economic Cooperation (APEC), South Pacific Forum

118 Vilakshan, XIMB Journal of Management ; September, 2007

(SPF) and South Asian Association for Regional Cooperation (SAARC). Consumer organizations including governments around the world hold marches and rallies, seminars and workshops, and produce leaflets, publications, radio and television programmes to celebrate March 15 as the World Consumer Rights Day. This allows the consumer movements to educate the consumers, remind them about their duties and responsibilities and influence the policy makers to adopt changes in the legislations, if required. Following World Consumers’ Day 2002, the National Consumer Council (NCC), UK, with the help of CI and its regional offices, is publishing the summary of case studies of consumer involvement from around the globe. The cases highlight successful consumer campaigns with an ongoing public impact. They show the importance of effective consumer representation and involvement, and the variety of methods for ensuring involvement (www.ncc.org.uk). For example, in India the Consumer Education and Research Society (CERS), Ahmedabad successfully lobbied and promoted consumer rights over a period of 24 years. This work culminated in the Freedom of Information Bill which was finally passed in 2002. Later the Act, which was not operational, has been replaced by Right to Information Act, 2005 and the latter is operational. Consumer movement world wide, now, has extended its wing to embrace the

Millennium Development Goals (MDGs). The consumer leaders from Asian countries have recognized in the “Asian Conference on Millennium Development Goals and the Consumer Movement” held in Kuala Lumpur on August 23, 2005 that the people of Asia who account for 63 per cent of the world population are among the most deprived of humanity on this earth (living on less than US$1 a day). Thus, they resolved many action plans to address the MDGs which would ultimately further the consumer movements in the region. They would not be confined to the legal definition of ‘consumer’ defined in many of the Asian Consumer Protection Statutes. They would serve the needs of all consumers, including those unable to consume and living below the poverty line as well as consumers who are victimized by the inequality of bargaining power in the marketplace. They have vowed to call on the respective governments to provide them an enabling environment i.e right to information, democratic, legal and judicial space and support to work towards the achievement of the MDGs (Asia Pacific Consumer, 2005). The Asian consumer leaders have sought for the cooperation of UNCTAD and Consumer International which jointly organized the conference to integrate the MDGs and the theme “Pro-Poor, ProRural, Pro-Women” into its work programme. They have also urged to emphasize beneficial outcomes for all consumers particularly in food, health, education, water, energy, housing,

Kumar et.al, Consumer Rights Protection ... 119

transport, telecommunication, waste management, and intellectual property rights sectors. They have called on all consumer organizations in the region to redesign their national and regional work programme towards the theme and sought for better cooperation. 4.0 FUTURE AHEAD

Globalization has brought a greater choice of products and brands in many areas, and increased quality consciousness among consumers. It has urged consumers to become more demanding. The good experience in India and Sri Lanka is likely to percolate to other countries also. The countries like Pakistan which has Consumer Protection Acts for each province cannot neglect the operation of these Acts any longer. Once political stability prevails in Nepal, the Consumer Protection Act may sharpen its teeth to protect consumer interests better. In Bangladesh, people mostly suffer from adulterated foods which are matters of serious concern. The consumer organizations like CAB and UBINIG supported by intelligentia and media have toughened their stands through mobilizing and leading a countrywide campaign to get the Consumer Protection Legislation adopted by the Parliament ( Jatiya Sangsad) and it will see the light of the day soon. The Sri Lanka Act, which is in place, needs to be more effective and not merely confining to some raids on the World Consumers Day. Bhutan may take advantage of the landmark developments in Indian consumer

movements. India is the leading country among SAARC nations where COPRA is enforced in right perspective. However, it needs improvements in administrative framework to expedite and deliver timely justice. In this direction the SAARC assembly should actively play a pioneering role for continuous dialogue in association with the Consumers International and UN for formulation and effective implementation of Consumer Protection policies and legislations in its member countries. The movement will get its full force if SAARC also considers this issue as a prime theme for deliberation as an agenda in one of its forthcoming Summits. SAARC forum since its birth in 1985, has already dealt with important matters concerning drug abuse and drug trafficking, girl child, shelter, environment, disabled persons, youth, poverty eradication, literacy, participatory governance, biodiversity, contribution of youth to environment, awareness of TB and HIV/AIDS and tourism. These interventions are likely to promote consumer rights. With the implementation of the Agreement on South Asian Free Trade Area with effect from January 2006, a common agenda on consumer protection by the SAARC will undoubtedly help in furthering the movement and setting up a regional consumer protection platform. REFERENCES Consumer International, (2005), Asia Pacific Consumer: Millennium Development Goals, Vol. 41

120 Vilakshan, XIMB Journal of Management ; September, 2007

Consumer Protection Act, 1979, Srilanka, (www.ciroap.org)

Rice Andrea Williams, (1998), The Consumer is King, (www.perspectives.com), Dec 17

Consumer Protection Act, 1986 (Amended), India

Times of India, (2006), Pepsi fined for Rs. 1 lakh for ‘Condom’ in cola, New Delhi, April 28

Consumer Protection Act, 1995, Islamabad, (www.ciroap.org) Consumer Protection Act, 1996, Maldives, (www.ciroap.org) Consumer Protection Act, 1998, Nepal, (www.ciroap.org) Consumer Affairs Authority Act, 2003, Sri Lanka Cunniff John, (1999), The Consumer is King, (www.bouldernews.com), October 18

The Tribune, (2003), Consumer is the King, Saturday, March 22, India www.consumersbd.org www.dailynews.lk www.ekantipur.com/15.3.2006 www.jang.com.pk/thenews/daily, www.ncc.org.uk

Indian Express (2006), After condom, it’s insects, April 29

www.ncdrc.nic.in

Kumar, B and Mohanty, B (2006), “Consumer Protection Legislations in SAARC Countries: The Emerging Trend”, Global Business & Economic Anthology, Vol.1, December, PP 461472

www.oneworld.net//26.4.2006

Nepal Reporter, March 22, 1998

www.thedailystar.net/law/2004/03/02

www.nepalvista.com/26.4.2006 www.pakistantimes.net www.sundayobserver.lk www.thedailystar.net/2006/01/14.

Factors Blocking the Implementation of Retailing Technology* Veena. A1 & H.R. Venkatesha2

Abstract Retailing has become a pivotal point of discussion due to its role in economy, employment and in distribution of goods and services. Technology, capital, human and managerial resources can be used to make retailing more efficient and consumer friendly. Organized retailing is an emerging sector in India. Competition intensifies with organized retailing. In this environment, if one has to survive and grow in the industry, it is necessary to increase the efficiency, reduce the cost of operation and increase the customer delivered value. Technology gives competitive edge to retail organizations. Technology provides retailers with more, better, and timely information about their operations. However, technology is not limited to process information; it is also used to prevent theft, promotion, and to create a better shopping atmosphere.In today’s real time retailing world, everyday of lag results in loss of sales, margin and customers. Retailers have to update their technology. Automatic Identification and Data Capture (AIDC) is one of the important technologies for retail management. The important technological tools that have made difference to the retailing are Bar Coding, Radio Frequency Identification, Electronic Data Interchange, and Point of sale System, Electronic Article Surveillance, Video Cameras, Silent Alarms and Tunnel Scanning. The revolution in Information Technology has immensely contributed to the effective management of supply chain. Bar Code is one of the important and simplest technologies introduced in retailing. This article analyses the factors, which block the implementation of Bar code in apparel retailing.

1. 0 INTRODUCTION

Today Retailing has become ‘dear’ to Indian corporate houses, multinational companies, government, political parties, media, and of course to the consumers. Indian corporate houses are showing

unprecedented interest in organized retailing. Multinational companies like Wal-Mart and Metro are already in Indian market in different ways. WalMart is procuring more than 0.5 billion dollars worth of goods from Indian

* Received December 26, 2006; Revised September 12, 2007 1. Assistant Professor, Department of MBA, PESIT, Bangalore; email: [email protected] 2. Head of the Department and Professor, Dayananda Sagar College of Engineering, Banglaore, email: [email protected]

122 Vilakshan, XIMB Journal of Management ; September, 2007

market for its world operations. WalMart is also trying to enter Indian market through its Indian partner, Bharati. Metro a German retailer has started its wholesale operations in India, with its two outlets in Bangalore. The UPA Government and its partners have been debating and taking sides on pros and cons of FDI in retailing. Media being mirror of what is happening around us has been deliberating both in its news and views versions on developments in retailing. Rapid growth of organized retailing is a clear indication of consumers’ interest in retailing and its different formats. Retailing in the Indian economy, is the second largest employer, next only to Agriculture. According to Bhargav and Anand (2005), India’s retail trade employs four crore people and is the main source of income for over 18 million nonagricultural small and family enterprises. In India, nearly 97 per cent of retailing is in unorganized sector. A.T.Kearney Inc. places India in the 6th position on a global retail development index. The country has the highest per capita outlets in the world (5.5 outlets per 1000 population). KSA technopak, a retail research and consulting firm estimates that the average per capita retail space in India is 2 sq.ft whereas it is 16 sq ft in US. It is estimated that there are nearly 12 million retail outlets in India. Majority of these outlets are very small and are in rural /semi urban area. Organized retailing is a sunrise sector. Organized retailing in India has a huge scope because of the vast

market and the growing consciousness of the consumer about the product quality and services. Reach of satellite T.V. channels is helping in creating more awareness about global products and global retailers to consumers. Many Indian companies have diversified into retail sector. The Reliance, the Bharathi, the Piramals, the Tatas, the Rahejas, ITC, S.Kumar’s, RPG Enterprises, the Munjals and many others are taking retail as a priority sector. Many of them have already invested or about to invest in a big way. Tatas, Reliance, Big Bazar, Food World, Shoppers Stop have already made their mark in Indian retailing sector. Multinational retailers are planning to enter Indian retail sector in different ways. Wal Mart, Tesco, Metro are almost on their way. The share of organised retailing in India, at around 3 per cent, is very low, compared to 80% in the USA, 40% in Thailand and 20% in China, thus leaving the huge market potential still untapped (Murali, 2006). With major players making the retail pitch, hopes are that the modern retail sector will add from ‘1 million to 2.5 million new jobs by 2010’. Competition intensifies with organized retailing. In this environment, if one has to survive and grow in the industry, it is necessary to increase the efficiency and reduce the cost of operation. Technology gives competitive edge to retail organizations. The retail organizations have to continuously upgrade or adapt to the changing technological environment. Technology has provided

Veena et.al, Factors Blocking the ... 123

retailers with more, better, and more timely information about their operations. However, technology is not limited to increasing information; it is also used to prevent theft, promote the store’s goods, better inventory management, quick billing service, easy billing, speedy accounting procedures, and create a better shopping atmosphere. Technological innovations offer productivity and efficiency benefits to retailers. In this fierce competitive era, if retailers have to survive and grow they have to implement technology. When retailers like Wal-Mart are entering India, their most important success model would be technology based back and front-end operations. As estimated by KSA Technopak, majority of 12 million outlets in India are very small. If these outlets have to survive, they have to undergo technological, structural and functional changes. Technology adoption is absolutely essential for these retailers to remain competitive. In the retail business modern technology has made it possible to use Bar codes. Bar code (also known as Universal Product Code) is a printed code that consists of a series of vertical bars, which vary in thickness. Barcodes are capable of being ‘read’ and decoded by bar code scanners. Barcodes benefit retailers to reduce inventory and other supply related costs. Bar coding is not just an identification tool but also an efficiency tool. Bar coding helps to detect shortages or excess of goods supplied by different

suppliers. Bar coding system helps to reduce storage and handling cost. This immensely helps in warehouse management. At the point of sale, bar coding facilitates automated billing, which means faster customer checkouts. 2.0 LITERATURE REVIEW

The retail technology has undergone a phenomenal development over a period of time. New technologies like RFID (Radio Frequency Identification), EDI (Electronic Data Interchange) and host of Information Technological developments have added value to Retailing. RFID has potential to increase the efficiency throughout the supply chain. Retailer is a crucial link in the chain of distribution of goods and services from producers to consumers. RFID tag carries information about the product. This information can be regularly updated so that any participant in the supply chain can find out, not only where product is but also where and when it was manufactured, what type of product it is and the expiry date of the product. EDI (Electronic Data Interchange) is one of earliest uses of information technology for Supply Chain Management. EDI involves the electronic exchange of business transactions over the internet and other networks among retailers and their customers and suppliers. EDI is a B2B tool. Even in India, lot of research and development is going into the retail technology. For example, Tesco opened Hindustan service center, a software development and financial services

124 Vilakshan, XIMB Journal of Management ; September, 2007

office in Bangalore. With a staff of nearly 800, the Hindustan service center performs retail back office operations, such as pay roll, billing and answering technology related query (Hindu, 2005). Even Indian companies are investing heavily in developing retail related technologies. For instance (www.retailforward.com), Trent Ltd., Shoppers’ Stop, Madura Garments have spent huge resources-in enterprise resource planning (ERP) packages to improve inventory management. The Information Technology has immensely changed the potential of retail technologies. It all started in a big way from 1980s. As per Achabal and Shelby (1987), advances in Information System and communication technology are significantly enhancing the prospects for retail productivity improvements and promise to change the face of retailing. Implementation of Technology is a very complex issue. According to Raymond (1990), both individual and organizational factors are important for the success of Technology in retail organizations. As per the study of Thong and Yap (1995), on individual and organizational factors within small business in Singapore, the three characteristics of Chief Executive Officers (attitude towards adoption of IT, IT knowledge and innovativeness) and three characteristics of organizations (business size, competitiveness of environment, and information intensity) were found very significant.

Ogden and Ogden (2005) have defined Retail Information System (RIS) as “ a method for systematically gathering and analyzing, storing and utilizing valuable retail information and data gathered in the market research process”. Brown (1997) and Aguirregabaria (1999) have shown that, information technologies that provide real time information on specific products at the store, region, and company level help retailers reduce inventory levels by substituting information for inventories. (Fisher and Raman 1996) It is found that, retailers who have accurate and timely information on sales, order more frequently, in smaller quantities, and demand faster order fulfilment. This immensely reduces the cost to retailers. Apparel retailing is a major segment in retailing industry. As per the study of Smith and Weil (2005), apparel industry data indicate that because of the close links between the suppliers and retailers, there was a ratchet- up adoption of complimentary information technologies at global level. Due to small-scale operations, low investment, and resistance for change (both from consumers and retailers) technology adoption has not happened in a big way in Indian apparel retailing. Hence, we can find large chunk of apparel retailers who have not even adopted simple Bar Code Technology in their shops. Harris and Mills (1981) have shown that, the labour cost associated with check out operations, product handling and price

Veena et.al, Factors Blocking the ... 125

marking account for more than 50 per cent of store’s total expenses, use of scanners have been a primary focus of efforts to increase productivity. The information would allow firms better to react to changes in consumer demand, with a subsequent lowering of production and inventory carrying costs and improved product availability to the consumer. Systems based on UPC codes also provide the manager with the ability to know instantaneously what is selling and what is not, making it possible to better adjust assortment and inventories to market demand. Achabal and Shelby (1987) have shown that, UPC is making check out faster, more error free and lowering labour costs. That means better customer satisfaction at a lower cost to the retailer. According to Crossley (1995), “Bar coding is the basis for automating many functions surrounding the movement of merchandise, including shipping, receiving, ordering, inventory management, and point of sale data gathering”. Bar coding has become a key aspect of overall profitability, service and success of the wide variety of companies that have implemented it into their quick response system. Lebow (1998), in his study, finds ‘considering how much effort it takes to handwrite information then go back after the fact and manually key the data entry, it is obvious how much faster the bar coding really is’. According to Bartko (1996), bar code an automated process referred to as ‘key less data entry’ is one of the most popular and cost effective methods of data entry.

When used in conjunction with scanning hardware, bar code system can process enormous amount of data to reduce errors, increase speed, improve inventory management and enhance communication. According to a recent study (Holmes, 2001), there are complementarities between the new information technology and frequent deliveries. This is consistent with the recent move in the retail sector toward higher-frequency delivery schedules. The same study also reveals that the new technology tends to increase store size. This is consistent with recent increases in store size and the success of the superstore model of retail organization. Since Bar Coding is interdepartmental and inter disciplinary, all functions in the organization will be affected. Therefore, (Lebow, 1998) it is found that it is critical to get the commitment of management during the earliest possible stages of the project. The best way to secure this commitment is to identify operation problems that the system will solve and document the benefits the company will receive. In a study on factors that affects the implementation of barcode (CEST, 1995), the main barriers to technology uptake by small retailers include lack of relevant information about the key benefits of retail technology. There are also concerns about product obsolescence. Some retailers believe that the products available have little relevance to their business, or that equipment is too expensive to justify a purchase.

126 Vilakshan, XIMB Journal of Management ; September, 2007

3.0 OBJECTIVES

Food and Grocery and Apparel retailing are two major segments in Indian retailing. Branded apparel retailing has high potential for organized retailing. With phasing out of Multi Fibre Agreement, India is emerging as a world leader in apparel and garment sector. Domestic market is also important for any industry to grow and stabilize. As in other segments of retailing, the share of organized retailing in apparel segment is also growing day by day. (AEPC Report), Garment is one of the sectors, which can also absorb sizeable portion of such unemployed. The industry presently employs approximately 5.5 million persons directly and indirectly and 35-40 percent of these are women. The growth rate in this industry during 2005-06 has been approximately 25 percent. However, to continue the growth the apparel sector would need a capacity expansion involving Rs 1940 billion (US$ 43 billion) and a workforce support of 14 million people over the next five years. Such growth would need technology support and Bar code is one of the most important and elementary technology which would be used extensively in the sector. The objectives of the study are mainly focused on factors blocking the implementation of Bar Code Technology in apparel retailing. This would helps technology providers, government, retailers and other stakeholders to address this issue. The main objectives of the study are:

1.

To study the Bar Code implementation scenario in apparel retailing industry.

2.

To study the factors which block the implementation of Bar code in apparel retailing.

4.0 METHODOLOGY

The study required both primary and secondary data. The primary data are collected with the help of a survey conducted in Bangalore. Since the main objective of the study is to know the factors that block the implementation of Bar Code in Apparel Retailing, the respondents were apparel retailers. Initially, sample size of 150 had been planned, but responses were received finally from 100 samples which were from Malleshwaram 22, Jayanagar 26, Banashankari 19, M.G.Road 17, and Rajajinagar 16. Questionnaire was administered on the owner or the Manager of the shop. Among the respondents, 21 were ladies wear retailers, 03 were kid’s wear retailers, 39 Men’s wear retailers and 37 were retailers in all category of apparel products. Ownership profile of respondent retailers is skewed more towards sole traders (46), followed by partnership (24), company show room (20) and Joint family (10). Formulation of Questionnaire

The survey questionnaire had seventeen statements for non-

Veena et.al, Factors Blocking the ... 127

implementation. The responses were collected on a five point Likert Scale ranging from 1 (Strongly Agree) to 5 (Strongly Disagree). Five point Likert scale being the simplest and easy to understand, is suitable for this category of respondents. Factor analysis was used as the statistical tool for analysis. 5.0 RESULTS OF ANALYSIS

Out of the total respondents, 55 respondents have not implemented Bar Coding in their shops. The rest have implemented the Bar coding. From the above, it can be concluded that the percentage of non implementation of Technology by apparel retailers is about fifty-five percent. Bar Coding technology is one of the elementary technologies in Retailing. When this is the scenario for Bar Coding, it can be concluded that implementation of high-end technologies like RFID in retailing RFID and Tunnel scanning may have to wait for long time in India. The factors with factor loadings > 0.60 were considered as significant under each dimension. The Cronbach á values were calculated for logical group of factors with factor loadings > 0.60 in each component. The Eigen values of selected factors were greater than 1. The individual percentages of variances for the factors are 27.760, 13.260, 12.245, 9.173, and 8.849 and

their total variance explained by five factors is 71% as in Table- 1. Results of the exploratory factor analysis revealed 12 significant items in five factors (see table – 2). Cronbach á values are as shown in table -3. The reliability test indicates that, á values are highly significant (> 0.7) for two dimensions (factors) namely, No Value addition and Not Operation friendly and moderately significant (>0.5) for one dimension namely , acceptability. The analysis revealed the following dimensions: Factor 1

:

No Value addition

Factor 2

:

Not Operation friendly

Factor 3

:

Less Turnover

Factor 4

:

Acceptability

Factor 5

:

Rigidity

Factor 1: No Value addition

The factor 1 stands for the common perception of the respondents about the value addition. This dimension includes ‘doesn’t help to avoid theft’, ‘doesn’t facilitate to maintain error free account’, ‘doesn’t add any value in billing’, ‘doesn’t enhance the customer satisfaction’, ‘doesn’t facilitate in fixing accountability’, and ‘doesn’t facilitate better inventory management’. This reveals that the apparel retailers who have not implemented Bar Code in their shops

128 Vilakshan, XIMB Journal of Management ; September, 2007

Table - 1 : Total Variance Explained Com ponent

Initial Eigenvalues Total

% of CumuVariance lative %

Extraction Sums of Squared Loadings Total

% of CumuVariance lative %

Rotation Sums of Squared Loadings Total

% of CumuVariance lative %

1

5.435

31.970

31.970

5.435

31.970

31.970

4.719

27.760

27.760

2

2.464

14.496

46.467

2.464

14.496

46.467

2.254

13.260

41.020

3

1.654

9.731

56.198

1.654

9.731

56.198

2.082

12.245

53.264

4

1.390

8.174

64.372

1.390

8.174

64.372

1.559

9.173

62.437

5

1.175

6.914

71.286

1.175

6.914

71.286

1.504

8.849

71.286

6

.964

5.673

76.959

7

.877

5.160

82.119

8

.730

4.296

86.415

9

.588

3.458

89.873

10

.454

2.668

92.542

11

.380

2.236

94.778

12

.291

1.713

96.490

13

.227

1.337

97.827

14

.157

.921

98.748

15

.106

.623

99.371

16

.061

.361

99.732

17

.046

.268

100.000

Extraction Method: Principal Component Analysis.

perceive that the use of Bar code do not add any value in security, accounts or in customer perception. Factor 2: Not Operation friendly

The two significant items in this factor are ‘Our present operation system doesn’t require Bar Coding’ and ‘Willn’t enhance the image of the shop’.

The retailers perceive that the Bar Coding neither enhances the operation efficiency nor enhances the image of the shop. Factor 3: Less Turnover

For the third dimension, ‘Shop’s Turnover is not sufficient for Bar Code implementation’ is only the significant

Veena et.al, Factors Blocking the ... 129

Table - 2 : Rotated Component Matrix (a) Component 1

2

3

4

5

not sufficient turnover

-.088

.105

.872

-.080

.017

operation

.028

.911

.088

-.118

-.140

not enhancing the image

.045

.826

.114

.248

.255

attraction of customers

-.101

.057

-.166

.697

.112

inventory management

.529

-.362

-.331

.014

.205

value in billing

.720

.181

.295

.185

-.187

error in billing

.583

.316

-.058

.071

-.365

reduce no of employees

.552

-.130

.129

.227

.486

matching ambience

.358

.385

.432

-.034

-.123

avoid theft

.881

.007

-.031

-.185

.134

error free account

.892

.226

-.102

-.074

.081

customer satisfaction

.766

-.058

.253

.159

.177

fixing accountability

.615

.185

.438

.213

.394

better inventory man

.647

-.151

.539

-.044

-.065

flexibility in selling price

.374

.429

.556

-.220

.187

rigidity in accounting

-.057

-.063

.038

-.023

-.833

do not facilitate bar coding

.172

-.023

.038

.860

-.036

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 7 iterations.

item. For implementation of Technologies turnover of the shop is a significant deciding factor.

deal with. Big chunk of retailers feel the other way for implementation of Bar Code Technology in their shop.

Factor 4: Acceptability

Factor 5: Rigidity

The Acceptability factor includes ’Doesn’t attract additional customers’ and ‘All my products do not facilitate use of bar coding’ are the two significant items. If any technology is to be acceptable to the retailers it has to result in increased sales and it has to suit the products the retailers

This dimension includes the item ‘Bar Coding leads to rigidity in accounting’. This item got a negative response, which implies that the retailers who have not implemented bar coding have a perception that favours the implementation of Bar Coding. They

130 Vilakshan, XIMB Journal of Management ; September, 2007

Table –3 : Factors that Blocks the implementation of Bar Code Sl. No 1

Dimension No Value addition

Perception item a. Doesn’t help to avoid theft.

Cronbach alpha 0.890

b. Doesn’t facilitate to maintain error free account c.

Doesn’t add any value in billing

d. Doesn’t enhance customer satisfaction e. Doesn’t facilitate in fixing accountability f. 2

Not Operation friendly

Doesn’t facilitate better inventory management

a. Our present operation system doesn’t require

0.789

Bar Coding b. Will not enhance the image of the shop

3

Less Turnover

a. Shop’s Turnover is not sufficient for Bar Code implementation

4

Acceptability

a. Doesn’t attract additional customers

0.552

b. All my products do not facilitates use of bar coding 5

Rigidity

a. Bar Coding leads to rigidity in accounting

opined that Bar coding doesn’t lead to rigidity in accounting. 6.0 DISCUSSION

The factors that block the implementation of Bar Code Technology become relevant to address the problem of Technology implementation in retail sector. Thong and Yap (1995), in their study have highlighted that, attitude of the individual who takes major decisions, technological awareness and innovativeness becomes important in implementation of technology. As per

the findings of this study, the retailers perceive that, bar code doesn’t add any value and bar code is not operation friendly. Again, the retailers perceive that, the bar code doesn’t attract additional customers. Retailers also perceive that all products in their shop have to be bar code implementation friendly. All these factors are related to the perception of the retailers. This has to be addressed by educating the retailers. Many of their apprehensions are due to lack of their exposure to bar code product and its benefits. Proper exposure and training on the usage and

Veena et.al, Factors Blocking the ... 131

benefits of bar code would help to overcome these factors which blocks the implementation of bar code technology. According to CEST, the main barriers to technology uptake by retailers include lack of relevant information about the key benefits of retail technology. According to acceptability factor from our study, retailers have mental blocks towards bar code technology due to lack of information. This can be addressed by circulating proper literature regarding bar code technology among retailers. Achabal and Shelby (1987) have shown that Bar Code (Universal Product Code) makes check out faster, more error free and helps in lowering the labour cost which leads to better customer satisfaction at a lower cost to the retailer. On the contrary our study finds that, Bar Code doesn’t attract any additional customers. This is mainly due to lack of awareness about the benefits of Bar code technology. This has to be addressed. Turnover is a factor which blocks the implementation which cannot be addressed; to that extent bar code implementation would be limited. 7.0 LIMITATIONS OF THE STUDY

Apparel retailing has its presence both in urban and rural markets. This study is restricted to sample drawn only from Bangalore city. The study can be done in different regions and different demographic areas, say urban, suburban and rural. The study has not covered apparel retailers who operate from make shift arrangements. The

study covers the factors, which blocks the implementation of Bar code Technology. 8.0 CONCLUSION

Technological implementation is influenced by many factors like scale of operation, competitive level, type of organizations managing retail stores, customers’ technology acceptance level, and whether retail is organized or not. In India, unorganized retailers play a major role in retailing as a vast majority of retailers are unorganized. Indian retailers are highly dispersed and divergent as their customers. Hence, there cannot be any technology, which matches the requirement of all retailers. A simple technology like Bar Code has not been accepted in general. Retailers have the perception that bar code doesn’t add much value to their business. Proper education, training and information would help to overcome the factors which block the implementation of Bar Code Technology. REFERENCES Achabal, Dale D. and Mclnytyre, Shelby H. (1987), “IT is reshaping retailing”, Journal of Retailing, 63(4). Apparel Export Promotion Council( AEPC) Report, Government of India November, 2006. Aguirregabaria, Victor. (1999), “The Dynamics of Mark-ups and Inventories in Retailing Firms.” Review of Economic Studies 66(2), 275–308.

132 Vilakshan, XIMB Journal of Management ; September, 2007

Bartko, P.W. (1996), “EDI and Bar Coding converging”. EDI World, 6 (10), 6. www.Bharattextile.com Bhargava, Anjuli and M.Anand, (2005),’Is the left right?’, Business world, June, 40-41. Brown, Stephen. (1997), “Revolution at the Checkout Counter: The Explosion of the Bar Code” Harvard University Press, Cambridge, MA. CEST (1995), “Small retailers and technology - a research study into the views of small independent retailers”, European Retail Digest, Center for Exploitation of Science and Technology, Autumn Chieochan and Lindley and Dunn. (2000), “Factors affecting the use of Information Technology in Thai Agricultureal Cooperatives: A work in progress”, Electronic Journal on Information Systems in Developing countries, 2 (1), 1-15. Crossley, J.(1995), “Quick responses system: Four essential elements”. EDI Forum 8 (1), 55-58. Fisher, Marshall, and Ananth Raman. (1996), “Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales,” Operations Research 44(Jan–Feb), 87–99. Harris, Brain F., and Michael K. Mills. (1981),”The acceptance of Technological change in retailing: The case of scanners and Item Price Removal ,in the changing marketing environment: New theories and application”, series no.47,Chicago, IL: American Marketing Association, 66-69.

Holmes, Thomas J. (2001), “Bar codes lead to frequent deliveries and Superstores”, RAND Journal of Economics, 32 (4), Winter 2001, 708-725. Lebow, Jeff. (1998), “Planning and implementing the successful bar code system: a project primer”, IIE Solutions. Murali.D. (2006), “wanted, retail-specific curriculum with IT edge”, The Hindu, E world. Narayan,Tarun. (2005), “call of the mall”, Indian Management, June. 18-28. Ogden R. James and Denise T. Ogden. (2005), Integrated Retail Management, Biztantra, New Delhi. Raymond. L. (1990), “Organizational context and Information System success, A Contingency Approach”, Journal of Management Information System, 6 (4), 5-20. Smith, Margaret Hwang and David Weil. (2005), “Ratcheting Up: Linked Technology Adoption in Supply Chains”. 44(3), July, Regents of the University of California, Published by Blackwell Publishing, Inc., Oxford, OX4 2DQ, UK. The Hindu (Bangalore), Business 07th Januaray, 2005 Thong, J.Y.L and Yap C.S. (1995), “CEO characteristics, organizational character and Information Technology, adoption in small business, Omega-International Journal of Management Science”, 23(4), 429-443. www.google.com www.retailforward.com accessed on 12/06/2006

Continuous and Sustainable Improvement through Supply Chain Performance Measurement - A Case Study of an LCV Manufacturing Company* Ashwani K. Varma1

Abstract Supply chain performance measurement system is an entirely new category of applications in the area of supply chain management. It provides performance monitoring of supply chain processes. To address the issues of continuous and sustainable improvement, a comprehensive performance measurement system is needed. At times of growing pressure in terms of e-commerce, just in time and flexible manufacturing and deregulated logistics the traditional methods of performance measurement sometimes are abound with limitations and do not deliver the goods properly. Therefore, it requires holistic methods of measurement, though isolated attempts have already been made in the form benchmarking, balance score card (BSC) and supply chain operating reference model (SCOR). However, such a system must have the ability to define matrices, key performance indicators (KPIs) and exception conditions besides updating such definitions when the environment changes. The present paper is an attempt in such a direction. The primary data for the study has been collected from an LCV manufacturing company

1.0 INTRODUCTION

Firms never survive in isolation and have to rely on other firms to accomplish a complex chain of interdependent activities from source-of-supply to the end-user. Therefore the success depends on the combined capabilities of

integrated firms to achieve a competitive advantage in the market. Managers must extend their ‘line of sight’ to understand system-wide performance and the contribution of each firm (Lummus and Vokurka, 1999). They subsequently need to develop measures for meeting end-

* Received June 8, 2007; Revised September 12, 2007 1. Lecturer, Government Bikram (PG) College of Commerce, Patiala; email: [email protected]

134 Vilakshan, XIMB Journal of Management ; September, 2007

user requirements and aligning firm behaviour with supply chain objectives (Pohlen, 2003). Developing and maintaining a Supply Chain Performance Measurement system represents one of the most significant challenges faced in SCM initiatives. The importance of performance measurement in SCM cannot be exaggerated. Timely and accurate assessment of the whole system and its various elements is very essential. An effective performance measurement system (1) provides the basis to understand the system, (2) influences behaviour throughout the system, and (3) provides information regarding the results of system efforts to supply chain members and outside stakeholders. In effect, performance measurement is the glue that holds the complex value creating system together, directing strategic formulation as well as playing a major role in monitoring the implementation of that strategy (Handfield and Nicholas, 2005). A good performance measurement system also is actionable. It allows mangers not only to identify but also to eliminate causes of supply chain operational problems so that relationships with customers are not permanently harmed (Stank and Lackey, 1997). 2.0 CURRENT SUPPLY CHAIN PERFORMANCE MEASUREMENT SYSTEMS

There is a variety of SCM performance measurement systems prevailing in the business world but some important systems are as follows:

2.1 Benchmarking

An increasingly popular approach for establishing performance standards, processes, measurements, and objectives is ‘benchmarking’. A benchmark is a standard of performance. Benchmarking helps organizations to identify standards of performance and adopt them successfully, which assists them to target problem areas, set levels of performance, and identify solutions to improve results (Cook et al., 2001). It is the continuous measuring of products, services, processes, activities and practices against the firm’s best-in-class companies, determining how the best-in-class achieve their performance levels, and using that information as the basis for establishing a company’s performance targets, strategies, and action plans (Lawrence, Jenning and Reynolds 1989). 2.2 The Supply Chain Operating Reference Model (SCOR)

SCOR modeling is today the most popular methodology to analyze the SCM performance of an organization. The area of supply chain performance measurement had been neglected for a long time, whereas in supply chain management, timely and accurate assessment of overall system and its individual components is very important. The SCOR model was developed in November 1996 by Supply Chain Council, organized by Pittiglio Rabin Todd and McGrath (PRTM) and AMR research. It focused on supply chain process improvement planning,

Verma, Continuous and Sustainable ... 135

implementation and measurement. Primarily, it defined common supply chain management processes and benchmarked these processes against available ‘best-practices’. It has been recognized by the 8000 member companies of the SCC as an effective ‘toolkit’ for companies wanting to upgrade their supply chains for strategic advantage. Thus, it has proved to be a cross industry standard in SCM. The following is the simple representation of SCOR model: •

Capture the “as-is “state of a process and derive the desired “to-be” future state (Business Process Engineering).

•

Quantify the operational performance of similar companies and establish internal targets based on “best-in-class” results (Benchmarking).

•

Characterize the management practices and software solutions that result in “best-in-class” performance (Best Practices Analysis).

The SCOR model adopts the following four-level pyramid, which provides guide for integrative process improvement. Level 1 (Top level) gives definition of the five key supply chain process types (plan, source, make, deliver and return). At this level a company makes basic strategic decisions regarding its operations in the following areas:

•

Delivery performance

•

Order fulfillment performance

•

Fill rate

•

Order fulfillment lead time

•

Perfect order fulfillment

•

Inventory days of supply

•

Warranty cost or returns processing cost

•

Asset returns

•

Supply chain response time

•

Production flexibility

•

Value added productivity

•

Cash-to-cash cycle time

These metrics are used in conjunction with performance attributes such as supply chain reliability, supply chain responsiveness, supply chain flexibility, supply chain cost and supply chain asset management. Level 2 (Configuration level) defines the 26 core supply chain process categories established by the supply chain council. Level 3 (Process element level) provides information in planning and goal setting for supply chain process improvement. It also defines a company’s ability to compete successfully in the chosen markets and consists of: •

Process element definitions

•

Process element information inputs and outputs

•

Process performance metrics

136 Vilakshan, XIMB Journal of Management ; September, 2007

•

System capabilities

•

Systems/tools

Level 4 (Implementation level) focuses on implementation of supply chain process improvement efforts. The major benefit of this model is that it provides inter-organizational supply chain partners a basis for integration. The model is given as follows: Figure 1: The SCOR SCM Model S U P P L I E R S

The SCOR Model identifies four Main processes Plan Supply Chain

Source

Make

Deliver

C U S T O M E R S

2.3 Balance Scorecard

Balance Scorecard (BSC) is an ‘instrument’ to measure the performance of the overall supply chain to meet the requirements of end customer. It not only operates at different levels but also integrates the different levels to meet the objectives of the supply chain. This approach, given by Kaplan and Norton incorporates both financial and operating performance measures to be used at all levels of the supply chain. The BSC formally integrates overall objectives and the strategies undertaken to meet these objectives with supply chain-wide performance measures. In other words objectives, strategies, and performance measures at the supply chain level are linked to the organizational level. At each

level the BSC addresses four key performance areas: (1) financial, (2) customer, (3) business process, and (4) learning and growth. Within each of these areas, key objectives are identified that are driven by the objectives and strategies of the next higher level in the scorecard hierarchy; specific performance measures associated with the objectives, performance targets, and initiatives to achieve the targets are then developed (Kaplan and Norton, 1996). The specific measures necessary to manage supply chain performance will vary according to customer type, product line, industry and other factors. 3.0 BRIEF LITERATURE REVIEW

According to Lummus and Vourka et al. (1999), since performance measures are critical to the success of the supply chain, companies can no longer focus on optimizing their own operations and managers across an entire supply chain must collaborate to improve performance and obtain the greatest mutual benefit. Van Hoek (1998) is also of the view that effective supply chain management requires measures capable of capturing inter-firm performance and integrating the results to depict overall supply chain performance. Ellram and Liu (2002) say that supply chain performance measures must translate non-financial measures into financial terms and shareholder value. Similarly, Kallio et al. feel that SCM affects more than costs, and managers must be able to sell the value created to senior executives, trading partners, and shareholders. Pohlen and

Verma, Continuous and Sustainable ... 137

Coleman (2005) have applied a general framework employing a dyadic economic value added (EVA) and activity based costing (ABC) to show how operations performance can be evaluated with a multi-firm supply chain perspective. The framework can help operations managers achieve supply chain objectives such as ‘increased shareholder value’ and ‘improved customer service’ by providing a concrete roadmap. The focus is on increasing shareholder value for each firm in the supply chain by establishing within company and crosscompany links between actions and profits. Juan Jose et al. (2007) present a methodology for measuring collaborative supply chain business process performance, which aims to complement the existing frameworks and overcome their loopholes. They discuss the basics of the methodology defining the main elements of performance to be developed. Finally, a practical approach is introduced

that shows the results of applying the methodology by taking into account intangible aspects such as coherence, trust and visibility, equity to a collaborative supply chain business process called “Forecast Demand Visibility for Suppliers”. Supply Chain Performance Measurement in Swaraj Mazda limited Supply Chain Performance Measurement in Swaraj Mazda limited (SML) is a combination of various above said performance measures. It has been benchmarking with the industry standards. The performance measures include not only the financial measures but also the non-financial ones directing towards maximum customer satisfaction. 4.0 BRIEF OVERVIEW OF SML

Swaraj Mazda limited (SML) is a light commercial vehicle (LCV) manufacturing company located in Punjab with the size and operating information as follows :

a.

Company production

40 vehicles a day

b.

Models offered

10 models with 79 variants

c.

Manufacturing sequence

Based upon demand (Flexible manufacturing)

d.

Number of zonal offices

10

e.

Number of dealers

130

f.

Order receipt and shipment

Firm orders are received from the zonal offices once a week and shipments are made on the same day based on the factory stocks and shipment date schedule.

g.

Demand variation

Customer demand is assumed to be normally distributed.

h.

Backordering

Backordering is allowed but returns to the factory are not allowed.

i.

Transport lead time

2-3 days (depending upon the location of zonal office/dealer.

138 Vilakshan, XIMB Journal of Management ; September, 2007

The abovesaid information has taken the shape of supply chain in SML as shown in (Figure 2). This supply chain starts with 1st tier suppliers consisting of foreign suppliers and local suppliers. Since SML imports various engine components in complete-knocked-down condition (CKD), they constitute 1st tier suppliers. These components in raw material form or sub-assemblies reach the factory stores for assembly. After manufacturing/assembly the finished vehicles reach the factory stockyard for dispatches to zonal

offices. Then zonal offices send the vehicles to the dealers. Customers place the orders and get the delivery from the dealers only and not from the zonal offices or the company directly. The whole supply chain involves the flow of goods, cash and information and some time reverse logistics in the form of returned defect and damaged vehicles. General Performance Evaluation

General Performance Evaluation of SML has been made with reference to the following performance Parameters: 1.

Market share %

Figure 2: Supply Chain Model of SML

Physical Flow of Goods

Cash Flow F A C T O R Y

Foreign Suppliers

SWARAJ MAZDA LIMITED

Local Supplier

S T O C K Y A R D

Zonal Office

Zonal Office

Zonal Office

Zonal Office

Information Flow

D E A L E R S N E T W O R K

C U S T O M E R S

Verma, Continuous and Sustainable ... 139

Table 1: General Key Performance Indicators of SML Year

% Mkt. Share

PBT/ TO%

ITR

MH/Veh

1995

3.7

7.21

6.6

1.5

.018

7.2

.29

5.36

34.21

1996

3.9

7.89

7.7

1.03

.023

4.7

2.78

5.12

39.28

1997

4.1

8.51

6.9

1.12

.021

6.4

3.02

4.89

41.04

1998

4.5

9.59

5.0

1.29

.022

5.79

4.57

5.21

40.33

1999

5.2

13.37

4.9

.52

.021

2.44

2.26

5.16

40.56

2000

6.6

17.37

6.9

.64

.023

2.70

1.99

6.67

42.02

2001

8.0

21.2

8.7

1.08

.022

3.8

2.75

5.89

40.54

2002

13.1

27.34

10.5

1.73

.026

6.46

3.49

6.17

39.13

2003

13.5

34.74

11.06

1.98

.025

13.7

6.04

6.49

41.23

2004

14.8

42.29

12.91

2.01

.024

20.03

6.78

7.36

40.89

2005

16.7

41.07

12.54

2.13

.032

23.13

6.41

7.33

41.27

2006

18.1

42.1

13.14

2.19

.035

16

4.13

6.42

41.69

% Mkt. Share ADP (No) VP/Emp (PA) NP/Emp (Rs) ml OP/Veh (RS) ml EPS (Rs) PBT/TO (%) ITR MH/Veh

ADP (No)

: : : : : : : : :

VP/Emp NP/Emp OP/Veh EPS(Rs) (PA) (Rs)ml (RS)ml

Percentage Market share Average Daily Production Vehicle Production per Employee Net Profits per Employee Operating Profit per Employee Earnings per Share in Rs Percentage of Profit before Tax to Turnover Inventory Turnover Ratio Man hours per vehicle

2.

Average daily production (No. of Vehicles)

7.

Percentage of Profit before Tax to Turnover

3.

Vehicle Production per Employee per annum

8.

Inventory Turnover Ratio

9.

Man Hour per vehicle

4.

Net Profit per Employee (Rs in millions

5.

Operating profit per vehicle (Rs in millions)

6.

Earnings per Share (Rs)

Table 1 depicts some general performance parameters of SML over the years. Performance and trends in various general performance indicators have been briefly described below:

140 Vilakshan, XIMB Journal of Management ; September, 2007

Fig. 3: Trends of Market Share

Fig. 5: Trends of Vehicle production per empolyee

Fig. 4: Trends of Avg. daily Production

Fig. 6: Trends of Net Profit per Employee

Market Share: LCV industry in India has eight active players. While two are almost fully in the below 5 ton segment, 5 cater to the higher payload segment and 1 spans all segments. Thus there is huge competition in LCV industry. Although the demand of light commercial vehicles had reduced in the mid nineties due to volatility of fuel prices, low rate of industrial growth, stagnant freight rates, tapering of import/export activity and lack of infrastructural investment, the company has been successful in keeping its market share rising. As shown in Figure 3 the market share increased from 3.7% in the year 1995 to 3.9% in 1996, 4.1% in 1997, 4.5% in 1998, 5.2% in 1999, 6.6% in 2000, and 8.0% in 2001. In the new millennium, the company widened its dealers’ and

service network across the country, the market share of SML reached double figure i.e. 13.1% in 2002, 13.5% in 2003, 14.8% in 2004, 16.7% in 2005 and 18.1% in 2006. Average Daily Production: Average daily production as shown in Figure 4, which was meagre 7.21vehicles in 1995, 7.89 in 1996, 8.51 in 1997 and 9.59 in 1998 and started galloping in 1999 by touching 13.37. Introduction of new technology and models, collaboration with vendors and infrastructural development further boosted the production to 17.37 in 2000, 21.2 in 2001, 27.34 in 2002, 34.74 in 2003, 42.29 in 2004, 41.07 in 2005, and 42.1 in 2006. Vehicle Production per Employee: Vehicle production per employee

Verma, Continuous and Sustainable ... 141

increased from 6.6 in the year 1995 to 7.7 in 1996. (The trends have been shown in the Figure 5). Then, because of sudden heavy rush of employees due to creation of more infrastructure, vehicle production per employee registered a decrease in the coming years. It was 6.9 in 1997, 5.0 in 1998, 4.9 in 1999, and 6.9 in 2000. Later on with the new industrial policy and introduction of new variants, it started picking up and increased to 8.7 in 2001, 10.5 in 2002, 11.06 in 2003, 12.91 in 2004, 12.54 in 2005, and 13.14 in 2006. Net Profit per Employee: Figure 6 depicts the trend of profits earned per employee. SML registered Rs 1.5 million net profits in 1995, 1.03 in 1996, 1.12 in 1997 and 1.29 in 1998. However, with additional import duty, modvat allowance and devaluation of rupee in the international market, and the recruitment of more employees, profit per employee reduced to Rs.0.52 million in 1999 and Rs.0.64 million in 2000. After the year 2000, SML broadbased its product range and redressed for a wider market segment, thus profit per employee recovered and reached Rs 1.08 million in 2001, Rs 1.73 million in 2002, Rs1.98 million in 2003, Rs 2.01 million in 2004, Rs 2.13 million in 2005 and Rs 2.19 million in 2006. Operating Profit per Vehicle: Trends of Operating profit per vehicle have been shown in Figure 7. Rise in manufacturing costs and industrial recession directly affects the operating

profits of SML. Profit per vehicle was Rs.0.018 million in the year 1995. It increased to Rs.0.023 million in 1996. From the year 1996 to the year 2001 it remained almost constant. From the year 2002 it again started picking up due to more demand of products and with the introduction of cost control and inventory control measures. SML started using information technology, CPFR and vendor managed inventory resulting into higher profits. In the year 2005 and 2006 it was remarkably high with Rs.0.032 million and Rs.0.35 million. SML also obtained more export orders during this period. Earning per Share: EPS has registered fluctuations (see Figure 8) from the year 1995 to the year 2001. It decreased from Rs.7.2 in 1995 to Rs.4.7 in 1996. It increased slightly to Rs.6.4 in 1997 but again dropped to Rs.5.79 in 1998. Years 1999, 2000, 2001 showed depression in EPS. Realizing a threat to its survival, the company adopted new business strategies such as getting vehicles financed to its customers, and manufacturing customized vehicles. As a result of the efforts, EPS rose to Rs.6.46 in 2002, Rs.13.7 in 2003, Rs.20.03 in 2004, Rs.23.13 in 2005 and Rs.28.16 in 2006. Profit before Tax to Turnover: This ratio was a meagre .29 in 1995 but in the next three years it increased manifold to 4.57 in 1998. Next four years (As shown in Figure 9) saw this ratio declining due to the economic recession and high

142 Vilakshan, XIMB Journal of Management ; September, 2007

competition with other LCV manufacturers. This necessitated the introduction of strict control measures. With this result, the ratio has seen the rise since 2002. The increase has been more than double the figure of 2001. in 2006, the ratio has again gone down to 4.13 because the increase in sales is more than the increase in profits.

increased from 4.89 in 1997 to 7.33 in 2005. However, it reduced to 6.42 in 2006 due to the introduction of new variants to compete in the national and international market. This shows that SML is keeping its inventory low with the use of latest inventory control measures such as CPFR, VMI and ABC analysis.

Inventory Turnover ratio: Since a considerable amount of company’s capital is tied up in the financing of raw materials, work in progress and finished goods, it is important to ensure that the level of stock is kept as low as possible. There has been a considerable increase in the ITR over the period 1997 to 2006 as shown in Figure 10. The ratio has

Man Hour per vehicle: Figure 11 shows the trends of this ratio. In order to compete in the market and the introduction of new variants of vehicles, the productivity of labour is slow during this phase. Moreover new skilled labour had to be recruited to meet the requirements. These factors forced to increase the man-hours resulting in the

Fig.7: Trends of Operating profit per Vehicle

Fig. 9: Trends of % of PBT/ TO

Fig. 8: Trends of EPS at SML

Fig. 10: Trends of ITR

Verma, Continuous and Sustainable ... 143

the input resources that gives rise to the output performance level. The supply chain performance makes use of the comparisons made between ten years from the year 1997 to the year 2006 along with company standard and the industry average.

increase of this ratio. The ratio was only 34.21 in 1995 and the next five years witnessed the increase to 40.54 in 2001. Except in the year 2002, when the ratio was 39.13 it has been constant afterwards from the year 2003 to the year 2006.

Performance and trends in various performance indicators are briefly described below: Performance for on-time Deliveries : The company used a control chart for on-time deliveries. The system of calculating Upper control limit (UCL) and Lower control limit (LCL) has been discussed later. The graphic performance chart for such control is shown in Figure - 12.

Fig. 11: Trends of Man Hour per Vehicle

SML is following a management strategy that helps the organization to optimize their performance in those areas that really matter, achieve preferred LCV status and survive in extremely competitive market. This management philosophy is known as “Operational Excellence”, which means ‘consistently doing the right things well’. It requires new solutions that focus on key business issues, continuously measure performance and drive the organization towards continuous improvement. Some of the measures that are important in supply chain operational excellence are given in Table 2. Productivity Report

The productivity report in Table 2 attempts to put activity performance in a relative perspective. In other words, a ratio is formed of output performance to

M an h o u r p e r V e h i

Productivity Performance Measures

O n t i m e d e l i v e r y

51.00 0

Upper Control Limit (.98)

.99

4.98 0 3.97 0

.96

2.95 0

.94 .93 .92 0 .91 .90 .89 .88 .87 .86 .85

Process Average (.928)

10

1

3

5

7

9

11

13

Y e a Limit r Lower Control (.88)

Years (1997-2006) Figure 12: Graphic Performance Chart for On-time Deliveries

Freight cost as a % of distribution costs: Freight cost ratios measure the logistical performance of the firm. SML has been continuously engaged in reducing the freight cost of the finished vehicles, because freight paid is added to the cost of the vehicle to the customer. Figure 13

0.64 0.53

Freight costs as a % of sales

0.1

85% 22.5

% of orders processed within 24 hours

Order processing costs / total number of order processed

2

Vehicles handled per labor hour

(b)

100 95% 0.10

*% of Customer returns

7±2

4.10

145

79%

94%

1.9

81%

20.9

91%

23

0.11

5.16

0.51

0.63

4.23

0.14

96%

100

0.11

94%

100

NIL NIL NIL * Due to damage, dead stock, order processing errors and late deliveries ** Due to supply out-of- stock

**% of available production time shutdown

6±2

3.80

167

75%

92%

2.1

79%

23.4

89%

19

0.12

5.21

0.51

0.59

4.01

7±2

3.97

186

76%

95%

2.3

84%

18.9

94%

27

0.09

6.67

0.53

0.61

4.36

7±2

4.23

193

81%

96%

2.4

82%

18.3

96%

28

0.14

5.89

0.52

0.59

4.01

6±2

3.52

189

79%

97%

2.3

85%

18.1

95%

26

0.12

6.17

0.49

0.57

4.26

6±2

2.98

145

91%

95%

2.1

87%

17.6

93%

27

0.13

6.49

0.5

0.58

4.67

7±2

2.14

137

82%

94%

2.7

91%

17.2

96%

31

0.11

7.36

0.47

0.57

3.49

7±2

3.12

158

81%

96%

2.4

93%

16.5

95%

29

0.1

7.33

0.45

0.54

3.61

NIL

0.14

92%

100

NIL

0.12

91%

100

NIL

0.12

93%

100

NIL

0.17

95%

100

NIL

0.11

92%

100

NIL

0.13

95%

100

3.75

7±2

2.15

164

80%

95%

2.5

90%

15.9

94%

30

0.14

6.42

0.41

NIL

0.08

96%

100

NIL

0.10

95%

100

10±3

7±2

2.50

160

85%

97%

2.5

90%

15

95%

35

0.1

6.5

0.4

0.52 0.50%

3.89

10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3 10±3

7±2

Line item fill rate

(b)

3.50

Order filled complete (Percentage)

Normal processing

Back order split delivery processing (%)

(a)

Total Order cycle time

Total number

Percentage of total orders

(a) 184

72%

% of orders delivered within 24 hours of receipt

Back orders and split deliveries

91%

Stock availability (% of orders filled from primary stock)

Customer service

74%

% of stockyard utilized

Factory stockyard/warehousing

24

Orders processed per labour hour

Order Processing

4.89

Inventory Turnover

Obsolete stock to sales

Inventories

4.25

Damage and loss claims as a % of freight costs

NIL

0.15

95%

100

10±3

7±2

2.50

200

90%

95%

3

85%

15

94%

40

0.15

6.5

0.4

0.50%

3.75

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Co.Std Ind.Avg

Freight cost as a % of distribution costs

Transportation

Productivity Measures

Table 2: Productivity Performance Measures

144 Vilakshan, XIMB Journal of Management ; September, 2007

Verma, Continuous and Sustainable ... 145

shows the trends of the ratio. From the year 1997 to the year 2003, the freight cost as a % of the distribution cost was hovering above 4.00 %. But since 2004, the outsourcing of distribution has proved profitable. The ratio has come down to 3.41 in 2004, 3.61 in 2005 and 3.89 in 2006. This has been compatible to the company standard and industry average of 3.75.

to .54 in 2005. In 2006 again it decreased to .52 and is gradually inching towards the firm standard and the industry average of .50. SML has also been successful in reducing this rate due to the strict total quality management (TQM) introduced in the organization. TQM is not confined to one section of the supply chain rather it has been widely used throughout the supply chain.

Damage and loss claims as a % of freight costs: Figure 14 shows the trends of damage and loss claims as a % of freight costs. Outsourcing of distribution has also resulted in decreased damage and loss claims against the firm. It has come down sharply from .64 in 1997

Freight costs as a % of sales: As shown by the trends in Figure 15, freight costs as a % of sales was .53 in 1997, .51 in 1998 and 1999, but decreased gradually to .49 in 2002. From the year 2004 to 2006, it has been well under control and almost equivalent the firm and industry average of .4.

Fig. 13: Trends of Freight cost as a % of Distribution Cost

Fig. 15: Trends of Freight Cost as a % of Total sales

Fig. 14: Trends of Damage and Loss Claims as a % of Total Freight cost

Fig. 16: Trends of ITR

146 Vilakshan, XIMB Journal of Management ; September, 2007

Inventory Turnover: Since a considerable amount of company’s capital is tied up in the financing of raw materials, work in progress and finished goods, it is important to ensure that the level of stock is kept as low as possible. There has been a considerable increase in the ITR over the period 1997 to 2006 as shown in Figure 16. The ratio has increased from 4.89 in 1997 to 7.33 in 2005. However, it reduced to 6.42 in 2006 due to the introduction of new variants to compete in the national and international market. This shows that SML is keeping its inventory low with the use of latest inventory control measures such as CPFR, VMI and ABC analysis. Obsolete stock to sales: The components and the sub assemblies have very lesser chances of becoming obsolete, except when the technology changes. When ever new variant is introduced it is generally improvised to the old one. Due to this reason, SML has been keeping very low level of obsolete stock. As shown by the trends in Figure 17, the ratio has been around 0.1 in all the ten years from the year 1997 to the year 2006 with marginal changes. Though the industry average is 0.15, SML is maintaining lesser than that. Orders processed per labour hour: The introduction of EDI and Internet has facilitated the receipt of orders from the zonal offices on daily basis. Earlier the orders were consolidated by zonal offices after three days and transmitted through speed post. But now the orders are transmitted instantly. This has increased this

ratio over the years as per trends shown by Figure 18 It was only 24 in the year 1997and 19 in 1998, but it has improved to 30 orders in the year 2006. SML has set the standard of 35 orders per labour hour to benefit from more automation in coming years. The industry average is around 40 orders per labour hour. % of orders processed within 24 hours: SML has the tradition of processing the orders within 24 hours of receipt. But the processing depends upon the inventory kept in stores. The company is maintaining an inventory of five days depending on the lead time. With the introduction of information sharing through CPFR and VMI, it is trying to come closer to JIT concept. As shown by the trends in Figure 19 the ratio was only 85% in 1997, 89% in 1998 and 91% in 1999. The introduction of technology has increased it up to 96% in 2001 and 2004. With this reason, the company has set the target of 95% as compared to an industry average of 94%. Order processing costs/total number of order processed: Leveraging the information technology has reduced the order processing costs in SML. Figure 20 exhibits the trends of this ratio. It was 22.5 in 1997, when the orders were consolidated delivered manually once or twice a week. But gradually, the use of Internet and EDI have reduced this to 17.6 in 2003, 17.2 in 2004, 16.5 in 2005 and 15.9 in 2006. SML is targeting it to 15 at par with the industry average.

Verma, Continuous and Sustainable ... 147

% of stockyard utilized: On the downstream level side of SCM in SML, the efficiency has been measured in terms of % of FSY utilized (Figure 21). SML is following a combination of push-pull based production system. In this system the company does not keep inventory of finished vehicles, rather stock of semi-finished vehicles is kept. This system keeps the stockyard unutilized. Even then the ratio has been closer to the company standard and the industry average of 93% and 90 % respectively. SML has been successful in increasing this ratio from 74% in 1997 to 91% in 2006. An experimental track has also been established for trial purposes in FSY.

Vehicles handled per labour hour: As shown by Figure 22, the ratio has increased close to the company standard of 2.5 and industry average of 3 vehicles handled per labour hour. Though the production of vehicles have increased manifold from 1997 to 2006, at the same time, the number of persons employed has also increased in the same ratio.

Fig.17: Trends of Obsolete Stock to sales

Fig. 19: Trends of % of Orders processed Within 24 hours

Fig.18: Trends of Orders Processed Per Labour hour

Fig. 20: Orders Processing Costs/ Total Orders Processed

Stock availability (% of orders filled from primary stock): SML maintains an inventory of 3-5 days of ‘A’ class items. The lead time of ‘B’ and ‘C’ class items is less. This has proved to be profitable for the firm. As shown by the trends in Figure 23, the ratio has always been more than 90%. Because the lower ratio leads

148 Vilakshan, XIMB Journal of Management ; September, 2007

to back orders and lowering of the ratio means losing the business to competitors. In the vicinity of the firm, daily milk runs of vehicles is maintained to bring the stock to the firm. The ratio has improved a lot from 91% in 1997 to 96% in the year 2001, 97% in 2002. In 2003 and 2004 decreased, but in 2005 and 2006 it has again recovered and matched with the industry average. % of orders delivered within 24 hours of receipt: Since SML keeps an inventory of 3-5 days; therefore it tries to dispose off the orders received within 24 hours. As per Figure 24 it was 72% in 1997. Soon SML realized that that in order to compete in the market and to stop back ordering, it was essential to execute the orders within 24 hours. The inventory policy was changed and gradually it increased to 81% in 2001, 79% in 2002 and 91% in 2003. In order to increase this ratio SML had to keep excessive inventory, which proved detrimental for the profitability of the company. In 2004, it was repaired to 82% and 81% in 2005 and 80% in 2006. Total number of on-time deliveries Total number of deliveries = 928/10x100 = 0.928 Practically the company wants at least 90% of the vehicles to be delivered within this time period. A data of last ten years deliveries have been collected. The process can be represented by a p-chart as shown in Figure 23. The process average (p) is found by

p = Total number of on-time deliveries Total number of deliveries =

928/10x100 = 0.928

The standard deviation of the sampling distribution for a sample size of n = 100 is

δp =

√p(1-p)/n = √.928(1- .928)/100 = .0258

The upper and lower control limits (UCL, LCL) on this process for a z = 1.96 at 95 % confidence are: UCLp = p + z (δp) = 0.928 + 1.96 (0.0258) = 0.978 = 0.98 LCLp = p – z (δp) = 0.928 – 1.96 (0.0258) = 0.877 = 0.88 Back orders and split deliveries (Total number): it represents those orders which were not accomplished out of current stock. The more the back orders, the more are the chances of losing the business to competitors. As shown in Figure 25, the total number of back orders and split deliveries were 184 in 1997, 167 in 1998 and 145 in 1999. The market recession and the introduction of new variants again increased it to 186, 193 and 189 in the year 2000, 2001 and 2002 respectively. Pull system of production and the JIT concept helped SML to achieve 145, 137, 158 and 164 in the year 2003 to 2006. SML has set the

Verma, Continuous and Sustainable ... 149

Fig. 21: Trends of % of Stockyard Utilized

Fig. 23: Trends of % of Orders filled From Primary Stock

Fig. 22: Trends of Vehicles Handled Per Labour hour

Fig. 24: Trends of % of orders delivered within 24 hours of receipt

target of 160 with an industry average of 200 orders.

2.15% in 2006. The tolerance limit is 2.5% as per company standards and the industry average.

Back orders and split deliveries (Percentage of total orders): the orders received by the dealers and zonal offices are first set off against their own stock. The balance of orders is sent to the factory stockyard for replenishment. SML tries to fill the orders immediately or within 24 hours of receipt of orders. The percentage of such orders as per Figure 26 was 3.50% in 1997, 3.80% in 1998 and 4.10% in 1999. in the year 2001, it again went up to 4.23%. Thereafter, the strict inventory control and manufacturing planning and control measures reduced this percentage to

Total Order cycle time Normal processing and Back order split delivery processing are based on the distribution of order cycle times at the 95th percentile. Order filled complete (Percentage): As per trends shown by Figure 27, the percentage of orders filled complete has always been 100%. Though the percentage of orders filled during 24 hours of receipt may vary, but the completed orders is always cent percent. Since lowering of this ratio means losing the business to competitors, therefore SML will never afford lower this ratio.

150 Vilakshan, XIMB Journal of Management ; September, 2007

Fig.25: Trends of Back orders and Split Deliveries

Fig. 27: Trends of % Order Fill Rate

Fig. 26: Trends of Back Orders and Split Deliveries as % of Total Orders

Fig. 28: Trends of Line Item Fill Rate

Line item fill rate: It is the most important component of customer service showing the number of customer orders filled within 24 hours due to the availability of line items. That is why SML is maintaining an inventory of 3-5 days of line items. As per Figure 28, the rate was 95% in 1997 and 96% in 1998. In the year 2000, and 2001, due to the introduction of new variants, the ratio dipped to 92% and 91% respectively. However, later in the year 2005 and 2006 the ratio became equal to the company standard and the industry average of 95%. On time deliveries to customers increase the total revenue because satisfied customers buy more products.

Customer returns: Customer returns in SML usually arise due to the color combinations, seating arrangements, enhancement of capacity and insignificant component defects. Returns have always been very less due to manufacturing/ assembly defects due to strict quality control systems. The ratio as shown in Figure 29 was 0.10% in 1997, 0.11% in 1998. It went up in 2003 due to the introduction of new variants, but again it came down to 0.11% in 2004, 0.13% in 2005 and 0.08% in 2006. The company standard has been set at 0.10% against the industry average of 0.15%. % of available production time shutdown: Strict inventory control, manufacturing planning and control and

Verma, Continuous and Sustainable ... 151

Fig.29: Trends of % Customer Returns

Fig. 30: Trends of % of Available Production Time Shutdown

total quality management measures adhered by SML has kept this ratio as NIL (Figure 30) from the year 1997 to the year 2006. Company has never faced any production time shutdown due to the non- availability if raw material, labor unrest, or machine break-downs.

status of the firm. Inventory is considered an investment because it is created for future use having opportunity value. Managing the supply chain so as to reduce the aggregate inventory investment will reduce the total asset portion of the firm’s balance sheet. An important measure is return on assets (ROA), which is net income divided by total assets. Consequently reducing aggregate inventory investment will increase ROA.

5. 0 STRATEGIC PROFIT MODEL

The most popular tool for measuring overall supply chain performance is the Strategic Profit Model (similar to Du Pont’s Chart). The main advantage of this model is that it aggregates many other measures into one common measure of return on assets (ROA). The following Figure 31 shows the Strategic Profit Model indicating the calculation of return on assets. ROA indicates how well each part of the supply chain, and the entire supply chain itself is using its resources. This model indicates the relationships among various measures. Rationale of using ROA as Performance Measurement Tool

Inventory turnover is also reflected in working capital, money used in financing ongoing operations. Increased inventory cost requires increased payments to suppliers. Increased inventory turnover reduces the pressure on working capital by reducing inventories. It can be accomplished by improving order placement, order fulfillment. Reducing supplier lead times ahs the effect of reducing weeks of supply and increasing inventory turnover. Matching of input and output flows of material is easier because more reliable demand forecasts can be used.

Effective supply chain management has fundamental impact on the financial

Production and material cost can be reduced through effective supply chain

152 Vilakshan, XIMB Journal of Management ; September, 2007

Sales

Figure 31: Return on Assets

management. Costs of material are determined through the financial arrangements with suppliers. And production costs are a result of the design and execution of the internal supply chain. In addition, the percent of defects, internally and externally also affect the cost of operations. Improvements in these measures are reflected in the cost of goods sold and ultimately in the net income of the firm. They also affect contribution margin, which is the

Gross margin

Cost of

Net profit goods sold between the sales and variable difference costs. Reducing production and material Sales costs, and quality defect costs, increase Variable Total and produce theexpenses contribution margin expenses greater profits. Fixed Analysis and Interpretation of ROA: expenses Based on the elements of Figure 31 the following (Table 3) are the results of ROA calculated Inventoryfor the last twelve years.

The individual figures of Sales, Net Sales Profits, Assets may be Accountsand TotalCurrent receivable

assets Total

Table 3: Trends of ROA Year

95

96

ROA

.0123

.0155

97

98

99

.0173 .0179

.0153

Net profit margin

Other current 01 assets

2K

.0163 .0171

02

.0177

03

Fixed 04 assets

.0265 .0297

05

06

.0305 .0215

Asset turnover

Verma, Continuous and Sustainable ... 153

increasing or decreasing over the period, but the ultimate effect is to be seen on the ROA. The trends given in Figure 32 indicate that ROA has increased from the year 1995 till 1998. In the year 1999, ROA decreased sharply due to additional import duty, modvat allowance and

regard to the rest of the supply chain. However, one parameter for one part of the supply chain is not good for the entire supply chain. Therefore, performance measurement should focus on the entire supply chain. Keeping this in view, a comprehensive supply chain performance evaluation method has been adopted by SML REFERENCES Cook J S, DeBree, K and Feroleto, A (2001). From Raw Materials to Customers: Supply Chain Management in the Service Industry”, SAM Advanced Management Journal, 66(4): 14-21.

Figure 32: Trends of ROA

devaluation of rupee in the international market. Then from the year 2000 to 2005 it has improved a lot and almost doubled. Due to consistent efforts of the management with strict inventory and production controls, TQM and introduction of new variants in the competitive market have contributed to the improved ROA. During 2006, a new variant of LCV has been introduced, SML had to import the technology and costly components from Japan in CKD (complete knocked down) condition. Therefore the profits suffered in 2006, dipping the ROA. 6.0 CONCLUSION

Previously each company would often focus on measuring its performance in terms of its own objectives without

Ellram, L M and Liu, B (2002). “The Financial Impact of Supply Management”, Supply Chain Management Review, 6(6): 30-37. Handfield, Robert B and Nicholas, Ernest L (2005). Introduction to Supply Chain Management, India: Pearson Education, Jose, Juan; Saiz, A and Raul, Rodriguez (2007). “A Performance Measurement Model for Measuring Collaborative Supply Chain Process”, The Icfai Journal of Supply Chain Management, IV(1): 49-64. Kaplan, R S and Norton, D P (1996.) “The Balanced Scorecard- Measures that drive Performance”, Harvard Business Review, 70(1): 71-79 Lawrence, Jennings and Reynolds (1989). eDistribution, Thomson South-western. Lummus, R R and Vokurka, R J (1999). “Managing the Demand Chain through Managing the Information Flow: Capturing Moments of Information”, Production and Inventory Management Journal, 40 (1): 16-20.

154 Vilakshan, XIMB Journal of Management ; September, 2007

Lummus, R R, Vokurka, R J and Alber, K L (1998). “Strategic Supply Chain Planning”, Production and Inventory Management Journal, 39(3): 49-58. Pohlen, T. L. (2003) A Framework for evaluating supply chain performance, Journal of Transportation Management, 14(2): 1-21. Pohlen, T L and Coleman, B.J (2005). “Evaluating Internal Operations and Supply Chain

Pperformance using Eva and ABC”, SAM Advanced Management Journal, 21(2): 45-58. Stank and Lackey. (1997). “Strategy, Structure, and Performance: A Framework for Logistics Performance”, The Logistics and Transportation Review, 31(2): 285-297. Van Hoek, R I (1998). “Measuring the Immeasurable-Measuring and Improving Performance in the Supply Chain”, Supply Chain Management, 3(4): 187-192.

Trade Protection Measures (TPM): Issues and perspectives* Sridhar Panda1 & Rajiv Arora2

Abstract The liberalization, privatization and globalization (LPG) wave of early nineties and emergence of World Trade Organization (WTO) in 1995 has changed the dynamics of conduct of international trade across the globe. While tariffs are no doubt getting lowered, WTO’s cherished objective of ensuring free and fair trade is adversely affected by unfair trade practices including application of non-tariff barriers (NTBs). The resultant distortion in “Terms of Trade” is eroding the level playing field for various trading partners. Today governments are mandated to intervene only to regulate the distorted market by the use of legitimate Trade Protection Measures (TPMs) such as Anti-Dumping (AD) measures, countervailing (CVD) measures and safeguard (SG) measures provided under the WTO framework. Amongst these three TPMs, AD is most widely and frequently used as it is indeed a potent instrument to address unfair trade practice of dumping. However, while use of TPM on the one hand is essential for domestic protection, its over and frequent use on the other hand could provide a continued and over protection to Domestic Industry, thereby adversely impacting the other stakeholders in the value chain. The frequent use of AD is also generally counter productive as it erodes efficacy of the measure by encouraging the adversely affected stakeholders to circumvent the applicability of such measures. In this paper, the authors have examined the rationale and the overall economic impact of such TPMs, especially of AntiDumping, to some extent with reference to India.

1.0 INTRODUCTION

The emergence of World Trade Organization (WTO) in 1995 heralded a new era in the global trading system. The deficiencies of its predecessor, i.e., General Agreement on Tariffs and Trade (GATT) led to non-adherence to

the multi-lateral rules enshrined in the GATT Treaty. The basic objective of promoting and facilitating free and multi-lateral trade therefore remained only a cherished goal. With the emergence of WTO, the issues concerning free and fair trade have been

* Received August 6, 2007; Revised September 1, 2007 1. Director (PGP & Academics), Fortune Institute of International Business, New Delhi; email: [email protected] 2. Director (International Relations), Ministry of New and Renewable Energy, Government of India, New Delhi, email: [email protected]

156 Vilakshan, XIMB Journal of Management ; September, 2007

addressed in a much more institutionalised manner especially with the setting up of dispute settlement body (DSB). While no doubt free trade is the most cherished goal, the fairness in conduct of trade on the other hand is also essential for the gains of trade to be equitably distributed. 2.0 THE EMERGENCE OF ANTI-DUMPING LEGISLATION

Dumping is defined as exports below the normal value of sales in domestic market in ordinary course of trade. The comparison of the export price and the normal value is carried out on an apple to apple basis, i.e., either at ex-factory levels or at the consumer price level. Articles on antidumping in WTO illustrate various methodologies on computation of normal value and comparison of export price with normal value. It may please be recalled that tariffs were slashed to unprecedented levels after various rounds of negotiations under the auspices of GATT in its first 25 years of existence. However, with the lowering of tariff wall, the protectionist lobby in the developed world especially US and Canada became powerful since 1970s especially after the oil shock. This led to increasing use of administered protection like countervailing duties (CVD), Anti-Dumping (AD) and negotiations for voluntary export restrains (VERs) which were permitted within the GATT and WTO framework.

The first AD legislation was adopted by Canada in 1904 and subsequently by other countries viz., New Zealand (1905), Australia (1906) and USA (1916). Canada initiated first Anti-Dumping case on steel being imported from US. According to Hufbaur (1999) in the United States, however, the 1916 AntiDumping Act was narrowly aimed at predatory pricing by foreign exporters. In 1921, the US adopted an amended Act, which closely resembled Canada’s anti- dumping law. It was a civil statute to assess penalty duties to compensate for price differentials. In the same year, the UK also adopted its first antidumping legislation while Canada, New Zealand and Australia substantially amended their Acts. Notwithstanding these developments, Anti-Dumping remained a relatively infrequently used instrument. In the immediate post-war period only South Africa, Canada and Australia were using anti-dumping as an important trade instrument. The anti-dumping law was not regulated under international law until the adoption of GATT 1947. In the Kennedy Round (1963-67), regulation of anti-dumping rules was taken up in earnest and an international code on antidumping procedures was adopted. This went into force in 1968 and was named Agreement on the implementation of Article VI of GATT or in short ‘Antidumping Agreement’. This formed the basis for the first European Community anti-dumping

Panda et.al, Trade Protection ... 157

legislation adopted in 1968. However, the use of anti-dumping remained very limited among the contracting parties. The Uruguay Round more precisely defined the rules and procedures of anti- dumping measures. The new Agreement introduced more detailed procedures for initiating and conducting anti-dumping investigations and reduced discretion with respect to methods used to determine dumping and injury margins, sun set clause, and particular standards for dispute Settlement Panels to apply in anti-dumping disputes. It was expected that higher standards of initiations of antidumping cases would restrain its use by member countries by making it more difficult to file complaints and to prove dumping and injury, and by strengthening the dispute settlement system according to Krishna (1997) and Roitinger (2002). However, contrary to the expectation, there was a dramatic increase in the use of antidumping activity by developing countries in the post Uruguay Round. Antidumping has now evolved into a global phenomenon with an increasing number of developing countries adopting these laws and making use of them. Out of the total of 2675 cases, which were initiated in the 1990s, 1335 cases were filed in the post WTO period of the late 1990s (Gupta,2003). Almost all WTO member countries have now adopted or amended their anti-dumping legislation. Some of the

countries that are not members of WTO (such as Russia) have also acquired their antidumping legislation. 2.1 Countervailing and Safeguard Measures

Besides Anti-Dumping, the other two Trade Protection Measures which could be resorted to are anti-subsidy and safeguard investigations. The application of subsidies and countervailing measures is regulated by the SCM agreement under WTO. Prakash (2005) argues that the aim of this agreement is not to restrain unduly the right of Governments to grant subsidies but to prohibit or discourage them for using subsidy that have adverse effect on trade of other countries. The agreement includes two categories of subsidies, viz., prohibited and actionable. A category of nonactionable subsidies have since been scrapped. According to WTO trade report titled “Exploring Links of Subsidies, Trade and the WTO”(2006), the prohibited subsidies include both export subsidies that are contingent on export performance and subsidies that are contingent on use of domestic over imported goods. It is on account of the above principles that countervailing action on exports of products from India has been initiated. Most of the export promotion schemes including Duty Entitlement Pass Book (DEPB), Export Promotion Capital Goods (EPCG), Duty Free Replenishment Certificate (DFRC) (now Duty free

158 Vilakshan, XIMB Journal of Management ; September, 2007

Import Authorization), tax holidays on exports, and preferential export credit subsidies have attracted countervailing measures. The effort of Government therefore has been to put in place a tax neutralization system, which has the direct nexus between exported products and inputs that go into it so that the Indian exports could be prevented from the application of countervailing measures. While the Indian exports have faced more than 100 CVD investigations on its exports, no anti-subsidy investigation has been initiated by India on imports into India. However, the major gray area of subsidies has been the agriculture policy of developed countries such as the EU, US and Japan. These countries had agreed in Uruguay round to reduce the subsidies in their agrisector which was never respected. The recent ministerial conference at Hong Kong in 2005 addressed it again which resulted in some modest attempt. According to Panda (2006) the agricultural sector is being protected in developed countries through domestic support and export subsidies. Domestic support measures were classified on the basis of the extent to which they ‘distort’ product markets, into amber box (e.g. input subsidies and price support), blue box (e.g. deficiency payment – an incentive not to produce, as a supply side management measure) and green box (e.g. rural infrastructure services, environmental protection and

decoupled income support) and targets to reduce the amber subsidies, resulted in subsidies being shifted from one box to the other. As the modalities are to be established India along with other developing countries cannot take counter actions against such unfair practices of developed countries. The other Trade Protection Measure, which has also been used somewhat sparingly in India, is the safeguard measure. While the anti-dumping and countervailing measures address unfair practices of dumping and subsidization respectively and are discriminatory measures imposed on company and product specific basis, ‘safeguard’ measures are targeted against increased imports, which, may enter in the domestic market of an importing Member as a result of its commitment to liberalise and are applied on a non discriminatory basis on specified products irrespective of their source of origin. Ordinarily, no prohibition or restriction can be maintained on importation and no WTO Member can impose duties or other charges on imports of any product from the territory of other WTO Members, in excess of those set forth and provided in its Schedule of Concessions. These obligations can, however, be suspended in whole or in part or the concessions can be withdrawn or modified by way of a safeguard measure, which may be

Panda et.al, Trade Protection ... 159

imposed in the form of either safeguard duties levied over and above the commitment made in the Schedule of Concessions or in the form of import quotas. According to Prakash (2005) the Agreement on Safeguard authorizes importing countries to restrict imports for temporary periods if, after investigations carried out by competent authorities, it is established that imports are taking place in such increased quantities (either absolute or in relation to domestic production) as to cause serious injury to the domestic industry that produces like or directly competitive products. It further provides that such measures, which could take the form of an increase in tariffs over bound rates or the imposition of -quantitative restrictions, should normally be applied on an MFN basis to imports from all sources. The investigations for the imposition of such measures can be initiated either by the government itself or on the basis of a petition from the affected industry. In practice, however, the investigations are generally initiated on the basis of petitions from the affected industry. The Agreement lays down the criteria which investigating authorities must consider in determining whether increased imports are causing serious injury to the domestic industry. It also sets out basic procedural requirements for

the conduct of investigation. One aim of the procedural requirements is to provide foreign suppliers and governments whose interests may be adversely affected by the proposed safeguard actions with an adequate opportunity to give evidence and to defend their interests. The primary purpose of providing such temporary increased protection is to give the affected industry time to prepare itself for the increased competition that it will have to face after the restrictions are removed. The Agreement seeks to ensure that such restrictions are applied only for temporary periods by setting a maximum period of eight years for the application of a measure in particular. According to annual report by Directorate General of Anti Dumping and Allied duties (DGAD: 2004-2005), in India about 12 safeguard investigations have been conducted, but which safeguard duties have been imposed in 8 cases only. In 4 cases, the safeguard duties were not imposed on account of consideration of public interest. It may be noted that since safeguard measures are applied under unforeseen situation of flooding of imports and consequential serious injury and are not per se redressal against an unfair trade practice, their application requires reciprocity in concession to affecting trading partners and restructuring of domestic industry as per a time bound restructuring plan.

160 Vilakshan, XIMB Journal of Management ; September, 2007

Also addressal of public interest issue is extremely stringent unlike in the other two Trade Protection Measures, which are invoked on account of unfair trade practices. On account of these aspects the safeguard measures are difficult in terms of relief to domestic producers. This therefore place enormous burden on the usage of AntiDumping measures. 3.0 DESIRABILITY AND EFFICACY OF ANTIDUMPING MEASURES

The case for anti dumping laws was first made authoritatively in 1923 by Jacob Viner (1923), who argued that dumping did occur, that it was an economic threat and that national laws to counter dumping were appropriate and desirable. However, a large number of economists such as Finger (1993) and Bhagwati (1988) have ‘questioned the use of anti dumping laws by the countries. It has been argued that in practice AD duties have been used to give undeserved protection to domestic producers and it ‘has become a threat to the system of free trade and needs to be abolished. The most appealing option is to get rid of anti dumping laws and to put nothing in their place. They were just ordinary protection in that they served the national economic interest of neither the victim nor the regulator country. The logic behind this is the usual logic of economic: a trade restriction harms the overall economic interests of the country that applies it, just as it harms the country which

exports. Therefore, the policy objective that follows from this is straightforward: to convince the user countries to apply antidumping actions less frequently. Further, legal analysis supports that recent expansion of national definitions of dumping, subsidization and injury are within the limits of the GATT specification, so it is probably safe to assume that the unfair trade cases and actions do not violate the GATT. On the other end of the spectrum are the lawyers, trade administration officials and politicians who are supportive of mechanism of trade remedy laws and have ensured their continuance. They consider those trade remedy laws as safety valves for recourse against unfairly traded imports and thus a price to be paid for public support for free and open trade system. According to them antidumping laws have helped to support the creation and continued operation of the world trading system. It is not an accident that most of the frequent users of antidumping laws the US, the EU, Canada and Australia have been historically the supporters of open trade and the world trading system. Their logic is simple: countries that practice protectionism do not need antidumping laws; barriers that keep out imports, by definition also keep out dumped imports. It is only those countries that open their market that find the need for some recourse against unfairly traded imports. In addition,

Panda et.al, Trade Protection ... 161

assurances that imports are fairly traded support a domestic political consensus in favour of open markets. Mastel (1998) is of the view that countries like Mexico, South Africa, Korea, India, etc. have increased use of anti dumping laws coinciding with their plans for liberalization of trade policy, strengthens this premise. A computable general equilibrium model has been used in a study conducted in USA in 1995 to measure economy wide effects of AD measures in USA in specific sectors/products viz. frozen concentrated orange juice, lamb meat, EPROMS, colour picture tubes, solid urea, brass sheet and strip and welded steel pipes and tubes. The study also covers the trend analysis of AD/CVD measures since 1980 and their effects on producers and consumers and upstream and downstream linkages. The domestic market effects are examined with respect to price, output, revenue and employment, while imports are analyzed with respect to price, volume and revenue. The effects like FDI inflows to cope with AD measures, emergence of aggressive competition, trade diversion and limited price increase were reported. There exists inherent tension between the AD measures and competition policy. Effects of AD measures viz. misallocation of resources, subsidization in home market, export of unemployment and predation in circumstances of sales below cost is

reported. According to Steele (1996) AD measures are a political balancing of trade liberalization objectives under WTO and member nations concern for a level playing field for their domestic industry. AD measures though legally mandated by WTO are not good economics. In a case of cut flower industry in Colombia, the non computation of net economic benefits of impact have not highlighted the gains in terms of employment by the imports which were a positive effect and opposes attempts to levy antidumping. In a critical evaluation of antidumping measures, a favourable treatment has been meted out to dominant producers and that there are reasons other than dumping for imposition of AD measures. According to Banik (2001) the AD measures are NTBs and it is the loopholes in the AD code which leads to such an use. The effects of dumping include cost to society and consumers, distortion in bilateral trade relations, effect on exports, trade diversion, and erosion of country’s image and credibility. A log linear model evaluates negative effect on India’s exports due to AD measures. Banik further argued that irrational imposition of AD measures, undermining of the spirit and rationale of AD measures from the initial set objective, pressure by lobbies, and authority caving in to the demand of the lobbies. AD measures do not stand the tests of sound economic rationale

162 Vilakshan, XIMB Journal of Management ; September, 2007

models viz. Consumer welfare argument, strategic trade policy argument, or optimal tariff argument while imposing an AD measure. It is concluded that even the political economy argument does not pass the test of Predation. The methodological and institutional aspects of the AD measures also make the AD regime protectionist and arbitrary. Aggarwal (2003) is of the view that the competition policy is an appropriate substitute to AD measures or use of AD measures be restricted only in situations of Predation with injury test as stringent as antitrust laws Debroy (2006) mentions that free trade is only a myth under WTO/GATT system. The author argues that AntiDumping agreement is an exemption to free trade principles enshrined under WTO. The author further elucidates specific aspects of the AntiDumping articles, which bring in subjectivity and a bias leading to protectionist tendencies and thus providing overprotection to the domestic industry. Raju (2006) argues by highlighting problems with the Anti-Dumping agreement that such Anti-Dumping duties ignore costs suffered by consumers and protect domestic industry even though they represent monopolies. It has further been argued that in the years to come Anti-Dumping initiations will not be reduced as the political reasons in both developed and developing countries will compel member countries to resort

to the Anti-Dumping measures. Lindsey and Ikenson (2006) argue through concentrating on the rhetoric and reality of US Anti-Dumping Law that lobbying for ensuring protection to domestic industry plays a vital role. The flaws in the Anti-Dumping Laws also support the cost for protectionism. Erixon (2006) also underlines that the factors of political economy explain much of the use of Anti-Dumping measures. Although EU favours a reform of Anti-Dumping permissions and WTO reform but it also continues to be an user of Anti-Dumping measures especially against China. Li (2006) argues that the treatment of non-market economy during 2016 and lack of adequate legal capacity has led to Anti-Dumping cases against China. Similarly arguing an Indian case, Chakraborty (2006) highlights the protectionist bias and loopholes in Anti-Dumping agreement and the incompatibility of Anti-Dumping practices viz-a-viz WTO by various individual countries. The ambiguity in WTO articles has in fact led to mushrooming of disputes under WTO. Most of the aforementioned authors have stressed the need to dump the Anti-Dumping measures and that a substitute needs to be found out. 4.0 THE INDIAN EXPERIENCE: ISSUES AND PERSPECTIVES

India as a developing country has applied TPM whenever the trade has been distorted by unfair trade practices

Panda et.al, Trade Protection ... 163

like dumping. As per DGAD’s annual report 2005-06, between 1992 and 2005, about 300 Anti-Dumping investigations including reviews have been conducted on imports into India of which only 5% of the cases have been closed without recommendation of any Anti-Dumping duty. About 60% of these investigations have been on imports from China PR, EU and Korea. As regards nature of products, 50% have been chemicals and petrochemicals, 10% on textile fibres, 9% on steel products and raw materials and only 8% on consumer goods. Out of the cases which have been appealed before various authorities including Customs, Excise and Service Tax Appellate Tribunal (CESTAT), High Court and Supreme Court in about 5060% of appeals, the judgments has been in favour of the designated authority. Thus, one notices that the investigations have been more on raw materials and intermediates rather than on consumer goods. As per the DGAD’s statistics as mentioned above, between 1995 and 2005, more than 120 AntiDumping cases have been initiated against India of which in more than 50% investigations definitive measures have been imposed. EU, US and South Africa happen to be the major action takers against India. India’s share in terms of imposition of Anti-Dumping measures on its exports is about 3.6%. Most of the cases have been initiated against steel products, engineering goods, chemicals and pharmaceuticals. About 45 anti-subsidy cases have been

initiated against Indian exports of which 95% are initiated by EU, US, South Africa and Canada. 60% of these cases have resulted in definitive measures. Thus, India has been both an active user of Anti-Dumping measures and an adversely affected victim of AntiDumping and countervailing measures. However, there is no correlation in the two phenomena, which could imply retaliation or trade war situation. Further the raw materials and intermediates have mostly attracted Anti-Dumping measures. 5.0 CONCLUSIONS

The basic objective, regarding conduct of international trade under the WTO framework is to ensure free and fair trade and not simply the free trade. No extent of free trade can be equitably beneficial to all stakeholders until and unless trade is also conducted fairly. The unfair conduct of trade needs to be regulated by interventionist mechanisms like TPM, and more so by Anti-Dumping in the Indian context. No doubt some of the disciplines of WTO like evaluation of dumping margin would require tightening so as to reduce ambiguity and to take care of the dynamic structure of relative competitiveness. Dumping of AntiDumping and other Trade Protection measures is certainly not the solution as it would then be an era of free but not fair trade with developing countries having no recourse to safety valves to

164 Vilakshan, XIMB Journal of Management ; September, 2007

vent out unfair trade pressures. The application of Anti-Dumping duties is subjected to various review mechanisms, with appeals at various national levels and thereafter finally at the Dispute Settlement Body (DSB). Therefore elaborate redressal mechanisms exist for taking care of abuse of Anti-Dumping measures. The fact that about 60% of the appeals have been upheld before various appellate/ judicial bodies and some of the findings being modified only partially, it is a reasonably good indicator of a fair conduct of investigations by the designated authority in India. No doubt cost incurred in such transactions could happen to be a non-tariff barrier and therefore over use and misuse of AntiDumping can be detrimental to the free flow of trade in this context. However, no member country can afford to abuse these priorities for long and escape criticism. The user/consumer industry is a significant and a strong voice to check abuse of such a policy. Also a judicious and rule-bound application of lesser duty rule which prevents levy of Anti-Dumping duties to the full extent of dumping margin can check over compensation to domestic producers due to Anti-Dumping measures. The tightening of disciplines of AntiDumping could be through relooking into the threshold of 2% dumping margin and 3% dumped imports which do not trigger AD action also termed as de minimis limits of dumping margin and the volume of dumped imports.

There is also a need to harmonize various Anti-Dumping practices in determining the extent of dumping. The strengthening of causal link determination through a rigorous implementation of non-attribution analysis can further enhance credibility of Anti-Dumping measures. The argument that Anti-Dumping duties affect the export competitiveness is not justified since the taxes/duties on raw materials that go into export production are refunded back to exporters. In a study titled “Economic Impact of Trade Protection Measures; A Systems Approach for Anti-Dumping Measures in India” Arora (2004) while evaluating overall economic impact of Anti-Dumping measures, has concluded that while there has been a positive volume and price effect with enhanced profitability as far as domestic industry is concerned, there has not been any adverse impact on export competitiveness of the user industry due to levy of Anti-Dumping duty. It is further concluded that even though the application of AntiDumping measures may lead to both trade chilling and trade diversion effect, the high rate of Anti-Dumping duty does not necessarily lead to higher sales realization by the domestic industry as a high level of AntiDumping duty is generally counterproductive and invariably leads to circumvention of Anti-Dumping duties thus severely undermining the efficacy of Anti-Dumping measures. The study

Panda et.al, Trade Protection ... 165

also brings out that repeated and renewed Anti-Dumping measures are often affected by circumvention of Anti-Dumping measures. The need therefore is to strengthen the disciplines of Anti-Dumping measures by eliminating subjectivity in various articles which lead to abuse and misuse of Anti-Dumping measures rather than dumping this agreement as advocated by various authors. Further, the critics themselves observe that the main driver of usage of Anti-Dumping measures is the political economy and its usage in days ahead is not likely to decline. International trade is a dynamic process and as the cost structure of industries in developed and developing countries would keep changing, the technical disciplines of the AntiDumping act would also require to be re-engineered and tightened keeping in view such changes. It is therefore felt that harmonization of Anti-Dumping practices, tightening rules of origin to prevent circumvention, strict implementation of non-attribution analysis and adherence to the rules of the game with no intent of protectionist bias could go a long way in checking overuse, misuse and abuse of the Trade Protection Measures primarily AntiDumping measures.

Arora, Rajiv (2004), “Economic Imapact of Trade Protection Measures: A system Approach for Antidumping Measures in India”, M Phil Dissertion, Punjab University, Unpublished. Banik, Nilanjan (2001), ‘Anti Dumping Measures: A critical Evaluation’ India biz news and research services limited. Bhagwati, Jagdish (1988), Protectionism, MIT Press: London Chakraborty, Debashis (2006), ‘Time to Dump certain Anti Dumping Provision: Looking through the Dispute Settlement Mechanism Proceedings’, in Bibek Debroy and Debashis Chakraborty (eds.), uses and misuses of Anti dumping: Provisions in World Trade, A cross country Perspective, academic Foundation, New Delhi. Debroy, Bibek (2006), “Introduction” in Bibek Debroy and Debashis Chakraborty (eds.), uses and misuses of Anti dumping: Provisions in World Trade, A cross country Perspective, academic Foundation, New Delhi. Directorate General of Antidumping and Allied Duties (DGAD), Department of commerce, New Delhi, 2004-2005, Anti dumping cases in India: Products & Profiles, Annual Reports, 2004-2005.

REFERENCES

Erixon (2006), ‘Political Economy of Antidumping’, in Bibek Debroy and Debashis Chakraborty (eds.), uses and misuses of Anti dumping: Provisions in World Trade, A cross country Perspective, academic Foundation, New Delhi.

Aggarwal, A (2003), ‘Anti Dumping code: Issues for review in Post negotiations’, Working paper, ICRIER, Delhi.

Finger, J.M. (1993), Antidumping: How it works and who gets Trust, University of Michigan Press: Ann Arber, Michigan.

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Haufbauer, G. C. (1999), ‘Antidumping a look at US experience – Lessons for Indonesia’, Institute of International Economics, Washington, D.C. Krishna Raj, (1997) ‘Anti-dumping in Law and Practice’, World Bank Working Paper, 1823 Lindsay, Brink and Ikenson, Deniel (2006), ‘The Rhetoric and Reality of US Anti Dumping Law’, in Bibek Debroy and Debashis Chakraborty (eds.), uses and misuses of Anti

dumping: Provisions in World Trade, A cross country Perspective, academic Foundation, New Delhi. Li, Yuefen (2006), ‘Why is China the world’s number one Anti Dumping Target’, in Bibek Debroy and Debashis Chakraborty (eds.), uses and misuses of Anti dumping: Provisions in World Trade, A cross country Perspective, academic Foundation, New Delhi.

Perspective

Shaping the Moral Foundation for Globalization: Lessons from Indian and Western Philosophy* Bibhu Prasan Patra1 Abstract In this paper an attempt has been made to examine some of the unambiguous universal norms developed by the Indian and western philosophers and the important role these may play in shaping the moral foundation of global business practices. The growth and development of global business and its impact on economic, social and cultural life need to be based on a moral foundation that not only ensures good business but also contributes towards the development of a socially and economically just world. The main contention of the paper is to show that a better living and good life in a global village would be possible if multinational corporations hold on to these values. The value system of both the host and home country has to be properly handled and the ethical prospective has to be properly reviewed in order to maintain a moral standard which is rationally acceptable across the cultures. In order to resolve the dilemma of culture specific value system the idea of transcultural ethical universalism has been developed in this paper. Two models (i) Kant’s Deontological method (Western philosophy) and (ii) the concept of Dharma (Indian philosophy) and the learning from the Upanishads have been used to resolve the challenges of cultural relativism.

1.0 INTRODUCTION

Globalization has been commonly understood as a process of free flow of goods, services, technology and other assets across national boundaries. The process of globalization is facilitated through the market system, which determines quantity, quality and price by the participants of market. All of us take part (knowingly or unknowingly) in the market exchange system that is no more * 1.

confined to one nation state. This new global economic order is mainly facilitated by “Global Business “(henceforth GB). GB is thought to be the most effective way of creating wealth and enhancing economic growth. It is very closely connected to its sister concepts, globalization and global capitalism (Dunning, 2003). GB without doubt is the main driver of global economic order. But diversity of

Received August 28, 2007; Revised September 5, 2007 Associate Professor, Xavier Institute of Management, Bhubaneswar, email:[email protected]

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economic and political policy matters, conflicts of values, and differences in normative standards have direct impact on commercial transactions and economic interactions. The major challenges to the organizational system of GB originate from cultural diversities. All these problems are understandably there because there are significant differences in culture, economic equality and social status among the nations and also within a particular nation. The problems are of far greater dimension while designing managerial strategies at the global level. What is necessary, therefore, is a two fold task: First, a sensitive, informed investigation into the range of norms and values involved in commercial transaction as well as a comparative understanding of cultural socio-historical and political fabrics of both host and home countries. Second, a judicious, imaginative comprehensive and operational normative framework which can effectively deal with problematic issues of GB in the spirit of maintaining a reasonable balance that fulfills the demand of all the stakeholders like (a) Commercial stakeholders, such as, suppliers, competitors, distributors and retailers; (b) Host country stakeholders, such as, local employees and their organizations, pressure groups, host country government and host country community;

(c) Domestic or home country stakeholders, such as, home country employees, shareholders, home country customers and the domestic government. No doubt these stakeholders put various pressures on the global firm. Finding out reasonable solutions to satisfy a range of stakeholders sometimes becomes very difficult. So GB is tantamount to pressure from a triangle of stakeholders. While safeguarding the interest of home country stakeholders imply obliging the cultural standards and values of the domestic soil, attending to the demands of the host country stakeholders requires the firm to oblige the cultural values and standards of the host country. And these two obligations may not be fully compatible with one another. Appropriate solution depends on proper understanding of how radically divergent the cultures are and the legal and moral codes of the two countries involved. Understandably then, there is a triangular tension that GB experiences in its effort to survive and prosper in the global market place. And surely, this tension cannot be eased merely by adopting a descriptive or non-evaluative measure, which takes no note of the seriousness of the normative dimension of GB. When different countries have different ethical standards relating to business practices, there are two types conflicts that commonly arise; i) The level of development, i.e. the different stages of socio economic progress in host and the

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home country, and ii)the conflict of moral standards; because of cultural traditions, employment policy the problem of bribery, gift etc. These issues require a critical culture-sensitive handling. For example; while very low wages may be considered unethical in developed countries, developing nations may be said to be acting ethically if they encourage investment and improve living standards by accepting low wages. Besides, while child labour may be deemed unethical in a developed country and it may even be condemned by the United Nation’s Charter of Labour Laws, there may still be the ethical dilemma whether compulsory withdrawal of all child labourers from a firm is to be strictly ordered even if that inevitably leads to starvation in a developing nation. One major differentiating factor is the effect of cultural differences on the acceptability of business practices. The context-relativity of the above kind may be mistaken for full-scale ethical relativism, denying any kind of uniformity of ethical values altogether across humanity. A common problem for GB is whether to adopt the motto “when in Rome, do as the Romans do”, or to standardize the system of values used in the home country throughout the organization and impose them on the host country operations. Between these two extremes, there may be a reasonable middle path, which could lay down the parameters that make global business practices good. One can always identify a common set of core value, which would

categorically govern GB under any particular circumstances anywhere in the world. My contention here is that cultural and ethical relativism poses only an apparent conflict for GB. Admitting the fact that norms and outlook vary from one place to another and all questions of moral differences among cultures can be solved by measuring them against a yardstick of morality has great relevance for stability of GB. We will now look into both Western and Indian philosophical traditions that reject any form of relativism and give moral support to GB. In what follows we shall examine the philosophical foundations that transcend the narrow issues of cultural and ethical relativism and facilitate smooth progress of the global market. The efficiency requirements of the global market ought to be supported by fairness that is based on universal moral principle of what is just and proper. 2.0 WESTERN PHILOSOPHY: KANT’S ETHICAL UNIVERSALISM

Kant’s moral theory provides a moral standard, which can be applied universally across the border. Respecting the other person is the most basic thing, and for which societal and national boundary is not a hindrance. Kant in his “Ground Work of Metaphysics of Moral” expounded that “don’t treat other individuals as means to an end” i.e. all rational beings are members of the kingdom of ends. The basic freedom of the individual person has to be respected. Once you care for the human

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dignity and treat others as a member of the kingdom of ends, the controversy that arises between unequal economic development and cultural difference will be resolved. Kant unambiguously refer to some principles which are of unconditional worth in human life, such as, selflegislation, (independence of all natural desires), principle of autonomy, the principle of being a universal legislator in a kingdom of ends (all ends combined in a systematic whole). In the Groundwork, he contends that the supreme principle of morality is commitment to doing only what autonomous reason permits us to do. It is self-evident that a rational being necessarily has insight of what is morally permitted and accordingly set goals and purposes, which are morally worthy. Because human beings are rational beings and have the capacity to set an end by choice and deliberation (which distinguished them from other animals). His argument is that rational beings, having autonomy of will, nurture their natural perfection and are willing to perform fully rational action. He says that this autonomy or the freedom of the will actually guide all actions and universally govern human conduct. That is why he considered all rational beings as ‘kingdom of end’ or ‘end in themselves’. The capacity for the ingenious pursuit of purposes and the creative ability, give rise to actions that are unconditionally good (that is the only end-in-itself).

He writes that ‘morality, and humanity as capable of it, is that which alone has dignity’. And again, ‘respect for a person is properly only respect for the law ….’ ‘Nothing can possibly be conceived in the world, or even out of it, which can be called good without qualification, except the ‘Good Will’; that is, the disposition always to do what practical reason enjoins or permits, because it enjoins or permits it. ‘The cultivation of one’s will [moral attitude] to fulfill every duty as such’ is the duty of moral perfection according to him. The supreme principle of morality, the principle of autonomy, is the only intrinsically worthwhile value, for all possible purposes of human endeavour. Kant’s conception of treating humanity as an end-in-itself also includes perfect duties to oneself and duties of respect to others. Here Kant holds that arrogance, defame, contempt and physical injury are prohibited, as contrary to the dignity of others. He says we are also obligated to acknowledge ‘the dignity of humanity in every other man’. One must creatively pursue all permissible purposes (including the economic or business pursuit) as fully as possible. But one must do this because one has a natural inclination to do so. Moral perfection is to do one’s duties (to be perfect) from the motive of duty (‘duty for duty’s sake’). This absolute freedom from the pressures of inclination is involved in autonomy, which gives man his inherent dignity.

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It is rather irrelevant to talk of cultural relativism so far as human dignity is concerned. Kant’s Categorical Imperative requires us to treat humanity, whether in our person or that of any other, never merely as means but as ends in themselves. We must not for instance coerce or deceive others anywhere nor must we fail in our duty of benevolence towards them. In the modern world what we lack is a sincere effort to care for human dignity. This in fact is creating confusion in the present day human society and problems for GB. Once we realize that all rational beings are free beings and have the capacity to exercise their autonomy of will, it will give rise to a world order which is more cosmopolitan. This deep-rooted ethical philosophy if cherished will contribute to better living and good life in a boundary less world. Of course while applying the moral theory, one may face some practical difficulties, because sometimes it is difficult to grasp complexities of the situation and one’s finite ability to judge the ethical context. But so far as core human values and individual freedom is concerned, context complexity will not be a hindrance. It only depends upon one’s attitude to accord equal dignity to each human person, i.e., universalizability (human beings must be treated with dignity)and reversibility, (what you do not wish to do to yourself do not do to others). Universal principles are formulated on the foundation of these basic values, which are present everywhere in the world.

John Rawls’ Theory of Justice represents the Kantian conception of morality. Rawls theory of justice focuses on social justice, which he regards as a feature of a wellordered society. In such a society, each entity pursues its interests in accordance with moral maxim(rights and duties) based on the rational free will and distribute the benefits and burdens on mutual cooperation. Rawls holds that institutions as part of a well-ordered society should choose the principles of justice without knowing any facts about their stations in life, such as social status, natural ability, intelligence, strength, race and sex. His approach is that a rationally self-interested person harmonizes himself or herself with the society by recognizing the fact that behind a veil of ignorance each individual is equal. The social order is ensured by offering to its members an equal opportunity. According to him elimination of difference caused by accidents of birth or social condition is the only way to achieve economic justice. Donaldson and Dunfee’s (1999) idea of hypernorms is also rooted in Kant’s maxim. Hypernorms are second-order moral concepts because they represent norms sufficiently fundamental to serve as a source of evaluation and criticism of community-generated norms. Once we respect the hypernorms we will reject cultural relativism and pave the way for a trans- cultural ethical universalism. This cosmopolitan, world view defends the universal character of human ethical experience. This amounts to recognizing

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the diverse communities and rejecting the fact that one -size -fit-all, but at the same time evolving universal principles and values that is common to all people and based on the deepest sources of human ethical experience.2 No doubt the foundation of these ethical standards normally lies in major religious and philosophical precepts, and human rationality. If corporations and other business organizations nurture proper respect for other cultures, employees, shareholders, customers, suppliers, natural environment and the immediate surrounding of their business firms (both in the home and the host country), that will enable them to accomplish their goals more efficiently. 3.0 DHARMA (THE BINDING PRINCIPLE): THE INDIAN TRADITION

The word ‘dharma’ comes from the root dhr meaning to ‘to support’ or ‘to sustain’. It is the common principles that show the way to people of the time to move on the path of righteousness (dharma). Dharma does not refer to some rigid and stagnant principles but is an active power that directs and preserves the interests of the individual and the society irrespective of caste, creed, religion and socio-economic condition. ‘Just as the water helps the 2.

fish to move about, so dharma makes the movement of soul and matter possible.’ The characteristic of Dharma is that of a regulatory principle. It is the guiding principle of all action and tells us what ought to be done. That is why dharmasastras (ethical treatises) take into account the conditions prevailing (i.e. keeping in view the need and requirement) in desa (space) and Kala (time). Adherence to dharma put emphasis on one’s duty and it entails that each one (which encompasses every thing and being) should be treated with respect irrespective of position and place. Secondly dharma guides, every aspect personal (personal hygiene, civil awareness, polite behavior, considerate and gracious ways of dealings etc.) and public life (social, policatical, economic, religious, and spiritual matters etc.). There are diverse communities, and customs that differ from places to place, and families to families (desa, jati, and kula), and the peculiarity too is taken care of by concept of dharma. Every activity of life is coordinated by dharma. In Indian philosophical system the concept of Dharma (the cosmic moral principle) encompasses the religious and social understanding of the human situation. It is the binding principle and

Different global fora (e.g. Human right, civil rights, employee right, child protection, and the environment protection groups) are making significant contribution to improve quality of life in the global society. Action of these fora for a have been giving authentication to consensus morality and the concept of ethical universalism or universally accepted ethical norms.

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universally applicable to the different human activities (i.e. social, economic, political etc.). The question of moral rightness and wrongness or moral worthiness of an action is embedded in the concept of dharma. Dharma is considered to be the rule of law. It is above everything. Dharma acts as decision procedure for determining the right action in any particular situation. The connection between the metaphysical and the material world view of Indian ethical thought is unique. Let us elaborate this moral fibre for the sake of clarity. In Indian value system there are four aims or goals of human life, viz. artha (wealth), Kama (desire), dharma (moral principle), moksa (salvation).These four purusarthas, are called caturvarga (the four principles of living). In the caturvarga classification the four are equally important for leading meaningful life. Only the Carvaka school (the materialist) considered kama (desire) as the only goal of life (kama evaikah purusarthah), the artha being merely the means of instrument for realizing kama. From this standpoint, treated as both dharma and artha are merely treated as the means and kama as the end. I would like to mention here that those who relinquish the world and decline to take part in worldly transaction set moksa as their ultimate goal (the paramapurusartha); and do not pose any problem to the society (Manusmriti 2.224). The other three purusarthas artha, kama and

dharma constitute the bed rock of the socio-economic living. Prosperity or welfare consists in giving importance to kama and artha, but these should be achieved only by adopting the path of dharma. Of all the purusarthas, dharma is considered to be of the greatest importance because dharma is the sole means of attaining social and economic justice. It is through dharma the objective of artha and kama should be fulfilled (dharmadarthasaca kamasaca sa kim artho na sevyate, The Mahabharata 5.122.32).So it asserts that all business enterprises should be unfailingly based on dharma. Dhrma gives direction to artha (creation of wealth). So, when there is no clash between dharma and artha; it provides the self-discipline essential for the beneficial pursuit of artha (wealth). In Canakyasutra it is stated that sukhasya mulam dharmah; ‘dharma is the root of happiness.’ It is thus dharma that leads to the behaviour which supports harmony in society, facilitates its economic growth, and ensures good life in the society. Here we can see the similarity between Kant’s principle of universalizability and reversibility and the Mahabharata concept of whatever one desires for oneself one should desire the same for others (yadyadatmani iccheta tatparasyapi cintayeta the 12.251.21). These maxims declare offences against persons and property to be violations of dharma. Commonly it refers to the codes of duties of social, political, economic

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institutions and individuals. Manu clearly states various feature the dharma (duty) for better accomplishment of individual, social, political, and economic goals of life. Thus Manusmriti maintains: acarah paramo dharmah: good conduct is the excellent dharma – (Manusmriti 2.12). 4.0 THE UPANISHADIC MODEL

In the Upanishads Indian thinkers have described the human race as Amritasya Putrah (children of immortality) and the whole world is described as Vasudhiva Kutumbakam (the entire world is one family). The concept of Global society has existed in the Indian Philosophical tradition from the very beginning. The whole of mankind was considered as the part of the divine (Atmabat Sarva Bhutesu) and the Divine is all pervasive (Ishabasyam Idam Sarvam). There was equal respect for life of both human and non-humans (i.e. lives of animals and plants, Atmabat Sarva Bhutesu). Cherishing these values positively contribute towards a better form of life. Upanishidic vision envisages that dharma is identical with satya (truth). It is the basis of all good practices. In Brhadaranayaka Upanishad it is clearly stated that there is nothing greater than 3.

dharma; dharma is considered to be stronger than any other power since it is possible for a physically weak, but righteous person to defeat a physically strong person. In the Rg-Veda dharma is akin with the concept of rta, the Moral Order. The reverence for dharma by any individual or society ultimately gets its reward by dharma protecting that individual and society (dharma eva hato hanti,dharmo raksati raksitah). When there is a comparison between the Arthasastra and the Dharma-sastra, the latter triumph over the former. Deliberately I have not discussed the relation of dharma to moskha.The basic purpose of this paper is to affirm the positive role dharma plays in regulating human conduct that ultimately helps the individual and society to grow. GB will certainly attain the greatest good for the mankind if devoid of prejudice against caste, creed, religion, country etc. If organizations accommodate this philosophical thinking and practise such universal value system, (See Table- 1 for details), they will definitely do well in both the home and in the host country. It will also provide a philosophical backbone to some recent empirical studies done by Hofstede (1980,1983,1991) and on cultural Trompenaars(1997) 3 dimensions .

Hofstede has specified four dimensions of culture, such as; i) Power Distance, ii) MasculinityFemininity, iii) Uncer-tainty Avoidance and iv) Individualism-collectivism to indicate cultural difference among different countries of the worlds. Trompenaars and Hampden provide a series of bipolar dimensions of culture i) Universalism versus) particularism, ii) Communitarism versus individualism, iii)Neutral versus emotional, iv) Specific versus diffuse, v)Achievement versus ascription.

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Table-1: Universal Human Values Common Understanding

Western Philosophy

Indian Philosophy

Kant’s Ground work of metaphysics of Morals (1785)

Upanishads and Concept of Dharma

Dignity and Respect

Dignity and Respect

Dignity and Respect

Every human being must be treated with equal dignity and honor without any distinction of nationality, race, cast, creed, sex, age, language, religious affiliation (faith), and political affiliation. There should be conscious effort to protect human dignity by individuals and political and economic powers.

The rational being is “the basis of all maxims of action”. “The rational being, is an end in itself, and must treated in every maxim as an ends.” and “must be treated never as a mere means”.

The Upanishads depict all men and women as “children of immortality” (Amritasya Putrah).We should do good to others, respect others because ‘we are all one’ in helping others, we help ourselves; and in hurting them, we hurt none but ourselves.

Freedom

Freedom

Freedom

There should not be any compulsion, no should act under duress, no exploitation should take place in the work place (particularly women and children),

Freedom of the will is not the capacity of the will to make choices on the basis of subjective feelings, but is the capacity to choose actions on the basis of objective principles of reason.

In the Upanishads Freedom is conceived as internal force that exit in every individual This immutable aspect is manifested by the practice of good work and satisfaction of. One’s own conscience.

Reversibility

Reversibility

Reversibility

Do not do on to others which you do not wish to be done to yourself. This should be the binding, unconditional norm for all areas of life, (from personal, social to professional life).

Every rational being whether yourself or another has strict obligation towards him-self and others. “Do not do it to others which you do not want to do on to yourself”.

There was equal respect for life of both human and non-humans (i.e. lives of animals and plants, Atmabat Sarva Bhutesu). Whatever one desires for oneself one should desire the same for others (yadyadatmaniiccheta tatparasyapi cintayeta the Mahabharata 12.251.21).

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Justice

Justice

Justice

What is needed is a socially and economically just society. Unlimited, unjustified use of resources (human, natural, and financial) by few causes social disharmony in the world. Conflicts should be resolved with non violent means and with the support of justice. This is applicable in every human endeavor personal or professional. All economic and political activity should operate within a global order to enhance peace and harmony.

The moral value of an action is determined not by how effective the action is in achieving its object, but by the principle of volition. according to which it is performed. What Kant is telling us is knowledge of just and unjust, and treat people with due respect to their rights, wcich he calls the ‘positive right’ of an individual.

The highest goal, the summum bonum is not only the well being, of human beings but of all the living creatures. Sarve bhabantu sukhinah sarve santu niramayahSarve bhadrani pasyantu makaschit dukhabhagabhavet.‘May all be at ease; may all be sinless; may all experience happiness; may none experience suffering.’

Univesalizability

Univesalizability

Univesalizability

Human beings have a unique capacity called reasoning. We depend on each other and think of the welfare of all. All people have a right to life, safety and free to develop their individuality insofar as they do not harm the rights of others. No should cheat, deceive, lie, torture, injure, kill any other human being because these can not be accepted as universal principle, violate human right, destroy social fabric. As Thomas Hobbes said: “life will become nasty brutish and short.”

Act only according to that maxim by which you can also will that it would become a universallaw. “Always act according to that maxim whose universality as a law you can at the same time will”, and is the “only condition under which a will can never come into conflict with itself…”

Indian thinkers have described the human race as Amritasya Putrah (children of immortality) and the whole world is described as Vasudhiva Kutumbakam (the entire world is one family, Upanishads)

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Truthfulness

Truthfulness

Truthfulness

All communication should be clear and transparent. Everyone should speak the truth, and act truthfully. All of us depend on authentic information to make decisions that shapes our lives. So, truthfulness should be cultivated in all our relationships.

The value of truth out ranks the value of combination of health, wealth, and happiness, etc.

satyam bruyat priyam bruyat na bruyat satyam apriyamPryyam ca nanrtambruyat esa dharmah sanatanahOne should speak the truth, but with giving offence, although one should never compromise truth for being nice.

The table-1 represents the universal human values that are common in both Indian and western philosophy. 5.0 CONCLUSION

In the conclusion, I would like to suggest that the universal values like; dignity and respect, freedom, justice truthfulness, universalizability and reversibility are the basic principles of human living. These principles determine the moral worth of any action. If these basic moral principles, presented in both the Indian and western philosophy are perused seriously, this would provide a solid moral foundation to GB. REFERENCES Bhattacharya, Haridas ed. (1953) The Cultural Heritage of India, Vol. I & II, (The Philosophies) Rama Krishna Mission Institute of culture, Calcutta Donaldson, Thomas, and Dunfee Thomas W., (1999) Ties that Binds, Harvard University Press, Baston, MA.

Dunning, John H. (ed). (2003), Making Globalization Good, Oxford University Press, New York. Hofstede, G. (1980a) Culture’s consequences: international differences in work-related values, sage, Beverly Hills, CA. Hofstede, G., (1983) The cultural relativity of organizational practices and theories, Journal of International Business Studies, Fall, 75-90. Hofstede, G. (1991) Cultures and organizations: software of the mind, McGraw-Hill, London. Kant, Immanuel (1785) Ground work of the metaphysics of Morals, Translated with an Introduction by Lewis white Beck, The library of Liberal Arts. 1959. Lal, Deepak, (2006), Reviving the Invisible Hand, Academic Foundation, New Delhi. Lowe, Robin (1996) “Ethics in International Business” in Business Ethics and Business Behavior (ed). Keen Smith and Phil Johnson, Thomson Business Press,. pp. 243-272. Rawls John,(1971)A Theory of Justice, Harvard University Press.

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Singh Karan, (1995) “Transition to the Global society: Towards a Dharma for the New Millennium” in the Indian Journal of Public Administration, July- Sept. pp. 613-613. Sri Aurobindo, (1972), The Upanishads, Rendered into simple and Rhythmic English (comprising six Upanishads, mainly the Isha, Kena, Katha, Mundaka, Prashna and

Mundukya), Sri Aurobindo Ashram Trust, Pondichery 1972. Stiglitz, Joseph E. (2002.)Globalization and its Discontent, W.W.Norton, New York and London. Trompenaars, F. and Hampden-Turner, C. Response to Geert Hofstede, International Journal of Intercultural Relations, 1997, 21.1, 149-159.

Perspective

Demand Estimation – Some Empirical Observations and their Implications* P.Mishra1

Abstract Demand and sales forecasting have gained importance in the recent time due to their relevance in planning process. There is a variety of methods for forecasting demand or sales. Different methods have different assumptions, limitations and implications. In the present paper two methods viz, explanatory method and consumer anticipation survey using probability have been used. It is observed in the first method that the use of only one strategic variable such as price sometimes does not result in good estimate unless it is associated with other important determinants of demand in short run estimation. In the second method, when cross section data are used in the consumer’s anticipation survey method, the estimates may vary unless the number of options (or price levels), the sampling type and sample size along with assignment of probability to different responses are given adequate importance and properly articulated as they involve subjectivity. The two methods and observations are independent of one another although they are related to demand estimation.

1.0 INTRODUCTION

Estimation and forecasting methods have found importance in the recent times in several fields including sales and demand forecasting and other business related variables since it is believed that educated guesses are more valuable than uneducated guesses for decision making (Hanke, 2002). Researchers have studied and experimented with various methods of demand or sales estimation and * 1

forecasting (Hardie et al,1998, Hassens,1998, Chen,2000, Steffens, 2001). It may not be out of place here to mention that strategic corporate planning operates in an environment of uncertainty. Statistical and econometric methods for sales estimation and forecasting attempt to reduce some of these uncertainties by predicting and estimating the volume that will be sold in the market. This information regarding which product

Received July 24, 2007; Revised : September 10, 2007. The author sincerely thanks an anonymous referee for his valuable comments on an earlier draft. Professor of Economics, Xavier Institute of Management, Bhubaneswar, email: [email protected].

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or services to be produced, to whom and to which market segments these are to be sold and when to be sold is a necessary input for planning various functions in a firm. To estimate or forecast company sales or demand, one needs to know the impact of its product’s price, its advertising expenses, personnel, selling expenses and strategies along with other variables. Hassens (1998) has examined the problems of estimation of ‘ongoing factory orders’ and monitoring ‘retail demand’. There are views that, different data sources and models could be used to increase prediction accuracy of the estimates or forecasts. Based on assessment of the relative efficiency of different statistical or econometric models, it is observed that extrapolative method with time series data could be most befitting for such exercises. Besides, marketing mix data for improved retail demand tracking method and use of conjoint measurement data to simulate a product’s utility over time with inclusion of the information in the demand model, have also been suggested. Similarly, some have advocated that an important phenomenon often observed in supply chain management, known as the bullwhip effect, implies that, demand variability increases as one moves up the supply chain, i.e., as one moves away from customer demand (Chen,

Ryan & David Simchi ,2000). They have tried to quantify this effect for simple, two-stage, supply chains consisting of a single retailer and a single manufacturer. They have considered two types of demand processes, a correlated demand process and a demand process with a linear trend. Such studies put emphasis on the use of specific variables in the models for estimation and forecasts. Researchers have also put emphasis on the use of moving average methods and more sophisticated autoregressive methods using time series data for short run forecasts. However, the most frequently used approaches for forecasting sales and demand are extrapolative methods and probabilistic models. Besides these, explanatory method using the demand and sales determinants have also gained importance in demand and sales estimation and forecasting in the recent time. The determinants of demand, mostly the strategic variables like price, advertising expenditures, personal selling expenses and income of the consumers are used in the estimation of demand and forecasting.In this context, it may be pointed out that one of the difficulties in using the explanatory method is data limitation. For example, while using cross section data for demand estimation it will be easy to get the demand or sale

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volume of a product and the prices prevailing in different market segments, but it may not be possible to have a breakup of the advertising expenditure of the product for these markets. Therefore, there will be limitation in using the explanatory method for demand estimation since data limitation will be encountered with respect to some of the strategic variables like advertising and personal selling expenses. Moreover, it is an accepted fact that in the short run there will be hardly any variability in the prices in different markets although there will be comparatively more variability in the demand depending on the influence of some other variables like income of the consumer and other demographic features. In view of the above, an attempt has been made, in this paper to evaluate two methods of demand estimation – (i) explanatory method using determinants of demand and (ii) probability method using consumer anticipation survey and then discuss the issues and implications. The specific objectives of the present paper, therefore, are as follows: 1.

To evaluate the explanatory method with special reference to the selection and use of variables and identify issues involved in estimation and implication of the findings, and

2.

To identify issues involved in the consumer’s opinion survey method with assignment of probability to responses for demand estimation using only cross section primary data.

2.0 METHOD

For the explanatory method, a multiple regression has been used where as for the consumers’ opinion survey a two variable regression has been used. For the first method, a demand function using a set of three strategic variables, namely, price of the product, advertising expenses and personal selling expenses have been used and demand estimation has been done using the said three variables. The relative importance of the variables used has been examined from the standardized coefficients and also from the scatter plots. Estimates of Demand using each variable in the equation and combination of variables have been examined and compared using the standard method through errors in the estimates. This has been done by using secondary data. For the second method, i.e. opinion survey method, a live example of Ortel Communication Ltd Bhubaneswar (Mishra, P, 2006) was considered and primary data were collected from six cities/towns namely, Bhubaneswar, Cuttack, Paradeep, Rourkela, Sambalpur and Balasore with the help

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of a questionnaire. Fifty prospective customers have been included in the survey for each of the above mentioned places and using probability method for consumers’ anticipation demand has been estimated. Equations for the conventional demand curves as well as marginal revenue curves have been estimated and the revenue maximizing price for the company has been suggested. Issues and implication of the method have also been discussed.

3.0 FINDINGS AND DISCUSSION

The findings relate to the empirical observation using two methods of demand estimation (Case I and Case II). The first relates to the use of explanatory method whereas the second relate to the use of consumer’s anticipation survey. Case I

The findings presented in Table 1, Graphs 1, 2 and 3 and output - 1 relate to estimation of demand using time series

TABLE – 1 : ESTIMATED EQUATIONS FOR DEMAND ESTIMATION & MEAN SQUARE ERROR (MSE) Dependent Variable : Units Sold (Proxy for Quantity Demanded : Qx) Equations

Constant

Slope Coefficients of Independent Variables Price X1

R2/Adj R2

MSE

S.D of Estimates

Advertis- Selling ing Expenses Expenses X3 X1

1. Qx = f(X1 X2 X3)

– 117.5

-0.296 (0.02)

-0.296 (0.02)

-0.296 (0.02)

0.96

10587

102

2. Qx = f(X1)

2096.22

-0.0237

—

—

0.0003

338021

581

3. Qx = f(X2)

154.801

—

0.0934 (0.00)

—

0.88

38591

196

4. Qx = f(X3)

– 1292

—

—

0.0929 (0.00)

0.88

41370

203

5. Qx = f(X1 X2 )

– 117.5

-0.0884 (0.60)

0.0937 (0.00)

—

0.86

37394

193

6. Qx = f(X1X3)

– 270.032

-0.396 (0.00)

—

0.0995 (0.00)

0.93

18750

136

7. Qx = f( X2 X3)

– 706.137

—

0.0514 (0.01)

0.0477 (0.02)

0.92

21060

145

TE : Figures in the parenthesis refer to the significance levels of the slope coefficient

Mishra, Demand Estimation –Some ... 183

Graph 1 : Adv. Expolr

Graph 2 : Selling Expenses

Graph 3 : Price

data for three independent variables viz; price, advertising expenses and selling expenses for twelve months of Electronic Data Processing (EDP) Corporation, Inc. USA(2001). Estimation has been done taking the three variables at a time, one each at a time and three different combinations of the variables in order to compare the results and identify the most important one for estimating the demand. It may be mentioned that an examination of the scatter plots is a starting point of exploring a relationship between two variables. An examination of the scatter plots between quantity sold, proxy for demand, and price see Graph 1,2 and 3) suggests that price does not seem to have a negative relationship with the units sold. The points are scattered on the graph without showing any pattern. It may be observed that for lower prices the units sold is less in some cases whereas more in some others. Moreover, at the same price the units sold are also different Thus, the association between price and units sold cannot be used for estimation of demand and forecasting of demand for a future period. The insignificant association is confirmed by the low significance level of the slope coefficient and the coefficient of determination (R2) when price alone is considered to be the explanatory variable. Although, a negative sign precedes the coefficient,

184 Vilakshan, XIMB Journal of Management ; September, 2007

it is not statistically significant. Moreover, the coefficient of determination is almost zero. This may be wrong a priori. This warrants us to use other variables in the estimation. In the present exercise it is observed that the other two variables (advertising expenditure and selling expenses) are having significant relationship with the dependent variable i.e. units sold and the signs are also a priori correct. However, when all the three variables are included in the model all of them are having correct signs, (interestingly including price) and are statistically significant but price becomes the least important variable looking at the standardized coefficients (see Output 1). Obviously therefore, one will be tempted to reason out to drop ‘price’ from the equation. But theoretically, it is not advisable to drop a strategic variable like price. Moreover, the correlation matrix suggest that advertising expenses and selling expenses are highly collinear with a correlation coefficient of 0.89. Therefore, we have estimated the equations taking price and each of the other two variables individually. The two variables excluding price have also been used in the equations. It is found that the coefficient of determination (R2) is relatively less but the coefficients of the variables are statistically significant at less than 5 % in all the cases. This is done in order to examine how much the estimates are affected when different

combinations of variables are used (i.e. addressing remedial measure for multicollinearity and model misspecification).The estimates,the mean square errors and the standard deviations for all the equations have been computed (see Table 1). It is observed that the mean square error is the least when we are using the three variables in the equation rather than using only price or any other variables or the combination of two out of the three variables. This implies that the demand function when all the three variables are used is the most appropriate one. Case II

Consumer’s opinion survey using probability (consumer’s anticipation) Demand estimation of Ortel Communication Ltd has been done using consumers’ anticipation survey. The company was founded in 1995. In a short span of time it has emerged as one of the few companies in the country to provide the “Triple Play of Video, Data Voice”. So far as the state of Orissa is concerned, it is the only company giving these services to many cities. The company is operational in the towns in Orissa viz; Bhubaneswar, Cuttack, Sambalpur, Rourkela, Paradeep, Berhampur and Balasore and is providing cable net work (CTV). The economy of Orissa has been growing fast. In view of this fast growth, Ortel

Mishra, Demand Estimation –Some ... 185

Communication Ltd, Bhubaneswar decided to look into business opportunities with special reference to the growth of demand for the cable connections in the economy of Orissa. Accordingly the company decided to estimate the demand of the services provided by it in different towns in Orissa with respect to the different price levels. A sample survey was used to quantify the consumer’s anticipation of buying the service provided by the Ortel Communication, Ltd Bhubaneswar. Different price levels and space to Table No 2 : Please Specify Your Choice In The Following Table Price

0 (a)

0.2 (b)

0.4 (c)

0.6 (d)

0.8 (e)

1.0 (f)

Expected no. of buyers

300 275 250

Table 3 shows that there are differences in the slopes of the estimated demand curves thus giving rise to differences in the revenue maximizing prices.

225 200 175 150 125 100 a = definitely no; c = perhaps (may be); e = very likely;

register different options with respect to price (See Table – 2) has been used to quantify the consumer’s anticipation. The prospective consumers were asked to tick the relevant box with respect to their opinion on whether they would go for the services or not at the given prices. Probabilities were assigned to each of the responses. The expected number of buyers were determined by multiplying the number of responses in each row with the respective probabilities and taking the sum of each row. Thus, the table provides the expected number of buyers of the service at different prices. The conventional demand curve (DC) i.e. Px=f(Qx) along with the marginal revenue curve (MR) were estimated using the data. The results have been summarized in Table No 3. The revenue maximizing price has also been included in the table which was derived from the MR Curve. This has given the company to compare their market price and with the use of the elasticity coefficients the company may take a decision either to increase or decrease their prices.

b = not likely; d = quite likely; f = definitely yes;

It is observed that the revenue maximizing prices for Cuttack and Bhubaneswar are 167 and 174 respectively. But the actual prices which is charged in these two cities are more

186 Vilakshan, XIMB Journal of Management ; September, 2007

Table – 3 : Estimated Demand Equations & Revenue Maximisation Price Places Bhubaneswar Cuttack Paradeep Rourkela Sambalpur Balasore

DC and MR

Estimated Demand

Revenue Maximizing Price

DC

P = 348.619 – 3.569 X

174

MR

MR = 348.619 – 7.138 X

DC

P = 335.308 – 3.550 X

MR

MR = 335.308 – 7.100 X

DC

P = 282.054 – 2.896 X

MR

MR = 282.054 – 5.792 X

DC

P = 327.347 – 3.210 X

MR

MR = 327.347 – 6.420 X

DC

P = 252.470 – 3.498 X

MR

MR = 252.470 – 6.996 X

DC

P = 341.364 – 3.635 X

MR

MR = 341.364 – 7.270 X

which suggest that the company could increase revenue by lowering the prices and thereby widening the customer base in these two cities. But coming to the other towns in the state, it is observed that the company is intervening in these markets and charging a lower price than the revenue maximizing one. The issues which concern the researcher here relates to the number of options to be given to the respondents relating to the price and the assignment of probabilities to different options. The slope of the demand curve will depend on the probabilities to be assigned to the responses on the basis of which the revenue maximizing price is worked out and the elasticities are calculated which in turn may influence the decision making. The assignment of probability to the response category is determined subjectively by the researcher.

167 141 163 126 170

4.0 CONCLUDING OBSERVATIONS

The exercises presented here relate to two methods of demand estimation using both time series short run data and cross section data. Using short run analysis (time series) a researcher may estimate or forecast demand by using strategic variables. In the present analysis income of the consumers was not included although it is a strategic variable. However, a caveat is in order here which concerns the explanatory and predictive efficiency of the model used. Theory of demand suggests (and it is a priori correct) that price is considered to be the most important determinant of demand for normal goods, but prices do not change in the short-run in the market nor the income of the consumers particularly when time series data are considered (may be weekly, fortnightly,

Mishra, Demand Estimation –Some ... 187

monthly or quarterly). Therefore, when price is used as the only determining factor for variation in demand and one tries to estimate, he may end up with large errors and will significantly lose predictive efficiency of the model. Therefore, it is better to use the strategic variables including price in the model

for estimation and for the short term forecasting which may be necessary for managerial decision making such as fixing targets for a monthly, quarterly or yearly sale volume. Therefore, a demand function with the relevant determinants may be used in place of a simple demand curve for demand estimation.

Output 1 Regression Variables Entered/Removedb Model 1

Variables Entered SELEX, PRICE, ADVEXa

Variables Removed

a. All requested variables entered. b. Dependent Variable : SOLD Model Summary Model R R Square Adjusted R Square Std. Error 1 .985a .970 .958 123.92241 a. Predictors : (Constant), SELEX, PRICE, ADVEX ANOVAb Model Sum of Squares df Mean Square 1 Regression 3934437.5 3 1311479.183 Residual 122854.12 8 15356.765 Total 4057291.7 11 a. Predictors : (Constant), SELEX, PRICE, ADVEX b. Dependent Variable : SOLD Coefficientsa Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta 1 (Constant) -117.531 333.526 PRICE -.296 .102 -.200 ADVEX 3.598E-02 .014 .362 SELEX 6.621E-02 .014 .668 b. Dependent Variable : SOLD

Method1 Enter

of the Estimate

F Sig. 85.401 .000a

t -.352 -2.908 2.579 4.607

Sig. .734 .020 .033 .002

188 Vilakshan, XIMB Journal of Management ; September, 2007

Secondly, when we use cross section data and estimate the consumer demand, particularly for new products, one may use the consumer’s anticipation survey. It can also be used for estimating the demand for a product after product renovation/changes in the quality or any such changes in the product. The issue which needs to be addressed is the number of options (or price levels), the sampling type and sample size and assignment of probability to different response category. More number of options for price levels will increase the degrees of freedom while calculating the coefficients of the demand curve and the representative sample will have more generaligeability. However, the most important aspect is the assignment of probabilities to the answer categories. For example, we have used probabilities of 0.2 difference for the successive answer categories in our exercise reported here (following a conventional usage). But this is quite subjective. For example, one may argue that for an option in the answer category like ‘very likely’ (i.e. the consumer is very likely to buy the product at a particular price), the probability could be 0.9 or o.85 instead of 0.8 (as we have used in our exercise) and for an option like ‘not likely’ the probability could be 0.1 and not 0.2. A subjective assessment of the researcher is involved here to assign the probability. In such cases the expected number of persons willing to buy the product at different prices will vary. This will, in turn, affect the slope of the demand curve as well as the marginal revenue curve which will affect the revenue maximizing price for the

company. Therefore, much caution has to be taken while assigning the probabilities to the different options of the consumers/respondent. A brain storming between the researchers and the experts in the relevant field for assignment of probability could help in such a situation to have a good judgment in assigning probabilities which may result in a reasonable estimate of the demand curve. This will have implications on the revenue maximizing price and price elasticities. REFERENCES Chen, Frank, Ryan, K. Jennifer and Simchi, David (2000), “The impact of exponential smoothing forecasts on the bullwhip effect”, Naval Research Logistics, USA. Douglas, E.J., (1992) Managerial Economics, Prentice Hall Inc., N.J. Hanke ,J.E. et al Business Forecasting, (2002), Prentice Hall, India, Private Ltd. Seventh Edition, New Delhi Hardie, G.S., Bruce, Fader, Peter, S. and Winneiwski, Michael, (1998), “An empirical comparison of new product trial for forecasting models”, Journal of Forecasting, Vol-17, Issue - 3-4. Hassens, M. Dominique, (1998), “Order forecasts, retail sales and the marketing mix for consumer durables”, Journal of Forecasting, Vol-17, Issue - 3-4 Mishra,P., Business Demand Forecasts and Demand Estimation, (2006) An Unpublished Project Report ,Xavier Institute of Management, Bhubaneswar Paul, Steffens R. (2001), “An aggregate sales model for consumer durables incorporating a time varying mean replacement age” Journal of forecasting, Vol-20

Management Case

Suhas Gopinath* Brajaraj Mohanty1 & Rajeev Roy2

1.0 THE WONDERKID

2.0 HOW IT STARTED

On March 1, 2006, CBS News Agency made the headlines about the Indian wonderkid, Suhas Gopinath. As its Chief Foreign Correspondent Lara Logan reported, six years back, Suhas at the age of 14 had become the World’s youngest Chief Executive. By 2006, he was the boss of a global software company that spanned over 11 countries including the United States. It was a remarkable achievement by any standard. In India, a developing country saddled with the largest number of the world’s poor, it was nothing short of a miracle.

Suhas wanted to be a veterinarian. A chance visit in mid 1990’s, when he was 12, to an internet café, which opened next door to his house, changed his life. His elder brother Shreyas took him there and he was fascinated at the internet. “He explained me how the internet works and also opened my email id. The next day, I went to school to find that I was the only one in the class to have an email id but I was not satisfied with just that….. Somehow I liked the touch of the mouse and wanted to play with the key board. I used to sit in the cyber centre all the time. I used to get Rs.30 as pocket money at that time and I used the entire money in the cyber café. While an hour at cyber café would cost me Rs.120, I requested the cafe owner to allow me to work for him after my school hours and let me use internet for free. Luckily, he agreed. For the next six months, I learnt how to make web-sites and was introduced to many technologies. I learnt HTML, ASP and every possible software at the Cyber

Suhas was inspired by none other than Microsoft’s Bill Gates. He had set up his IT Services Company, Global Inc., while simultaneously studying in a school at Bangalore in India. The Company in its fourth year employed 600 persons – the youngest of them was a 10- year old and an advisor on web design. Age was not a barrier for employment in his company. The maximum age of an employee in the company was 32 and the average was around 21. * 1 2

Received August 20, 2007; Revised September 12, 2007. The case is based on published materials, website information and personal experience of the authors with Mr. Gopinath Professor, Xavier Institute of Management Bhubaneswar. email: [email protected] Assistant Professor, Xavier Institute of Management Bhubaneswar. email: [email protected]

190 Vilakshan, XIMB Journal of Management ; September, 2007

Café. I opted for self- learning instead of going to an institute”, says Suhas. “I had no knowledge of the Internet. But when I was browsing the internet in a cyber café I stumbled on a source code of a web site. I was fascinated and thought long and hard. I soon launched my own website, www.coolhindustan.com,” he adds. That had happened when he was not even 14 years old. The site was launched in May 14 2000 and two friends Clifford Leslie and M.N. Vinay helped him in this effort. “I didn’t have the money to launch the website. So I wrote to Network Solutions Inc. in the US and they readily agreed to host the site free of cost.” Network Solutions also invited Suhas to its headquarters in San Jose, California. It was the first time he had boarded a plane and also the first time that he had gone outside India. In the US, Network Solutions even asked him to maintain their website as Chief Web Developer at $2000 per week with a chauffeur driven car and an apartment. It was quite attractive but Suhas turned down the offer. He wanted to start his own company rather than be employed by a Fortune 500 company. Suhas spent hours at the local cyber café figuring codes, reading books on Bill Gates and Michael Dell and preparing to start an IT company. He had fortunately and accidentally an encounter on an internet discussion board with a US university student in 2003 who was

interested to join Suhas. Two teenage friends from Bangalore from his middle class neighbourhood were also willing to join him. However, his attempt to launch a private limited company ran into difficulty, as the laws in India did not allow a kid of 14 to start a company. Suhas decided to turn to US where such a law did not exist. Thus, Global’s Inc was set up in California and registered online in San Jose. Suhas initially planned that his company should be named Globals Solutions but that name was already taken. He opted for Globals with himself as its founder, CEO and president. Two years later, it had offices in 11 countries and employed over 600 people. In the year 2004 – 05 the company notched up an earning of Indian Rs.2.5 crore. Suhas always thought that he should start his company in Bangalore but was disappointed. In a meeting with President Abdul Kalam he requested for relaxation of this age limit so that other young entrepreneurs could easily set up their companies. The President promised his support. Initially Suhas faced many obstacles. The most important of them being from the potential customers. When they learn that Suhas was barely 14, they cancelled their orders and refused to take him seriously. To overcome this difficulty he started growing a moustache as soon as he began sprouting facial hair, but this also didn’t help much. Soon on the advice of the friends he shaved it off.

Mohanty et.al, Suhas Gopinath ... 191

Word gradually spread around about the ability of the Globals Inc. and as Suhas hired more and more people and opened new offices, potential customer started coming back to Globals and for Suhas there was no time to look back.

complex business. The portfolio of products and services comprise the following: 1.

IT strategy.

2.

Procurement and partnership

3.0 ABOUT BUSINESS

3.

Business Process Improvement

For Suhas IT was a pastime, which turned into an obsession. It was because of his interest that he worked on it and later other friends joined him. Initially it was a team of four. At the beginning they went to the extent of offering their services free of cost. As most of them were studying and were interested in the work, they did not mind. However gradually they realised that in order to sustain they had to charge the clients. At the same time their service charges were quite competitive vis a vis others in the business.

4.

Information Management

5.

Contract Development

6.

Web Designing

7.

Web Development

8.

Content Management System

9.

Internet Marketing

Globals Inc. offered cost effective solutions in web, software, mobile and multimedia. The company designed and developed B2B portals, B2C portals and corporate websites. In the words of Suhas “ We aim to bring out robust services within a mouse click and we believe in teamwork. Projects are undertaken by Globals to build the skills of the team members. Most of the members work from cyber cafes.” By 2005 it had established offices in more than 11 countries and served more than 200 clients world wide. Globals also offered IT consultancy involving practical jargon free advice to clients to cope with first changing and often

In developing cost effective, innovative world class solutions and products Globals has made a name for itself and carved out an enviable place for itself in the industry. Its has as clients, a number of companies from small and medium sized to fortune 500 companies. Every company is treated uniquely, taking into account its distinct needs. Its clients included the following well-known companies:

10. Media Streaming 11. Custom Application Development/ Custom Software Development 12. Industry Solutions 13. WAP

1.

Verisign Inc., USA

2.

Edunar UK

3.

Government of India

4.

Opalesque.com, Germany

192 Vilakshan, XIMB Journal of Management ; September, 2007

5.

VC4G.com

6.

Jain Group of Institutions, India

7.

Deepti Electronics and Electro – Optics Pvt. Ltd., India

8.

Childern Services Inc., USA

9.

Maso Automotives, India

10. Greys Exim, India. Globals operated on a world wide basis with offices in 11 countries including USA, India, Canada, Bahrain, Italy, UK, Germany, Spain and Australia and in addition there were operations in Singapore, Norway, Switzerland, South Africa etc. 4.0 WORK CULTURE

Globals is not only a young organisation but majority of its employees in India and abroad are also young college going students. Many of these are part timers and the average age in Globals is 21 years. Joining Globals Inc. is open to students in the age group of 17 – 22. In order to avoid employment of such young people being termed as ‘child labour’, Globals ensures that such people worked only on part time basis from their home where they are provided with internet connections and PC. They are given instructions through a message board. Their membership to the Globals network is free of cost and based on their skill set and not qualifications. Once a candidate is selected he is put on to a project and becomes a member of the Globals family. Any candidate can apply online if he is

convinced that he can bring in some relevant skills to Globals. About the age of employees, Suhas says “the upper limit is 25 years and we are basically looking for people in their teens or twenties. Enterprise is more important than high academic qualifications.” About the age of Vice President of operations, V.N.D Manohar, Suhas says that he is the oldest member of the team, but Manohar says “ I may be older but Suhas is more experienced. He is the boss.” During a conversation, Suhas says that he does not treat his colleagues as employees. There in a friendly environment just like in a family. Suhas is also concerned that the employees who work with the company get an excellent environment to work and have adequate opportunities for sports, leisure and relaxation. During a visit to Bhubaneswar for an entrepreneurship seminar, where he was talking to a young audience, he explored the possibility of setting up a research and development centre in Bhubaneswar. He visited Nandankanan (a zoological park), Puri, Chilka and several other places of interest to find out that, in the event of a R & D centre coming up, his employees would get sufficient avenues in and around Bhubaneswar to keep themselves engaged. 5.0 ORGANISATION STRUCTURE

Globals already has a management structure in place. There is a Chief Operating Officer, Chief Information

Mohanty et.al, Suhas Gopinath ... 193

Officer, Chief Technology Officer, other department heads and several regional heads in USA, Spain, Italy, Australia, Bahrain, Canada and

Germany. The names of the management team members regional heads and members of Board by Directors are given below:

Management Team Chief Executive Officer & President Chief Operating Officer & Senior Vice President, Finance Chief Technology Officer and Vice President, Software Solutions Senior Vice President, e-Commerce & Web Solutions Executive Vice President, Worldwide Human Resources Executive Vice President, Strategy and Marketing

Suhas Gopinath Vinay M.N. Samuel S Carre Vantt Chris Micheal Vaughan Amruta Desai

Regional Heads Regional Head – Dulles, USA Regional Head – Madrid, Spain Regional Head – Milan, Italy Regional Head – South Australia, Australia

Paul Samberg Alberto Sanchexz Plaza Giancarlo Ambrosini Abhishek Devraj

Regional Head – Manama, Bahrain

Titus Varghese

Regional Head – Quebec, Cannada

Manjesh Muthapa

Regional Head, Cologne, Germany.

Ehsan Rehman

Board of Directors Chairman of the Board (CEO Deepti Marketing Services) Vice Chairman of the Baord (CEO, Globals Inc.) Executive Director (COO, Globals Inc.)

Mr. M.R. Gopinath Mr. Suhas Gopinath Mr. Vinay M. N.

Non-Executive Director (Chairman, Jain Group of institutions).

Mr. R Chenraj Jain

Non – Executive Director (CEO Deepti Electronics and Electro-Optics Pvt. Ltd.)

Dr. Sheshadri M.R.

Executive Director (Legal Counsel, Globals Inc.) Non-Executive Director (NASA – Washington DC.

Mr. Joshi D.N. Dr. Narayan Rao

194 Vilakshan, XIMB Journal of Management ; September, 2007

6.0 FINANCE AND COST

Globals strategy was to have steady growth, low cost pricing and a focus on small and medium enterprises. It also worked in products like school information management system which has a great potential in the third world countries. “While a competitor offers this products at the cost of Rs. 2 lakh we offer it around Rs.15,000/- . We are aiming at smaller schools,” says Suhas. This is to some extent explained by the cost competitiveness of Globals. One of the other cost aspects was related to the setting up of the company. “I did not register my company in India as one has to pay taxes and there are other hassles,” he said. “The rates we charge are very cheap. If you want to set up your own site we charge only 300 rupees.” Infact for a client in Frankfurt, Globals designed a corporate website and charged only about this much. Speaking about the way that Globals keeps its cost down, Suhas mentioned about the salary of talented programmers in the US versus India. In the US, the programmers were paid a higher salary but the actual cost to the company was much higher. In addition to the salary there were statutory payments to each employee. Besides infrastructure cost such as hardware, software, utility and space cost got added to the overheads. On the whole, while a twelve man month project which took approximately a year for a programmer in US and costed about one lakh dollar, the same could be

completed in about six months in India and at an approximately cost of Rs.25, 000. In case of team programmers Suhas gave the component of cost estimate and efforts required for the typical project as follow: Activity Component

Percent of total cost

Percent of total effort

Analysis of Architecture and Design

20

15

Project Management

28

20

Development & testing

52

65

When asked about the general orientation towards profit, the response was “ the company is not a money making machine. Students below 22 can become employees. The aim as of now is to get more and more students to join. They work out of cyber cafes in India where they have to pay Indian Rs.15 (1/3 rd of a US dollar per hour) which is cheap by the world standards. When Suhas started out, the rates at cyber cafes were much higher but since then rates have dropped drastically. About the earnings of Globals’ employees it was observed that the employees in India earn between Rs. 20,000 to 25,000 a month. ( approximately equal to US $ 550 to 650) which is considered as a good wage in India but is about one third of what the Globals employees get (approximately

Mohanty et.al, Suhas Gopinath ... 195

US $1500) in the western countries. Commenting on this the Head of Finances, Globals says “For us, money isn’t why we work for Globals. The atmosphere and the fun are much more important to us. There aren’t any hierarchies here.” About growth and investment in the company, Suhas clarified “Now as my company grows, I invest all the profit back into the future of my company. I wish I could provide employment to all the talent in our country,” says Suhas. No wonder many of his classmates are his employees. 7.0 UNUSUAL EXPERIENCES

Being a Chief Executive at the age of 14, and still not 21, Suhas had his share of weird experiences – sometimes amusing and pleasant and at other times painful. In 2004, at a seminar on “Education System in India” at Indian Institute of Science, Bangalore, he was stopped by the security persons at the gate. “You are a school boy, this event is for the CEOs.” He picked up his cell phone and called the organisers, who rushed to the entrance to usher him in. Everyone was amused. Suhas knew that it was nobody’s fault. The security personnel, who has been instructed to allow only the CEOs, could hardly know that this young man in jeans and T shirt, looking like a college boy, was a CEO of a Global company.

Suhas also had some experiences at his college and with his classmates. It bothered him, to his embarrassment that his fellow students called him ‘Sir’, took pictures of him on his cell phones and asked for autographs. Suhas cannot forget one of his bad time after launching of his first website www.coolhindustan.com. The web site was to provide Indians all over the world with a forum to post public events, tips for eating out and other programmes which would be of interest to overseas Indians. The website became very popular. However, a hacker in Pakistan attacked the website and replaced the website logo with “Cool Pakistan”. That was a terrible experience and Suhas abandoned the project. Suhas owns a car, bought out of his earnings, but doesn’t have a license to drive it around the city as he is too young to get a license! As a CEO, he wraps up mega deals, but he couldn’t sign on the dotted line as legally he was not an adult when the Singapore based company, SingT, a Business Process Outsourcing company was offering a contract to set up web sites with e-library capabilities. This could have given an earning of $22000 but the contract fell through because he could not sign the contract under the Indian law as he was underaged.

196 Vilakshan, XIMB Journal of Management ; September, 2007

Suhas says that he likes his casual wear, jeans and T- shirts, but most of the time he is forced to wear blazers. He also wanted to be himself – never wanted to be a star. 8.0 EXPERIENCES WITH PAKISTAN

The first experience with his website ‘coolhindustan.com’ which was hacked by a hacker in Pakistan and made into ‘coolpakistan.com’ was quite disheartening to Suhas. He abandoned the website but he didn’t abandon the idea of opening an office in Pakistan. Speaking about the Pakistan IT companies, he states “There are only five to eight IT companies in Pakistan. A lot of the packages for the government and private sector are outsourced to the middle east. There is great potential in having a base in Pakistan.” While pursuing the idea of setting up a branch in Pakistan, there were objections from the Commerce Ministry that no Indian company could set up office on Pakistan soil. The objection faded away when it was explained that it was not an Indian Company but a company set up in California. The branch office was to function under the control of Pakistan’s Industry Department and the employees were to be sourced from Pakistan itself. There was a discussion with the Pakistan Prime Minister Shri

Shaukat Aziz who had promised to allot land near Lahore. Suhas was also considering Karachi as an alternative location. If his dream of setting up a office in Pakistan comes true it would be one of the rare achievements which many Indians would not dare to dream. 9.0 PARENTS’ CONCERNS

Suhas’ father, M.R. Gopinath, a Scientist with the Defence Ministry, was happy that his son had chosen what he liked and done well during the seven years. At the same time he does not want Suhas to neglect his studies. “To us, it’s important that he gets a degree, education is the most important thing in India” the father says. His parents first thought that he was spending hours just goofing off at cyber cafes and were worried about him. “We were very worried about him earlier. Things had changed in the last three to four years, his luck has changed. He still spends too much time on work and little on studies,” says his mother. Kala Gopinath, the mother, disapproved that he spent every rupee in the internet café. She was worried that Suhas had been a good student but after discovering the internet he had become an average student. In the Board examination he secured poor marks in mathematics. She lectured him on the importance of doing well in studies. His parents put pressure on

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him to finish school and study something practical to get a secure job. Later of course the parents reconciled when Suhas was doing well. But his mother was worried that her son ate and slept too little. She put more of idlis and vegetables on his plate. “This can’t be healthy. Today he lay on the sofa until 4 a.m. working on his laptop. Then at 8:00 he went into the Office”, she complained. The mother also insisted that Suhas shall have his office only at a walking distance so that without using car he can come for lunch. Accordingly, his office is located at a five minutes walking distance. Suhas enjoys the affectionate insistence of his mother. His mother always wanted that Suhas takes his studies seriously, studies management and like his elder brother, becomes a Vice President in a company with a good salary. In this context Suhas mentions, “Initially when my mom used to scold me, I used to give her Bill Gates’s example. He is my role model.” “My ambition is to set up another Microsoft” he adds. Suhas was asked to deliver talks at several top management institutes in India, including the Indian Institute of Management, Ahmedabad. When his mother tells him to study management, he replies, “why study there? I have been invited there as visiting faculty.”

10. TIME MANAGEMENT

In the second year of his engineering programme at MS Ramaiah Engineering College in Bangalore, Suhas works for about 18 hours every day, partly for his studies, and mostly as CEO of his multinational company. In an interview to Time Magazine he said, “Most of our business comes from the US market. When the day’s work in done here, by around 6 pm, I get a couple of hours rest and then video conference with clients and staff in the US working till around 3 am”. Knowing the importance of his job, the management of the college has waived the attendance requirement for him. Suhas uses this waiver to his full advantage. While other kids skip lectures to watch movies, Suhas misses lectures to attend seminars and conferences. Unlike other students who believe partying and spending time in Cafes, restaurants and multiplexes, he studies for engineering and works for the growth of his company. When asked about leisure and enjoyment Suhas says, “Whatever little time I get, I spend it with my family. I cannot afford to watch movies or go for holidays…. (of course) one should also make time to enjoy other things in life. With work you get too busy to repent.” When asked about how he manages his time and what is his inspiration, he replied, “My role model is Microsoft

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Promoter–Chairman Bill Gates. I want my company to become another Microsoft. Attending college and running a company at the same time is not easy. But I’ve learnt to divide and manage my time well,” says Gopinath. 11. LIFE STYLE, COMMITMENT ETC.

Suhas feels happy about his company. He seems to be quite attached to it. In 2005 when an investment firm from Huston offered 100 million dollars for a majority stake in the company, Suhas refused. The reason was “Why should I sell my baby”. In the initial years he had a hard time. Apart from the teething troubles in setting up the company he was too young to run it. Many clients were not keen about the company. But after seeing the quality of work they delivered, many of them came back. When asked about how he got some rest and leisure, his response was “When I look around I see a lot of guys of my age hanging out with their girlfriends. I do not feel bad as I have a mission to make my company another Microsoft,” Gopinath said “Bill Gates is my role model.” Suhas could have a Chauffeured driven car and live in a penthouse or buy a bunglow for his parents in a posh locality of Bangalore, but he lives with his parents in a medium size house and drives a small car. He doesn’t wear designer clothes. Ordinary jeans and T-shirts were his favourites.

Apart from Business for which he spends 18 hours a day, he spends some of his spare times with his family and to some extent with his dog names Bushy. He has no time to go to a cinema hall to watch a movie or to watch cricket matches. 12. AWARDS & ACCOLADES

Suhas employs about 600 persons around the World and was the youngest Chief Executive of any Company. The Limca Book of Records – the Indian Version of the Guinness Book of Records – lists him as the “World’s Youngest Chief Executive”. He was, at the age of 14, the Chief Executive of Globals Inc., and no one else had become Chief Executive of any Company at that age. Suhas also got the recognition of being one of the youngest certified webdevelopers. After seven days of his putting up the webpage, “coolhindustan.com”, the US based Network Solutions Inc., a company owned by Nasdaq-listed Verisign, which develops internet services, acknowledged his ability and certified him as one of the world’s youngest web page developers. Suhas has been a model for the young men and women, not only India but outside. Politicians and young professionals have celebrated him as an achiever and as an inspiration. He also had meetings with the Indian President, Dr. APJ Abdul Kalam at New Delhi and

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Pakistan’s Prime Minister, Mr. Shaukat Aziz in Islamabad. The Indian President Dr. Kalam and the HRD Minister, Arjun Singh also felicitated him. In 2004 Gloals Inc. also launched three unique software products and the BBC and Washington Post acknowledged him as the ‘world’s youngest CEO’. In 2005, Suhas Gopinath was one of the finalists of the Infosys Education World Young Achievers Award. In 2005, he was also the youngest among the 175 recipients of the Karnataka State Government’s Rajyotsava Award. In December, 2006, Suhas at the age of 20 was selected by the Times of India of Time Group as one of the Youth Icons for the year 2006. The other Youth Icons for the year 2006 included Indian Tennis player Sania Mirza, Bollywood Actor Hrithik Roshan, Industrialist Sunil Bharti Mittal, etc. Suhas Gopinath is also a brand ambassador for the People for Ethical Treatment of Animals (PETA). 13. SOCIAL PROJECTS

Globals Inc. has been in a position to identify unfilled market niches. It developed a software product for school that allows teachers to easily enter grades and attendance, which parents could access electronically and know whether their children are showing up to class. Attendance status and marks could also be seen on a

virtual notice board. The system also sent SMS alerts to the parents’ cell phones in case of continued absence or poor performance of a student. This software was installed in hundred schools in Nigeria and nearly hundred in European countries. It has also been accepted by the Kendriya Vidyalaya Sangathan in India for introduction in all its 870 schools across the country and also in Mosco and Dubai. Suhas has a grand plan of selling the software to the private schools also in India where there lie a great potential. Besides the Student Management System, Suhas is taking initiatives to develop a GPS based low cost vehicle tracking system which would be tailor made for Indian automobiles and for Indian road conditions. He hopes to sell each unit of the tracking system for Rs.5000 whereas the cheapest available system now in Indian market costs around Rs.20,000 and upwards. This system is also likely to have a big potential in the third world countries. 14. THE FUTURE

For Globals initial teething troubles were almost over. But Suhas felt that though initial interest and dedication had made it successful and he had become the chief executive officer, what mattered was the ability to expand the company. The job of managing the company had become easier because he treated his employees as family members and friends than acting like a boss.

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Suhas was planning to start management consultancy for the industry sector as well and expand services to non-IT areas.

he was planning to go to Stanford University and study artificial intelligence.

The general thrust in the company was placed on quality over quantity, mind over machine and unity over uniopinion. There was no question of egoistic thought. Everyone worked with lot of enthusiasm. The work was more streamlined and solutions were achieved within prescribed time boundary.

Globals HR strategy of recruiting skilled local youngsters, who would be happy to work part time, is key to their expansion plans. Domestic expansion for Globals is guided by the concentration of engineering and management colleges. In places with a high concentration of such educational institutes, it was felt easy to find local students to join Globals as part time employees.

Suhas always thought of having his company as an Indian company and looked forward to shift the headquarters in due course to India. However on crossing the 18 year age mark, which entitled him to register company in India, he has registered a company in Bangalore as Globals ITES. Suhas has his own dreams for becoming the Bill Gates in India and setting up a company, which in due course would be like Microsoft. At an age when other teenagers are whiling away time in games and other pastimes, Suhas was occupied in drawing a road map for his young company. Globals Inc. is small but Suhas looks forward to achieve a turnover of Rs.8 crore in the next five years. He looks forward to have many more young technical people and expand his business into networking solutions and embedded software. At a personal level

It is also in the news that he wished to move from service based company into a products based one for which the Company needed funds. These funds were proposed to be utilized to open market offices and onsite centre in Europe, which had largely remained untapped by Indian IT companies. Keeping with its plan to expand in Europe, Globals has already opened in Frankfurt an R&D business development sector. Frankfurt being the most important commercial centre in Europe, is likely to become a good hub for Globals in the European markets. The company has some clients in Germany including the prestigious account of Mercedes Benz for whom Globals is executing a web application project. There is also a proposal and talks are in progress in this regard with a London

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based financial institution to sell 20 to 25% stake in Globals Inc. to this financial institution to fuel the expansion plans. If this happens, expansion could be faster. And later the company can make public offerings through which funds can be raised and the London based financial institution would then be paid off. Suhas is also actively exploring the possibility of floating an IPO on the Nasdaq. Simultaneously, there were also other reports that Suhas was considering a possible takeover of a Chinese firm to make an entry in the Chinese IT sector. This could be a merger or an acquisition. This would give Globals a foothold also in Singapore and Korea. 15. TOWARDS ENTREPRENEURSHIP

Suhas Gopinath is a motivator for young entrepreneurs. In course of his travelling and lecturing in India and abroad he says “For the economies of third world countries to grow, job seekers have to transcend into job creators. Whenever I address the youth, I try to encourage them to take up entrepreneurship as an adventure. There are a lot of hurdles but the satisfaction of providing opportunities is huge”. Balancing work and studies was not an easy job for Suhas. He admits that life has been stressful for him. “As I got more interested in the company, my studies went for a toss. In my Class X exams I scored 80 per cent, but in I PUC could

barely get 65 percent. Even I try and not bunk too many classes, but clients cannot be given lame excuses. When I have exams, I tell them I am unwell….” In India Globals still faces some problems when it comes to Government projects. Sometimes people in Government argue that projects can be given only to those companies, which fulfil the pre-bid qualification norms and Globals more often doesn’t qualify. Suhas is reticent on the approach of Government officials but says, “We too will be a CMM level 5 company soon.” On the general approach towards work Suhas makes a cryptic statement “ Irrespective of success or fame, we need to be down to earth and humble.” REFERENCES Times News Network, August 30, 2005, Tuesday posted at 7:16 pm Teen Tradegies: Acne, Dating, $22,000 loss, November 11, 2003. Business Standard “Suhas Gopinath may sell stake to London FI”, Tuesday, September 11, 2007. Sify Business, “20 year old Suhas wants to buy Chinese Firm”, Friday, November, 10, 2006. http://sify.com/finance/mt/ fullstory.php?id = 14328392 http://www.business -standard.com/common/ storypage_c_online.php?leftnm = 11& 6 Key Fla…..9.11.2007 “Gopinath, world’s youngest CEO has big plans”, Rediff News; Nov 10, 2006

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“I can’t afford to watch movies”, Times of India; January 11, 2007 “Dares to dream, strives to realise it”, The Hindu; January 13, 2007 “Teenager hopes his firm will become another Microsoft”, Sydney Morning Herald, Australia, November 10, 2003 “17-year-old tipped to become IT tycoon”, Independent Online, South Africa; November 15, 2003

“Indian company loses deal because 17-year-old CEO is too young”, Daily Excelsior, India; November 3, 2007 “17-year-old CEO a problem”, Taipei Times, Taiwan; November 7, 2003 “He’s 17, single and a CEO !”, CIOL.com, USA; November 10, 2003 “Another Gates in the making! Founder at 14, CEO at 17, what next”, Indian Express, India; November 6, 2003

Management case

Rural Women’s Marketing Association (RWMA)* Debasis Pradhan1

Abstract The Rural Women’s Marketing Association (RWMA), an association of 6,00,000 poor, self employed women workers of Gujarat was registered as a trade union in 1972. Rural Women’s Haat (RWH) was later formed as an apex organisation to help RWMA members in marketing their local produce. RWH mainly worked with local producer groups through district level associations, as a marketing organization to facilitate various forms of intervention to strengthen rural producer groups in nine districts of Gujarat. Mrs Sujata Mahapatra, Director of RWMA had some important decisions to make regarding the path ahead. She was considering the alternatives keeping in mind the physical, locational and infrastructure constraints in the areas where a new system/model in marketing was to be instituted. She was aware of the fact that consumers were variety seeking and hence they might not accept the limited choice available at the village retail outlet. She was also thinking about the replicability of this model of distribution in other areas.

1.0 R U R A L W O M E N ’ S M A R K E T I N G ASSOCIATION (RWMA)

Mrs. Sujata Mahapatra, Director, Rural Women’s Marketing Association (RWMA) is embroiled in a real decisionmaking situation which was first of its kind in her long career so far. She has to consider her future course of actions and its repercussions. This has assumed more importance in the wake of expansion plans and plans to scale up the operations of Rural Women’s Haat (RWH). Her major concern has been to find a right * 1.

distribution channel for various products manufactured by rural producers and marketed by RWH. 2.0 GENESIS OF RWMA AND RWH

The Rural Women’s Marketing Association (RWMA), an association of 6,00,000 poor, self employed women workers, was registered as a trade union in 1972. RWMA has two main goals, such as, to organize women for full employment and make them selfreliant. In 1999, RWMA, with the full

Received September 5, 2006 ; Revised March 7, 2007 Assistant Professor, XLRI ,Jamshedpur, e-mail: [email protected]

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cooperation and support of the Rural Development Committee of the Government of Gujarat, established Rural Women’s Haat (RWH) as an apex organization for marketing various local produce. Rural Women’s Haat (RWH) mainly works with local producer groups through district level associations, as a marketing organization to facilitate various forms of intervention to strengthen rural producer groups in nine districts of Gujarat. One member from each district level group is an executive member of RWH. All the members of RWMA are primary members of RWH . 3.0 CURRENT ACTIVITIES

Currently, RWH is into the marketing of cereals (wheat and bajra), salt, spices (chilli, cumin, mustard, sesame), potato katri, isabgol, white gum, handloom (napkins, towels and bed sheets) and handicraft items (cane basket and foot mats). Producers of these products constitute a large proportion of RWMA’s membership. Specifically, 65% of RWMA’s members are employed in the agriculture sector, 15% in handicrafts, 5% in salt, and 1% in gum. Together, these four sectors account for more than 85% of RWH members. Moreover, RWH focuses on these sectors as these have been identified as the ones in which backward and forward linkages are extremely critical. (Backward linkages refer to connections with rural

producers whereas forward linkages refer to connections with the market place). RWH identified these abovementioned sectors as the ones in which rural producers were experiencing substantial difficulties in connecting with local, national, and international marketplaces. While RWH has focused on these four product categories in its first three years, there is potential to expand to other product categories in the future. In its first three years, RWH has worked in nine districts with approximately 55,000 members in about 3,500 groups. Its main objectives have been: (1) to provide marketing facilities and services to the district associations; (2) to provide managerial and technical support services to the district associations; (3) to enable the rural producers to earn a regular minimum income of Rs. 3,000 per month and finally, (4) to facilitate the producers to become owner managers of their collective enterprises. RWH has a three-tier structure. At the village level, are the Self-Help Groups (SHGs) comprising of women producers. At the middle level are the district associations which monitor the work of SHGs, train them and assist them when required. The apex body is RWH, whose core activity is to market the produce by procuring through the district associations.

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4.0 IN PURSUIT OF THE OBJECTIVES

To achieve these objectives, RWH offers technical services, financial services, and marketing support to its village based rural producer. Technical services are intended to improve the productivity and quality of production. Financial services are intended to help producer groups enter new markets by offering capital loans at fair rates. Moreover, RWH buys product and holds stock until fair rates can be negotiated, which women themselves are unable to do, as they do not have adequate cash supply. Lastly, marketing services are intended to help RWMA members understand the details of their markets better. Specifically, RWH also offers information about prices, branding, promotion etc.to the RWMA women. RWH’s main goal is to provide marketing and other support services to rural producer groups. Prior to the introduction of RWH, RWMA had a long history of working with the State Government of Gujarat to implement need-based programmes for rural women below the poverty line. This work with rural producer groups revealed that these groups were removed from the market for their products and were forced to rely on traders or middlemen, who often exploited them by offering prices, which were less than the market prices. To reduce these groups’ dependence on middlemen, RWH was

established to provide market as well as technical and financial services to rural producer groups through district level associations. It aims at helping the poor to reach markets and increase his bargaining strength through organizing a large base of members. “Moreover, RWH’s formation furthered RWMA’s objective of self-reliance, by linking rural producer groups directly to local markets through establishing backward and forward linkages” says Mrs. Mahapatra. “By doing this, RWH has been able to educate rural producer groups about the markets for their goods and has also been able to provide feedback to the rural producer groups about the viability of their products. With this knowledge, the rural producer groups expect to have the capacity to manage the marketing of their products independently” , She continues. In this context, RWMA also wishes to explore the possibility of a reverse supply chain, by which the rural producers themselves will be rural consumers also. With this in mind they aim to establish a distribution system for the RWMA products in the rural villages of same nine districts. RWMA is quite aware that this requires firstly evaluation of the potential of such an implementation in terms of demand for RWMA products, secondly, finding an appropriate distribution system and finally, arranging the proper human resources.

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Mrs. Mahapatra admits that the major problems experienced by the consumers in both Vadodara and Sabarkantha districts, irrespective of income segments, is the lack of availability of the products in the villages. From the consumer survey, it has been found that approximately 50 percent of the respondents have to go to Taluka shop to buy the products. Non-availability was found to be the second most common problem expressed by the consumers. 5.0 PHYSICAL DISTRIBUTION SYSTEM

The components of physical distribution system are mainly transportation, warehousing and inventory management. RWH has got its fixed plans for these three components. The physical distribution is to be directly from the production centre to the demand centre based on the orders placed by the distribution centres. The proposed “Distribution Network” will be demand driven. RWH would handle the transportation on the basis of orders received. The cost of transportation will be borne by the distribution centres. Warehousing will be done at the district level, which will be treated as the distribution centre. The rental costs for the warehousing can be met out of the commission retained by the District Office. The inventory maintenance is to be demand driven and replenishment of stocks will be done on the basis of orders received from village-based demand

centres. The inventory rotation will be done on the basis of 10-15 days credit given to the village retailer members. The respective margins for RWH, district association and the village based retailer are 12%, 5% and 15%. Retailers are given a lot of importance as they directly deal with the consumers and can assess the demand. 6.0 ALTERNATIVES

Mrs. Mahapatra was seriously contemplating that the best alternative should give the best returns to the members of RWMA and should also be compliant with the vision and objectives of the organisation, while providing sustainability over a period of time and strength to the organisation. The alternatives must be considered keeping in mind the physical, locational and infrastructure constraints in the areas where the system is to be instituted. She was aware that consumers were variety seeking and wondered if the product portfolio was too narrow to offer the customers such variety in the the choices. She was also thinking about the replicability of this model of distribution in other areas of operation. Alternative-1

The level of intervention can be seen at two levels, such as, village level and district level. As per the RWMA procedure for starting any new activity

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a committee can be formed by the savings group coordinator, the additional staff members hired for the purpose of the distribution network and the local coordinator. The committee can then constitute Spear Head Teams, which will take up the distribution network in various RWMA villages. Training can be given to the members involved in the distribution network for purposes of inventory maintenance and strategies to be adopted for marketing of their products, maintenance of accounting records etc. At the village level, two kinds of members of RWMA can be involved in the distribution network. These are primarily RWMA Self Help Group members and adolescent girls of Kishori Mandals2. The requirements at the village level are mainly as follows : Alternative 1 (A): Provision of credit to SHG members is one of the major requirements for the establishment of a retail business. The members can be given loans for starting up the business if they contribute at least 50% of the total investment on their own. This helps in ensuring the stake of the members in the effective running of the business. For this purpose the District Association, if willing, can provide assistance, or it can be done through the savings of the groups themselves. Will this provision of 2

credit provided by District association decide success of RWH? What if the District association is not in a position to extend the credit support and there is a lot of potential for marketing of its products? Is it worthwhile for RWH to give a bank guarantee to village based retailer for the loan, provided the retailer is dealing exclusively with RWMA’s products? This will mostly give RWH a stronghold in the villages with an established distribution channels. Without sufficient experience, can the retailers make it sustainable with changing choices and preferences of the customers? Alternative 1 (B): The mode of selling to be adopted by the village based retail members could be either pheri (like a hawker) from village to village, in groups or by setting up of retail establishments in villages. The first option can be promoted in Sabarkantha where it is more socially acceptable for women to be able to move out of houses and villages. This will save the cost of establishing an outlet and also give a wider market access. But Mrs. Mahapatra is having some reservations about this mode of selling. her concerns are : Can all the products of RWH be sold in this way through pheri? Can this “pheri” mode of selling be there to supplement

Groups of adolescent girls undergoing livelihood training programmes such as sewing, embroidery etc.

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the established retail store? What will be the replicability of this mode of selling in other areas? Alternative 1 (C): In the Kishori Mandals, mostly the members are school going adolescent girls who get married in 2-3 years and move out of the villages. In this case the shops would go over to their families who would not necessarily be RWMA members. Hence, preference should be given to those Kishoris, who have already finished schooling or the ones who have been married into the village. There may be some problems in the former case, where the Kishoris may get married in some other village. But this also must be considered that, with this RWMA as an organisation will increase its reach with increasing membership. So is it a risk worth taking and handing over the retail business to the Kishoris? How will it benefit RWH in the long run? Again Mrs Mahapatra wonders if it will be sustainable. Alternative 1 (D): The other members that RWMA could involve in the retailing chain are Shanta Bens’. These are the widows of the victims of the Gujarat riots. RWMA is providing them support with financial assistance from the Gujarat Government. They are given livelihood training in form of stitching and embroidery classes etc. Retailing of RWMA products could be another such activity in which they could be involved. The Shanta Bens’ can be evaluated on a

case-to-case basis on the basis of individual interest and personal circumstances. Since they are mainly located in urban areas in Vadodara and Modasa, they basically sell spices and handloom products, which have got good demand in these areas. Will it be possible to monitor them and will this channel be efficient? Mrs. Mahapatra worries as the women are mainly from the minority community and are constrained by social norms which prevent them from moving out of their houses. They can sell only from their residence. Those with adequate family support can also put up stalls in the marketplaces. Alternative-2

Here Mrs. Mahapatra looks at two phases for this alternative. While talking to the case writer, this comes out clearly. Both the phases comprise an initial stage of pilot testing and subsequent expansion plans. Phase-1: In the first phase, RWH can initiate the marketing of products in 810 villages on a pilot basis. Initially in the first phase, members can start the distribution system with existing shops in the villages belonging to RWMA members who own retail establishments at village level. The Spear Head Team members also can be involved by giving them samples of products when they go to various villages. RWMA Savings Group members who are interested in opening shops or direct marketing at

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village level can also be involved on a pilot basis. The criteria for selection of villages where the system will be initiated on a pilot basis can be based on retailer’s positive response, the demand potential of the village, distance from the Taluka, size of the village, existing number of retail establishments in the village and more importantly, The RWMA’s image in the village. On the basis of feedback received regarding sales growth and consumer response from the first phase of implementation, the marketing strategies can be modified. Mrs Mahapatra is worried about how to supply these retailers regularly. She is also worried that the pilot villages may not be similar to the other targeted villages which were to be covered under the expansion plan? Phase-2: In the second phase of implementation, RWH can expand the distribution network by involving more and more members at village level. The Gram Sabhas can be called in various villages to encourage women to come up and open retail establishments with the permission of the village elders and this would also be an effective promotion channel for the products. For the purpose of establishment of the distribution network a critical mass of consumers is essential. This is however possible only if a contiguous area is covered. RWMA villages however are scattered and this constaint limits the

potential for marketing of the products. Will it be really a limitation? Can the concept like satellite retailer, be applied to the retailers of the RWMA villages? This limitation can be overcome either by direct marketing by RWMA members or by marketing through existing village based retailers in non RWMA villages. The possibility of Pheri mode of selling can also be explored here. Alternative-3

Institutional marketing Banas Dairy, the milk union of Banaskantha district wants to start retail outlets in its village level milk cooperative societies. For this purpose it wishes to procure items of household consumption for selling through their establishments. A marketing arrangement for RWMA products in Banaskantha can be explored through this channel as the pilot project for RWH rural distribution network is not to be initiated in the Banaskantha district initially. It may be worthwhile to use the channels like Banas dairy but this may not promote RWH as a separate entity. Though it may lead to dependency on an external channel member, this is compliant with the vision and objectives of RWH. Mrs. Mahapatra is also open to any new marketing channel not included in the above three alternatives, provided that is in synchronization with the objectives of RWH.

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Though Mrs. Mahapatra is closely looking at the alternatives, the issue of sustainability, richness of product portfolio and replicability of this model of distribution would eventually determine her decision. “As RWH is competing in the market with numerous players with varying ethos, the strategy should be concrete and there should be

no gap in the structure”, feels Mrs. Mahapatra. She is also trying to make the retailing strategy right so that the distribution can end with perfection. “Finally, a value proposition needs to be provided both to the rural consumers and the producer as well as retailer members to see this venture successful” hurriedly adds Mrs. Mahapatra.

Management case

A Tale of Two Samitis* Niraj Kumar1

Abstract The paper presents a case study involving two village based institutions, namely Sarvodaya Vikash Samiti (SVS) and Mahamaya Mahila Samiti (MMS). SVS, a grass-root NGO, is not only known among the villagers but also commands respects in local media. MMS, one among seven self-help groups (SHGs) promoted by SVS in the village Hirapur, of Khurda district of Orissa, is engaged in appliqué based activities and said to be meeting it’s objectives. The case explains the process of institution building, its various stages, and roles of various players in its building and functioning of this community based institution. It also explains various roles of a community mobiliser (in this case SVS) in institution building process, and various characteristics of the mobiliser which had affected the development and sustainability of MMS. Characteristics of SVS and various efforts made by it have facilitated the development of an only women based village institution and have helped its members to add in their income. However, the case also brings some questions forth related to the sustainability of the institution and also on the true objectives of the mobiliser.

1.0 PROLOGUE

Sarbodaya Vikash Samiti (SVS), an NGO, has been working in Khurda district of Orissa since 1995. It operated in eight Gram Panchayats having 64 villages. The NGO has done very good work of community mobilization by organizing people and is among one of the known organizations in the district. SVS received an award from UN for world leaders in 2001. Also, from the Government of Orissa they received the *

1.

award as “Best SHG Organising Agency in Khurda” under the government programme named ‘Mission Shakti’. The major interventions of SVS are related to self help groups (SHG) development and management, micro credit, support to self motivated micro enterprises, natural resource management. Under Mission Shakti, SVS has formed around 312 SHGs having 3865 members, and has helped in the

Received June 28, 2007; Revised August 24, 2007; The case is the outcome of project work done by Amaninder Kaur, Nikhar Ganesh, and Salil Mahajan (PGPRM students of batch 2005-07) under the course "Community Mobilsation and Institution Building". Author acknowledges their respective contributions. Associate Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected].

212 Vilakshan, XIMB Journal of Management ; September, 2007

formation of a federation of women’s SHGs named as ‘Aanchalika Mahila Mahasangha’. It has disbursed about 1.14 crores of rupees under the micro-credit scheme with the recovery rate of 80-90%. With the expectation of a major policy change, when NGOs will be allowed to undertake micro insurance business, SVS has tied up with Oriental Insurance Company. The NGO has collaborated with Emami India for the distribution of its consumers’ products in rural Orissa with the help of women SHGs. SVS has formed various women SHG groups which are working on different livelihood activities such as dairy, terracotta, fisheries, appliqué, brass and bell metal and flour mill. It has also undertaken projects related to natural resource management with special emphasis on water resources, formation of Pani Panchayats, special task forces for disaster management and developing village contingency plans. Activities of SVS are funded by various international organizations and local level partner organizations and have got very good coverage by local media. 2.0 SVS IN VILLAGE HIRAPUR

The village Hirapur is located at a distance of about 24 kms from Bhubaneswar, the state capital of Bhubaneswar. There are around 45 households and the village population is 200. Eighty per cent of the village population is composed of OBCs (other backward castes), and rest are SCs (schedule castes) and of general catgory.

The scheduled caste and the general caste people reside at different areas separately in the same village. The village had agriculture based economy, although not all, particularly those from the schedule caste, had sufficient landholding. So they were also involved in manual labour and some other activities. SVS started working in this village in 1995. It worked on various issues related to natural resource management and infrastructural development of the village. In the year 1998, it started forming women SHGs based on various demand based livelihood activities and convinced village women to take up those activities in groups. The financial conditions of these villagers were also not very good. The women in village were not directly involved in any income generating activity and were mainly involved in household work. So, SVS mobilized these women and formed SHGs. Seven SHGs were formed by (SVS) in the village. Out of seven SHGs, five were functioning and two, which were composed of scheduled caste women members, had become defunct. They were not able to generate enough cash surplus from the livelihood activity undertaken and hence they were not able to pay back the loans extended by the banks. Out of these five operational groups, three were into hand bag making, one each in appliqué work and flour mill business. The number of members in each SHG did not vary much after they were formed and the

Kumar, A Tale of Two ... 213

NGO was guiding almost all the SHGs in their respective works. 3.0 MAHAMAYA MAHILA SAMITI

After the initial discussions with women villagers, the head of SVS held a meeting with few selected members and informed them about the potential of appliqué craft works in the village. Although most of them most were not too convinced about the idea of appliqué craft, a few reluctantly agreed as they realized that they did not have to lose any thing at least during the early phase of their work. All the members, who agreed, were explained about the concept of SHG, its objectives, formation, and functioning. Appliqué work is a handicraft, created by sewing of patches of coloured clothes onto a large canvas, also made of cloth. These are generally of pure bold colours in floral and animal shapes emerging from a background of contrasting colour. The work ranges from the items crafted in traditional forms, such as chanduas (canopies), chhatri (umbrella), Tarasa, Jhalar (frill) and Batua (pouch) that are used in religious functions, to the more popular umbrellas, bags, ladies’ hand bags, wall hangings, lamp shades, bed covers, pillow covers, letter holders etc.

The SHG, named as Mahamaya Mahila Samiti became functional in the year 1998. Out of a total 10 members, eight members were from other backward class and were below the poverty line, whereas two members were from general category and were above poverty line. SVS helped them streamlining their functioning. It explained them about various aspects of SHG management like, conducting meetings, loan financing, undertaking monthly monitoring, and also informed them about potential business ideas. In a few weeks of time, SHG was able to decide about its norms and rules for its functioning. Some of the important rules were: -

SHG was to have an election process to select the president and the secretary. The women interested to become the president and secretary were asked to contest the elections in which all the members were to raise their hand to show their preference.

-

Secretary was to be responsible of maintaining all accounts and president of overall management and day to day working of the group.

-

Registers related to members’ profile; saving details; internal and external loans; members’ demand, collection, balance, overdue registers; cash book; general ledger; minutes of meetings; and loan and savings pass books were to be maintained.

214 Vilakshan, XIMB Journal of Management ; September, 2007

-

All the members of the SHG were eligible to get loans. They were to contribute Rs. 50 per month and this fund was to used for internal lending. They were allowed to have loan through internal lending of around double the balance of an individual account. Over and above this internal lending, these SHG members could also borrow from micro finance institutions amounting to Rs. 20,000 to 25,000, at an interest rate of 15-20% p.a. as a part of their SHG linkage scheme. For internal lending, the loan amount was to be given to a particular member and fixed along with the rate of interest to be charged. Loans given by the group could be for different purposes such as business, health, agriculture, house construction etc.

-

Meetings were to be held every fortnight, the date and timings of which were to be decided by the secretary. In this meeting, various group activities and performance such as total sales, money input and outputs, profits for the month, loan status etc. were to be discussed.

-

Decision about sanctioning of the loan to particular member was to be decided in the meeting by secretary in consultation with president and other group members. This was to be done on the basis of member’s contribution to the group. Though the amount of loan available to the members was twice the saving balance of the member, still the

group was to decide about the exact amount payable to a member based on her capability to repay back the loan on time. None of the members or their family members had any experience of appliqué works and the art was totally new to them and to their social culture. Both president (Mrs. Snehlata Rautrai) and secretary (Mrs. Prabhati Pahari) were from general category, and had been at their respective positions since the formation of the group. SVS, realizing the potential of this livelihood option arranged training in appliqué craft for president and secretary of SHG. Both, in turn, trained rest of the group members. The group started working with the two sewing machines belonging to secretary and president. SVS on behalf of Mahamaya Mahila Samiti purchased raw materials from Pipli, a nearby town and also the centre of appliqué crafts, and distributed among the members of the SHG. The members took their time to prepare items and then gave it to the president. President sold those items to the businessmen from Bhubaneswar after she negotiated the price of each item. Members were then given their share taking out the cost price of the raw materials. Members shared their profits on an equitable basis, wherein the members got their share of profit on the basis of their contribution i.e., appliqué they prepared. A single piece of appliqué art took around 3-4 woman-days to complete and fetched around Rs. 70-80 which they felt was very less vis-à-vis the

Kumar, A Tale of Two ... 215

time it took to prepare and when compared to other activities. Members were of the opinion that this option would not be sustainable in the long run as it required lot of funds to purchase individual sewing machines. They also compared themselves with other fellow villagers attached with the SHG working on hand bag making, who were earning much higher profits. And so, they wanted to get into hand bag making. SVS, the patron NGO, requested members to continue as the activity would attract major support from government and would be beneficial in the long run. They were also reminded of the religious importance of the appliqué art. Designs on the crafts are generally the depiction of the religious festival or of their local deities. The theme and colours used in the crafts reflected their mythological beliefs. In response to the requirement of capital, SVS made them aware of the availability of subsidized loans from government and MFIs. The group agreed to continue with appliqué work. All the members in the group got stitching machine which they bought out of a loan of Rs. 2100 from MFI, which they later paid back. Each member of the group worked for around 5-6 hours per day and profits were distributed on the basis of their contribution as per the pieces made by particular member. The 2

money per piece was fixed by the group consistent with trader’s price. On an average, SHG earned around Rs.3,500 4,000 per month (Rs. 350-400 per woman member). In the initial stages, these profits were considered as low but after the schematic lending and with an increase in group’s fund, the scale of operations increased leading to a sharp increase in group profits. There was no loan in the either against SHG or against any of its members. The group had a total working capital of sixty thousand rupees. “Earlier we used to request our husbands for money; now we give them money when they require” was the comment of one of the members. Mahamaya Mahila Samiti was led by members of the upper caste, with both the president and the secretary belonging to the elite forward caste and the other members belonging to the OBC group. Initially, there were inhibitions amongst these two functionaries the President and the Secretary and they looked upon these members as inferiors. However, with the passage of time, things changed and they started considering the other eight members as part of their institution and reservations based on caste totally vanished. 4.0 FIVE YEARS LATER

In 2003, after 5 years of smooth functioning of Mahamaya Mahila Samiti,

Under Swarnajayanti Gram Swarozgar Yojana (SGSY), a central government sponsored project, schematic loan is provided to SHG’s after monitoring their performance for 3-4 years. This loan is highly subsidized subject to the condition that about 70% of the SHG members should be Below Poverty Line.

216 Vilakshan, XIMB Journal of Management ; September, 2007

they received a schematic loan2 Rs 2 lakh under SGSY scheme and out of this around Rs. 80 thousand was the subsidy component and rest Rs. 120 thousand was the loan component. SVS assisted them in getting the sanctions of the loan of Rs. 200 thousand under SGSY and then facilitated the construction of ‘SHG house’ out of the subsidy amount of Rs. 80 thousand. President and secretary who had been managing the funds and day to day activities of the SHG proudly shared their register showing that they had already repaid the amount with interest. Members decided to use this subsidy amount to construct a SHG house in the village and they looked for community land for the purpose. Villagers objected to this construction as they said that the village land belonged to 200 residents of village and the land could not be given to a group having only 10 members. As this opposition against the SHG increased, the SVS intervened in the matter and explained the benefits of such infrastructure in the village to the objecting villagers, and also convinced the members of SHG that instead of calling it a SHG house, it would be called as community house. This ended the stalemate and every one agreed to have the community hall in the village on the community land.

Mahamaya Mahila Samiti prepared various items in appliqué and sold them in the Bhubaneswar market through middlemen. In the absence of a marketing network, SHGs largely depended on middlemen, and in the process, their margins got eroded. The challenge, therefore, in front of them was to sell their crafts directly in the haats (urban retail outlets) so that they could get better prices, compared to middlemen’s prices. Realising the problem, the SVS again came forward and helped the SHG to sell product in the state level sales centre (Ekamra Haat) in the state capital, Bhubaneswar. The organization also became the part of networks supported by agencies like ORMAS (a state run marketing agency) and CAPART (a Government of India agency), which provided opportunity to sell their products in different cities in the country where exhibitions of handicrafts were organized by the government and nongovernment agencies. Smiling photographs of president and secretary at their stalls in various cities like New Delhi, Calcutta, Bhuabneswar, now hanging in the village community house and also in the album of NGO chief are the testimonies of accomplishments of Mahamaya Mahila Samiti (MMS) and Sarvodaya Vikas Samiti. Now, they intend to take up the activity of hand bag making!

Management case

Reliable Iterative Testing Environment (RITE) -a Case of Software Development Model* Sanjay Mohapatra1 Abstract During the last fifty years software development as a business has seen phenomenal growth. Different models have been developed to streamline and codify the developmental process. There are different models such as applicable to different situations. The processes can be different for products, services and solutions. In the present case an innovative method of software development applicable to product particularly with insight and offshore teams has been suggested. This method lays emphasis on iterative testing environment to achieve high quality and time bounded software delivery by using a repeatable packet of software components. The model is also dynamic in terms of accommodative, change request without affecting the timeline for delivery. The case is based on the experience of a fortune 500 company but the name is disguised. Using predetermined performance indicators it is found that the new model shows better result.

1.0 THE COMPANY AND THE BACKGROUND

3IS Software is a leader in providing software products for use in remittance and payment processing industry and has been in existence for last 25 years. It had revolutionized the image based payment processing industry by providing simple-

* 1

to-install and easy-to-maintain core applications that are capable of meeting specific customer needs. The customer profile of the company includes regional and money-centre banks, insurance companies and mutual funds, credit card and student loan processors, telecom, utilities, government and non-profit organizations.

Received August 20, 2007; Revised September 10, 2007. This is based on the experience of a company which prefers to remain anonymous. 3IS is used as the name of the company, but it is not the real name. Associate Professor in Xavier Institute of Management, Bhubaneswar; email: [email protected]

218 Vilakshan, XIMB Journal of Management ; September, 2007

3IS has been a dominant player in software products business (the other two software businesses are known as software solutions and services). The company has been in development of such products particularly for very large organizations. In fact, as of March 2007, eighty-eight Fortune 500 companies have been in its list of clients. From the beginning 3IS has not been quite satisfied with the various models of software development practised by other competing companies and also with the models as available in the published materials. A brief review at the company from time to time has shown the relative strengths and weaknesses of various models based on which the company has concluded that direct applications of such models will not adequately fulfil its software quality and efficiency goals. The existing models and their deficiency as analysed by the company have been briefly narrated in the following section. 2.0 MODELS OF SOFTWARE DEVELOPMENT – A REVIEW

Software Engineering projects follow different lifecycle models. These models are waterfall model, iterative model, spiral model, agile software development model, prototype model, chaos model, and rapid action development model. These models can be used for developing software products.

Royce (1970) proposed waterfall model in which software development follows a sequential order of life cycle stages. These life cycle stages are: requirement specification, design, construction, integration, testing, installation and maintenance. However, this model is flawed as in the real world of software development, there is a need for flexibility to accommodate any change in requirement and thus in following the stages sequentially such accommodation may not be possible. Royce (1970), Boehm (1970), Mills (1973) came up with a model called Iterative model, which can be used for developing applications for customers who are not clear about their requirements. In this model, the project team goes back to earlier stage from the present stage repeatedly till the design specifications match with changes made in the requirements by customer. The model can be used for building large projects for which domain competency is not adequate both with the customer as well as with the development team. Aydin (2005), Abraham (2003), Scrum (1986), and Curt Sampson have proposed agile methodology as a model for software development. In this method the entire project team necessary for completing the project including customers is located in bullpen and face to face communication is encouraged for discussion instead of

Mohapatra, Reliable Iterative Testing ... 219

depending on written documents. The bullpen2 also includes testers, designers, managers and technical writers. This method involves preference for face-toface communication, and very little written documentation relative to other methods. Therefore the method is criticized as lacking discipline. Also this model is difficult to use in large projects and cannot be used where offshore development is preferred to take advantage of highly skilled and low cost professionals. One of the well known agile methodologies is Extreme Programming (XP) (Kent Blanc, Ward Cunningham and Jeffries Ron, 1996 and McBreen, P 2003; in whih software is developed in small packets and lot of importance is given to testing and writing test cases even before coding. This method has a lacuna that it can be used only at customer site and for small applications and it cannot be off shored. In Prototype model (Haag, S, et al.,2006; a prototype or working model is developed first to check design and feature aspects of the application to be developed and to get user feedback so that risk and cost associated with the final application is reduced. Prototyping is part of design process and after incorporating feedback, the product is ready for p r oduction. However, performance 2

related to stability and reliability of the final production cannot be tested in prototype as prototype may not be scalable at all times. This again can be used for small to medium size applications and is not feasible with large production requirement. Spiral Model (Boehm, 1988; Belz, 1986 and Livary, 1987) combines prototype and waterfall model. This model is favoured for large projects. In Spiral model, requirements are gathered in details and a prototype is developed after preliminary design. Feedback is obtained from customers on this prototype and if required a second prototype is developed which is an improved version of the first prototype. In this approach, risk factors would include development cost overruns, operating cost miscalculation, or any other factor that could, in the customer’s judgment, result in a less-than-satisfactory final product. Hence this is used for mission critical applications (for defence applications) and will be overkill for software development. There are also other development models such as Chaos model (Raccoon, 1995), and Rapid action development (RAD) model (McConnell, 1996; and James,1980). In Chaos model, projects can be thought of in pieces. Nobody writes tens of thousands of lines of code in one sitting. They write small pieces, one line at a

Most agile teams are located in a single open office sometimes referred to as a bullpen. At a minimum, this includes programmers and their “customers” (customers define the product; they may be product managers, business analysts, or the clients). The office may include testers, interaction designers, technical writers , and managers.

220 Vilakshan, XIMB Journal of Management ; September, 2007

time, verifying that the small pieces work. Then they build up from there. The behaviour of a complex system emerges from the combined behaviour of the smaller building blocks. RAD projects are typically staffed with small integrated teams comprised of developers, end users, and IT technical resources which are combined with short, iterative development cycles optimizes speed, unity of vision and purpose, effective informal communication and simple project management. An important, fundamental principle of RAD is that each iteration delivers a functional version of the final system. These models are used for developing applications where requirements are fairly stable and the size of the application is small. Also handling complex applications and change requests during development life cycle becomes difficult in both these models. These models represent software development models that have been in practice for long time. However, for software product development, where the development team is located at offshore locations, these models do not help in addressing the issues faced by the offshore team. An offshore-onsite model is used when the company wants to leverage on highly skilled workers available in off-shore locations at low cost. The customers are based at onsite and the

requirements are gathered at onsite. The requirements are then passed onto offshore team to develop, test and then deliver them to the customer. In the course of developing these requirements, the customer changes the requirements also and these changed requirements need to be developed and delivered as per negotiated schedule. The existing software development models are not in a position to take care of such dynamic situation and often lead to delay in time schedule and spending more time while developing the products than agreed upon earlier with the customer. Inadequacies present in the existing models are shown in table 1. 3IS develops software products in offshore-onsite business model. The organization structure for executing projects in 3IS has project committee, product committee and product development teams that are based at headquarter in USA. However, the project team is housed at offshore in Chennai, which uses low cost, highly skilled personnel to develop these products. To be successful in this offshore-onsite business model, it has been observed that the following points become critical: 1.

Excellent communication protocol between offshore-onsite teams;

2.

Availability of domain knowledge at offshore with the project team;

Requirements are process

Assumption of the model

Skill set required is available with the team

Revisiting the earlier stage repeatedly,

Each stage follows the previous one

Description of Model Requirements are gathered and prototype developed, better preliminary design.

Acceptance from the customer is taken on prototype before further development.

Requirements need to be captured through interactions.

Performance in terms of response time can be similar with final development.

Second prototype may be made of requirement

Prototype and waterfall combined,

Spiral

Prototype is developed first,

Prototype

Timelines are Requirements are frozen. flexible

Rigorous review in each state.

Interactive

Waterfall Model

Model Name/ Model Feature

Table 1: Comparison of Software Development Models

Customer site only.

Stress on face to face communication.

Bullpen method.

Agile

Projects are combination of small pieces.

Lines of codes are written and then tested immediately.

Chaos

Each iteration delivers a functional version of the final system.

A small application can be scaled upto a large application.

Developments are carried out in small iterative cycle.

RAD projects are staffed with smallintegrated teams of developers, end users, and IT technical resources.

RAD

Mohapatra, Reliable Iterative Testing ... 221

Weaknesses of the model

Strengths of the model

Application

Can be used for complex application.

Requirements are not clear.

Performance in terms of response time cannot be predicted when there is

Chances of failure at the end are less.

Can be used when domain competency is not available with project team.

Better test plans

Test planning and testing is the most critical stage.

Small application

No off shoring

Overkill for application.

High development cost.

Less scope for error during implementation

Small sized application.

Cannot be used in Co-ordination medium, among all large sized stakeholders application could be development. difficult.

Expensive

Defects are captured at early stage.

Can take care Structured of complex testing application. Analyst, development and customer involvement in test planning.

Robust product.

Design aspects are well take care of.

Can accommodate change requirement

Testing late in Timelines are the missed. development Difficult for cycle. software Narrow scope application. for testing.

Good for small and medium projects where risk is low

Can work for development and maintenance.

Defense application

Small sized application.

Requirements are not clear and not frozen

Risks associated with projects is low

Mission critical application.

Scientific application development.

Complex application

Complexity is low

Effort is quite high.

Time consuming.

Customer requirements are well taken care of

Scientific and research software applications.

222 Vilakshan, XIMB Journal of Management ; September, 2007

Deadlines to take priority of over quality.

Minimal test planning.

Cannot accommodate change requests after prototype is built.

Cannot be used for large application.

May not be scalable all the time.

a large user base in need time. Change requests accommodate after development is difficult as availabilities of team members at a time is difficult.

Large application development is not easy.

Cannot be used for change requests.

Mohapatra, Reliable Iterative Testing ... 223

224 Vilakshan, XIMB Journal of Management ; September, 2007

3.

Availability of expertise for carrying out requirement analysis and design with offshore project team;

4.

Continuous interaction with customers from offshore team (both oral and written communication);

5.

Availability of iterative testing skills in the project team and at low cost;

6.

Ability to deal with small, medium and large customers using the same development model;

7.

Ability to accommodate change requests during development life cycle without affecting timeline as negotiated with customers.

To address these teething problems while developing products for software applications, 3IS software came up with a product development model called RITE model. This model has taken care of the issues faced by existing models while being able to produce high quality of deliverables. Also the organization in study (3IS Software) gets repeat business as well as good reference points 3 from its existing customers which means the customers are satisfied with the products supplied by 3IS Software. 3

4

3.0 THE RITE MODEL

RITE model against other software development models lays emphasis on iterative testing. This means that “packets 4“ are tested even during requirement phase. As the the project progresses in its life cycle phase, the testing of packets continues till the products are delivered to the customer. Using this methodology, products are developed in packets. After building these packets, not only each packet is tested thoroughly, but also these are integrated and testing is carried out for each new product. The entire product is developed and delivered through an “integrated team” approach. The methodology has four phases. In phase 1, contract is signed with the customer, and based on contract an integrated team is developed. Contract is quite significant in RITE model as the entire scope is determined at this stage. Even though change requests are accommodated later on, the contract helps 3IS to track extra effort required to develop these change requests. This also helps in billing accurately to the customer. After contract is signed and purchase order is received, requirement gathering and analysis of requirements

When the customer is willing to be cited as a satisfied customer in the marketing prospectus prepared by the vendor organization, then the customer is known as reference point. A packet consists of already developed functionalities that have been tested and ready to be used. These packets are designed and developed in such a manner that these packets are independent of each other. Similar requirements received from different customers are grouped together and formed into these packets. This helps in reducing time required to develop these requirements again.

Mohapatra, Reliable Iterative Testing ... 225

is carried out. In phase 2, detailed design specifications and test scripts are written based on requirement analysis. Phase 3 primarily takes care of packets development and testing. And finally installation, user training, user acceptance testing and transition to support happen in phase 4. Each of these phases is described here and a schematic diagram is given in figure 1. 4.0 THE INTEGRATED TEAM APPROACH

The RITE methodology framework also addresses how 3IS puts together a project team to deliver a product. This concept is called the Integrated Project Team

Approach. The Integrated Team consists of Project Committee, Product Committee, Product team (all these are based in USA) and Project team based in Chennai. Project committee works with marketing team in pre sales activities; it helps the marketing team to clarify any doubts that a prospect will raise during the initial discussion period. Once a prospect is turned into customer, it is the responsibility of product committee to provide a detailed estimation, negotiate with the customer and then enter into a detailed contract. The contract, apart from other things, will highlight scope, timeline of delivery and the total effort

Figure 1:* Phases in RITE model Phase 1 Phase 2: Design

Requirement Definition (1) Pre-Sales (1) Project Plan (1)

Testing (2)

Acceptance Test (4)

INTEGRATE D TEAM

Design (2)

Go Live (4) Develop (3) Implement (4) Testing (3)

Phase 3: Construction Support Transition (4)

Phase 4: Deployment

* The figures in the brackets indicate the phase to which the life cycle belongs

226 Vilakshan, XIMB Journal of Management ; September, 2007

that would be spent while executing the project. The offshore project team reports to this committee. The project committee reports to solution director who is overall responsible for providing the products to customer. The product committee largely consists of domain experts, who based on market research, interaction with customers and industry experts, would design different ‘packets’. The packets, as explained earlier, will be independent of each other and would be integrated by offshore project team. These integrated packets would be delivered to the customer. The product committee would also define what is known as road map for each product. The road map for products consists of timeline for developing different features. These features would be part of the packets and would be developed by the product team. The product team directly reports to this product committee. Both product committee and product teams are based in USA. Project offshore team is based in Chennai and has a primary responsibility of integrating packets, iterative testing and delivering the final integrated products to the customers. The team has expertise in testing and integration of packets. A schematic organization structure is shown in Figure 2. Phase 1: This phase deals with contract and requirement analysis. The Project team starts with requirement analysis at the customer site. Requirements are gathered and business analysts make

Figure 2 : Integrated Team Structure

analysis. Based on analysis, gaps are found between customer’s “As Is” system and desired “To Be” system. Based on this gap analysis, a solution is designed which is to be delivered to the customer. The solution would be based on combinations of available products and customization Solution requirement to take care of special needs Director of the customer. This special requirement or customization would be specific to the customer and hence is not required to be part of product road map. Timeline for Project delivery of these productsProduct are matched Committee Committee with respect to the road map so that final project delivery schedule can be adhered to. Project Team Phase 2:

This phase dealsProduct withTeam design activities. Once the gap analysis is done, the complete solution is divided into packets; some of these packets would be in the form of available products while the customization packet has to be developed specific to the customer needs. Each packet is designed in such a manner that they become stand alone components that can be integrated with each other.

Mohapatra, Reliable Iterative Testing ... 227

Detailed specifications are prepared in line with the requirements analysis done in phase 1. Test cases are prepared in the current phase with test scenarios so that all the functionalities required can be tested. Each life cycle stage has deliverables and output from one stage is fed into the next stage. At the completion of all LC stages, software is delivered to customer. So if one stage has a faulty output it will only have a cascading effect on the next stage and the faults will get compounded. These faults are issues, as they are called in software development projects, and are injected into the software during the course of project execution. The causes for injecting these issues could be lack of complete understanding of the customer’s requirements, and communication gap between the development team and the end users. These deficiencies would lead to spending effort for reworking the application later on. Also the customer may not like the look and feel of the software that will be developed resulting in rework of the software. All these are termed as issues in software parlance and they need to be reworked by the development team as per customer’s specifications and requirements. These rework not only lead to extra amount of time needed for completing the project assignment which delays schedule of delivery of the application, it also results in development team spending extra efforts than initially estimated and it means extra cost of software

development. As a result it is necessary that the team take initiatives to prevent these issues well in advance. During phase 2, lot of emphasis is given on upfront activities such as design and test case preparation. Domain experts to reduce rework effort by preventing defect injection at earlier stage review design specifications and test cases. Phase 3 : This phase deals with construction activities. A project should start with purchase order being awarded to the vendor organization. A customer would typically provide a statement of authorization where he (customer) would authorize the vendor organization to develop software as per his (customer’s) requirement. The vendor would also be asked to provide estimation for the project. To arrive at the final estimation, vendor would gather requirements from the customer and get details on functionalities that need to be developed. For estimating total effort and schedule required to complete the project, standard estimation techniques are available. Some of the techniques available are Function Point Delphi, COCOMO and Simple Medium and Complex (SMC) classification technique. However an organization, which has well defined, processes and has achieved maturity in implementing processes will have approved and documented predefined estimation technique. Using approved predefined estimation technique, a project should calculate effort and time period required for completing the project.

228 Vilakshan, XIMB Journal of Management ; September, 2007

Before entering into a contract with any customer, a detailed estimation is carried out. This estimation is then sent to the customer for approval. Enclosed in table 2

a sample estimation method used at 3IS software where the requirements are considered at micro level and then classified as Low/Medium/High/Very High

Table 2 : Estimation Method Req#

Description

L/M/H

Hrs

Comment

001.008

Same Day Effective Dating Add Group Node

L

5

add another screen to same day effective dating

003.010

Virtual Cutoff Notification

H

30

Change to Cust Prof - new event type (4) profile XML (3) cut-off administrator (4)cut-off scheduler (3)cutoff executor (3)Manual profile export (1)cut-off monitor, (3)EOC Report (2)Trigger XSD (1)Profile XSD (1)

015.013

Send Notification to Edge on Days Final Batch

H

30

the interval to retry must be configurableProfile Option (3)Script to set option (2)Profile Export (3)Cut-off Scheduler (4)End of Day (3)Toronto EOD (3)Box Complete Stager (20)

018.058

Fixed Message To Mail Out Instructions Page

L

5

Change to mail out

018.059

Delphi Software Upgrade

VH

60

018.067

Batch Maintenance Module Header

L

5

batch maintenance utlity(5)menufile (1)

019.071

Eliminate Blank Field For Envelope

M

15

DDE/EDE (7)Key Verify (3)Batch Edit (7)TFC Batch Export (2)

018.020

Government Flip Checkbox

L

5

Template Script update

019.054

Forced Match Report

M

15

Force Match App (7)Force Match report (5)Menu file (1)

99.001

TMS Data base update documentation

L

5

99.002

Import/Export updates

L

5

Mohapatra, Reliable Iterative Testing ... 229

001.008 99.003

Scale

Same Day Effective Dating Add Group Node Eliminate system use of user fields

L

5

H

30

Mitek 3.1 Car upgrade

M

15

L=1-10 hrs

6*5

30

M=11-20 hrs

3*15

45

H=21-40 hrs

3*30

90

VH=41-80 hrs

1*60

60

Total 3IS

Each life cycle stage in RITE model has defined deliverables. These deliverables ensure that proper and effective documentation is carried out without making these activities as overhead. Quality System Documentation, an internal system that details all the procedures and processes, is used as

approx 17 apps @ 2 days each

225

reference while developing software using RITE model. QSD is internal to organization and is used as induction training material to new entrants at all levels. This ensures that employees at all levels are familiar with deliverables expected out of them. Table 3 lists key deliverables in RITE model.

Table 3: List of key deliverables in RITE methodology Life Stages in RITE

Required Deliverables

At contract/project initiation

Statement of Work/Contract

Project start-up, ongoing revisions to the project plan

Project Plan and Iteration Plan

Client sign off on RD

Requirements Definition

Following RD delivery

Detail Design Document

Logical Day Test Plan at project initiation, test scripts at Design

Test Plan and Scripts

Upon completion of each iteration

Test Results

Ongoing throughout the testing process

Issues List

Upon client delivery

Training Materials

Upon client delivery

Customer/User Documentation

Upon transition to support

Project Transition Documentation Lessons Learnt Documentation

230 Vilakshan, XIMB Journal of Management ; September, 2007

The figure 3 depicts the relative amount of time spent on each of the various process workflows during the project phases. For example, analysis and design takes place primarily at the end of the requirements phase, throughout the design phase, and decreases during the construction phase (please see figure 3). It is important that within the initial phase of the project, the project team reviews, assesses, and incorporates the deliverables and activities that are appropriate for that project into the project plan.

Figure 3 : Software Development Lifecycle Framework

Phase 4: In this phase, deployment of the products are carried out at the customer site. Once all the packets are designed and developed, they are integrated with each other. These packets include stand alone components from different products and the customized component to meet special requirement for the customer. On completion of each packet, it is tested with packets developed earlier. As a result, testing happens at

each stage of packet development which is one of the unique features of this methodology. Thus each packet goes through repetitive testing process which is quite different than other software development models (as discussed in Introduction section). After testing is completed, User Acceptance Test is carried out at the customer site. On successful completion of testing, the solution is then implemented at the customer location. 5.0 BENEFITS OF RITE METHODOLOGY

Using RITE, 3IS Software has achieved customer satisfaction as issues were reduced and all functional requirements were met. The end deliverables were robust as the packets were tested in every iteration of development. Even though at the outset it might seem that it would take more time to deliver the product compared to other software development models, still at the end, rework is reduced as the team was able to capture issues earlier through testing. This not only helps to foster a good relationship with the customer, but also ensures that we receive good reference from our customers. The RITE model thus ensures that all the issues are detected and fixed before each build so that the final delivery have less issues and are more robust and also ensures that all the functional requirements including change requests of the customer are incorporated into the system, tested comprehensively and finally released as a robust system.

Mohapatra, Reliable Iterative Testing ... 231

Being compliant to RITE model has also ensured that quality processes are compliant with SEI CMMI processes. Compliant to SEI CMMI model is an indicator that organization processes are matured and are performed consistently. When the organization decided to go for assessment for SEI CMMI, internal processes were assessed at level 3 indicating that processes are stable. An indicator called process compliance index (explanation beyond the scope of this paper) which is used to indicate the level of compliance to CMMI processes significantly improved (by 50%) over a period of 3 months after adopting RITE model while meeting business goals. Other benefits obtained from RITE model were reduction in issues related to software configuration management. Number of issues related configuration reduced by 30%. These two benefits are tabulated in Table 4. Table 4 also indicates process compliance benefits that were achieved over a period of time. The benefits indicate that apart from meeting business goal, we were also compliant to CMMi processes. In May ’06, 3IS Software was assessed at SEI CMMi level 3 at their Chennai location where RITE methodology is adopted for development (please see table 4). These results are available in company internal documents and available for verification.

Table 4: Benefits obtained through RITE Jan Mar ‘06

Apr – Jun ‘06

Process Compliance Index

2.3

3.38

Configuration Issues/ person hour

3.32

2.2

Thus, RITE model is different from known software models practised in other development organizations. RITE model is used for any size of the application development. The effort spent is optimized as there is no need to spend time on developing a prototype; while taking advantage of features of iterative model, this model (RITE) accommodates change requests. The difference is in saving time as change request can be accommodated at later stages in this model while meeting all functional and performance requirements of the customer. Thus, while effort overrun is minimized, solutions are delivered as per schedule. As a result the customer is able to use the delivered solution for his business processes while keeping the total cost of ownership (cost of buying solution, hardware cost and cost for maintenance of code) at the lowest level which result in customer satisfaction. Customer satisfaction ensures further business growth potential for the vendor organization as well as become a reference for prospects also. 6.0 FUTURE CONCERNS

3IS management has a concern that RITE methodology has not been used by other

232 Vilakshan, XIMB Journal of Management ; September, 2007

development organizations. The concept is new and can be tried out in other organisations that have off-shore onsite business model. It will also be interesting to see how this model is applicable for solutions and services. Taking feedback from all these practitioners, RITE can be fine tuned. REFERENCES Abrahamsson, P., Salo, O., Ronkainen, J., & Warsta, J. (2002). Agile Software Development Methods: Review and Analysis. VTT Publications 478. Abrahamsson, P., Warsta, J., Siponen, M.T., & Ronkainen, J. (2003). New Directions on Agile Methods: A Comparative Analysis. Proceedings of ICSE’03, 244-254. Barry Boehm, (1970), “Build it twice”, Proceedings ICSE9. Barry Boehm,1986, A Spiral Model of Software Development and Enhancement, ACM SIGSOFT Software Engineering Notes (SEN), August 1986 Barry W. Boehm, 1996, Anchoring the Software Process IEEE Software, July 1996, pp.73-82. Boehm, B, 1988,A Spiral Model Of Software Development And Enhancement IEEE Computer. Boehm, B., 1981, Software Engineering Economics Prentice-Hall. ISBN 0-13-8221227 (pages 41-2, 254). Boehm, B., 1985, A Spiral Model Of Software Development And Enhancement, 2nd.

International Software Process Workshop. Coto de Caza, Trabuco Canyon, USA 1985. Boehm, B.; R. Turner (2004). Balancing Agility and Discipline: A Guide for the Perplexed. Boston, MA: Addison-Wesley. ISBN 0-321-18612-5. Appendix A, pages 165-194 Bohem B.W., and Belz F.C., “Applying Process Programming to the Spiral Model,” Proceedings Fourth Software Process Workshop, IEEE, May 1988. Cohen, D., Lindvall, M., & Costa, P. (2004). An introduction to agile methods. In Advances in Computers (pp. 1-66). New York: Elsevier Science. James Martin, 1980, Rapid Application Development, Macmillan Coll Div, ISBN 002-376775-8 . Larman, Craig and Basili, Victor R. Iterative and Incremental Development:A Brief History IEEE Computer, June 2003 Larman, Craig; Victor R. Basili (June 2003). “Iterative and Incremental Development: A Brief History” (pdf). Computer 36 (No. 6): pp 47-56. DOI:10.1109/MC.2003.1204375. Livary, J., “ A Hierarchical Spiral Model for the Software Process,” Acm Software Engineering Notes, Jan 1987, pp. 35-37. Raccoon (1995) The Chaos Model and the Chaos Life Cycle, in ACM Software Engineering Notes, Volume 20, Number 1, Pages 55 to 66, January 1995, ACM Press. Royce, Winston (1970), “Managing the Development of Large Software Systems”, Proceedings of IEEE WESCON 26(August): 1-9.

Management case

Gram Utthan - From Micro Credit to Micro Enterprise* S.P. Das 1 & Alok Pattanayak 2 Abstract Since its inception in the year 1990-91, Gram Utthan, which started as an NGO and extended its micro finance support to SHGs and other members, went into setting up a packaging unit. Mr. Govind Dash, the Secretary of Gram Utthan was happy that the organization has made substantial progress. Though he was sure that the organization was moving on the right track and fulfilling the socio-economic need of the communities for which it was set up, he was keen to do more and looked forward to advice from competent professionals.

1.0 G R A M U T T H A N : T H E N E E D A N D INCEPTION

profit. This had also created an interest among rural women to form groups.

Self Help Groups (SHGs) are now-a-days involved, among other activities, in money lending activity, both internally and externally. This has become a business for them, providing a regular source of additional income to them. Possibly due to such reasons many of the SHGs have started doing the money lending business. They borrow money from bank at 1% per month and lend it to group members and others at a much higher rate. This rate goes up to even 10% per month in some cases creating opportunities for the NGOs to earn high

Gram Utthan is a non-profit, non-political and non-governmental organization. It was established in the year 1990-91 by the initiative of Mr. Govind Dash with a group of dedicated energetic professionals. It has its registered office at village Pimpuri, Rajkanika block of Kendrapada district, at about 150 kilometers away from the state capital in the northeastern direction. Initially, it started developmental intervention in Pimpuri village of Kendrapada district with various activities on rural technology, sanitation, community health, non-formal education

* 1 2

Received February 27, 2007 ; Revised September 14, 2007. The authors would like to thank an anonymous referee for his comments on an earlier draft. Associate Professor of Economics, Xavier Institute of Management, Bhubaneswar, email: [email protected] Project Officer, Center for Development of Small & Micro Enterprise (CDSME), Xavier Institute of Management, Bhubaneswar, email: [email protected]

234 Vilakshan, XIMB Journal of Management ; September, 2007

and formation of youth clubs, farmers clubs, SHGs, etc, but, in the year 1995 it took a strategic decision to adopt micro finance as its core programme. Today, after one and a half decade, it has become one of the major developmental agencies recognized by national as well as international development partners. At present it covers six different districts of Orissa namely, Kendrapada, Jajpur, Bhadrak, Dhenkanal, Cuttack and Khurda. It covers a customer base of more than sixty thousand in more than 25 blocks of these districts and in more than 1000 villages. It operates through 15 different branch offices, which accumulates a loan outstanding of around Rs.30 crore. Most of its customers are women who have come together to form a group of 10-15 members each. Besides these groups, it also gives loan to Joint Liability Group (JLG). JLG is a group of 4-5 members who come together to avail loan and become jointly liable for each other. With the increase in the customer base, Gram Utthan has become more concerned for its portfolio and the customers. Besides providing mere loans to them, it has started thinking for the economic upliftment of its customers. Then came into the picture the growth of Micro enterprises in a sustainable manner. With this objective it has started one packaging centre, which will act as a marketing support for various products produced by the SHG members. This project was lunched on January 20, 2006 with the name of Kalyani Packaging Centre (KPC).

The details of status of Gram Utthan and its Micro Finance activities are given in Table -1 Table 1: The Status of Gram Utthan & its Micro Finance activities as on 31st December 2006 Status Item No. of SHG formed No. of JLG No. of Members

Units 3503 1533 53262

No. of village covered

991

No. of panchayats covered

238

No of Blocks covered

25

District covered

6

No. of Branches

15

No. of staffs No. of Community Organizers (CO) External Fund leveraged (Rs. In Million)

157 96 305

No. of Cumulative loan disbursed

59032

No. of Active Borrowers

28513

Amount of Loan Disbursed (Rs in Million)

411.7

Amount of Loan Outstanding (Rs in Million)

226.96

Average Loan size per SHG members (in Rs)

6847

Average Loan size per JLG members (in Rs)

11403

Portfolio Outstanding per Co. (Rs. In Million)

1.88

No. of members per Co.

592

No. of Borrowers per Co.

359

Portfolio Outstanding per branch (Rs. In Million)

18.91

On time Repayment rate

98.5

Portfolio at Risk (PAR)

1.72

Das et.al, GRAM UTTHAN From Micro ... 235

The year 2006 was a turning point in the history of Gram Utthan. It took a new turn from its main activity of micro finance to micro Enterprise by starting one Packaging Unit at Pimpuri in the name of Kalyani Packaging Center (known as KPC). The details of the functioning of this unit are elaborated further in following paragraphs. 2.0 EVOLUTION OF KPC 2.1 Early Stage

In the early stage Gram Utthan collaborated with Hindustan Lever Limited (HLL), a leading FMCG marketing company in India, to sell its products. This collaboration created a base for KPC. HLL did a consumer survey for 100 different households in the operation area of Gram Utthan. Besides, HLL gave the technical inputs and training to all the staff of Gram Utthan involved in this activity. But this model clicked only for two months. There arose conflicts between HLL and Gram Utthan on which products are to be sold. HLL did not agree with Gram Utthan to sell products other than HLL products. This restricted Gram Utthan to achieve the desired objective. Then, it was the thought of the organization’s secretary to go for an alternate model for this. He chose SHG to be the best one as there were many SHGs involved in its micro finance activity. After several rounds of discussion among all the staffs and SHG members, the concept was operationalised on May 1, 2006. The initial investment in KPC was Rs. 4.65

lakh. At the time of writing this case, the figure has increased to R. 10 lakh. All the investment is made by Gram Utthan as the promoting organization. 2.2 KPC Mission & Objectives

The Mission of KPC has been succinctly put as “empowering the poorest of the poor in the society by creating financial self-sufficiency for them and preparing them to face uncertain future through SHGs under KPC network.” The objectives of KPC are similarly to achieve market penetration, employment to local rural women, higher profit margin, good quality products, reasonable price and effective marketing of SHG products. 2.3 KPC Managing Committee

There is a managing committee for the smooth operation of KPC. The committee acts according to the operational policy of KPC. The members of the committee include Manager KPC, Manager (Finance), Manager (Accounts), Administrative coordinator and Programme associate. The administrative coordinator heads the Managing Committee. The committee is the final authority to take any decision in respect of KPC. 3.0 OPERATIONS OF KPC 3.1 The Business of KPC

KPC bought the products, packed these and sold these through various channels. The products were dal, atta, sugar, salt, tea, dry pea, edible oil, chilli, incense

236 Vilakshan, XIMB Journal of Management ; September, 2007

sticks, cumin seed, mustard and phutan. The products were packed in sizes as shown in table – 2. Table – 2 : Products and Size of packs Products

Type of Pack

Turmeric powder

50 gm, 100 gm & 200 gm

Tata tea

100 gm & 200 gm

Dal

100 gm, 200 gm, 500 gm and 1 kg

Sugar

200 gm, 500 gm and 1 kg

Salt

500 gm and 1 kg

Jira

50 gm, 100 gm and 200 gm

Ata

500 gm and 1 kg

Mung dal

200 gm, 500 gm and 1 kg

Chilli

50 gm, 100 gm, 200 gm, 500 gm and 2 kg

Sorisa

50 gm, 100 gm, 200 gm and 500 gm

Phutana

50 gm, 100 gm and 200 gm

These were airtight polyethylene packets, carrying the brand name (Kalyani) name, name of the product, net weight of the item, price and date of packing of the item. 3.2 Role of Clusters

As per the present system, about 15-20 village level SHGs are required to form one cluster. The cluster operates at Block level and 10-15 clusters together form one federation at district level. This federation and its representatives manage the entire KPC operation. Adequate managerial and technical

support is provided by the promoting organization, Gram Utthan to make it a self-dependent business entity. Till that day, a full time manager is being appointed to look after the day-to-day affairs of this unit. 3.3. Present status of the processing unit

The processing unit is located at Kothasahi about 1 Km away from Rajkanika. At present there are 20 processing members representing 10 different groups from two clusters. They are employed on daily wage basis (@ Rs. 30 per day) with a minimum 25 working days in a month. The unit is run in a rented house, which is taken on lease for two years. There are three different sections for cleaning, weighing and packaging. Different processing members are allotted different works as per their skills. The whole process is being monitored by one supervisor selected from these processing members and he directly reports to KPC Manager. At present the customer base for KPC comprises of 5 wholesalers and 130 retailers. With regard to selection of members who work in KPC, two members are nominated from each group. The basic criteria for group selection were travel time from their villages to the center, need of the group members and their skill level. The table - 3 explains the above information about the present processing members working in KPC.

Das et.al, GRAM UTTHAN From Micro ... 237

Table – 3 : Village-wise grouping of members working in KPC and distance of the village from the packaging unit Village

Distance (in km)

Members

Tarassa

7

6

Bharigada

7

2

Kanjighai

10

1

Ayatana

3

1

Giria

3

7

Pimpudi

2

1

Sirisa

6

1

Achutpur

8

1

Total No. of Members

30

Initially, HLL gave the training to these KPC members on packaging, cleaning and weighing. Initially those SHGs, who were involved in some group enterprise activity were selected. Later, these SHGs were brought together to form clusters, which took a leading role in KPC marketing. 3.4 Business statistics

As stated earlier, KPC purchased its materials and did the packing. Materials of 30 quintals were procured once in a week for Rs.60,000. These were delivered by the suppliers at KPC by a pick up van. The whole stock after processing were sold in the market at Rs.65,000, giving a profit of Rs.5,000. About the work distribution in KPC the following system was followed. One member cleaned around 10-12 Kg of raw

materials daily, which was converted into 400-500 packets. The daily turnover of KPC is around Rs.8,000, out of which items worth of Rs.3,000 were sold on credit which were collected after a week and before the delivery of the next stock. This accumulated to around Rs.2-2.5 lakh turnover per month for KPC. But, to maintain the order-supply flow, stock of finished goods worth of Rs.40,000 is being stored always in the storeroom of KPC. The materials were bought from various sources as shown in Table – 4. During the production process, the loss percentage, which comes in terms of damaged / rejected items, comes to be around Rs.4,000. This was again sold in Table – 4 : Suppliers of various materials Raw material

Name of Suppliers

Harad dal/ matar/ sugar

Ishari general store/ mohd. Faruque/ Debi Bhandar – Cuttack

Ata

Madan Mohan supplier/ Bal Dev Jew flour mill – Kendrapada

Haldi

Roshan store – Cuttack Malgodown

Tea

Raja Babu – Cuttack

Chilli

A.K. Roy – Cuttack, own SHG production – Jarimul

Agarbati

Own SHG production – Bharigada

Polythene

Salt

Nilachala printing – Bhubaneswar, local market Prithvi Dairy – Jagatpur

Oil (Ruchi)

Utkal traders – Cuttack

238 Vilakshan, XIMB Journal of Management ; September, 2007

the market at one-third of the actual price, i.e. Rs.1,330, which is shown under other income for KPC. It also got some income from other sources by selling the empty bags in which raw materials were stored.

3.5 Machine / tools used

The Table – 5 briefs about various machines and Tools used in the processing unit, along with their specification details and price.

Table – 5 : Machines/Tools used in the Processing Unit Name of the machine

Specification

Weighing machine

• Sansui – 6V / 2 Q capacity (20 gm accuracy)

Seal machine

Price in Rs.

• 30 kg (2 piece)

8000

• 7 kg (1 piece)

7000

• 12" plain (3 piece)

1200

• 8" plain (2 piece)

850

• 10" spice Aluminum (1 piece) Sticker gun

1400 450

Printing machine Plastic tray

medium (3 line), 3 mm 40 piece

Processing accessory

• 6 piece tray

1 generator

2 kilowatt – Honda

3.6 Records maintained

The following records/ books are maintained at KPC to have updated information about its business. Yet, there is no record for keeping track of the orders received and delivered. 4.0 FINANCES 4.1 Cash Flow Analysis

The inflow of cash to KPC is done by its promoting organization Gram Utthan through its Micro Finance

3000 450/ piece 130/ tray

• Palettes (15 piece)

Daily activity registerSales registerCredit registerLoan ledger (HO)

11000

200/ piece 30000

activity. KPC borrows money from Gram Utthan in the beginning of the month by giving its Business plan proposal. At the end of the month, KPC returns the money earned out of its business transaction after deducting all the expenses and payments. The major expenses for KPC is towards the transportation cost, which comes around Rs.50 per quintal. The Labor cost comes to about Rs.5 per quintal. The next major cost is towards the cost

Stock register – raw material / finished goodsCashbookVehicle logbook

Generator logbookSalary registerPass book – transaction with HO

Das et.al, GRAM UTTHAN From Micro ... 239

of grinding the raw material to produce powders. As of now, KPC is not having its own grinding unit. Hence, they are doing it in an outside unit by giving a price of Rs.4 per kg. The high administrative cost is still a constraint for KPC to retain maximum profit margin for its members. The various expenses incurred by KPC, along with revenue in a single processing day is elaborated in the Table - 6. Basically, all the expenses have been divided into following four categories. Administrative

Loss / damage

Wage payment

Marketing

5.0 PERFORMANCE ASSESSMENT OF KPC 5.1 Salient Achievements

To assess the performance of the processing unit of KPC, the performance reports of KPC were collected from the organization, and summarized in table 7 below. 5.2 Value Addition

In the process of making good quality products and adding value to it to attract more customers, the following major steps were followed by the processing unit, KPC. •

The processing unit used various modern tools and machines for packaging, weighing and filtering the products. This ensured the packets to be stored for a longer period without being damaged.

•

Utmost care was taken during the process of filtering of waste and damaged material before going for the packaging of final product. This ensured the quality of the product.

•

The waste material thus collected out of this process was again reprocessed to make other byproducts like making fodder for cattle, which gave additional revenue for the unit.

•

All the processing staff were trained on packaging and filtering, thus minimizing the waste materials and maximizing the cost of production.

Table – 6 : Revenue & Major heads of expenditure for KPC Heads of expenditure

Amount (in Rs.) Fixed

One Day’s Revenue

8000

Wage

500

Machine

5

Electricity

6

Packaging House rent

300 104

Printing Salary Asset maintenance

Variable

5 700 2

Wastage

100

Fuel

350

Marketing cost Incidentals

35 100

240 Vilakshan, XIMB Journal of Management ; September, 2007

5.3 Other Quantitative Indicators

The following parameters have been used in quantifying the success of the KPC. a)

Incremental income accrued to the members

b) Benefit to consumer through lower price c)

Quality of product as reflected by increase in consumer base

d) Better recoverythrough ensuring higher income to women members The details on these quantitative indicators are explained below: Incremental income received by KPC members A comparative study on income level of members associated with KPC was done to find out their monthly income before they were associated with KPC and after that. The data is given in the table - 8. The table contains the monthly individual income figure of KPC members from the 8 villages, as contributed to their overall family income. Before KPC, these women members were involved in some or the other activities to earn their own income. This income source was also not certain and depended on the availability of work opportunities. But, after joining KPC the members got secured earning towards their labour charge every month from KPC. This additional income

Table – 8 : Average monthly contribution of members to family income Name of the Village Average monthly contribution of the members to family Before KPC

After KPC

Tarassa

400

700

Bharigada

500

750

Kanjighai

400

600

Ayatana

600

750

Giria

300

600

Pimpudi

600

750

Sirisa

300

700

Achitpur

300

600

Average Income

425

681.25

significantly contributed towards the increment in family income with more than 60 % increment in their average income. Price comparison chart A comparative analysis of various products sold by KPC in the market in comparison to those products sold by other major competitors in the same market was attempted. Here, the data from one competitor, who comes in the second position in terms of price and quality in comparison to that of the KPC products, have been considered which has been reflected in the following table – 9. The above table gives the data on 11 different products largely sold in the market by KPC. Then, the price of these products was compared with that of the

Das et.al, GRAM UTTHAN From Micro ... 241

Table – 9 : Comparative Price List List of Items

Market price

KPC price

Turmeric powder

62

58

Tata tea Dal

132 36

120 33

Sugar

25

19.75

Salt

9

4.80

Jira

110

96

Ata

1520

1510

Mung dal

50

44.50

Chilli

90

85

Sorisa Phutana

30 45

27 38

second most competitors in the market for that particular product. In all the cases it was found that KPC price was cheaper than that of its competitor. Marketing strategy for increasing Customer Base The marketing of KPC products is mainly done through their Hubs. Hub is a strategically located shop to which KPC supplies most of its stock. It is basically a wholesale shop situated in and around a main market of an area. At present KPC

operates with its 5 Hubs located in 5 different market places. The selection of Hub is based on the following criteria. KPC is being provided with one jeep by the promoting organization, Gram Utthan, for the marketing of their products. Daily a stock of rupees 8000 is being marketed with this jeep. But, due to heavy fuel consumption and expenses towards driver salary, it is not becoming economically viable for KPC. Besides this, KPC hires one auto rickshaw @ rupees 300 per day, which covers 30 kms and two markets, doing a business of around rupees 30000 a day. The table – 10 tells about the presence of these Hubs with distance from KPC, number of agents working for that Hub and their respective market shares. Stock of Rs.20-30 thousand

Larger customer base

Market location

Good Regular retail sales

Storage facility

Transaction capacity

The table summarizes the customer base of KPC in 5 different locations, where the marketing Hubs are located. It was

Table – 10: Hubs and their distance from KPC Sl. No

Name of the Hub

Distance from KPC (in KM)

Number of Agents

Market share (%)

1

Patamundai

33

6

20

2

Madanpur

40

4

22.5

3

Chandbali

8

8

20

4

Matto

28

6

25

5

Adhajodi

38

5

12.5

242 Vilakshan, XIMB Journal of Management ; September, 2007

clearly indicative from the above table that, irrespective of the distance from the main processing unit, the market share of KPC products increased from 0 to 20 % on an average within a span of one year. In order to increase the customer base, KPC used 9 different marketing channels. Out of this, more than 50% of business was done through retail sales. The second highest business came from all the hubs. These two together gave around 80% of business. The rest 20% were gathered from 7 other channels; out of which again order sales and direct marketing contributed 15%. The table – 11 explains the details of it. It was tried to analyse various marketing channels used by KPC to market their products. All together these 9 marketing channels explained in the above table contribute towards marketing of KPC products in the market. These diversified

Table – 11 : Marketing Channels and percentage of Shares Channel

Share percentage

Hub

25

Retail sale Order sale

55 10

Direct marketing

5

Seasonal

2

Festive / fair sales

1

Counter sales

1

Mobile selling unit – Van

0.5

Other sales

0.5

marketing channels ensure the marketing of the products of the members. Recovery status The status of monthly recovery in 8 major villages was collected, where the members of the Micro Finance activity are also the members of KPC, from where these members received incremental income on a regular basis, because of the entrepreneurial activity and among

Table – 12 : Recovery Status of KPC Village

Total no. of members taken loan before KPC

Total no. of members taken loan after KPC

Recovery % before KPC

Recovery % after KPC

Tarassa

130

157

96.6

97.3

Bharigada

116

135

94.6

97.6

Kanjighai

15

28

99.2

100

Ayatana

56

79

93.7

97.5

Giria

34

68

92.8

93.6

Pimpudi

31

46

98.6

100

Sirisa

13

31

94.5

100

Achitpur

56

83

93.4

97.4

Das et.al, GRAM UTTHAN From Micro ... 243

whom the profit of the business is shared. The better recovery rate also justifies their increment in monthly income. The table – 12 below gives information on the overall recovery status of the villages before and after the KPC came into effective, taking into account all the live accounts in those villages. An attempt was made to find out the effect of KPC on the recovery rate for the loans taken by the KPC members from Gram Utthan, the original MFI. Interestingly it was found that for all the KPC members from these 8 villages improved their recovery status with the organization. In other wards, with the additional income they received from KPC, the members were able to repay their loan more on time. The above table highlights two major things. The second and third column explains about the customer base in the village. The last two columns explains overall recovery rate of all the loanee members from these villages. In both the cases, the figure is in increasing mode. 5.4 Qualitative Indicators

Besides the above quantitative indicators a few qualitative aspects of success have also been used in the present study. These are explained below. To assess the product quality and its impact on customer retention strategy, the authors visited two different Hubs of KPC and interacted with the Hub owner. The table – 13 & table - 14

highlights the interaction and the feedback received from the Hub owner. Table 13: Visit to the oldest Hub at Chandbali market Owner – Ramakant Parida Activity – grocery shop Experience in business – 18 years Before KPC: His daily business was less than Rs. 1000/- with a profit of Rs.100/After KPC: His daily business is more than Rs. 2500/- with a profit of Rs. 300/Benefits • Increase in Profit margin • Expansion of Customer base • Available of Quality products • Free from packaging problem • Less hassles from weight and measures department • Lease rent from the House

Table 14: Visit to the new Hub at Porolo Nahulia Chowk, Rajkanika Owner – Samar Behura Activity – variety store Experience – 3 years Before KPC: He was an employee getting his salary irregularly and was staying away of home After KPC: His daily business is more than Rs. 1000/- with a profit of Rs. 250/Benefits • Regular Cash flow • Giving time to his family • Gets Quality products for his own consumption • Less hassles from weight and measures department • Income from the contract of Gram Utthan Mess

244 Vilakshan, XIMB Journal of Management ; September, 2007

6.0 ISSUES & CONCERNS

•

Registration under VAT

While KPC was doing well in the perception of management, Mr.Govind Dash felt that there were several issues and problems to be sorted out. Some of these are presented below:

•

Obtaining Food license

•

Legal entity to conduct the business (under SSI or DIC)

A. Motivation for KPC members Due to some important issues like traveling long distance from villages and insufficient time for family works, most of the members of clusters were not willing to be KPC members. But, seeing the more business opportunity and demand in the market, KPC is trying a number of methods, as sorted below, to attract more members in its processing unit.. •

Insurance coverage for the member and her family, which includes death claim, partial disability claim and medical claim. For this KPC is tied up with Royal Sundaram.

•

Staying arrangement for members who come from long distances.

•

Exposure visits to other units and areas

•

Training on development

Various

Unless these were done, KPC could face legal hurdles. C. The road ahead KPC was still at its infant stage and there was a long way to go for its sustenance. It was planning to increase its customer base and capture more markets in terms of business. But, they urgently needed few things to upgrade their business volume and hence the profit. •

Set up of their own grinding unit which will minimize their grinding cost

•

Power connection to the processing unit that will minimize the fuel consumption expenses by the generator.

•

Replacement of the Jeep with a pick up van to supply finished goods, which will minimize the fuel consumption substantially.

•

Training on skill upgradation to sales executives and processing members

•

Bringing the cluster federation into existence to take charge of KPC

skill

The effectiveness of these methods is yet to be ascertained. B. Limitations for KPC KPC is still to be a registered entity. Also the legal status of the promoting organization does not allow it to run this business. Hence the following three things are equally important for KPC to continue with its business.

But all these meant that Gram Uthan will go more and more into direct manufacturing/process, instead of engaging itself in the original task of encouraging members to be entrepreneurs.

Book Review

Nicholas C Burkholder, (2006) Outsourcing: The Definitive View, Applications and Implications; Hoboken, NJ; John Wiley & Sons, pp.274* Reviewer : Shiva Kumar Srinivasan1 Theoretical accounts of outsourcing generally begin with the implicit assumption that there is a fundamental difference between the ‘core’ and ‘peripheral’ activities of a firm. Firms are therefore advised to concentrate on the former and outsource the latter. The case study on outsourcing with which this book begins however is not of the private sector, but the U.S. federal government. Traditionally, a number of blue collar jobs have always been outsourced by the federal government albeit without invoking the term ‘outsourcing.’ Federal agencies continue to outsource work quietly and in small batches in order to take advantage of government-wide acquisition contracts (GWACs). According to a survey carried out by the General Services Administration (1998), the reasons cited for outsourcing by both federal and private sector managers are more or less the same. In other words, outsourcing has always been there in some form or the other in both the public and private sectors and is very much in keeping with the ethos of the free

* 1.

enterprise system in the United States. As President Eisenhower put it categorically: ‘the federal government will not start or carry out any commercial activity to provide a service or a product for its own use if such product or service can be procured from private enterprise through ordinary business channels (p.8).’ The conceptual origins of outsourcing however can be traced to the work of the Scottish economist, Adam Smith. Outsourcing, argues Burkholder, is just pushing the division of labour to its logical conclusion in order to harness the comparative advantages enjoyed by globally distributed vendors. The process of outsourcing however is clouded by numerous controversies and misconceptions because we have forgotten this simple fact. Outsourcing of peripheral and sometimes even core processes makes it possible to not only get a handle on costs, but enables the production of goods and services at predetermined prices provided a firm

Received July 16, 2007 Associate Professor, XLRI, Jamshedpur, email: [email protected]

246 Vilakshan, XIMB Journal of Management ; September, 2007

understands the modalities involved in deploying technology effectively. Burkholder sets out the basic modalities of outsourcing in this book before making the argument that ‘outsourcing is really sourcing.’ But, interestingly, Burkholder does not advocate outsourcing under all circumstances since it ‘doesn’t always work (p.30).’ The success, if any, of an outsourcing venture depends on whether a firm is clear about its mission, objectives, and strategy. Furthermore, the firm should remember to approach all ‘resourcing decisions holistically (p. 38).’ The quality of the relationship and the expertise demanded from the venture can make or mar an outsourcing contract and must therefore be approached with due caution. The firm must also understand which of the top ten drivers of outsourcing discussed here are relevant to the business and/or the circumstances in which it finds itself. In other words the choice between vertical integration and outsourcing is by no means easy or pregiven. A good test case for outsourcing, argues Burkholder, is to use a hospital ‘as the basic unit of analysis’ since health care is characterized by a high degree of vertical integration for a complex set of reasons (p.61). The most important of these is that hospitals are judged by ‘patient outcomes’ rather than efficiency per se (p.74). So unlike the hypothetical firm that is preoccupied with the possibility of cost savings, the hospital is an organization that has an additional set

of burdens which arise from ‘industryspecific considerations’ including the fact that it is a ‘quasiresidential’ unit requiring support systems (like catering and laundry) on a daily basis. The hospital must also be able to cope with changes in medical technology, diagnostic systems, pharmaceutical breakthroughs, regulatory structures, insurance and payment modalities, ethical and ontological questions on what constitutes life, illness, recovery, and so on (p.61). Burkholder’s wager is therefore theoretically very interesting: if a hospital can stand in effectively for what economists identify as a ‘firm,’ then it will either substantiate the general argument in favour of outsourcing most non-core processes (and at least a few core clinical processes) or serve as a powerful counterexample. In either case, the complexity of a hospital’s mission makes it necessary to ask whether it is possible to define the circumstances in which doctors can focus on the core problem of human illness and the implicit model of health that this presupposes and outsource everything else. What would such a hospital be like? What would be the implications of such a structure on patient outcomes? Would they be favourable or unfavourable? In other words, if it turns out that outsourcing is not a good idea in hospitals, this will not necessarily have any major implications on the strategic dimensions of outsourcing in a theory of the firm. But, should it turn out that

Burkholder, The Definitive View ... 247

outsourcing has a positive impact on patient outcomes after all then the possibility of outsourcing can be defined as structurally inherent to a theory of the firm. As a reality check, Burkholder examines both a core clinical process like radiology and a non-clinical process like catering in order to generate learnings on how outsourcing can be linked to a theory of the firm. His conclusion is that vertical integration is not necessarily the ‘optimal’ solution, but appears to be so because it represents the default assumptions about how hospitals handle the ‘make-or-buy’ decision in order to increase positive ‘patient outcomes.’ If hospital administrators want an optimal solution, they will have to be willing to suspend these default assumptions about vertical integration and attempt instead ‘a careful evaluation of the cost and capability dynamics of each functional area…in order to facilitate effective decision making about the vertical integration versus outsourcing decisions undertaken by hospitals today (p. 83).’ There are of course no guarantees that a decision to outsource will be successful and, interestingly enough, firms fail because they focus on the contract itself rather than on managing relationships with vendor(s). According to the findings of The Concours Group, a research firm based in Houston, the principal mistakes that firms make include the following: uncertainty on matters pertaining to decision rights, lack of trust between the firm and the vendor, lack of clarity on

expectations pertaining to outsourcing, and the inability to anticipate what the other party will do. Concours therefore decided to translate a set of best practices into the Sourcing Management Model to help a firm manage life after offshoring. The model is of use to both companies that have started to outsource and those which want to try it for the first time. It can be applied to not only outsourcing, ‘but to many kinds of labor sourcing.’ It seeks to ‘ensure that the strategic intents and outcomes of both parties in the outsourcing relationships are achieved’ and ‘that the results expected are the results realized (pp. 89-90).’ If, in addition to having such a model, a firm can develop the competencies needed to manage relationships with vendors then it ‘can leverage the power of specialization, globalization, and virtualization’ to derive competitive advantage (p. 90). The different components of the model are described in detail - they include ‘strategy, governance, supply management, program management, operations management, and demand management’ (p.90). The model as a whole seeks to ‘integrate’ these components, but will work effectively only if it is implemented in totality rather than in parts. As a part of the outsourcing strategy, the firm must have ‘a clear exit strategy,’ participate in ‘detailed scenario planning,’ and have ‘a clear set of core values (92-93).’ Outsourcing of governance however continues to be a problem; it is, quite

248 Vilakshan, XIMB Journal of Management ; September, 2007

simply, ‘the Achilles’ heel of outsourcing activity (p.93).’ This is because the terms ‘governance’ and ‘management’ are routinely conflated. Governance, according to Burkholder, ‘is the framework of decision rights that encourages desired behaviors in both the outsourcer and the client company’ whereas management ‘deals with making decisions and executing a set of processes or activities’ (p.94). When outsourcing fails, more often than not, it is governance modalities that are at fault. It is therefore important to work out these modalities and have a formal ‘decision rights matrix’ in place (p.99). In other words, ‘sourcing is a relationship, not a piece of paper or a commodity to be purchased.’ It is therefore important to treat the vendor as a partner who is the subject of a relationship rather than an object to be managed. Only then can the vendor ‘deliver results that exceed the contract expectations and add considerably to the intellectual capital available’ to the outsourcing firm (p.129). The book concludes with a collection of brief articles by experts on the economic and strategic dimensions of outsourcing along with specific instances. There is also

an interesting ‘glossary of outsourcing terms’ and a list of ‘outsourcing companies and services.’ Burkholder’s advice to firms is that outsourcing is here to stay, but the inevitability of it as a socio-economic trend does not guarantee success for firms that try to outsource. Those who are serious about coming to terms with the changes that outsourcing represents should focus more on objectives and less on strategy, develop better performance metrics, adopt a holistic model for all forms of sourcing, get HR to accept responsibility when human capital is outsourced, and, finally, make sure that resourcing decisions are made on a platform of performance (p.247). Outsourcing, as Scott Gerschwer, one of the experts featured in this volume points out, is ‘merely smart business’ and it is only a matter of time before this honourable tradition becomes routine business. In Gerschwer’s formulation, it was none less than George Washington himself who set the precedent for outsourcing in America when he delegated the training of his troops to the French general, the Marquis de Lafayette, during the revolutionary war (p.149).

Book Review

Mosad Zineldin, (2006) trm: Total Relationship Management, Overseas Press India Private Limited, New Delhi, pp 296, Price Rs 325/-, soft * Reviewer : Jaydeep Mukherjee1

Marketers have to find buyers for their offer (product or service). There are fundamentally two broad options, either to acquire new customers or retain the existing ones. Customer relationship management was there in the preindustrial revolution period, when the marketer was the producer of the goods and services. The marketer knew and understood the individual consumer’s needs and was able to provide customized solutions (by a combination of product and service) to the specific requirements of the customer. Business thrived primarily on one to one relationship between the buyer and the seller. There was an intuitive understanding that the interaction with the customer would continue even after the transaction was completed, not only from the marketer’s perspective but also possibly the buyer. Since the production capacity was limited, the distribution systems were not developed, customer base was local; customer retention was the key to the survival of business. The basis of the business was the understanding of mutual dependence,

need fulfilment and long term orientation or in short - relationship. Industrial revolution and the advent of mass production separated the producer from the marketer. It was more cost effective to produce large quantities of standardized products, making those products affordable to larger consumer base. It was important to get customers for the standardized products rolling out of the factories. Thus, the business focus shifted from customer retention to new customer acquisition. It was also very difficult to practically engage in meaningful one to one relationship with the large number of existing customers. However, there was more focus on improvements in marketing infrastructure like distribution networks, specialized techniques namely advertising, sales promotion etc. The mass produced, product centric approach focused on increasing the consumer base remained the predominant paradigm of marketing practice till late twentieth century. With the development of information and communication technology (which

* Received June 25, 2007 1. Associate Professor, Management Development Institute, Gurgaon. Email: [email protected]

250 Vilakshan, XIMB Journal of Management ; September, 2007

gives tremendous reach and information processing capability at an affordable cost), it is once again possible to have customized one to one interaction with a large number of customers. Development in manufacturing technology and distribution infrastructure is increasingly making it possible to provide customized product and service to smaller groups of customers. With increasing competition in the market, the Customer Relationship Management (CRM) paradigm has once again gathered momentum as it is easier (or cost effective) to retain an existing customer than to acquire a new one. Thus, the interaction with the customer is increasingly viewed not as a transaction but as a long term relationship. The lifetime economic value of the customer is estimated and based on that, marketing initiatives are formulated to retain the customer. Total Relationship Management (TRM), as advocated by the author is an attempt towards extension of the relationship management paradigm across all the business processes in the organization and the customer interfaces. The starting point of the TRM paradigm is the criteria for enduring successful relationship management. This includes the willingness and motivation of the customer and the marketer, their interdependence, cultural fit, organizational arrangements and institutionalization, which create and deliver value

greater than what the competitors can. The author has tried to develop the notion of “TRM” by incorporating the elements of relationship paradigm in the existing well established management concepts like marketing mix, total quality management and new product development. The concept of “Total Relationship Mix” charts out the seven basic management issues faced by the marketer or business organization, which are integrated by the information technology. It includes managing the communication, expectation, resources, responsiveness, location, motivation and innovation process of the organization. The author has tried to fit in the idea of “total” in the product development process by two means. The first is by trying to incorporate the notion of “Prodserv” which is essentially based on the premise that notion of product is always accompanied by some service component and hence should be appropriately called “Prodserv”. The second is to add the strategic aspects of product development in a typical linear new product development model. The establishing of relationship is considered to be about giving promises and fulfilling them while the developing a relationship is considered to be offering new set of promises – where fulfilment of earlier promises is a prerequisite. This is an interesting way to set operating

Mukherjee, Total Relationship Management ... 251

guidelines for the relationship management function and the key to success is to identify the right set of customers who would provide a steady stream of cash flow and profitable business.

compliant by employing suitable resources. The resource allocation decision is made on the basis of another two by two matrix, comprising importance of complaint and effectiveness of resolution mechanism.

Satisfaction is an emotional response to the difference between what customers expect and what they receive. Since satisfied customers are desirable for meeting the objective for the loyalty and retention, understanding customer expectation is vital. The use of Quality Function Deployment (QFD) is recommended. The author highlights that, not all customers are appropriate for long term relationships. Close relationships accrue benefits, but require cooperation and sharing burdens also, thus there is need to understand the realities of long term relationships before selecting the customers. It should be built on four generic factors; interdependence, adaptation, flexibility, trust and commitment. The possible problems to be avoided are the failure to identify coordination and monitoring cost, loss of freedom and flexibility, overdependence etc.

Today’s customers are not only demanding, they expect to be treated as individuals with their own needs, wishes and concerns. TRM is conceptualized as a combination of strategy (defensive) as well a philosophy. The application of the concept is expected to reduce the risk of loss due to inadequate market information, customer knowledge and misreading of market. It is to be managed by aligning the internal organizational activities, processes and decisions to the external political, legal, economic, technological, ecological and physical realities of the customer. Building relationship is viewed as social and economic process, requiring interaction, communication, mutual trust, respect, benefits, interdependence, commitment, innovation, cooperation, competition and common values.

Though total satisfaction is the objective, it is difficult to achieve and requires a complaint management process in place. Complaint management process suggested by the author is conceptualized as a two-step process. First, the nature of complaint is classified using a two by two matrix of frequency of complaint and impact of complaint; then solve the

Overall, the book tries to provide a comprehensive account of the possible application of the different perspectives of customer relationship management under different business processes. It tries to integrate the process of relationship management with customer (both for internal to the organization and external ones in the market) into the various functional domains. It uses the existing literature

252 Vilakshan, XIMB Journal of Management ; September, 2007

very well and can be considered a good attempt at consolidating the existing body of knowledge but doesn’t really advance the notion of customer relationship management significantly. Though the book is segregated into eleven chapters, those are not really interwoven into a whole, making the reading a bit difficult and in some cases repetitive also. For a general reader interested in marketing, there are considerable references given in the book for the

academics. However, these references could have been possibly supported with relevant examples from the marketing practices to demonstrate the lacunae with the existing system of relationship management as well as showcase the efficacy of the notion of TRM. For a scholarly reader, the book is not able to bring in fresh new concepts or insights. Many of the points advocated are essentially cosmetic changes in the existing understanding of CRM, mostly additions from some related topics in marketing.

GUIDELINES FOR CONTRIBUTORS ILAKSHAN is a bi-annual journal. The papers published in the journal go through blind peerreview. It publishes original research-based articles, perspectives, cases on topics of current concern and book reviews in all areas of Management. A general guideline for contributors is given below. 1. Manuscripts should be of approximately 10,000 words (20 to 40 A-4 size pages, typed in double space). Manuscripts should be submitted along with a soft copy or by e-mail with the cover page bearing only the title of the paper and author’s names, designations, official address, e-mail and phone/fax numbers. 2. Article should accompany an abstract of about 150 words. 3. Tables and Figures : Their location in the text should be indicated as follows : Table-1 about here 4. Endnotes : All notes should be indicated by serial numbers in the text and literature cited should be detailed under reference in alphabetical order of the surnames followed by year of publications immediately after the author’s name. 5. References :The list must mention those sources actually cited in the text or notes and to the extent other sources possible which are essential for understanding the topic. Author’s name should be the same as in the original source. a) In the text, the references should appear as follows : Dayal (2002) has shown.... or Recent studies (Ramnarayan 2002; Murthy, 2001) indicate... b) Journal references should be listed as follows: Khandwalla, P. N., (2001). “Creative Restructuring,” Vikalpa, 26(4), 3-18. c) Books should be referred to as follows : Sugandhi, R. K., (2002). Business to Business Marketing, New Delhi : New Age International. d) References from Internet should be referred to as follows : Hesterbrink, C., E-Business and ERP : Bringing two paradigms together, October 1999; Pricewaterhouse Coopers., www.pwc.com.

For more than one publication by the same author, list them in chronological order, with the older item first. For more than one publication in one year by the same author, use small (lower case) letters to distinguish them (e.g., 1980a, 1980b). 6. Follow British spellings throughout (Programme, not program) 7. Use of numerals: One to twelve in words, thirteen and above in figures, unless the reference is to percentages (5 percent), distance (5 km), or age (10 years old). Use 1990s and 19th century. 8. No stops after abbreviations (UK, MBA). Use stops after initials (K. S. Singh). 9. Use double quotes throughout. The use of single quotes to be restricted for use within doubles quotes, e.g., “In the words of Szell, the ‘economic question’ is today....” Quotations in excess of 45 words should be separated from the text with a line space above and below and indented on the left. Quotes should be cited accurately from the original source, should not be edited, and should give the page numbers of the original publication. 10.Capitalisation should be kept to the minimum and should be consistent. 11.An author will receive free of cost 10 offprints and a copy of the issue in which his/her paper appears and in addition, one copy each of the three subsequent issues. 12.Manuscripts which do not conform to these guidelines will not be considered for publication. 13.Manuscripts not considered for publication will not be sent back. Those submitting papers should also certify that the paper has not been published or submitted for publication elsewhere and that it represents author’(s) own work. 14.Manuscripts and all correspondence should be addressed to : Editor, Vilakshan, Xavier Institute of Management, Xavier Square, Bhubaneswar 751013, India, Ph.: 91 - 674 - 3983893, 3012345 (Pilot No.) Fax : 91- 674-2300995, E-mail :[email protected]

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